Telkom Indonesia Annual Report 2016

Plain-text annual report

2016 Annual Report BUILDING INDONESIAN DIGITAL ECONOMY Disclaimer This is the annual report of PT Telkom indonesia (Persero) Tbk, or referred to as “report” for the performance period of 1 January to 31 December 2016. information and data presented in this report are relevant and significant for investors, the Government of the republic of indonesia, and other stakeholders. PT Telkom indonesia (Persero) Tbk, or referred to as “Telkom”, compiled this report based on the applicable regulations in indonesia, namely the Financial services authority circular No.30/seOJK.04/2016 about structure and content of the annual report of Public companies. some of the information and data in this report also appear in the Form 20-F according to the rules of the securities and exchange commission (sec) in the United states, but this report or its parts is not coupled with the Form 20-F report. The mention of “Telkom Group” in this report refers to the Telkom business group that includes the parent company, its subsidiaries and tier 2 subsidiaries operating in indonesia and abroad. The word “government” mentioned in this report refers to the Government of the republic of indonesia, while the word “america” refers to Government of the United states of america. The information and data presented in this report are derived from the consolidated Financial statements of Telkom and its subsidiaries and other reliable sources. Presentation of information and financial data in this report are in rupiah (rp) or Us Dollar (Us$). For further information on this Report, please contact: VP Investor Relations Tel. : +62-21-5215 109 Fax. : +62-21-5220 500 E-mail: investor@telkom.co.id Facebook: TelkomIndonesia Instagram: telkomindonesia Twitter: @telkomindonesia PT Telkom Indonesia (Persero) Tbk Graha Merah Putih 5th Floor Jl. Jend. Gatot Subroto Kav.52 Jakarta 12710, Indonesia This report can also be downloaded from http://www.telkom.co.id Forward-looking statements in this report contain targets, expectations, forecasts, estimates, or projections of Telkom for the foreseeable future. The statements are disclosed by Telkom with a thorough consideration but contain risks of uncertainty in the future due to various factors. Therefore, in line with good corporate governance standards, Telkom states that it cannot guarantee that the foresights will be fulfilled completely. 2 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS3 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSREPORT THEMES Building Indonesian Digital Economy Indonesian society is increasingly feeling the presence of the digital era to enter many areas of life, following the global trend. Digitalization has changed human behavior, especially in the economic field, as business processes become faster, more efficient and more effective. At the same time, the digital era offers new economic opportunities that we have never seen before, through a variety of creative ways based on digital services. The business model in transaction is also moving fast, from conventional market system to the marketplace of e-commerce platform, which no longer has boundaries, both for producers and consumers. In the face of these changes, Telkom is preparing itself by building digital infrastructure and its supporting ecosystem thoroughly and sustainably. Telkom builds infrastructure that includes three components, namely id-Access, id-Ring and id-Con, or known as the Indonesia Digital Network (“IDN”). For id-Access, which is a network of fiber-based access to customers’ homes, Telkom already has more than 16.4 million of homes-passed; for id-Ring, which is a broadband highway, Telkom has built 106,000 kilometers of fiber- based backbone that connects many islands throughout Indonesia from Sabang to Merauke; while for id- Con, a cloud service which is integrated with Telkom Group’s network, more than 95,000 m2 gross facility data centers have been built in various locations both locally and abroad. Telkom has an online shopping platform (marketplace) which continues to develop, namely blanja.com, as part of the ecosystem of the digital economy, which is expected to encourage the marketing of various products in a faster, easier, cheaper way, and to reach a larger area. Telkom is also developing a variety of applications that brings convenience and is able to stimulate economic activities. The three components of the IDN, along with its supporting ecosystem, are the main foundation of Telkom in stepping forward to be the leader in building digital economy in Indonesia. As a country with a population of more than 250 million, Indonesia has very large potentials of digital economy. People’s increasingly high internet literacy driven by the widespread use of smartphones and fixed-broadband becomes an essential component for the growth of the digital economy, in addition to the availability of various supporting applications or contents, the readiness of small and medium enterprises (SMEs) to be able to make standardized products, and the support of reliable logistics network. The government has seen the existing great potentials, and declared Indonesia as the largest digital economy country in Southeast Asia in 2020. This Annual Report entitling “Developing Indonesia’s Digital Economy” is a continuation of the previous theme, which is “Developing Indonesia’s Digital Society”. The current theme illustrates the readiness of Telkom Group in the transformation toward its vision that is to Be the King of Digital, which also plays an important role in accelerating the growth of digital economy of Indonesian society. As the pride of Indonesia, Telkom Group will continue to move ahead with the society to create prosperity in the present and in the future. 4 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCONTINUITY OF THEME 6 1 0 2 2016 Laporan Tahunan MEMBANGUN EKONOMI DIGITAL INDONESIA 2016 | Building Indonesian Digital Economy With integrated infrastructures, Telkom is ready to support the embodiment of Indonesia’s vision as the largest digital economy country in Southeast Asia in 2020 and also to accelerate Indonesian economy growth in digital era. Telkom will continue to move ahead with the community to realize innovations and develop social welfare, today and in the future. 5 1 0 2 2015 Laporan Tahunan MEMBANGUN MASYARAKAT DIGITAL INDONESIA 2015 | Building Indonesian Digital Society In order to realize a digital society, Telkom provides high quality connectivity through infrastructure development and developing content and applications that are useful in people’s daily lives so as to provide the best digitization experience for customers. 4 2014 | Sustainable Competitive Growth 1 0 2 through Digital Business Investing in digital business is a necessity for Telkom to improve competitiveness while maintaining sustainable competitive growth in the future. 2 2012 | Bringing Indonesia to the 1 0 2 Digital Society We pioneered the digital community in Indonesia with a focus on providing services information, media, edutainment and in including the development of services, Indonesia Digital Network. 3 2013 | Creating Global Talents and Opportunities 1 0 2 International expansion has become a necessity for us to be able to maintain a high and sustainable growth rate. This strategic initiative has led us to achieve double-digit growth and solidify us as a provider company for TIMES service, which is dominant in Indonesia and is acclaimed in the region. TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS BrieF PrOFile OF TelKOm aND iTs sUBsiDiaries Telkom is a State-Owned Enterprise (“SOE”) conducting business in the field of integrated telecommunications services and networks in Indonesia operating domestically and abroad. 65% 100% 100% 100% 100% 100% 99.99% 100% 100% 100% 100% CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS Company Name PT Telkom Indonesia (Persero) Tbk Commercial Name Telkom Category of Goods and Services Telecommunication and information Media and edutainment Infrastructure Legality Tax Identification Number 01.000.013.1-093.000 Certificate of Company Registration 101116407740 Business License 510/3-0689/2013/7985-BPPT Address and Contact Details of Main Office Graha Merah Putih, Jl. Japati No. 1, Bandung, West Java, Indonesia - 40133 Telephone: +62-22-4521404 Facsimile: +62-22-7206757 Call Center: 147 Website: www.telkom.co.id E-mail: corporate_comm@telkom.co.id, investor@telkom.co.id Facebook: TelkomIndonesia Instagram: telkomindonesia Twitter: @telkomindonesia Important Dates Oktober 23, 1856: Telkom’s Establishment November 19, 1991: Transformation into Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Legal Basis for Establishment Pursuant to Government Regulation No.25 of 1991, the status of the Company is changed into a state- owned limited liability company (“persero”) according to the Notarial Deed of Imas Fatimah, S.H. No.128 of September 24, 1991, as approved by the Minister of Justice of the Republic of Indonesia through Decision No. C2-6870.HT.01.01.Year.1991 dated November 19, 1991, as announced in the State Gazette of the Republic of Indonesia No.5 dated January 17, 1992, Supplement to the State Gazette No.210. Ownership The Government of the Republic of Indonesia 52.09%, Public 47.91% Listing in the Stock Exchange The Company stock is listed at BEI/IDX and NYSE on November 14, 1995 with the stock code “TLKM” at BEI, Jakarta, Indonesia and “TLK” at the NYSE, New York, United States. Authorized Capital 1 A Series Dwiwarna Share and 399,999,999,999 B shares Series Issued and Fully Paid Capital 1 A Series Dwiwarna Share and 100,799,996,399 B shares Series Rating idAAA (Pefindo) for the year 2012, 2013, 2014, 2015 and 2016 Service Centers Telkom Regional Offices (“Telkom Regional”) Telecommunication Zones 7 59 566 Plasa Telkom Outlets 7 International GraPARI in Mecca - Saudi Arabia, Singapore, Hong Kong, Macau, Taipei & Tainan - Taiwan and Malaysia 416 GraPARI, including those managed by third parties 487 GraPARI Mobile Units Subsidiary Entities and Associations 12 21 Direct Subsidiaries (including 1 subsidiary that is no longer in operation) Indirect Subsidiaries TELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS www.telkomsel.com www.telkomakses.co.id PT Telekomunikasi Seluler (Telkomsel) is one of Telkomsel Indonesia’s most prominent cellular operators with more than 173.9 million customers, 129,033 BTS with the widest network in Indonesia. Product and Services: • Kartu Halo Positioned professionals and corporate customers. as postpaid brand for • simPATI Positioned as prepaid brand for middle class segment PT Telkom Akses (Telkom Akses) • LOOP Postioned as prepaid brand for young adult segment Telkom Akses provides construction and fixed-broadband infrastructure construction services. network • Enterprise Mobile Product Marketing • Solution for SME Segment • Solution for Large Enterprise Segment • Enterprise Digital Service • Smart Connectivity • T-Drive • T-Bike • T-Fleet Product and Services: Telkom Akses’ main portfolios are the construction services (deployment), fixed broadband access networks, and operations & maintenance services of fixed broadband access networks (managed services). • Kartu As • Mobile Financial Service Postioned as affordable prepaid brand • TCASH • TWALLET www.patrakom.co.id PT Patra Telekomunikasi (Patrakom) www.metra.co.id PT Multimedia Nusantara (Telkom Metra) Telkom Metra conducts business activities in the field of network and multimedia management, covering, among others: data communications system services, portal services and online transaction service. It is a strategic holding company transaction services information, media and services (IMES) industry. in the Product and Services: • Satellite • Premises Integration Services • System Integration & Manage Apps • Data Center • Cloud & Managed Services • e-Payment • Business Process Management • Data Analytics • e-Solution • Digital Media Life • Digital Media Home and Digital Advertising. Patrakom manages a broadband satellite business Energy, Telecommunication, Plantation, Banking and Government business segments. the Maritime, for Product and Services: • VSAT-SCPC (Single Carrier Per Channel). • VSAT-IP. • Radio-IP. • MSS (Mobile Satellite Service). • VTMS (Vessel Tracking Management System). • Coconnet. www.telkomproperty.co.id PT Graha Sarana Duta (GSD) Product and Services: • Property management Telkom Property conducts four types of business, namely property management, property development, property lease and property facilities • Building Management, security and Housekeeping services, utilities management, Energy Management, and Parking Management. • Property development • Residential development, office development, and property investments. • Property lease • Office space, and warehouses for corporate business needs, accommodation facilities in the form of a hotel with 291 rooms. • Property facilities • Shuttle buses with mobile concept. • Smart Office. • Supporting business facilities, including official vehicles. 8 8 PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) Tbk CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS www.mitratel.co.id www.telkominfra.co.id PT Dayamitra Telekomunikasi (Mitratel) and manages Mitratel builds telecommunications facilities and infrastructure as well as four main business (B2S), segments, namely built collocation and reseller, microcell, project and tower related services. to suit tower Product and Services: • Built to suit • Tower rental services by building new towers in accordance with their respective locations and specifications requested by operator. • Colocation and reseller • Existing tower rental services to customers. • Tower rental services owned by third parties to customers. • Microcell • In building system (IBS). • Outdoor solution (BTS Hotel). • Tower related services • Combat. • Backhaul. • Survey Tower. • Cell Pion. • IMB. • HO. • Construction services www.telin.co.id PT Telekomunikasi Indonesia International (Telin) a. Basic services b. Mobile broadband c. Digital service PT Infrastruktur Telekomunikasi Indonesia (Telkom Infra) Telkom Infra has four business portfolios, namely network managed services, service solution, power & engineering solution and submarine cable. Product and Services: • Site Maintenance. • Network Managed Services. • Network Optimization. • Energy Solution. • Off Grid Solution. • On Grid Solution. • Service Solution. • Engineering Service. • Construction Service. • Submarine Cable. • Operation & Maintenance. • Cable Laying. plans, constructs, Telin provides, develops, operates, markets/offers/ international leases and maintains telecommunication informatics network and service; the Products and Services: a. Telecommunication 1. Mobile Services 2. Network & Infrastructure Services a. Interconnection & international traffic b. Network services c. Satellite b. Information 1. Platform Services a. Data center & cloud b. Business Process Management c. Mobile platform www.pins.co.id www.metranet.co.id PT Jalin Pembayaran Nusantara (Jalin) PT PINS Indonesia (PINS) JALIN was established on November 3, 2016. It is currently focus on business of non-cash payment system that supports national payment gateway. Products and Services: • Management of the system and/or network in a transaction using the card payment instruments (CPI). • Cooperate with the merchant so the merchant is able to process transactions from CPI issued by other parties. • Switching and routing services over electronic transactions using CPI. • APMK operator in clearing transactions. • Settlement on the calculation of the clearing. PINS has a business portfolio that consists of three groups, namely mobility services, CPE services, and IoT services/M2M solution. Product and Services: • IoT Services include, among others, Smart City, Smart Building, Smart Office, Smart Water, Smart PJU, IoT Gateway, and IT Infrastructure Management • Product Mobility Services, consists of PRIME and Handset. • CPE Services include products such as Seat Management, Business Area Management System, ICT Security System, IT Hardware, Managed CPE Services. PT Metranet (Metranet) Metranet is currently focused on mobile business development and online media to increase online traffic, enrich the service, and optimize the monetization process. Products and Services: • Uad, platforms that bring together publishers, advertisers and agencies to be able to do digital advertising activities effectively and efficiently. • UPOINT, virtual payment instruments and navigation services to make purchases virtually. PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) Tbk 9 9 TELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS TelKOm DiGiTal eXPerieNce eNcOUraGes cHaNGes aND creaTes OPPOrTUNiTies blanja UNIQUE VALUE PROPOSITION 1. 2. 3. Leveraging Telkom Group Ecosystem Leveraging e-Bay’s expertise and network with more than 500 million global products Marketing the product of Small Medium Enterprise guided by State Owned Enterprises to local and global market Customer Experience 1. Accessible through Web Desktop, Android & iOS Mobile Apps, Mobile Web 2. A wide selection of payment method 3. Search experience 4. Various promotion programs 10 PT Telkom Indonesia (Persero) Tbk CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS DIGITAL EMPLOYEE EXPERIENCE Providing digital convenience for employees through: Teleconference & video conferencing (Permata & WEBEX); Talent Management & Career Tools (Ingenuim); Digital Learning (Cognitium); Corporate social media and file sharing (Diarium), Cloud storage (Telkom drop-up); Online & Mobile Office Memorandum; Office Live; Online Procurement; Online Presence, Work diary and record keeping; Data Analytic Library; Online Recruitment. DIGITAL MOBILE EXPERIENCE Providing ease of access through digital mobile app through: Telkom solution; My IndiHome; My Telkomsel; T-Money; UseeTV; Wifi ID. DIGITAL CITIZEN EXPERIENCE Providing ease of the “Smart City Nusantara” urban service in the form of Wi-Fi based Internet access service, Social Media Analytic service, Digital Library services and Qbaca service. DIGITAL SOCIETY EXPERIENCE Providing easy access to digital technology and information to the society, including SME business owners, through the Kampung UKM Digital, and Pustaka Digital. UKM GOES DIGITAL AND KAMPUNG DIGITAL In 2015, Telkom launched Kampung UKM Digital Program. By the end of 2017, we expect to established 1,000 Kampung UKM Digital in Indonesia. PUSTAKA DIGITAL Telkom introduced 1,000 PaDI (Pustaka Digital) on May 4, 2016. It is a library for e-Books through which we can encourage people to read and study. PaDi is accessible at padi.qbaca.com 11 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTO Be “THe KiNG OF DiGiTal iN THe reGiON” GrOWTH, sYNerGY, aND ValUes is transforming to become digital Telkom Group telecommunication company that envisions to be “the King of Digital in The Region”, the king of telecommunication and digital services in the air, land, and sea. Telkom continues to digitalize a whole process, innovate to give the best customers experience and implement lean and agile organization transformation to pursue competitive advantage and digital capabilities. INDONESIA HAS 252 MILLION OF POPULATION SPREAD IN MORE THAN 17 THOUSAND ISLANDS Makes digitalization to be a necessity BECOMING THE BIGGEST DIGITAL ECONOMY IN SOUTHEAST ASIA Indonesia is now constructing digital economy all over the country 12 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCORPORATE STRATEGY DIRECTIONAL STRATEGY Disruptive competitive growth Amid the challenging changes in the industry, Telkom Group believes that the market capitalization will grow significantly. This is done by providing added value to customers through the provision of products and services, promoting synergies and building a strong digital ecosystem in both the domestic and international markets. PORTFOLIO STRATEGY Customer value through digital TIMES portfolio Telkom Group focuses on TIMES digital portfolio through the provision of convenient and convergent services synergistically to deliver high values to customers. PARENTING STRATEGY Strategic Control To support business growth effectively, Telkom Group implements the strategic control approach to align business units, functional units and subsidiaries so that the process runs in a more targeted, synergetic, and effective way to achieve the company’s goals. 13 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS PrOViDiNG THe DiGiTal sOlUTiON THe FUTUre FOr eVerY TelKOm cUsTOmer seGmeNT SMART TRANSPORTATION SMART INFRASTRUCTURE SMART CITIZEN SMART GOVERMENT /EDUCATION SMART HEALTH CARE SMART SECURITY SMART BUILDING SMART ENERGY SMART TECHNOLOGY SMART CITY CORPORATE telecommunications and information services, Providing including interconnection, leased lines, satellite, VSAT, contact center, broadband access, data center and internet access to corporate customers, small medium enterprises, government institutions, wholesale, and international customers. PERSONAL Providing mobile telecommunication services and fixed wireless mobile to personal customers. PT Telkom Indonesia (Persero) Tbk CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS For the corporate customer segment, we provided integrated service solutions with the bandwidth consumption in service amounted to 2,524 Gbps in 2016. Furthermore, we served 173.9 million mobile subscribers with 60 million mobile broadband subscribers and 4.3 million fixed broadband subscribers with 1.62 million indiHome subscribers by the end of 2016. Telkom has built smart city services in 219 cities in Indonesia. SMART SMART TRANSPORTATION INFRASTRUCTURE SMART CITIZEN SMART GOVERMENT /EDUCATION SMART HEALTH CARE SMART SECURITY SMART BUILDING SMART ENERGY SMART TECHNOLOGY SMART CITY HOME Providing fixed line telecommunications services, subscription TV, data, and internet services to residential customers. OTHERS Provide building management services and facilities, including the rental of office premises, hotel development, leasing of commercial buildings, and transportation management. PT Telkom Indonesia (Persero) Tbk 15 TELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY APPENDICES CONSOLIDATED DEVELOPMENT PROGRAM FINANCIAL STATEMENTS TelKOm iNFrasTrUcTUre sUsTaiNaBle iNVesTmeNT iN iNFrasTrUcTUre is THe KeY TO serVe cUsTOmers BeTTer Hawaii Los Angeles (USA) Marseille (France) Italy Egypt Saudi Arabia Yemen Djibouti SEA-US* 15.000 km from Manado, Indonesia to California, United States of America Philippines Guam Sri Lanka Batam Dumai Manado SEA-ME-WE 5 20,000 km from Dumai, Indonesia to Marseille, France IGG* Indonesia Global Gateway connecting SEA-ME-WE 5, SEA-US and domestic network id-Access True Broadband Access 16.4 Million Homes-passed 362,200 Access point Wi-Fi 95,000 sqm Gross facility Data Center *on construction id-Con Indonesia Digital Convergence TELKOM GROUP FINANCIAL AND MANAGEMENT REPORT OPERATIONAL HIGHLIGHTS ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS In order to serve customers better as well as to grow digital business, Telkom Group continues to invest in digital infrastructure including access network, backbone network and data center. Inter-island and inter-continental optic fiber becomes the foundation of Telkom’s digital business growth. Marseille (France) Italy Egypt Saudi Arabia Yemen Djibouti SEA-US* 15.000 km from Manado, Indonesia to California, United States of America Philippines Guam Sri Lanka Batam Dumai Manado SEA-ME-WE 5 20,000 km from Dumai, Indonesia to Marseille, France IGG* Indonesia Global Gateway connecting SEA-ME-WE 5, SEA-US and domestic network Hawaii Los Angeles (USA) 16.4 Million Homes-passed 362,200 Access point Wi-Fi Backhaul support 129,033 BTS Unit Including 61% BTS 3G/4G id-Ring Nationwide Broadband Backbone 106.000 km Fiber optic backbone (including international backbone network) 3 satellites 2 satellites with a total capacity of 60 transponders and Telkom 3S with a capacity of 42 transponders (launched on February 15, 2017) TABLE OF CONTENTS Reading the Report Content For ease of stakeholders, Telkom has divided this report into two main parts. Part One, from the front page of the report to the “Management Report” and “Statement”, is dedicated to readers who wants to understand Telkom in a short amount of time. Investors and other stakeholders who want to know in detail about Telkom can continue to read this report from Part One to Part Two, namely the “About Telkom” section and so forth until the end. 2 Disclaimer 4 report Theme 6 TELKOM GROUP 6 10 12 14 16 Brief Profile of Telkom and subsidiaries Telkom Digital experience To be “The King of Digital in the region” Providing Digital solution Telkom infrastructure 18 20 23 TABLE OF CONTENTS FINANCIAL AND OPERATIONAL HIGHLIGHTS STOCK HIGHLIGHTS 27 MANAGEMENT REPORT 28 34 42 report of the Board of commissioners report of the President Director statement of responsibility for the 2016 annual report 46 ABOUT TELKOM INDONESIA Telkom indonesia identity 46 48 Vision and mission 50 a Brief History of Telkom 52 Business activities 54 awards and certifications 62 64 74 85 89 92 98 100 chronology of listing of Bonds and Other securities 102 Name and address of institutions and / or the capital market supporting Telkom Organizational structure Profile of Board of commissioners Profile of Directors Telkom indonesia employees shareholders composition subsidiaries, associated companies, and Joint Venture chronology of registration of stocks Professionals 105 MANAGEMENT DISCUSSION AND ANALYSIS 107 Operations Overview by segment 122 comprehensive Financial Performance 140 solvency 140 receivables collectability 141 capital structure 142 capital expenditure 144 material commitment for capital expenditure 18 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS indonesian Telecommunication industry 146 material information and Fact 146 macroeconomy 148 152 Business Prospect 153 comparison Between Targets and realizations 154 Targets for the Next Year 154 Dividend 155 realization of Public Offering Fund 155 material information (investments, divestments and acquisitions) 156 marketing Overview 158 changes in regulation 161 changes in accounting Policies 163 CORPORATE GOVERNANCE 164 road map and strengthen corporate Governance 2011 - 2017 166 corporate Governance Principle and Foundation 173 corporate Governance evaluation 174 General meeting of shareholders 182 Board of commissioners 190 audit committee 194 Nomination and remuneration committee 198 risk Planning, monitoring and evaluation committee 201 Board of Directors 212 corporate secretary 214 216 217 risk management system 224 Whistleblower system 226 significant legal Disputes 227 228 corporate culture 234 corporate code of ethics 234 employee stock Ownership Program internal audit Unit internal control systems information regarding administrative sanctions 237 CORPORATE SOCIAL RESPONSIBILITY 239 csr strategy 239 csr for customers 240 csr for employee 243 csr for the community 247 csr for the environment 251 PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM 252 PcDP Highlight 253 PcDP report 265 APPENDICES 266 Glossary 270 list of abbreviations 272 cross reference for seOJK No. 30 Year of 2016 281 Feedback Form 282 CONSOLIDATED FINANCIAL STATEMENTS 283 audited consolidated Financial statements 2016 audited PcDP Financial statements 2016 19 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS FINANCIAL AND OPERATIONAL HIGHLIGHTS Financial Highlight Consolidated Statements of Comprehensive Income (in billion of Rupiah. except for net income per share and per ADS) Total Revenues Total Expenses EBITDA Operating profit Profit for the year Profit for the year attributable to: • Owners of the parent company • Non-controlling interest Years ended on December 31 2016 2015 2014 2013 2012 116,333 102,470 89,696 82,967 77,143 77,888 59,498 39,195 29,172 19,352 9,820 71,552 51,415 32,418 23,317 15,489 7,828 61,564 57,700 54,004 45,673 41,776 39,757 29,206 27,846 25,698 21,274 20,290 18,362 14,471 6,803 14,205 6,085 12,850 5,512 Total comprehensive income for the year 27,073 23,948 22,041 20,402 18,388 Total comprehensive income attributable to: • Owners of the parent company • Non-controlling interest • Net income per share Net income per ADS (1 ADS : 100 common stock) Consolidated Statement of Financial Position (in billion of Rupiah) Assets Liabilities Equity attributable to owner of the parent company Net working capital (Current Asset - Current Liabilities) Investment in associate entities Capital Expenditure (in billion of Rupiah) Telkom Telkomsel Others Subsidiaries Total Consolidated Financial and Operation Ratios Return on Asset (ROA (%)(1) Return on Equity (%)(2) Operating Profit Margin (%)(3) Current Ratio (%)(4) Total Liabilities to Equity Ratio (%)(5) Total Liabilities to Total Assets Ratio(%)(6) Debt to Equity Ratio(7) Debt to EBITDA Ratio(8) EBITDA to Interest Ratio9) 17,331 9,742 196.2 19,619 16,130 15,296 7,818 157.8 15,777 6,745 148.1 14,813 14,317 6,085 147.4 14,742 12,876 5,512 133.8 13,384 Years ended on December 31 2016 2015 2014 2013 2012 179,611 74,067 84,384 7,939 1,847 166,173 141,822 128,555 72,745 55,830 51,834 75,136 12,499 1,807 67,721 59,823 1,976 1,767 4,638 304 111,369 44,391 51,541 3,866 275 Years ended on December 31 2016 2015 2014 2013 2012 10,309 12,564 6,326 9,641 11,321 5,439 8,099 5,313 13,002 15,662 3,560 3,923 29,199 26,401 24,661 24,898 4,040 10,656 2,576 17,272 Years ended on December 31 2016 2015 2014 2013 2012 10.8 22.9 33.7 120.0 87.8 41.2 30.1 53.4 21.2 9.3 20.6 31.6 135.3 96.8 43.8 37.0 67.3 20.7 10.2 21.4 32.6 106.1 82.4 39.4 27.3 51.3 25.2 11.0 23.7 33.6 116.0 86.6 40.3 26.4 48.5 27.8 11.5 24.9 33.3 116.0 86.1 39.9 28.8 48.5 19.3 (1) ROA is calculated as profit for the year attributable to owner of the parent company divided by total assets at year end December 31. (2) ROE is calculated as profit for the year attributable to owner of the parent company divided by total equity attributable to owner of the parent company at year end December 31. (3) Operating profit margin is calculated as operating profit divided by revenues. (4) Current ratio is calculated as current assets divided by current liabilities at year end December 31. (5) Liabilities to Equity Ratio is calculated as total liabilities divided by total equity attributable to owners of the parent company at year end December 31. (6) Liablities to total assets ratio is calculated as total liabilities divided by total assets at year end December 31. (7) Debt to equity ratio is calculated as net debt divided by total equity attributable to owners of the parent company at year end December 31. (8) Debt to EBITDA ratio is calculated as net debt divided by EBITDA. (9) EBITDA to interest ratio is calculated as EBITDA divided by cost of fund. 20 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 120,000 100,000 80,000 60,000 40,000 20,000 0 20,000 15,000 10,000 5,000 0 200,000 150,000 100,000 50,000 0 13.5% yoy Revenue (in billions of Rupiah) 15.7% yoy EBITDA (in billions of Rupiah) 116,333 102,470 89,696 82,967 77,143 59,498 51,415 45,673 41,776 39,757 60,000 50,000 40,000 30,000 20,000 10,000 0 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 24.9% yoy Net Income (in billions of Rupiah) 24.3% (in billions of Rupiah) yoy Net Income/Share 19,352 15,489 14,471 14,205 12,850 196,2 157,8 148,1 147,4 133,8 200.0 150.0 100.0 50.0 0 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 8.1% yoy Total Asset (in billions of Rupiah) 12.3% yoy Total Equity (in billions of Rupiah) 179,611 166,173 141,822 128,555 111,369 84,384 75,136 67,721 59,823 51,541 100,000 80,000 60,000 40,000 20,000 0 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 21 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSOPERATIONAL HIGHLIGHT Broadband Subscribers Fixed broadband (1) Mobile broadband Unit Years ended on December 31 2016 2015 2014 (000) subscribers 4,329 3,983 (000) subscribers 60,030 43,786 3,400 31,216 Total Broadband Subscribers (000) subscribers 64,359 47,769 34,616 Cellular Subscribers Postpaid (kartuHalo) (000) subscribers 4,180 3,509 2,851 Prepaid (simPATI, Kartu As, Loop) (000) subscribers 169,740 149,131 137,734 Total Cellular Subscribers (000) subscribers 173,920 152,641 140,585 Fixed Line Subscribers Fixed wireline (POTS) Fixed wireless Total Fixed Line Subscribers Other Subscribers Datacomm Satelit-transponder Network BTS 2G BTS 3G/4G Total BTS(3) Customer Services PlasaTelkom Grapari Grapari Mobile Employees (000) subscribers (000) subscribers (000) subscribers 10,663 N/A(1) 10,663 10,277 N/A(2) 10,277 9,698 4,404 14,102 Mbps MHz unit unit unit location location unit 764,397 1,907,012 930,327 6,801 4,648 3,560 50,344 78,689 48,394 54,895 46,398 39,022 129,033 103,289 85,420 566 416 487 572 414 392 572 409 268 people 23,876 24,785 25,284 (1) Total of broadband subscribers including IndiHome Triple Play subscribers is of 1.6 million, 1.1 million and 122 thousand in 2016, 2015, and 2014 respectively. (2) Until the end of 2015, wireless subscribers were entitled to migrate to cellular subscribers. (3) Since 2014 the BTS that we disclose is Telkomsel BTS. 22 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS STOCK HIGHLIGHT TELKOM’S STOCK AT IDX Here we present a report of the highest, lowest and closing share prices, trading volumes, number of shares outstanding and market capitalization of the common stock recorded at the Indonesia Stock Exchange (“IDX”) for the periods indicated: Calendar Year High Low Closing Price per Share of Common Stock (in Rupiah) Volume (shares) Outstanding Shares Market Capitalization (in Rupiah) 2012 2013 2014 2015 1,990 1,330 1,810 23,002,802,500 95,745,344,100 182,448 2,580 1,760 2,150 27,839,305,000 97,100,853,600 216,720 3,010 2,060 2,865 24,035,761,600 98,175,853,600 288,792 3,170 2,485 3,105 18,742,850,400 98,198,216,600 312,984 First Quarter 3,020 2,770 2,890 5,209,728,100 97,100,853,600 291,312 Second Quarter 2,955 2,595 2,930 4,816,156,800 98,175,853,600 295,344 Third Quarter 2,970 2,485 2,645 4,061,559,500 98,175,853,600 266,616 Fourth Quarter 3,170 2,600 3,105 4,655,406,000 98,198,216,600 312,984 2016 4,570 3,045 3,980 23,017,915,300 99,062,216,600 401,184 First Quarter 3,510 3,045 3,325 5,852,647,000 98,198,216,600 335,160 Second Quarter 4,010 3,305 3,980 5,808,895,400 99,062,216,600 401,184 Third Quarter 4,570 3,950 4,310 5,821,745,500 99,062,216,600 434,448 Fourth Quarter 4,400 3,640 3,980 5,534,627,400 99,062,216,600 401,184 September 4,400 3,950 4,310 2,010,068,700 99,062,216,600 434,448 October 4,400 4,120 4,220 1,365,432,500 99,062,216,600 425,376 November 4,300 3,640 3,780 2,680,143,800 99,062,216,600 381,024 December 4,020 3,670 3,980 1,489,051,100 99,062,216,600 401,184 2017 4,030 3,780 3,850 2,770,417,700 99,062,216,600 388,080 January 4,030 3,780 3,870 1,280,778,000 99,062,216,600 390,096 February 3,980 3,830 3,850 1,489,639,700 99,062,216,600 388,080 On the last IDX trading day in 2016, which was on December 30, 2016, the closing price for our common stock was Rp3,980 per share. With the share price, Telkom’s market capitalization reached Rp 401.2 trillion, or 7.0% of the total capitalization in the Indonesia Stock Exchange (BEI). Volume (in million shares) Price (Rp) 500 450 400 350 300 250 200 150 100 50 0 1st Quarter 2015 2nd Quarter 2015 3rd Quarter 2015 4th Quarter 2015 1st Quarter 2016 2nd Quarter 2016 3rd Quarter 2016 4th Quarter 2016 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 23 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS TELKOM’S STOCK AT NYSE In the table below, we present the highest, lowest and closing share prices as well as the trading volumes of Telkom’s ADS stock recorded at the New York Stock Exchange (“NYSE”) for the periods indicated. Calendar Year High Low Closing Price per ADS (NYSE) (in US Dollars) 2012 2013 2014 2015 2016 2017 First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter September October November December January February 20.57 25.31 24.38 23.54 23.54 22.48 21.99 22.76 34.65 26.92 30.96 34.65 33.57 33.38 33.57 32.85 29.75 30.16 30.16 29.71 14.63 16.88 16.95 17.05 20.56 20.26 17.05 17.47 21.22 21.22 25.06 29.63 27.17 29.63 31.59 28.00 27.17 28.16 28.16 28.47 Volume ( ADS) 177,219,324 134,122,210 104,501,896 87,438,232 18,351,674 21,794,470 20,440,486 26,851,602 110,532,172 24,848,124 31,010,592 27,153,358 27,520,098 8,680,416 8,246,024 9,242,784 10,031,290 16,271,010 8,079,524 8,191,486 18.48 17.93 22.62 22.20 21.77 21.70 17.83 22.20 29.16 25.43 30.73 33.04 29.16 33.04 32.49 28.10 29.16 28.50 29.42 28.50 On the last trading day in NYSE for the year of 2016, which was on December 31, the closing price for Telkom’s 1 ADS was in the amount of $29.16. Effective from October 26, 2016, we changed the Depository Receipt (DR) from 1 Depository Shares (DS) representing 200 shares to 1 DS representing 100 shares. The presentation on the table above have accommodated the ratio change. Volume (in million shares) Price (US$) 40 35 30 25 20 15 10 5 0 1st Quarter 2015 2nd Quarter 2015 3rd Quarter 2015 4th Quarter 2015 1st Quarter 2016 2nd Quarter 2016 3rd Quarter 2016 4th Quarter 2016 4 3.5 3 2.5 2 1.5 1 0.5 0 24 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS INFORMATION OF CORPORATE ACTIONS RELATED TO STOCK On June 29, 2016, the Company sold back 172,800,000 treasury stock (equal to 864,000,000 treasury shares), which is part of the phase IV buyback program with a total fair value of Rp3,259 billion (net of costs of sale of shares). Other than the sale of treasury stock, the Company did not carry out any other stock-related corporate actions such as stock split, reverse stock, dividend disbursement, distribution of bonus shares, Employee Stock Ownership Program (ESOP), and changes to the nominal value of shares. 25 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIManageMent report 28 34 42 report of the Board of Commissioners report of the president Director Statement of responsibility for the 2016 annual report TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASI report of the BoarD of CoMMiSSionerS hendri Saparini President Commissioner 28 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASI“ As an overview, we see that the performance of the Board of Directors in 2016 was exceptional, which records a double-digit growth for Revenue, EBITDA and Net Profit or triple double digit. The Board of Directors was capable to prepare and execute strategies, determine priorities as well as making adjustments over the strategies based on the characteristic of the very dynamic telecommunication industry. ” Distinguished Shareholders and Stakeholders, The Board of Commissioners expresses our gratefulness to Allah SWT, the God almighty whose blessings have allowed Telkom to successfully pass the year 2016 with an excellent performance. general View towards the Macro economy and industry Supervision and performance evaluation of the Board of Directors During the Year of 2016 In performing the supervision function and giving the recommendation towards the performance of the Board of Directors, the Board of Commissioners emphasizes on Telkom’s strategic activities and it oriented on the improvement of the Company’s added value. Supervision activities were conducted by the Board of Commissioners by examining all reports, conducting meetings, both In general, Indonesian economy in 2016 was in a good internal meeting of the Board of Commissioners, or joint condition. The deceleration of global economy does not meetings between the Board of Commissioners and the bring significant affect towards domestic economy that Board of Directors periodically at the minimum of 12 was supported more by the household consumption. The times. In performing its supervisory function, the Board government has also worked hard to push the economy of Commissioners was assisted by 3 (three) committees, growth by issuing various economic policy packages namely the Audit Committee, Nomination and Remuneration as well as materializing government expenditure in the Committee, as well as the Committee for Evaluation and infrastructure sector. As a result, Indonesian economy in Monitoring of Risk Planning (KEMPR). 2016 grew 5.02% which is higher than the previous year that grew at 4.88%. In particular, Bureau of Statistic Centre (BPS) As an overview, we see that the performance of the has also recorded that the Information and Communication Board of Directors in 2016 was exceptional, which sector grew very well, way above the growth of the records a double-digit growth for Revenue, EBITDA national economy, which means that the Information and and Net Profit or triple double digit. The Board of Communication sector was one of the growth generators of Directors was capable to prepare and execute strategies, the domestic economy. determine priorities as well as making adjustments over the strategies based on the characteristic of the very Year 2016 saw relatively fair competitions in the dynamic telecommunication industry. telecommunication industry, especially in the cellular segment. The trend of telecommunication industry also In 2016, Telkom obtained the Revenue in the amount of moves towards digital services and leaving previous legacy Rp116.3 trillion, which is 13.5% higher compared to the services, namely voice call and SMS. Meanwhile, for the previous year. Meanwhile, EBITDA grew by 15.7% to Rp59.5 fixed-line segment, the trend of industry is on the direction trillion and Net Profit was recorded at Rp19.4 trillion or towards the fiber-based broadband service. The demand grew by 24.9% compared to the net profit in the previous for this service will grow along with the increase of middle year. From the operational side, Telkom has successfully class society in Indonesia that yearns for higher quality obtained the accumulation of fixed broadband customers broadband services. in the amount of 4.3 million up to the end of 2016, with IndiHome triple play customers reaching 1.6 million as the result of the hard works of the Company in socializing the fixed broadband service. Meanwhile, on the cellular business unit, the amount of Telkomsel’s customers is still 29 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIgrowing by 13.9% to have reached 173.9 million customers expenditure especially in the infrastructure development. from all over Indonesia. We also expect for a relatively stable political situation, despite the simultaneous 2017 governor election (Pilkada) The Board of Commissioners would like to take this in many provinces in Indonesia. This is very important to opportunity to give appreciation for the excellent allow for a conducive climate for business actors. performance of the Board of Directors during that it has successfully recorded an extraordinary financial From the industrial aspects, we view that the trend of performance by reaching triple double digit growth change from legacy business to become digital business for the Revenue, EBITDA, and Net Profit. Moreover, continues. On one side this constitutes the challenge Telkom does not only contribute to the development for Telkom to transform itself to become a digital of the telecommunication industry, but also give the telecommunication company. On the other side, this change multiplier effect on the social economy to the society offers a major opportunity for growth, by considering that through the creation of employments and through other the penetration of smartphone or the consumption of forms, especially the ease of connectivity which may be data service amongst Indonesians people is still so much utilized by the economic actors. Therefore, the Board lower compared to developed countries. Moreover, the of Commissioners will continuously give the motivation, household need for higher quality fixed broadband service direction, and feedback as part of its efforts to improve continue to increase significantly. the sustainable performance of the Company in the future. Views on the Business prospect We expect that the macro economy condition in 2017 grow above the average growth of the national economy. This is supported by the increase of data service utilization, will continue to be solid, and continue to be supported in line with the growth of mobile broadband and fixed by household consumption, including by expenditure on broadband users as well as improvement in people’s digital telecommunication, and to be supported by government literacy on digital services. The telecommunication industry is predicted to continue to 30 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIIn the meantime, although it is not easy, the opportunity through the implementation of the structure of Customer to grow inorganically, both domestically and overseas, Facing Unit (CFU) and Functional Unit (FU) to allow better may be explored further in a smart way, especially those and faster service for the customers. opportunities that may add value and synergize Telkom Group. In relation to this matter, Telkom should certainly By developing the infrastructure of the network prepare itself in many aspects, including funding, technical comprehensively, Telkom is actually playing the important aspect, and human resources readiness. role in developing the digital economy in Indonesia. Broadband service, with all of its benefits, will be enjoyed Any business prospect and opportunity will always pose more by all classes of society in Indonesia, and the most its own challenges and obstacles in the implementation, important benefit is the access to economic activities that such as challenges in aspects of government regulations, are more and more limitless. One of the parts of ecosystem business competitions, or the fast changes of the that is important and must be strengthened is Telkom’s technology. These challenges and obstacles must always e-commerce platform namely blanja.com that may support be anticipated by Telkom. the marketing of the small and medium enterprise’s (UKM) product in a broader and easier manner. telkom’s transformation to Become Digital telecommunication Company The Board of Commissioners fully supports the efforts of Telkom’s Board of Directors in achieving its vision, which is Social and environment responsibility As a business entity that dwells among the society, we fully realize and commit that Telkom must give real contribution to make Telkom the King of Digital in the Region. To achieve in the form of Social and Environment Responsibility (TJSL). such objective, Telkom should continuously develop the In 2016, Telkom conducted TJSL program under the theme infrastructure and ecosystem as a whole to achieve the of “Telkom Indonesia for Indonesia”. The ultimate goal of objective of the Company. Telkom has also transformed TJSL Telkom is to assist the development of national digital the organizational structure to become more lean and agile economy by facilitating synergy with other State Owned 31 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIEnterprises (BUMN), such as through the establishment of BUMN Creative House (RKB), Digital Village, and the Hendri Saparini development of Digital Library (PaDi). Dolfie Othniel Fredric Palit the implementation of good Corporate governance in telkom To ensure long term business continuity of the Company, we always emphasize on the importance of implementing good corporate governance. A number of prestigious Hadiyanto Pontas Tambunan Margiyono Darsasumarja Rinaldi Firmansyah awards in the field of Good Corporate Governance (GCG), Pamiyati Pamela Johanna which among others was the Most Trusted Company Waluyo from the Indonesian Institute for Corporate Governance : President Commissioner : Commissioner : Commissioner : Commissioner : Independent Commissioner : Independent Commissioner : Independent Commissioner (IICG), shows Telkom’s commitment on the importance of implementing and enforcing the GCG values based on the Closing The Board of Commissioners expresses its gratitude best practices. The Company also continuously improves and highest appreciation to the Board of Directors, the implementation and enforcement of GCG values in management, and all employees for the outstanding order to give a strong foundation for the Company to be support and cooperation in the year 2016. We hope that the able to keep growing sustainably in the long term. solid cooperation and continuous synergy will encourage even better performance in the future. assessment on the performance of Committees under the Board of Commissioners In performing its supervision function, the Board of Commissioners is assisted by 3 (three) committees, namely We also express the same gratitude and appreciation to the shareholders, customers, business partners, as well as other stakeholders for the supports given to Telkom Group. the Audit Committee, Nomination and Remuneration In the future, Telkom will continue its effort to improve its Committee, as well as KEMPR, which have given the full value and give more benefits to all of our stakeholders, by support to the Board of Commissioners so that it may perform keep improving and preparing ourselves to realize the vision its duties and functions to conduct the supervision towards and mission as well as to actively participate in leading the the Board of Directors of the Company in 2016. In general, development of digital economy of Indonesia. those three committees have performed their duties well and able to cooperate with the Board of Commissioners and management. We always support all Committees to ensure Jakarta, March 30, 2017 hendri Saparini President Commissioner continuous improvement of their capability and broaden their knowledge in general industry sector, business sector, and finance as well as the telecommunication technology. the Change of Composition within the Board of Commissioners In 2016, the composition of Telkom’s Board of Commissioners was changed whereby the Annual General Meeting of Shareholders (AGMS) approved the honorable dismissal of Bapak Parikesit Suprapto as an Independent Commissioner who was then replaced by Bapak Margiono Darsasumarja. In this opportunity, we express our gratitude for the role and excellent contribution of Bapak Parikesit Suprapto as an Independent Commissioner during his term of office in Telkom. In addition, AGMS also approved the appointment of Bapak Pontas Tambunan as a Commissioner. After such change, the Board of Commissioners of Telkom then consists of seven member of the Board, with the following composition: 32 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASILeft to right (Sitting down): Pamiyati Pamela Johanna Waluyo (Independent Commisioner), Hendri Saparini (President Commisioner) Left to right (Standing): Hadiyanto (Commisioner), Margiyono Darsasumarja (Independent Commisioner), Pontas Tambunan (Commisioner), Dolfie Othniel Fredric Palit (Commisioner), Rinaldi Firmansyah (Independent Commisioner) 33 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIreport of the BoarD of DireCtorS alex J. Sinaga President Director 34 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASI“ The strategy and hard works that we performed during 2016 have given positive results, with the success of Telkom to record an excellent financial and operational performance. ” Distinguished Shareholders, Board of Commissioners, and Telkom continues to strengthen broadband connectivity all Stakeholders, services as its core business, develop digital mediation platform and digital services. These are the three pillars Please allow me, as a representative of the Board of for Telkom’s digital business growth in order to increase Directors, to express our gratefulness to the God Almighty its competitiveness and company value, and to maintain whose blessings have allowed PT Telkom Indonesia its position among the Top-10 digital telcos in Asia Pacific (Persero) Tbk to successfully pass 2016 by recording an in 2020. excellent financial and operational performance Macroeconomic and telecommunication industry Condition in 2016 Indonesian economy in 2016 has grown well and it is Vision, the Company in 2016 has introduced three main programs, namely Leading Mobile Digital Business, Drive Digital Home and Enterprise, and Smart International significant to give hope that the economic condition in the Business Growth. These programs are the continuation to upcoming years will grow even better. The government the previous year’s program, with each program is now In our efforts to create sustainable growth in achieving the shows systematic efforts to facilitate business actors more refined. by issuing various economic policy packages, and consistently realizes the development of infrastructure To reaffirm Telkom’s leading position in the Indonesian that will eventually stimulate the growth of national cellular industry, we took the initiative to optimize mobile economy. core business, by developing mobile broadband network to increase its capability, coverage, capacity and service Despite sluggish global economic growth, the Central quality, and accelerating our mobile digital business Statistics Agency (BPS) has recorded that the Indonesian by providing innovative digital services such as digital economy in 2016 was able to grow slightly better at 5.02%, lifestyle, mobile payment, mobile advertising, M2M-IoT compared to 4.88% in 2015. The telecommunication and big data analytic. industry, which is transforming to be a digital business, grew quite well at 8.87%. This shows that the demand Telkom continues to boost the growth of its Home and for digital-based telecommunication services continues Enterprise digital business segments, by focusing on to grow, and it has even become a part of the basic developing its services in broadband connectivity, digital necessities of Indonesians. content and digital solution for enterprise and small, medium enterprises. We selectively develop ecosystem- Strategy and Strategic policy Telkom envisions “To be the King of Digital In the Region”, based digital services such as e-commerce, e-payment, e-health, and e-tourism through synergy and collaboration which means that as a digital telco, Telkom is committed with various corporations. to provide various, customer experience-based, end-to- end digital solution services. 