TLK

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, 2015 (Unaudited)

Filing Date: April 30, 2015

Telkom Indonesia is a state-owned public limited liability company providing telecommunications network and services in Indonesia. The Group operates through four main segments: Personal, Home, Corporate, and Others. The financial statements are presented in billions of Indonesian Rupiah (IDR).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by 11.1% (IDR 2,366 billion) compared to Q1 2014, driven primarily by growth in Data, Internet, and IT services (up 19.2%) and Cellular usage charges.
• Profitability: Operating profit rose 7.7% to IDR 7,448 billion. Net profit increased 7.5% to IDR 5,508 billion.
• Expense Trends:
  • Depreciation & Amortization: Increased significantly by 29.1% to IDR 5,098 billion, largely due to the cessation of fixed wireless business and changes in useful life estimates for towers and buildings.
  • Interconnection Expenses: Decreased by 18.0% to IDR 1,061 billion.
  • Personnel Expenses: Remained relatively flat, increasing slightly by 0.7% to IDR 2,320 billion.
• Cash Flow: Operating cash flow improved by 19.6%. Investing cash outflows increased substantially to IDR 5,988 billion (from IDR 890 billion) due to higher capital expenditures (IDR 5,331 billion) and changes in time deposits.
• Accounting Changes: Comparative figures were restated due to the retrospective application of PSAK 24 (Employee Benefits) and PSAK 50 (Financial Instruments: Presentation).

Guidance, Outlook, Risks, and Unusual Items

• Dividends: Subsequent to the reporting period (April 17, 2015), shareholders approved a cash dividend of IDR 7,319 billion and a special cash dividend of IDR 1,464 billion for the year 2014.
• Capital Expenditures: Significant commitments remain for network modernization, including the Telkom-3 Substitution Satellite System and submarine cable projects (SMPCS, LTCS).
• Restructuring: The Group is in the process of transferring its fixed wireless business to Telkomsel, expected to be completed by December 14, 2015. A restructuring provision of IDR 208 billion was recorded in 2014.
• Legal Contingencies:
  • SMS Cartel: The Company and Telkomsel are under investigation by the KPPU for alleged SMS cartel practices. Penalties were charged in 2008, but appeals are ongoing.
  • Tax Disputes: Significant tax assessments and objections are pending regarding VAT and corporate income tax for various years (2007-2011), involving amounts totaling hundreds of billions of Rupiah.
  • Land Disputes: A Supreme Court verdict rejected the Company's appeal regarding a land dispute in Makassar; a judicial review has been requested.
• USO Program: Telkomsel has filed an arbitration claim regarding outstanding receivables of IDR 107.8 billion from the Universal Service Obligation (USO) program.

Investor Verification Checklist

• Dividend Payout: Verify the impact of the approved 2014 dividends (totaling ~IDR 8.8 trillion) on future cash flows and liquidity.
• Fixed Wireless Transition: Monitor the completion of the fixed wireless business transfer to Telkomsel and the associated restructuring costs.
• Tax Litigation: Review the status of ongoing tax disputes (VAT and Income Tax) which involve significant potential liabilities or refunds.
• Capital Expenditure Execution: Track the execution of committed CAPEX, particularly for submarine cables and satellite systems, to ensure alignment with revenue growth.
• Regulatory Risks: Assess the outcome of the KPPU SMS cartel investigation and potential penalties.
• Debt Covenants: Confirm continued compliance with debt-to-equity and debt service coverage ratios required by lenders (currently compliant).