TLK

Business Context and Reporting Period

This Form 6-K filing by Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom) covers two distinct periods: the audited full-year results for the fiscal year ended December 31, 2004, and the unaudited results for the first quarter ended March 31, 2005. The filing was submitted on May 9, 2005. Telkom is Indonesia's largest telecommunications provider, with the Government of Indonesia holding a 51.19% stake. The company operates through fixed-line (Telkom) and mobile (Telkomsel) divisions, alongside joint operation schemes (KSO).

Key Financial Metrics

Full Year 2004 (Audited)

• Operating Revenues: Rp 33,948 billion (25.2% increase vs. 2003).
• Operating Income: Rp 13,927 billion (16.3% increase).
• EBITDA: Rp 21,238 billion (21.5% increase); Margin declined to 62.6% from 64.5%.
• Net Income: Rp 6,129 billion (0.7% increase).
• Net Income per Share: Rp 304.03.
• Capital Expenditure (CAPEX): Rp 8,962 billion (unconsolidated Telkom) plus Rp 5,400 billion (Telkomsel cash spending).
• Debt: Total consolidated debt was Rp 16,616 billion (72.6% in foreign currency).
• Cash and Equivalents: Rp 4,856 billion.

First Quarter 2005 (Unaudited)

• Operating Revenues: Rp 9,347 billion (20.5% increase vs. Q1 2004).
• Operating Income: Rp 3,695 billion (14.8% increase).
• EBITDA: Rp 5,483 billion (11.3% increase); Margin declined to 58.7% from 63.5%.
• Net Income: Rp 1,703 billion (3.2% increase).
• Net Income per Share: Rp 84.48.
• Debt: Total consolidated debt increased to Rp 16,609 billion as of March 31, 2005.

Material Changes vs. Prior Period

• Accounting Change (KSO IV): In 2004, Telkom amended the KSO agreement for Regional Division IV, gaining control and consolidating it as a "Business Combination" using the Purchase method. This contributed Rp 969 billion to fixed phone revenues and significantly increased depreciation and amortization expenses.
• Foreign Exchange Loss: A significant non-operating loss of Rp 1,221 billion occurred in 2004 due to foreign exchange fluctuations, primarily related to liabilities from the Regional Division IV acquisition. In Q1 2005, a forex loss of Rp 176 billion was recorded.
• Revenue Drivers:
  • Data & Internet: Grew 54.7% in 2004 and 40.7% in Q1 2005, driven by TelkomNet Instan and SMS production.
  • Interconnection: Grew 48.7% in 2004 and 38.4% in Q1 2005.
  • Cellular: Telkomsel revenues grew 23.2% in 2004 and 23.3% in Q1 2005, supported by a 69.9% subscriber increase in 2004.
• Expense Growth: Operating expenses grew faster than revenue in both periods (32.2% in 2004; 24.5% in Q1 2005). Personnel expenses in Q1 2005 surged 49.4% due to Rp 512 billion in early retirement program costs.

Guidance, Outlook, and Risks

• CAPEX Outlook: The group budgeted Rp 13,709 billion for CAPEX in 2005, with approximately Rp 6,141 billion allocated to Telkom and USD 650-750 million to Telkomsel.
• Operational Expansion: Telkomsel added 731 new BTS sites in Q1 2005, increasing network capacity to 19.6 million subscribers. TelkomFlexi expanded to 216 cities.
• Regulatory Developments: The Ministry of Communication and Information issued a release on April 1, 2005, regarding the implementation of Domestic Long Distance (DLD) access codes, requiring Telkom to open Indosat's DLD access code in specific locations.
• Risks and Contingencies:
  • Currency Risk: Approximately 72% of consolidated debt is denominated in foreign currencies. The company hedges exposure via time deposits, but coverage was only 1.36% of foreign debt as of March 31, 2005.
  • Early Retirement Costs: Significant one-time costs associated with the early retirement program impacted Q1 2005 personnel expenses.
  • Market Competition: While Telkomsel maintains a 55% market share, the company faces competitive pressure in the mobile sector.
• Recent Transactions: Telkom executed a call option to buy back Telkomsel's guaranteed notes in May 2005. It also agreed to acquire the remaining 9.68% stake in PT Dayamitra Telekomunikasi (KSO VI) for USD 16.2 million.

Investor Verification Checklist

• Verify the sustainability of EBITDA margins given the 1.9% decline in FY2004 and 4.9% decline in Q1 2005.
• Assess the impact of the Rp 1,221 billion foreign exchange loss in 2004 on future earnings, considering the high proportion of foreign-denominated debt (72%).
• Confirm the long-term revenue contribution of the newly consolidated Regional Division IV (KSO IV) versus the associated increase in depreciation and amortization.
• Monitor the execution of the DLD access code implementation and its potential impact on interconnection revenues.
• Review the progress of the early retirement program and its effect on future personnel cost structures.