35 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASITo successfully implement the two above-mentioned accordance to the international standards so that we have programs, Telkom continues to strengthen the Indonesia the competitive edge to operate more extensively in the Digital Network (IDN), which is Telkom’s key infrastructure global market. and serves as the foundation for Telkom to run a high- quality and reliable digital business. IDN consists of id-ring or a fiber optic-based broadband highway that serves as the urban network and the backbone that connects towns and cities across the archipelago from Aceh to Papua; id- access, which provides broadband access to customers. It is a fixed broadband network using fiber optic and 3G/4G mobile broadband; id-Convergence, which is an integrated IT platform service facilities comprised of data 2016 Company performance The strategy and hard work that we performed during 2016 have resulted positively, with Telkom succeeded in recording an excellent financial and operational performance. The consolidated revenue has grown by 13.5% to the amount of Rp116.3 trillion. The Data, Internet and Information Technology (excluding SMS) segments, which are the main drivers for growth, have increased center services, mediation platform and application and by 31.5%. The segments’ contribution to Telkom’s total security to develop an ecosystem for digital services. revenue increased significantly, from 31.9% in 2015 to 37% in 2016. This signifies that the Company has moved We continue to explore business development forward in the right direction to become the digital inorganic domestic opportunities and global initiatives, selectively and prudently and in through various telecommunication company as we expect it to be. consideration to synergy value. This is given the fact The Company has also recorded quite a high earning that technology and digital business are increasingly growth excluding interest, tax, depreciation and borderless. We always develop our digital competence in amortization (EBITDA), which increased by 15.7% to 36 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIthe amount of Rp59.5 trillion. The EBITDA margin grew We launched IndiHome at the beginning of 2015. It is a slightly to 51.1% compared to 50.2% in the previous year. fiber optic-based, triple play service package of fixed line, Even though the operational costs increase as we develop high-speed Internet and IPTV. By the end of 2016 or less infrastructure for cellular and fixed line segments, the than two years since it was launched, IndiHome already total increase of operational cost (excluding Revenue and has 1.6 million customers. others) is relatively moderate at 8.9% to become Rp77.9 trillion and it shows that Company is able to control the We continue to augment our content in order to enrich operational cost in an efficient manner. The Net Profit our mobile and fixed customer experience, by increasing increases significantly by 24.9% to the amount of Rp19.4 our shares in PT Melon Indonesia to 100% from 51%. PT trillion. Melon Indonesia has more than five million catalogue of digital, Indonesian and foreign songs. Moreover, we In terms of operational performance, Telkomsel remains also cooperate with various music, video streaming and the leader in Indonesia’s cellular market with 173.9 million game providers to boost our fixed and mobile broadband customers, increased by 13.9% compared to the previous products’ appeal to the customers. year. Mobile broadband customers reached 60.0 million or grew 37.1%. The increase in mobile broadband customers Our Enterprise segment recorded 2.524 Gbps bandwidth and use escalated the data traffic to 958,7 Petabytes or grew 94.8%. By the end of 2016, the mobile broadband in service or about 65% out of the bandwidth enterprise Indonesia. Such achievement was market share in 4G LTE service has covered 169 cities and districts all over made possible as we focus on providing an integrated Indonesia. ICT solution, ranging from broadband connectivity to managed services such as enterprise and Small, 37 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIMedium Enterprise (SME) ICT Solution for corporations, Another important project that we finalized in 2016 is government institutions and SMEs. the 20.000-sqm, world-class data center in Jurong, Singapore. The Company’s subsidiary, Telin Singapore, In 2016, Telkom released Rp29.2 trillion capital expenditure manages the Tier-3 and Tier-4 data center, which aims for or approximately 25% out of the 2016 Revenue. This capital expenditure was mainly used to strengthen the infrastructure to anticipate the fast-growing need on broadband service, either on the mobile or fixed segment. global corporation segment. By the end of 2016, Telkom has almost reach 100.000 sqm data center at home and in the region. Traders in the stock markets appreciated Telkom’s Telkomsel continues to strengthen its network in terms excellent financial and operational performance. At the of capability, coverage, capacity and service quality. closing of the last trading day in 2016, Telkom’s share Throughout 2016, Telkomsel has built 25,744 base price rose 28.2% to Rp3,980 per share. It performed transceiver stations (BTS) and the end of the year much better compared to 15.3% growth at the Jakarta Telkomsel owns 129,033 BTS or increased by 24.9%, Composite Index and resulted in Telkom’s market compared to the previous year when roughly 61% of them capitalization reaching Rp401.2 trillion. It was the second were BTS for 3G/4G. highest market capitalization of all companies listed in the IDX and it made up about 7.0% out of the IDX total To support the broadband service, we have approximately 16.4 million of homes-passed, which is used to support our IndiHome customers, those who migrate from fiber capitalization. In addition, by the end of 2016, Telkom was ranked 9th in terms of market capitalization among telecommunication operators Asia Pacific. optic non-IndiHome, Enterprise broadband service, backhaul node-B BTS 3G/4G, Wi-Fi access point and off- load, as well as to support Telkom’s leading supply digital business strategy. Supporting the growth of indonesia’s Digital economy Telkom continues to bolster and enhance its infrastructure as a whole as part of efforts to foster a digital society, Apart from access network, we also bolster our urban, which will serve as the main foundation to develop digital fiber optic-based backbone network and we connect economy in Indonesia. In the future, we expect that various regions in the country. In 2016, the Company as the digital economy grows, our national economic has finalized the Sulawesi, Maluku, Papua Cable System competitiveness in the global market will also grow. (SMPCS) project to increase equality of the digital information and communication technologies (ICT) in the Our success is a realization of our loyal customers’ trust eastern parts of Indonesia. and appreciation to the Company’s willingness to fulfill their expectations to have a quality yet affordable service In our effort to make Telkom as an international data throughout the country. Such service was made possible hub, the Company and a number of operators, which thanks to the meticulously well-planned infrastructure joined forces in a consortium, has finalized the Southeast development that we carried out right on target and in a Asia – Middle East – Western Europe 5 (SEA-ME-WE measurable manner. Telkom took the initiative to actively 5) underwater cable that stretches for 20,000 km participate in fulfilling the needs of ICT infrastucture and connects Indonesia (Dumai) with Middle East and by taking up operational areas that covers all parts of Western Europe (Marseilles, France). By the end of 2016, Indonesia. We believe that the availability of an ICT the Company now owns more than 106,000 km of fiber- infrastructure will benefit and create better opportunities, based backbone network as the SMPCS and SEA- ME-WE including economic, for all elements of society. 5 networks are completed. With other consortium, Telkom is completing the Telkom also built a number of digital ecosystems to provide construction of Southeast Asia–United States (SEA-US) a more integrated service. In regards to digital economy, underwater cable that stretches for about 15,000 km and Telkom has a few platforms, such as e-tourism through connects Indonesia in Manado to the United States in ITX or Indonesia Tourism Exchange, which users can Los Angeles. We expect to complete the project by the utilise to boost the tourism industry, indigo or an initiative Apart from digital-based telecommunication infrastructure, second half of 2017. Telkom has also started the Indonesia Global Gateway to encourage the establishment of a creative industry platform, and an e-commerce platform, Blanja.com, through which Telkom hopes to create a business climate (IGG) project, which will connect Dumai to Manado and conducive for micro business and SME players would have integrate the SEA-ME-WE 5 and SEA-US into the Telkom wider and faster access to the market and enjoy various network. The project is expected to finish in 2018. other ease of doing business. 38 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIillustration of Business prospects The Company believes that opportunities for future With this satellite, we hope to increase our capacity and improve our customer service quality. Having this satellite growth are still wide-open. Telecommunication service is imperative to ensure equal distribution of ICT services has become the basic need of the society, and in the to remote areas, which our fiber optic network could not future, its roles will be more vital, especially to support reach, and to reduce our dependence to external satellite the economic activities. operators. In the cellular segment, the penetration of smartphones The Company leveraged its property assets, such as lands is still relatively low at less than 50%, yet it is rapidly and buildings that are idle due to network transformation, growing. The wider penetration of smartphones will and develop those assets into profitable properties such as push the demand for mobile broadband services as well office buildings, hotels, data centers and other productive as various other relevant services, such as content and investment items. The properties are then utilized by application. In the fixed line segment, the penetration of Telkom Group or included in various cooperations that our fixed broadband services in Indonesia is still also very low subsidiary Telkom Property conducts with third parties. at less than 10%, as we have previously estimated. With With the right business model, those assets could better the burgeoning middle class, we believe that the demand benefit the Company in the future. for high quality broadband service in Indonesian homes will increase. On the other hand, the enterprise segment also offers Since the beginning of 2016, Telkom has been undergoing business transformation to develop its digital business as well as improve customer experience. We conduct opportunity for promising growth. As they strive to the organizational transformation using the Customer develop and compete in their fields, major companies Facing Unit (CFU) approach, which unites subsidiaries require better-integrated ICT solutions similar to the under the same group based on the characteristics of services that we provide. The SME segment has a big their business segments. Moreover, we also established a potential for growth given that most of SMEs in Indonesia support unit called Functional Unit (FU). Based on this still do not have access to reliable connectivity services. approach, Telkom Group has 5 CFUs, namely CFU Mobile, Moreover, various government institutions and regional CFU Digital Services, CFU Enterprise, CFU Consumer and governments are now more eager to utilize digital services CFU Wholesale & International, as well as 4 FUs, namely in improving their public services, such as the need to have FU Finance, FU Digital & Strategic Portfolio, FU Human a platform for their smart city program. By the end of 2016, Capital Management and FU Network & IT Solutions. Telkom has developed smart city services in 219 cities all over Indonesia. We also acknowledge the global trend where the future growth of telecommunication companies will be the implementation of Corporate governance The Company highly values good corporate governance (GCG) principles and consistently improves the quality of contributed by digital services. Therefore, the Company its implementation in all levels of company’s operation. has a systematic plan to keep exploring, cooperating, and The good corporate governance implementation is aimed investing in digital services field to anticipate the industry to create a fair and accountable decision-making process, trend. The Company also established subsidiaries as so that it would be able it to fulfill the stakeholders’ corporate venture capital that will explore and invest in expectations. promising start-up companies. The Company continuously tries to improve the policy In 2016 the Company has successfully obtained the and infrastructure of GCG support system through Application Services License from the Ministry of new initiatives in order to strengthen the quality Telecommunication in Myanmar as well as the license of good corporate governance implementation, from the American government, which allows Telkom to namely the Reinforcement of Corporate Governance offer ICT services to corporate customers [in the United Structure, Reinforcement of Corporate Governance States?]. With these licenses, we expect Telkom will Process and Reinforcement of Culture, dubbed as the continue to perform overseas. Three Main Pillars. On February 15, 2017, we have successfully launched the Telkom-3S satellite from Guiana Space Centre, Kourou, The Company also continuously strengthens enterprise risk management (ERM) the implementation French Guiana. This satellite brought 42 transponders, with ongoing improvement in risk management policy which include 24 C-Band transponders, 8 extended and frameworks, including the improvement of internal C-Band transponders and 10 KU-Band transponders. control to ensure reliable financial reporting, considering 39 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIthat the Company has adopted the International Financial Reporting Standards (IFRS) since 2011. Alex J. Sinaga : President Director Abdus Somad Arief : Director Throughout 2016, the Company has won various awards Harry M. Zen from independent parties as acknowledgement for the implementation of GCG in Telkom. These awards are from The Indonesian Institute for Corporate Governance (IICG), Alpha Southeast Asia and Corporate Governance Asia. Herdy R. Harman Dian Rachmawan Honesti Basyir : Director : Director : Director : Director Corporate Culture Our Corporate culture refers to The Telkom Way as Closing I am taking this opportunity, on behalf of the Board the value system formulated as “Philosophy to be the of Directors, to express our gratitude and highest best, Principles to be the Star, and Practices to be the appreciation for the support of all shareholders, Board Winner.” Philosophy to be the Best is the value to drive of Commissioners, business partners, as well as the Telkom’s employees to be the best individual. The second stakeholders, which has enabled Telkom to achieve an Telkom Way or Principles to be the Star, constitutes of excellent performance in 2016. Solid, Speed, and Smart or the 3S basic principles, which drives Telkom’s employee to possess excellence in the We also express our high appreciation to the management workplace. Lastly, Practices to be the Winner is a standard of behavior in becoming a champion. The internalization and all employees for their dedication and hard work in ensuring the realization of this extraordinary performance. of The Telkom Way values will always be implemented in Therefore, we invite all management and employees to various culture activation activities, cultural reinforcement work harder to achieve an even better performance in the and also as a part of daily work activities. future. the Change of Composition of within Members of the Board of Directors In 2016 there was a change in the composition of Telkom’s Board of Directors. In the Annual General Meeting of Shareholders (AGMS) on April 22, 2016; Mr. Harry M. Zen replaced Mr. Heri Sunaryadi as the Finance Director. On 9 September 2016, the Director of Enterprise and Business Jakarta, March 30, 2017 Service, Mr. Muhammad Awaluddin, was appointed as the President Director of PT Angkasa Pura II (Persero). The alex J. Sinaga President Director Company has appointed the Director of Wholesale and International Service, Mr. Honesti Basyir, as the Official Acting Director of Enterprise and Business Service. On March 15, 2017, Director Digital and Strategic Portfolio, Mr. Indra Utoyo, was appointed as Director of PT Bank Rakyat Indonesia (Persero) Tbk. The Company has appointed the Finance Director, Mr. Harry M. Zen as the Acting Director Digital & Strategic Portfolio. Therefore, the composition of the Board of Directors of Company is changed to be as follows: 40 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASI Left to right Harry M. Zen (Director), Dian Rachmawan (Director), Herdy R. Harman (Director), Alex J. Sinaga (President Director), Indra Utoyo (Director), Honesti Basyir (Director), Abdus Somad Arief (Director) 41 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASIteLKoM groUp iKhtiSar KeUangan Dan KinerJa penting ManageMent report tentang teLKoM inDoneSia anaLiSa Dan peMBahaSan ManaJeMen StateMent of the MeMBer of BoarD of CoMMiSSionerS anD BoarD of DireCtorS regarDing With reSponSiBiLitY for 2016 annUaL report pt teLKoM inDoneSia (perSero) tBK We the undersigned hereby declare that all the information in the PT Telkom Indonesia (Persero) Tbk 2016 Annual Report has been presented in its entirety and that we assume full responsibility for the accuracy of the content of the Company’s Annual Report. This statement is made in all truthfulness. Jakarta, March 30, 2017 Board of Commissioners hendri Saparini President Commissioners hadiyanto Commissioners Dolfie othniel fredric palit Commissioners pontas tambunan Commissioners Margiyono Darsasumarja Independent Commissioners rinaldi firmansyah Independent Commissioners pamiyati pamela Johanna Waluyo Independent Commissioners parikesit Suprapto Independent Commissioners Board of Directors alex J. Sinaga President Director harry M. Zen Director of Finance indra Utoyo Director of Digital & Strategic Portfolio Dian rachmawan Director of Consumer Service abdus Somad arief Director of Network, IT & Solution herdy r. harman Director of Human Capital Management honesti Basyir Director of Wholesale & International Service and Acting Director of Enterprise & Business Service heri Sunaryadi Director of Finance Muhammad awaluddin Director of Enterprise & Business Service TELKOM GROUPIKHTISAR KEUANGAN DANKINERJA PENTINGMANAGEMENT REPORTTENTANG TELKOM INDONESIAANALISA DANPEMBAHASAN MANAJEMENTATA KELOLA PERUSAHAANTANGGUNG JAWAB SOSIAL PERUSAHAANPROGRAM KEMITRAAN DANBINA LINGKUNGANLAMPIRANLAPORAN KEUANGAN KONSOLIDASItata KeLoLa perUSahaan tanggUng JaWaB SoSiaL perUSahaan prograM KeMitraan Dan Bina LingKUngan LaMpiran Laporan KeUangan KonSoLiDaSi PT Telkom Indonesia (Persero) Tbk 43 44 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSABOUT TELKOM INDONESIA 46 48 50 52 54 62 64 74 85 89 92 98 100 102 Telkom Indonesia Identity Vision and Mission A Brief History of Telkom Business Activities Awards and Certifications Telkom Organizational Structure Profile of Board of Commissioners Profile of Directors Telkom Indonesia Employees Shareholders Composition Subsidiaries, Associated Companies, and Joint Venture Chronology of Registration of Stocks Chronology of Listing of Bonds and Other Securities Name and Address of Institutions and/or the Capital Market Supporting Professionals 45 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS TELKOM INDONESIA IDENTITY LOGO The new Telkom logo is stipulated in the Company Regulations No.PD.201.03/2014 on New Corporate/Brand Identity dated June 20, 2014. TAGLINE: THE wORLD IN YOUR HAND The tagline conveys a message that Telkom will make things easier and more fun in accessing the world. MEANING Of LOGO The logo refers to Telkom Corporate philosophy, Always The Best, which is a basic belief that employees always give their best in every job they do and always improving things to be in better condition, and will eventually shape Telkom to become best telecommunications company. 46 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCOLOR PHILOSOPHY Red - Brave, Love, Energy, Tenacious Reflects the company spirit to always be optimistic and brave in facing challenges. White - Pure, Peace, Light, Unified Reflects the spirit of Telkom to provide the best for the nation. Black - Base Color Symbolizes willpower. Grey – Transition Color Symbolizes technology. 47 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM GROUP fINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS VISION AND MISSION Telkom’s vision and mission, enlisted in Telkom Long Term Plan document, which was approved and signed by the Board of Commissioners on September 26, 2016. Be the King of Digital in the Region. Lead Indonesian Digital Innovation and Globalization. 48 48 PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED fINANCIAL STATEMENTS Be the King of Digital in the Region. Lead Indonesian Digital Innovation and Globalization. PT Telkom Indonesia (Persero) Tbk 49 49 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM BRIEf HISTORY Building History of Telkom 1856 - Telkom Was Established In brief, Telkom’s history began on October 23, 1856, when the Government of the Netherlands for the first time in Indonesia provided the first electromagnetic telegraph services connecting Batavia (Jakarta) and Bogor. October 23 was then established as the day when Telkom was founded. Before the independence era, the Dutch government established “Post en Telegraafdienst” that provided postal and telegraph services, and formed the Bureau of Post, Telegraph and Telephone (Post, Telegraph en Telephone Dienst) which regulated the postal and telecommunications services. After independence, the Government of Indonesia changed the company status to Perusahaan Negara Pos dan Telekomunikasi (“PN Postel”) in 1961. In 1965, the Government launched a spin-off of telecommunications services by establishing a new entity called the Perusahaan Negara Telekomunikasi (“PN Telekomunikasi”). PN Telekomunikasi became Perusahaan Umum Telekomunikasi Indonesia (Perumtel) in 1974 and later it became a Limited Liability Company (Persero) PT Telekomunikasi Indonesia based on PP No.25 of 1991 until now Telkom in Globalization Era 1995 - Telkomsel Established and Telkom IPO On May 25, 1995, PT Telekomunikasi Seluler (Telkomsel) was established and marked by the launch of postpaid SIM card kartuHalo. Telkomsel has been consistent in serving the country, providing telecommunication access to the Indonesian people across the archipelago. Telkomsel is an Indonesian cellular operator and has the most extensive network that covers more than 95% of the population across the country and serve the communications need for all segments in the society. Telkom business activities were initially divided into 12 Regional Telecommunications (Witel). In 1995, it was reorganized into seven Regional Division (Divre), Divre I Sumatra, Divre II gretaer Jakarta areas, Divre III West Java, Divre IV Central Java and Yogyakarta, Divre V East Java, Divre VI Kalimantan, and Divre VII Eastern Indonesia. In the same year, on November 14, 1995, Telkom listed for the first-time its shares on the Jakarta Stock Exchange and Surabaya Stock Exchange. Telkom shares are also traded on the NYSE (New York Stock Exchange) and LSE (London Stock Exchange) in the form of ADS and was publicly offered without listing on the Tokyo Stock Exchange. Telkom and New Paradigm in Digital Era 2012 - 2014 TIMES Portfolio By the begining of the second decade of the millennium, in 2012 Telkom reaffirmed itself as the provider of TIMES (Telecommunication, Information, Media, Edutainment and Services), in an effort to increase the business value creation. In addition, Telkom also built a new image by launching a new corporate logo and tagline “the world in your hand”. A year later, Telkom expanded to other countries in Asia and America. The new paradigm encourages Telkom to develop digital-based products and and invest in telecommunications infrastructure and information. Telkom completed the submarine fiber optic cable project JaKaLaDeMa in April 2010, which links Java, Kalimantan, Sulawesi, Denpasar and Mataram. Telkom’s submarine cable stretches from Asia to Europe and America. Telkom also established the Telkom Nusantara Super Highway and True Broadband Access service, which provides internet access with 20 Mbps - 100 Mbps capacity for people accross Indonesia. In December 2014, Telkom through its subsidiary Telkomsel launched 4G services commercially. In the following year, Telkom created IndiHome that provides internet access, home phone, and interactive TV (UseeTV cable TV) for its customers. 50 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTelkom in 2016 In order to advance to digital telco company, Telkom is transforming its organization from four segments TIMES (Telecommunication, Information, Media, Edutainment and Services) based on digital business adjacent portfolio to Customer Facing Unit and Functional Unit model, or CFU and FU. The transformation will make Telkom’s organization more lean and agile in adapting to changes in the fast-changing telecommunications industry. The new organization is also expected to increase its efficiency and effectiveness to create a quality customers experience. 51 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSBUSINESS ACTIVITIES Telkom’s business activities have grown and changed along with the development of technology, information and digital, but still within the corridor of telecommunication and information industries. This is evident from the company’s business lines that are constantly developing in addition to the existing legacy business. Currently, Telkom manages six products portfolio which serve four customer segments, namely corporate, residential, individual and various other customer segments.. Business Activities based on Company’s Articles of Association The latest version of the articles of association of PT Telkom Indonesia (Persero) Tbk No.20 dated May 23, 2015 stipulates that the purpose and objective of its business activities are to operate the telecommunication network and service, informatics as well as to optimize Company’s resources. In correlation with the said purpose and objective, Telkom’s business activities include: 1. Main Businesses a. To plan, construct, provide, develop, operate, market/ sale/lease and maintain telecommunication network and informatics in a broad meaning by taking into account the laws and regulations. b. To plan, develop, provide, market/sale and improve telecommunication and informatics services in a broad meaning by taking into account the laws and regulations. c. To conduct investment including capital participation in other company along with and to reach the Company’s purpose and objective. 2.Supporting Businesses a. To provide services for payment transaction and transfer of money through telecommunication network and informatics. b. To conduct other activities and businesses in order to optimize the resources owned by the Company, among others utilization of fixed assets and current assets, information system facilities, education and training facilities, maintenance and repair facilities. c. To cooperate with other party in order to optimize the resources of informatics, communication and technology owned by other party that are industry player of informatics, communication and technology, along with and to reach the Company’s purpose and objective. In general, Telkom’s business activities in the financial year of 2016 have been in line with those that are presented in the Company’s articles of association. Business activities that are operated within last year has covered the provision of services in the telecommunication, informatics, and network, which were developed in various product portfolios to maximize the Company’s resources. Portfolio, Product and Service In 2016, Telkom planned to transform its business activities from four business segments in the TIMES (Telecommunication, Information, Media) digital portfolio into Customer Facing Unit and Functional Unit schemes, or referred to as CFU and FU. Transformation is expected to continue for the next 2-3 years and is expected to improve the efficiency and effectiveness as well as Telkom’s performance. Below is the diagram that illustrates the transformation into CFU/FU of Telkom. 52 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Business Segment Product and Services Portofolio CFU/FU Personal Mobile Fixed Wholesale & International Time Corporate Network Infrastructure CFU Mobile CFU Consumer CFU WIB Enterprise Digital ICT Platform Smart Enabler Platform Information CFU Enterprise Home Consumer Digital Media Edutainment CFU Consumer CFU Digital Services Others Others FU HCM - FU NITS - FU DSP - FU FINANCE Diagram Telkom’s Business Segment and Business Portfolio Transformation into CfU/fU Telkom’s four business segments that provide six portfolios: 1. Mobile This portfolio provides product portfolio comprised of mobile voice, SMS and value-added services, as well as mobile broadband. We provide mobile cellular communications services through our subsidiaries, Telkomsel, with brand name Kartu Halo for postpaid and simPATI, Kartu As and Loop for prepaid. 2. fixed This portfolio provides fixed service (voice and broadband), with IndiHome brand. 3. wholesale & International The products are interconnection services, network service, Wi-Fi, VAS, hubbing, data center and content platform, data and internet, and solution. 4. Network Infrastructure The products are network services, satellite, infrastructure and tower operations. 5. Enterprise Digital Consists of information and communication technology platform services and smart enabler platform services. 6. Consumer Digital Consists of media and edutainment services, such as e-commerce (blanja.com), video/TV and mobile-based digital service. We also provide digital life service, such as digital life style (LangitMusik and VideoMax), digital payment such as TCASH, digital advertising and analytics such as digital advertising business and mobile banking solution and enterprise digital service, which provides Internet of Things (IoT). 53 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSAwARDS AND CERTIfICATIONS 28 January JANUARY 15. Telkom scored 722.25 and won the Industry Leader category in the State-Owned Enterprise Mininstry implementation assessment or “Kriteria Penilaian Kinerja Unggul (KPKU) BUMN 2015”. 21. Asian Most Admired Knowledge Enterprises (MAKE) 2016. 28. Top 10 Companies/Organization to Work For in Indonesian Employers of Choice Award 2015. MARCH 2 March 2. 12 Years of Achievement for State Owned Enterprises Category in Obsession Award 2016. 3. Director of Network IT & Solution (NITS), Abdus Somad Arief was chosen as The Most Influential Chief Information Officer (CIO) 3 March 5. Telkom won Digital Brand of the Year on State Owned Enterprises category. APRIL MAY 3 May 3. Top Performing Listed Companies 2016 in Investor Award 2016. 54 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS19. Respondents’ Choice Top 20 Ideal Company in Warta Ekonomi’s Indonesia Most Admired Companies Award. 27. Telkom won 5 Gold, 6 Silver and 6 Bronze in various categories of innovation in the Asia Pacific Stevie Award 2016. Telkom achieved the highest award the Grand Stevie as the Organization of the Year from Stevie International. JUNE 2. Telkom won the Infrastructure, Transportation, and Utility category in Bisnis Indonesia Award. 8. The 1st Champion of Indonesia Original Brand 2016 through Direct International Call 007 (Telkom SLI 007). 9. Excellence in Building and Managing Corporate Image in Telecommunication category as well as The Best in Building and Managing Corporate Image in Internet Provider category in Corporate Image Award. 15. Alex J. Sinaga was awarded as Telecom CEO of the Year in Asia Pacific ICT Award 2016. 19 May 27 May 15 June 17 June 17. Asia’s Best CEO for President Director of Telkom Alex J Sinaga, Asia’s Best CFO to former CFO Heri Sunaryadi as well as Asia’s Best Investor Relations Company in Asia Excellence Award. 55 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS20 July 28 July JULY 20. Ranked 1st in the Regional Top 80 Asia Pacific, Platinum Award for Technology IT Services Industry, ranked 6th World Top Worldwide Rank Annual Report 2015 in Vision Awards from the Annual Report Competition League of American Communications Professionals (LACP). 21. Ranked 1st in Indonesia’s Top 100 Most Valuable Brands 2015 with brand value US$2,620 million and brand rating AAA- 28. Telkom was one of the six Indonesian companies in the Forbes Global 2000 List 2016 at the Forbes Global 2000 Awards. AUGUST 25. Won the CSR category in Indonesia’s Best Companies Awards. 31. Selected as the corporation of choice by the Union of Press Publishers in The 5th Indonesia Public Relations Awards (IPRAS). 1 September SEPTEMBER 1. Best Annual Report in Indonesia: Ranked 1st in Most Organized Investor Relations, and Most Consistent and Dividend Policy categories respectively, ranked 3rd for Strongest Adherence to Corporate Governance. 6. Best Employer 2016 and Best of The Best Employer 2016 in AON’s Best Employer Award 2016. 6 September 56 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS8. Won awards in six categories; Best Employee Net Promotor Score, Best Career Management Initiatives, Best Talent Management Initiative, Best Employee Self Service Initiatives, Best of CEO Commitment of Human Capital Development for Alex J. Sinaga. These awards qualified Telkom as the Best of All Human Capital Criterias (Best of the best) in the Indonesian Human Capital Study (IHCS) 2016. 15. IndiHome’s Triple Play service won Best Brand Award in Indonesia Best Brand Award (IBB Award) 201616. 8 September 15 September 3 October OCTOBER 20 October 21 October 3. Telkom won the IDX TOP TEN Best Blue 2016 in The IDX Best Blue 2016 from the Indonesian Stock Exchange (IDX). 7. Telkom was one of the 40 Best Issuer in the Analysts’ Choice 40 Best Issuer Award from the IDX and Association of Indonesian Exchange Analysts.. 18. Indonesia Digital Learning (IDL) won The Best Program for Education Quality Improvement category in Nusantara CSR Summit & Awards 2016 from La Tofi School of CSR. 19. Indihome won Great Performing Product for the Fixed ISP category in the Digital Marketing Award. 20. Telkom was one of the Top 50 best performing Indonesian Companies in Forbes Indonesia Best of The Best from Forbes Indonesia. 21. Telkom won the Grand Stevie Award for winning 19 awards in The 2016 International Business Award (IBA) 28. The Fastest Asset Growth Company in Telecommunication Industry 2016 in the 3rd Indonesia Living Legend Companies from Warta Ekonomi. 57 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSNOVEMBER 3 November 3. Telkom awarded as Telecom Service Provider of The Year and Fixed Broadband Service Provider of The Year in Frost and Sullivan’s Indonesia Excellence Award. 5. Corporate Communication Telkom won the Social Media for PR and Digital Media Relations award in the International Public Relations Association’s International Public Relations Golden Awards 2016. 7. Telkom won The Best State-Owned Enterprise in The 8th IICD Corporate Governance Award. 10. Indihome won an award as Fixed Internet Service Provider in the SWA and Frontier’s Indonesian Customer Satisfaction Award. 7 November 17. Telkom was selected among the Top Companies to work for in Asia in MORS Group’s ACES Award. 22. Telkom won an award in Metro TV’s Economic Challenges Award 2016. 23. Telkom won awards in six categories in TOP IT & TELCO 2016. 29. Telkom was awarded as Top Infrastructure on ICT. 22 November 23 November 58 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS7 December DECEMBER 7. Telkom was predicated Very Good in GCG Management from Indonesia Good Corporate Governance Award II 2016. 8. President Director of Telkom, Alex J. Sinaga, was listed in the Top 20 Indonesia Most Admired CEO 2016. 14 December 15 December 19 December 14. Telkom won Best Sustainability Report 2015 in the Infrastructure category, and was 2nd Runner Up in the Sustainability Report Award 2016. 15. Telkom won Best State Owned Enterprises 2016 in the Non-Financial Category for the Telecommunications and Broadcasting Sector and Alex J. Sinaga was awarded as Top Executive of Listed Company 2016 in the Indonesian Financial Figures 2016. 19. Telkom was awarded MOST TRUSTED COMPANY based on Corporate Governance Perception Index, scoring at 91.18 and MOST TRUSTED COMPANY based on Investors and Analysts Assessment Survey. 22. Telkom ranked 1st in the Indonesia SOE Performance Award 2016 in Telecommunication category. 59 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCertifications No Year Certification Recipient Institution 1 2 3 4 5 6 7 8 9 2013 2013 2013 2014 2014 2014 2015 2015 2015 ISO 9001:2008 Mitratel United Register for System (URS) ISO 9001:2008 Divisi Business Service TUV Rheinland Cert GmbH ISO 9001:2008 Telkom Akses TUV Rheinland Cert GmbH ISO 9001:2008 Telkom ISO/IEC 27001:2013 Telkom SGS United Kingdom Ltd SGS United Kingdom Ltd ISO/IEC 20000-1:2011 Telkom SGS Hong Kong LLtd ISO 22301:2012 Telkom SGS International Certification Service ISO 9001:2008 Telkom Infra Singapore Pte Ltd URS International ISO 9001:2008 Telkom Metra TUV Rheinland 10 2016 Tier III Data Center Telkom Sigma Uptime Institute Validity Period 2016 2016 2016 2017 2017 2017 2017 2018 2018 2017 Certification for Constructed Facilities (TCCF) Sentul 11 2016 Tier III Data Center Telkom Sigma Uptime Institute 2017 Certification for Constructed Facilities (TCCF) Serpong 12 2016 Tier III Data Center Telin Uptime Institute Certification 13 2016 Tier IV Data Center Telin Uptime Institute 14 15 16 2016 2016 2016 Certification ISO 20000 - 1:2011 Telin PT SGS ISO 9001 : 2015 Telkom Property LLOYD Register ISO 17025:2008 Testing Laboratory National Accreditation Committee (Divisi Digital Service) 2018 2019 2019 2019 2019 17 2016 ISO 17025:2008 Calibration Laboratory National Accreditation Committee 2019 (Divisi Digital Service) 60 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSAlex J Sinaga • CEO Telkom Group 61 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM ORGANIZATIONAL STRUCTURE Diagram of Telkom organizational structure as of December 31, 2016. President Director Alex Janangkih Sinaga Director of Enterprise & Business Service (COO) (Honesti Basyir) Director of Consumer Service (CRO) (Dian Rachmawan) Director of wholesale & International Service (Honesti Basyir) Director of Network, IT & Solution (Abdus Somad Arief) Director of Digital & Strategic Portfolio (Indra Utoyo) VP Enterprise Planning Strategy (Wisnu Haryadi) VP Enterprise Bussiness Development (Ilmianto) VP Enterprise Parenting Operation (Bagyo Nugroho) VP Planning & Resource Mgt (Teni Agustini) VP Marketing Management (Jemy) OVP Consumer Fulfillment (Sujito) VP Wholesale & International Development (Mohamad Ramzy) VP Wholesale & International Voice (Erik Orbandi) VP Wholesale & International Network Service (Bastian Sembiring) VP Infrastructure Strategy & Governance (Pramasaleh Hario Utomo) SVP Synergy & Portfolio (Achmad Sugiarto) VP IT Strategy & Governance (Sihmirmo Adi) VP Portfolio Management (Kukuh Pribadijanto) VP Solution (Admiral Dasrin) EVP Strategic Investment (Setyanto Hantoro) VP Enterprise Performance Integration (Joni Heri) OVP Consumer Assurance (Agus Winarno) VP Infrastructure Management (Moh Riza Sutjipto) VP COO Supervision (Devi Alzy) EVP Enterprise Service Division (Siti Choiriana) EVP Business Service Division (Tri Gunadi) EVP Government Service Division (Mohammad Salsabil) ICTO Project Business Service (Otto Benny Hantoro) ICT Project Business Public Transportation Services (Aziz Sidqi) MILES Project Business (Natal Iman Ginting) EGM TV Video Division (Aris Hartoni) EVP wholesale Service Division (Priyono) EGM Service Operation Division (Herlan Wijanarko) EGM Service & Solution Division (Imam Santoso) EGM Planning & Deployment Division (Alip Priyono) Turn Around Project Business (Akhmad Ludfy) Satellite Project of Telkom (Tonda Priyanto) VP Strategic Investment Planning (Yusuf Wibisono) VP Strategic Investment Execution (Bhimo Aryanto) SVP Media & Digital Business (Joddy Hernady) VP Media & Digital Strategy & Development (Ign. Wiseto Prasetyo Agung) VP Media & Digital Parenting & Performance (Asli Brahmana) VP Corporate Strategic Planning (Torkis Ropinda Sihombing) EGM Divisi Digital Service (Arief Musta’in) Project CfU Transformation (Saiful Hidajat) EVP Telkom Regional I (Stanislaus Susatyo) EVP Telkom Regional II (Teuku Muda Nanta) EVP Telkom Regional III (I Ketut Budi Utama) EVP Telkom Regional IV (Joko Raharjo) EVP Telkom Regional V (Suparwiyanto) s r o t c e r i D f o d r a o B 62 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Director of finance (Harry M. Zen) Director of Human Capital Management (Herdy Rosadi Harman) SVP Financial Planning & Analysis (Edi Witjara) VP HC Strategic Management (Dwi Heriyanto B) VP Budgeting & Analysis (Fajar Wibawa) VP HC Development (Dharma Syahputra) VP Corporate Finance (Siti Rakhmawati) VP HC Organizational Effectiveness (Djonet Hartono) VP Subsidiaries & Business Alignment (Yogi Sukmana) VP Telkom Smart Office (Ardi Purwanto) VP Financial, Asset & Logistic Policy (Muchamad Noor Hidayat) VP Risk & Process Management (Jajat Sutarjat) VP Investor Relation (Andi Setiawan) SGM Assesment Center Indonesia (Teuku Zilmahram) SGM SSO finance Center (Sunarto) SGM SSO Procurement & Sourcing Center (Weriza) Project T-ISCM SGM Community Development Center (Mochamad Sulthonul Arifin) SGM Human Capital Business Partner Center (Yul Martin) SGM Telkom Corporate University Center (Danang Baskoro Dwinugroho) EVP Telkom Regional VI (Edwin Aristiawan) EVP Telkom Regional VII (Mohammad firdaus) SVP Corporate Secretary (Afriwandi) SVP Internal Audit (Harry Suseno Hadisoebroto) SVP Program Management Office (Ikhsan) Personal Assistant BOD VP Planning & Development Audit (Yanti Iswari) PMO Controller Team VP Corporate Communication (Arif Prabowo) VP Infrastructure & Operation Audit (Dani Ramdani) VP Regulatory Management (Henry Christiadi) VP Information Technology Audit (Setia Dwi Kusumawardani) VP Corporate Office Support (Hardi Purwanto) VP Integrated & Financial Audit (Heru Muara Sidik) VP Legal & Compliance (Junian Sidharta) 63 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSBOARD Of COMMISSIONER PROfILES HENDRI SAPARINI (President Commissioner) Personal Born : Kebumen, June 16, 1964. Age : 52 years. Citizenship and Domicile Hendri Saparini is 52 years old and was born in Kebumen, on June 16, 1964, she is an Indonesian citizen and lives in Jakarta. Besides being President Commissioner, Hendri Saparini concurrently is the Founder of Center of Reformation (CORE) Indonesia as well as member of the National Economic and Industry Committee. Education Hendri Saparini’s educational background is a Bachelor’s Degree from Universitas Gadjah Mada majoring in Economics in 1988, a Masters of International Development Policy, and Doctoral degree on International Political Economy, both from University of Tsukuba, Japan. Position and Appointment Basis Her position of being a President Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is not an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No.SR-7777/MBU/2/2014 about proposal to change the board of PT Telkom Indonesia (Persero) Tbk, which was read at the Extraordinary General Meeting of Shareholder dated December 19, 2014. This decision is effective from December 19, 2014 until the fifth Annual General Meeting of Shareholder since her appointment. Previous work experience and its time period are presented as follows: No. Position Member of National Economic and Industry Committee Think Tank Independent CORE Indonesia Guest Lecturer at LAN, Lemhanas and various Government Institutions Budgetary Consultant for the Indonesian House of Representative Secretariat General 2009 - 2012 Managing Director, ECONIT Advisory Group Member Committee OJK Development of Sharia Service 2005 - 2013 2004 - now Period 2016 - now 2013 - now 2009 - now 1 2 3 4 5 6 64 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDOLfIE OTHNIEL fREDRIC PALIT (Commissioner) Personal Born : Kijang, Kepulauan Riau, October 27, 1968 Age : 48 years. Citizenship and Domicile Dolfie Othniel Fredric Palit is 48 years old and was born in Kijang, Kepulauan Riau, on October 27, 1968, he is an Indonesian citizen and lives in Jakarta. He doesn’t hold any position in other companies apart from being a member of Telkom’s Board of Commissioners. Education Dolfie Othniel Fredric Palit ’s educational background is a Bachelor’s Degree from Institut Teknologi Bandung in 1995. Position and Appointment Basis His position of being a Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is not an Independent Commissioner, which is documented Minister of State Owned Enterprise Letter No.SR-7777/MBU/2/2014 about proposal to change the board of PT Telkom Indonesia (Persero) Tbk, which was read at the Extraordinary General Meeting of Shareholder dated December 19, 2014. This decision effective from December 19, 2014 until the fifth Annual General Meeting of Shareholder since his appointment. Previous work experience and its time period are presented as follows: No. Position Executive Director, Yayasan Bumi Indonesia Hijau Executive Director, Lembaga Konsultan Strategis (Strategic Planning) Riset Kebijakan dan Otonomi daerah (REKODE) Members of Indonesian House of Representative Coordinator, Indonesia Corruption Watch (ICW) Bank Century Supervisory team Member of Budget Committee of House of Representative 1 2 3 4 5 6 7 Special Committee of the Law on the Healthcare and Social Security Agency 2011 65 Period 2001-2003 2004-2009 2009-2014 2010 2012 - 2014 2012 - 2014 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSHADIYANTO (Commissioner) Personal Born : Ciamis, October 10, 1962. Age : 54 years. Citizenship and Domicile Hadiyanto is 54 years old and was born in Ciamis, on October 10, 1962, he is an Indonesian citizen and lives in Bogor. In addition to being a member of Telkom BOC, Hadiyanto is concurrently a Secretary General of the Ministry of Finance. Education Hadiyanto ’s educational background is a Bachelor’s Degree from Universitas Padjajaran majoring in Law, a Master of Law (LLM) from Harvard University Law School in the United States, and a Doctoral degree in Law from Universitas Padjajaran. Position and Appointment Basis His position of being a Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is not an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No.SR-244/MBU/2012 about change to the Board of the Commissioner of the company, which was read at the Annual General Meeting of Shareholder dated May 11, 2012. This decision effective from May 11, 2012 until the fifth Annual General Meeting of Shareholder since his appointment. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 General Director for State Asset of the Ministry of Finance Head of the Legal of Secretariat General of the Ministry of Finance Alternative Executive Director, World Bank President Commissioner, PT Garuda Indonesia Tbk President Commissioner of PT Bank Export Indonesia Period 2006 - 2016 2005 - 2006 2003 - 2005 2007 - 2012 2007 - 2009 66 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPONTAS TAMBUNAN (Commissioner) Personal Lahir : Jakarta, February 16, 1961. Usia : 56 years. Citizenship and Domicile Pontas Tambunan is 56 years old and was born in February 16, 1961 in Jakarta, he is an Indonesian citizen and lives in Bekasi. In addition to being a member of Telkom BOC, Pontas Tambunan is concurrently as Deputy for the Construction and Transportation Facilities of Ministry of SOE. Education Pontas Tambunan’s educational background is a Bachelor’s Degree of law from Tarumanegara University in 1986, a Master from Gadjah Mada University in 2006. Position and Appointment Basis His position of being a Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is not an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No. SR-241/MBU/04/2016 about proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder dated April 22, 2016. This decision effective from April 22, 2016 until the fifth Annual General Meeting of Shareholder since his appointment. Previous work experience and its time period are presented as follows: No. Position Period Deputy for the Construction and Transportation Facilities of Ministry of SOE 2015 - now Assistant Deputy for the Infrastructure and Logistic Business Sector Ministry of SOE 2010 - 2012 Assistant Deputy for the Transportation Facilities Business Sector Ministry of SOE 2006 - 2012 1 2 3 4 Commissioner PT Pertamina EP 5 Finance Director of PT Perkebunan Nusantara V 6 7 8 Commissioner of PT Wijaya Karya (Persero) Tbk Commissioner of Pelabuhan Indonesia II (Persero) Commissioner of PT Sucofindo (Persero) 2015 - 2016 2012 - 2015 2001 - 2012 2010 - 2012 2010 - 2012 67 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSMARGIYONO DARSASUMARJA (Independent Commissioner) Personal Born : Klaten, September 14, 1976. Age : 40 years. Citizenship and Domicile Margiyono Darsasumarja is 40 years old and was born in Klaten, on September 14, 1976, he is an Indonesian citizen and lives in Jakarta. He doesn’t hold any position in other companies apart from being a member of Telkom’s Independent Commissioners. Education Margiyono Darsasumarja’s educational background is a Bachelor’s Degree from Universitas Indonesia majoring in Law in 2008, and a Master’s degree in Cyber Law from the School of Law University of Leeds in 2012. Position and Appointment Basis His position of being an Independent Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No.SR-209/MBU/04/2015 about proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder at April 17, 2015 and his position changes from Commissioner into Independent Commissioner based on the Minister of State Owned Enterprise Letter No. SR-241/MBU/04/2016 dated April 22, 2016 about proposal to change the board of The Company which was read at the Annual General Meeting of Shareholder at April 22, 2016. This decision effective from April 22, 2016 until the fifth Annual General Meeting of Shareholder since his first appointment. Previous work experience and its time period are presented as follows: No. Position Media Development Manager at Voice of Human Rights Media 1 2 3 68 Coordinator of Advocacy and Partnership for Government Reform of the Bureaucracy 2012 - 2015 reform Project Lecturer In Law and Media Ethics at Bakrie University 2012 - 2014 Period 2001 - 2011 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSRINALDI fIRMANSYAH, CfA (Independent Commissioner) Personal Born : Tanjung Pinang, June 10, 1960. Age : 56 years. Citizenship and Domicile Rinaldi Firmansyah is 56 years old and was born in Tanjung Pinang, on June 10, 1960, he is an Indonesian citizen and lives in Jakarta. In addition to being a member of Telkom BOC, Rinaldi Firmansyah also has several concurrent positions at other companies, including; Advisory Board Member at Daestrum Capital; Commissioner of PT Elnusa Tbk; and Commissioner of PT Bluebird, Tbk. Education Rinaldi Firmansyah’s educational background is a Bachelor’s Degree from Bandung Institute of Technology in 1985, a Master of Business Administration from IPMI in 1988, and a Doctoral degree in Management from Padjajaran University in 2014 Position and Appointment Basis His position of being an Independent Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No.SR-209/MBU/04/2015 about proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder dated April 17, 2015. This decision effective from April 17, 2015 until the fifth Annual General Meeting of Shareholder since his appointment. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 7 Advisory Board Member of Daestrum Capital Commissioner of PT Indosat Tbk Commissioner of PT Elnusa Tbk Commissioner of PT Bluebird Tbk President Commissioner of PT PLN Batam CEO, PT Telekomunikasi Indonesia Tbk CFO, PT Telekomunikasi Indonesia Tbk Period 2016 - now 2015 2014 - now 2013 - now 2013 - 2016 2007 - 2012 2004 - 2007 69 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPAMIYATI PAMELA JOHANNA wALUYO (Independent Commissioner) Personal Born : Jakarta, June 20, 1958. Age : 58 years. Citizenship and Domicile Pamiyati Pamela Johanna Waluyo is 58 years old and was born in Jakarta, on June 20, 1958, she is an Indonesian citizen and lives in Jakarta. She doesn’t hold any position in other companies apart from being a member of Telkom’s Independent Commissioners. Education Pamiyati Pamela Johanna Waluyo’s educational background is a Master’s degree from the University of Tech. Delft, Netherlands in 1983. Position and Appointment Basis Her position of being Independent Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is an Independent Commissioner, which is documented in Minister of State Owned Enterprise Letter No. SR-209/MBU/04/2015 about proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder dated April 17, 2015. This decision effective from April 17, 2015 until the fifth Annual General Meeting of Shareholder since his appointment. Previous work experience and its time period are presented as follows: No. Position 1 2 3 Director of Corporate Marketing, Obession Media Group Assistant Director of Sales and Marketing, Metro TV Corporate Public Relations, Metro TV & Media Group Period 2014 - 2015 2006 - 2014 2000 - 2006 70 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPrevious Board of Commissioner Profile PARIKESIT SUPRAPTO (Independent Commissioner) Period May 2012 - April 2016 Personal Born : Surabaya, August 8, 1951. Age : 65 years. Citizenship and Domicile Parikesit Suprapto is 65 years old and was born in Surabaya, on August 8, 1951, he is an Indonesian citizen and lives in Tangerang. Currently, Parikesit Suprapto served as Independent Commissioner of PT Bank Bukopin. Education Parikesit Suprapto’s educational background is a Bachelor’s Degree from Sekolah Tinggi Manajemen Industri majoring in Corporate Economics, and a Master’s degree in Economic Development from Indiana University in United States, and a Doctoral degree in Development Economics from University of Notre Dame, Indiana, United States. Position and Appointment Basis His position of being an Independent Commissioner of Telkom is in accordance with the basis of appointment as a member of BOC that is not an Independent Commissioner, which is documented Minister of State Owned Enterprise Letter No.SR-7777/MBU/12/2014 about proposal to change the board of PT Telkom Indonesia (Persero) Tbk, which was read at the Extraordinary General Meeting of Shareholder dated December 19, 2014. The decision to appoint him as an Independent Commissioner took effect from December 18, 2014 until April 22, 2016. Previous work experience and its time period are presented as follows: No. Position Independent Commissioner of PT Bank Bukopin Commissioner at PT KPEI (Kliring Penjamin Efek Indonesia) Deputy of Services Business at Ministry of State Owned Enterprise 1 2 3 4 5 6 7 8 Period 2013 - sekarang 2013 - 2016 2010 - 2012 Deputy of Financing and Banking Industry State at Ministry of State Owned 2008 - 2010 Enterprise Expert Advisor of Minister of Cooperation and Micro Small and Medium Enterprise 2006 - 2008 Commissioner at PT Indosat Tbk Commissioner at PT Bank Negara Indonesia (Persero) Tbk. President Commissioner at PT Pusri (Persero) 2011 2008 - 2010 2008 - 2012 71 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEducation and/or Training, Seminar, Congress To improve the competence of the members of the Board of Commissioners, Telkom provides an opportunity for members of the Board of Commissioners to participate in education and training throughout the financial year 2016. No. Education/Training, Seminar, Congress Commissioner Name Time Place 1 Mobile World Congress 1. Hendri Saparini February 22-25, 2016 Barcelona, 2. Margiyono Darsasumarja 3. Dolfie Othniel Fredric Palit 4. Pamijati Pamela Johanna Waluyo Spain 2 3 4 5 6 ERM in The Digital Age Conference Hadiyanto March 28-29, 2016 Singapore Innovation Center Partnership with SK 1. Rinaldi Firmansyah May 10-12, 2016 Seoul, South Telecom 2. Pamijati Pamela Johanna Waluyo 3. Margiyono Darsasumarja Korea Update Knowledge Technology Pontas Tambunan August 3-5, 2016 Shenzen, China Executive Leadership and Risk Management Rinaldi Firmansyah September 26-29, Chicago, USA Program 2016 Practical Risk Appetite and Risk Tolerance 1. Dolfie Othniel October 11-12, 2016 London, UK Conference Fredric Palit 2. Margiyono Darsasumarja 7 The Digital Education Show 1. Hendri Saparini October 17-19, 2016 Johannesburg, 3 Day in House Payment Disruptors 2. Pamijati Pamela Johanna Waluyo Margiyono Darsasumarja South Africa November 9-11, 2016 Yogyakarta, Indonesia Huawei International Finance Day 1. Hendri Saparini November 10-11, 2016 Tokyo, Japan 2. Hadiyanto 8 9 72 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCommissioner Affiliation Relationships In accordance with the principle of transparency to implement GCG, Telkom declares affiliation with the other members of the BOC and major shareholders, including the name of the affiliated party Name Board of Commisioners (BOC) Hendri Saparini Hadiyanto Dolfie Othniel Fredric Palit Pontas Tambunan Margiyono Darsasumarja Parikesit Suprapto(2) Rinaldi Firmansyah Pamiyati Pamela Johanna Waluyo financial Relationship with familial Relationship with BOC BOD Controlling BOC BOD Shareholder* Controlling Shareholder* Yes No Yes No Yes No Yes No Yes No Yes No √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ (1)The controlling shareholder in this instance is the Government of Indonesia represented by the Minister of SOEs as a primary shareholder (2)no longer in position since April 22, 2016 Declaration of Independence Telkom requires Independent Commissioners to sign a Statement of Independence for Independent Commissioner when Independent Commissioner has served for more than two (2) periods. Until now, the drafting of this report, Independent Commissioners of Telkom have served since 2015 so as not to serve more than two (2) periods. 