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: Six months ended June 30, 2016 (Unaudited)
Filing Date: July 28, 2016
Telkom Indonesia is a state-owned public limited liability company headquartered in Bandung, Indonesia. The Group operates through four main segments: Corporate, Home, Personal, and Others. The ultimate parent is the Government of the Republic of Indonesia.
Key Financial Metrics (Six Months Ended June 30, 2016)
| Metric | 2016 (Rp Billion) | 2015 (Rp Billion) |
|---|---|---|
| Revenues | 56,454 | 48,840 |
| Operating Profit | 19,887 | 15,123 |
| Profit Before Tax | 19,498 | 14,720 |
| Net Profit (Consolidated) | 14,663 | 10,979 |
| Net Profit (Parent Company) | 9,926 | 7,447 |
| Operating Cash Flow | 18,640 | 24,689 |
| Capital Expenditures | 13,910 | 11,939 |
| Total Assets | 171,411 | 166,173 |
| Total Liabilities | 76,567 | 72,745 |
| Net Debt-to-Equity Ratio | 15.89% | 8.64% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by 15.6% to Rp56.45 trillion, driven primarily by a 71.6% surge in "Cellular internet and data" revenue (from Rp8.51 trillion to Rp14.62 trillion) and growth in "Internet, data communication and information technology services."
- Profitability: Operating profit rose 31.5% to Rp19.89 trillion. Net profit attributable to the parent company increased 33.3% to Rp9.93 trillion.
- Expense Increases: Personnel expenses increased 8.9% to Rp6.41 trillion, largely due to a significant increase in "Early retirement program" costs (Rp200 billion vs. Rp844 billion in 2015, though the 2015 figure included a large one-time cost, the 2016 figure reflects ongoing program costs). Marketing expenses rose 22.3% to Rp1.73 trillion.
- Cash Flow: Net cash provided by operating activities decreased 24.5% to Rp18.64 trillion, despite higher profits, due to timing differences in cash receipts and payments.
- Capital Structure: The Group sold treasury stock (Phase IV) in June 2016, generating proceeds of Rp3.26 trillion and increasing Additional Paid-in Capital by Rp2.00 trillion.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management continues to focus on network modernization, including the replacement of copper cable networks with fiber optics and the expansion of broadband infrastructure. The Group is actively managing capital structure to optimize the cost of capital.
- Tax Contingencies: Significant ongoing disputes exist with the Directorate General of Taxation (DGT) regarding VAT on interconnection services and corporate income tax assessments. Appeals are pending for amounts totaling hundreds of billions of Rupiah. The Group has recognized claims for tax refunds where applicable.
- Legal Contingencies: The Group is involved in an SMS cartel case. While the Central Jakarta District Court ruled in favor of the Group in May 2015, the Supreme Court ruled in favor of the Commission for the Supervision of Business Competition (KPPU) in February 2016. The Group is considering a judicial review. A provision of Rp43 billion has been recognized for various legal actions.
- Regulatory Risks: Tariffs for fixed line and mobile services are subject to government regulation and price cap formulas. The Group must comply with Universal Service Obligation (USO) contributions (1.25% of gross revenue).
- Foreign Exchange: The Group has a net liability exposure to the Japanese Yen (approx. Rp6.55 trillion) and a net asset exposure to the US Dollar (approx. Rp0.11 trillion). A 5% strengthening of the Yen would decrease equity and profit by approximately Rp42 billion.
Key Facts for Investor Verification
- Revenue Composition: Verify the sustainability of the 71.6% growth in cellular internet and data revenue, which now constitutes a significant portion of total revenue.
- Tax Disputes: Monitor the status of the Supreme Court appeal regarding the SMS cartel case and the ongoing tax assessments with the DGT, as these could materially impact future cash flows and liabilities.
- Debt Covenants: Confirm continued compliance with debt covenants, specifically the Debt-to-Equity ratio (must not exceed 2:1 for bonds) and Debt Service Coverage ratio (minimum 125%).
- Capital Expenditures: Review the execution of committed capital expenditures (Rp15.5 trillion as of June 30, 2016) related to fiber optic modernization and submarine cable systems (SEA-ME-WE 5).
- Dividend Policy: Note the payment of Rp9.29 trillion in dividends for the 2015 fiscal year in May 2016 and assess future payout ratios relative to free cash flow.