Business Context and Reporting Period
Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom Indonesia)
Filing Type: Form 6-K (Unaudited Consolidated Financial Statements)
Reporting Period: Nine months ended September 30, 2017
Business Overview: A state-owned public limited liability company providing telecommunication networks and services in Indonesia. The Group operates through five main segments: Mobile, Consumer, Enterprise, Wholesale and International Business (WIB), and Others. The Government of the Republic of Indonesia is the ultimate parent.
Key Financial Metrics (Nine Months Ended Sept 30, 2017)
| Metric | 2017 (Billions IDR) | 2016 (Billions IDR) |
|---|---|---|
| Revenues | 97,003 | 86,188 |
| Operating Profit | 35,591 | 30,271 |
| Profit for the Period | 26,013 | 22,169 |
| Profit Attributable to Parent | 17,922 | 14,732 |
| Net Cash from Operating Activities | 36,789 | 39,029 |
| Net Cash Used in Investing Activities | (20,790) | (22,690) |
| Net Cash Used in Financing Activities | (18,681) | (15,312) |
| Cash and Cash Equivalents (End of Period) | 27,093 | 28,852 |
| Total Assets | 190,508 | 179,611 |
| Total Liabilities | 79,937 | 74,067 |
| Total Equity | 110,571 | 105,544 |
| Basic EPS (IDR) | 180.92 | 149.57 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by 12.5% (Rp10.8 trillion) driven primarily by growth in the Mobile segment (Cellular internet and data revenue rose to Rp27.1 trillion from Rp20.4 trillion) and Data/Internet services.
- Profitability: Operating profit increased by 17.6% to Rp35.6 trillion. Profit for the period rose 17.3% to Rp26.0 trillion.
- Expense Trends: Operation, maintenance, and telecommunication service expenses increased by 14.8% to Rp27.1 trillion. Marketing expenses rose significantly by 30.1% to Rp3.4 trillion. Personnel expenses increased by 5.4% to Rp10.6 trillion.
- Balance Sheet: Total assets grew by 6.1%. Property and equipment increased by 8.2% to Rp123.9 trillion due to capital expenditures. Total liabilities increased by 8.0%, with long-term borrowings rising to Rp28.2 trillion.
- Cash Flow: Operating cash flow decreased by 5.7% to Rp36.8 trillion, while investing outflows decreased slightly to Rp20.8 trillion. Financing outflows increased to Rp18.7 trillion, largely due to higher dividend payments (Rp21.0 trillion total dividends paid).
Guidance, Outlook, Risks, and Unusual Items
- Management Commentary: Management rearranged business portfolios to a Customer Facing Units (CFU) approach. The Group continues to invest heavily in network modernization, including fiber optic expansion and 4G/5G readiness.
- Unusual Items:
- Satellite Disruption: In August 2017, the Telkom-1 satellite experienced technical problems. Services were migrated to other satellites (Telkom-3S, Telkom-2, and third-party) by September 10, 2017. Migration costs were recognized in the current period.
- Asset Exchange: The Group derecognized copper cable network assets and recorded new fiber optic network assets via trade-in agreements with vendors (LEN, INTI, Huawei, NSN).
- Depreciation Adjustments: Telkomsel accelerated depreciation for certain equipment units (modernization program) increasing expense by Rp365 billion, while extending useful lives for buildings and transmissions reduced depreciation expense by Rp149 billion.
- Risks and Contingencies:
- Tax Disputes: Significant ongoing tax assessments and appeals regarding VAT on interconnection services and corporate income tax. The Company has filed objections and appeals with the Tax Court and Supreme Court for various periods (2007-2015).
- Legal Proceedings: The Company and Telkomsel were found liable by the Supreme Court for SMS cartel practices and paid penalties totaling Rp43 billion in January 2017. Other litigation includes a case with CSM regarding transponder service termination.
- USO Program: Outstanding receivables from the Universal Service Obligation (USO) program remain a risk, with arbitration decisions pending or partially paid.
- Foreign Exchange: The Group has a net liability exposure to the Japanese Yen (approx. Rp5.8 trillion equivalent) and a neutral position to the US Dollar. A 5% strengthening of the Yen would decrease profit/equity by Rp35 billion.
Key Facts for Investor Verification
- Dividend Payouts: Verify the sustainability of dividend payments, which totaled Rp21.0 billion in the nine-month period (including special dividends), representing a significant portion of cash flow.
- Tax Liability Exposure: Review the status of ongoing tax disputes (VAT interconnection and income tax) which involve billions in potential liabilities or refunds.
- Capital Expenditure Commitments: Confirm the funding sources for committed capital expenditures of Rp8.8 trillion (as of Sept 30, 2017) for network upgrades and satellite procurement.
- Debt Covenants: Verify compliance with debt covenants, specifically the Debt-to-Equity ratio (currently 8.20% net debt-to-equity) and Debt Service Coverage ratios required by lenders.
- Related Party Transactions: Note that 3.0% of revenues and 6.9% of expenses are derived from related parties (state-owned enterprises and associated companies).