73 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDIRECTOR PROfILE ALEX J. SINAGA (President Director) Personal Born : Pematang Siantar, September 27, 1961. Age : 55 years. Citizenship and Domicile Alex J. Sinaga is 55 years old and was born in Siantar, September 27, 1961, he is an Indonesian citizen and lives in Jakarta. Other than being the President Director of Telkom, Alex J. Sinaga is also the President Commissioner of Telkomsel. Education Alex J. Sinaga education background, among others, is a Bachelor degree in Electrical Engineering from Institut Teknologi Bandung and a Master’s degree in Telematics from the University of Surrey, Guidford-England. Position and Appointment Basis His position being a Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom dated December 19, 2014. The decision effective from December 19, 2014 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 7 8 President Director of Telkomsel President Director of Multimedia Nusantara Executive General Manager for Enterprise Service Division Executive General Manager for Fixed Wireless Network Division Senior Manager Business Performance Divisi Regional II Jakarta General Manager Telkom Jakarta Barat General Manager Telkom Surabaya Barat General Manager Telkom Malang Period 2012 – 2014 2007 – 2012 2005 – 2007 2002 – 2005 2002 2000 – 2002 1998 – 1999 1997 – 1998 74 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSHARRY M. ZEN (Director of Finance) Personal Born : Tanjung Pinang, January 9, 1969. Age : 48 years. Citizenship and Domicile Harry M Zen is 48 years old and was born in Tanjung Pinang, on January 9, 1969, he is an Indonesian citizen and lives in Jakarta. Other than being Finance Director, Harry M Zen is also the President Commissioner of GSD and a Commissioner of Telkomsel. Education Harry M Zen’s educational background is a Bachelor’s Degree from University of Indonesia Faculty of Metallurgy and an MBA degree in Corporate Finance Institutions & Market from the State University of New York, Buffalo. Position and Appointment Basis His position being a Finance Director of Telkom is in accordance with Annual General Meeting of Shareholders (AGM) of Telkom on April 22, 2016. The decision effective from April 22, 2016 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 President Director PT Credit Suisse Securities Indonesia Director Barclays Capital Co-Head Investment Banking, PT Bahana Securities Assistant Vice President Citibank - Global Corporate Banking Official Assistant Citibank - Global Consumer Banking Period 2008 - 2015 2007 - 2008 2001 - 2008 1996 - 2001 1993 - 1994 75 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSINDRA UTOYO (Director of Digital & Strategic Portfolio) Personal Born : Bandung, February 17, 1962. Age : 55 years. Citizenship and Domicile Indra Utoyo is 55 years old and was born in Bandung, on February 17, 1962, he is an Indonesian citizen and lives in Bandung. Other than being Digital & Strategic Portfolio Director, Indra Utoyo is also the President Commissioner of MDI and a Commissioner of Telkom Metra. Education Indra Utoyo’s educational background is a Bachelor’s Degree from Institut Teknologi Bandung with major in Electro Telecommunication Engineering. He has an MBA degree in Communication and Signal Processing from Imperial College of Science, Technology and Medicine, University of London, England. Position and Appointment Basis His position being an Digital & Strategic Portfolio Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on May 11, 2012. The decision effective from May 11, 2012 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 Director of IT Solution & Supply, Telkom Senior General Manager Information System Center Telkom Period 2007 - 2012 2005 - 2007 76 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSHONESTI BASYIR (Director of Wholesale And International Service And Director of Enterprise & Business Service) Personal Born : Padang, June 24, 1968. Age : 48 years. Citizenship and Domicile Honesti Basyir is 48 years old and was born in Padang, on June 24, 1968, he is an Indonesian citizen and lives in Bandung. Other than being Wholesale and International Service Director, Honesti Basyir also have dual position as Director for Enterprise & Business Service (since September 13, 2016), the President Commissioner of Telin, and the President Commissioner of Telkom Metra. Education Honesti Basyir’s educational background is a Bachelor’s Degree from Institut Teknologi Bandung with major in Industrial Engineering. He has a Master’s degree in Corporate Finance from Sekolah Tinggi Manajemen Bandung. Position and Appointment Basis Previously, he served as Finance Director, accordance to AGSM Telkom in May 11, 2012 and as Wholesale and International Service Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision effective from December 19, 2014 to the present. Previous work experience and its time period are presented as follows: No. Position Director of Finance, Telkom Period 2012 - 2014 1 2 3 4 5 6 Vice President Strategic Business Development, Directorate IT Solution and Strategic Portfolio Telkom 2012 Vice President Strategic Business Development, Strategic Investment & Corporate Planning Telkom 2010 - 2012 Project Controller-1, Project Management Office Telkom Assistant Vice President, Business & Finance Analysis Telkom Project Management Consultant, Garuda Maintenance Facility 2009 - 2010 2006 - 2009 1992 - 1993 77 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSHERDY ROSADI HARMAN (Director of Human Capital Management) Personal Born : Bandung, June 28, 1963. Age : 53 years. Citizenship and Domicile Herdy Rosadi Harman is 53 years old and was born in Bandung, on June 28, 1963, he is an Indonesian citizen and lives in Bandung. Other than being a Human Capital Management Director, He also has a dual position as Commissioner of GSD and a Commissioner of Infomedia. Education Herdy Rosadi Harman’s educational background is a Bachelor’s Degree from Universitas Padjajaran Bandung majoring in Law. He has a MBA degree from the Asian Institute Management Philippines-Institute Management Telkom University and Master of Law (LLM) from American University, Washington DC, the United States. Position and Appointment Basis His position as the Human Capital Management Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision effective from December 19, 2014 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 Director of Human Capital Management, Telkomsel VP Regulatory Management, Telkom VP Legal & Compliance, Telkom General Manager Management Support, Telkom Period 2012 – 2014 2007 – 2012 2006 – 2007 2004 – 2006 78 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSABDUS SOMAD ARIEf (Director of Network, IT & Solution) Personal Born : Sidoarjo, September 25, 1963. Age : 53 years. Citizenship and Domicile Abdus Somad Arief is 53 years old and was born in Sidoarjo, on September 25, 1963, he is an Indonesian citizen and lives in Jakarta. Other than being the Network, IT & Solution Director, he also serves as the President Commissioner of Telkom Infra and a Commissioner of Teltranet. Education Abdus Somad Arief’s educational background is a Bachelor’s Degree from Institut Teknologi Bandung majoring in Electro Engineering. He has a Master’s degree in Information and Technology Systems from Institut Teknologi Bandung. Position and Appointment Basis His position as the Network, IT, & Solution Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision effective from December 19, 2014 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 Director of Network, Telkomsel Executive General Manager Enterprise Service Division, Telkom Vice President of Business Development, Telkom Deputy Executive General Manager Divisi Enterprise Service, Telkom President Commissioner, PT Pramindo Ikat Nusantara Commissioner, PT Infomedia Nusantara Period 2012 – 2014 2009 – 2012 2008 – 2009 2007 – 2008 2011 – 2012 2010 – 2011 79 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDIAN RACHMAwAN (Director of Consumer Service) Personal Born : Surabaya, May 14, 1964. Age : 52 years. Citizenship and Domicile Dian Rachmawan is 52 years old and was born in Surabaya, on May 14, 1964, he is an Indonesian citizen and lives in Bogor. Other than being a Consumer Service Director, He also have a dual position as President Commissioner of Telkom Akses. Education Dian Rachmawan’s educational background is a Bachelor’s Degree from Institut Teknologi Sepuluh November majoring in Electro and Telecommunication Engineering. He has a Master’s degree in Communication and Real Time System, Telecommunication Engineering and from University of Bradford, England. Position and Appointment Basis His position as the Consumer Service Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision effective from December 19, 2014 to the present. Previous work experience and its time period are presented as follows: No. Position CEO, PT Telekomunikasi Indonesia International (Hongkong) Limited Director of Network Operation & Engineering, PT Telkom Indonesia International 2007 – 2011 Executive General Manager Divisi Fixed Wireless Network, Telkom General Manager, Telkom Jakarta Selatan 2005 – 2007 2004 – 2005 General Manager for Interconnection & Partnership for Regional Division II Jakarta 2001 – 2004 Period 2011 – 2014 1 2 3 4 5 80 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPrevious Board of Director Profile MUHAMMAD AwALUDDIN (Director of Enterprise and Business Service) Period May 2012 - Sept 2016 Personal Born : Jakarta, January 15, 1968. Age : 49 years. Citizenship and Domicile Muhammad Awaluddin is 49 years old and was born in Jakarta, on January 15, 1968, he is an Indonesian citizen and lives in Jakarta. Education Muhammad Awaluddin’s educational background is a Bachelor’s Degree of Electrical Engineering from Sriwijaya University, Master of Business Administration from European Antwerp Belgium and Doctoral Degree of Management Science from Padjajaran University. Position and Appointment Basis His position as the Enterprise and Business Service Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on May 11, 2012. The decision effective from May 11, 2012 to September 13, 2016. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 President Director, PT Infomedia Nusantara EGM Access Network Infrastructure EGM DIVRE 1 Medan VP Public & Marketing Communication Period 2010 – 2012 2010 2007 – 2010 2005 - 2007 81 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSHERI SUNARYADI (Director of Finance) Period December 2014 - April 2016 Personal Born : Jember, June 26, 1965. Age : 51 years. Citizenship and Domicile Heri Sunaryadi is 51 years old and was born in Jember, on June 26, 1965, he is an Indonesian citizen and lives in Jakarta. Education Heri Sunaryadi’s educational background is a Bachelor’s Degree Faculty of Agricultural Technology from Institut Pertanian Bogor in 1987. Position and Appointment Basis His appointment as the Finance Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision effective from December 19, 2014 to April 22, 2016. Previous work experience and its time period are presented as follows: No. Position 1 2 3 President Director, PT Kustodian Sentral Efek Indonesia President Director, PT Bahana Pembinaan Usaha Indonesia President Director, Bahana Securities Period 2013 – 2014 2009 – 2013 2007 – 2009 82 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEducation and/or Training, Seminar, Congress To increase the competencies of the main leaders of Telkom, each member of the Board of Directors has the opportunity to participate in education and training throughout the financial year 2016. No. Education/Training, Seminar, Congress Director Name Time Place 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Participant at Mobile World Congress Alex J. Sinaga Februari 22 - 25, 2016 Barcelona Speaker at Tiered Leadership Development Program Indonesia Financial Service Authority (OJK) Alex J. Sinaga May 19, 2016 Jakarta Focus Group Discussion Synergy BUMN Alex J. Sinaga May 28 - 29, 2016 Assessment Indonesia Human Capital Study 2016 Alex J. Sinaga September 6, 2016 Keynote Speaker on IBD Expo Alex J. Sinaga September 9, 2016 Participating in CEO Forum Alex J. Sinaga November 24, 2016 Pacific Telecommunication Council Honesti Basyir Januari 17 – 20, 2016 Parapat Jakarta Jakarta Jakarta Hawaii Speaker at Stadium General in Telkom Univesity about International Expansion Honesti Basyir April 1, 2016 Bandung International Telecoms Week Honesti Basyir May 6 – 12, 2016 Honesti Basyir November 3, 2016 Chicago Jakarta State Owned Enterprise Forum 2 Years Realizing Nawacita Human Resource Strategy in Transforming Organisations, London Business School Competitive Strategy: Developing your long game Herdy Rosadi Harman 2016 London Abdus Somad Arief 2016 Fontainebleau, France Speaker at MBA ITB Dian Rachmawan September 9, 2016 National Anti Fraud Conference Harry M. Zen October 26, 2016 Leading With Big Data Analytics Indra Utoyo 2016 Bandung Semarang Singapore Directors Affiliations and Relationships In accordance with the principle of transparency to implement GCG, Telkom declares the affiliation with the other Board members, members of the Board of Commissioners and major shareholders, including the name of affiliated parties. Directors (BOD) Alex J. Sinaga Heri Sunaryadi(2) Harry M. Zen(3) Indra Utoyo Dian Rachmawan Muhammad Awaluddin(4) Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir financial Relationship with financial Relationship with BOC BOD Controlling Shareholder(1) BOC BOD Controlling Shareholder(1) Yes No Yes No Yes No Yes No Yes No Yes No √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ (1) Controlling Shareholder in this matter is the Indonesian government represented by the Ministry of State Owned Enterprises as the primary shareholder (2) no longer in position since April 22, 2016 (3) in position since April 22, 2016 (4) no longer in position since September 13, 2016 83 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPREfACE PREfACE fINANCIAL AND PERfORMANCE HIGHLIGHT MANAGEMENT REPORT GENERAL INfORMATION Of TELKOM INDONESIA ALEX J SINAGA . CEO TELKOMGROUP 84 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSINTEGRATED HUMAN CAPITAL MANAGEMENT SYSTEM Integrated and digital-app-based human capital management Through a web-in service, employees can submit questions, requests, and complaints concerning human capital management to the help desk solver team anytime anywhere. This application also features a ticketing system to monitor the progress handling complaints. A forum to accommodate ideas and share creative aspirations as well as feedbacks to the company. Each month the best aspirations are selected for submission to get response from the HCM Director and to be published in the company’s Internal Portal. Ingenium is a tool for employees to make their own career plans. This application also helps the managers find the best talents for a position based on competency, interest, and sociometry. This application contains summarized descriptions of a position in regards to responsibilities, authorities, performance indicators and competencies required to carry out the job. Employees can easily check a summary of their remunerations, including their take home pays, bonuses, and incentives through this application anywhere anytime. An application that employees use to check their leave quotas, leave applications (annual, long service, or trips) and to track the process of the approval. An application to facilitate employees to learn independently online. The materials are presented interactively through multimedia contents designed to optimize the trainees’ comprehension. Employees may select the time and materials of the training they wish to join. 85 ALEX J SINAGA . CEO TELKOMGROUP PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM INDONESIA EMPLOYEES Telkom envisions to be the King of Digital in The Region. Digital technology drives total changes and will focus on human resources. Digitalization creates the perfect platform for innovation. Among the key drivers that will enable Telkom to achieve its vision are people and culture. “Telkom Group CEO believes that employees are more important than technology”. A total of 23,876 employees are our most valuable asset in our preparation to achieve our goal to become a world-class digital company. This is also supported by a network of representative offices in 11 countries, and fiber optic broadband networks that cross over the Pacific Ocean. Building digital skills is crucial for our employees who want to succeed in the future. In addition, we provide a work environment tailored to the individual conditions and technology that allows us to connect with each other uninterruptedly. HR Profile Based on Education Level Age Range 12,000 10,000 8,000 6,000 4,000 2,000 0 Pre University 18.94% Diploma 18.76% Bachelor 51.62% Post Graduate 10.68% <30 years 30-45 years >45 years Based on Gender 23,876 Telkom Group Employees 77 % 63% 37% Male 23 % female 14,933 Telkom Employees 8,943 Subsidiary Employees 86 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEmployees and their work culture are Telkom’s most The following tables displays the distribution of education valuable asset in achieving its vision to be the King of level of Telkom business group employees. Digital. By the end of 2016, Telkom business group has 23,876 employees, which consists of 14,933 employees in the parent company and 8,943 subsidiaries’ employees. Table of Telkom and Subsidiaries Employees Based on Education in 2016 The number of employees in the parent company in 2016 2016 is 7.23% lower than the previous year in accordance to Education the ongoing early retirement program to revitalize and increase the human capital efficiency. Telkom also carried out the program in 2014 and 2015, and it reduced the number of employees at Telkom parent company by 7.34%, from 17,279 to 16,097. Telkom Subsidiaries Telkom Group % Preuniversity 3,834 Diploma Undergrad Graduate 3,217 5,987 1,895 689 1,261 4,523 18.94 4,478 18.76 6,337 12,324 51.62 656 2,551 10.68 In general, the number of employees also decreased in Telkom subsidiaries, whose employees in 2016 is 3.67% lower than the previous year. Table of Telkom Business Groups Employees Based on Education in 2014-2016 The number of employees of Telkom Group is presented on table below. Education 2016 2015 2014 Total % Total % Total % Preuniversity 3,834 25.67 4,541 28.2 5,289 30.6 Diploma 3,217 21.54 3,655 22.7 4,093 23.7 Undergrad 5,987 40.09 6,082 37.8 6,159 35.6 Graduate 1,895 12.69 1,819 11.3 1,738 10.1 In terms of age, 49.63% or 11,850 employees in Telkom business group are above 45 years old. It is the same in Table of Number of Telkom and Subsidiaries Employees in 2014-2016 No. Telkom Group Employees 2016 2015 2014 Telkom Employees 14,933 16,097 17,279 1 2 Telkom Subsidiary Employees Total Telkom Group Employees 8,943 8,688 8,005 the parent company, where the majority or 72.40% of its employees are over 45 years or roughly 10,812 employees. 23,876 24,785 25,284 Data on the number of employees by age is presented as follows. Number of Employees by Education Level and Age Distribution of Employees Based on the educational level distribution, 40.09% or 5,987 people employed in Telkom business group in 2016 have undergraduate degrees. The figure is higher compared to 37.78% in 2015. Age Table of Telkom Business Groups and Subsidiaries Employees based on Age in 2016 A majority or 70.86% subsidiaries employees in general, or 6,337 people in 2016, have undergraduate degrees. (Years Old) Telkom Subsidiaries 2016 Telkom Group % Below 30 1,155 Between 30-45 2,966 2,357 5,548 3,512 14.71 8,514 35.66 Above 45 10,812 1,038 11,850 49.63 87 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Below 30 Between 30-45 Table of Telkom Business Groups and Subsidiaries Employees based on Age in 2014-2016 Age 2016 2015 2014 (Years Old) Total % Total % Total % Total Telkom and Subsidiaries Employees Based on Position in 2014-2016 Level Position Senior 2016 2015 2014 Total % Total % Total % 207 1.39 187 1.2 151 0.9 1,155 7.73 893 5.5 680 3.9 Management 2,966 19.86 3,386 21.1 3,784 21.9 Middle Management 3,856 25.82 3,281 20.4 2,939 17.0 Above 45 10,812 72.40 11,818 73.4 12,815 74.2 Supervisor 8,917 59.71 9,913 61.6 10,233 59.2 Number of Employees by Position and Status of Personnel Telkom in general has various levels of position, namely Others 1,953 13.08 2,716 16.9 3,956 22.9 Further, from the data on gender-based employees composition, it can be seen that during 2016, the total senior management, middle management, supervisors, male employees was recorded to have higher than the and other levels of position. total female employees, with 11,803 male employees and 3,130 female employees as illustrated in the following In 2016, 59.71% or 8,917 employees working as supervisor table: made up the largest composition in the Telkom business group employees. Similarly in the subsidiary, supervisor made up the largest concentration of employees at Total Employees of Telkom and Subsidiary In 2016 Entities Based on Gender 44.38% or 3,969 people in 2016. Total Telkom and Subsidiaries Employees Based on Position in 2016 Gender Classification 2016 Telkom Subsidiary Entities Telkom Group % Level Position 2016 Telkom Subsidiaries Telkom Group % Senior 207 404 611 2,56 Management Middle 3,856 1,434 5,290 22.16 Management Supervisor Others Total 8,917 1,953 3,127 12,044 50.44 3,969 5,922 24.80 14,933 8,943 23,876 100.00 Male Female 11,803 3,130 6,508 2,435 18,311 76.69 5,565 23.31 Total Employees of Telkom Based on Gender In 2014-2016 Gender 2016 2015 2014 Classification Total % Total % Total % Male Female 11,803 79.04 12,935 80.4 14,091 81.5 3,130 20,96 3,162 19.6 3,188 18.5 88 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEqual Opportunities in Competence Development The purpose of competence development is Telkom’s human resources to be more innovative and creative to advance the company. All employees have an equal opportunity to participate in the company’s competency development program. Telkom has carried out the following competency improvement program in 2015 and 2016. Type of Competency Development Program Telkom Subsidiaries Telkom Group % 2016 Training Certification Educational Scholarship Total Type of Competency Development Program Training Certification Educational Scholarship Total 14,722 266 117 15,105 11,659 20 1 11,680 2015 26,381 98.49 286 118 26,785 1.07 0.44 100 Telkom Subsidiaries Telkom Group % 11,699 639 190 12,468 5,725 - 11 5,736 17,424 95.40 639 201 18,264 3.50 1.10 100 In 2016, Telkom spent Rp95.13 billion for competence development, an increase of Rp16.3 billion or 20.68% compared to 2015, excluding educational scholarship. SHAREHOLDER COMPOSITION The authorized capital of the Company consists of 1 Series A Dwiwarna shares, and 399,999,999,999 Series B shares (common stock). The authorized subscribed and paid-up capital is 100,799,996,400, consisting of one share of Series A Dwiwarna share and 100,799,996,399 Series B shares. A single shares of the Series A Dwiwarna Share is owned by the Government of the Republic of Indonesia (the “Government”). Composition of Shareholders Telkom On December 31, 2016 Indonesian Government Public Sub Total Capital (placed and fully deposited) Treasury Shares (shares that have not been repurchased) Total Series A Dwiwarna Series B (Ordinary Stock) 51,602,353,559 47,459,863,040 99,062,216,599 % 52.09 47.91 100.0 1,737,779,800 - 100,799,996,399 100.0 1 1 1 89 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Telkom’s shareholder composition per December 31, 2016 in details are as follows: 1. Shareholders with more than 5% ownership (Major Shareholder/Controller) Type of Share Individual or Group Identity Total Shares Percentage Owned Seri A Seri B Government Government 1 51,602,353,559 - 52.09 2. Ownership of Shares by Directors and Commissioners On December 31, 2016 there was no Commissioner or Director of the Company which has more than 1.0% of Company shares. BOD or BOC Commissioner Total Shares Percentage Owned Commissioners Directors Total Hendri Saparini Hadiyanto Dolfie Othniel Fredric Palit Alex J. Sinaga Indra Utoyo Honesti Basyir Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman 414,157 875,297 372,741 920,349 1,972,644 1,945,644 888,854 828,314 828,012 9,046,012 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 3. Shareholders with Foreign Ownership or Less Than 5% Telkom Shareholders with Institution or Individual Ownership Less Than 5%, on December 31, 2016. Ordinary Stocks Owned Ownership Percentage of Outstanding Common Shares (%) 39,692,722,020 15,978,300 1,527,847,372 2,335,982,606 2,608,784,450 646,453,350 78,777,750 553,317,192 47,459,863,040 40.07 0.01 1.54 2.36 2.64 0.65 0.08 0.56 47.91 Limited Liability Mutual funds Insurance Company Pension funds Others Group Foreign Local Institutions Individual Businesses Individuals Total 90 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 4. Percentage of Shares Owned inside and outside Indonesia On December 31, 2016, a total of 47,683 shareholders, including the Government, registered as holders of ordinary shares of the Company, including 39,185,506,554 ordinary shares owned by 2,407 shareholders outside Indonesia. At the same date, there were 92 shareholders who own 66,048,569 ADS (1 ADS is equivalent to 100 ordinary shares). 5. List of 20 Largest Public Shareholders Here is a list of the 20 largest public shareholders on December 31, 2016. BNY MELLON SA/NV RE BNYMLB RE EMPLOYEES PROVIDEN GIC PRIVATE LIMITED S/A GOVERNMENT OF SINGAPORE BPJS KETENAGAKERJAAN-JHT JPMCB NA RE-SAUDI ARABIAN MONETARY AGENC BBH BOSTON S/A VANGARD EMERGING MARKET PT PRUDENTIAL LIFE ASSURANCE CITIBANK NEW YORK S/A GOVERNMENT OF NORWAY JPMCB NA RE-VANGUARD TOTAL INTERNATIONAL JPMCB NA RE-VIRTUS EMERGING MARKETS THE NORTHERN TRUST CO S/A SAUDI ARABIAN JPMCB NA AIF CLT RE-STICHTING DEPOSITARY HSBC BANK PLC S/A SAUDI ARABIAN MONETARY BBH BOSTON S/A MATTHEWS PACIFIC TIGER FU RBC S/A VONTOBEL FUND - EMERGING MARKETS SSB 1BA9 ACF MSCI EQUITY INDEX FUND B-IN REKSA DANA SCHRODER DANA PRESTASI PLUS-9 SSB OBIH S/A ISHARES MSCI EMERGING MARKE GIC S/A MONETARY AUTHORITY OF SINGAPORE JPMBL SA UCITS CLT RE-JPMORGAN FUNDS PT AIA FINL - UL EQUITY 1.09 1.04 1.02 0.88 0.77 0.66 0.63 0.58 0.58 0.44 0.42 0.42 0.42 0.37 0.34 0.34 0.33 0.26 0.26 0.25 91 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM’S SUBSIDIARIES, ASSOCIATIONS, AND JOINT VENTURES Government 52.09 % SMI 92 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPublic 47.91 % Metra TV Notes: Direct subsidiaries (consolidated) Indirect subsidiaries (consolidated) Unconsolidated 93 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSOn December 31, 2016, Telkom has consolidated the financial statements of all its subsidiaries owned directly or indirectly as follows: Subsidiaries with Direct Ownership Company Share Ownership Business field Operational Status Total Asset Before Elimination (Rp billion Address PT Telekomunikasi Selular (“Telkomsel”), Jakarta, Indonesia 65% Telecommunication Operating 89,781 Telkomsel Smart Office (TSO) Kompleks Telkom Landmark Tower Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia PT Dayamitra Telekomunikasi (“Mitratel”), Jakarta, Indonesia PT Multimedia Nusantara (“Telkom Metra”), Jakarta, Indonesia PT Telekomunikasi Indonesia International (“Telin” or “TII”), Jakarta, Indonesia 100% Telecommunication Operating 10,689 Gedung Graha Pratama 100% Telecommunication network services and multimedia 5th Floor, Jl. MT. Haryono Kavling 15, Jakarta 12810, Indonesia Operating 10,020 The East Tower 33rd & 37th Floor, Jl. DR. Ide Anak Agung Gde Agung Kav. E3.2 No.1 Kuningan Timur, Setiabudi Jakarta Selatan 12950, Indonesia 100% Telecommunication Operating 7,147 Menara Jamsostek, Menara Utara, 24th Floor, Jl. Jendral Gatot Subroto Kav. 38 Jakarta Selatan 12710, Indonesia PT Telkom Akses (“Telkom Akses”), Jakarta, Indonesia 100% Construction, services and trade in telecommunications Operating 5,098 Gedung Telkom Jakarta Barat Jl. S. Parman Kav. 8 Jakarta Barat 11440, Indonesia PT Graha Sarana Duta (“GSD”), Jakarta, Indonesia 99.99% Office leasing and building management and maintenance services, civil consultant and developer Operating 4,333 Menara Multimedia Jl. Kebon Sirih No.10, Jakarta Pusat 10110, Indonesia 100% Services and telecommunications development Operating 3,146 Plaza Kuningan Menara Utara 3rd Floor Jl. Rasuna Said Kav C11-C14 Jakarta Selatan, Indonesia 100% Construction, services and trade in telecommunications Operating 1,015 Gedung Mugi Griya, 5th Floor, Jl. MT Haryono Kav. 10 Jakarta 12810 Indonesia PT PINS Indonesia (“PINS”) dahulu Pramindo Ikat Nusantara Jakarta, Indonesia PT Infrastruktur Telekomunikasi Indonesia (“Telkom Infratel”), Jakarta, Indonesia 94 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCompany Share Ownership Business field Operational Status Total Asset Before Elimination (Rp billion Address PT Patra Telekomunikasi Indonesia (“Patrakom”), Jakarta, Indonesia PT Metranet (“Metranet”), Jakarta, Indonesia 100% Telecommunications providing satellite communications systems and related facilities. 100% Multimedia portal services Operating 472 Jl. Pringgondani II, No.33, Alternatif Cibubur, Depok 16954, Indonesia Operating 370 Mulia Business Park, Building J, Jl. Letjen MT Haryono Kav. C58 – 60 Pancoran, Jakarta 12780, Indonesia 15 Menara Dea, Tower 1, 8th Floor, Jl. Mega Kuningan Barat IX Kav. E.4.3 No.1 Jakarta 12950 5 - PT Jalin Pembayaran Nusantara (“Jalin”), Jakarta, Indonesia PT Napsindo Primatel Internasional (“Napsindo”), Jakarta, Indonesia 100% 60% Payment Services - principal activities, switching activities, clearing and settlement Telecommunications providing the Network Access Point (NAP), Voice Over Data (VOD), and other related services. Operating Stopped Operating in January 13, 2006 Subsidiaries with Indirect Ownership Company Share Ownership Business field Operational Status Total Asset Before Elimination (Rp billion) Description 100% PT Sigma Cipta Caraka (“Sigma”), Tangerang, Indonesia Information technology services - implementation and system integration, outsourcing, and maintenance and software licenses Operating 4,289 100% Telecommunication Operating 2,566 Telekomunikasi Indonesia International Pte. Ltd. (“Telin Singapore”), Singapura Graha Telkom Sigma Jl. Kapten Subijanto DJ, Bumi Serpong Damai, Tangerang Selatan 15321 Maritime Square, #09-63 Harbour Front Center, Singapore - 099253 95 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCompany Share Ownership Business field Operational Status Total Asset Before Elimination (Rp billion) 100% PT Infomedia Nusantara (“Infomedia”), Jakarta, Indonesia 55% PT Telkom Landmark Tower (“TLT”), Jakarta, Indonesia Data and information services - providing information services of telecommunication and other information services in the form of print and electronic media, as well as call center services Property development and management services Operating 1,860 Operating 1,683 Telekomunikasi Indonesia International (TL) S.A. (“Telin Timor Leste”), Dili, Timor Leste PT Metra Digital Media (“MD Media”), Jakarta, Indonesia 100% Telecommunication Operating 755 99.99% Information Services in a special Directory Form Operating 684 60% PT Finnet Indonesia (“Finnet”), Jakarta, Indonesia Information technology services Operating 629 Telekomunikasi Indonesia International Ltd., (“Telin Hong Kong”), Hong Kong PT Metra Digital Investama (“MDI”), Jakarta, Indonesia 100% Telecommunication Operating 441 99.99% Trade services, information technology and multimedia, entertainment and investment Operating 331 PT Metra Plasa (“Metra Plasa”), Jakarta, Indonesia 60% Networking and e-commerce services Operating 325 96 Description PT Infomedia Nusantara Head Office Jl. RS. Fatmawati 77- 81 Jakarta 12150, Indonesia Telkomsel Smart Office (TSO) Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia Timor Plaza 4th Floor, Rua Presidente Nicolao Lobato, Comoro, Dili, Timor Leste Wisma Aldiron Dirgantara 2nd Floor, Suite 202-209 & 231-237 Jl. Jend. Gatot Subroto Kav.72 Pancoran Jakarta Selatan, 12780, Indonesia Menara Bidakara 1 L, 12th Floor, Jl. Jend. Gatot Subroto Kav. 71-73, Jakarta Selatan 12870, Indonesia Suite 905, 9/F, Ocean Centre, 5 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong The East Tower 36th Floor. Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No.1, Kuningan Timur Setiabudi, Jakarta Selatan 12950, Indonesia Mulia Business Park, Building J, Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta 12780, Indonesia PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCompany Share Ownership Business field Operational Status Total Asset Before Elimination (Rp billion) Description 99.99% Services and Trade Operating 227 PT Nusantara Sukses Investasi (“NSI”), Jakarta, Indonesia 100% PT Administrasi Medika (“Ad Medika”), Jakarta, Indonesia PT Melon Indonesia (“MelOn”), Jakarta, Indonesia 100% Administrative services and health insurance Operating 204 Content digital services Operating 178 PT Graha Yasa Selaras (“GYS”), Jakarta, Indonesia Telekomunikasi Indonesia International Pty Ltd., (“Telkom Australia”), Australia PT Sarana Usaha Sejahtera Insanpalapa (”TelkoMedika”) Jakarta, Indonesia PT Satelit Multimedia Indonesia (“SMI”), Jakarta, Indonesia Telekomunikasi Indonesia International (“Telkom USA”) Inc., Los Angeles, USA PT Metra TV (“Metra TV”), Jakarta, Indonesia 51% Tourism services Operating 100% Telecommunication Operating 174 161 75% Health Care services, pharmacies, and laboratories, etc. Operating 72 99.99% Satellite services Operating 18 100% Telecommunication Operating 99.83% Subscription broadcasting services Operating 9 - Menara Multimedia, Gedung Annex, 2nd Floor Jl. Kebon Sirih No.10-12, Jakarta Pusat, Indonesia STO Telkom Gambir Gedung C, 3rd Floor, Jl. Medan Merdeka Selatan No.12, Jakarta Pusat, 10110, Indonesia Gedung Telkom, 7th Floor, Jl. Sisingamangaraja Kav. 4-6 Kebayoran Baru, Jakarta, Indonesia Jl. Cisanggarung No.2, Bandung, 40115, Indonesia Level 4 241 Commonwealth Street Surry Hills, NSW 2010 Jl. Cisanggarung No.2, Citarum Bandung 40115, Indonesia The East Tower 37th Floor, Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No.1, Kuningan Timur Setiabudi, Jakarta Selatan 12950, Indonesia 800 Wilshire Boulevard, Suite 620, Los Angeles California 90017 The East Tower 37th Floor. Jl. Dr. Ide Anak Agung Gde Agung Kav. E.3.2 No.1, Kuningan Timur Setiabudi, Jakarta Selatan 12950 97 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCompany Share Ownership Business field Operational Status 99.99% Building and hotel management services Not Operating Yet 99.99% Services and Trade Not Operating Yet PT Nusantara Sukses Sarana (“NSS”), Jakarta, Indonesia PT Nusantara Sukses Realti (“NSR”), Jakarta, Indonesia Total Asset Before Elimination (Rp billion) Description - - Menara Multimedia Jl. Kebon Sirih No.10- 12, Jakarta Pusat, Indonesia Menara Multimedia Jl. Kebon Sirih No.10- 12, Jakarta Pusat, Indonesia CHRONOLOGY Of SHARES LISTING The company is listed in the Indonesian Stock Exchange (BEI) and New York Stock Exchange (NYSE) as of November 14, 1995, with shares code TLKM and TLK. Date Corporate Actions Composition Of Shareholding Government Of Republic Of Indonesia Public % 13/11/1995 First Public Pre-Offering 8,400,000,000 - Sale Of Shares Held By Government (933,334,000) 933,334,000 Telkom New Shares Issuance - 933,333,000 - - - Composition Of Shareholding 7,466,666,000 1,866,667,000 20.0 11/12/1996 Government Shares Block Sale (388,000,000) 388,000,000 - Composition Of Shareholding 7,078,666,000 2,254,667,000 24.2 15/05/1997 Government Distributes Incentive Shares To All Public Shareholders (2,670,300) 2,670,300 - Composition Of Shareholding 7,075,995,700 2,257,337,300 24.2 7/5/1999 Government Shares Block Sale (898,000,000) 898,000,000 - Composition Of Shareholding 6,177,995,700 3,155,337,300 33.8 2/8/1999 Distribution Of Shares Bonus (Issuance) (Every 50 Shares Gets 4 Shares) 494,239,656 252,426,984 - Composition Of Shareholding 6,672,235,356 3,407,764,284 33.8 7/12/2001 Government Shares Block Sale (1,200,000,000) 1,200,000,000 - Composition Of Shareholding 5,472,235,356 4,607,764,284 45.7 16/07/2002 Government Shares Block Sale (312,000,000) 312,000,000 - Composition Of Shareholding 5,160,235,356 4,919,764,284 48.8 1/10/2004 Denomination Of Shares Nominal Value With Ratio Of 1:2 10,320,470,712 9,839,528,568 48.8 21/12/2005 Shares Repurchase Program (I)1 - (211,290,500) - Composition Of Shareholding 10,320,470,712 9,628,238,068 48.3 98 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Date Corporate Actions Composition Of Shareholding Government Of Republic Of Indonesia Public % 29/06/2007 Shares Repurchase Program (II)2 - (215,000,000) - Composition Of Shareholding 10,320,470,712 9,413,238,068 47.7 20/06/2008 Shares Repurchase Program (III)3 - (64,284,000) - Composition Of Shareholding 10,320,470,712 9,348,954,068 47.5 19/05/2011 Shares Repurchase Program (IV)4 - (520,355,960) - Composition Of Shareholding 10,320,470,712 8,828,598,108 46.1 14/06/2013 Assignment Of Shares Repurchase Program III To Employees Through Esop Program - 59,811,400 0.3 Composition Of Shareholding 10,320,470,712 8,888,409,508 46.3 30/07/2013 Assignment Of Shares Repurchase Program I Through Private Placement - 211,290,500 - Composition Of Shareholding 10,320,470,712 9,099,700,008 46.9 2/9/2013 Denomination Of Shares Nominal Value With Ratio Of 1:5 13/06/2014 Assignment Of Shares Repurchase Program II Through Private Placement 51,602,353,560 45,498,500,040 46.9 - 1,075,000,000 - Composition Of Shareholding 51,602,353,560 46,573,500,040 47.4 21/12/2015 Assignment Of Remaining Shares Repurchase Program III Through Private Placement - 22,363,000 - Composition Of Shareholding 51,602,353,560 46,595,863,040 47.5 29/06/2016 Assignment Of Remaining Shares Repurchase Program IV Through Private Placement - 864,000,000 - Composition Of Shareholding 51,602,353,560 47,459,863,040 47.91 (1) (2) (3) (4) First shares repurchase program began on 21 December 2005 (simultaneously with the EGMS at the time such program is consented) and ended in June 2007. Second shares repurchase program began on 29 June 2007 (simultaneously with the EGMS at the time such program is consented) and ended in June 2008. Third shares repurchase program began on 20 June 2008 (simultaneously with the EGMS at the time such program is consented) and ended in December 2009. Fourth shares repurchase program began on 19 May 2011 (simultaneously with the EGMS at the time such program is consented) and ended in November 2012. 99 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS CHRONOLOGY Of OTHER SECURITIES LISTING Bond Program Telkom issued bonds for the first time on July 16, 2002 valued at Rp1,000 billion in nominal price for a period of five years. These bonds were traded in Surabaya Stock Exchange and yielded 17% annual fixed interest. On July 16, 2007, Telkom has repaid its bond debts. Telkom issued bonds in Rupiah for the second time on June 25, 2010, each valued at Rp1,005 billion for Series A with a period of five years and Rp1,995 billion for Series B with a period of ten years. Such bond issuance had been listed in IDX. Telkom has repaid Bond II Series A which was due on July 6, 2015. The following is an overview of matured bonds of Telkom Bond Name Amount (Rp million) Issuance Maturity Period Interest Date Date (year) I Rate Underwriter Trustee Date of Repayment Bond I Telkom Year 2002 1,000,000 July 16, July 16, 2002 2007 5 17,00% PT Danareksa PT BNI Tbk, July 16, Sekuritas; PT BRI Tbk 2007 Bond II Telkom Year 2010 Series A 1,005,000 June 25, 2010 July 6, 2015 5 9,60% Danareksa PT CIMB Sekuritas; Niaga Tbk July 6, 2015 PT Bahana Sekuritas; PT PT Mandiri Sekuritas Subsequently on June 16, 2015, Telkom issued Sustainable Bond I Phase I Year 2015 each in amount of Rp2,200 billion for Series A with a period of 7 (seven) years, Rp2,100 billion for Series B with a period of 10 (ten) years, Rp1,200 billion for Series C with a period of 15 (fifteen) years and Rp1,500 billion for Series D with a period of 30 (thirty) years. Such bond issuance had been listed in BEI with PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas as guarantors. Telkom once again appointed PT CIMB Niaga Tbk as the trustee. Pemeringkat Efek Indonesia (Pefindo) on 10 March 2016 has rated Sustainable Bond I Telkom Phase I Year 2015 and Bond II Series B Year 2010 for period March 8, 2016 until March 1, 2017 with idAAA (stable outlook) rating. 100 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS The following is an overview of un-matured bonds of Telkom Bond Name Amount Issuance Maturity (Rp million) Date Date Period (year) Interest Rate Underwriter Trustee Rating Bond II Telkom Year 1,995,000 June July 6, 10 10.20% PT Bahana PT CIMB idAAA 2010 Series B 25, 2020 2010 Sekuritas; PT Niaga Tbk Danareksa Sekuritas; PT Mandiri Sekuritas Sustainable Bond 2,200,000 June June 7 9.93% PT Bahana PT Bank idAAA I Telkom Year 2015 Series A 23, 23, 2015 2022 Sekuritas; PT Permata Tbk Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Sustainable Bond 2,100,000 June June 10 10.25% PT Bahana PT Bank idAAA I Telkom Year 2015 Series B 23, 23, 2015 2025 Sekuritas; PT Permata Tbk Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Sustainable Bond 1,200,000 June June 15 10.60% PT Bahana PT Bank idAAA I Telkom Year 2015 Series C 23, 23, 2015 2030 Sekuritas; PT Permata Tbk Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Sustainable Bond 1,500,000 June June 30 11.00% PT Bahana PT Bank idAAA I Telkom Year 2015 Series D 23, 23, 2015 2030 Sekuritas; PT Permata Tbk Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas 101 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Name And Address Of Institutions And/Or Capital Market Supporting Professionals Capital Market Supporting Professionals Address Service fee Assignment Period External Auditor KAP Purwantono, Sungkoro & Surja (member firm of Bursa Efek Jakarta Building, Tower 2, 7th Floor Conducting Rp36.5 Since 2012 Integrated Audit of billion PT Telkom Indonesia Ernst & Young Jl. Jend. Sudirman (Persero) Tbk Global Limited) Kav. 52-53 (“Telkom”) and the Jakarta - 12100 General Audit of financial statements of subsidiaries. Publishing Consent Letter. Securities Admin PT Datindo Wisma Sudirman Acting as a Rp136 Since 1995 Bureau Entrycom Jl. Jend. Sudirman Kav depository institution million 34-35 (Custodian) of Jakarta - 10220 ordinary Telkom shares traded on the Stock Exchange. Trustee PT Bank CIMB Niaga Tbk. Graha Niaga, 20th Floor Representing the interests of Bond Rp75 million Since 2010 Jl. Jend. Sudirman holders with the Kav. 58 Company for Bond II Jakarta – 12190 Telkom. PT Bank Permata Tbk. WTC II Building 28th Floor Representing the interests of Bond Rp75 million Since 2015 Jl. Jend Sudirman holders with the Kav.29-31 Company for Telkom Jakarta 12920 Sustainable Bond phase I. 102 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCapital Market Supporting Professionals Address Service fee Assignment Period Central Custodian PT Kustodian Sentral Efek Indonesia Bursa Efek Jakarta Building, Tower 1, 5th Floor - Providing a central Rp10 Since 1995 depository and million settlement of stock Jl. Jend. Sudirman transactions on the Kav 52-53 Stock Exchange. Jakarta - 12190 - Storage services and settlement of securities transactions, distribution of corporate action results. Ranking Agent PT Pemeringkat Efek Indonesia Panin Tower Senayan City, 17th Floor Jl. Asia Afrika Lot. 19 Jakarta - 10270 Providing ranking on Rp150 Since 2012 credit risk of Telkom million bond issuance. ADS Custodian The Bank of New 101 Barclay Street, Acting as a -1 Since 1995 Bank York Mellon Corporation New York depository institution United States of (Custodian) of ADS America - 10286 shares traded on the NYSE. Official Service Puglisi and 850 Library Ave # Acting as an US$1,000 Since 2012 Agent in the Associates 204, Newark authorized United States United States of representative in America - 19711 the US with regard to securities in accordance with the law and regulations. Law Consultant Hadiputranto, Gedung Bursa Efek Acting as capital Hadinoto & Jakarta Tower 2, market legal counsel Partners 21st Floor Jl. Jend. Rp119 million2 Since 1995 Sudirman Kav. 52-53 Jakarta - 12190 Notary Notaris/PPAT Jl. Suryo No.54 Acting as notary Ashoya Ratam, Kebayoran Baru SH, MKn Jakarta 12180 Rp25 million Since 2012 1 BNY Mellon fee paid based on volume of transactions 2 Fee related to capital market activities 103 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS104 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSMANAGEMENT DISCUSSION AND ANALYSIS 107 Operational Overview by Segment 122 Comprehensive Financial Performance 140 Solvency 140 Receivables collectability 141 Capital Structure 142 Capital Expenditure 144 Material Commitment for Capital Expenditure 146 Material Information and Facts After Accountant Reporting Date 146 Macroeconomy 148 Indonesia Telecommunication Industry 152 153 154 154 155 Business Prospect Comparison Between Targets and Realization Target for The Next Year Dividend Realization of Public Offering Fund 155 Material Information (Investments, divestments and acquisitions) 156 Marketing Overview 158 161 Changes in Regulation Changes in Accounting Policy 105 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Alex J Sinaga • CEO Telkom Group 106 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSOPERATIONAL OVERVIEW BY SEGMENT Preface Operational overview by segment in this report is presented according to industry type of Telkom Group. As of December 31, 2016, Telkom Group has four operation segment, they are corporate segment, home segment, personal segment, and other segment. Table below compiles Telkom Group operation segment performance from 2014 until 2016. Service by Customer Segment Corporate Segment Satellite-transponder Leased channel IPLC Data comm Corporate internet Unit Growth 2016 - 2015 (%) Years Ended December 31, 2016 2015 2014 MHz Mbps Mbps Mbps Mbps 46.3 6,801 4,648 3,560 47.1 146,831 99,827 88,257 82.0 15,348 8,435 8,639 (59.9) 764,397 1,907,012 930,327 1,092.2 1,750,617 146,843 93,368 Fixed Wireline (POTS) (000) subscribers 3.5 1,601 1,547 1,465 Fixed Broadband (000) subscribers 11.7 461 413 353 Home Segment Fixed Wireline (POTS) (000) subscribers 3.8 9,063 8,730 8,233 Fixed Broadband (000) subscribers 8.3 3,867 3,570 3,047 Personal Segment Cellular (000) subscribers 13.9 173,920 152,641 140,586 Fixed wireless* (000) subscribers - N/A N/A 4,404 Mobile broadband (000) subscribers 37.1 60,030 43,786 31,216 * Until the end of 2015, wireless subscribers get migration program to cellular subscribers. Generally, operation segment of Telkom Group gives positive contribution to revenue/selling and segment result. 107 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Segment Performance Highlights The following table provides operation segment summary of Telkom Group from 2014 until 2016. Telkom’s Results of Operation By Segment 2016-2015 2016 2015 2014 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) Growth Years Ended December 31, Corporate Revenues External Revenues Inter-segment revenues Total segment revenues Segment expenses Segment Results Depreciation and amortization 14.7 127.7 60.5 70.8 19.6 53.2 24,177 32,675 56,852 1,795 2,425 4,220 21,072 14,347 35,419 18,763 10,652 29,415 (48,345) (3,588) (28,305) (22,663) 8,507 631 7,114 6,752 (4,148) (308) (2,708) (2,699) Provision for impairment of receiveables (84.5) (87) (6) (560) (184) Home Revenues External Revenues Inter-segment revenues Total segment revenues Segment expenses Segment Results Depreciation and amortization Provision for impairment of receiveables Personal Revenues External Revenues Inter-segment revenues Total segment revenues Segment expenses Segment Results Depreciation and amortization Impairment of fixed assets Provision for impairment of receiveables Other Revenues External Revenues Inter-segment revenues Total segment revenues Segment expenses Segment Results Depreciation and amortization Provision for impairment of receiveables 108 6.6 16.7 10.4 10.2 16.9 42.2 42.8 13.9 15.2 13.9 7,803 5,077 12,880 579 377 956 7,319 4,352 11,671 6,682 2,667 9,349 (12,576) (933) (11,411) (8,960) 304 (1,711) (424) 23 (127) (31) 260 389 (1,203) (1,495) (297) (467) 83,990 2,724 86,714 6,234 202 6,437 73,766 64,000 2,365 76,131 2,686 66,686 0 (51,303) (3,808) (51,303) (44,786) 42.6 35,411 (13.6) (12,549) - - 50.0 (222) 16.0 23.3 22.3 25.0 (3.2) 34.8 100.0 363 2,395 2,758 (2,549) 209 (124) (10) 2,628 (931) - (16) 27 178 205 (189) 16 (9) (0.1) 24,828 21,900 (14,531) (12,071) - (148) (805) (133) 313 1,943 2,256 251 1,632 1,883 (2,040) (1,718) 216 (92) (5) 165 (61) - PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS In line with telecommunication industry development particularly the cellular industry, in the financial year of 2016, business revenue by Telkom Group’s operating segment was dominated by individual segment which reached the revenue of Rp86,714 billion or 54.5% from total revenue (before elimination), followed by the revenue based on the corporate segment in the amount of Rp56,852 billion or 35.7%, revenue based on the home segment in the amount of Rp12,880 billion or 8.1% and other segment in the amount of Rp2,758 billion or 1.7%. The following graphic presents the revenue/sales of Telkom Group per operating segment Segment Revenues 4 1 7 6 8 , 1 3 1 , 6 7 2 5 8 6 5 , 0 8 8 2 1 , 9 1 4 5 3 , 8 5 7 2 , 1 7 6 , 1 1 6 5 2 2 , 100,000 80,000 60,000 40,000 20,000 0 6 8 6 6 6 , 5 1 4 9 2 , 9 4 3 9 , 3 8 8 , 1 2016 2015 Corporate Home Personal 2014 Others Further, the largest business expense per operating segment was in personal segment in the amount of Rp51,303 billion or 44.7%, from the total business expense of Telkom Group (before elimination). The second and third largest business expense per operating segment are in the amount of Rp48,345 billion or 42.1% for corporate segment and Rp12,576 billion or 11.0% for home segment respectively. The smallest business expense per operating segment was recorded on other segment with the amount of Rp2,549 billion or 2.2% of the total business expense in 2016. Below is the business expense per Telkom Group’s operating segment from 2014-2016 presented in graphic form. Segment Expenses 3 0 3 , 1 5 3 0 3 , 1 5 5 4 3 8 4 , 6 7 5 2 1 , 5 0 3 8 2 , 1 1 4 , 1 1 9 4 5 2 , 0 4 0 2 , 60,000 50,000 40,000 30,000 20,000 10,000 0 6 8 7 4 4 , 8 1 7 , 1 3 6 6 2 2 , 0 6 9 8 , 2016 2015 Corporate Home Personal 2014 Others 109 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS TELKOM GROUP FINANCIAL AND OPERATIONAL HIGHLIGHTS MANAGEMENT REPORT ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY APPENDICES CONSOLIDATED DEVELOPMENT PROGRAM FINANCIAL STATEMENTS With the revenue and business expense per operating segment as stated, the largest contribution of segment result per Telkom Group’s segment in 2016 was recorded from personal segment which was in the amount of Rp35,411 billion or 79.7%, from the total segment result (before elimination) in the amount of Rp44,431 billion. The second largest contribution was from corporate segment in the amount of Rp8,507 billion or 19.1% and the third one is from home segment in the amount of Rp304 billion or 0.7%. Other segment gave the smallest contribution in the amount of Rp209 billion or 0.5% from the total segment result in 2016. Segment result per Telkom Group’s operating segment is presented below. Segment Result 1 1 4 5 3 , 40.000 30.000 8 2 8 4 2 , 20.000 7 0 5 8 , 4 1 1 , 7 4 0 3 9 0 2 0 6 2 6 1 2 0 0 0 9 , 1 2 5 6 1 2 5 7 6 , 9 8 3 2016 2015 Corporate Home Personal 2014 Others 110 PT Telkom Indonesia (Persero) Tbk CORPORATE SEGMENT in 10 countries. Some of its services are facilities-based operator, mobile virtual network operator (“MVNO”), In corporate segment, we serve customers for business wholesale voice, wholesale data, business process portfolio through: outsourcing, and point of presence maintenance. 1. Wholesale and International under CFU WIB 2. Network Infastructure under CFU WIB Further, from the aspect of fiber optic cable network 3. Enterprise Digital under CFU Enterprise infrastructures, Telkom Group has added fiber network in the length of 24,770 km domestic and internationally in Telkom Group’s business activities for portfolio of 2016. With such addition, total fiber optic cable backbone wholesale telecommunication services, which consist has reached the total of 106,000 km. of interconnection and network services, hubbing, data center and telecommunication solutions. In 2016 Telkom Group has also strengthened other infrastructures such as the development of Telkom-3S Meanwhile our international business portfolio operated satellite, tower business expansion, the addition of data by our subsidiary Telin that already have point of presence center capacity. Telkom Group Infrastructure Table 2014 – 2016 Infrastructure Type Unit Value Global and Domestic Submarine Cable A. Global Submarine Cable DMCS (Dumai-Malacca Cable System) BSCS (Batam-Singapore Cable System) SEA-ME-WE 5 (South East Asia-Middle East-Western Europe 5) B. Domestic Submarine Cable SMPCS (Sulawesi Maluku Papua Cable System) Nasional backbone Regional Backbone Data center facility Metro ethernet network capacity Internet gateway capacity CDN (content distribution network) capacity km km km km km km sqm Gbps Gbps Gbps 160 70 20,000 8,770 40,200 36,800 95,000 126,284 1,100 1,590 Some services on business portfolio under CFU Enterprise including, provision of information & communication technology (ICT) platform and smart enabler platform, connectivity services, satelite and access that give an end to end solution. For corporate customers, in 2016 we served 2.524 Gbps bandwidth in service. In Indonesia, the enterprise segment still has good growth opportunities. Potential growth came from higher demand from the corporations for integrated ICT services. ICT services are also increasingly required by the SMEs which are huge and most have not been enjoying good ICT services. Meanwhile, Telkom’s infrastructure is also very strategically integrated to support the business growth for both cellular and mobile, in addition to part of its capacity can be leased to other operators. 111 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Table of Service Performance for Corporate segment of Telkom Group in 2014-2016 • Data and internet revenues by Rp3,630 billion, or 37.0%, due to an increase in data communication others revenues by Rp991 billion or 72.8%, data communication IT service revenues by Rp1,339 billion Description Unit 2016 2015 2014 revenues by Rp272 billion or 9.0%, e-business revenues by Rp346 billion or 85.4%, Astinet revenues by Rp339 Quantity or 71.1%, data communication VPN and ethernet Satellite- transponder MHz 6,801 4,648 3,560 billion or 44.4% and data access internet revenues by Rp304 billion or 13.3%; Leased Channel Mbps 146,831 99,827 88.257 • Network revenues by Rp1,499 billion, or 17.6%, as a DataComm Mbps 764,397 1,907.012 930,327 Corporate Internet Mbps 1,750.617 146,843 93.368 1,6 1,5 1,5 Fixed Wireline (voice) million sub scribers Fixed Broad- band million sub scribers result of increases in leased line revenues by Rp1,203 billion, or 20.9% and transponder revenues by Rp295 billion or 10.7%. The revenues increase was offset by a decrease in interconnection revenues by Rp155 billion or 2.5% due to a decrease in internasional interconnection revenues by Rp536 billion or 11.6% and increase of domestic 0,5 0,4 0,4 interconnection revenues by Rp381 billion or 22.0%. Table of Operational Performance for Corporate segment of Telkom Group in 2014-2016 Our corporate segment expenses increased by Rp20,040 billion, or 70.8%, from Rp28,305 billion in 2015 to Rp48,345 billion in 2016, primarily due to an increases in: • Operation, maintenance and telecommunication services expenses by Rp17,168 billion, or 121.1% as Operational Results Growth in 2016-2015 Year Ended December 31, a result of increases in cooperation expenses by 2016 2015 2014 (%) (Rp miliar) Rp9,480 billion or 262.1%, operation and maintenance (O&M) expenses by Rp6,651 billion, or 126.6%, cost of IT services expenses by Rp960 billion, or 108.8% and Revenue Expenses Segment Rresult 60.5 56,852 35,419 29,415 electricity cost by Rp54 billion or 9.3%; 70.8 48,345 28,305 22,663 • Personnel expenses by Rp1,420 billion, or 34.6%, due to an increase in personnel expenses by Rp500 billion 19.6 8,507 7,114 6,752 or 70.7%, net periodic pension cost by Rp399 billion or Year ended December 31, 2016 compared to year ended December 31, 2015. Our corporate segment revenues increased by Rp21,433 billion, or 60.5%, from Rp35,419 billion in 2015 to Rp56,852 billion in 2016. The increase was primarily due to an increases in: • Other revenues by Rp16,397 billion, or 186.7%, due to an increase e-payment revenues by Rp8,572 billion or 2,817.2%, manage services revenues by Rp5,556 billion, or 616.7%, manage device others revenues by Rp656 billion or 100.0%, health facilities and services revenues by Rp222 billion or 2,579.5%, technical assistance service revenues by Rp201 billion or 218.1%, CPE revenues by Rp581 billion or 665.0%, call center services by Rp402 billion or 19.6%, e-health revenues by Rp23 billion or 13.0%, power supply lease revenues by Rp191 billion or 74.6%. This increase was offset due to a decrease in directory assistance revenues by Rp9 billion or 2.3%; 112 361.7%, benefit expenses by Rp395 billion or 37.3% and bonuses expenses increased by Rp121 billion, or 16.4%; • Depreciation expenses by Rp1,440 billion or 53.2% due to depreciation of transmission, satellite and other equipment. Year ended December 31, 2015 compared to year ended December 31, 2014. Our corporate segment revenues have increased by Rp6,004 billion, or 20.4%, from Rp29,415 billion in 2014 to Rp35,419 billion in 2015. The increase was primarily due to an increases in: • Network revenues by Rp4,284 billion, or 101.2%, as a result of an increase in leased line revenues by Rp4,144 billion, or 309.9%, an increase in transponder revenue by Rp252 billion or 10.1% and was offset by a decrease in international leased line by Rp119 billion or 85.1%. • Data and internet revenues by Rp939 billion, or 10.5%, due to an increase in data communication others revenues by Rp1,037 billion, or 318.4% and was offset by a decrease in high speed internet by Rp86 billion or 8.6%. