Business Context and Reporting Period
Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom Indonesia)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2004 (Unaudited)
Filing Date: November 5, 2004
Business Overview: Telkom Indonesia is the primary provider of domestic telecommunications services in Indonesia, including fixed-line, cellular, data, and internet services. The company operates through Joint Operation Schemes (KSO) and Revenue-Sharing Arrangements (RSA) with various investors.
Key Financial Metrics
Figures in millions of Indonesian Rupiah (Rp) unless otherwise noted.
| Metric | 2004 (9 Months) | 2003 (9 Months) |
|---|---|---|
| Total Operating Revenues | 25,019,456 | 19,616,679 |
| Operating Income | 10,424,519 | 8,828,037 |
| Net Income | 5,024,346 | 4,411,572 |
| Net Cash Provided by Operating Activities | 10,302,525 | 9,143,740 |
| Net Cash Used in Investing Activities | (4,303,363) | (5,917,409) |
| Net Cash Used in Financing Activities | (5,092,740) | (4,101,361) |
| Cash and Cash Equivalents (End of Period) | 6,112,466 | 4,860,401 |
| Total Assets | 56,115,414 | 48,592,692 |
| Total Liabilities | 32,353,178 | 29,638,946 |
| Stockholders' Equity | 19,299,912 | 15,661,852 |
Revenue Breakdown (2004 vs 2003)
- Fixed Lines: Rp 7,654,264 million (2004) vs Rp 6,476,583 million (2003)
- Cellular: Rp 7,689,968 million (2004) vs Rp 6,121,293 million (2003)
- Interconnection: Rp 4,366,230 million (2004) vs Rp 3,120,941 million (2003)
- Data and Internet: Rp 3,359,120 million (2004) vs Rp 2,139,814 million (2003)
- Revenue-Sharing Arrangements: Rp 788,178 million (2004) vs Rp 187,163 million (2003)
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by approximately 27.5% year-over-year, driven by growth in fixed lines, cellular, interconnection, and data services.
- Profitability: Net income increased by 13.9% to Rp 5.02 trillion. Operating income rose by 18.1%.
- Foreign Exchange Impact: The company recorded a net foreign exchange loss of Rp 577,744 million in 2004, compared to a gain of Rp 165,375 million in 2003, reflecting currency volatility.
- Asset Acquisition: Significant increase in "Property, plant and equipment under revenue-sharing arrangements" from Rp 315,427 million to Rp 2,788,985 million, largely due to the reclassification of KSO IV to a revenue-sharing arrangement.
- Dividends: Dividends payable increased significantly to Rp 1,153,412 million in 2004 compared to Rp 69,418 million in 2003, reflecting the declaration of 2003 dividends.
- Stock Split: On September 28, 2004, the company executed a stock split, doubling the number of shares and adjusting the ADS ratio from 20 to 40 shares per ADS.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook
- Tariff Adjustments: Effective April 1, 2004, the company implemented new fixed-line tariffs approved by the Minister of Communications, including an average 21% increase in monthly subscription charges and a 28% increase in local usage charges.
- Infrastructure Expansion: Continued investment in CDMA networks and fiber optic backbones (e.g., Sumatra, Kalimantan, Sulawesi) through partnerships with Samsung, Ericsson, and Siemens.
- Joint Operation Schemes (KSO): The company continues to acquire control of KSO units (e.g., KSO I, III, VI) and convert others (KSO IV) to revenue-sharing arrangements to consolidate operations.
Risks and Contingencies
- SEC Compliance: The company faces potential SEC enforcement actions and legal liability due to the late filing of its 2002 Annual Report on Form 20-F and concerns regarding the adequacy of previous disclosures. The company is currently working with a new SEC-qualified auditor.
- Legal Litigation:
- Former Auditor Lawsuit: KAP Eddy Pianto filed a lawsuit seeking approximately Rp 7.84 trillion in damages against the company and others regarding the re-audit of 2002 financial statements. The outcome is uncertain.
- Competition Law: The Business Competition Supervisory Commission (KPPU) ruled that the company breached anti-monopoly laws regarding closed agreements and market control. The company has filed an objection, and the final verdict is pending.
- General Litigation: The company has accrued Rp 44,292 million for various legal actions as of September 30, 2004.
- Foreign Exchange Exposure: Significant exposure to foreign currency fluctuations due to substantial foreign-denominated debt and equipment procurement. The company uses forward contracts to hedge some risks.
- Regulatory Changes: Tariffs and interconnection fees are subject to government regulation and potential changes in the telecommunications sector restructuring.
Important Facts for Investor Verification
- Restatement of Financials: Verify the impact of the restatement of 2003 financials (and prior years) related to long service awards, deferred taxes, and acquisition accounting, which were adjusted to comply with Indonesian GAAP and SEC requirements.
- SEC Enforcement Risk: Assess the potential financial and reputational impact of the ongoing SEC investigation regarding the 2002 filing delay and disclosure issues.
- Debt Structure: Review the composition of long-term debt, particularly the "Two-step loans" from the government and foreign banks, and the associated interest rate risks and covenants.
- Dividend Policy: Confirm the sustainability of dividend payouts given the high level of dividends payable and capital expenditure commitments.
- Accounting Differences: Note the significant differences between Indonesian GAAP and U.S. GAAP (e.g., revenue recognition, pension accounting, goodwill amortization) which result in different net income and equity figures under U.S. GAAP.
- Capital Commitments: Verify the status of major capital expenditure commitments, including the TELKOM-2 satellite procurement and launch, and CDMA network expansions.