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: Three months ended March 31, 2011 (Unaudited) compared to the same period in 2010.
Business Overview: A state-owned public limited liability company providing telecommunications networks and services in Indonesia. Key segments include fixed wireline, fixed wireless, and cellular (via subsidiary Telkomsel). The company operates under Indonesian GAAP.
Key Financial Metrics (Three Months Ended March 31)
| Metric | 2011 (Rp. Million) | 2010 (Rp. Million) | 2011 (US$ Thousand) |
|---|---|---|---|
| Total Operating Revenues | 16,705,760 | 16,356,336 | 1,918,548 |
| Operating Income | 5,194,003 | 5,319,528 | 596,497 |
| Net Income (Income for the Period) | 3,823,631 | 3,776,243 | 439,119 |
| Net Income Attributable to Parent | 2,828,303 | 2,786,263 | 324,812 |
| Basic EPS (Rp.) | 143.79 | 141.65 | 0.02 |
| Net Cash from Operating Activities | 7,142,356 | 6,985,102 | 820,254 |
| Cash and Cash Equivalents (End of Period) | 10,645,475 | 6,751,059 | 1,222,564 |
| Total Assets | 100,685,478 | 99,758,447 | 11,563,075 |
| Total Liabilities | 40,454,599 | 43,343,664 | 4,645,949 |
| Total Stockholders' Equity | 60,230,879 | 56,414,783 | 6,917,126 |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased by 2.1% (Rp. 349.4 billion) driven primarily by growth in Data, Internet, and IT services (up 14.4%) and Other telecommunications services (up 58.3%). Fixed line revenues declined by 11.4%.
- Operating Income Decline: Despite revenue growth, operating income decreased by 2.4% (Rp. 125.5 billion). This was due to a 4.3% increase in total operating expenses, notably a 75.4% surge in Marketing expenses and a 20.3% increase in Operations, maintenance, and telecommunication services expenses.
- Net Income Increase: Net income rose by 1.3% (Rp. 47.4 billion), aided by a significant reduction in interest expense (down 19.6%) and a favorable shift in deferred tax (from an expense of Rp. 348 billion in 2010 to a benefit of Rp. 18 billion in 2011).
- Balance Sheet Strength: Total liabilities decreased by 6.7% while Total Equity increased by 6.8%, improving the debt-to-equity profile. Cash and cash equivalents increased by 57.7% year-over-year.
- Capital Expenditures: Cash used in investing activities decreased significantly (from Rp. 4.98 trillion to Rp. 3.13 trillion), primarily due to lower acquisitions of property, plant, and equipment.
Guidance, Outlook, Risks, and Unusual Items
- Subsequent Events: On April 19, 2011, the company announced a Phase IV stock repurchase program of up to 2.07% of paid-up capital, with a total cost not exceeding Rp. 3 trillion, to be executed over 18 months pending AGM approval.
- Regulatory Risks: The company faces ongoing investigations by the KPPU (Indonesian Competition Commission) regarding alleged SMS cartel practices. Penalties were previously imposed, but appeals are pending. Additionally, new interconnection tariffs effective January 1, 2011, impact revenue sharing with other operators.
- Legal Contingencies: The company has accrued Rp. 48.4 billion for various legal actions including land disputes and corruption allegations involving former employees in KSO VII. Management believes these will not have a significant financial impact.
- Taxation: Significant tax assessments and appeals are ongoing with the Directorate General of Tax (DGT), including a major VAT refund case for subsidiary Telkomsel that is currently under judicial review at the Supreme Court.
- Commitments: As of March 31, 2011, the company had capital expenditure commitments of approximately Rp. 6.87 trillion, primarily for switching equipment, transmission, and cable networks.
Investor Verification Checklist
- Regulatory Tariff Impact: Verify the financial impact of the new interconnection tariffs implemented in January 2011 on future revenue streams.
- Legal Outcomes: Monitor the status of the KPPU SMS cartel appeal and the Supreme Court's decision on the Telkomsel VAT refund case, as these represent material contingent liabilities or assets.
- Stock Repurchase Execution: Track the execution of the announced Phase IV stock buyback program and its effect on share count and liquidity.
- Fixed Line Decline: Analyze the 11.4% decline in fixed line revenues to assess the sustainability of the legacy business segment.
- Debt Covenants: Confirm continued compliance with financial covenants (Debt-to-Equity, EBITDA/Interest) across various bond and loan facilities, particularly given the high level of debt.