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• Interconnection revenues by Rp565 billion, or 11.1%, due HOME SEGMENT to an increase in international IDD OLO revenues by Rp360 billion, or 35.5% and an increase in international In home segment, we serve the residential customers IDD incoming revenues by Rp354 billion, or 16.0%. The through: increased was offset by a decrease of long distance 1. Fixed Services under CFU Consumer cellular revenues by Rp89 billion or 2.2% and other 2. Consumer Digital under CFU Consumer and CFU local revenues by Rp68 billion or 29.9%. Digital Service • Others telecommunications revenues by Rp418 billion, or 5.7%, due to an increase in call center services Our fixed service portfolio consists of the service of fixed revenues by Rp591 billion, or 40.4% and was offset voice and fixed broadband. IndiHome program which by a decrease in CPE and terminal by Rp225 billion or gives the package for all services within one package in 24.3%. a competitive price that consists of broadband internet, residential telephone and interactive TV service. The increase was offset by a decrease in fixed wireline revenues by Rp212 billion or 5.6% due to decreased on On top of that we are continously developing interesting local usage by Rp117 billion or 24.5%, long distance usage programs, such as upgrading the internet connection by Rp53 billion or 12.3% and IDD 007 usage by Rp22 speed and offering unlimited call for celullar phone in a billion or 16.9%. fixed price, wifi.id service, add-on service for customers to enjoy unlimited internet access in all access points in Our corporate segment expenses increased by Rp5,642 Indonesian Wi-Fi across Indonesia. billion, or 24.9%, from Rp22,663 billion in 2014 to Rp28,305 billion in 2015, primarily due to an increase in: The business portfolio of digital consumer especially • Operation, maintenance and telecommunication media and edutainment service to the customers, covers services expenses by Rp3,467 billion, or 32.2% as a the service of e-commerce, video/TV service (such as result of an increase in operation and maintenance IPTV and over the top (“OTT”) TV), and digital-based (O&M) expenses by Rp1,210 billion, or 57.9%, including mobile service with four categories namely: digital an increase in cooperation expenses by Rp771 billion, lifestyle (such as game, music and mobile digital life or 27.2%, leased lines and CPE expenses by Rp716 service), Digital banking and advertising (such as mobile billion, or 61.7%, cost of IT services by Rp525 billion, or banking and location-based ads), Machine to machine 146.8%, O&M supporting facilities by Rp130 billion or (such as T-Drive, T-Bike), and mobile financial service 36.0%, transportation by Rp65 billion or 7.3% and O&M (such as T-Cash, T-Wallet) land and building by Rp46 billion or 14.4%. • Interconnection expenses by Rp779 billion, or 19.4%, Telkom Group also strengthened the infrastructure for as a result of an increase in international IDD007 home segment through the improvement of the capacity interconnection expenses by Rp530 billion, or 28.1% for the exchange of fixed wireline become 15.7 million and Telkom Global international interconnection connections, and access point of Wi-Fi to become expenses by Rp258 billion, or 95.8%. 362,200 spots. • Employee expenses by Rp534 billion, or 14.9%, due to an increase in early retirement program expenses by Rp246 billion or 100.0%, bonuses expenses by Rp179 billion, or 31.7% and personnel expense by Rp101 billion or 16.7%. • Others expenses by Rp886 billion, or 293.5%, due to penalty and commitment charge by Rp460 billion, income tax expenses by Rp117 billion, or 25,415.4%, others non-operating expenses by Rp265 billion, or 127.3%, and tax expense by Rp33 billion or 82.9%. • Marketing expense by Rp49 billion or 6.7% due to an increase in advertising and promotion by Rp43 billion or 10.2%. 113 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Telkom Group Infrastructure Table 2014 - 2016 Infrastructure Type Exchange capacity of fixed wireline Wi-fi access point Unit Line spot 2016 Year 2015 2014 15.738.802 14.946.076 13.946.801 362.200 321.736 177.514 In an effort to revitalize our fixed line business, in early 2015 we launched IndiHome, a fiber based fixed broadband which is a triple play services consist of home telephone, high-speed internet and IPTV. At the end of 2016, total IndiHome customer reached 1.6 million subscribers. So our total fixed broadband subscribers, including non IndiHome, reached 3.9 million subscribers, increased 8.3% from 3.6 million subscribers at the end of 2015. As for the subscribers for fixed wireline subscribers (voice) reach 9.1 million by the end of 2016, or an increase of 3.8% from 8.7 million in 2015. We make a lot of effort to migrate fixed wireline (voice) and non IndiHome fixed broadband subscribers, to be IndiHome customers in order to enjoy a better customer experience. To further enhance the attractiveness of IndiHome, we continued to enrich the content, among which by cooperating with world-class video streaming providers, music streaming provider and games developers. We have also increased our stake in PT Melon Indonesia, music streaming provider that has more than 5 million song catalog, to 100% from 51% previously. Telkom believesthe prospect of IndiHome. In the future, the need for high quality fixed broadband services will increase along with the growing middle class segment in Indonesia. Moreover, the penetration of fixed broadband services in Indonesia is still relatively low at less than 10%. The high potential of fixed broadband business has also attracted some fixed broadband providers to compete, especially in big cities. Table of Service Performance for Home Segment of Telkom Group in 2014-2016 Description Unit Fixed Wireline (voice) million subsribers Fixed Broadband (IndiHome) million subsribers • Other revenues by Rp926 billion, or 51.5%, primarily due to an increase in CPE revenues by Rp930 billion or 53.5% and offset by decrease ini other telecommunication service revenues by Rp4 billion or 78.0%; • Data and internet revenues by Rp163 billion, or 2.9%, Quantity 2016 2015 2014 9.1 8.7 8.2 as a result of an increase in Pay TV revenues by Rp591 billion, or 141.8%, in line with the increase in the IndiHome 3.9 3.6 3.0 subscribers 8.3% from 3.6 million as of December 31, 2015 to 3.9 million as of December 31, 2016. This increase partially offset by decrease in data communication others revenues by Rp451 billion, or 38.2%. The increase was partially offset by a decrease in fixed wireline revenues by Rp74 billion or 1.7% due to decrease in usage; Table of Operational Performance for Home Segment of Telkom Group in 2014-2016 Operational Result Growth in 2016-2015 (%) Year Ended December 31, 2016 2015 2014 Rp (billion) Our home segment expenses increased by Rp1,165 billion, Revenues Expenses Operating Profit 10.4 12,880 11,671 9,349 or 10.2% from Rp11,411 billion in 2015 to Rp12,576 billion in 10.2 16.9 12,576 11,411 8,960 2016. This increase primarily due to an increases in: 304 260 389 • Operation, maintenance and telecommunication Year ended December 31, 2016 compared to year ended December 31, 2015. Our home segment revenues increased by Rp1,209 billion, or 10.4%, from Rp11,671 billion in 2015 to Rp12,880 billion in 2016 mainly due to an increases in: 114 services expenses by Rp1,187 billion, or 27.1%, due to an increase in cooperation expenses by Rp566 billion, or 79.7%, leased lines and CPE expenses by Rp376 billion, or 71.2%, operation and maintenance expenses by Rp102 billion or 39.1% and call center expense by Rp134 billion or 157.9%; • Marketing expenses by Rp145 billion or 25.4% due to increase in advertising and promotion by Rp114 billion or 32.5%. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS The increases were partially offset by a decrease in • Operation, maintenance expenses by Rp1,932 billion, personnel expenses by Rp186 billion or 4,9% due to a or 79.2%, due to an increase in terminal/handset decrease in early retirement program expenses by Rp154 expenses by Rp1,071 billion, or 258.4%, increased in billion or 46.9% and post retirement health care by Rp49 cooperation expenses by Rp552 billion, or 349.6%, billion or 39.7%. Year ended December 31, 2015 compared to year ended December 31, 2014. Our home segment revenues increase by Rp2,322 billion, or 24.8%, from Rp9,349 billion in 2014 to Rp11,671 billion in 2015 mainly due to an increases in: • Data and internet revenues by Rp1,361 billion, or 32.3%, as a result of an increase in others data communication by Rp722 billion, or 26.3%, Pay TV revenues by Rp341 billion, or 451.7%, in line with the achievement of the IndiHome subscribers by 1 million subscribers, an increase in high speed internet revenues by Rp150 billion, or 4.0% and high speed internet monthly subscription by Rp52 billion or 408.7%. an increase in leased lines and CPE expenses by Rp403 billion, or 322.2%. This increase was offset by a decrease in insurance expense by Rp40 billion or 33.4% and vehicle rent by Rp30 billion or 30.7%. • Employee expenses by Rp508 billion, or 15.4%, due to early retirement program expenses by Rp328 billion or 100.0%, an increase in bonuses expenses by Rp231 billion, or 35.1%, an increase in net periodic post- retirement healthcare benefits by Rp81 billion or 192.1%. This increase was offset by a decrease in net periodic pension costs by Rp156 billion or 51.2%. • Other expense by Rp606 billion or 1,444.9% due to an increase in penalty and commitment charge by Rp364 billion or 100.0% and others non-operating expenses by Rp243 billion or 1,151.1%. • Others telecommuniaction revenues by Rp1,118 billion The increased were offset by a decrease in: or 164.6% primarily due to an increase in Customer Premise Equipment (CPE) and terminal sale and leased revenues by Rp1,185 billion or 214.1% The increase was offset by a decrease in other revenue by Rp49 billion or 21.9% and fixed wireline revenue by Rp25 • General administrative expense by Rp291 billion or 19.7% due to a decrease in provision for impairment of receivables by Rp160 billion or 35.1% and training, education and recruitment by Rp119 billion or 46.4%. • Depretiation and amortization expenses by Rp291 billion or 0.6%. billion, or 19,4%. Our home segment expenses increased by Rp2,451 billion, or 27.4% from Rp8,960 billion in 2014 to Rp11,411 billion in 2015. This increase primarily due to an increases in: Testimony IndiHome Customer Febry Meuthia Blogger I become customers indihome since February 2016. And all my needs are met. Fast internet, UseeTV indulgent audience and fixed phone with the best connection quality. Amenities TV on demand, playback and record are my favorite, because I can watch favorite shows anytime so I will not missed my favorite athletes on sports channel. Furthermore the additional services such as Movin, Iflix, CACTHPLAY and HOOQ, those are about “all you could ask” for these OTT services. 115 IndiHome is certainly the best! PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPERSONAL SEGMENT Table of Service Performance for Personal Segment of Telkom Group in 2014-2016 We serve individual customers in our personal segment through mobile business portfolio under CFU mobile. Keterangan Unit Portfolio of mobile or cellular products consists of the service of mobile voice, SMS as well as mobile broadband Cellular with GSM technology through Telkomsel and it becomes the largest contributor to the consolidated revenue in Mobile Broadband million subsribers million subsribers 2016. Quantity 2016 2015 2014 173.9 152.6 140.6 60.0 43.8 31.2 Market brand mobile for postpaid customers is kartuHalo, meanwhile our prepaid customers in the approximate amount of 98% of total mobile customers, named simPATI, Kartu As and Loop. Our mobile broadband service under the name of Telkomsel Flash, is supported by the Operating Result technology of LTE/HSDPA/3G/EDGE/GPRS. Growth in 2016-2015 (%) Year Ended December 31, 2016 2015 2014 Rp (billion) Table of Operational Performance for Personal Segment of Telkom Group in 2014-2016 To support our mobile customers, we had 129,033 BTS as infrastructure, which consists of 78,698 BTS 3G/4G. Especialy for 4G LTE services we have 6,362 BTS in 169 cities. Service performance in personal segment was conducted well during 2016. This can be seen from the growth of total customers of mobile in the amount of 13.9% in 2015 to 173.9 million, consisting of 4.2 million postpaid customers and 169.7 million prepaid customers. Further, until December 31, 2016, we have 60 million customers for mobile broadband (TelkomselFlash) compared to 43.8 million in December 31, 2015. The growth in mobile broadband subscribers has driven mobile data traffic to grow by 94.8% to 958.7 petabytes. We also enrich the content to further enhance the customer experience of our mobile customers, including by working with video streaming providers, music streaming providers and games developers. Although SIM card penetration has been relatively high, but we believe that the growth potential of the mobile industry will remain good, mainly driven by digital businesses, in line with the increasingly widespread use of smartphones. Smartphone penetration is still relatively low in Indonesia of less than 50%, but is growing rapidly supported by the lower handset price. The more variety of content and applications, in particular video based ones, will encourage more data consumption. 116 Revenues Expenses 13.9 86,714 76,131 66,686 0.0 51,303 51,303 44,786 Operating Profit 42.6 35,411 24,828 21,900 Year ended December 31, 2016 compared to year ended December 31, 2015. Our personal segment revenues increased by Rp10,583 billion, or 13.9% from Rp76,131 billion in 2015 to Rp86,714 billion in 2016, mainly due to an increase in: • Data and internet revenues by Rp9,416 billion, or 27.1%, due to an increase in cellular data communication revenues by Rp8,548 billion, or 43.8%, in line with the increase in Telkomsel Flash subscribers 37.1% from 43.8 million as of December 31, 2015 to 60.0 million as of December 31, 2016. SMS revenues increased by Rp868 billion, or 5.8% as a result of cluster based pricing implementation; • Cellular revenues by Rp1,263 billion, or 3.4%, due to an increase in cellular monthly subscription by Rp1,369 billion, or 13.9%, in line with increased cellular subscribers by 13.9% to 173.9 million in 2016. The increase partialy offset by decrease international usage by Rp120 billion, or 20.9%. The increase was partially offset by a decrease in fixed wireless revenues by Rp101 billion or 109.0% because of Flexi termination. Our personal segment expenses stagnant in Rp51,303 billion in 2016. The expenses were primarily due to the increases in: • Operation, maintenance and telecommunication services expenses by Rp1,255 billion, or 5.0%, due to the increase in radio frequency usage charges by Rp1,129 billion or 28.3% and leased line and CPE expenses by Rp85 billion or 5.0%; PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS117 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• Marketing expenses by Rp728 billion, or 26.4%, mainly Our personal segment expenses increased by Rp Rp6.517 due to an increase in advertising and promotion by billion, or 14,6% from Rp44.786 billion in 2014 to Rp51.303 Rp609 billion, or 27.0% and customer education and billion in 2015, primarily due to an increases in: press release by Rp119 billion or 24.1%; • Operation and maintenance (O&M) expenses by • Personnel expenses by Rp505 billion, or 13.2%, Rp4,540 billion, or 21.9% due to an increase in manage primarily due to an increase in personnel expenses capacity service by Rp1,686 million or 100.0%, O&M and employee benefit by Rp285 billion or 19.4.%, net power supply expenses by Rp906 billion or 43.8% in periodic pension Rp132 billion or 262.7% and bonuses line with BTS Telkomsel growth by 20,9% to 103,289 expenses by Rp60 billion, or 5.6%. units in 2015, O&M transportation expenses by Rp749 These increase was partially offset by decrease in: billion or 16.2%, O&M radio base station by Rp1,024 • Depreciation and amortization expenses by Rp1,982 billion or 24% dan leased expenses by Rp210 billion or billion, or 13.6%, primarily due to depreciation of 23.2%. transmission and switching equipment; • Depreciation and amortization expenses by Rp2,460 • General administration expenses by Rp174 billion or billion, or 12.8% primarily due to an increase in 121.9% due to a decrease in collection fee expenses transmission installation and equipment depreciation by Rp277 billion or 63.7%, partially offset by provision expenses by Rp1,771 billion or 21.8%, amortization by for impairment of receivables by Rp73 billion or 49.0% Rp226 billion or 67.3%, leased assets depreciation by and increased in social contribution by Rp27 billion or Rp216 billion or 34.1%, building depreciation by Rp20 55.2%; • Other expenses by Rp244 billion or 121.9% due to billion or 76.6%, cable network depreciation by Rp55 billion or 103.9%, switching depreciation by Rp13 billion decrease in non operating expenses. or 1.1%, leasehold depreciation by Rp17 billion or 34.5% Year ended December 31, 2015 compared to year ended December 31, 2014. Our personal segment revenues increased by Rp9,445 dan vehicle depreciation by Rp3 billion or 11.4%. • Employee expenses by Rp1,091 billion or 39.9% due to an increase in bonuses expenses by Rp497 billion or 87.2%, employees’ income tax expenses by Rp200 billion or 44.6%, early retirement expenses by Rp216 billion or 100% and long service award by Rp190 billion billion, or 14.2% from Rp66,686 billion in 2014 to Rp76,131 or 165.5%. billion in 2015, mainly due to the an increase in: • Data and internet revenues by Rp7,083 billion, or 25.7% This increase were offset by a decrease in: • Interconnection expenses by Rp1,481 billion or 31.3% due to a depreciation in Blackberry collaboration expenses by Rp1,078 billion or 69% in line with a decrease in Blackberry subscribers by 31.7% to 4,0 million subscribers in 2015 and a decrease in cellular IDD interconnection expenses by Rp331 billion or 54.1%. • General and administration expenses by Rp66 billion or 4.1% due to a decrease in collection expenses by Rp270 billion or 38.3%, and wass ofset by an increase in professional fees by Rp118 million or 98.7%, training, education, and recruitment by Rp28 billion or 40.6%, social contribution by Rp22 billion or 83.6%, and receivable by Rp15 billion or 11.3%. • Foreign exchange loss by Rp55 billion or 53.5%. due to an increase in communication data cellular by Rp6,015 billion, or 44.5% in line with an increase in Telkomsel Flash subscribers by 40.3% from 31.2 billion in 2014 to 43,8 billion in 2015, an increase in payload data by 109.6% to 492.245 TB in 2015 and SMS revenue by Rp1,195 billion or 8.6% due to an acomplishment in cluster based pricing implementation. This increase was offset by a decrease in SMS fixed wireliness by Rp100 billion or 97.0%. • Cellular revenues by Rp3,088 billion or 9.1% due to an increase in cellular commitment revenues by Rp2,083 billion or 28.3%, in line with an increase in cellular subscribers by 8.6% to 152.6 billion in 2015, cellular long-distance usage revenues by Rp658 billion or 7.0% and cellular features revenue by Rp286 billion or 37.5%. This increase was offset by a decrease in: • Fixed wireless revenues by Rp437 billion, or 82.5% due to Flexi service termination, local used by Rp119 billion or 71.9%, long distance usage by Rp266 billion, or 89.4% and monthly subscription by Rp49 billion or 78.1% • Other revenues by Rp110 billion or 50% due to a decrease in non operational revenues. 118 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSOTHER SEGMENT In other segment, Telkom Group through Telkom Property provides the services for building management and its facilities, including the lease of office buildings, hotel development, of commercial buildings leases and transportation management. In this segment, the Company is leveraging its property assets, such as land and buildings which are not optimally utilized, to be developed into office buildings, business buildings, hotels, and other profitable investments. These lands are the result of the implementation of the network transformation made by Telkom in the past several years. The property can be used by Telkom Group or cooperated with third parties through our subsidiary, Telkom Property. With the right business model, these assets are expected to provide greater benefits for the Company in the future. A major projects that has been built is Telkom Smart Office tower with 20 floors which is occupied by Telkomsel, and we are in the stage of development of other office tower with 52 floors which will be the new Telkom headquarters and is planned for completion in 2017. Table of Operational Performance for Other Segments of Telkom Group In 2014-2016 Operational Result Revenue Expense Operating Profit Growth in 2016-2015 (%) Year Ended December 31. 2016 2015 (Rp billion) 2014 22.3 25.0 (3.2) 2,758 2,549 209 2,256 2,040 216 1,883 1,718 165 Year ended December 31, 2016 compared to year ended December 31, 2015. Our other segment revenues increased by Rp502 billion, or 22.3%, from Rp2,256 billion in 2015 to Rp2,758 billion in 2016 mainly due to an increase in other revenues by Rp502 billion or 22.3%. This increase were contributed by lease building and hotel revenues by Rp140 billion, or 10.7% and project management service, property development and retail revenues by Rp362 billion, or 38.2%. Our other segment expenses increased by Rp509 billion, or 25.0%, from Rp2,040 billion in 2015 to Rp2,549 billion in 2016 mainly due to an increases in: • Operation, maintenance and telecommunication service expense by Rp402 billion, or 23.3%, due to an increase in project management expenses by Rp311 billion, or 268.2%, and in operation & maintenance other by Rp57 billion, or 61.1%. • Depreciation expenses by Rp32 billion, or 34.8%, mainly due to an increase in depreciation of property. • General and administration expense by Rp14 billion, or 22.7%, primarily due to an increase in provision for impairment of receivables by Rp6 billion, or 114.3% and remuneration expenses by Rp4 billion, or 12.8%, • Personnel expenses by Rp19 billion, or 13.6%, due to an increase in personnel expenses, position, conjunctur and medical benefit. 119 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTriple Double Digit Growth PENDAHULUAN IKHTISAR KEUANGAN DAN OPERASIONAL LAPORAN MANAJEMEN TENTANG TELKOM INDONESIA ANALISA DAN PEMBAHASAN MANAJEMEN Year ended December 31, 2015 compared to year ended December 31, 2014. Our other segment revenues increased by Rp373 billion, or 19.8% from Rp1,883 billion in 2014 to Rp2,256 billion in 2015 mainly due to an increases in: • Leased revenues by Rp225 billion or 20.8% due to an increase in building management revenues by Rp193 billion or 20.5% and building lease revenues by Rp28 billion or 22.6% • Other revenues by Rp148 billion or 18.4% due to an increase in other revenues by Rp72 billion or 329.1%, transportation management service revenues by Rp50 billion or 40.1% and security service revenues by Rp44 billion or 13.6%. This increase was offset by a decrease in management project revenues by Rp30 billion or 13.7%. Our other segment expenses increased by Rp322 billion, or 18.7%, from Rp1,718 billion in 2014 to Rp2,040 billion 2015 mainly due to an increases in: • Operation and maintenance expenses by Rp246 billion or 16.7% due to an increase in collaboration with third parties by Rp112 billion or 71.7%, vehicle rent and supported facilities by Rp42 billion or 43.9%, electricity, gas, and water expenses by Rp44 billion or 6.8%, and security operational expenses by Rp44 billion or 15.7%. • Depreciation and amortization expenses by Rp31 billion or 50.8% due to an increase in power supply depreciation expenses, vehicles depreciations, and building depreciations. • General and administration expenses by Rp20 billion or 53.6% primarily due to an increase in provision for impairment of receivables by Rp5 billion or 2,793.9%, meeting expenses by Rp4 billion or 155.7%, professional fees expenses by Rp3 billion or 224.0%. • Employees expenses by Rp16 billion or 12.9% due to an increase in outsourcing expenses by Rp6 billion, or 11.9%, bonuses expenses by Rp4 billion or 61.9%, pension expenses by Rp3 billion or 158.9%, incentives expenses by Rp2 billion or 20.8% and marketing expenses by Rp2 billion or 19.7% due to an increase in representative expenses. Revenues EBITDA Net Income Rp116,333 Rp59,498 billion billion Rp19,352 billion Increase by Increase by Increase by 13.5% 15.7% 24.9% 120 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS TELKOM GROUP FINANCIAL AND MANAGEMENT REPORT OPERATIONAL HIGHLIGHTS ABOUT TELKOM INDONESIA MANAGEMENT DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE CORPORATE SOCIAL RESPONSIBILITY PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM APPENDICES CONSOLIDATED FINANCIAL STATEMENTS Triple Double Digit Growth Revenues EBITDA Net Income Rp116,333 billion Rp59,498 billion Rp19,352 billion Increase by Increase by Increase by 13.5% 15.7% 24.9% FINANCIAL PERFORMANCE OVERVIEW The year of 2016 was an encouraging year because Telkom had recorded a triple double digit growth performance, they were double digit growth for revenue, EBITDA and net income. Briefly, the growths of key financial performances of Telkom Indonesia the the last 5 (five) years are as folllows: , 1 1 6 9 7 1 3 7 1 , 6 6 1 2 2 8 , 1 4 1 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 7 6 0 4 7 , 5 4 7 2 7 , 0 3 8 5 5 , 4 8 3 4 8 , 6 3 1 , 5 7 1 2 7 7 6 , 3 3 3 6 1 1 , 0 7 4 2 0 1 , 6 9 6 9 8 , 2 5 , . 9 1 9 8 4 5 1 , 1 7 4 4 1 , Total Asset Total Liabilities Total Equity Revenue Net Income 2016 2015 2014 Total assets were increased by 8.1% from Rp166,173 billion in 2015 to Rp179,611 billion in 2016, while revenues in 2016 were increased by 13.5% from in Rp102,470 billion in 2015 to Rp 116,333 billion in 2016. This drove an increase in net income in 2016 by Rp 3,863 billion, or 24.9%, from Rp15,489 billion in 2015 becoming Rp19,352 billion and EBITDA in 2016 amounted Rp59,498 billion, or increased 15.7% from previous year. FINANCIAL POSITION OVERVIEW These tables show financial position of Telkom for three years, from 2014 to 2016. Consolidated statements of financial position table 2016-2015 2016 2015 2014 Pertumbuhan Tahun-tahun yang berakhir 31 Desember Total Current Assets Total Non-Current Assets Total Assets Total Current Liabilities Total Non-Current Liabilities Total Liabilities (%) (Rp miliar) (US$ juta) (Rp miliar) (Rp miliar) (0.4) 47,701 3,541 47,912 34,294 11.5 131,910 9,791 118,261 107,528 8.1 179,611 13,332 166,173 141,822 12.3 (8.1) 39,762 2,951 35,413 32,318 34,305 2,546 37,332 23,512 1.8 74,067 5,498 72,745 55,830 Total Equity attributable to owners of the parent company 12.3 84,384 6,263 75,136 67,721 122 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Financial Position Comparison Composition of Assets and Liability during 2016, 2015 and 2014 Composition of Asset 2016 Composition of Liabilities 2016 47,701 (26.6%) Current Asset Non Current Asset 131,910 (73.4%) 34,305 (46.3%) Non Current Liabilities Current Liabilities 39,762 (53.7%) Composition of Asset 2015 Composition of Liabilities 2015 47,912 (28.8%) 37,332 (51.3%) Current Asset Non Current Asset Non Current Liabilities Current Liabilities 118,261 (71.2%) 35,413 (48.7%) Composition of Asset 2014 Composition of Liabilities 2014 34,294 (24.2%) 23,512 (42.1%) Current Asset Non Current Asset Non Current Liabilities Current Liabilities 107,528 (75.8%) 32,318 (57.9%) 123 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSThis increase was offset by decrease in prepaid pension benefit costs amounted to Rp1,132 billion, or 85.1% due to an incrrease in defined benefit obligation by Rp2,344 billion or 14% due to a change in actuarial assumption related to a decrease in discount rate by 1% from 9% in 2015 to 8% in 2016. Meanwhile, fair value of pension assets increase by Rp1,212 billion or 6.8% due to actual benefit from investation by Rp2,601 billion and was offset by benefit paid by Rp1,432 billion. 2. Liabilities As of December 31, 2016, total liabilities increase by 1.8% from Rp72,745 billion in 2015 to Rp74,067 billion (US$ 5,498 million) in 2016. a. Current Liabilities As of December 31, 2016, our current liabilities were Rp39,762 billion (US$ 2,951 million) compared to Rp35,413 billion as of December 31, 2015. The increases in current liabilities were primarily due to: • An increase in accrued expenses by Rp3,036 billion, or 36.8% in line with operating, maintenance and telecommunication service as well as an increase in expenses by 12%. This increases were related significantly with operational and maintenance expenses of Telkomsel Tower in line with an increase in tower leased addition in 2016 significantly. In addition, it was also due to an increase in employee benefit expenses of Telkom and Telkomsel Rp720 billion and Rp284 billion respectively, especially related to to an increase in incentives; • An increase in unearned revenues amounted to Rp1,203 billion, or 27.6% related to prepaid pulse reload voucher; • An increase in current maturities on long-term liabilities Rp679 billion, or 17.7%; • An increase in short-term bank loan Rp309 billion, or 51.3%; These increases were offset by: • A decrease in trade payable by Rp476 billion, or 3.4% due to an decrease in trade payables to related party; • A decrease in tax payable by Rp319 billion, or 9.7%; • A decrease in other debts by Rp118 billion, or 40.7%. As of December 31 2016 compared to as of December 31 2015 1. Assets As of December 31, 2016, total assets of Telkom I shows an increases by 8.1% from Rp 166,173 billion in 2015 to Rp 179,611 billion (US$13,332 million) in 2016. a. Current Assets As of December 31, 2016, our current assets were Rp47,701 billion (US$3,541 million) compare to Rp47,912 billion as of December 31, 2015. The decrease in current assets were mainly due to: • A decreasein other current financial assets by Rp1,347 billion, or 47.8% due to the withdrawal of escrow account related to the transfer of Flexi business; • A decrease in our advances and prepaid expense by Rp593 billion, or 10.2%; • A decrease in prepaid tax amounted to Rp534 billion, or 20.0%; • A decrease in receivable by Rp154 billion, or 2.0% due to an decrease in related party receivable. These decrease were offset by: • An increase in our cash and cash equivalents Rp1,650 billion, or 5.9% due to increase in cash receipt from operational activities; • An increase in tax restution by Rp526 billion, or 797.0% related to income tax restitution for Telkom’s subsidiaries; • An increase in receivable by Rp182 billion, or 51.3%; b. Non Current Assets As of December 31 2016, our non current assets were Rp131,910 billion (US$9,791 million) and Rp118,261 billion as od December 31, 2015. The increases in non current assets were mainly due to: • An increase in fixed asset by Rp10,798 billion or 10.4% related to addition of fixed assets of Telkom primarily related to access infrastructure and backbone installation and addition of fixed assets of Telkomsel primarily related to access radio network; • An increase in our advanced and other non- current asset of Rp3,342 billion, or 40.9% related to an increase in down payment for Telkom 3S and Telkom 4 satellite purchases, restitution claim VAT of subsidiaries and prepaid taxes of overpaid VAT of Telkom; • An increase in deferred tax assets Rp568 billion, or 282.6%; 124 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSb. Non Current Liabilities 3. Equity As of December 31, 2016, our non current liabilities were Rp34,305 billion (US$ 2,546 million) compare to Rp37,332 billion as of December 31, 2015. The decrease in non current liabilities was primarily due to: • A decrease in bank loans amounted to Rp3,505 billion, or 22.7% due to a decrease of bank debt of Telkomsel by Rp4,172 billion and was offset by an increase in bank debt of Dayamitra by Rp1,079 billion; • A decrease in deferred amounted to Rp1,365 billion, or 64.7% due to a decrease in deffered tax liabilities of Telkom and Telkomsel by Rp459 billion and Rp950 billion respectively. The decrease of Telkomsel was related to assets transfer of flexi business (CBTA); • A decrease in obligations under finance leases amounted to Rp587 billion, or 14.9%; • A decrease in two-step loans amounted to Rp229 billion, or 17.7%; • A decrease in bond and notes by Rp177 billion, or 1.9%. This increase was offset by: • An increase in pension and other post- employment benefits amounted to Rp1,955 billion, or 46.9% due to an increase in define benefit obligation by Rp2,415 billion or 22% due to a change in actuarial assumption related to a decrease in discount rate by 0.75% from 9.25% in 2015 to 8.5% in 2016 resulting in actuarial loss by Rp1,735 billion. Meanwhile, fair value of pension assets increase by Rp941 billion or 8.6% due to an increase in stock fair value and mutual fund by Rp403 billion and Rp473 billion respectively; • Other lending of Dayamitra by Rp697 billion; • An increase in long service awards amounted to Rp112 billion, or 22.4%. Total equity increase by Rp12,116 billion, or 12.9%, from Rp93,428 billion as of December 31, 2015 to Rp105,544 billion (US$7,834 million) as of December 31, 2016. The increase of equity was primarily due to: • An increase in additional paid-in capital and a decreased in treasury stock due to sale of treasury stock in 2016 by Rp3,300 for 864 million shares in the price of Rp3,820/share (full value) while the price of treasury stock was Ro1,263 billion; • An increase in retained earnings by Rp6,158 billion or 8.7% due to total comprehensive income for the year attributable to parent company by Rp17,331 billion reduced by devidend by Rp11,213 billion; • An increase in non-controlling interest edpenses due to the addition of net comprehensive income attributable to non-controlling owner by Rp9,820 billion reduced by devidend by Rp7,058 billion. As of December 31, 2015 compared to as of December 31, 2014 1. Assets As of December 31, 2015, total assets increase by 17.2% from Rp141,822 billion in 2014 to Rp166,173 billion in 2015. a. Current Assets As of December 31, 2015, our current assets were Rp47,912 billion compare to Rp34,294 billion as of December 31, 2014. The increase in current assets was mainly due to: • An increase in our cash and cash equivalents Rp10,445 billion, or 59.1% in time deposit, • An increase in prepaid tax amount Rp1,782 billion, or 200.2% due to tax incentive policy, • An increase in our advances and prepaid expenses Rp1,106 billion, or 23.4%, and • An increase in our trade receivables by Rp520 billion, or 7.4%. This increased was offset by decreased in tax restitution amounted to Rp225 billion, or 77.3%. 125 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSb. Non Current Assets This increase was partially offset by As of December 31, 2015 our non current assets • A decrease in current maturities on long-term were Rp118,261 billion and Rp107,528 billion as of liabilities Rp2,057 billion, or 34.9%; December 31, 2014. This increase was due to: • A decrease in short-term bank loan Rp1,208 billion, or 66.7%. • An increase in property, plant and equipment-net accumulated depreciation by Rp8,891 billion, or b. Non Current Liabilities 9.4%, As of December 31, 2015, our non current liabilities • An increase in our advanced and other non- were Rp37,332 billion and Rp23,512 billion as of current asset of Rp942 billion, or 13.0%, and December 31, 2014 which was primarily due to: • An increase in intangible assets-net accumulated • An increase in bank loans of Rp7,556, or 95.9%, amortization by Rp593 billion or 24.1%. primarily contributed by medium-term loans of 2. Liabilities As of December 31, 2015, total liabilities increase by 30.3% from Rp55,830 billion in 2014 to Rp72,745 billion Telkomsel amounted to Rp5,061 billion: • An increase in bond and notes Rp7,260 billion, or 324.3% related to Telkom bond issued in 2015. in 2015. a. Current Liabilities 3. Equity Total equity increased by Rp7,436 billion, or 8.6%, from As of December 31, 2015, our current liabilities were Rp85,992 billion as of December 31, 2014 to Rp93,428 Rp35,413 billion compared to Rp32,318 billion as of billion as of December 31, 2015. The increase of equity December 31, 2014. was primarily the result of total comprehensive income This increase was primarily due to: for the year attributable of Rp23,948 billion as of • An increase of Rp3,036 billion, or 58.3%, in December 31, 2015. Retained earning increased to accrued expenses, related to early termination of Rp7,220 billion, or 11.4% and total equity attributable Flexi Tower provision, to owner of the parent company increased by Rp7,415 • An increase of Rp1,632 billion or 13.2%, in trade billion, or 10.9%, from Rp67,721 billion as of December payable, and 31, 2014 to Rp75,136 billion as of December 31, 2015. • An increase of Rp897 billion, or 37.8%, in tax payable. 126 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPROFIT AND LOSS OVERVIEW This table shows Telkom Comprehensive Profit from 2014 until 2016, each item is presented in percentage of total income or expense: Table of Comprehensive Income Revenues Telephone Revenus Cellular Usage charges Growth 2015 - 2014 (%) Years ended December 31, 2016 2015 (Rp billion) (US$ million) % (Rp billion) % 2014 (Rp billion) % 13.5 116,333 8,635 100.0 102,470 100.0 89,696 100.0 2.0 46,039 3,417 39.6 45,118 44.0 42,725 47.6 3.3 3.8 38,497 38,238 2,857 33.1 37,285 36.3 34,290 38.2 2,838 32.9 36,853 35.9 33,723 37.6 Monthly subscription charges (40.0) 259 Fixed Line Usage charges Monthly subscription charges Call center Others Interconnection Revenues Data, Internet and Information Technology Revenues (3.7) 7,542 (17.0) 3,847 17.4 5.5 (7.9) (3.2) 3,311 290 94 4,151 19 561 286 246 22 7 308 0.2 6.5 3.3 2.8 0.2 0.1 3.6 432 7,833 4,635 2,821 275 102 4,290 0.4 7.7 4.5 2.8 0.3 0.1 4.2 567 8,435 5,347 2,697 290 101 4,708 0.6 9.4 6.0 3.0 0.3 0.1 5.2 23.3 58,971 4,377 50.6 47,820 46.6 37,808 42.2 Celluler internet and data 43.9 28,308 2,101 24.3 19,665 Short Messaging Service (SMS) 5.6 15,980 1,186 13.7 15,132 19.2 14.8 13,563 14,034 15.1 15.6 Internet, data communication and information technology services 6.2 13,073 970 11.2 12,307 12.1 9,987 Pay TV Others Network Revenues Other Telecommunications Revenues Sales of handset Tower leased Call center service E-payment E-Health CPE and terminal Others Expenses Depreciation and Amortization Ex- penses Operations, Maintenance and Telecommunication Services Expenses 166.1 1,546 (52.5) 17.3 42.8 (1.7) 1.6 1.5 236.8 116.0 (13.3) 216.8 64 1,444 5,728 1,490 733 678 424 415 192 115 5 107 425 111 54 50 31 31 14 1.3 0.1 1.2 4.9 1.3 0.6 0.6 0.4 0.4 0.1 1.5 581 135 1,231 4,011 1,516 721 668 126 192 221 567 0.4 0.1 1.2 4.0 1.5 0.7 0.7 0.1 0.2 0.2 0.6 96 128 1,280 3,175 582 700 446 74 165 61 1,147 1,796 134 8.9 77,888 5,781 100.0 71,552 100.0 61,564 100.0 0.0 18,532 1,376 23.8 18,534 25.9 17,131 27.8 11.2 31,263 2,320 40.1 28,116 39.2 22,288 36.2 11.1 0.1 0.1 1.4 3.5 0.6 0.8 0.5 0.1 0.2 0.1 1.3 Operations and Maintenance 12.7 17,047 1,265 21.9 15,129 Radio frequency usage charges 1.7 3,687 Leased lines and CPE 34.8 2,578 274 191 4.8 3.3 3,626 1,913 21.1 5.1 2.7 11,512 3,207 18.7 5.2 1,073 1.7 Concession fees and Universal Service Obligation (USO) charges Cost of information technology service Cost of handset sold Electricity, gas and water (0.8) (5.3) 1,481 960 110 71 1.9 1.2 1,493 1,014 77.2 1,563 116 2.0 882 (0.6) 2,217 165 2.8 2,230 3.1 1,818 3.0 1.2 2.1 1.4 357 0.6 421 1,180 0.7 1.9 127 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTable of Comprehensive Income Growth 2015 - 2014 (%) Years ended December 31, 2016 2015 (Rp billion) (US$ million) % (Rp billion) % 2014 (Rp billion) % Cost of SIM cards and vouchers 40.6 624 46 0.8 444 0.6 610 1.0 Vehicles rental and supporting facilities Tower Rent Insurance Others Personnel Expenses Salaries and related benefits Vacation pay, incentives and other benefits Pension benefit cost Early Retirement Program LSA Expense Post employment health care benefits cost Other Employee benefit Other Post Employee benefit Others Interconnection Expenses Marketing Expenses General and Administrative Expenses General and Administrative Expenses Provision for impairment of receivables Training, education and recruitment Collection expenses Travelling Professional fees Meeting Social contribution Others Other expenses Lost on foreign exchange-net Other expenses Other Income Operating Profit Finance Income Finance Costs Share of loss of associated companies Profit Before Income Tax Income Tax (Expense) Benefit Profit for the Year Other comprehensive income (expenses) - net 24.0 367 27 0.5 296 0.4 272 0.4 (50.2) (17.9) 22.9 14.6 25.3 322 256 161 13,612 7,122 24 19 13 1,010 529 0.4 0.3 0.2 17.5 9.2 646 312 131 11,874 5,684 0.9 0.4 0.2 16.7 7.9 1,065 335 438 9,787 5,076 1.7 0.5 0.7 15.9 8.2 (7.8) 4,219 312 5.4 4,575 6.4 3,504 5.7 147.3 (8.0) 56.0 1,068 628 237 (24.7) 163 54.7 2.1 40.6 (10.3) 26.2 9.7 82 48 45 3,218 4,132 4,610 79 47 18 12 6 4 3 239 307 342 1.4 0.8 0.3 0.1 0.1 0.1 0.1 4.1 5.3 5.9 432 683 152 0.6 1.0 0.2 654 - 1.1 - 115 0.2 216 0.3 248 0.4 53 47 32 3,586 3,275 4,204 0.1 0.1 0.0 5.0 4.6 5.8 56 48 86 4,893 3,092 3,963 0.1 0.1 0.1 7.9 5.0 6.4 57.6 1,626 121 2.1 1,032 1.4 967 1.6 (26.4) 743 55 1.0 1,010 1.4 784 1.3 1.4 399 30 0.5 393 0.5 528 0.9 0.6 0.6 0.4 0.3 0.2 0.7 0.7 0.0 0.6 (58.7) 25.8 40.2 27.2 15.6 (9.3) 28.4 13.0 28.8 152 436 594 207 134 319 2,521 52 2,469 (50.0) 750 0.2 0.6 0.8 0.3 0.2 0.4 3.2 0.1 3.2 11 32 44 15 10 24 187 4 183 56 20.9 39,195 2,909 22.0 1,716 127 13.3 (2,810) (209) 4500.0 88 7 21.8 38,189 12.4 (9,017) 25.1 29,172 2,835 (669) 2,165 (432.7) (2,099) (156) 368 347 424 163 116 351 1,963 46 1,917 1,500 32,418 1,407 (2,481) (2) 31,342 (8,025) 23,317 631 0.5 0.5 0.6 0.2 0.2 0.5 2.8 0.1 2.7 369 355 266 162 96 436 410 14 396 1,074 29,206 1,238 (1,814) (17) 28,613 (7,339) 21,274 767 128 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Table of Comprehensive Income Net comprehensive income for the year Profit for the year attributable to owners of the parent company Profit for the year attributable to non-controlling interest Netl comprehensive income for the year attributable to owners of the parent company Net comprehensive income for the year attributable to non-controlling interest Growth 2015 - 2014 (%) Years ended December 31, 2016 2015 (Rp billion) (US$ million) % (Rp billion) % 2014 (Rp billion) % 13.0 27,073 2,009 23,948 22,041 24.9 19,352 1,436 15,489 14,471 25.5 9,820 729 7,828 6,803 7.4 17,331 1,286 16,130 15,296 24.6 9,742 723 7,818 6,745 129 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSProfit and Loss Comparison Composition of Revenues and Composition of Expenses in 2016, 2015, and 2014 Composition of Revenues 2016 Composition of Expenses 2016 7,542 (6.5%) 1,444 (1.4%) 5,728 (4.9%) 38,497 (33.1%) 3,218 (4.1%) 4,610 (5.9%) 4,151 (3.6%) Cellular Fixed Line Data, Internet and IT Service Interconnection Network Other Telecommunications Services 58,971 (50.6%) 31,263 (40.1%) 13,612 (17.5%) Operations and Maintenance Depreciation and Amortization Personel Interconnection Marketing General and Administrative Other 18,532 (23.8%) 4,132 (5.3%) 2,521 (3.2%) Composition of Revenues 2015 Composition of Expenses 2015 1,231 (1.2%) 4,290 (4.2%) 4,011 (4.0%) 37,285 (36.3%) 4,204 (5.8%) 3,586 (5.0%) 3,275 (4.6%) 1,963 (3.2%) 28,116 (39.2%) Cellular Fixed Line Data, Internet and IT Service Interconnection Network Other Telecommunications Services Operations and Maintenance Depreciation and Amortization Personel Interconnection Marketing General and Administrative Other 47,820 (46.6%) 7,833 (7.7%) 11,874 (16.7%) 18,534 (25.9%) Composition of Revenues 2014 1,280 (1.4%) 4,708 (5.2%) 3,175 (3.6%) Composition of Expenses 2014 (Restated) 3,963 (6.4%) 34,290 (38.2%) 3,092 (5.0%) 4,893 (7.9%) 410 (0.7%) 22,288 (36.2%) Cellular Fixed Line Data, Internet and IT Service Interconnection Network Other Telecommunications Services Operations and Maintenance Depreciation and Amortization Personel Interconnection Marketing General and Administrative Other 37,808 (42.2%) 8,435 (9.4%) 9,787 (15.9%) 17,131 (27.8%) 130 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2016 compared to year ended December 31, 2015 1. Revenues Total revenues increased by Rp13,863 billion, or 13.5%, from Rp102,470 billion in 2015 to Rp116,333 billion (US$$8,635 million) in 2016. The increase in revenues in 2016 was due to the increase in data internet and information technology service revenues and cellular telephone revenues, and to a lesser extent others telecomunication services revenues. a. Cellular Telephone Revenues Cellular telephone revenues contributes 33.1% of our consolidated income as of 31 December 2016. Cellular telephone revenues increase by Rp1,212 billion, or 3.3%, from Rp37,285 billion in 2015 to Rp38,497 billion (US$2,857 million) in 2016. This increase was due to an increase in usage charges by Rp1,385 billion or 3.8% due to an increase in Telkomsel subscribers from 152.6 million to 173.9 million. This increase was offset by an decrease in monthly subscription charges by Rp173 billion, or 40.0%. b. Fixed Lines Revenues Fixed lines revenues decreased by Rp291 billion, or 3.7%, from Rp7,833 billion in 2015 to Rp7,542 billion (US$561 million) in 2016. The decrease in fixed lines revenues was primarily due to decrease in usage charges by Rp788 billion, or 17.0% from Rp4,635 billion in 2015 to Rp3,847 billion in 2016. This decrease was due to an increase in monthly subscription amounted to Rp490 billion, or 17.4% due to the success of IndiHome Triple Play bundling program implementation. c. Data, Internet and Information Technology Services Revenues Our data, internet and information technology service revenues contributed 50.6% of our consolidated revenues as of December 31, 2016, compared to 46.6% as of December 31, 2015. The increase of data, internet and information technology service revenues amounted to Rp11,151 billion, or 23.3%, from Rp47,820 billion in 2015 to Rp58,971 billion (US$4,377 million) in 2016 was due to: • An increase in data cellular and internet revenues by Rp8.643 billion, or 43.9% due to a growth in mobile broadband usage from 43.8 million subscribers in 2015 to 60 million subscribers in 2016 related to high adoption of smartphone (3G/4G); • An increase in Pay TV income by Rp965 billion, or 166.1% due to an increased in UseeTV subscribers; • An increase in SMS Revenues increased by Rp848 billion, or 5.6%, driven from successful implementation of cluster-based pricing; • An increase in communication internet revenue by Rp766 billion, or 6.2% related to an increased of Fixed Broadband subcribers growth from 4.0 million to 4.3 million, which include IndiHome subscribers. This increase was offset by decrease in other data and internet revenues by Rp71 billion, or 52.5% from Rp135 billion in 2015 to Rp64 billion in 2016. Data, internet and information technology services revenues, excluding SMS revenues, grew by 31.5% or Rp10,303 billion, mainly driven by healthy growth in mobile broadband. This revenues contributed 37.0% of total revenues in 2016, increased compared to contribution in 2015 of 31.9%. d. Interconnection Revenues Interconnection revenues comprised interconnection revenues from our fixed line network and interconnection revenues from Telkomsel’s mobile cellular network. Including incoming international long-distance revenues from our IDD service (TIC-007). Interconnection revenues decreased by Rp139 billion, or 3.2% from Rp4,290 billion in 2015 to Rp4,151 billion (US$308 million) in 2016. e. Network Revenues Network revenues increased by Rp213 billion, or 17.3%, from Rp1,231 billion in 2015 to Rp1,444 billion (US$107 million) in 2016 primarily due to a decrease in leased line amounted and an increase in number of leased transponder satellite from 4,648 million MHz to 6,801 million MHz. f. Other Telecommunications Services Revenues In 2016, revenues from other telecommunications service increased by Rp1,717 billion, or 42.8%, from Rp4,011 billion in 2015 to Rp5,728 billion (US$425 million) in 2016. The increase was primarily due to: • An increase in other revenues by Rp1,229 billion, or 216.8% due to an increase in e-payment and manage service revenues; • An increase in e-payment revenues by Rp298 billion or 236.8%; • An increase in e-health by Rp223 billion, or 116.0%. 131 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSg. Other Income This increase was offset by: Other income decreased by Rp750 billion, from • A decrease in employees insentives expenses Rp1,500 billion in 2015 to Rp750 billion (US$56 amounted Rp356 billion, or 7.8%; million) in 2016. 2. Expenses Total expenses increased by Rp6,336 billion, or 8.9%, from Rp71,552 billion in 2015 to Rp77,888 billion (US$5,781 million) in 2016. a. Operations, Maintenance and Telecommunication Service Expenses Operations, maintenance and telecommunication service expenses contributed 40.1% from the total of company’s expenses. Operations, maintenance and telecommunication service expenses increased by Rp3,147 billion, or 11.2%, from Rp28,116 billion in 2015 to Rp31,263 billion (US$2,320 million) in 2016. This increase was primarily attributable to the following: • An increase in operations, maintenance and telecommunication service expenses by Rp1,918 billion, or 12.7%, due to an increase of expenses in line with network maintenance to improve our cellular and IndiHome business performance; • An increase in leased lines and CPE amounted Rp665 billion, or 34.8% used for operational and maintenance of leased lines; • An increase in informatics technology services expenses by Rp681 billion, or 77.2%; • An increase in SIM card sales expenses and voucher by Rp180 billion, or 40.6%; d. Interconnection Expense Interconnection expense decreased by Rp368 billion, or 10.3%, from Rp3,586 billion in 2015 to Rp3,218 billion (US$239 million) in 2016 in line with decrease in interconnection revenues. e. Marketing Expense Marketing expenses increased by Rp857 billion, or 26.2%, from Rp3,275 billion in 2015 to Rp4,132 billion (US$307 million) in 2016. This increase was primarily due to an increased promotion of 4G LTE and IndiHome Triple Play. f. General and Administrative Expenses General and administrative expenses increased by Rp406 billion, or 9.7%, from Rp4,204 billion in 2015 to Rp4,610 billion (US$342 million) in 2016 primarily due to: • An increase in general and administrative expenses amounted to Rp594 billion, or 57.6%; • An increase in professional service expenses amounted to Rp170 billion, or 40.2%; This increase was offset by:: • A decrease in provision for doubtful impairment of receivables by Rp267 billion, or 26.4%; • A decrease in collection expenses amounted to This increase was offset by a decrease in tower leased Rp216 billion, or 58.7%. amounted to Rp324 billion, or 50.2%; b. Depreciation and Amortization Expenses Depreciation and amortization expenses decreased by Rp2 billion, or 0%, from Rp18,534 billion in 2015 to Rp18,532 billion (US$1,376 million) in 2016. c. Personnel Expenses Personnel expenses contributed 17.5% from our total expenses. This expense increases by Rp1,738 billion, or 14.6%, from Rp11,874 billion in 2015 to Rp13,612 g. Gain (loss) on Foreign Exchange – net Loss on foreign exchange – net increased by Rp6 billion, from Rp46 billion in 2015 to Rp52 billion (US$4 million) in 2016. . h. Other Expenses Other expenses increased by Rp552 billion, from Rp1,917 billion in 2015 to Rp2,469 billion (US$183 million) in 2016. billion (US$1,010 million) in 2016. This increase was 3. Operating Profit and Operating Profit Margin driven by: As a result of the foregoing, operating profit increased • An increase in employees’ salary expenses by Rp6,777 billion, or 20.9%, from Rp32,418 billion in amounted to Rp1,438 billion, or 25.3%; 2015 to Rp39,195 billion (US$2,909 million) in 2016. • An increase in net periodic pension costs Operating profit margin increased from 31.6% in 2015 amounted to Rp636 billion, or 147.3%; to 33.7% in 2016. 132 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS4. Profit before Income Tax and Pre-Tax Margin As a result of the foregoing, profit before income tax increased by Rp6,847 billion, or 21.8%, from Rp31,342 billion in 2015 to Rp38,189 billion (US$2,835 million) in 2016. Pre-tax margin increased from 30.6% in 2015 to 32.8% in 2016. 5. Income Tax Expense Year ended December 31, 2015 compared to year ended December 31, 2014. 1. Revenues Total revenues increased by Rp12,774 billion, or 14.2%, from Rp89,696 billion in 2014 to Rp102,470 billion in 2015. The increase in revenues in 2015 was due to the increase in data, internet and information technology Income tax expense increased by Rp992 billion, or service revenues, cellular telephone revenues, and 12.4%, from Rp8,025 billion in 2015 to Rp9,017 billion (US$669 million) in 2016, following the increase in others telecomunication services revenues. a. Cellular Telephone Revenues profit before income tax. 6. Other Comprehensive Income In 2016, other comprehensive income amounted to Rp2,099 billion (US$156 million) due to an actuarial losses amounted to Rp2.058 billion. In the previous year, Telkom recorded other comprehensive income in the amount of Rp631 billion. 7. Profit for the Year Attributable to Owners of the Parent Company Profit for the year attributable to owners of the parent company increased by Rp3,863 billion, or 24.9%, from Rp15,489 billion in 2015 to Rp19,352 billion in 2016. 8. Profit for the Year Attributable to Non- controlling Interest Profit for the year attributable to non-controlling interest increased by Rp1,992 billion, or 25.5%, from Rp7,828 billion in 2015 to Rp9,820 billion (US$729 million) in 2016. 9. Net Comprehensive Income for the Year Net Comprehensive income for the year increased by Rp3,125 billion, or 13.0%, from Rp23,948 billion in 2015 to Rp27,073 billion (US$2,009 million) in 2016. 