Business Context and Reporting Period
Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter 2005 (Unaudited) and Nine Months Ended September 30, 2005
Date of Filing: November 10, 2005
Telkom is Indonesia's largest telecommunications provider, offering fixed-line, cellular (via subsidiary Telkomsel), data, and internet services. The Government of Indonesia holds a 51.19% stake. The company operates under Indonesian GAAP.
Key Financial Metrics (Nine Months Ended Sept 30, 2005)
| Metric (Rp Billion) | 2004 (Restated) | 2005 | Growth (%) |
|---|---|---|---|
| Operating Revenues | 25,095 | 30,154 | 20.2 |
| Operating Expenses | 14,400 | 17,359 | 20.5 |
| Operating Income (EBIT) | 10,695 | 12,795 | 19.6 |
| EBITDA | 15,827 | 18,424 | 16.4 |
| Net Income | 4,856 | 5,782 | 19.1 |
| Earnings Per Share (Rp) | 240.8 | 286.8 | 19.1 |
Key Margins (2005 vs 2004):
- Operating Margin: 42.4% (vs 42.6%)
- EBITDA Margin: 61.1% (vs 63.1%)
- Net Income Margin: 19.2% (vs 19.3%)
Cash Flow (Nine Months):
- Net Cash Provided by Operating Activities: Rp 15,117 billion (up from Rp 10,303 billion).
- Net Cash Used in Investing Activities: Rp 7,310 billion (primarily CAPEX).
- Net Cash Used in Financing Activities: Rp 7,009 billion (including dividends and debt repayments).
- Cash and Cash Equivalents (End of Period): Rp 5,447 billion.
Debt and Liquidity:
- Total Consolidated Debt (Sept 30, 2005): Rp 14,923 billion (down from Rp 17,338 billion in 3Q04).
- Debt Composition: 59.4% USD, 27.1% IDR, 9.8% JPY, 3.7% EUR.
- Debt-to-Equity Ratio: 65.84% (improved from 94.69% in 2004).
- Current Ratio: 86.63%.
Material Changes vs. Prior Period
Revenue Drivers:
- Cellular: Revenue increased 29.2% to Rp 9,938 billion, driven by a 78% increase in prepaid subscribers (SimPATI & Kartu As) and 12% in post-paid (HALO).
- Data & Internet: Revenue surged 44.7% to Rp 4,857 billion, fueled by a 19.4% increase in TelkomNet Instan usage.
- International: Revenue jumped 420% to Rp 280 billion due to significant growth in incoming and outgoing traffic.
- Fixed Line: Revenue declined slightly by 0.5% due to a 6% drop in long-distance pulse production.
Expense Drivers:
- Operations & Maintenance: Increased 33.2% due to higher Telkomsel costs, concession fees, and Universal Service Obligation (USO) contributions.
- Personnel: Increased 26.8% due to an early retirement program in Q1 2005 and a 68.8% rise in employee income tax.
Operational Highlights:
- Fixed Wireless (Flexi): Lines in Service (LIS) grew 244% to 3.72 million, covering 229 cities.
- Telkomsel: Maintained 54% market share with 23.5 million subscribers (up 72% YoY).
- Speedy (Broadband): Reached 24,000 LIS as of Sept 30, 2005.
Guidance, Outlook, Risks, and Unusual Items
Capital Expenditure (CAPEX):
- Telkom (unconsolidated) spent Rp 1,261 billion in 3Q05.
- Telkomsel spent Rp 5.45 trillion in 3Q05, adding 2,812 new BTS sites and 7.2 million subscriber capacity.
Risks and Contingencies:
- Accounting Standard Change (PSAK 38): A new standard regarding restructuring of entities under common control may require adjustments to the "Difference in Value of Restructuring Transaction" account. The company has not yet made this adjustment due to interpretation differences; it may impact prior years' financial statements but not the current nine-month income realization.
- 3G Frequency Reallocation: Government plans to reallocate 3G frequencies may force migration of Flexi services in Regions II and III, potentially requiring component replacement and impacting financials.
- Satellite Launch Delay: The launch of Telkom-2 satellite was delayed to November 13, 2005, due to technical issues.
Recent Developments:
- Purchased 10% of Patrakom from Indosat for Rp 4.25 billion, increasing ownership to 40%.
- Appointed KPMG (via KAP Siddharta) as independent auditor for 2005.
- Signed a "0" access code usage agreement with Indosat for fixed-line interconnection.
Investor Verification Checklist
- Fixed-Line Decline: Verify the sustainability of the 4% decline in fixed-line revenue and the impact of long-distance pulse reduction on future cash flows.
- Accounting Adjustment: Monitor the resolution of the PSAK 38 accounting standard interpretation regarding the restructuring account balance and potential retroactive adjustments.
- 3G Migration Costs: Assess the financial impact of the government-mandated 3G frequency reallocation on Flexi service infrastructure.
- Debt Currency Exposure: Review hedging strategies given that 59.4% of consolidated debt is in USD, exposing the company to IDR/USD exchange rate volatility.
- ARPU Trends: Note the decline in blended ARPU for Telkomsel (-19%) and Flexi (-48.5%) despite subscriber growth, indicating a shift toward lower-value prepaid segments.