Telkom Indonesia(US:TLK)2022-04-21 13:22PART I Key Information This section presents selected financial data and outlines key business, operational, and regulatory risks Selected Financial Data The company shows steady growth in revenues, profits, and total assets over the past several fiscal years Selected Financial Performance | Indicator | 2019 (Rp billion) | 2020 (Rp billion) | 2021 (Rp billion) | | :--- | :--- | :--- | :--- | | Revenues | 135,557 | 136,447 | 143,210 | | Operating Profit | 43,994 | 43,958 | 47,653 | | Profit for the Year | 27,860 | 29,890 | 34,099 | | Profit attributable to owners | 19,068 | 21,052 | 24,877 | | Basic and Diluted EPS (Rp) | 192.49 | 212.51 | 251.13 | Selected Balance Sheet Data | Indicator | As of Dec 31, 2019 (Rp billion) | As of Dec 31, 2020 (Rp billion) | As of Dec 31, 2021 (Rp billion) | | :--- | :--- | :--- | :--- | | Total Current Assets | 40,917 | 46,529 | 61,288 | | Total Non-Current Assets | 194,140 | 199,344 | 214,870 | | Total Assets | 235,057 | 245,873 | 276,158 | | Total Current Liabilities | 61,349 | 68,500 | 68,695 | | Total Non-Current Liabilities | 56,484 | 56,859 | 62,291 | | Total Liabilities | 117,833 | 125,359 | 130,986 | | Total Equity | 117,224 | 120,514 | 145,172 | - The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and Rupiah amounts are converted to U.S. Dollars for convenience117118137 Risk Factors The company faces significant risks from intense competition, regulatory changes, and its majority government ownership - Operational risks include potential network failures, infrastructure sharing mandates, the COVID-19 pandemic's impact, and increasing cybersecurity threats143157164170 - The company faces intense competition in cellular services and declining subscribers in wireline voice services due to mobile and OTT substitution149185193 - The changing legal and regulatory environment in Indonesia, including the Job Creation Law, introduces uncertainty and could impact margins150218226228 - The Indonesian government's 52.09% controlling stake and special 'Dwiwarna Share' with veto rights present potential conflicts of interest205252 - The company is exposed to Indonesia's macroeconomic and political environment, including currency fluctuations and political instability153255264273 Information on the Company This section details the company's history, strategic business segments, and extensive network infrastructure History and Development of the Company This sub-section traces the company's evolution, highlighting key milestones like its IPO and recent 5G launch Corporate Profile | Item | Detail | | :--- | :--- | | Company Name | Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk. | | Line of Business | Telecommunications and informatics networks and services | | Ownership | Government of Indonesia: 52.09%, Public: 47.91% | | Listing | IDX (TLKM), NYSE (TLK) since Nov 14, 1995 | | Issued Capital | 1 Dwiwarna Share and 99,062,216,599 common shares | - Recent strategic milestones include the launch of 5G services in May 2021, significant investments in GoTo, and the successful IPO of its tower subsidiary, Mitratel336337340 Business Overview The company's strategy focuses on digital leadership across its five core customer-facing business segments - The company's strategy centers on building digital infrastructure, nurturing digital talent, and orchestrating a digital ecosystem304342 - The business is organized into five customer-facing units (CFUs): Mobile, Consumer, Enterprise, Wholesale & International Business, and Digital Service343347 Key Business Segments | Segment | Key Products/Services | | :--- | :--- | | Mobile | Mobile broadband, digital services (financial, VOD, gaming, IoT), legacy voice/SMS via Telkomsel. | | Consumer | Fixed broadband (IndiHome), fixed voice, IPTV. | | Enterprise | ICT solutions, data center & cloud, satellite services for corporate and government clients. | | Wholesale & International | Carrier services, tower business (Mitratel), international operations. | | Other | Digital platforms, e-commerce, venture capital (MDI Ventures), property management. | - Telkomsel remains Indonesia's largest cellular provider with a 59.3% market share and 176.0 million subscribers as of year-end 2021484495 Organizational Structure The company is organized into five customer-facing units supported by four functional units - The company's organizational structure is based on five customer-facing units (CFUs) to align with its customer-centric business strategy545 Customer Facing Units and Key Subsidiaries | Customer Facing Unit (CFU) | Key Subsidiary/Business | | :--- | :--- | | Mobile | PT Telekomunikasi Selular (Telkomsel) | | Consumer | PT Telkom Akses (Telkom Akses) | | Enterprise | PT Sigma Cipta Caraka (Sigma), PT Infomedia Nusantara | | Wholesale and International | PT Dayamitra Telekomunikasi (Mitratel), PT Telekomunikasi Indonesia International (Telin) | | Digital Services | PT Metra-Net (Metranet), PT Melon Indonesia (Melon) | Property and Equipment The company's telecommunications assets are insured and partially pledged as collateral for debt obligations - As of December 31, 2021, property and equipment with