10.Net Income per Share Net income per share increased by Rp38, or 24.3%, from Rp157.77 in 2015 to Rp196.19 in 2016. Cellular telephone revenues contributed 36.4% of our consolidated revenue for the year ended December 31, 2015. This revenues increased by Rp2,995 billion, or 8.7%, from Rp34,290 billion in 2014 to Rp37,825 billion in 2015 due to an increase in usage charges increased by Rp3,130 billion, or 9.3%, from Rp33,723 billion in 2014 to Rp36,853 billion in 2015 due to an increase in both our prepaid and postpaid subscriber This increase was offset by a decreased of monthly subscription charges by Rp135 billion, or 23.8%, from Rp567 billion in 2014 to Rp432 billion in 2015. b. Fixed Lines Revenues Fixed lines revenues decreased by Rp602 billion, or 7.1%, from Rp8,435 billion in 2014 to Rp7,833 billion in 2015. The decrease in fixed lines revenues was due to decrease in usage charges of Rp712 billion, or 13.3%, due to a decrease in local and domestic long distance usage. The decrease mainly contributed by Flexi termination. The decreased was offset by an increase in monthly subscription amounted to Rp124 billion, or 4.6%. c. Data, Internet and Information Technology Services Revenues Our data, internet and information technology service revenues contributed 46.7% of our consolidated revenues as of December 31, 2015, compared to 42.2% for the year ended December 31, 2014. This revenues increased by Rp10,012 billion, or 26.5%, from Rp37,808 billion in 2014 to Rp47,820 billion in 2015 due to: 133 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• An increase in revenue of data cellular internet This increase was offset by a decrease in other by Rp6,102 billion, or 45.0% due to a growth revenues by Rp429 billion, or 43.1%. in mobile broadband usage from 31.2 million subscribers in 2014 to 43.8 million subscribers g. Other Income in 2015 related to high adoption of smartphone Other income increased by Rp426 billion, from (3G/4G); Rp1,074 billion in 2014 to Rp1,500 billion in 2015. • An increase in revenues of communication internet by Rp2,320 billion, or 23.2%, which was 2. Expenses driven by an increase in IndiHome subscribers; • An increase in revenue of SMS by Rp1,098 billion, or 7.8% driven from successful implementation of cluster-based pricing . d. Interconnection Revenues Interconnection revenues comprised interconnection revenues from our fixed line network and interconnection revenues from Telkomsel’s mobile cellular network, including international long-distance revenues from our IDD service (TIC-007). Interconnection revenues decreased by Rp418 billion, or 8.9%, from Rp4,708 billion in 2014 to Rp4,290 billion in 2015 primarily due to a decrease in domestic interconnection by Rp632 billion, or 21.7%. This decrease was offset by an increase in international interconnection revenues by Rp214 billion, or 11.9%. e. Network Revenues Network revenues decreased by Rp49 billion, or 3.8%, from Rp1,280 billion in 2014 to Rp1,231 billion in 2015 primarily due to an decrease in our satellite transponder lease revenue by Rp158 billion, or 23.6%, from Rp670 billion in 2014 to Rp512 billion in 2015, and was partly offset primarily by an increase in leased line amounted to Rp109 billion, or 17.9%. f. Other Telecommunications Services Revenues In 2015, revenues from other telecommunications service increased by Rp836 billion, or 26.3%, from Rp3,175 billion in 2014 to Rp4,011 billion in 2015. The increase was primarily due to: Total expenses increased by Rp9,988 billion, or 16.2%, from Rp61,564 billion in 2014 to Rp71,552 billion in 2015. For futher explaination as shown below: a. Operations, Maintenance and Telecommunication Service Expenses Operations, maintenance and telecommunication service expenses increased by Rp5,828 billion, or 26.1%, from Rp22,288 billion in 2014 to Rp28,116 billion in 2015 which was primarily attributable to the following: • An increase in operations and maintenance increase by Rp3,617 billion, or 31.4%, due to an increase in expenses associated with network maintenance to improve our mobile cellular and IndiHome business performance; • An increase in cost of handset sales increased by Rp1,072 billion, or 254.6% due to increase terminal bundling program; • An increase in leased lines and CPE increased by Rp840 billion, or 78.3%, which was used for operation and maintenance of leased lines. This increased were offset by • A decreased in tower leased by Rp419 billion, or 39.3%; • A decreased in other expenses by Rp307 billion, or 70.1%. b. Depreciation and Amortization Expenses Depreciation and amortization expenses increased by Rp1,403 billion, or 8.2%, from Rp17,131 billion in 2014 to Rp18,534 billion in 2015, primarily due to an increase in property, plan and equipment to improve our service to customers and accelerate fixed wireless business assets, fixed wireless assets has been fully depreciated • An increase in handset sales by Rp934 billion, or amounted to Rp545 billion. 160.5%; • An increase in call centre revenues by Rp222 billion, or 49.8% 134 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSc. Personnel Expenses Personnel expenses increased by Rp2,087 billion, or 21.3%, from Rp9,787 billion in 2014 to Rp11,874 billion in 2015, due to • An increased in employees incentive expenses by Rp1,071 billion, or 30.6%, in line with company’s performance; • Expenses in early retirement program by Rp683 billion; • An increased in salaries and related benefits by Rp608 billion, or 12.0%. 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increased by Rp3,212 billion, or 11.0%, from Rp29,206 billion in 2014 to Rp32,418 billion in 2015. Operating profit margin decreased from 32.6% in 2014 to 31.6% in 2015. 4. Profit before Income Tax and Pre-Tax Margin As a result of the foregoing, profit before income tax increased by Rp2,729 billion, or 9.5%, from Rp28,613 billion in 2014 to Rp31,342 billion in 2015. Pre-tax margin decreased from 31.9% in 2014 to 30.6% in 2015. d. Interconnection Expense 5. Income Tax Expense Interconnection expense decreased by Rp1,307 billion, or 26.7%, from Rp4,893 billion in 2014 to Rp3,586 billion in 2015 primarily due to a decrease in domestic interconnection expense by Rp1,288 billion, or 35.4% and international interconnection expense by Rp19 billion, or 1.5% in result of inter operator discount tariff. e. Marketing Expense Marketing expenses increased by Rp183 billion, or 5.9%, from Rp3,092 billion in 2014 to Rp3,275 billion in 2015 due to an increase in advertising and promotion expenses by Rp142 billion, or 5.9%, due to promotion of 4G LTE and IndiHome Triple Play. f. General and Administrative Expenses General and administrative expenses increased by Rp241 billion, or 6.1%, from Rp3,963 billion in 2014 to Rp4,204 billion in 2015 primarily due to an increase in provision for doubtful impairment of receivables by Rp226 billion, or 28.8%. Income tax expense increased by Rp686 billion, or 9.3%, from Rp7,339 billion in 2014 to Rp8,025 billion in 2015, in line with the increase in profit before income tax. 6. Other Comprehensive Income Other comprehensive income decreased by Rp136 billion, or 17.7%, from Rp767 billion in 2014 to Rp631 billion in 2015 was offset by a decrease in actuarial gain amounted Rp236 billion, or 31.8%. 7. Profit for the Year Attributable to Owners of the Parent Company Profit for the year attributable to owners of the parent company increased by Rp1,018 billion, or 7.0%, from Rp14,471 billion in 2014 to Rp15,489 billion in 2015. 8. Profit for the Year Attributable to Non-con- trolling Interest Profit for the year attributable to non-controlling interest increased by Rp1,025 billion, or 15.1%, from Rp6,803 billion in 2014 to Rp7,828 billion in 2015. g. Gain (loss) on Foreign Exchange – net Loss on foreign exchange - net increased by Rp32 billion, from Rp14 billion in 2014 to Rp46 billion in 9. Net Comprehensive Income for the Year Net Comprehensive income for the year increased by Rp1,907 billion, or 8.7%, from Rp22,041 billion in 2014 2015. h. Other Expenses to Rp23,948 billion in 2015. 10.Net Income per Share Other expenses increased by Rp1,521 billion, from Rp396 billion in 2014 to Rp1,917 billion in 2015. Net income per share increased by Rp9.64, or 6.5%, from Rp148.13 in 2014 to Rp157.77 in 2015. 135 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS CASHFLOW OVERVIEW The following table presents the information in line with corporate’s consolidated cash flow, similar with what have been expressed in Consolidated Financial Report Growth As of Desember 31, Cash Flow Table 2016-2015 2016 2015 2014 Net Cash provided by operating activities used in investing activities used in financing activities (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) 8.2 0.5 47,231 3,506 43,669 37,736 (27,557) (2,046) (27,421) (24,748) 179.5 (17,905) (1,329) (6,407) (10,083) Net increase in cash and cash equivalents (82.0) 1,769 Effect of exchange rate changes on cash and cash equivalents (119.7) (119) 131 (8) 9,841 2,905 604 71 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 59.1 5.9 28,117 2,087 17,672 29,767 2,210 28,117 14,696 17,672 136 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Cashflow Comparison Composition of Cash Receipt and Cash Disbursement year in 2016, 2015 and 2014 Composition of Cash Receipt 2016 Composition of Cash Disbursement 2016 10,921 (8.2%) 3,007 (2.3%) 28,826 (22.1%) Operating Investing Financing 118,326 (89.5%) 30,564(23.4%) Operating Investing Financing 71,095 (54.5%) Composition of Cash Receipt 2015 Composition of Cash Disbursement 2015 20,634 (16.6%) 906 (0.7%) 27,041 (23.6%) Operating Investing Financing Operating Investing Financing 102,663 (82.7%) 28,327 (24.8%) 58,994 (51.6%) Composition of Cash Receipt 2014 Composition of Cash Disbursement 2014 13,069 (11.8%) 6,912 (6.3%) 23,152(21.5%) Operating Investing Financing Operating Investing Financing 90,363 (81.9%) 31,660 (29.5%) 52,627 (49.0%) 137 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSYear ended December 31, 2016 compared to year ended December 31, 2015 As of December 31, 2016, total cash and cash equivalent amounted to Rp29,767 billion, increased by Rp1,650 billion, or 5.9% compared to 2015. Operating activity accounted for the largest cash receipts Rp118,326 billion, or 89.5%, followed by financing activity amounted to Rp10,921 billion, or 8.2% and investing activity amounted to Rp3,007 billion, or 2.3%. In total, cash receipts increased by Rp8,051 billion, or 6.5% compared to 2015. The majority of cash used for operating activities amounted to Rp71,095 billion, or 54.5% investment activities amounted to Rp30,564 billion, or 23.4% and financing activities amounted to Rp28,826 billion, or 22.1%. Compared to 2015, cash disbursement increased by Rp16,123 billion, or 14.1%. 1. Cash Flows from Operating Activities In 2016 net cash provided by operating activities was Rp47,231 billion (US$ 3,506 million) compared to Rp43,669 billion in 2015. Cash receipts from operating activities amounted to Rp118,326 billion, increased by Rp15,663 billion, or 15.3% compared to 2015. The cash receipts came from: • Cash receipts from customers and other operator of Rp116,116 billion; • Interest income received of Rp1,736 billion; • Other cash receipts after netted with the other cash disbursement of Rp474 billion. Cash receipts from investing activities amounted to Rp3,007 billion, increased by Rp2,101 billion, or 231.9% compared to 2015. The cash receipts came from: • Proceeds from escrow accounts of Rp2,159 billion; • Proceeds from sale of property and equipment of Rp765 billion; • Proceeds from insurance claim of Rp 60 billion. • Dividends received from associated entities of Rp23 billion. Cash disbursements from investing activities amounted to Rp30,564 billion, increased by Rp2,237 billion, or 7.9% compared to 2015. Cash disbursements were used for: • Purchases of property and equipment of Rp26,787 billion; • Increases advances for purchases of property and equipment of Rp1,338 billion; • Purchases of intangible assets of Rp1,098 billion; • Placement in time deposits and available-for-sale financial assets of Rp983 billion; • Acquisition of non-controlling interest in subsidiary of Rp138 billion; • Acquisition of business, net of acquired cash of Rp137 billion; • Additional contribution on long-term investments of Rp43 billion; • Increase in other assets of Rp40 billion. 3. Cash Flows from Financing Activities Net cash flows used in financing activities in 2016 was Rp17,905 billion (US$ 1,329 million) compared to with Rp6,407 billion in 2015. Cash disbursements from operating activities amounted to Rp71,095 billion, increased by Rp12,101 billion, or 20.5% compared to 2015. The cash disbursements were used for: Cash receipts from financing activities amounted to Rp10,921 billion, which decreased by Rp9,713 billion, or 47.1% compared to 2015. The cash receipts came from: • Proceeds from loans and other borrowings of • Cash disbursements for expenses of Rp42,433 Rp7,479 billion; billion; • Proceed from sale of treasury stock of Rp3,259 • Payment for corporate and final income taxes of billion; Rp11,304 billion; • Cash payments for employees of Rp11,207 billion; • Payments for interest cost of Rp3,455 billion; • Payment for value added taxes after netted with the receipt of claim for value added taxes of Rp2,696 billion; 2. Cash Flows from Investing Activities Net cash flows used in investing activities in 2016 was Rp27,557 billion (US$ 2,045 million) compared to Rp27,421 billion in 2015, an increase of Rp136 billion or 0.5%. 138 • Capital contribution of non-controlling interests in subsdiaries of Rp183 billion. Cash disbursements from financing activities amounted to Rp28,826 billion, which increased by Rp1,785 billion, or 6.6% compared to 2015. The cash disbursements were used for: • Cash devidends paid to the Company’s stockholders and to non-controlling stockholders of subsidiaries of Rp11,213 billion, and Rp7,058 billion. • Repayment of loans and other borrowings of Rp10,555 billion. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2015 compared to year ended December 31, 2014 As of December 31, 2015, total cash and cash equivalent amounted to Rp28,117 billion, increased by Rp10,445 billion, or 59.1% compared to 2014. • Proceeds from sale of property and equipment of Rp733 billion; • Claim for insurance of Rp119 billion; • Decrease in other assets of Rp36 billion; • Dividends received from associated company of Rp18 billion. In 2015, operating activity accounted for the largest cash receipts Rp102,663 billion, or 82.7%, followed by financing activity amounted to Rp20,634 billion, or 16.6% and investing activity amounted to Rp906 billion, or 0.7%. In total, cash receipts increase by Rp13,859 billion, or 12.6% compared to 2014. The majority of cash used for operating activities amounted to Rp58,994 billion, or 51.6% investment activities amounted to Rp28,327 billion, or 24.8% and financing activities amounted to Rp27,041 billion, or 23.6%. Compared to 2014, cash disbursement increased by Rp6,923 billion, or 6.4%. 1. Cash Flows from Operating Activities Net cash provided by operating activities in 2015 was Rp43,669 billion compared to Rp37,736 billion in 2014. Cash receipts from operating activities amounted to Rp102,663 billion, increased by Rp12,300 billion, or 13.6% compared to 2014. The cash receipts came from: • Cash receipts from customers and other operator of Rp100,702 billion; • Interest income received of Rp1,386 billion. • Other cash receipt after netted with other cash disbursement of Rp575 billion. Cash disbursements from operating activities amounted to Rp58,994 billion, increased by Rp6,367 billion, or 12.1% compared to 2014. The cash disbursements were used for: • Cash payments for expenses of Rp35,922 billion; • Cash payments to employees of Rp10,940 billion; • Payments for corporate and final income taxes of Rp9,299 billion. • Payments for interest costs of Rp2,623 billion. • Payments for value added taxes after netted with the receipt of claim for value added taxes of Rp210 billion. 2. Cash Flows from Investing Activities Net cash flows used in investing activities in 2015 was Rp27,421 billion compared to Rp24,748 billion in 2014. Cash receipts from investing activities amounted to Rp906 billion, decrease by Rp6,006 billion, or 86.9% compared to 2014. The cash receipts came from: Cash disbursements from investing activities amounted to Rp28,327 billion, decrease by Rp3,333 billion, or 10.5% compared to 2014. The cash disbursements were used for: • Purchases of property and equipment of Rp26,499 billion; • Purchases of intangible assets of Rp1,439 billion; • Placement of time deposit and available-for-sale financial assets of Rp146 billion; • Acquisitions of business, net of acquired cash of Rp114 billion • Increase in advances for purchases of property and equipment of Rp67 billion; • Additional contribution on long-term investments of Rp62 billion 3. Cash Flows from Financing Activities Net cash flows used in financing activities was Rp6,407 billion in 2015 compared to with Rp10,083 billion in 2014. Cash receipts from financing activities amounted to Rp20,634 billion, which increased by Rp7,565 billion, or 57.9% compared to 2014. The cash receipts came from: • Proceeds from long-term bank loans amounted to Rp10,698 billion; • Proceed from short-term amounted to Rp2,558 billion; • Proceed from obligation amounted to Rp6,985 billion; • Proceed from sale of treasury stock amounted to Rp68 billion; • capital contribution of non-controlling interests in subsidiaries of Rp5 billion Cash disbursements from financing activities amounted to Rp27,041 billion, which increased by Rp3,889 billion, or 16.8% compared to 2014. The cash disbursements were used for: • Cash deviden paid to the Company’s stockholders and to non-controlling stockholders of subsidiaries amounted to Rp8,783 billion and Rp7,831 billion; • Repayment two step and bank loan amounted Rp4,749 billion; • Repayment of short-term amounted to Rp3,987 billion; • Payment for bonds amounted to Rp1,005 billion. 139 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSSOLVENCY Liquidity is key to short-term and long-term solvency. All liquidity ratios presented in these Statements show good ability of Telkom and its Subsidiary to pay their debts. In general, Telkom’s liquidity in 2016 was better than its liquidity in 2015. This indicates that Telkom business group has good liquidity and the ability to meet its liabilities. The sources of liquidity of Telkom and its subsidiary primarily come from the cash inflows and outflows from business operations, financing and investments. Please refer to section “Liquidity”. For more details on the debts of Telkom and its Subsidiary, please see notes 16-20 to the Consolidated Financial Statements. a. Short-term liabilities Telkom and its subsidiary use and analyze short-term liquidity rations to oversee the current asset adequacy to carry on the business and meet the current liabilities due. The short-term liquidity ratios of Telkom and its Subsidiary are presented in current ratio, quick ratio and cash ratio in the following table. RATIO 2016 2015 2014 Current Ratio Quick Ratio Cash Ratio b. Long-term Liabilities 120.0% 98.4% 78.6% 135.3% 133.8% 87.4% 106.1% 86.2% 63.3% The long-term liquidity ratios serve as the measuring instrument for Telkom and its Subsidiary to analyze their ability to meet long-term liabilities. Three ratios are used, which are liability-to-equity ratio, liability-to-earnings ratio and earnings-to-interest-expense ratio as shown in the following table. RATIO 2016 2015 Debt To Equity Ratio Debt To Ebitda Times Interest Earned Ratio 30.1% 53.4% 21.2x 37.0% 67.3% 20.7x 2014 27.3% 51.3% 25.2x RECEIVABLES COLLECTABILITY Collectability rates of Telkom in 2016 is 23.1days with receivables rollover ratio of 15.8. Telkom also created provision against business receivables value depreciation based on the collective historical rate of value depreciation and credit history of customers individually in the amount of Rp2.990 billion in 2016 and Rp3.048 billion in 2015. This was done to anticipate the uncollected parts of business receivables throughout 2016. In calculating and presenting the due receivables amount, Telkom does not differentiate business receivables of affiliated party and receivables of third party. The due receivables value of Telkom and subsidiary per December 31, 2016 and 2015 are of Rp3,005 billion and Rp3,430 billion respecteively. Receivables that were not depreciated in value considered as good rating and collectible. For further details on Company’s receivables, please see Note 5 in the Consolidated Financial Statement. Table of Receivables Collectability of Telkom and Subsidiary Year 2014-2016 Ratio Average collection ratio Receivables turnover ratio Average Collection Duration Ratio 2016 2015 2014 23.1 15.8 26.8 13.6 28.5 12.8 140 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS CAPITAL STRUCTURE Telkom and its subsidiaries have funding resources available to run the company resulting from short-term debt, long- term debt and equity. The following are tables and diagrams which illustrating the capital structure and composition of Telkom during the last 3 (three) years. 2016 911 (0.8%) 2015 602 (0.5%) 30.888 (26.6%) 34,010 (31.0%) Short term Liabilities Long term Liabilities Equity Short term Liabilities Long term Liabilities Equity 84,384 (72.6%) 75,136 (68.5%) 2014 1,810 (2.0%) 21,642 (23.7%) Short term Liabilities Long term Liabilities Equity 67,721 (74.3%) Capital Structure Telkom capital structure as of December 31, 2016 is described as follows: Capital Structure 2016 2016 2014 (Rp billion) (US$ million) (Rp billion) (Rp billion) Short Term Long Term Debt Equity Total Invested Capital 911 30,888 31,799 84,384 116,183 68 2,293 2,360 6,263 8,624 602 34,010 34,612 75,136 109,748 1,810 21,642 23,452 67,721 91,173 141 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSManagement policy on capital structure CAPITAL EXPENDITURE Management policy on capital structure was drawn based on qualitative and quantitative approaches, in order to Types of capital expenditure In 2016, Telkom has carried out capital expenditure with determine the optimal funding composition from equity the purpose to improve the company performance. Capital and debt. Periodically, Telkom assess its capital structure, expenditure carried out by Telkom can be categorized as leverage level and performance of the debt payment as follows: the basis of decision for addition or payments of short- term or long-term debt. If possible, a financing scheme • Broadband services, comprises of broadband access, can be renewed with a more efficient funding scheme. IT, application and content, as well as service node; • Network infrastructure, comprises of transmission Telkom also maintains its capital structure well at the network, metro ethernet and Regional Metro Junction level it believes will not risk its credit rating, or at least (“RMJ”), and IP backbone as well as satellite; equal to its competitors’ credit rating while at the same • Optimizing legacy, comprises of fixed wired telephone; time maintains a capital structure to optimize the cost of and capital (weighted average cost of capital) as well as tax • Other supporting capital expenditures benefits. In 2016, Telkom’s Debt-to-Equity Ratio (“DER”) was 29.5 and Telkom’s debt service coverage ratio was 4.8 times, indicating the company’s high ability to repay Purpose of capital expenditure Telkom has done capital expenditure to strengthen and the debt. During 2016, the Company has complied with increase company performance. The purpose of this is to capital requirements provided by the external parties. anticipating of data service needs, both mobile segment For information of management policy on capital and fixed segment which grow rapidly. management, see Note 38 to the Consolidated Financial Statements. Amount of capital expenditure The total capital expenditure of Telkom business group in 2016 has reached Rp 29,199 billion (US$ 2,167 million), increased by Rp 2,798 billion or 10.6% compared to capital expenditure in 2015. Telkomsel as one of subsidiaries of Telkom, has a total of capital expenditure of Rp 12,564 billion compared to Telkom as holding entity in the amount of Rp 10,309 billion, while the amount of capital expenditure from other subsidiaries is in the amount of Rp 6,326 billion. The following is the table of Capital Expenditure of Telkom Group Year 2014-2016: Table of Amount of Our Capital Expenditure 2016 2015 2014 Telkom (parent company) 10,309 765 9,641 8,099 (Rp billion) (US$ million) (Rp billion) (Rp billion) Years Ended December 31, Subsidiaries Telkomsel Others Subtotal for subsidiaries Total for Telkom Group 142 12,564 6,326 18,890 933 470 11,321 5,439 1,402 16,760 29,199 2,167 26,401 13,002 3,560 16,562 24,661 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS In the past three years, Telkomsel had the highest position in capital expenditures within Telkom Group. Capital expenditures in Telkomsel is mainly utilized to build BTS. In 2016, Telkomsel build 25,744 units of BTS, so that by the end of 2016 Telkomsel had a total of 129,033 BTS, growth by 24.9% from the previous year. Around 61% of the total BTS were 3G/4G BTS. Besides being used to build BTS, Telkomsel also utilized its capital expenditures to build supporting infrastructure such as IT. Meanwhile, to support the backhaul of Telkomsel 3G/4G BTS, Telkom built fiber optic networks that become our advantage as access to the houses to support fixed broadband services, help traffic off-load, WiFi access points, broadband services to the enterprise segment, and to support leading supply for Telkom digital business strategy. As a result, Telkom already has 16.4 million homes-passed by end of 2016 to support the fixed broadband service IndiHome. Telkom also continued to build fiber optic backbone networks, which in 2016 Telkom has completed submarine cable project of Sulawesi, Maluku, Papua Cable System (SMPCS) for domestic projects. For international projects, together with a number of other operators in a consortium, Telkom has completed submarine cable Southeast Asia-Middle East- Western Europe 5 (SEA-ME-WE 5) with 20,000 km length connecting Dumai, Indonesia, Middle East and Marseille, France. In addition, other important infrastructure that Telkom built included satellite 3S manufacture, construction of the tower and the development of data center. The following is the graphic of capital expenditure composition of Telkom Group in the past three years. On February 15, 2017, Telkom 3S satellite was successfully launched from Kourou, French Guiana. 3S satellite carries 42 transponders consisting of 24 C-Band transponders, 8 extended C-Band and 6 Ku-Band and 4 extended Ku- Band. With this satellite, Telkom can increase its capacity and quality to serve customers better, while supporting equitable distribution of ICT services in remote areas that can be reached by our fiber optic network, as well as reduce dependency on other satellite operators. Our subsidiary that engage in the development and supply of towers, Mitratel, throughout 2016 continued its investment to build towers primarily to support the expansion of our mobile business unit, Telkomsel. At the end of 2016, the total towers owned Mitratel were 8,695. Meanwhile, through Telin Singapore, Telkom successfully completed the construction of a world-class data center of 20,000 m2 in Jurong - Singapore. The multi-tier data center that consists of Tier-3 and Tier-4 is targeting the corporate segment both regionally and globally. Until the end of 2016, Telkom has data center facilities covering a total area of about 95,000 m2. Graphic of Capital Expenditure Composition of Telkom Group Year in 2014-2016 6,326 (21.7%) 2016 5,439 (20.6%) 2015 10,309 (35.3%) Telkom Telkomsel Others 12,564 (43.0%) 11,321 (42.9%) 3,560 (14.4%) 2014 8,099 (32.8%) Telkom Telkomsel Others 13,002 (52.7%) 9,641 (36.5%) Telkom Telkomsel Others 143 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSMATERIAL COMITMENT FOR CAPITAL EXPENDITURE Objectives of material contracts Telkom and its Subsidiaries have a number of material contracts for the investment in capital goods, particularly for the procurement and installation of transmission equipment and cable networks. The material contracts include agreements related to projects performed by Telkom and its Subsidiary as presented in the following tables. Telkom Parties To Contract Contract Date Agreement PT Cisco Technologies Indonesia November 14, 2013 Agreement on Procurement and Installation of WIFI CISCO Thales Alenia Space France July 14, 2014 Agreement on Telkom-3 Substitution (T3S) Satellite System PT Huawei Tech Investment October 23, 2014 Agreement on Procurement and Installation of Access Point Indonesia WIFI Platform Huawei Telkom Malaysia Berhad, Telin, Alcatel- Lucent Submarine Networks dan NEC Corporation January 30, 2015 Agreement on Procurement and Installation of Southeast Asia- Middle East-Western Europe 5 Cable System (SEA-ME-WE PT ZTE Indonesia August 28, 2015 PT Datacomm Diangraha November 20, 2015 PT Sarana Global Indonesia December 31, 2015 PT Industri Telekomunikasi Indonesia December 29, 2015 PT Len Industri (Persero) December 29, 2015 Agreement on Procurement and Installation of MSAN Modernization for Acceleration of Platform ZTE Copper Cable Easing Agreement on Procurement and Installation of ALU Metro Ethernet Platform Agreement on Procurement and Installation of Submarine Communication Cable Sibolga-Nias, Batam-Tanjung, Balai Karimun, Larantuka-Kabalahi-Atambua Agreement on Renewal of Procurement and Installation Agreement of Copper Cable Network Access Modernization Through Optimalization in Copper Cable Network Asset with Trade In/Trade Off Pattern Agreement on Renewal of Procurement and Installation Agreement of Copper Cable Network Access Modernization Through Optimalization in Copper Cable Network Asset with Trade In/Trade Off Pattern Space System/Loral, LLC February 29, 2016 Agreement on Procurement of Tekom 4 Satellite NEC Corporation May 12, 2016 Agreement on Procurement and Installation of Indonesia Global Gateway Submarine Communication SYstem PT Mastersystem Infotama October 24, 2016 Agreement on Prcurement of Ekspan IP Backbone 2016 Space Exploration Technologies Corp November 3, 2016 Agreement on TELKOM 4 Satellite Launching PT Huawei Tech Investment November 25, 2016 Agreement on Procurement and Installation of Huawei DWDM Platform PT ZTE Indonesia PT ZTE Indonesia December 15, 2016 Procurement of ZTE STB Platform December 15, 2016 Agreement on Procurement of ZTE ONT Retail Platform PT Sigma Cipta Caraka, PT Graha Sarana Duta dan PT Huawei Tech Investment December 29, 2016 Agreement on Procurement of IOC-N PT Lancs Arche Consumma December 30, 2016 Procurement and Installation of Reengeenering and Addition of Coriant DWDM Platform Capacity 144 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTelkomsel Parties To Contract Contract Date Agreement PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy, dan Nokia Siemens Network GmbH & Co. KG April 17, 2008 Agreement on developing 2G and 3G combination network (Combined 2G and 3G CS Core Network Rollout Agreements) PT Ericsson Indonesia dan PT Nokia Siemens Networks April 17, 2008 Agreement on TSA support for 2G and 3G combination network (Combined 2G and 3G CS Core Network) PT Ericsson Indonesia Ericsson AB, PT Nokia Siemens Networks, NSN Oy, Huawei International Pte. Ltd., PT Huawei dan PT ZTE Indonesia March and June 2009 Agreement on developing 2G BSS and 3G UTRAN Rollout network (2G BSS and 3G UTRAN Rollout Agreements) as 2G GSM BSS and 3G UMTS Radio Access Network provider PT Dimension Data Indonesia dan PT Huawei February 3, 2010 Agreement on maintenance and procurement of equipment and services related to Next Generation Convergence IP RAN Rollout and Technical Support Amdocs Software Solutions Limited Liability Company dan PT Application Solutions February 8, 2010 Agreement on Onlince Charging System (OCS) and Service Control Points (SCP) System Solution Development PT Application Solutions February 8, 2010 Agreement on technical support (TSA) to provide technical support service for OCS and SCP Amdocs Software Solutions Limited Liability Company dan PT Application Solutions PT Huawei July 5, 2011 Agreement on developing and extension of Customer Relationship Management and Contact Center Solutions March 25, 2013 Agreement on technical support (TSA) to provide Gateway GPRS Support Node (GGSN) Service Complex Wipro Limited, Wipro Singapore Pte. Ltd. dan PT WT Indonesia April 23, 2013 Agreement on developing and procurement of OSDSS Solution PT Ericsson Indonesia October 22, 2013 Agreement on Procurement of GGSN Service Complex Rollout PT Dimension Data Indonesia May 25, 2016 Agreement on maintenance and procurement of equipment and services related to Next Generation Convergence RAN Transport Rollout. GSD Parties To Contract Contract Date Agreement PT Adhi Karya November 6, 2012 Agreement Structure And Architectural Services as Main Contractor Development Projects of Telkom Building Landmark Tower Sources of funds for material contracts The sources of funds utilized to fulfill the above contracts were generated from the company’s internal and external sources. Historically, the company has good leverage ratios and is able to finance capital expenditures. In 2016, company’s capital expenditures allocation was adjusted to the company’s business plans. Please refer to the discussion of “Capital Expenditure”. 145 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDenominated currencies In addition to the Rupiah, the values of the material contracts are denominated in foreign currencies especially in the U.S. Dollar and the Japanese Yen. Following is the details of the material contracts based on currency as of December 31, 2016: Table of Material Commitment based on Currencies Amounts in Foreign Currencies (in millions) Equivalent in Rupiah (in billions) Rupiah US Dollar Euro Total Foreign currency risk mitigation The use of foreign currencies exposes the Company to foreign exchange risks. In general, the Company’s foreign exchange risk exposure is not material. The risk of increasing foreign exchange rates against the Company’s liabilities is expected to set off the impacts of exchange rates on time deposits and receivables in foreign currencies set at a minimum of 25% of short-term liabilities in foreign currencies outstanding. For more details on the material contracts for the purchase of capital goods and the foreign exchange risks, please refer to Notes 34 and 37 to the Consolidated Financial Statements - 341 0.16 7,210 4,600 2 11,812 MACROECONOMY Global Economy and Geopolitics in 2016 Various events have marked the global geopolitics in 2016, including the conflict and upheavals in the Middle East, while in Europe, the United Kingdom held a referendum to to leave the European Union, (EU) a decision known as Brexit which poses risk to disrupt the regional bloc, should other EU countries emulate the move to hold a referendum to exit the bloc. In the United States, Donald Trump was elected as President in the November 2016 election and his victory could impact other countries due to the changes of MATERIAL INFORMATION AND FACTS AFTER ACCOUNTANT REPORTING DATE policies in the US. Here is the information and material facts occurring after the date of the auditor’s report, namely: a. On January 23, 2017, Telkom access receive tax refunds on overpaid VAT provisions for the financial period from May to December 2014 amounted to Rp169,4 billion. b. On February 15, 2017, the Company has successfully launched its 9th satellite, Telkom 3S in Kourou, French Guiana with US$215 million investment which includes the cost of satellite manufacture, launch services and insurance Amidst these historical events, the global economy is slowing down, influenced by the economic slowdown in China, the United States and other major countries. Indonesian Economy The Indonesian economy performed quite well, recording 5.02% growth despite the sluggish global economy. The growth was higher compared to 4.88% in the previous year. Such growth was due to strong consumer spending and government expenditures on infrastructure. The inflation rate was stable at 3.02% throughout the year, showing indication that the Indonesian economy will continue to grow positively in the future. 146 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS In terms of currency exchange rate, Rupiah has a positive trend strengthening against the US Dollar with an average exchange rate at Rp13,330 per Dollar. If at the beginning of the year Rupiah was nearly Rp14,000 per Dollar, duirng mid- year approaching to the end of 2016, it was recorded under Rp13,600 per Dollar and Rp13.473 at closing in the end of 2016. With the Government’s inisiative, tax amnesty program was one of the factors that support the stability and the strengthening of Rupiah exchange rate. Exchange Rates on Transaction i h a p u R 14.200.00 14.000.00 13.800.00 13.600.00 13.400.00 13.200.00 13.000.00 21.800.00 4 Jan 2016 16 Mar 2016 30 May 2016 12 Aug 2016 25 Oct 2016 Graphic of Rupiah Exchange Rate Against The US Dollar Source: bi.go.id The government’s commmitment to mobilize the economy is also reflected by issuing 14 Economic Policy Packages. Although the policies’ implementation is far from ideal and effective, it gives hope for the business world. Telkom as a state-owned enterprise that runs a business in telecommunication industry has a significant interest in the 14th Economic Policy Package, which lays out the Goverment e-commerce roadmap and target to become the largest digital economy in Southeast Asia in 2020. The policy package covers various aspects on taxation funding, consumers protection, education and HR, logistic, communication infrastructure, cyber security, and management implementer establishment. The digital economy in Indonesia is potential given there are approximately 133 million internet users in the country. Smartphone users in Indonesia are growing rapidly and it was expected to reach 150 million people by the end of 2016. Given this potential, Telkom continuea to prepare itself to realize the Government’s vision to develop the number one digital economy in Southeast Asia. 147 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSINDONESIA TELECOMMUNICATION INDUSTRY Telecommunication Industry as the Generator for National Economy Globalization, democratization, technological and innovation, specifically, Information and Communication Technology (ICT) enables information to flow freely across borders and time. Currently the role of information to expand digital access to all parts of Indonesia and encourage ease of use of digital applications. This will contribute significantly to the economic development of Indonesia in the form of the growth of creative industries, such as fashion, culinary, film, design, architecture and other industries, needing digital infrastructures to accelerate its growth. The President believes that there is a large market potential where this potential will become the foundation for Indonesia to become the largest digital is crucial for either government, economy, socio-cultural, economy country in Southeast Asia. and defense as well as security purposes. Therefore, it requires a change in point of view in keeping with the current global conditions that information and communication infrastructure is no longer merely complementary and as enabler, but it has become a driver of development. In line with the global trend that places ICT, in this case specifically, the broadband as the key of development, Indonesia encourages the development of broadband in national development to realize the vision of 2025. This step is taken with due observance to four matters namely the constitutional mandate, Indonesian transformation vision of 2025, stages and direction of national development, as well as efforts to increase Indonesia’s competitiveness at the global level. Currently the Government pushes acceleration on the development of broadband through Ring Palapa project in 51 districts/cities in non-commercial area. The development has started since 2015 and funded by KPU Funds and development in 446 other districts/ cities has been conducted by Telkom. As implication of the importance of ICT in national development, the telecommunication and information sectors have been able to contribute 4 (four) percent from the total gross domestic product (GDP) of Indonesia in 2016 (department of communication and information technology, 2017). This contribution is expected to rise to 9%until the upcoming 2020. The Largest Potential Digital Economy in ASEAN In the current digital economy era, President Jokowi aims Indonesia to become the largest digital economy in South East Asia by 2020. That target is in line with the drive for digital access expansion at all levels of the society. The government through the Ministry of Communication and Information Technology has built infrastructures by In line with the promising potential of digital economy development, Indonesian telecommunication industry recorded an encouraging growth during 2016 at almost 2 (two) times the GDP growth. Indonesia recorded 364.2 million mobile phone users in year 2016, with the number of smartphone usersthat continues to grow 10.4% since 2015 to 2016 as well as IT spending recorded at 9% growth since 2015 to 2016. These indicate that the need for telecommunication and information access continues to increase and has become a part of the society’s basic needs. Telecommunication spending of Indonesian society will continue to grow in line with the increasing consumer spending, which resulted from macroeconomics conditions that is well maintained by the government. The increase in telecommunication and information needs has implicated in the growth of digitalization of companies, online transactions, digital advertising and digital media content. In accordance with the government initiative to declare Indonesia as the largest digital economy country in Southeast Asia in 2020, one sector that gets the attention of the government is the financial sector in relation to financial technology (FinTech). Telecommunication industry is an industry that must be adaptable to any scale of technology movement, this is required by the relevant stakeholders to support the Indonesian government’s aspiration to become the largest digital economy country in Southeast Asia. Industry Competition Telkom Group has comprehensive products and services including connectivity, information technology and digital media services referred as TIME (Telecommunication, Information, Media and Edutainment). Each group of portfolio has its own characteristics so the depiction of the competition situation is divided according to the developing the Palapa Ring satellite, which is expected following grouping: 148 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS1. Mobile Business Indonesian telecommunication industry, specifically the Fixed broadband customers are projected to grow by 18.3% and is expected to increase up to 14 million mobile segment, has a relatively healthy competition, customers in year 2020, but the penetration will still indicated with a rational pricing strategy condition. remain under 6.0%. Efforts from the private sector and the This occurs as a positive implication of the industrial government in increasing the number of fiber connections consolidation nthat happened several years ago and is the driving force for the broadband sector. Competition so that the market players would focus in improving a in the fixed broadband arena also increases with the entry reliable customer experience. SIM card penetration in of ISP (Internet Service Provider based in Singapore, Indonesian mobile industry is quite high exceeding 100%, MyRepublic, in July 2015. Several strategies carried which results in a more challenging penetration growth. out by fixed broadband operators in facing increasing Mobile market penetration until the end of December competition among others are making bundling service, 2016 reaches 364.3 million users dominated by prepaid increasing broadband frequency, and targeting high value customers. With an increasingly greater data service customers. proportion per customer, then the ARPU trend tends to decrease, and the operators will strive to maintain ARPU in a reasonable rate, among others by migrating prepaid 3. International Traffic and Interconnection Level of competition in traditional international traffic SLI customers to postpaid and offering a higher service value. services (non-VoIP) in Indonesia specifically with Indosat. 4G network expansion is also intensively carried out by SLI also faces competition with VoIP and other internet operators, and in line with an encouraging smartphone sales at the end of 2016 the total 3G/4G customer is based voice services such as Skype, Line and WhatsApp. Telkom has long launched VoIP services and offered predicted to reach 144.6 million. cost savings to customers. A number of companies also provide licensed VoIP services in Indonesia, on the other Telkomsel, Indosat Ooredoo, and XL Axiata are the three hand there are also unlicensed operators. VoIP Operators operators dominating the Indonesian mobile market with competes mainly based on price and service quality by a total market share of more than 84%, despite still having providing budget call and other products intended for to face an increasing competition from smaller operators price sensitive users. Currently Telkom offers main VoIP such as Hutch, Smartfren, and others. Telkomsel currently service Telkom Global-01017 and Telkom Save as its low- remains to be the market leader with the most extensive cost alternative. Telkom Save offers discounts for certain coverage advantage, while XL and Indosat Ooredoo countries with the largest traffics for calls from Indonesia, continue to compete by offering more competitive price whereas for other countries Telkom offers regular VoIP and speed of data network. The challenges of Telkomsel tariffs. in facing the development of mobile broadband services specifically on the availability of frequency spectrum, where the ratio of number of customer per MHz of 4. Satellite and Network Infrastructure Business Satellite industry in Indonesia is one of the industries with Telkomsel is at the moment far higher compared to XL the highest competition level in Southeast Asia region. and Indosat Ooredoo. This may be seen in the market structure shift since 2003 from monopoly to oligopoly. One of the reason of this 2. Voice & Broadband Fixed Business Indonesia, as well as other operators in the region, has a structure shift is because the Government of Indonesia neglected in strictly regulating the satellite industry in market fixed-voice that is decreasing with the presence Indonesia. Despite the Ministerial Regulation number of a more popular substitute service, and is predicted 37/P/M.KOMINFO/12/2006 dated 6 December 2006 to continue this way. Currently there are several fixed issued by the Minister of Communication and Information network providers in Indonesia, although not all, are active Technology has given an entry barrier for foreign satellite in providing services. A large number of these providers operators, but the “open-sky” policy applicable in reality operate closed private networks increases the competition between Indonesian satellite operator with foreign satellite operators. Other causes of this market structure shift is the domestic operator capacity limitations, that is unable to take advantage of the vast growth of market demand in Indonesia. 149 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSAt the moment the need for satellite in Indonesia may be and increasing smartphone penetration opens the categorized as undersupply, so the presence of external opportunity for financial service industry including satellite servicesoffers a promising business opportunity. telecommunication, such as services of lending, crowd Based on data of 2015, there is a demand of approximately funding, payment, remittance, investment management 250 transponders. The inability of Indonesia’s satellite as well as providing personal financial management capacity to meet such demand is one of the driving education services. Currently FinTech startups have factors for new satellite deployments, namely BRISat with started emerging and are expected to become a trend 45 transponder and Telkom 3S with 42 transponders. until the coming 2017. Telecommunication industry is an industry that must be adaptable to any scale of technology For tower infrastructure business, Telkom operates movement. A number of mobile financial services (MFS) 129,033 BTS all across Indonesia. Through Mitratel, has been carried out by telecommunication operators, Telkom rents the room for other operators to place their such as Dompetku and Dompetku+ by Indosat Ooredoo, telecommunication tools on those towers. Business XL Tunai by XL Axiata and T-Cash by Telkomsel, that competition relating to this tower comes from other continue to grow each year. providers and operators such as Tower Bersama, Protelindo, Solusi Tunas Pratama and several mobile operators. Aggressive 4G expansion will increase the tenancy ratio and enables operators to produce revenues from tower renting. In January 2016, XL Axiata announces a plan to sell more than 2,500 of 6,500 telecommunication towers with the purpose of reducing indebtedness. Indosat also endeavors to increase operational efficiency through tower sales, in addition to funding the expansion project. 5. Enterprise and Consumer Digital Business The vast growth of company, online transaction, digital advertising and digital media content digitalization has driven the ICT industry and digital. ICT Market and digital consumer are opportunities that must be captured as one of the source of growth and improvement of competitive advantage. The government has declared Indonesia to be a country with the largest digital economy in Southeast Asia in 2020. One sector that gets the attention of the government is the financial sector in relation to financial technology (FinTech). In Indonesia FinTech presents itself as one of the catalyst in improving financial inclusion. Indonesia has more than 200 million population spread all across the archipelago. This geographical condition provides its challenges for traditional banking in reaching communities in rural Indonesia. As a result, only 20% of the total Indonesian population have accounts in formal banking. The high Industrial Challenges in Digital Era One of the main challenges faced in the telecommunication industry comes from the over the top (OTT) business players. Services developed by the OTT directly or indirectly substitute the telecommunication such as voice services and SMS, which continue to show declining trend. Such rate of decline increases with the growth of smartphone users. This condition occurs not only in Indonesia, but also in other countries with a relatively high smartphone penetration. Therefore, telecommunication operators need to prepare strategies in order to sustain the sharp rate of revenue decline in the legacy business through. On the other hand, signal coverage distribution and data access also poses a big challenge in the telecommunication industry that is important todrivie the digital economy development in Indonesia.. Data access quality for data downloading and uploading also still have an inequality with the largest average access quality in Island of Java. Further, the education to the stakeholders shall also become a separate challenge in developing the Indonesian digital economy. The Survey from the Center of Research and Development for the Operation of Post and Telematics (Puslitbang PPI) in 2015 showed that farmers and fishermen have a low internet and access to internet, so they need more further education so they can enjoy enjoy the convenience and benefits of digital services. 150 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 3 MAIN PROGRAM IN 2016 Furthermore, we continued to explore business development opportunities through inorganic initiatives Telkom has set a corporate vision of “Be The King of both domestically and globally in selective, prudent Digital In The Region”, which means that as a digital telco and synergy approaches. Inorganic expansion becomes company, we remain committed to providing an integrated a necessity given the broadband and digital-based (end to end) through a variety of digital solutions oriented telecommunications industry has no longer boundaries to customer experience excellence. Telkom continued to between regions (borderless). Telkom continued to encourage the strengthening of the main pillars of digital strengthen its footprint in the region and look for business growth which are broadband connectivity strategic business opportunities that can add value to the services, digital mediation platform and digital services Company as well as finding a profitable business model. development in order to create sustainable growth in To that end, we continued to build digital competence order to achieve the company’s Vision. of international standard in order to have a competitive In 2016, the Company has set three main programs which managed to get a license application services from the are continuation of the previous year, with sharpening on Ministry of Telecommunications Myanmar as well as a each program. The three programs are the Leading Mobile license from the US government, which allows Telkom to Digital Business, Drive Digital Home and Enterprise and run business in ICT services to corporate customers. With Smart International Business Growth. these licenses, we expect Telkom presence in the region edge to work on a wider global market. In 2016, Telkom to increase in the future. Telkom continued its efforts to strengthen its leading position in the cellular industry in Indonesia. Through its Telkom also established a subsidiary in the form of subsidiaries, namely Telkomsel, we consistently continued corporate venture capital, Metra Digital Innovation to invest in developing an integrated network to advance (MDI), which play a role in exploration and investment coverage, capacity and capability for mobile broadband in potential start-up companies. MDI strategy is to drive services to optimize mobile business core. Telkomsel Telkom for long-term value creation through investments also accelerated digital mobile business through a range in companies that have a solid business model and to of innovative digital services, such as digital lifestyle develop synergies with our business, considering Telkom (digital music, video and games), mobile payment, mobile already has the infrastructure, end users and corporate advertising, as well as more advanced digital services customers, as well as data. such as M2M-IoT and big data analytics. In addition, Telkom continued to drive growth of digital also undertake other efforts to improve competitiveness business for Home and Enterprise segments with and to maintain the company value to remain in the Top- focus on the development of broadband connectivity 10 digital telcos in Asia Pacific in 2020. Telkom will continue to drive growth in digital business and services, digital content services and digital solutions for enterprise and SMEs. We selectively develop ecosystem- based digital services such as e-commerce, e-payment, e-health and e-tourism which we do through synergy and collaboration with other firms. 151 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSBUSINESS PROSPECT The Political and Economic Outlook telecommunication that Telkom believes industry business prospect is still widely open. However, Telkom is still aware with the dynamic of international and national politics and economics that may occur and may negatively influence the performance of Telkom, especially in short- term. The economic growth in China and India, which are main drivers of Asian economy, are projected to slightly improve in 2017. In the United States, President Donald Trump political and economic policies still remains to be seen and reviewed, while we are also remain watchful of United Kingdom’s ongoing exit from the EU and how they would impact on the economy. Further, we also need to monitor the ongoing conflicts in the Middle-East as it has its effects to oil price fluctuation. Further, even though World Bank has estimated that the economic growth in Indonesia will increase to 5,3% in 2017 (worldbank.org, January 2017), Telkom will continuously scrutinize the change of economic and politic with a reliable risk management. In the national level, Indonesia has held the General Election of the Regional Head (Pilkada) simultaneously in February 2017. The changes of regional heads following the elections may cause policy changes that could impact on Telkom’s business positively or negatively. The regional heads changes may also cause some new adjustments at the operational level to seize existing business opportunities Digital Economy Prospect The government has set out Indonesia to be the largest digital economy country in Southeast Asia in year 2020. The population of Indonesia that is expected to reach 271 million populations in 2020 (source bps. go.id) is a large digital economy market. SMEs, which became the backbone of Indonesia’s economy, has also shown its potential in playing a role to drive the national digital economy. With all its integrated infrastructure, the involvement of Telkom shall have a crucial role in Digital Lifestyle Opens the Opportunity for New Products and Services Business prospect of telecommunication industry also experiences the friction influenced by digital lifestyle. The increasing use of smartphone and internet which is getting higher, has pushed the increase in the demand of broadband and given the pressure to the legacy business such as voice, and sms. Therefore, Telkom takes a strategical step to invest in order to grow the digital services, either fixed broadband or mobile broadband. The lifestyle needs of digital services and multimedia has become the business opportunity of Telkom in the future. Telkom sought to presents digital services to meet digital needs and facilitate activities as well as the lifestyle for its users. We developed digital services from entertainment at home as well as when in mobility and interact within the community. IndiHome Triple Play offer as one of digital service at home which is a new product integrating the services of IPTV, high speed internet connection and home telephon. Telkom expected this kind of digital service will become one of the contributor for the growth of Telkom in the future and make Telkom as the key player in Media and Edutainment business. Telkom is preparing to build a comprehensive network infrastructure, in order to play a key role in responding to changes in the direction broadband and digital- based telecommunications services, including in the development of the digital economy. With lower smartphones prices and increased demand for fixed broadband services, the availability of ICT infrastructure will make more Indonesia people who can enjoy a variety of benefits, especially the opening of economic opportunities. Telkom also continues to develop the digital ecosystem to provide more integrated services, such as e-commerce platform blanja.com as part of the ecosystem in the digital economy, in order to support the marketing of MSME products more widely and easily, Indonesia Tourism Exchange (ITX) to encourage the growth of the tourism industry, and indigo, which is an initiative to accelerate the establishment of a developing digital economy ecosystem and creating creative industry ecosystem. new business opportunitiesin Indonesia. Digital Economy will become part of economic activities, beginning with product research, product and service design, marketing and advertising, business operations, until payment which all are based on digital services. Be that as it may, entrepreneurial competencies, management skills and market control remain as important components in the business world. Facing Competition and Seize Opportunities In the digital era, the competition is expected to be tougher. Not only Telkom competes with other operators but also over the top (OTT) digital companies that operate cross-industry. Therefore, Telkom continues to innovate in improving new digital services internally and also collaborates with potential digital startups. Telkom keep investing in building infrastructure to ensure the best customer experience maintained. 152 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSFurther, we strive to continue delivering the best digital services in the personal, home, enterprise customer segments. We provide the best world class digital services through collaborations with the best world partners to strengthen the key capabilities and establish the competitive advantage of Telkom Group. COMPARISON BETWEEN TARGETS AND REALIZATIONS This section presents information of a comparison between the targets in the beginning of the financial year and the results achieved or performance realization of Telkom 2016. The strategies of Telkom in 2016 including increasing revenues and capital expenditure to infrastructure development. Furthermore, digital business acquisitions continued to be conducted in order to improve Telkom’s digital business portfolio. Below is the table to illustrate the targets and the realizations of the strategies of Telkom and its subsidiary in 2016. Telkom Group Targets of Strategies for 2016 Indicator Revenue growth EBITDA Margin Targets of Strategies for 2016 The revenue growth is expected to grow better than market rate by the end of the year by continued effort in growing digital business. EBITDA and margin net income are expected to slightly decline in line with continued broadband infrastructure development, both in mobile and fixed line businesses. Capital expenditure Capital expenditure of 22-25% of the annual revenue is allocated for broadband infrastructure: • Mobile business: 60% - 65% • Fixed broadband: +/- 25% • The rest is for other business lines The realization of Telkom’s performance throughout 2016 was satisfactory, with its triple double digit growth achievement for revenues, EBITDA, and net income. In 2016, Telkom has realized 13.5% revenue growth, far above the 8.87% industry average. Data, internet, and IT revenues (digital business) grew 31% and revenues portion from this segment increased to 37% from 32% from the previous year. Moreover, EBITDA margin in 2016 reached 51.1%. It was 0.9 ppt (percentage point) higher than 50.2% EBITDA margin in 2015. Meanwhile, the realization of net income margin was excellent at 16.6% or 1.5 ppt higher than 15.1% in 2015. Telkom realized the Capex by 25% from the revenues throughout 2016, in line with the 22%-25% target set at the beginning of the year. 153 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTARGETS FOR THE NEXT YEAR In 2017, Telkom set the target for the revenues to grow above the industry, in order to maintain its domination in celluler market and expand its foot print in fixed broadband market. EBITDA margin and Net Income margin are estimated to slightly decline unanimously with the increase of digital business portion and the decrease of revenues portion from legacy service consists of voice and SMS. Telkom also allocates roughly 23%-25% of its capital expenditure to focus on building broadband infrastructure both in cellular and fixed line segments. In general, Telkom Group strategic plan for 2017 may be seen as follows. Table of Target Strategy of Telkom Group in 2017 Indicators Revenue growth EBITDA Margin Targets for 2017 Revenue growth far above the industry. EBITDA margin and net income margin are projected to slightly decline in accordance to broadband infrastructure development, in mobile and fixed line business, and increase revenues portion from digital business segment Capital expenditure Capital expenditure around 23%-25% from revenues DIVIDEND Policy on the distribution of dividend must be agreed by the Annual General Meeting of Shareholders (“AGMS”). In each year for the past five years, Telkom has made payments of dividend to all of its shareholders. The ratio, amount and total amount of dividend for the financial year of 2016 shall be determined in the 2017 AGMS. Table of Dividend Payments of Telkom for 2012 -2016 Dividend Year Dividend Policy Table of Dividend Payments of Telkom for 2012 -2016 Date of Dividend Payment in Cash and/ or Date ofDividend Distribution in Non- Cash Payment Ratio / Pay out ratio (%) 1 Dividend Amount paid per year(Million Rp) Dividend Amount per Share (cash and/or non-cash) after Stock Split (Rp) 2011 2012 2013 2014 2015 AGMS, May 11, 2012 June 22, 2012 AGMS, April 19, 2013 June 18, 2013 AGMS, April 4, 2014 May 19, 2014 AGMS, April 17, 2015 May 21, 2015 AGMS, April 22, 2016 May 26, 2016 65 65 70 60 60 7,127,333 2 8,352,597 3 9,943,294 4 8,782,812 5 9,293,184 6 74.21 87.24 102.40 89.46 94.64 The payment ratio shall bethe profit percentage attributable to the owner of holding entity paid to the shareholders as dividends. 1. 2. Consist of cash dividend amounting to Rp6,030,820 million and special cash dividend amounting Rp1,096,513 million. 3. Consist of cash dividend amounting to Rp7,067,582 million and special cash dividend amounting Rp1,285,015 million. 4. Consist of cash dividend amounting to Rp7,812,588 million and special cash dividend amounting Rp2,130,706 million. 5. Consist of cash dividend amounting to Rp7,319,010 million and special cash dividend amounting Rp1,463,802 million. 6. Consist of cash dividend amounting to Rp7,744,304 million and special cash dividend amounting Rp1,548,880 million. In 2016, we paid an interim cash dividen for 2016 of Rp19,379 per share on December 27, 2016. 154 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS REALIZATION OF PUBLIC OFFERING FUND MATERIAL INFORMATION On June 16, 2015, the Company issued the Continuous Based on the Financial Service Authority Regulation No.31/ Bonds I Telkom Phase I 2015 (Obligasi Berkelanjutan I POJK.04/2015, as a public company, Telkom is obligated Telkom Tahap I Tahun 2015) in the amount of Rp7,000 to disclose any material information or significant facts billion which consist of: which relevant to and may affect the securities price or • Rp2,200 billion for Series A, with 7 (seven) years the decision of investors, prospective investors, or other tenure; interested parties on such information. • Rp2,100 billion for Series B, with 10 (ten) years tenure; • Rp1,200 billion for Series C, with 15 (fifteen) years Telkom has identified and declared to have any material tenure; and information, among others, in regard to investments, • Rp1,500 billion for Series D, with 30 (thirty) years expansion, divestment, merger/consolidation, acquisition, tenure. debt/capital restructuring, Affiliated transactions, and conflict of interest transactions, which happened on the The rating of the bonds is AAA of Pefindo and secured 2016 financial year as follows: by all of the Issuer Company’s assets, movable or non- movable, either existing or those will exist in the future. 1. On 25 May 2016, Telkom Metra acquired 2,000 shares The underwriters of the bonds are PT Bahana Sekuritas of Ad Medika from the minority shareholders equal to (“Bahana”), PT Danareksa Sekuritas, PT Mandiri Sekuritas and PT Trimegah Sekuritas, with PT Bank Permata Tbk as 25% of the shareholding at the price of Rp138 billion. 2. On June 29, 2016, Sigma purchased 13,770 shares of the appointed Trustee. Realization of Public Offering Fund Amount (in billion Rupiah) Public Offering Fund Public offering cost Net amount Realization: a. Business Development b. Acquisition Total realization Balance 7,000 16 6,984 6,062 922 6,984 0 PT Pojok Celebes Mandiri (“PCM”) (equivalent to 51% ownership) from Metra amounting to Rp7.8 billion. 3. On 3 November 2016, Telkom established subsidiary entity namely Jalin Pembayaran Nusantara (Jalin), having its business in carrying out principal, switching, clearing and settlement activities. 4. On 10 November 2016, Metranet increased its authorized capital originally from Rp244 billion to Rp324 billion by issuing 18,800,000 new shares wholly owned by Telkom. 5. On 14 November 2016, Metranet acquired 4,900,000 shares of Melon (equal to 49% of shareholding) from SK Planet Co. Ltd. and 300,000 shares of Melon (equal to 3% of shareholding) from Telkom Metra, each at the price of US$13,000,000 or equal to Rp170.4 billion Total funds received by the Company after deduction of and Rp13.2 billion. From these transactions, Metranet public offering cost is in the amount of Rp6,984 billion. acquired 52% shareholding over Melon and the During the 2016 financial year, there is no change in the remaining shares are held by Telkom Metra. plan of the use of public offering proceeds. Cumulatively, the realization of the use of public offering proceeds up to the end of financial year of December 31, 2016, is in the amount of Rp6,984 billion, which used for: • Business development of Rp6,062 billion, consisting of business development in Broadband, Backbone, Metro & Regional Metro Junction (RMJ) and IT Application & Support. • Acquisition of Rp922 billion, executed by the Company or its Subsidiaries. Therefore, the public offering funds from Sustainable Bond I Telkom Phase I Of 2015 has been used entirely. Details of Bonds, see Note 16 to the Consolidated Financial Statements. 155 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSMARKETING OVERVIEW Market Share In 2016, Telkom Group’s market share by geography was 96.9% of income generated from Indonesia and only 3.1% of income generated rom international market share. Based on income perspective, mobile business which Telkomsel manages and fixed line are still the biggest contributions with 33.1% and 6.5% contributions respectively. For the fixed line market share, Telkom currently dominates the For mobile broadband business, Telkomsel has 60 million flash customers with 5.9 million which among others, have migrated to 4G technology. With such amount, Telkomsel’s market share for mobile broadband has reached 48%. This sector is expected to keep growing along with the increase of smartphone users in Indonesia. Telkom’s newest product, IndiHome, still has a small market share but it is rapidly growing. After its launch in 2015, Telkom is estimated to have 4.3 million customers of fixed broadband who are also IndiHome triple play market with 99% share. customers. Through its subsidiary Telkomsel, Telkom competes with other operators such as Indosat and XL Axiata in mobile business. Telkomsel still dominates the market share for mobile business in Java with 22.4% share and outside Java as well with 77.6% share, while XL Axiata has 11.2% share Further in 2016, Enterprise segment used 2,524 Gbps bandwidth in service which we predicted around 65% from enterprise traffic market share in Indonesia, where we serve more than 1,300 corporate customers, nearly 300,000 SME customers, and several government and Indosat has 6.2% share. Hutchison Tri and Smartfren institutions. have the remaining 5% share (katadata.co.id, November 11, 2016). Marketing Strategy The marketing strategy for Telkom Group’s products and services are correlated with series of development process of products and services. This starts with market research and evaluation of products and services users for telecommunication and information. Based on the result, Telkom Group designs the products and services as well as conducts the market test. Telkom then conducts the go-to-market strategy, which is to plan and to prepare the production and marketing channel. The next stage is to launch and to market the products and services, to implement the improvement as well as to provide after sales service. Below is the diagram of Telkom Group Marketing Strategy. Market/Product Asessment Product Design User Assassement Testing Go-to-Market Strategy Reviewed Launch and After Sales Product Marketing/ Sales • Market research • User requirements map to smartphones • Conjoint sensitivity assessment • Product definition • Product and package architecture • Product, price and channel acceptance • Partnerships/ channel plan • Internal capability • UI and IT systems effectiveness leverage • Salesforce management • Activation management • CRM • Continuous improvement system Diagram of Telkom Group Marketing Strategy 156 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPromotion and Customer Service Telkom Group has different strategies for promotion and customer service and they are adjusted in accordance to the characteristics of segment, products and services as well as costumer types. Below are the promotion and customer service strategies, based on CFU (customer facing unit) in Telkom: 1. CFU Consumer The “more-for-less” strategy is implemented in CFU Consumer, especially market IndiHome Triple Play and dual play products through Fiber-To-The-Home network. Through this strategy, the customers are offered to obtain a better benefit with less fee compared to the fee for individual service. 2. CFU Enterprise The “go-to-market” strategy implemented by CFU Enterprise was conducted through SMART CONNECTED SOCIETY program which consists of: • SMART Government Initiative: to collaborate with the Government to become Strategic ICT Partner by taking part to make the strategic Government ICT mega deals a success • Enterprise CONNECTED Ecosystem: to evolve as the end to end digital ICT player and to become market leader in the enterprise ICT solution market. • SME’s Digital SOCIETY: to create SME ICT market in Indonesia, to collaborate with SME player, community, Government and academic institution. 3. CFU Wholesale and International Business The strategy of “wholesale facilitate retail” on this business sector is interpreted in the strategy of “3C”, namely: • Collect traffic through organic to organic (O2O). • Creating smart pricing. • Customer relationship improvement. “Wholesale facilitate retail” is implemented in the domestic interconnection consisting of termination and transit. The implemented sale scheme are, among others: • Fixed bandwidth and burstable bandwidth. • FTTM (metro-E), which is in the form of backhaul service for macro tower, BTS hotel and backhaul indoor building solutions (B-IBS). • Leased channel (LC) with creative pricing. • Smart swap scheme. • Indefeasible Right of Use (IRU) or the Irrevocable Utilization Right. • Bundling service as the part of large business deal. • Collaborative satellite supply, in the form of collaboration and consolidation of the availability of satellite capacity to give a maximum benefit to the customers. Wi-Fi wholesale service is one of the service portfolios of Indonesia Wi-Fi offered through the cooperation with domestic or international partner, namely OLO, ISP and roaming partner. 4. CFU Mobile The marketing strategy for mobile business emphasizes on the true broadband experience, enriches the smartphone experience, postpaid privilege experience, engaged youth experience, trustworthy service experience, and customer experience. simPATI, Kartu As and LOOP are some of Telkom’s products managed under CFU Mobile. The implementation of this strategy on the legacy business and program data penetration marketing covers some programs such as SLI 007 special campaign, halo-fit-my- plan package which was launched in order to increase the total costumers of kartuHalo, Telkomsel android united (TAU) program which bundled with smartphone, and simPATI-go-discover which constitutes the entertainment package of simPATI. In addition to the marketing and sales strategy as mentioned above, Telkom also accelerates the adoption of 3G/4G equipment to support the use of smartphone effectively and efficiently. 5. CFU Digital Services “Go To Market” strategy of CFU Digital Service will focus on strengthening and increasing Digital Innovation, namely: • Creating unique digital services with different experiences from before for digital music service, video, gaming, e-commerce, and travelling. • Building Digital Business Model covering a wider market in order to support Indonesia Digital Economics. • Providing customer experience innovation through Digital Theme Park, Experience Center and Digital Experience in Telkom Group service outlets. • Combining assets and inventoriy of Telkom Group to become an insight in increasing Digital Service and Cutomer Experience. • Growing Digital Business Portfolio through investments in Digital Startups until they become a part of Indonesian Digital Ecosystem. 157 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCHANGES IN REGULATION Compliance with regulations is a form of implementation of good corporate governance (GCG) in Telkom. In 2016, Telkom has identified some new regulations in the telecommunication and information industry as well as the possibility of their impacts upon the operations and financial statements [of Telkom]. Table of Amendments to Legislations in Year 2016 No Laws And Regulations Having Significant Effect Effect On Financial Statement 1 Regulation of the Minister of Communications and • Does not materially affect financial statements Information Number 4 of 2016 regarding Information [of the Company]; Security Management System. On April 11, 2016, the government through Directorate required to improve the protection to consumers, General of Legislations of the Ministry of Law and businessmen, labors, and the society either for Human Rights enacted Regulation of the Minister of the safety, security, health or preservation of Communications and Information Number 4 of 2016 environment, improving trade continuity and regarding Information Security Management System. achievinghealthy business competition in a trade. • Affects the operations of Telkom that are This ministerial regulation governs the implementation of Information Security Management System by Electronic System Developer for Public Services based on Risks which is performed by corporations such as SOEs. This regulation governs the categorization of Electronic Systems which subsequently triggered Electronic System Developers including Telkom to implement Information Security Management System namely SNI ISO/IEC 270001. 2 Tax Incentive In December 2015, the Company utilized the Economic Policy Package Part V in the form of tax incentive namely the provision of special tariff for the revaluation of fixed assets as further stipulated under the Regulation of Minister of Finance (PMK) No. 191/PMK.010/2015 in conjunction with PMK No. 29/PMK.03/2016. According to the said PMK, the Company may conduct a revaluation of fix assets for the purpose of taxation based on the market value to be appraised by a Public Appraiser Service Office (KJPP) or appraisal expert having the license from the Government. The company has conducted the payment of final income tax in the amount of Rp750 billion and submit the Letter No. C.Tel. 282/ KU000/COP-I000000/2015 dated 29 December 2015 regarding “the Application to Re-evaluate the Fixed Assets for the Purpose of Taxation submitted in 2015 by the Tax Payer that Has Not Conducted the Revaluation of Fixed Assets “. The company has submitted the said application letter to the Regional Office of Directorate General of Tax for the Large Tax Payer on 30 December 2015. 158 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS No Laws And Regulations Having Significant Effect Effect On Financial Statement With regard to the distribution of company’s fixed assets, location that is hard to reach, assets which are in the form of very specific TELKOM’s production equipment, and a rapid development of telecommunication technology, TELKOM divided the completion of appraisal by KJPP in two phases. The first phase of appraisal has been completed and the Director General of Tax has issued the Decision letter of Director General of Tax Number KEP-580/ WPJ.19/2016 dated 10 November 2016 regarding “the Re-Approval of Fixed Assets Valuation for the Taxation Purpose To the Application Submitted In 2015 and 2016” with the surplus of revaluation of Rp Rp7,078 billion” and Income Tax upon the revaluation in the amount of Rp212 billion so that there will be an excess of payment from the advance payment of the Income Tax for Revaluation in the amount of Rp538 billion. Further in 19 December 2016 TELKOM submitted a letter “Application for the Revaluation of Fixed Assets for Taxation Purpose Submitted In 2016 by the Tax Payer that Has Not Conducted the Revaluation of Fixed Assets” number C.Tel.286/ KU320/COP-I0000000/2016. This application is still based on the estimation since the appraisal from KJPP is still ongoing so that the paid tax is still considered as the advanced payment and it came from the compensation of excess of payment/the remaining of the advance payment of Income Tax for Revaluation in 2015 in the amount of Rp538 billion. Until the preparation of this report, the process of appraisal by KJPP is still ongoing. 3 NUMBER 11 OF 2008 REGARDING ELECTRONIC • Has no material impact to the financial report [of INFORMATION AND TRANSACTION the Company]; In November 25, 2016, the President of RI passed Law • Has the impact on the Telkom’s operational Number 19 Of 2016 which amended some provisions aspect, which is to actively involve in assisting the under Law Number 11 Of 2008 Regarding the Electronic government in order to conduct a law interception Information and Transaction. The new law amends some as mandated by the prevailing regulations and provisions, namely: To add some elucidations to affirm participate in preventing the spread of negative the provisions on the defamation and to reduce the content in the internet. criminal sanction, to give mandate the stipulation on the interception procedure into the law, to synchronize the provisions of procedural law into Law of ITE with the provisions under the procedural law as stipulated under KUHAP or the Criminal Law Procedures Code, to strengthen the role of investigator from Civil Servant (PPNS), to add the provision on or the obligation to delete content that is not relevant to the operator of electronic system as the guarantee to protect private data and give the strong basis to the government to prevent the spread of negative content in the internet. 159 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSNo Laws And Regulations Having Significant Effect Effect On Financial Statement 4 REGULATION OF THE MINISTER OF COMMUNICATION • Has no material impact to the financial report [of AND INFORMATICS NUMBER 17 OF 2016 AS the Company]; AMENDED WITH THE REGULATION OF MINISTER OF • Has the impact to the procedure to record the COMMUNICATION AND INFORMATICSNUMBER 19 OF gross revenue on Telkom’s revenue account. 2016 REGARDING THE IMPLEMENTING GUIDELINE TO THE TARIFF FOR THE NON-TAX STATE INCOME FROM THE LEVY ON THE RIGHT FOR TELECOMMUNICATION OPERATION AND THE CONTRIBUTION FOR UNIVERSAL SERVICE OBLIGATION. In September 26, 2016, the Minister of Communication and Informatics promulgated the REGULATION OF MINISTER OF COMMUNICATION AND INFORMATICS NUMBER 17 OF 2016 and therefore, it revoked some regulations in relation to the Implementing Guideline For the Tariff for PNBP and the levy to Telecommunication for Universal Service BHP and the Contribution Obligation (USO). The amendments were made in order to implement the record and collection of receivables on PNBP from the levy to the Telecommunication BHP and the contribution for USO. This ministerial regulation stipulates the implementing guideline in relation to the type of income that is not included in the gross income from telecommunication operation, the procedure to calculate, deposit, submission of financial report, and the determination of the Fee for the Right to Operate the Telecommunication and the Contribution for Universal Service Obligation, as well as the procedure to submit the objection against the determination of the unpaid Non-Tax State Income. 160 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCHANGES IN ACCOUNTING POLICY 2. Transaction with Related Parties. Summary of Significant Accounting Policy Group Consolidated Financial Report was prepared pursuant to the Financial Accounting Standard (“SAK”) in Indonesia which covers the Statement of Financial Accounting Standard (“PSAK”) in Indonesia and Interpretation of Financial Accounting Standard (“ISAK”) in Indonesia issued by the Board of Financial Accounting Standard – Indonesian Accountant Association and Regulation of Capital Market and Financial Institution Supervisory Body (Bapepam-LK) No.VIII.G.7 regarding “the Financial Report Presentation and Disclosure of Issuer or Public Company”, as attached in the letter KEP- 347/BL/2012. Accounting standard and interpretation that According to Regulation of Bapepam-LK No.VIII.G.7 regarding the Financial Report Presentation and Disclosure of Issuer or Public Company, the entity related to the government constitutes a party controlled, jointly controlled or influenced by a government. The government in this matter is the Minister of Finance or Regional Government that constitutes the shareholder of the entity. According to IFRS, entity related to the government is the entity that is controlled, jointly controlled or influenced by a government. The government in this matter shall refer to the government, government institution and similar institution either local, national or international. In 2016, there was no new PSAK/ISAK that has significant have been certified by the Board of Financial Accounting impact to Telkom’s financial report. Standard (“DSAK”), but have not been taken into effect for the ongoing financial report are disclosed in note 2.a Consolidated Financial Report. Summary of Significant Differences between PSAK and the International Financial Reporting Standard (“IFRS”) Since 2011, Telkom adopted IFRS in preparing financial statements to the New York Stock Exchange (NYSE). Summary of significant differences between the PSAK and IFRS are as follows: 1. Land Rights. According to PSAK, land rights shall be recorded as part of fixed asset and shall not amortized unless there is an evidence indicating that the extension or renewal of land right is most likely or certainly unobtainable. The legal fee for the application of extension or renewal of land right shall be acknowledged as intangible asset and shall be amortized for the duration of legal period or economical period of the land, whichever shorter. According IFRS, land right shall be recorded as the lease and be presented as part of fixed assets. The land right shall be amortized during the lease period. 161 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS162 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCorporate GovernanCe 164 166 173 174 182 Implementation and Strengthening of GCG roadmap 2011-2017 Basic and principle of Corporate Govermance Corporate Govermance assessment General Meeting of Shareholder Board of Commissioners 190 audit Committee 194 nomination and remuneration Commi 198 201 212 214 216 217 Committee for the planning and risk, evaluation and Monitoring Board of Directors Corporate Secretary Internal audit Unit Internal Control System risk Management System 224 Whistleblowing System 226 Significant Legal Disputes 227 Information regarding administrative Sanctions 228 Corporate Culture 234 Code of Conduct 234 employee Stock ownership program 163 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSteLKoM Corporate GovernanCe roaD Map 2012 2013 • The strengthening of the governance organs through GCG development and implementation involving the business group through the establishment of an Executive Board with the aim of shaping the Company’s capabilities in carrying out strategic steps related to portfolio management supported by a parenting mechanism more in line with business ecosystem demands. • Continuing the strengthening of the governance process to ensure that the business process is in line with the “New Telkom” business and organizational transformation in accordance with the Telkom’s Corporate Office Organizational Policy No.202.11/2013. checklist self-assessment • The strengthening of the governance organs by empowering Telkom Group’s GCG, designing the GCG implementation and for subsidiary entities, and the appointment of members of the Board of Directors of subsidiary entities as members of Telkom Group’s executive board and Telkom’s Vice President in accordance with their field of work and responsibilities as Telkom Group’s Group Head, as stipulated in the Corporate Office Organizational Policy No.PD.202/2012. • The strengthening of the governance process to ensure that the business process is in line with business and organizational transformation. 164 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS2014 • The strengthening of the governance organs through GCG for the implementation of an organization having the characteristics of a holding company encompassing subsidiary entities implementation of an Executive Board mechanism and implementational improvements. through the 2015 • The strengthening of Business Ethics encompassing Telkom Group. • The launching of the Culture Year. • The strenghtening of the governance process ISO/ISO certification process through discipline for “New Telkom”. • The strenghtening of the governance organs through GCG assessment for subsidiary entities. • The implementation of the COSO 2013 Framework as a basis for Internal Control and Integrated Audit. • The strengthening of the governance ISO certification/ process to ensure surveillance. 2016 The implementation of “Role Model GCG”. 2017 Enhancing GCG Framework, comply with the national regulation and following international best practices. 165 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS teLKoM Corporate GovernanCe prInCIpLe The Company has been consistently implementing the principles of good corporate governance (GCG) at all of the Company’s operational levels in order to create good decision making processes, enhance productivity and accountability, as well as to serve the interests of all stakeholders. The Company’s commitment in implementing GCG c. principle of responsibility regulations and laws and – complying with implementing sound corporate principles. The Company ensures that Telkom continues to comply with all prevailing laws and regulations, consisting of laws/regulations on taxation, fair competition, industrial relations, work health/safety, remuneration standards, as well as other relevant regulations. Furthermore, a VP Legal and Compliance function has also been established, structurally assigned to ensure the compliance of all is reflected through the Resolution of the Directors laws and regulations. regarding GCG Guidelines No.29/2007 and GCG Guidelines No.602/2011. The Resolution comprises of several GCG implementation systems to guarantee that d. principle of Independence – professional without any conflicts of interest nor pressure from any party that is GCG is ethically and duly implemented upon internal and against the laws and regulations and sound corporate external transactions in accordance with good corporate principles. The Company has expressly set forth the governance practices. Implementation of Basic GCG principles rules/authorities in regard to corporate decision making in the Board Charter and the Company’s Articles of Association. Furthermore, the Company implements several supplementary policies in the Company’s Corporate Governance Guidelines, such as policy regarding conflict of interest transactions, As a publicly listed company at IDX for over 20 years, prohibition of political party donations, and prohibition Telkom has implemented all basic GCG principles, as on affiliations. follows: a. principle of transparency – transparency in the decision-making process and providing material and e. principle of equality and equity – fairness and equality in fulfilling the rights of stakeholders arising from relevant information regarding the Company. The agreements and prevailing laws and regulations. The Company routinely publishes a Financial Statements implementation is conducted in several operational and Annual Report and other material information aspects, covering honoring minority shareholder easily accessible to investors. Such information is rights, insider trading prohibition, balanced scorecard- provided in the form of: the Company’s website, print based performance management, open bidding and media and press releases, one-on-one meetings with e-procurement in the procurement of goods/services. investors, public expose and press gatherings. b. principle of accountability – clarity of the functions, role and responsibilities of shareholders, Board of Commissioners, Directors, Committees, and the Corporate Secretary in order to make the management effective. The Company ensures the availability of charters necessary for each of the Company’s main organs, to create check and balances mechanism on the authorities and roles in the management of the Company. Furthermore, KPI criteria and operational targets are also clearly set out. Implementation of GCG principal Based on oJK Corporate Governance Guidance Furthermore, Telkom already implementing 8 corporate governance principle based on OJK’s Corporate Governance Guidance for Public Company, as follow: 166 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple Principle 1 recommendation Implementation Improving the value of 1. Technical methods or The Company already has technical shareholders Annual General procedures for open and procedures for voting set out in the Meeting (RUPS) management closed voting that prioritize procedures for the General Meeting of independence and interest of Shareholders the shareholders Remark: Comply 2. Members of the Board of All of the members of the Board of Directors Directors and the Board of and the Board of Commissioners attended Commissioners attend the the GMS Annual GMS Remark: Comply 3. A summary of minutes of GMS The Company provided a Summary of is available at the Website at Minutes of GMS at the Company’s Website least 1 year under Investor Relations Principle 2 Improving the Public Listed 1. To have a policy on The Company has a policy on Company Communication Quality communications between Public communications with Investors through with Shareholders or Investors Company and shareholders and Non Deal Roadshow, One on One Meeting, investors Earnings Call, Public Expose, Conference Remark: Comply and Investor Summit Remark: Comply 2. Post the policy on The Company has made available materials communications of a Public of each Earnings Call, Conference and Company at the Website materials of presentation to investors at the Company’s website to provide equality for Shareholders and Investors regarding the implementation of Communications with the Company Remark: Comply Principle 3 Strengthen the Membership 1. Determination of the number The Company has complied with the and Composition of Board of of members of the Board provision applicable to the Company as Commissioner of Commissioners takes Public Company as set out in Article 20 of into account the company’s POJK No.33/POJK.04/2014 that the number Conditions of members of the Board of Commissioners must be more than 2 (two) persons. Remark: Comply 167 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple recommendation Implementation 2. Determination of the At the Shareholders’ discretion, members composition of members of of the Board of Commissioners have been the Board of Commissioners appointed by taking into account a variety takes into account the required of skills, knowledges, experiences and variety of skills, knowledge and the Company’s business conditions and experience complexity Principle 4 Improving the Quality of Duty 1. The Board of Commissioners Basically, the assessment of the performance and Responsibility of Board of has a policy to self-assess the of the Board of Commissioners is carried out Commissioner performance of the Board of by Class A Dwiwarna Shareholders through Commissioners the mechanism of a General Meeting of Remark: Comply Shareholders Remark: Explain 2. The self-assessment policy is The Company does not have any self- reported in an Annual Report assessment policy yet, that therefore there is no self-assessment policy reported in the Annual Report Remark: Explain 3. The Board of Commissioners In accordance with our Articles of has a policy of resignation in Association, any member of the Board of the event of involvement in any Commissioners who does not meet any financial crimes requirements to be a member of the Board of Commissioners as set out in the Articles of Association including any involvement in any financial crimes, the consequence of which is that his/her position will be null and void In the event that the member of the Board of Commissioners resigns, it will be resolved at a GMS Remark: Comply 168 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple recommendation Implementation 4. The Board of Commissioners or The Nomination and Remuneration the NRC sets out a provision of Committee sets out in the Nomination succession in the Nomination and Remuneration Committee Charter Process of a member of the that among its duties is to give Board of Directors recommendations to the Board of Commissioners to be informed to the Class A Dwiwarna Shareholders about the Planning of Succession of Members of the Board of Directors In addition, as an SOE, the provision of succession of the Board of Directors refers to Regulation of the SOE Minister No.PER-03/MBU/2015 on the requirements, procedures for the appointment and dismissal of a member of the Board of Directors of an SOE Remark: Comply Principle 5 Strengthening Membership and 1. Determination of the number Determination of the number of members Compositions of Directors of members of the Board of of the Board of Directors of the Company Directors takes into account refers to the provision of POJK No.33/ the Company’s conditions POJK.04/2014 which provides that and effectiveness in decision- the Board of Directors and Board of making Commissioners of Listed Companies or Public Companies must consist of at least 2 (two) members Remark: Comply 2. Determination of the At the Shareholders’ discretion, members Composition of members of of the Board of Directors of the Company the Board of Directors takes have been appointed by taking into account into account a variety of skills, a variety of skills, knowledges, experiences knowledges and experiences as and the Company’s conditions and business required complexity Remark: Comply 3. Members of the Board The member of the Board of Directors in of Directors in charge of charge of accounting and finance in the accounting and finance have Company is the Finance Director who skills and/or knowledge in has sufficient accounting and financial accounting knowledge and experience as can be seen in the position and education history of the Board of Directors under the section of Profiles of the Board of Directors Remark: Comply 169 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple Principle 6 recommendation Implementation Improving the Quality of 1. The Board of Directors has The Board of Directors has a Self- Implementing Task and a policy to self-assess the Assessment policy as set out in the section Responsibility of Board of performance of the Board of of Performance Assessment of the Board of Directors Directors Commissioners and the Board of Directors Remark: Comply 2. The self-assessment policy is Results of the Self-Assessment of the Board reported in an Annual Report of Directors are reported in the Company’s Annual Report under the section of Corporate Governance Remark: Comply 3. The Board of Directors has a policy of resignation in the In accordance with our Articles of Association, any member of the Board event of involvement in any of Directors who does not meet any financial crimes requirements to be a member of the Board of Directors as set out in the Articles of Association including any involvement in any financial crimes, the consequence of which is that his/her position will be null and void In the event that the member of the Board of Directors resigns, it will be resolved at a GMS Remark: Comply Principle 7 Improving Corporate Governance 1. To have a Policy to prevent In accordance with Regulation of the Aspect through Stakeholders Insider Trading Human Capital Management Director No.PR 209.05.r.00/PS800/COP-A4000000/2017 on Employees’ Compliance Ethics, the provision to prevent Insider Trading is as set out in Article 7 on Gross Violations, which include Abuse of Authority or Position Remark: Comply 2. To have a Policy of We are always committed to preventing Anticorruption and Antifraud Corruption in our company. This is realized through the existence of integrity pact completed by all employees of Telkom and the existence of a separate website as an integrity portal for all employees of Telkom, called myintegrity.telkom.co.id Remark: Comply Participation 170 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple recommendation Implementation 3. To have a Policy on the We select our vendors and suppliers in Selection and Capacity Building accordance with our internal procurement of Suppliers and Vendors policy managed through the Share Service Operation Procurement Department and implemented by reference to Regulation of the Finance Director No.PR.301.08/r.01/ COP-A00110000/2016 on Procurement Implementation Guidelines Remark: Comply 4. To have a Policy on the We have a policy to fulfill the rights of our Fulfillment of Creditors’ Rights creditors through the Corporate Finance Unit that sets out and manages the rights of our creditors Remark: Comply 5. Memiliki Kebijakan system Pursuant to Decision of the Board of whistleblowing Commissioners No.08/KEP/DK/2016 dated 8 June 2016 on the Provision of Complain Handling Procedures (Whistleblowers) at PT Telkom Indonesia, Tbk and its consolidated Subsidiaries and ratified by Regulation of the Board of Directors No. PD.618.00/r.00/ HK200/COP-C0000000/2016 dated 21 December 2016, Telkom guarantees and ensures the protection of identity of the whistleblowers, whether the employees or third parties filing any complaints or reports of alleged violations Remark: Comply 171 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprinciple recommendation Implementation 6. To have a Policy on the granting In determining the incentives to be earned of long-term incentives to by the Board of Directors, we are guided the Board of Directors and by Regulation of the Minister of SOEs Employees No.Per-04/MBU/2014 on Income Allocation Guidance for Board of Directors, Board of Commissioners and Board of Trustees of State Owned Enterprises, as for the incentives for employees, it is set out in the Collective Labour Agreement Chapter VI on compensations and benefits. In addition, we also provide long-term incentives in the form of Employee Stock Option Plan (ESOP), which was last done in 2013. Remark: Comply Principle 8 Improving the Implementation of 1. To use information technology We are also active in a variety of social media Information Disclosure more widely other than a as a medium of information disclosure and Website as a medium of product promotion. In addition, we also information disclosure use the mailing list system as a medium of information disclosure and communication for investors Remark: Comply 2. The Annual Reports of Public We disclose the most current beneficial Companies disclose the most owners of the Company’s shareholding current beneficial owners of with 5% or more shareholding in our Annual the Company’s shareholding, Report under the section of Composition of at least 5% other than major Shareholding shareholders and Controllers Remark: Comply 172 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSteLKoM aSSeSSMent Corporate GovernanCe on assessment theme, to be followed by presentations in front of judges. 4. The observation phase, when the IICG Jury reviews the The Corporate Governance Perception Index assessment Company and conduct discussions and question and and rankings process consist of four phases with each of answer sessions, as well as confirm the implementation them have a different value: of GCG in the Company to the Board of Directors, 1. The self assessment phase, when the Company complete self assessment questionnaires based on Board of Commissioners and Senior Leader. GCG rating theme. The results of the GCG assessment and grading are 2. The document observation phase, when the Company determined from the self assessment results, completion submit their policies, procedures, and other evidence of documents, papers and observations. From these that reflects GCG implementation in the Company. results, Telkom has once again received the title of “The 3. The paper and presentation assessment phase, when Most Trusted Company”, with a total score of 91.18. The the Company prepare and submit papers describing GCG assessment theme of 2015/2016 is “GCG through the the Company’s activities in implementing GCG based Sustainability Perspective”. teLKoM Corporate GovernanCe StrUCtUre First Unit General Meeting of Shareholders (GMS) DIreCtorS BoarD oF CoMMISSIonerS Corporate Secretary audit Committee Internal auditor risk & Management Unit Supporting Unit nomination & remuneration Committee planning and risk evaluation & Monitoring Committee Telkom’s governance structure is arranged in accordance with the two tier board structure mechanism. With reference to Law No.40/2007 of the Republic of Indonesia regarding Limited Liability Companies, Telkom has already in place a governance structure comprising of the Company’s Main Organ and Supporting Organ. The Company’s Main Organ comprises of the General Meeting of Shareholders (GMS), the Board of Commissioners and the Board of Directors. Meanwhile, the Company’s Supporting Organ comprises of, among others, the Audit Committee, the Nomination and Remuneration Committee, the Planning and Risk Evaluation & Monitoring Committee, the Corporate Secretary, the Internal Auditor and the Risk Management Unit. 173 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSGeneraL MeetInG oF SHareHoLDerS 3. Appropriation of the Company’s net profit within the Financial year. The GMS is the highest governance organ that facilitates 4. The determination of remuneration for the members shareholders in making important decisions for the of the Board of Directors and Board of Commissioners. Company in accordance with the Company’s Articles of 5. The appointment of a Public Accounting Firm to Association and the prevailing laws and regulations. Audit the Company’s Financial Statements, including Audit of Internal Control over Financial Reporting and Telkom routinely holds an annual GMS (AGMS). The Appointment of a Public Accounting Firm to Audit the agenda of the AGMS including: Financial Statements of Partnership and Community 1. Approval of the Company’s Annual Report, including Development Programs. the Board of Commissioners Supervisory Task Report. 6. Amendments to the Articles of Association. 2. Ratification of the Company’s Financial Statement and 7. The Delegation of authority to the Board of the Annual Partnership and Community Development Commissioners for the Use/Transfer of Treasury Stock Program Report, as well as the Exemption of Liabilities resulting from Share Buyback III and IV. of the members of the Board of Directors and Board 8. Changes in the composition of the Company Board. of Commissioners. resolutions of the 2015 GMS The AGMS of the 2014 Financial year was convened on 17 April 2015 with the following agenda and resolutions: agenda aGMS resolution Status of the aGMS resolution To approve the Annual Report of the Company which in principle have been presented in the Effective immediately Meeting by the Board of Directors regarding the condition and operation of the Company for the Financial Year 2014 including the Board of Commissioners’ Supervision Duty Report for the Financial Year 2014. 1. To ratify: Resolution Effective Immediately a. The Company’s Financial Statements (Consolidated) for the Financial Year 2014 which has been audited by the Public Accountant Office Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) according to its report No.RPC 6824/PSS/2015 dated 27 February 2015 stated with opinion “the consolidated financial statements report present fairly, in all material respects in accordance with Indonesian Financial Accounting Standards”; b. Partnership and Community Development Annual Report for the Financial Year 2014 which compiled pursuant to Minister of State Owned Enterprises Regulation that is comprehensive accounting bases besides Indonesian Financial Accounting Principle that generally accepted in Indonesia and have been audited by the Public Accountant Office Purwantono, Suherman & Surja (a member firm of Ernst & Young Global Limited) according to its report RPC-6644/PSS/2015 dated 11 February 2015 stated with opinion “the accompanying financial statements present fairly, in all material respects in accordance with the Non Publicly Accountable Entities Financial Accounting Standards”. 2. Then, by the approval of the Company’s Annual Report and the ratification of Financial Statement for the Financial Year 2014 and Annual Report on Partnership and Community Development Program for the Financial Year 2014, the Meeting hereby grant a full acquittal and discharge (volledig acquit et decharge) to all members of the Board of Directors who serves in the Financial Year 2014 for their management of the Company and all members of Board of Commissioners who serves in the Financial Year 2014 for the supervision of the Company and management and supervision of the Partnership and Community Development Program performed during the Financial Year 2014, as long as the actions are reflected in the Company’s Annual Report, Financial Statements for Financial Year 2014 and Annual Report of Partnership and Community Development for the Financial Year 2013 above and the actions are not contradict with the prevailing laws and regulations. 1 2 174 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution Status of the aGMS resolution 3 1. The appropriation of the Company’s net profit for the Financial Year 2014 in the amount of • Dividend distribution was Rp14,638,101,099,000,- which will be allocated to: conducted on 21 May 2015 a. Cash Dividend amounting to 50% of the net profit or in the amount of • The decision on reserve Rp7,319,009.885,880,- or in the amount Rp74.55 per share based on the number of effective immediately. shares issued (excluding the shares already bought back by the Company) as of the date of the Meeting date which numbers 98,175,853,600 shares; b. Special Dividend amounting to 10% from net profit or in the amount of Rp1,463,801,977,176,- or in the amount Rp14.91 per share based on the number of shares issued (excluding the shares already bought back by the Company) as of the date of the Meeting date which numbers 98,175,853,600 shares; c. Recorded as Retained Earning in the amount of 40% from net profit or amounting to Rp5,855,289,235,944,- which will be used for the development of the Company. 2. The distribution of Cash Dividend and Special Dividend for the Financial Year 2014 will be conducted with the following conditions: a. those who are entitled to receive Cash Dividend and Special Dividend are shareholders whose names are recorded in the Company’s Shareholders on April 29, 2015 up to 16:00 Western Indonesia Standard Time; b. Cash Dividend and Special Dividend shall be paid all at once on May 21, 2015. 3. To the Board of Directors granted the authorization to regulate further the procedure of dividend distribution and to announce the same with due observance of the prevailing laws and regulations in the stock exchange where the Company’s share are listed. 4 5 To grant authority and authorize to the Board of Commissioners, with prior approval from Has been implemented Seri A Dwiwarna shareholder to determine the amount of tantieme which will be given to the members of Board of Director and Board of Commissioners for the Financial Year 2014 and also to determine the amount of the salary/honorarium, allowances, facilities and other incomes for the members of Board of Director and Board of Commissioners for the 2015 year. 1. Reappointment of Public Accounting Firm Purwantono, Suherman & Surja (a member firm The PAF’s approval is effective of Ernst & Young Global Limited) to conduct an integrated audit of the Company for immediately the Financial Year 2015 which include the audit of the Consolidated Financial Statements of the Company, and the audit of the Internal Control over Financial Reporting for the Financial Year 2015 and to audit the Financial Statements of Partnership and Community Development Program for the Financial Year 2015. 2. Reappointment of Public Accounting Firm Purwantono, Suherman & Surja (a member firm Has been implemented of Ernst & Young Global Limited) to audit the appropriation of funds for the Partnership and Community Development Program for the Financial Year 2015. 3. To grant authority to the Boards of Commissioners to determine the appropriate audit fee Has been implemented and other terms and conditions of appointment of the relevant Public Accounting Firm. 4. To grant authority to the Board of Commissioners to appoint an alternate Public Accounting Has been implemented Firm and determine the term and condition of its appointment; in the event the appointed Public Accounting Firm can not perform or continue its duty for any reason including does not achieve conformity for audit fee. 175 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution Status of the aGMS resolution 6 1. To amendment of some provisions of Articles of Associations of the Company to comply Resolution Effective Immediately with Financial Services Authority regulations No.32/POJK.04/2014 regarding the Plan and the Convening of the General Meeting of Shareholders of Public Company, Financial Services Authority regulations No.33/POJK.04/2014 regarding Board of Directors and Board of Commissioners of Issuers and Public Company, regulation of the Minister of State Owned Enterprises No.PER-02/MBU/02/2015 regarding Requirements and Procedures for Appointment and Dismissal of Members of the Board of Commissioners and Supervisory Board of State Owned Enterprises, Regulation of the Minister of State Owned Enterprises No.PER-03/MBU/02/2015 regarding Requirements, Procedures for Appointment and Dismissal of member of the Board of Directors of State Owned Enterprises and the Circular of the Minister for State Owned Enterprises No.3/MBU/2010; and in order to addition the main and supporting business activities of the Company; addition of special rights of Shareholders Series A Dwiwarna, changes provisions concerning the authority of the Board of Directors limitation related the Board of Directors actions that require the approval of the Board of Commissioners in carrying out the management actions of the Company and as well as editorial and systematical revision of the Articles of Association related to the addition of the substance to the above Articles of Association; as such the changes are compiled in the matrix of the amandment Articles of Association that has been distributed to the shareholders of the Company. 