a net carrying amount of Rp161,287 billion were insured under blanket policies553 - All parent company assets and certain subsidiary assets with a gross carrying value of Rp22,939 billion have been pledged as collateral for bonds and loans552 Operating and Financial Review and Prospects This section analyzes the company's financial performance, liquidity, and capital resources for fiscal year 2021 Operating Results Revenue and profit growth in 2021 was driven by strong performance in data and IndiHome services Revenue Performance by Stream | Revenue Stream | 2020 (Rp billion) | 2021 (Rp billion) | % Change | | :--- | :--- | :--- | :--- | | Cellular Telephone | 19,510 | 14,737 | -24.5% | | Data, Internet, & IT Service | 75,816 | 82,224 | +8.5% | | IndiHome | 22,214 | 26,325 | +18.5% | | Total Revenues | 136,447 | 143,210 | +5.0% | Expense Performance by Item | Expense Item | 2020 (Rp billion) | 2021 (Rp billion) | % Change | | :--- | :--- | :--- | :--- | | Operation, Maintenance, & Telecom Service | 34,575 | 38,133 | +10.3% | | Depreciation and Amortization | 28,925 | 31,714 | +9.6% | | Total Expenses | 93,498 | 95,635 | +2.3% | - Operating profit increased by 8.4% to Rp47,653 billion, and profit attributable to owners grew by 18.2% to Rp24,877 billion in 2021604612 Liquidity and Capital Resources The company maintains strong liquidity, with operating cash flow and IPO proceeds funding capital expenditures Consolidated Cash Flow Summary | Cash Flow Item | 2020 (Rp billion) | 2021 (Rp billion) | | :--- | :--- | :--- | | Net cash provided by operating activities | 65,317 | 68,353 | | Net cash used in investing activities | (35,099) | (37,914) | | Net cash used in financing activities | (27,910) | (12,775) | | Net increase in cash and cash equivalents | 2,308 | 17,664 | - Cash and cash equivalents increased by 86.1% to Rp38,311 billion, boosted by Rp18,463 billion in proceeds from the Mitratel IPO626643 - Capital expenditures in 2021 amounted to Rp30,329 billion, primarily for broadband services and network infrastructure655660 - As of December 31, 2021, total indebtedness was Rp68,579 billion, with a net debt to equity ratio of 0.25650652 Research and Development, Patents and Licenses, etc. R&D efforts focus on next-generation technologies and fostering innovation through internal and external programs - Research and development efforts are concentrated on next-generation technologies including Fixed Mobile Convergence, Wi-Fi 6, and 5G664 - The company fosters innovation through its Indigo program, which has incubated 196 startups, and its venture capital arm, MDI Ventures, which has invested in over 57 startups670671673 - A special task force, ITDRI, was established in 2021 to enhance research in market-demanded digital platforms like AI and blockchain669 Directors, Senior Management and Employees This section details the corporate governance structure, board compensation, and employee demographics Directors and Senior Management The company is managed by a two-tier board system consisting of a Board of Commissioners and a Board of Directors - The company operates under a two-tier board structure with a supervisory Board of Commissioners and a management Board of Directors683 - As of December 31, 2021, the Board of Commissioners had nine members, and the Board of Directors had nine members685701 Compensation Board compensation, determined by shareholders, includes salaries, allowances, and performance-based bonuses Board Remuneration for 2021 | Board | Total Remuneration for 2021 (Rp billion) | | :--- | :--- | | Board of Commissioners | 128.7 | | Board of Directors | 298.3 | Employees The company focuses on developing digital talent within its highly educated workforce of over 23,000 employees - The Telkom Group had a total of 23,756 employees as of December 31, 2021, with 64.9% being university graduates745748 - The company is actively developing digital talent, having identified and trained 2,171 individuals as of year-end 2021749753 - Employee relations are managed through a collective labor agreement with the employee union, SEKAR, representing 64.96% of the parent company's workforce758759 Major Shareholders and Related Party Transactions The Government of Indonesia is the controlling shareholder, and the company engages in numerous transactions with state-owned entities Major Shareholders The Government of Indonesia maintains effective control through majority ownership and a special Dwiwarna Share Shareholder Structure | Shareholder | Share Class | Number of Shares | Percentage of Ownership | | :--- | :--- | :--- | :--- | | Government | Dwiwarna Share | 1 | - | | Government | Common Stock | 51,602,353,559 | 52.09% | | Public | Common Stock | 47,459,863,040 | 47.91% | - The Government's Dwiwarna Share provides special veto rights over key corporate matters, ensuring its effective control over the company764776 Related Party Transactions The company engages in arm's-length transactions with the government and other State-Owned Enterprises - The company's relationship with the Indonesian Government is multi-faceted, encompassing roles as shareholder, regulator, lender, and customer773 - Transactions