2. To grant authority to the Board of Directors of the Company with rights of substitution to Has been implemented restate the resolutions of this Meeting in relation with amendment of the Articles of Association of the Company, including to compile and restate all provision of Articles of Association of the Company in a notarial deed and further submit application approval and/or notify amendment of Articles of Association of the Company to the Minister of Law and Human Rights of the Republic of Indonesia and register it with the Company Registry and to announce in the State Gazzete of the Republic of Indonesia pursuant to the prevailing laws and regulations. 176 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution Status of the aGMS resolution 7 8 To grant authority and authorize to the Board of Commissioners with prior approval from Has been implemented Series A Dwiwarna for use/diversion Company’s Treasury Stock from Share Buy Back III and IV. 1. Honorably dismissal from their offices names as follows: Effective immediately a. Mister JOHNNY SWANDI SJAM as Independent Commissioner; b. Mister IMAM APRIYANTO PUTRO as Commissioner; c. Mister VIRANO G NASUTION as Commissioner; effective as of the close of the Meeting with appreciation for contribution of efforts and thoughts during their term as the member of Board of The Commisioners of the Company. 2. Appoinment the names as follows: a. Mister RINALDI FIRMANSYAH as Independent Commisioner; b. Mistress PAMIYATI PAMELA JOHANNA WALUYO as Independent Commisioner; c. Mister MARGIYONO DARSASUMARJA as Commisioner; with the term of office effective as of the close of the Meeting and will end as of close of the fitfth Annual General Meeting of Shareholders without prejudice the right of General Meeting of Shareholders to dimiss anytime. 3. For the members of Board of the Commisioners who appointed as reffered in number 2 above who still serve in other position that prohibited based on the prevailing regulation to concurrently performed with the position as the member of Board of Commisioner of State Owned Enterprises, then the concerned must resign from their position. y the dismissal and the appointment as stated in number 1 and 2 above, the composition of the member of the Board of Commisioner are becomes as follows: tHe BoarD oF CoMMISSIonerS: Mistress HENDRI SAPARINI as President Commissioner; Mister HADIYANTO as Commissioner; Mister PARIKESIT SUPRAPTO as Independent Commissioner; Mister DOLFIE OTHNIEL FREDRIC PALIT as Commissioner; Mister RINALDI FIRMANSYAH as Independent Commisioner; Mistress PAMIYATI PAMELA JOHANNA WALUYO as Independent Commisioner; Mister MARGIYONO DARSASUMARJA as Commisioner. Note: All of the above AGMS resolutions are in line with the adopted agenda and is reflected in the AGMS invitation. 177 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSresolutions of the 2016 GMS The AGMS of the 2015 Financial Year was conducted on 22 April 2016. The agenda and status of the AGMS of the 2015 Financial year are as follows: agenda aGMS resolution Status of the aGMS resolution 1 2 To approve the Annual Report of the Company which substantially have been presented Effective Immediately in the Meeting by the Board of Directors regarding the condition and operation of the Company for the Financial Year 2015 including the Board of Commissioners’ Supervision Duty Report for the Financial Year 2015. To ratify: Keputusan langsung berlaku a. The Company’s Financial Statements for the Financial Year 2015 which has been audited by the Public Accountant Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) according to its report No.RPC 326/PSS/2016 dated February 26, 2016 stated with opinion “the accompanying consolidated financial statements report present fairly, in all material respects, the consolidated financial position of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk and its subsidiaries ended as of December 31, 2015 and the financial performance in accordance with Indonesian Financial Accounting Standards”; b. Partnership and Community Development Annual Report for the Financial Year 2015 which compiled pursuant to Minister of State Owned Enterprise’s Regulation which is a comprehensive accounting basis in addition to Indonesian Financial Accounting Principle that generally accepted in Indonesia and have been audited by the Public Accountant Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) according to its report No.RPC-103/PSS/2016/DAU dated January 27, 2016 stated with opinion “the accompanying financial statements present fairly, in all material respects, financial position of Center for the Management of Partnership and Community Development Program of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk dated December 31, 2015 and financial performance and cash flow for the year ended on such date in accordance with the Non Publicly Accountable Entities Financial Accounting Standards”. – Then, by the approval of the Company’s Annual Report including Supervisory Task of the Board of Commissioner Report and the ratification of Financial Statement for the Financial Year 2015 and Annual Report on Partnership and Community Development Program for the Financial Year 2015, the Meeting hereby grant a full acquittal and discharge (volledig acquit et de charge) to members of the Board of Directors dan the Board of Commissioners who serves in the Financial Year 2015 consecutively for the managerial and supervisory actions of the Company as long as those actions are not criminal act and those actions are reflected in the Company’s Annual Report, Financial Statements (Consolidated) for Financial Year 2015 and Annual Report of Partnership and Community Development for the Financial Year 2015. 178 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution Status of the aGMS resolution 3 4 To approve the enforcement of Minister of State Owned Enterprise’s Regulation No.PER-09/ • Dividend distribution was MBU/07/2015 dated July 3, 2015 regarding Partnership Program and Community conducted on 21 May 2015 Development Program as of the implementation of such regulation to become guidance for • The decision on reserve effective the Company in conducting the Partnership and Community Development Program, with immediately. due regard to provision in the field of Capital Market. 1. To Approve and determine the appropriation of the Company’s net profit for the Has been followed-up Financial Year 2015 in the amount of Rp15,488,659,107,742,- which will be allocated to: a. Cash Dividend amounting to 50% of the net profit or in the amount of Rp7,744,304,153,942,- in amount Rp78.864 per share based on the number of shares issued (excluding the shares already bought back by the Company) as of the date of the Meeting date which numbers 98,198,216,600 shares; b. Special Dividend amounting to 10% from net profit or in the amount of Rp1,548,880,470,432,- in amount Rp15.773 per share based on the number of shares issued (excluding the shares already bought back by the Company) as of the date of the Meeting date which numbers 98,198,216,600 shares; c. Recorded as Retained Earning in the amount of 40% from net profit or amounting to Rp6,195,474,483,368,- which will be used for the development of the Company. 2. To Approve the distribution of Cash Dividend and Special Dividend for the Financial Year 2015 will be conducted with the following conditions: a. those who are entitled to receive Cash Dividend and Special Dividend are shareholders whose names are recorded in the Company’s Shareholders on May 4, 2016 up to 16:00 Western Indonesia Standard Time; b. Cash Dividend and Special Dividend shall be paid all at once on May 26, 2016. 3. To the Board of Directors granted the authorization to regulate further the procedure of dividend distribution and to announce the same with due observance of the prevailing laws and regulations in the stock exchange where the Company’s share are listed. 4. The amount of fund of Community Development Program of Telkom Group for the Financial Year 2016 of Rp82,000,000,000,- or equivalent with 0.53% of the Net Income for the Financial Year 2015 which source of funds taken from the Company’s burden. 179 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution Status of the aGMS resolution 5 1. To grant authority and authorize to the Board of Commissioners, with prior approval The PAF’s approval is effective from Serie A Dwiwarna shareholder to determine the amount of tantieme which will be immediately given to the members of Board of Director of the Company for the Financial Year 2015 and salary including facility and allowances fo the financial year 2016. 2. To determine the amount of performance tantieme for the Board of Commissioners Has been implemented of the Company for the Financial Year 2015 and honorarium including facility and allowances fo the financial year 2016 in accordance with prevalling laws, then authorize to the Board of Commissioners after consultation with Serie A Dwiwarna shareholder to put in detail this Meeting’s resolution in a Board of Commissioner’s Resolution in the name of General Meeting of Shareholder. 6 1. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member Resolution effective immediately firm of Ernst & Young Global Limited) to conduct an integrated audit of the Company for the Financial Year 2016 which include the audit of the Consolidated Financial Statements of the Company, and the audit of the Internal Control Audit on Financial Reporting for the Financial Year 2016 and to audit the Financial Statements of Partnership and Community Development Program for the Financial Year 2016. 2. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member Has been implemented firm of Ernst & Young Global Limited) to audit the appropriation of funds for the Partnership and Community Development Program for the Financial Year 2016. 3. To grant authority to the Boards of Commissioners to determine the amount of audit fee and other terms and conditions of appointment of the relevant Public Accounting Firm. 4. To grant authority to the Board of Commissioners to appoint an alternate Public Accounting Firm and determine the terms and conditions of its appointment; in the event the appointed Public Accounting Firm can not perform or continue its duty for any reason including the agreement on the amount for audit fee is unattainable. 7 1. To approve granting the authority and authorize to the Board of Commissioners with Has been implemented prior approval from Serie A Dwiwarna shareholder, in the case of the Board of Directors uses/diverts Company’s Treasury Stock from Buy Back Share IV. 2. Utilization/diversion of Company’s Treasury Stock from Buy Back Share IV through the sales either within or outside stock exchange does not require approval from General Meeting of Shareholders in accordance with regulation in the field of Capital Market. 180 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSagenda aGMS resolution 8 1. Honorably dismissal from their offices the following names: a. Mister HERI SUNARYADI as Director; b. Mister PARIKESIT SUPRAPTO as Independent Commissioner; Status of the aGMS resolution Effective immediately effective as of the close of the Meeting with appreciation for contribution of efforts and thoughts during their term as the member of Board of the Commissioners and the Board of Directors of the Company; 2. To assign mister MARGIONO DARSASUMARJA from his office as Commissioner who was appointed under resolution Annual General Meeting of Shareholders year 2015 PT Telkom Indonesia (Persero) Tbk on the April 17, 2015 to become Independent Commissioner by continuing his term of office. 3. To appoint the following names: a. Mister HARRY M ZEN as Director; b. Mister PONTAS TAMBUNAN as Commissioner; with the term of office effective as of the close of the Meeting and will end as of close of the fitfth Annual General Meeting of Shareholders without prejudice the right of General Meeting of Shareholders to dismiss anytime 4. For the members of the Board of the Commissioners and the Board of Directors who are appointed as reffered in number 3 above who still serve in other positions that are prohibited under the prevailing regulation to hold multiple offices with the position as member of the Board of Commissioner and the Board of Directors of State Owned Enterprises, then the concerned must resign from his position. 5. By the dismissal, assignment and appointment as stated in number 1 and 2 above, the composition of the member of the Board of the Company are becomes as follows: a. BOARD OF DIRECTORS: • Mr ALEX J. SINAGA - President Director; • Mr HARRY M. ZEN - Director; • Mr INDRA UTOYO - Director; • Mr MUHAMMAD AWALUDDIN - Director; • Mr HONESTY BASYIR - Director; • Mr HERDY ROSADI HARMAN - Director; • Mr ABDUS SOMAD ARIEF - Director; • Mr DIAN RACHMAWAN - Director b. BOARD OF COMMISSIONERS : • Mrs HENDRI SAPARINI – President Commissioner; • Mr DOLFIE OTHNIEL FREDRIC PALIT - Commissioner; • Mr HADIYANTO - Commissioner; • Mr PONTAS TAMBUNAN – Commissioner; • Mr MARGIYONO DARSASUMARJA – Independent Commissioner; • Mr RINALDI FIRMANSYAH - Independent Commissioner; • Mrs PAMIYATI PAMELA JOHANNA WALUYO - Independent Commissioner; 6. To authorize with the right of substitution to the Board of Directors to state resolution adopted in the Meeting into notarial deed and to appear before Notary or authorized official and to make any adjustments or corrections which are necessary when required by the competent authority for the purposes of implementation of the resolutions of the Meeting. Note: All of the above AGMS resolutions are in line with the adopted agenda and is reflected in the AGMS invitation. 181 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStHe BoarD oF CoMMISSIonerS The Board of Commissioners constitutes the Company’s organ having collective duties and responsibilities in supervising the execution of duties and responsibilities of the Board of Directors as well as to give the advice to the Board of Directors in managing the Company and implementing the Good Corporate Governance (GCG). the Composition of Board of Commissioners In 2016, there was a change of composition of Telkom’s Board of Commissioners. Pursuant to the resolutions of the Annual General Meeting of Shareholders (AGMS) on April 22, 2016, Mr. Parikesit Suprapto was respectfully discharged from his title as the Independent Commissioner and to appoint Mr. Pontas Tambunan as the Commissioner. In addition to it, there was an exchange of title of Mr. Margiyono Darsasumarja from his position as the Commissioner to become the Independent Commissioner by continuing his term of office. table of Composition of the Board of Commissioners of pt telkom per 31 December 2015 no name title appointment Discharge Date Hendri Saparini President Commissioner December 19, 2014 AGMS 2019 1 2 3 4 5 6 7 Dolfie Othniel Fredric Palit Hadiyanto Margiyono Darsasumarja Parikesit Suprapto Rinaldi Firmansyah Commissioner Commissioner Commissioner May 11, 2012 April 17, 2015 Independent Commissioner May 11, 2012 Independent Commissioner April 17, 2015 Pamiyati Pamela Johanna Waluyo Independent Commissioner April 17, 2015 AGMS 2017 AGMS 2020 April 22, 2016 AGMS 2020 AGMS 2020 December 19, 2014 AGMS 2019 table of Composition of the Board of Commissioners of pt telkom per 31 December 2016 no name title appointment Discharge Date 1 2 3 4 5 6 7 Hendri Saparini President Commissioner December 19, 2014 Dolfie Othniel Fredric Palit Hadiyanto Pontas Tambunan Commissioner Commissioner Commissioner December 19, 2014 May 11, 2012 April 22, 2016 Margiyono Darsasumarja Independent Commissioner April 17, 2015 Rinaldi Firmansyah Independent Commissioner April 17, 2015 Pamiyati Pamela Johanna Waluyo Independent Commissioner April 17, 2015 AGMS 2019 AGMS 2019 AGMS 2017 AGMS 2021 AGMS 2020 AGMS 2020 AGMS 2020 182 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Double title of the Board of Commissioners Some members of Telkom’s Board of Commissioners serve double titles, either in Telkom or in Telkom’s subsidiary. Complete information regarding the double title of the Board of Commissioners may be seen in the following table: table of Double title of telkom’s Board of Commissioners no name pt telkom title other title Subsidiary 1 2 3 4 5 6 7 Hendri Saparini President Commissioner None Dolfie Othniel Fredric Palit Commissioner Hadiyanto Commissioner Pontas Tambunan Commissioner Margiyono Darsasumarja Independent Commissioner Rinaldi Firmansyah Independent Commissioner Pamiyati Pamela Johanna Waluyo Independent Commissioner 1. Member of Audit Committee 2. Member of KNR 3. Member of KEMPR 1. Chairman of KEMPR 2. Member of KNR 1. Member of Audit Committee 2. Member of KNR 1. Chairman of KNR 2. Member of Audit Committee 3. Member of KEMPR 1. Chairman of Audit Committee 2. Member of KNR 1. Member of KNR 2. Member of KEMPR None None None None None None None Remarks: KEMPR (Planning and Risk Evaluation and Monitoring Committee), KNR (Nomination and Remuneration Committee) Duties and responsibilities of the Board of Commissioners 1. To conduct the supervision and accountable for the supervision to the management policies, the performance of management in general, either regarding the Company or the Company’s business, 7. To form the Audit Committee and other committee to assist the Board of Commissioners in performing its duties and responsibilities. 8. To evaluate the performance of the committee that assists the performance of its duties and responsibilities at the end of financial year. give advice to the Board of Directors. the authorities of the Board of Commissioners 2. To supervise the policies of Company’s management conducted by the Board of Directors as well as to 1. To give the opinion and inputs to AGMS regarding give advice to the Board of Directors including to the periodic report and other report from the Board give advice regarding the development plan of the of Directors. Company, annual plan and budget of the Company, 2. To supervise the implementation of working plan and the implementation of the provisions in Articles of Association of the Company and resolutions of GMS as well as the provisions of laws and regulations by taking into account the Company’s interest. 3. To organize the annual GMS and other GMS pursuant to its authority as stipulated under the laws and regulations and articles of association. 4. To conduct the duties, authorities and responsibilities budget of the Company (including the investment budget) for the previous financial year as well as to submit the assessment as well as the opinion to AGMS. 3. To monitor the development of Company’s activities and in the event that the Company indicates the degradation symptom, to immediately request the Board of Directors to announce it to the shareholders and to give inputs regarding the improvement steps pursuant to the provisions of laws and regulations, Articles to be taken. of Association of the Company and GMS resolutions. 4. To give opinions and inputs to GMS regarding any 5. To conduct the duties and responsibilities in good other issue deemed important for the management of faith, full responsibility, and prudentially. the Company. 6. To scrutinize and review the Annual Report prepared 5. To propose to GMS, through the Board of Directors, by the Board of Directors as well as to sign the said Annual Report. the appointment of public accountant to conduct the audit towards Company’s Financial Report including the audit for the internal control upon the financial 183 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSreport, pursuant to the prevailing provisions from be in line with Good Corporate Governance practices. the capital market authority whereby the Company’s Charter of Board of Commissioners shall consist of shares are listed and/or registered. the elaboration of duties, authorities, obligations, 6. To give the report regarding the supervision duties responsibilities, division of duties, meeting, provisions that have been conducted in the financial year that has regarding the conflict of interest, share ownership, and just ended to GMS. the relationship between the Board of Commissioners and 7. To conduct other supervisory duties as determined by the Board of Directors and GMS. In performing its duties GMS. responsibilities of the Board of Commissioners and function, besides referring to the Charter of the Board of Commissioners, the Board of Commissioners shall also refer to the Articles of Association as well as Letter of the Joint Decision made by the Board of Commissioners and the Board of Directors. Any member of Board of Commissioners shall be jointly responsible for all Company’s losses caused by the Board of Commissioners’ Meeting the mistake or negligence of the member of Board of Commissioners in performing the duties. Members Based on the Regulation of OJK No.33/POJK.04/2014 of Board of Commissioners shall not be liable for the Article 31, the Board of Commissioners shall be obliged to Company’s loss if they can prove that: conduct the meeting for at least 1 (one) time within 2 (two) 1. Such loss is not caused by their mistake or negligence; months or at any time as deemed necessary. The quorum 2. They have performed in good faith, full responsibility, for all of Board of Commissioners’ meeting shall be the and prudentially for the interest and based on the presence of more than half of total members of Board of purpose and objective of the Company; Commissioners. In addition to it, Board of Commissioners 3. They do not have any conflict of interest either directly shall also be obliged to organize joint meeting with the or indirectly with the management activities causing Board of Directors at least 1 (one) time within 4 (four) the loss; and months and it may also be held at any time as deemed 4. The have taken the action to prevent the occurrence or necessary. Joint meeting by the Board of Directors and continuation of such loss. Board of Commissioners within the Company shall also be The Board Charter of the Board of Commissioners In performing its duties and authorities, Telkom’s Board of Commissioners shall refer to the Board Charter as stipulated under the Decision Letter of the Board of Commissioners No.16/KEP/DK/2013 dated December 17, 2013. The Charter constitutes the reference for the Board of Commissioners in performing their duties so that it will referred to as the Joint Meeting. The mechanism in making the resolutions in the Board of Commissioners’ meeting shall be based on the deliberation to reach a consensus. If a consensus cannot be reached, then the resolution shall be made based on the majority votes from members of Board of Commissioners that are present or represented in the meeting. If the votes are equal, then the resolution shall be made based on the opinion of the Chairman of Meeting. 184 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSIn 2016, the Board of Commissioners has held internal meetings 19 times. The agenda that was discussed and the attendance level of members of Board of Commissioners in the internal meeting can be seen in the following table. table of the agenda and attendance in the Board of Commissioners’ Meetings Board of Commissioners that present HS HD pt N/A DoFp MGD rF pJW pS - v v v v no Date agenda/Discussion of the Meeting 1 Wednesday, 1. Inputs from the Audit Committee for v v January 6, the Organization of Internal Audit Unit 2016 2. Candidate for Members of Audit Committee 3. Strategic Fit Project Flus 4. Others: Visit Schedule of the Board of Commissioners 2 Monday, 1. Proposal for the approval of Strategic v - N/A v v v v v January 18, Fit Project Flus and Project Queen 2016 2. Meeting preparation with the Deputy of Minister of SOE 3 Monday, 1. Key Performance Indicators (KPI) of v v N/A - v v v - February 15, the Board of Directors of 2016 2016 2. The Development of Retirement Insurance 3. Others: Schedule for the Implementation of Sign-Off Closing Integrated Audit for IFASS 4 Tuesday, 1. Proposal for the remuneration of 2016 v - N/A - v - v v March 22, and Tantiem of 2015 (by the Consultant 2016 from Tower Watson) 2. Zorro Project 3. The Development of Telkom Innovation Center 4. Others: a. Preparation for AGMS of 2016 b. Corruption Eradication Commission (KPK) 5 Monday, 1. The selection for the chairman of GMS v - N/A - v v v v April 18, of 2016 2016 2. Meeting preparation for Pre-GMS 3. The submission of Names of Candidates for the Board of Directors of Telkom 4. Agenda 7 of GMS regarding Share Buy Back (SBB) IV 185 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSno Date agenda/Discussion of the Meeting Board of Commissioners that present HS HD pt DoFp MGD rF pJW pS 6 Friday, May 1. The discussion on the Strategic Fit v v v 13, 2016 Project Discovery and Project Inspire 2. The Presentation on Digital Business by the Consultant from Delta Partners 7 Wednesday, 1. The Discussion on the Rolling of CSS v v v May 25 2016 2017-2021 2. Audit Committee Report 3. Others: Proposal on the Remuneration to SOE 8 Thursday, 1. Remuneration of the Secretariat v v - June 23, 2. Budget Allocation for Long Term 2016 Incentive (LTI) 3. Retirement of Mr. Rustanto Hadimartono 4. Anniversary of Telkom 5. Proposal for the Approval of CSS 2017- 2021 and Financing 6. Whistleblower 9 Wednesday, 1. Approval of CSS 2017-2021 and SHL on v v - July 20, 2016 Jurong Data Center 2. Approval for the Tantiem of the Secretary of Board of Commissioners 10 Friday, July Proposal on the change of Commissioners 29, 2016 of PT Telkomsel 11 Thursday, Proposal on the change of Commissioners v v August 4, of PT Telkomsel 2016 12 Thursday, 1. Approval for the grant of Equity v August 25, Injection to Telkom Metra for 2016 Metraplasa (Blanja.com) 2. Report on the Position of Equity Call in - v v - v v - - - - - - - v v v N/A v v v N/A v v v N/A v v v N/A - v v v v v v v v N/A N/A N/A PT TelkomSigma 3. Discussion on the Threshold for Certain Activities by the Board of Directors that require the approval from the Board of Commissioners 4. Others: a. CSS 2017-2021 b. Roadmap of Satellite c. Power of Attorney of the President Commissioner 186 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSno Date agenda/Discussion of the Meeting Board of Commissioners that present HS HD pt DoFp MGD rF pJW pS 13 Wednesday, 1. Approval for Princess Project v v v v v v N/A September 21, 2016 2. Discussion on the Roadmap of Satellite 3. Others: a. The proposal to write-off the Business Receivables b. Proposal for the Remuneration of the Secretary of the Board of Commissioners 14 Wednesday, 1. Discussion on the Term Sheet of NewCo v v v - v v v N/A 5 October 2016 2. Discussion on the Financing of Jurong Data Center 3. Others: a. Retirement Insurance b. Proposal on the Escrow of Long Term Incentive (LTI) for Independent Commissioner 15 Wednesday, 1. The Approval for Strategic Fit and v v - - v v v N/A 12 October 2016 Final Implementation of Metranet as the Holding of CFU Digital 2. The approval for the acquisition of 49% Shares MelOn of SKP by Metranet 16 Thursday, 1. Proposal on the Work Plan and Budget v - v v v v v N/A November 24, 2016 of the Secretariat of the Board of Commissioners 2. The Presentation on the Digitalized Administration for the Secretariat of Board of Commissioners 3. Others: The Determination of Absolute Target of RKAP 2017 from SOE 17 Thursday, 1 1. Approval for the proposal of RKAP 2017 v December 2. Discussion on the Proposal to Release 2016 the Capex phase II 3. Approval for the Strategic Fit Project Shine 18 Tuesday, 1. Discussion on Capex SKKL Sabang-Medan v - - v v December 20, 2016 2. Discussion on the approval for Strategic Fit of Project Shine 3. Others: Cost to make the Digitalized Administration for the Secretariat of the Board of Commissioners 19 Friday, 1. Discussion on the Contract of v v - December 23, 2016 Management of 2017 2. Discussion on the Permit for External Funding of 2017 - - - v v v N/A v v - - v N/A v N/A Total Attendances Total Meetings 19 19 12 19 9 14 3 19 18 19 15 19 19 19 4 5 Attendance Level of the Board of Commissioners 100% 63% 64% 16% 95% 79% 100% 80% Remarks: HS (Hendri Saparini), HD (Hadiyanto), PT (Pontas Tambunan), DOFP (Dolfie Othniel Fredric Palit), MGD (Margiyono Darsasumarja), RF (Rinaldi Firmansyah), PJW (P. Pamela Johanna Waluyo), PS (Perikesit Suprapto). 187 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSIn addition to the above, the Board of Commissioners also conducted the Joint Meeting between the Board of Commissioners and the Board of Directors which was conducted for 13 times in 2016. Below is the agenda which was discussed and the frequency of attendance of the Board of Commissioners in the Joint Meeting. table of agenda and attendance of the Joint Meeting Board of Commissioners who were present HS v HD v pt N/A DoFp MGD no Date agenda/Discussion of the Meeting 1 2 3 Monday, 1. Performance of the Company In December 2015 January 25, 2. Progress of the Integrated Audit for the Financial 2016 Year of 2015 Monday, 1. Sign-Off for the Consolidated Financial Report February 29, (IFAS version) of 2015 2016 2. Performance of the Company in January 2016 Wednesday, 1. Performance of the Company in February 2016 March 23, 2. Preparation of GMS of 2016 2016 4 Wednesday, 1. Performance of the Company in March 2016 April 20, 2016 2. OtherS: a. Final Preparation for GMS of 2016 b. alent Pool Management 5 6 7 8 Wednesday, 1. Performance of the Company In April 2016 May 25, 2016 2. Discussion on the Final Draft CSS 2017-2021 Thursday, 1. Performance of the Company In May 2016 June 23, 2016 2. Discussion on the Anniversary of Telkom Wednesday, Performance of the Company In June July 20, 2016 Monday, 1. Performance of the Company In July 2016 August 22, 2. Proposal of RJPP/CSS 2017-2021 2016 9 Wednesday, 1. Performance of the Company In August 2016 September 21, 2. Others: Final Development of the Revision Plan 2016 of PP No. 52/2000 and No. 53/2000 10 Monday, 1. Performance of the Company In September 2016 October 24, 2. Proposal Submission of RKAP of 2017 2016 11 Tuesday, 1. Performance of the Company In October 2016 November 29, 2. Proposal Submission of RKAP 2017 2016 12 Monday, The Ratification of RKAP 2017 December 5, 2016 13 Tuesday, 1. Performance of the Company In November 2016 December 20, 2. Proposal on the Contract of Management of the 2016 Board of Directors of 2017 v v v v v v v v v v v v - v - v v v v v - - v - rF v v v v v v v v - v - v - pJW pS v - v v v v v v v v v v v v v v v N/A N/A N/A N/A N/A N/A N/A N/A N/A v v v v v v v v v v v v v N/A N/A - N/A V - - - - V - V - v v - v v v v v - v v v 8 9 Jumlah Kehadiran Jumlah Rapat 13 13 8 13 5 13 13 13 10 13 12 13 4 4 Tingkat Kehadiran Dewan Komisaris 100% 62% 89% 38% 100% 77% 92% 100% Remarks: HS (Hendri Saparini), HD (Hadiyanto), PT (Pontas Tambunan), DOFP (Dolfie Othniel Fredric Palit), MGD (Margiyono Darsasumarja), RF (Rinaldi Firmansyah), PJW (Pamela Johanna Waluyo), PS (Perikesit Suprapto). 188 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSthe assessment of Committee under the Board of Commissioners internal and external audits. The Nomination and Remuneration Committee has also In carrying out its duties and responsibilities, the Board been performingits responsibilities properly. Various of Commissioners is assisted by several committees, proposals related to the candidates and remuneration of among others the Audit Committee, the Nomination directors and senior leadershave assisted the Board of and Remuneration Committee, as well as the Planning & Directors in making strategic decisions. Risk Evaluation and Monitoring Committee (PREMC). We see that these Committees have been carrying out their The Planning & Risk Evaluation and Monitoring Committee duties properly. (PREMC) assisted the Board of Commissioners in business planning and risk management. With the existence of this In 2016, the Audit Committee assisted the Board Committee, the Board of Commissioners can provide of Commissioners in overseeing the audit process considerationsto the Board of Directors in relation to conducted by an independent auditor office. In addition, the operations of Telkom in the long term, including the the Audit Committee also properly helped in evaluating decisions on mergers& acquisitions (M&A). and providing recommendations on the results of the Board of Commissioner remuneration policy 1 Knr by the instruction from Board of Commissioners create remuneration draft. the result will be decide in aGMS 3 5 4 aGMS 2 Knr ask Independent party for Suggestion. Independent party give its suggestion to Knr Board of Commissioners remuneration Mechanism and procedure *KNR :Nomination and Remuneration Committee procedure for Determining the remuneration The procedure for determining the remuneration of members Basis for the Determination and Structure of remuneration The structure of the remuneration of the Board of of the Board of Commissioner of Telkom are as follows: Commissioners is governed by the provisions of the 1. The Board of Commissioners requests the NRC Regulation of the State Minister for State Owned to draft a remuneration proposal for the Board of Enterprises No.Per-04/MBU/2014 on Guidelines for Commissioner. the Determination of Income for Directors, Board of 2. The Nomination and Remuneration Committee Commissioner and Board of Trustees of SOEs. Based on requests an independent party to draw up a framework the said regulation, the income component for members on the remuneration of the Board of Commissioner. of the Board of Commissioners consists of: 3. The Nomination and Remuneration Committee 1. Salaries; proposes the remuneration to the Board of 2. Allowances; Commissioners. 3. Facilities; 4. The Board of Commissioner proposes remuneration 4. Bonus/Incentive. for the Board of Commissioner the AGM. 5. The AGM delegates authority and power to the Board of Commissioners with the prior approval of Series A Shareholders to determine the remuneration for the Board of Commissioner and Board of Directors. 189 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSamount of remuneration for the Board of Commissioners In 2016, the remuneration paid to the Company’s Board of Commissioners amounted to Rp50.1 billion. Taxes on the remuneration paid by the Company amounted to Rp 3.5 billion. Recapitulation of the remuneration of the Telkom’s Board of Commissioners in 2016 is reflected in the following table. table on the recapitulation of remuneration for telkom’s Board of Commissioners Board of Commissioners Salary & and other Wages Bonuses total value (rp million) Hendri Saparini Hadiyanto Pontas Tambunan* Dolfie Othniel Fredric Palit Rinaldi Firmansyah Pamiyati Pamela Johanna Waluyo Margiono Darsasumarja Parikesit Suprapto** Imam Apriyanto Putro*** Johny Swandi Sjam*** Virano Gazi Nasution*** Note *) As of the GMS of April 22, 2016 **) Until GMS of April 22, 2016 ***) Until GMS of April 17, 2015 1,244 1,120 1,120 774 1,120 1,120 1,120 346 - - - 5,040 7,889 7,100 7,100 71 5,040 5,040 7,889 1,904 1,904 1,904 9,133 8,220 8,220 845 6,160 6,160 6,160 8,235 1,904 1,904 1,904 assesment on the Board of Commissioners performance Procedures for implementing the performance assesment of the Board of Commissioners is conducted in the Annual GMS mechanism, where the Shareholders assesses the performance of the Company’s Board of Commissioners based on the task implementation report submitted to the Shareholders. The criteria used in the assessment is based on the task implementation report of the Board of Commissioners which submitted in the Annual GMS of the Company. Based on the report, the Shareholders performance during the current financial year is assessed by the Shareholders. The Company’s Board of Commissioners is assessed by the Shareholders through the Annual GMS of the Company. assesment on the Board of Directors performance The criteria used in the assessment on the performance of the Board of Directors members is based on a balanced scorecard that measures 4 (four) main aspects, namely, financial, customer, internal business process as well as learning and growth process. It is also containing 3 (three) elements of Key Peformance Indicator (“KPI”), namely, shared KPI, common KPI and specific KPI. 190 Shared KPI is a KPI with the meaning, target, realization and achievement for the entire Board of Directors. Common KPI is a KPI with the same meaning and target, yet it has different realization and achievement from each member of the Board of Directors. Specific KPI is a KPI that is different for each member of the Board of Directors and a specific program that becomes a part of the main task and priority of each Director and the Directorate that he or she leads. The assessment of the performance of the Board of of Directors is conducted both by the Board of Commissioners and the GMS, by referring to the achievement of KPI of the Board of Directors in its tasks and duties implementation as in accordance with the Company’s Articles of Association and its achievement on the realization of RKAP. The KPI achivement of the Board of Directors, which will be a reference assessment for the Board of Commissioners, is obtained after a process of internal determination. Assessment on the performance of the Board of Directors is started by filling out the Management Contract (“MC”) online and it is then followed by a face-to-face meeting as part of the clarification process and aimed to determine final results of performance, which will be submitted to the Performance Committtee and the President Director to be finalized and submitted to the Board Commissioners. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSOne of the measure to see Board of Directors performance is through excellence performance assessment criteria (KPKU). In 2016, the performance of the Board of Directors is re-assessed by a Team appointed by the State Ministry of the State-Owned Enterprises to assess the company;s performance with reference to the Superior Performance Assessment Criteria of State-Owned Enterprises. The Superior Performance Assessment Criteria is none other than the superior performance assessment criteria based on the Malcom Baldrige Criteria for Performance Excellence (MBCFPE). table of the 2014-2016 performance assessment of KpKU tahun 2014 2015 2016 nilai 667 722.25 730.5 aUDIt CoMMIttee Audit Committee was formed by referring to the Regulation of the Financial Services Authority (OJK) No.55/ POJK.04/2015 dated December 23, 2015 and regulation of US SEC Exchange Act 10A-3 as well as other regulations. The formation of Audit Committee was intended to assist the Board of Commissioners in performing the supervision function as stated in the Audit Committee Charter which has been adjusted few times and lastly amended in 2013 through the decision of the Board of Commissioners No.07/KEP/DK/2013 dated July 22, 2013. By the issuance of the copy regulation of OJK No.55/ POJK.04/2015 dated December 23, 2015 regarding the Formation and the Guideline for the Work Performance of the Audit Committee, the Audit Committee has conducted the review of which result stipulates that during 2016 there has not been an adjustment since there is no significant amendment of the regulation to re- determine the guideline for the work performance of the Audit Committee. Composition of the audit Committee In reference to the Regulation of OJK and regulation of US SEC, the Audit Committee must at least consist of three members and of them is the Independent Commissioner that acts as the chairman and the other two members must be independent parties. Pursuant to the resolution of the Annual GMS of 2016 dated April 22, 2016 that determined the change of composition of the Board of Commissioners, the adjustment to the composition of members of Audit Committee was made and lastly made through a decision of the Board of Commissioners No.09/KEP/DK/2016 dated July 27, 2016 regarding the Composition of Membership of Audit Committee of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk as follows: table of the Composition of audit Committee per 31 December 2016 title Chairman name Basis of appointment term of Service Rinaldi Firmansyah* Decision of the Board of Commissioners No.06/KEP/ 2015 - present (Independent Commissioner) DK/2015 dated 7 May 2015 Secretary Tjatur Purwadi (Non-affiliated Decision of the Board of Commissioners No.05/KEP/ 2014 - present external member) DK/2014 dated March 25, 2014 and lastly stipulated under the decision of the Board of Commissioners No.09/KEP/ DK/2016 dated 27 July 2016. Margiyono Darsasumarja* Decision of the Board of Commissioners No.07/KEP/ 2016 – present (Independent Commissioner) DK/2016 dated 29 April 2016 Dolfie Othniel Fredric Palit* (Commissioner/Non-Voting Member) Pontas Tambunan* (Commissioner/Non-Voting Member) Sarimin Mietra Sardi (Independent Member) Decision of the Board of Commissioners No.02/KEP/ 2015 – present DK/2016 dated February 2, 2015 Decision of the Board of Commissioners No.09/KEP/ 2016 – present DK/2016 dated July 27, 2016 regarding the composition of Membership of Audit Committee of the Company (Persero) PT Telekomunikasi Indonesia Tbk Decision of the Board of Commissioners No.04/KEP/ 2016 – present DK/2016 dated March 31, 2016 Member Remarks: *Profile of members of Audit Committee can be seen on the profile of the Board of Commissioners 191 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStable of the Composition of the previous audit Committee title Chairman Secretary Member name Rinaldi Firmansyah (Independent Commissioner) Tjatur Purwadi (Non-affiliated external member) Parikesit Suprapto (Independent Commissioner) Dolfie Othniel Fredric Palit (Commissioner) profile of Members of audit Committee that is not in Double title as the Board of Commissioners Sarimin Mietra Sardi – Independent Member of the audit Committee Date of Birth : Ujungpandang, September 17, 1958 tjatur purwadi – Secretary/Member of audit Committee Date of Birth : Surabaya, January 28, 1956. Age : 60 years Citizenship and Domicile Indonesian citizen, domiciled in Indonesia. title and Basis of the appointment Secretary of the Committee pursuant to Decision of the Board of Commissioners Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk No.05/KEP/DK/2014 dated March 25, 2014 and lastly appointed through the Decision of the Board of Commissioners No.09/KEP/ DK/2016 dated July 27, 2016. term of Service 2014 up to present. education S1 in Accounting from Gadjah Mada University and Magister Manajemen in the Finance Sector from Padjajaran University. Career experience Prior to becoming the Secretary/Member of Audit Committee of Telkom, Tjatur Purwadi has worked in PT Telkom Indonesia, Tbk since 1979 to 2012. During his term Age : 58 years. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia title and Basis of the appointment Member of Audit Committee pursuant to Decision of the Board of Commissioners Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk No.04/KEP/DK/2016 dated March 31, 2016 and lastly appointed through the Decision of the Board of Commissioners No.09/KEP/ DK/2016 dated July 27, 2016. term of Service 2016 up to present. education D4 in Accounting at State Higher Education in Accounting (STAN) and Magister Manajemen from Indonesian Education University. Career experience Prior to becoming the member of Audit Committee of Telkom, Sarimin Mietra Sardi has worked in PT Telkom Indonesia (Persero) Tbk, since 1982 until 2014. During his term of service in PT Telkom Indonesia (Persero) Tbk, Sarimin Mietra Sardi has been in some strategic positions which among others were the Deputy of SGM Finance Operation and Director of Finance & SDM in the Pension of service in PT Telkom Indonesia (Persero) Tbk, Tjatur Fund of Telkom. Sarimin Mietra Sardi became the member of Audit Committee since March 31, 2016 and has his duties to supervise and monitor the process of integrated audit, the process of consolidation of financial report, effectiveness of internal control upon the financial reporting. Pursuant to the decision of the Board of Commissioners No.09/KEP/DK/2016, he was appointed as the member of Audit Committee. Purwadi has been in some strategic positions which among others were the Vice President (VP) - Financial & Logistic Policy and Head of Internal Audit. After retiring from PT Telkom Indonesia (Persero) Tbk he has the position as the Director - Assurance Team of KAP Tanudiredja, Wibisana & Rekan/PwC. Tjatur Purwadi became the member of Audit Committee since 1 March 2014 and has his duties to facilitate the performance of duties of members of Audit Committee, to maintain correspondences, prepare documentation, make report on the amendment of Audit Committee Charter, as well as to coordinate the selection process of the independent auditor. Pursuant to the decision of the Board of Commissioners No.09/KEP/DK/2016, he was appointed as the Secretary and also as the financial expert in the Audit Committee. In addition to being the secretary of the audit committee, currently there is no other position held by Tjatur Purwadi inside and out side the Company. 192 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Duties and responsibilities of audit Committee In performing its function, the Audit Committee has the duties and responsibilities consisting: (i) to supervise the effectiveness of the implementation of internal control in the preparation of financial report (Internal Control Over Financial reporting/ICOFR); (ii) to conduct the review on the financial information to be released to Public and/or capital market authority as well as the compliance to the laws and regulations related to the company’s activities; (iii) to give the recommendation to appoint an external auditor based on the principle of independence, scope of assignment and compensation; (iv) to conduct the review on the examination conducted by the Internal Auditor and to supervise the follow up by the Board of Directors on the findings from Internal Auditor; (v) to review on complaints related to the accounting process and financial reporting; (vi) to review and give advice to the Board of Commissioners on the possibility of conflict of interest within the company; and (vii) the implementation of Good Corporate Governance. Independence of audit Committee The Audit Committee has made the statement of integrity and independence as stated in a statement letter signed by all members of the Audit Committee. Such statement gives the guarantee that any decision taken by this committee constitutes the decision that is free from other influence. audit Committee’s Meeting Pursuant to the Regulation of the Financial Service Authority No.55/POJK.04/2015 dated December 23, 2016 regarding the Formation and the Guideline for the Work Implementation of the Audit Committee, Article 13 stipulates that the Audit Committee shall conduct a periodic meeting at least 1 (once) in 3 Months. However, in the Company’s Audit Committee Charter it is stipulated that Audit Committee shall conduct a meeting 1 (once) in 1 (one) month In 2016, the Audit Committee has conducted the meeting for 32 times. Those meetings were held pursuant to the requirements under the Audit Committee Charter and has the objective to facilitate the implementation of duties and responsibilities of each member of Audit Committee. Total meetings and attendance level of member of Audit Committee is as follows. table of the attendance of audit Committee’s Meetings total Meetings total attendance percentage of attendance (%) 32 32 23 32 18 25 30 32 18 18 13 24 94 100 78 57 72 94 name Rinaldi Firmansyah Tjatur Purwadi Margiyono Darsasumardja 1) Dolfie Othniel Fredric Palit Pontas Tambunan 2) Sarimin Mietra Sardi 3) 1) Started in April 2016 2) Started in July 2016 3) Started March 2016 education and training In the financial year of 2016, there have been some educations and trainings to improve the competence of members of Audit Committee of Telkom. Various programs of training, workshop, conference and seminar were conducted by the Company and/or credible external party. Below is the list of education and training participated by members of Audit Committee in 2016. 193 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStable of education and training of audit Committee name training program Date Rinaldi Firmansyah • The Leading Risk Management Conferences, by: Risk Chicago, September 20 – 23, 2016 Minds Americas • Panel Discussion: The Role of Independent Jakarta, November 9, 2016 Commissioner in pushing the effectiveness of the oversight function of the Audit Committee from Regulator’s perspective, by: Association of the Indonesian Audit Committees (IKAI) Margiyono Darsasumardja • Training: Practical Risk Appetite & Tolerances, by the London, October 11 – 12, 2016 Institute of Risk (IRM) • Panel Discussion: The Role of Independent Jakarta, November 9, 2016 Commissioner in pushing the effectiveness of the oversight function of the Audit Committee from Regulator’s perspective, by: Association of the Indonesian Audit Committees (IKAI) • Certified in Audit Committee Practice, by: Association Jakarta, December 6, 2016 of the Indonesian Audit Committees (IKAI) Dolfie Othniel Fredic Palit • Training: Practical Risk Appetite & Tolerances, by the London, October 11 – 12, 2016 Institute of Risk (IRM) Tjatur Purwadi • The current PSAK based on the Convergence program Bali, May 17 – 20, 2016 of IFRS, by: The Indonesian Accounting Association (IAI) • ECIIA Conference on Governance, Risk and Control, by Stockholm, October 6 – 7, 2016 : European Confederation of Institutes of Internal Audit • Panel Discussion: The Role of Independent Jakarta, November 9, 2016 Commissioner in pushing the effectiveness of the oversight function of the Audit Committee from Regulator’s perspective, by: Association of the Indonesian Audit Committees (IKAI) Sarimin Mitra Sardi • he current PSAK based on the Convergence program of Bali, May 17 – 20, 2016 IFRS, by: The Indonesian Accounting Association (IAI) • ECIIA Conference on Governance, Risk and Control, Stockholm, October 6 – 7, 2016 by : European Confederation of Institutes of Internal Audit • Certified in Audit Committee Practice, by: Association Jakarta, November 9, 2016 of the Indonesian Audit Committees (IKAI) the Implementation of audit Committee’s activities During 2016, the Audit Committee has implemented its functions, among others, as follows: 1. To conduct the supervision of the Integrated Audit process for the financial year of 2016. The Audit Committee has conducted the discussion with the Internal Auditor and independent auditor Ernst & Young (EY) in relation to the quality and acceptability of financial accounting standard implemented by the Company, the properness of significant accounting estimate and judgement and the adequacy of disclosure in the consolidated financial report as well as the internal control conducted by the Management, so that the quantity and the quality of financial report that has been released by the Management can be presented properly and there is no mistake on the material presentation. The Audit Committee has also reviewed and discussed the audited consolidated financial report and the notes upon the consolidated financial report in the Annual Report (Form 20F) with Company’s management. With regard to the company’s risk management, the Audit Committee also supervised and monitored the frauds and risks on the financial reporting that may materially affect the financial report. 2. To conduct the supervision and review to the plan and implementation of the work program of Internal Auditor Unit for the financial year of 2016. The Audit Committee has conducted the review and discussion regarding the proposal of work program of Internal Audit Unit for 2016 in relation to the risks that may occur in 2016 before such work program is determined by the Management. 194 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSThe Audit Committee conducted a quarterly discussion on the findings and recommendation of the result of audit process and internal consultation from Internal Auditor Unit, including the monitoring of the follow ups completed by the Management. 3. To conduct the supervision upon the audit process of Partnership and Community Development (PKBL) program conducted by Community Development Center (CDC) Unit for the financial year of 2016. The Audit Committee has conducted the discussion with the Management of CDC and independent auditor Ernst & Young (EY) in relation to the implementation of Partnership and Community Development program in 2016, the audit process for the financial report in the financial year of 2016 as well as the agreed upon procedure/AUP. 4. To conduct the review of the information on the incoming complaints through the Whistleblower (WBS) program for the financial year of 2016. In relation to the issuance of Regulation of the Financial Service Authority (OJK) No.55/POJK.04/2015 dated December 23, 2015, the Audit Committee has conducted perfection on the policy regarding the Procedure to Handle the Service for Complaint (Whistleblower) through the decision letter of the Board of Commissioners No.08/KEP/DK/2016 dated June 8, 2016. As the follow up for the perfection of policy on the said procedure to handle the Whistleblower and to give the opportunity and comfort to all parties in submitting the complaint either by the employees of Telkom Group or outside the Telkom Group (third party), the Audit Committee cooperated with IS Center Unit which has perfected the Whistleblower application system so that it may be easily accessed from anywhere through the internet access and the operation has been launched since October 1, 2016. CoMMIttee For noMInatIon anD reMUneratIon Committee for Nomination and Remuneration constitutes the committee formed to assist the Board of Commissioners to supervise the determination of qualification and the process of nomination as well as remuneration of the Board of Commissioners, the Board of Directors and the Executives. This committee has an important role in the implementation of GCG principles, especially to ensure the selection process and the making of remuneration policies according to the professional consideration without any pressure from other parties. Composition of the Committee for nomination and remuneration Pursuant to the provisions in the regulation of OJK No.34/POJK.04/2015 regarding the Committee for Nomination and Remuneration, Member of Committee for Nomination and Remuneration shall consist at least 3 persons and one of them is the Independent Commissioner who also serves as the chairman of the Committee for Nomination and Remuneration. Pursuant to such OJK Regulation, the Board of Commissioners issued the decision of the Board of Commissioners No.06/KEP/DK/2016 dated April 25, 2016 regarding the Composition of Membership of the Committee for Nomination and Remuneration Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk which stipulates that the Member of Committee for Nomination and Remuneration is as follows. table of the Composition of the Committee for nomination and remuneration title Member’s name Duties of each member Chairman/ Member Margiyono Darsasumarja/Independent To be responsible to give the directions Commissioner and coordination of the implementation of Secretary Member Committee’s duty. Ario Guntoro/Secretary of the Board of To be responsible to give and manage the Commissioners administration and documentation of the Committee Pontas Tambunan*/Commissioner To be responsible to coordinate the inputs coming Hadiyanto */Commissioner from the parties that has relationship with the Dolfie Othniel Fredric Palit*/Commissioner controlling shareholders in relation to the issue of Rinaldi Firmansyah*/Independent Commissioner nomination and remuneration. Remarks: *profile of member of KNR can be seen on the profile of the Board of Commissioners Pamiyati Pamela Johanna Waluyo*/Independent Commissioner 195 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSprofile of Member of Knr who has no double title as the Board of Commissioners to serving as the Secretary, from 2004 to 2013 he worked as the Secretary of the Committee for the Planning and Risk Evaluation and Monitoring (KEMPR) of PT Telkom Indonesia ario Guntoro Secretary of Knr : Prabumulih, 27 January 1970 Date of Birth Age : 47 years. Citizenship and Domicile Indonesian Citizen, domicile in Indonesia title and Basis of appointment Decision of the Board of Commissioners No.15/KEP/ DK/2013 dated December 16, 2013 term of Service Until presently education Strata-1 (S1), Sarjana Ekonomi (SE). Career experience Career Experience Ario Guntoro is a professional with a broad experience in the sector of finance, investment and banking. After making experience in the sector of national private banking since 1994 to 1999 as the Corporate Officer to the Brand Manager, Ario Guntoro worked for the National Banking Recovery Body Nasional (“BPPN”) since 1999 to 2004, with the last position as Assistant Vice President of HIPA Division, in 2004 he worked as the special advisor in PT PPA (Persero). Prior 196 (Persero) Tbk. Duties and responsibilities of Knr Duties and responsibilities of the Committee for the Nomination and Remuneration are as follows: 1. To prepare the policy, criteria and selection needed for the strategic titles within the Company namely the one title below the Director and Executive (member of the Board of Directors and member of the Board of Commissioners) consolidated subsidiaries that refer to the principles of good corporate governance. 