with related parties are conducted on an arm's-length, commercial basis, with revenues from government entities totaling Rp6,094 billion in 2021781782 Financial Information This section references the consolidated financial statements and outlines the company's dividend policy Historical Dividend Payouts | Dividend Year | Payout Ratio (%) | Dividend per Share (Rp) | | :--- | :--- | :--- | | 2018 | 90.00 | 163.82 | | 2019 | 81.78 | 154.07 | | 2020 | 80.00 | 168.01 | - The dividend payout ratio for the 2021 fiscal year will be decided at the AGMS scheduled for May 27, 2022792 The Offer and Listing This section provides details on the trading markets for the company's common stock and American Depositary Shares - The company's common stock is listed on the Indonesia Stock Exchange (IDX) as "TLKM", and its ADSs are listed on the New York Stock Exchange (NYSE) as "TLK"799802 - Each ADS represents 100 shares of common stock799 Additional Information This section details the company's Articles of Association, shareholder rights, and key tax implications Memorandum and Articles of Association This sub-section outlines the company's business scope, board powers, and a comparison of shareholder rights - The company's main business activities include the provision and maintenance of telecommunications and informatics networks and services819820 - The Board of Directors must obtain written approval from the Board of Commissioners for significant corporate actions like major asset disposals or large debt incurrence825 - A detailed comparison highlights differences between Indonesian and Delaware corporate law regarding shareholder rights, mergers, and director duties836838851 Taxation This sub-section summarizes the primary Indonesian and U.S. federal income tax implications for shareholders - Under Indonesian law, dividends distributed to non-resident holders are subject to a 20% withholding tax, potentially reduced by tax treaties880 - The sale of common stock through the IDX is subject to a final withholding tax of 0.1% of the gross transaction value886 - For U.S. Holders, distributions are generally taxable as ordinary dividend income; the company believes it was not a Passive Foreign Investment Company (PFIC) for 2021898900 Quantitative and Qualitative Disclosure About Market Risk The company's primary market risks are foreign exchange and interest rate fluctuations - The company is primarily exposed to foreign exchange risk (USD, JPY) and interest rate risk from its floating-rate debt924925932 Market Risk Sensitivity Analysis | Sensitivity Analysis (as of Dec 31, 2021) | Impact on Equity/Profit (Rp billion) | | :--- | :--- | | 1% appreciation of USD vs IDR | 164 (Profit) | | 5% appreciation of JPY vs IDR | (14) (Loss) | | 25 basis point decrease in interest rates | 109 (Increase) | - The company manages credit risk through ongoing monitoring and requires a one-month deposit from new individual customers to mitigate counterparty risk935 Description of Securities Other Than Equity Securities This section describes the terms and conditions of the company's American Depositary Shares - Bank of New York Mellon Corporation serves as the Depositary for the company's American Depositary Shares (ADSs)941 - ADS holders are entitled to instruct the Depositary on voting the underlying shares; otherwise, a discretionary proxy may be given947948 - The Depositary distributes cash dividends to ADS holders in U.S. Dollars and has procedures for handling non-cash distributions950951953 PART II Controls and Procedures Management affirms the effectiveness of the company's disclosure controls and internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021978979 - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective982 - The effectiveness of internal control over financial reporting has been audited by the independent registered public accounting firm983 Audit and Corporate Governance This section covers the Audit Committee, Code of Ethics, principal accountant fees, and governance differences - The Board of Commissioners has determined that Mr. Emmanuel Bambang Suyitno qualifies as an Audit Committee Financial Expert987 - The company has adopted a code of ethics applicable to all directors, officers, and employees988 Principal Accountant Fees | Fee Type | 2020 (Rp million) | 2021 (Rp million) | | :--- | :--- | :--- | | Audit Fee | 63,461 | 59,050 | | All Other Fees | 1,925 | 11,540 | - As a foreign private issuer, the company relies on exemptions from certain NYSE corporate governance standards for its Audit Committee996999 PART III Financial Statements This section contains the full audited consolidated financial statements prepared in accordance with IFRS - The independent auditor issued an unqualified opinion on the consolidated financial statements, confirming they present fairly in conformity with IFRS1031 - The auditor also issued an unqualified opinion on the effectiveness of internal control over financial reporting based on the COSO 2013 framework10321043 - A critical audit matter was the evaluation of the estimated useful lives of property and equipment due to significant management judgment required10371038