2. To assist the Board of Commissioners together with or through the consultation with the Board of Directors to select the candidate for strategic titles within the Company (member of the Board of Directors and member of the Board of Commissioners) consolidated subsidiaries. 3. To give recommendations to the Board of Commissioners to be conveyed to the holder of series A Dwiwarna shares regarding: a. The composition of title of member of the Board of Directors. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS b. The succession planning of members of the Board of Remuneration shall be conducted regularly at least 1 Directors. (one) time within 4 (four) months. In 2016, the Committee c. Assessment based on the parameter that has for Nomination and Remuneration has held 23 meetings, been prepared as the evaluation material for the including 12 times of circular meeting. development of capability of members of the Board of Directors. Guideline/Charter of Knr (Charter Knr) name total Meetings total attendance Committee for Nomination and Remuneration has working guidelines in place namely the Regulation of OJK No.34/ POJK.04/2015 regarding the Committee for Nomination and Remuneration of Issuer of Public Company and Charter Margiyono Darsasumarja Ario Guntoro Hendri Saparini Hadiyanto of the Committee for Nomination and Remuneration Pontas Tambunan which was stipulated through the decision of the Board Dolfie Othniel Fredric Palit of Commissioners No.06/KEP/DK/2016 dated April 25, 2016 regarding the Composition of Membership of the Committee for Nomination and Remuneration Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk. Rinaldi Firmansyah Pamela Johanna Waluyo 23 23 23 23 15 23 23 23 22 23 23 20 12 13 21 23 percentage of attendance (%) 96% 100% 100% 87% 80% 57% 91% 100% Independence of the Committee for nomination and remuneration The Committee for Nomination and Remuneration, pursuant to the Regulation of OJK, shall at least consist of 3 persons chaired by the Independent Commissioner, meanwhile, two other members may come from the member of the Board of Commissioners, company’s external party, or the management below the Board of Directors. In addition to it, there are requirements for members of Committee for Nomination and Remuneration that come from the Company’s external parties. Such requirements are: 1. They are not affiliated to the Company, members of the Board of Commissioners, or Major Shareholders of the Company; 2. They have the experience in relation to the Nomination and/or Remuneration; and 3. They do not have double titles as a member of other Committee in the Company education and training of Knr In the financial year of 2016 the Committee for Nomination and Remuneration has not conducted any education and training to its member to improve the competence and capability of the members of Committee, this is because of all processes of remuneration proposals are conducted by the professional independent consultant. the Implementation of Knr’s activities The Committee for Nomination and Remuneration in the financial year of 2016 has conducted activities to assist the implementation of duties of the Board of Commissioners in the Nomination and Remuneration sector. In the financial year of 2016 the Committee for Nomination and Remuneration has conducted the duties by producing the decisions of Committee for Nomination and Remuneration which among others are: Any member of Committee for Nomination and no Letter/Decision Remuneration must comply with the independence 1. principle in performing their duties. Therefore, member of Committee for Nomination and Remuneration has made a statement on the integrity and independence as stated in a statement letter signed by all members of the Committee for Nomination and Remuneration. Meeting of the Committee for nomination and remuneration Pursuant to the Regulation of the Financial Service Authority No.34/POJK.04/2014 regarding the Committee for Nomination and Remuneration it is stated that the Meeting of the Committee for Nomination and 2. 3. Letter of the Board of Commissioners No.120/SRT/DK/2016/RHS regarding the Determination of Salary/Honorarium, Allowance and Facility for 2016 as well as Tantiem for the Performance in Financial Year of 2015 Letter of the Board of Commissioners No.136/SRT/DK/2016/RHS regarding the Proposal to Change the Member of the Board of Commissioners of PT Telkomsel Decision of the Board of Commissioners No.11/KEP/DK/2016/RHS regarding the Grant of Business Trip Allowance for the Secretary of the Board of Commissioners, Member of Committee Who is not the Member of the Board of Commissioners as well as Staff of the Secretariat of the Board of Commissioners Date June 29, 2016 August 11 2016 November 9, 2016 197 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCoMMIttee For tHe pLannInG evaLUatIon anD anD rISK MonItorInG profile of Member of KeMpr outside the Member of the Board of Commissioners Committee for the Planning and Risk Evaluation and Monitoring constitutes a committee formed by the Board Sri Hartati rahayu Date of Birth : Majalengka, December 21, 1971 of Commissioners with the purpose to assist the duties of Age : 45 years old the Board of Commissioners in the sector of risk planning, management and evaluation. Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Composition of KeMpr Membership composition of the Committee for the Planning and Risk Evaluation and Monitoring (KEMPR) was determined pursuant to the Decision of the Board of Commissioners No.12/KEP/DK/2016 dated November 29, 2016 regarding the Membership Composition of the Committee for the Planning and Risk Evaluation and Monitoring of Telkom. Below is the names and term of service of the membership of Committee for the Planning and Risk Evaluation and Monitoring. table of Composition of Committee for the planning and risk evaluation and Monitoring title name Chairman of KEMPR Hadiyanto*/ Commissioner term of Service Starting from February 2, 2015 Duties of each Member To give the direction, to coordinate and monitor the implementation of duties of all Members of Committee. Member of KEMPR Dolfie Othniel Fredric Palit*/ Commissioner Starting from May 12, 2015 Member of KEMPR Margiyono Darsasumarja*/ Commissioner Starting from May 12, 2015 Member of KEMPR Pamiyati Pamela Johanna Waluyo*/ Independent Commissioner Member of KEMPR Sri Hartati Rahayu Starting from May 12, 2015 Starting from March 31, 2016 conduct RJPP/CSS, the To and supervision towards monitoring implementation the RKAP of and the enterprise risk management as well as implementation of the initiative for the non- organic growth. review, To give the evaluation and report in the sector of legal, compliance as well as risk control to support the implementation of duties of supervision of the Board of Commissioners towards the management of Company conducted by the Board of Directors. the Remarks: * profile of the Members of KEMPR can be seen on the profile of the Board of Commissioners. 198 title and Basis of appointment Independen Member based on Decision of the Board of Commissioners No.12/KEP/DK/2016 dated December 16, 2013 term of Service Until presently education S1 of Law in Padjajaran University (1995), Postgraduate degree in Banking Law, Law of Finance and Investments in Emerging Economies, Legal Aspects of International Finance and Trade Law (LL.M Banking & Finance Law) in London School of Economics and Political Science (LSE), London, United Kingdom (1999). Career experience Sri Hartati Rahayu started her professional career in 1995. In the last five years, Sri Hartati Rahayu performed a series of duties/career especially in the finance and banking sector, among others as the Member of independent Audit Committee and Risk Monitoring Committee of PT Bank DBS Indonesia (July 2010 – July 2011), Head of Legal and Corporate Secretary of PT Bank Barclays Indonesia (November 2008 – June 2009), Vice President of Global Consumer Group Legal Counsel of CitiGroup Indonesia – Citibank N.A. (October 2002 – March 2005). Duties and responsibilities of KeMpr Duties and responsibilities of KeMpr Committee for the Planning and Risk Evaluation and Monitoring has the following duties and responsibilities. 1. To conduct a comprehensive evaluation upon the proposal of the Company’s Long Term Plan (“RJPP”) or CSS and Company’s Budget Activity Plan as submitted by the Board of Directors; 2. To conduct the evaluation towards the implementation of RJPP and RKAP to be in line with the target of RJPP and RKAP as have been ratified by the Board of Commissioners; and 3. To conduct the monitoring towards the implementation of enterprise risk management within the Company. Guideline/Charter of KeMpr KeMpr) (Charter KEMPR was formed by the Board of Commissioners to assist the duties of the Board of Commissioners pursuant PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS to the scope of duties as stipulated under charter KEMPR. Charter KEMPR is stated in the Decision of the Board of Commissioners No.04/KEP/DK/2011 dated March 24, 2011 regarding the Guideline for the Work Implementation (Charter) of the Committee for the Planning and Risk Evaluation and Monitoring of the Company (Persero) PT Telekomunikasi Indonesia, Tbk such decision stipulates among others the formation and appointment of members; KeMpr’s Meeting In 2016, KEMPR conducted 10 Committee meetings attended by the members who are members of the Board of Commissioners and non-members of the Board of Commissioners, with the following detail of attendance: membership structure and requirements; duties, obligations and authorities; scope of the work implementation; meeting, name reporting, term of service and funding. Independence of KeMpr KEMPR Committee constitutes the Committee that is not mandatorily formed by the company according to the Hadiyanto Dolfie Othniel F.P* Margiyono D.S Pamiyati Pamela J.W Sri Hartati Rahayu** regulation. However, this does not mean that KEMPR is Rustanto Hadimartono*** not independent in performing its duties. Any Member of Remarks : total attendance percentage of attendance (%) 9 0 10 10 8 2 90% 0% 100% 100% 100% 100% KEMPR must comply with the independence principle in performing the duties. This has been stipulated under the charter KEMPR Chapter 4 point 4.b. *Was not able to attend the meeting due to the same schedule with the state duty **Started as of 31 March 2016 ***Terminated as of 31 March 2016 education and training of KeMpr In the financial year of 2016 education and training have been given to the Members of KEMPR in order to improve the competence of the Member of KEMPR. Education and training that have been conducted by KEMPR for the financial year of 2016 are among others: no Date name of training organizer 1. 28-29 March 2016 2. 11-12 October 2016 ERM in the Digital Age Conference Pacific Conference remarks - Practical Risk Appetite and Risk Tolerance Conference Institute of Risk Management Also as the education/training from Audit Committee 3. 4. 9-11 November 2016 Payment Disruptors Terappinn Training 7 December 2016 Risk Governance Master Class Training & Certification Enterprise Risk Management Academy 5. 8-9 December 20162016 Bali ERM 2016 International Conference Enterprise Risk Management Academy - - - 199 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSImplementation of KeMpr’s activities Pursuant to charter KEMPR, the Decision of the Board 2. Company’s Work and Budget plan as well as Capital expenditure a. Monitoring focus of RKAP and Capital Expenditure of Commissioners No.02/KEP/DK/2013 dated March 27, of 2016 2013 regarding Certain Action of the Board of Directors In the implementation of RKAP 2016, the focus that Must First Obtain a Written Approval from the Board of monitoring of KEMPR is among others to of Commissioners, as well as Decision of the Board of penetrate the broadband business, the monitoring Commissioners No.09/KEP/DK/2015 dated August 31, of realization of capital expenditure, as well as the 2016 regarding Standard Operating Procedures (SOP) management of subsidiaries. In Relation to the Process of Approval from the Board of Commissioners, the scope of works of KEMPR shall The penetration of broadband business conducted consist of: 1. Company’s Long term plan (“rJpp”) a. Evaluation of RJPP 2016 -2020 In RJPP 2016-2020, the Company’s transformation to the customer facing unit (CFU)-based organization is supported by the consolidation of which functional unit (FU) became the critical point in the monitoring of KEMPR. The change of Company’s business management was conducted as the effort to consolidate Company’s resources spread in Telkom unconsolidated and the subsidiaries as well as other affiliated company. Such consolidation is the key for the improvement of Company’s value. On the other hand, the consolidation is expected to synergize the Company and other SOE and or other domestic relevant industry actors. b. Preparation of RJPP 2017-2021 The change of telecommunication industry map which is very influenced by the growth of digital business has pushed the Company to sharpen the business direction in the future. In addition to it, Company’s business direction’s sharpening is also to response the demand to obtain and/or create a new source of growth of the Company, the change of regulation in telecommunication sector, competition within the industry. According to KEMPR, the business direction’s sharpening in the next five years needs to consider the Company’s external and internal risk. 200 by Telkom unconsolidated or its subsidiaries constitutes one of the backbones of Company’s growth in the future. The company has the portfolio of fixed broadband and mobile broadband which can be synergized to fulfill the need of people for the seamless and high quality service. KEMPR notes the necessity to improve the network quality, preciseness and speed of customer’s complaint, as well as the determination of competitive price. On the side of capital expenditure, the monitoring for the absorption of capital expenditure does not only refer to the value of budget that has been realized, but also to support the Company to organize the evaluation process of each rupiah in the capital expenditure budget that has been released. The said evaluation implementation also needs to be supported with the information technology that is capable to validate the capital expenditure plan with the realization of business plan from the capital expenditure of the Company. In terms of the management of subsidiaries, KEMPR is of the view that it requires prudence in the transformation process of the management of subsidiaries in the scheme of CFU – FU, interaction among the subsidiaries, or between the subsidiary and Telkom unconsolidated, as well as the resources allocation either financial or non- financial. b. Evaluation to the Proposal of RKAP and Capital Expenditure of 2017 After successfully recording the double-digit growth for the revenue pursuant to RKAP 2016, RKAP 2017 was prepared in the spirit to improve the achievement in 2016. In the preparation of RKAP and Capital Expenditure of 2017, it is understood that it is necessary to have an improvement in the management of costs, an improvement of synergy value in Telkom Group, and sharpening of inorganic initiatives which are expected to become the new source of growth to the Company. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 3. enterprise risk Management The monitoring of the update of Company’s risk profile constitutes one of the approaches conducted by KEMPR in conducting the evaluation for the implementation of Enterprise Risk Management. According to CSS 2016-2020, risk categories that may get the attention of the Company are among others the strategic risks in relation to the competition pressure and inorganic initiatives, and operational risks in relation to the risk of leak of revenue & fraud from Company’s external parties, as well as the weakness in the project management. Based on the data submitted by the management, the risk in relation to the competition, inorganic initiative, and the leak of revenue as well as external fraud still need the improvement of mitigation from the Company. 4. Certain action from the Board of Directors that requires the approval from the Board of Commissioners In 2016, KEMPR has assisted the Board of Commissioners in reviewing the proposal of strategic plans as submitted by the Board of Directors, among others: a. The Release of budget of capital expenditure of 2016; b. The implementation of external funding of the Company; c. Strategic fit of corporate action in the digital telecommunication portfolio. BoarD oF DIreCtorS Board of Directors constitutes the Company’s organ having collective duties and responsibilities in managing the Company pursuant to the provisions of Company’s Articles of Association. In performing the duties, members of Board of Directors shall act and decide any policy pursuant to the duty and authority of each member. Composition of the Board of Directors In 2016, there was a change of composition of Telkom’s Board of Directors. Pursuant to the resolutions of the Annual General Meeting of Shareholders (AGMS) on April 22, 2016, Mr. Heri Sunaryadi was respectfully discharged from his title and was replaced by Mr. Harry M. Zen as the Finance Director. In addition to it, pursuant to Decision Letter of the Minister of State-Owned Enterprise as the General Meeting of Shareholders of the Company (Persero) PT Angkasa Pura II No.SK-227/MBU/09/2016 in relation to the appointment of Muhammad Awaluddin as the President Director of PT Angkasa Pura II, then the position of Muhammad Awaluddin as the Director of EBIS of Telkom was temporarily replaced by Honesti Basyir as per September 13, 2016. Therefore, the composition of the Board of Directors for the financial year of 2015 and 2016 may be seen in the following table. table of Composition of Board of Directors of pt telkom per 31 December 2015 no naMe 1 2 3 4 5 6 7 8 Alex J. Sinaga Heri Sunaryadi Indra Utoyo Muhammad Awaluddin Honesty Basyir Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan tItLe President Director Director of KEU Director of ISP Director of EBIS Director of WINS Director of HCM Director of NITS Director of CONS appoIntMent DISCHarGe Date 2014 2014 2012 2012 2012 2014 2014 2014 AGMS 2019 APRIL 22, 2016 AGMS 2017 September 13, 2016 AGMS 2017 AGMS 2019 AGMS 2019 AGMS 2019 Remarks: KEU (Finance), ISP (Innovation & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), NITS (Network, IT & Solution), and CONS (Consumer Service). 201 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStable of Composition of the Board of Directors of pt telkom per 31 December 2016 no naMe tItLe appoIntMent DISCHarGe Date 1 2 3 4 5 6 7 8 9 Alex J. Sinaga Harry M. Zen Heri Sunaryadi Indra Utoyo Muhammad Awaluddin Honesty Basyir Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan President Director Director of KEU Director of KEU Director of DSP Director of EBIS Director of WIBS Director of HCM Director of NITS Director of CONS 2014 2016 2014 2012 2012 2012 2014 2014 2014 AGMS 2019 AGMS 2021 April 22, 2016 AGMS 2017 September 13, 2016 AGMS 2017 AGMS 2019 AGMS 2019 AGMS 2019 Remarks: KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), NITS (Network, IT & Solution), and CONS (Consumer Service). Double title Board of Directors Some members of Telkom’s Board of Directors serve double titles, either in Telkom or in Telkom’s subsidiary. Complete information regarding the double title Board of Directors may be seen in the following table. table of Double title of the Board of Directors per 31 December 2016 no naMe pt teLKoM tItLe otHer tItLe Alex J. Sinaga Harry M. Zen President Director Director of KEU None None SUBSIDIarY President Commissioner of Telkomsel President Commissioner of Telkom Property, Commissioner of Telkomsel Indra Utoyo Director of DSP None Commissioner of Telkom Metra, President Commissioner of Mdi Honesti Basyir Director of WIBS Plt Dir EBIS President Commissioner of Telin, President Herdy Rosadi Harman Director of HCM Abdus Somad Arief Director of NITS None None Commissioner of Metra Commissioner of Telkom Property President Commissioner of Telkom Infra, Commissioner of Teltranet Dian Rachmawan Director of CONS None President Commissioner of Telkom Akses 1 2 3 4 5 6 7 202 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDuties and responsibilities of the Board of Directors the Board Charter of the Board of Directors In performing the duties, responsibilities and authorities 1. To Conduct and be responsible for the management in managing the Company, Telkom’s Board of Directors of the Company for the Company’s interest pursuant shall refer to the Board Charter of Board of Directors to the purposes and objectives of the Company as No.PD.604.00/r.00/HK000/C00-D0030000/2011 dated stipulated under the articles of association. July 11, 2011. The Board Charter of Board of Directors 2. To organize the annual GMS and other GMS as shall consist agreements which are among others in the stipulated under the provisions of laws and regulations form of stipulation of mechanism and division of works and articles of association. among members of the Board of Directors which are 3. To conduct the duties and responsibilities in good not stipulated under Company’s Articles of Association faith, full responsibility, and prudentially. or the prevailing laws and regulations. The purpose is to 4. To form the Committee to support the effectiveness improve and coordinate the performance of the Board of of the implementation of duties and responsibilities of Directors as well as to optimize the utilization of working the Board of Directors. time of the Board of Directors in managing the Company. 5. To evaluate the performance of the committee that has The duty of each member of Board of Directors shall be been formed at the end of financial year in line with the activities that constitute part of his/her authorities of the Board of Directors responsibilities as follows. A. President Director (CEO Telkom Group) 1. Setiap anggota Direksi berwenang bertindak untuk 1. To coordinate the process, to structure or dan atas nama Direksi dalam mewakili Perseroan di reconstruct the corporate philosophical aspects dalam dan di luar pengadilan tentang segala hal dan which shall include but not limited to the vision, dalam segala kejadian, mengikat Perseroan dengan mission, objective, corporate culture as well as pihak lain dengan Perseroan, serta menjalankan segala leadership architecture; tindakan baik yang mengenai kepengurusan maupun 2. To formulate and state the strategic direction kepemilikan dengan pembatasan yang terdapat dalam in order to enable the Company to realize the Anggaran Dasar dan peraturan perundang-undangan sustainable competitive growth in all Telkom’s di bidang pasar modal. business portfolios, and risk control as well as 2. Tanpa mengurangi tanggung jawabnya Direksi untuk interfacing with external constituent; perbuatan tertentu dapat mengangkat seorang atau 3. To control the function of strategic planning within lebih sebagai kuasanya dengan syarat yang ditentukan Telkom as a group and direct the effort to grow by oleh Direksi dalam suatu surat kuasa khusus. focusing to the new business portfolio; 3. Untuk tindakan tertentu Direksi harus terlebih 4. To control the corporate direction in the effort dahulu mendapatkan persetujuan tertulis dari Dewan for driving new business, entering/developing Komisaris dan/atau RUPS sebagaimana dijelaskan new market as well as internationalization/ dalam Anggaran Dasar Perseroan. regionalization; responsibilities of the Board of Directors Any member of the Board of Directors shall be jointly responsible for all Company’s losses caused by the mistake or negligence of the member of Board of Directors in performing its duties. Members of Board of Directors shall not be liable for the Company’s loss if they can prove that: 1.1. Such loss is not caused by their mistake or negligence; 2. They have performed actions in good faith, full responsibility, and prudentially for the interest and based on the purpose and objective of the Company; 3. They do not have any conflict of interest either directly or indirectly for the management activities causing the loss; and 4. The have taken the action to prevent the occurrence or continuation of such loss. 5. To control the management of strategic aspect of the functions of Finance, human capital and innovation & strategic portfolio in all business portfolio implemented by Telkom as a group; 6. To lead the process of leader development of Telkom Group as well as to appoint and terminate the title holder in certain position pursuant to the stipulation of career management as determined as well as leader development for Telkom as a group; 7. To periodically report the performance of the Company pursuant to the provisions prevail for public company. 203 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSB. Director of Finance (“KEU”) 5. To determine the innovation strategy in order 1. To determine the conception and formulation to “explore” to get new source of growth for the of Long-Term Plan of Company’s Finance within development of Telkom Group’s business portfolio; Telkom as a group. 6. To determine the parenting strategy to harmonize 2. To facilitate the process for the formulation of the and optimize the capability of Telkom Group’s concept of corporate level strategy especially the business entities in improving the Value of the financial & asset perspective for the aspect of among Company; others, but not limited to the strategic budgeting, 7. To determine the policy, good governance, and business & investment, parenting strategy, mechanism for the innovation for the development subsidiary performance, capital management and of Telkom Group’s business portfolio; supply management. 8. To determine the policy, good governance and 3. To determine the functional strategy and policy in mechanism to manage the synergy of Telkom the financial and asset sectors, which shall cover Group; among others, but not limited to the financial policy, 9. To conduct the advisory function in the process asset management policy, supply management to set the strategy on the corporate level strategy, policy and financial system support policy; especially for the matters in relation to the aspect of 4. To determine the functional strategy and policy business portfolio development; in the sector of risk management to ensure the 10. To ensure the effectiveness of the management of effectiveness of business continuity management; 5. To manage investor relations to protect the all risks in the business process within all units under the supervision of the Directorate of ISP. psychology of investors; 6. To determine the policy of good governance, and D. Director of Human Capital Management (“HCM”) mechanism of management of financial accounting 1. To determine the conception and formulation of (accounting sector including the presentation Long-Term Plan of Human Capital and Master Plan of financial reporting), management accounting of Human Capital as a group; (budgeting sector) and corporate finance supply 2. To facilitate the formulation process of corporate and risk as well as the control of its implementation; level strategy concept especially for the aspect in 7. To determine the policy, good governance and relation to the development of center of excellence, mechanism of the management of Company’s for people aspect, human capital, organization budgeting process (RKAP). design corporate culture and leadership architecture 8. To implement advisory functions in the determination and industrial relation;. of corporate level strategies, especially for the 3. To determine the functional strategy and policy in matters related to the aspect of financial and supply the sector of human capital, among others but not resources of Telkom as a group. limited to the sector of human capital development, 9. To ensure the effectiveness of management of all human capital system, human capital operation, risks in the business process within the scope of all organization development, and industrial relation. units under the supervision of Directorate of KEU. 4. To prepare and execute the program of Telkom Smart Office; C. Director of Digital & Strategic Portfolio (“DSP”) 5. To determine the policy, good governance, and 1. To determine the conception and formulation of mechanism to manage and the planning as well Company’s Long-Term Plan (corporate strategic as the management of resources (development, scenario). empowerment and management of HR) and 2. To determine the policies on good governance and organization development; mechanism to manage the Company’s planning and 6. To determine the policy, good governance, and its strategy (the policy for the setting of planning mechanism of development and inter-relation with level and its strategy - corporate level, business level the entity/institution that relates to the management and functional level); of HR which are among others but not limited to 3. To determine the strategy and policy of Telkom the institutions that manage the pension fund, the Group’s business portfolio; management of employees and retired people, the 4. To determine the strategy, policy and recommendation management to develop the skill and competence of corporate action and strategic investment for Telkom Group’s business development; or educational institution as well as labor union institution; 204 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS7. To conduct the partnership and community function in consumer segment; development program; 4. To determine the policy, good governance and 8. To conduct the advisory function in the mechanism of the management of sales function determination of strategy on the corporate level and/or channel partnership in consumer segment; strategy, especially those that relate to HR of Telkom 5. To determine the policy, good governance and as a group; mechanism of the management of customer 9. To ensure the effectiveness of management of all relationship management in consumer segment; risks in the business process within all units under 6. To ensure the effectiveness of management of all supervision of the Directorate of HCM. risks in the business process of all units under the supervisions of the Directorate of Consumer Service. E. Director of Network, IT & Solution (“NITS”) 1. To determine the planning and business strategy G. Director of Enterprise Business Service (“EBIS”) to leverage the capability of Company’s resources 1. To determine the planning and business strategy in order to grow/make bigger/“exploit” the to leverage the capability of Company’s resources “established” business/service through the in the realization of competitive advantage to win utilization of infrastructure, IT and solution to the competition and long-term growth of business support the business portfolio of Telkom Group in portfolio in the corporate segment (enterprise, synergy; government and business) within the scope of 2. To determine the policy, good governance and mechanism to utilize the infrastructure/network to Telkom as a group; 2. To determine the policy and mechanism of parenting support the business portfolio of Telkom Group; in order to create the value of the Company by 3. To determine the policy, good governance and optimizing and harmonizing the inter-relation mechanism to utilize IT to support the growth of between “parent” and all entities that manage business portfolio of Telkom Group; the business of corporate segment (enterprise, 4. To determine the policy, good governance and government and business) within the scope of mechanism to create the best performance upon Telkom as a group; the service/solution that supports the sustainable 3. To determine the policy, good governance and competitive growth of Telkom Group; mechanism of the management of marketing 5. To set and control the mechanism of “parenting” function in the corporate segment (enterprise, which is adjusted with parenting strategy to all government and business); units under the supervision of Directorate of NITS 4. To determine the policy, good governance and and or other unit that is directly involved in the mechanism of the management of sales function implementation process of utilization activities and and/or account management in the corporate infrastructure operation; segment (enterprise, government and business); 6. To ensure the effectiveness of management of all 5. To determine the policy, good governance and risks in the business process of all units under the mechanism of the management of customer supervisions of the Directorate of NITS. relationship management in the corporate segment (enterprise, government and business); F. Director of Consumer Service (“CONS”) 6. To ensure the effectiveness of management of all 1. To determine the planning and business strategy risks in the business process of all units under the to leverage the capability of Company’s resources supervisions of the Directorate of EBIS. in realizing the competitive advantage to win the competition and the long-term growth of business H. Director of Wholesale & International Business Service portfolio in the consumer segments (consumer (“WIBS”) home services and consumer personal services) 1. To determine the planning and business strategy within the scope of Telkom as a group; to leverage the capability of Company’s resources 2. To determine the policy and mechanism of in the realization of competitive advantage to win parenting in order to create value of the Company the competition and long-term growth of business by optimizing and harmonizing the interrelation portfolio in the wholesale & international segment between “parent” and all entities that manage the within the scope of Telkom as a group; business operation of the consumer segment within the scope of Telkom as a group; 3. To determine policy, good governance and mechanism of the management of marketing 2. To determine the policy and mechanism of parenting in order to create the value of the Company by inter-relation optimizing and harmonizing the 205 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSbetween “parent” and all entities that manage the business of wholesale & international segment within the scope of Telkom as a group; 3. To determine policy, good governance and mechanism of management of marketing function in the wholesale & international segment; 4. To determine the policy, good governance and mechanism of the management of sales function and/or account management in the wholesale & international segment; 5. To determine the policy, good governance and mechanism of the management of customer relationship management in the wholesale & international segment; 6. To ensure the effectiveness of management of all risks in the business process of all units under the supervisions of Directorate of WINS. Board of Directors’ Meeting Pursuant to the prevailing provisions applied to public companies and the Board Charter of Board of Directors (BoD Charter), the Board of Directors must conduct a periodical internal meeting at least 1 (one) time within a month and it may also be conducted at any time as deemed necessary. Moreover, the Board of Directors shall also be obliged to organize joint meeting with the Board of Commissioners at least 1 (one) time within 4 (four) months and it may also be held at any time as deemed necessary. Joint meeting by the Board of Directors and Board of Commissioners within the Company shall also be referred to as the Joint Meeting. The meeting quorum shall be reached if more than half of members of Board of Directors are present or legally represented in such meeting. Any member of Board of Directors that present shall have a casting vote (and one vote for any other Director that is being represented). The decision making in the Board of Directors’ meeting shall be based on the deliberation to reach a consensus. If the consensus cannot be reached, then the resolution shall be made based on the majority votes from members of Board of Directors that are present. In 2016, the Board of Directors’ meetings have been held for 48 times with the agenda and attendance level of the Board of Directors as follows. table of agenda and attendance in the Board of Directors’ Meetings no Date agenda Board of Directors who were present Dr Ma HMZ aSa HrH HB HS January 5, 2016 1. Report : Progress of the preparation of the v Muster of the Work Readiness of Telkom Group in 2016 2. Report : Performance of Operations & Revenue for the MtD December 2015 3. Report on the Limited Agenda v v v v January 12, 2016 1. Report : Recap of the Performance of Revenue in 2015 and Operation for the MtD in January 2016 2. Report on the Limited Agenda January 19, 2016 1. Report on the Performance of the Operations and Revenue for the MtD in January 2016 2. Report of FU Finance: Management Report of December 2015 3. Report on the Limited Agenda January 26, 2016 1. Report on the Performance of the Operations and Revenue for the MtD in January 2016 2. Report on the Limited Agenda 2 Februari 2016 1. Report on the Performance of the Operations and Revenue for the MtD in January 2016 2. Report: Draft Annual Report for the financial year of 2015 3. Report on the Format and Outline for the CFU/ FU-based Management Report of 2016 4. Report on the Limited Agenda February 9, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of January and MtD of February 2016 2. Report: CFU/FU-based Report AR-AP of Telkom Group 3. Report on the Limited Agenda IU v v v v v v v v v v v v v v v v - - v February 16, 2016 1. Report on the Performance of the Operations v v v v and Revenue for the MtD of February 2016 2. Report: Management Report of January 2016 3. Report on the Limited Agenda - - - - - - - v v v v - - v v v v v v v - v v v v - v v v v v v v v v 1 2 3 4 5 6 7 206 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSno Date agenda 8 9 February 23, 2016 March 1, 2016 1. Report on the Performance of the Operations - and Revenue for the MtD of February 2016 2. Report: Management Report of January 2016 3. Report on the Limited Agenda 1. Report on the Performance of the Operations v and Revenue for the MtD of February 2016 2. Update: E-Payment Business 3. Report on the Limited Agenda 10 March 8, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of February and MtD v v v v v v v v v v v v of March 2016 2. Report: Comprehensive Program CSR of Telkom Group 3. Report on the Limited Agenda March 15, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of March 2016 2. Report on the Limited Agenda March 22, 2016 1. Laporan Performansi Operasional & Revenue MtD Maret 2016 2. Laporan Agenda Terbatas March 29, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of March 2016 2. Report on the Limited Agenda April 5, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of March 2016 2. Update: Partnership for the development of FTTH/Indihome 3. Report: The Concept of Submarine Cable Management of Telkom 4. Update on the Preparation of RAPIM of Telkom Group I of 2016 5. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the MtD of April 2016 2. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the MtD of April 2016 2. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the MtD of April 2016 2. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the YtD of April & MtD of May 2016 2. Update: Status of the rescue of Filling T3S and the Readiness of Orbit Slot of T2 3. Report on the Limited Agenda April 12, 2016 April 19, 2016 May 3, 2016 May 10, 2016 May 17, 2016 1. 1Report on the Performance of the Operations and Revenue for the MtD of May 2016 2. Update: Progress of the Preparation of RAFI 2016 3. Report on the Limited Agenda May 24, 2016 May 31, 2016 June 7, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of May 2016 2. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the MtD of May 2016 2. Report on the Operation of FU HCM and Site Plan of Telkom Corporate University 3. Report on the Limited Agenda 1. Kick off Siaga RAFI Task Force Telkom Group v 2016 2. Kick off CFU/FU Transfomation socialization Team 3. Update BUMN Hadir untuk Negeri 11 12 13 14 15 16 17 18 19 20 21 22 IU v v v v v v v - v v v v v v v Board of Directors who were present Dr Ma HMZ aSa HrH HB HS v v v v v - v v v v - - v v v v v v v v v v v v v v v - v v - - - - - - - - - v v v v v v - - v v v v v v v v v - v v v - v v v v v v v v v v - v v v v v v v v v v v v v - v v v v v v v v v v v - v - - - - - - 207 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSno Date agenda 23 June 14, 2016 1. Update BUMN Hadir untuk Negeri Preparation 2. Report on the simulation of the Security of v Revenue from Indihome & Interconnection 3. Report on the Implementation Progress of the Second Platform and Open STB 4. Report on the Limited Agenda IU v Board of Directors who were present Dr Ma HMZ aSa HrH HB HS - v v v v v 1. Report on the Performance of the Operations v v v v v v v v and Revenue for the MtD of June 2016 2. Update on the Roadmap of Digital Service of Telkom Group 3. Report on the Implementation Progress of the Second Platform and Open STB 4. Report on the Limited Agenda 1. Report on the Performance of the Operations v v v v v v v v 24 June 21, 2016 25 June 28, 2016 July 19, 2016 and Revenue for the MtD of June 2016 2. Report of FU HCM & ISC organization Update 3. Update on the Theme and Scenario of Rapim TG II 2016 4. Report on the Limited Agenda 1. Report on the Performance of the Operations and Revenue for the YtD of June (Highlight) & MtD of July 2016 2. Report FU HCM 3. Report on the Limited Agenda August 9, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of July & MtD of August 2016 2. Update on the Progress of Satellite 3. Update on the Organization of ISC 4. Update on the Positioning Subsidiary Treatment 5. Report on the Limited Agenda August 16, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of August 2016 2. Update Indonesia independence day commemoration August 23, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of August 2016 2. Report on the Limited Agenda August 30, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of August 2016 2. Report on the Limited Agenda September 6, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of August 2016 2. Report on the Limited Agenda September 13, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of September 2016 2. Report of FU HCM 3. Report on the Limited Agenda September 20, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of September 2016 2. Report on the Limited Agenda September 23, 2016 1. Talent Management 2. Talent Remumeration 3. Key strategic position 4. Job family 5. 6. Pro Hire BP Ingenium Scoring September 30, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of September 2016 2. Report on the Limited Agenda October 4, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of September 2016 2. Report on the Limited Agenda v v v v v v v v v v v v v - v v v v v v v v v v v v v v v v v - v v v v v v v - - - - - v v v v - v v v v v v v v v v - v v - v v v v v v v v v v v v v v v v v v v v v v v v v - - - - - - - - - - - - - - 26 27 28 29 30 31 32 33 34 35 36 208 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSno Date agenda 37 October 11, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of September & MtD of October 2016 2. Update on the Theme and Scenario of Rapim TG III 2016 3. Report on the Limited Agenda Company’s Performance in September 2016 and proposal of RKAP 2017 1. Report on the Performance of the Operations and Revenue for the MtD of October 2016 2. Update on the Lesson Learnt from Kalibata: People-Process-Tools Perspective 3. Report on the Limited Agenda October 21, 2016 October 24, 2016 November 1, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of October 2016 2. Report on the Limited Agenda November 8, 2016 1. Report on the Performance of the Operations and Revenue for the YtD of October and MtD of November 2016 2. Report on the Limited Agenda November 16, 2016 1. Report on the Performance of the Operations and Revenue for the `MtD of November 2016 2. Report on the Limited Agenda November 24, 2016 1. Kick Off the Satgas of Telkom Group: Siaga NaRu (Christmas and New Year) 2017 2. Report on the Performance of the Operations and Revenue for the MtD of November 2016 3. Update KPKU Assessment Preparation 4. Report on the Limited Agenda November 29, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of November 2016 2. Update KPKU Assessment Preparation 3. Report on the Limited Agenda December 6, 2016 Report on the Performance of the Operations and Revenue for the MtD of November 2016 December 13, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of December 2016 2. Lesson Learn preventive fault handling on Treg IV report 3. Report FU HCM 4. Update Kesiapan Kerja 2017 Ceremony 5. Report on the Limited Agenda IU v v v v v v v v v v v v v v v v v v v v December 20, 2016 1. Report on the Performance of the Operations and Revenue for the MtD of December 2016 v v 2. Update KPKU Assessment Preparation 3. Update Kesiapan Kerja 2017 Ceremony 4. Report on the Limited Agenda December 27, 2016 Report on the Performance of the Operations and Revenue for the MtD of December 2016 - - 38 39 40 41 42 43 44 45 46 47 48 Board of Directors who were present Dr Ma HMZ aSa HrH HB HS - v v v v v v v v v v v - - - - - - - - - - - - v v v v v v v - v v v v v v v v - v - v v v v v v v v v v v v - v v v v v v v v v v v v v v v - - - - - - - - - - - - - Total Attendances Total Meetings Attendance Level of the Board of Commissioners (%) 45 48 93 43 48 89 41 48 85 30 31 96 29 32 90 38 48 79 45 48 93 44 48 91 14 16 87 Remarks: AJS (Alex J Sinaga), IU (Indra Utoyo), DR (Dian Rachmawan), MA (Muhammad Awaluddin), HMZ (Harry M Zen), ASA (Abdus Somad Arief), HRH (Herdy Rosadi Harman), HB (Honesti Basyir), HS (Hari Sunaryadi). Note: HS was terminated pursuant to GMS resolution dated 22 April 2016 HMZ was appointed since the GMS resolution dated 22 April 2016 MA resigned since 13 September 2016 209 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS DIreCtorS reMUneratIon poLICY procedure for Determining the remuneration 1 Knr by the instruction from Board of Commissioners create remuneration draft. the result will be decide in aGMS 3 5 4 aGMS 2 Knr ask Independent party for Suggestion. Independent party give its suggestion to Knr Board of Directors remuneration Mechanism and procedure *KNR :Nomination and Remuneration Committee The procedure for determining the remuneration of members of the board of directors of Telkom are as follows: 1. The Board of Commissioners requests the NRC to draft a remuneration proposal for the Directors. 2. The Nomination and Remuneration Committee requests an independent party to draw up a framework on the remuneration of the Directors. 3. The Nomination and Remuneration Committee proposes the remuneration to the Board of Commissioners. 4. The Board of Commissioner proposes remuneration for the Directors the AGM. 5. The AGM delegates authority and power to the Board of Commissioners with the prior approval of Series A Shareholders to determine the remuneration for the Board of Commissioner and the Directors. Basis for the Determination and Structure of remuneration The structure of the remuneration of the Directors is governed by the provisions of the Regulation of the State Minister for State Owned Enterprises No.Per-04/MBU/2014 on Guidelines for the Determination of Income for Directors, Board of Commissioner and Board of Trustees of SOEs. Based on the said regulation, the income component for members of the Directors consists of: 1. Salaries; 2. Allowances; 3. Facilities; 4. Bonus/Incentive. The determination of fixed income in the form of salaries, allowance and facilities given by considering the condition of the Company. In the otehr hand bonus/incentive is an annual benefits based on the Company’s performance and determined by the General Meeting of Shareholder. 210 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSamount of remuneration for the Members of the Board of Directors In 2016, total remuneration paid to all the Company’s Board of Directors amounted to Rp121.8 billion. Taxes on the remuneration paid by the Company amounted to Rp7.6 billion. Recapitulation of the remuneration of the Telkom’s Board of Commissioners in 2016 is reflected in the following table. table on the recapitulation of remuneration for telkom’s Board of Directors Board of Directors Alex J. Sinaga Harry M. Zen *) Indra Utoyo Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir Heri Sunaryadi**) Muhammad Awaluddin ***) Salary 2.304 1.482 2.074 2.074 2.074 2.074 2.074 691 1.555 Bonuses 13.952 - 12.557 12.557 12.557 12.557 12.557 12.557 12.557 nilai (rp juta) tHr other allowances 176 158 158 158 158 158 158 - 158 300 215 300 300 300 300 300 100 225 total 16.732 1.855 15.089 15.089 15.089 15.089 15.089 13.348 14.496 Remark: Based on Minister of SOE Regulation No.04/2014, the allowance to be given in cash is residential allowance in the amount of Rp25 million a month *) Start from April 22, 2016 **) Until April 22, 2016 ***) Until September 2016 211 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCorporate SeCretarY tasks and Duties of Corporate Secretary 1. Preparing and organizing GMS, including the material, The Corporate Secretary is an organ of the company particularly the Annual Report. which has significant role in facilitating the company’s 2. Attending the Board of Directors’ meetings and joint internal communication, make a connection between meetings between the Board of Directors and the the company and its shareholders, the Financial Services Board of Directors. Authority, and other stakeholders as well as ensuring 3. Managing and maintaining documents related to the the Company’s compliance with the applicable rules and regulations in the field of capital market. Telkom has appointed a Vice President (“VP”) of Company’s activities, including the GMS’s documents, the Board of Directors’ minutes of meetings, the minutes of joint meetings between the Board of Directors and the Board of Commissioners, and other Investor Relations who also perform tasks and duties of important documents of the Comapny. a Corporate Secretary in accordance with the Financial 4. Determining criteria regarding types and contents of Services Regulation No.35/POJK.04/2014 regarding Corporate Secretary of the Issuer Companies or Public information that can be presented to the stakeholders, including information that can be published as public Companies. Investor Relations is responsible for preparing documents. the provision of information between the Company and its Shareholders in accordance with the prescribed code of conducts, and maintaining the systematic feedback mechanism to the management in order to be able to respond to the dynamics of the shareholders and the capital markets with efficient, effective, and continuously. Corporate Secretary Functions According to Telkom’s Guidelines on GCG, the functions of the Corporate Secretary are: 1. To Prepare and communicate information accurate, complete, and timely regarding the performance and prospect of the company to stakeholders. 2. To synergize with related units, including the subsidiaries, for dissemination of information (socialization), implementation, monitoring and reviewing of GCG, and its implementation. 3. To assist the Board of Directors in various activities, information, and documentation, among others: a. Preparing the Register Book of Shareholders; b. Attending the Board of Directors’ meetings and preparing its minutes of meetings; and c. Preparing and organizing GMS. 4. To publish the Company’s information in tactical, strategic and timely manner. 212 profile of Corporate Secretary andi Setiawan Born : June 6, 1978 Age : 38 nationality and Domicile Indonesian, domiciled in Indonesia. position and appointment Basis Corporate Secretary of the Company based on the Directors Decision Letter term of office March 4, 2015 – present education He holds a Bachelor’s degree on Financial Management (S-1) from University of Indonesia. Career History 1. PT Pemeringkat Efek Indonesia as a Corporate Rating Analyst (2004). 2. PT Bakrieland Development Tbk as a Manager of Corporate Secretary (2007). 3. PT Summarecon Agung Tbk as a Manager of Investor Relations (2010). 4. GM of Investor Relations at PT Telekomunikasi Selular on January 2014. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStraining and education of Corporate Secretary In order improve to the competence of our Corporate Secretary/Investor Relations, along 2016 the Company has held various trainings designated to the Investor Relations unit as follows: training program Date organizer Global Mind Leaders Program: The Biology of Corporate Survival May 18, 2016 Intellectual Business Community Certified Investor Relation May 23-26, 2016 Indonesia Investor Relations Institute Finance 101 for IR and Corporate Communication Key to Successful Investor Presentation 2016 NIRI Annual Conference June 4, 2016 June 4, 2016 National Investor Relations Institute National Investor Relations Institute June 5-8, 2016 National Investor Relations Institute 9th Annual Depositary Receipts Issuers’ Conference Asia Pasific June 16-19, 2016 BNY Mellon Managing the High Intencity Workplace August 10, 2016 Intellectual Business Community Global Mind Leaders Program: Branding in Social Media Age September 7, 2016 Intellectual Business Community Capital Market Workshop Building an Insight Engine September 7-8, 2016 Granada Law Firm October 12, 2016 Intellectual Business Community A Big Leap to Efficiency in Financial Consolidation, Regulatory Reporting & Forecasting Processes October 27, 2016 Associaton of Indonesian Listed Companies (Asosiasi Emiten Indonesia) Location Jakarta Jakarta San Diego San Diego San Diego Jepang Jakarta Jakarta Jakarta Jakarta Jakarta task Implementation of Corporate Secretary Throughout the 2016 financial year, the Corporate Secretary has perfomed its tasks in accordance with the tasks and duties of Corporate Secretary as described under the applicable laws and regulations. The activities performed relating to the Corporate Secretary/Investor Relations task implementation are: Date name of activities organize by remarks January 7-8, 2016 ASEAN Conference 2016 Credit Suisse January 28-29, 2016 Mandiri Investment Forum 2016 Mandiri Sekuritas April 25-26, 2016 Non Deal Roadshow Morgan Stanley Singapore Jakarta Singapore Indonesia Investor Conference 2016 Citigroup Securitites Indonesia Jakarta May 11, 2016 May 16-17, 2016 May 23-24, 2016 BNP Paribas 7th Asia Pasific TMT Conference BNP Paribas 7th Annual dbAccess Asia Conference Deutsche Bank May 26-27, 2016 Non Deal Roadshow Nomura July 14-15, 2016 August 4, 2016 Non Deal Roadshow Investor Day 2016 Macquire Securities Group Bursa Efek Indonesia (IDX) August 11-12, 2016 10th Annual Indonesia Conference 2016 (Site Tour) CIMB Hong Kong Singapore Tokyo Sydney Jakarta Bali August 15-16, 2016 2016 Indonesia Conference Credit Suisse Singapore August 31 – September 2 2016 Non Deal Roadshow September 6-9, 2016 Non Deal Roadshow September 15, 2016 Indonesia Focus Day Deutsche Bank Credit Suisse Morgan Stanley September 22-23, 2016 23rd CLSA Investor Forum CLSA 2 November 2016 9th dbAccess Indonesia Conference 2016 Deutsche Bank November 7-11, 2016 Non Deal Roadshow BNY Mellon United Kingdom Swiss, Paris, Amsterdam Jakarta Hong Kong Jakarta New York, Boston, Chicago, San Fransisco November 10-11, 2016 The 11th Annual Daiwa Investment Conference Hong Kong (DIC HK) Daiwa Capital Market November 16, 2016 Non Deal Roadshow Bahana Securities November 28-29, 2016 Non Deal Roadshow Macquire Securities Group November 30 – December 1, 2016 Nomura Investment Forum 2016 Nomura Hong Kong Jakarta Singapore Tokyo 213 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSInternaL aUDIt UnIt Internal Audit (“IA”) is an organ of the company which function is to provide an independent views (catalyst) on the condition of internal control, risk management, and corporate governance process implemented by so as to create a culture of discipline in implementing all provisions of the applicable legislations/policies/ regulations/procedures/business process. Mission 1. Provide services and internal audit consulting in a Telkom and its business units in performing their business professional, objective and independent manner for activities. the Management, Business Units/Work Units, and subsidiaries. vision and Mission of Internal audit Unit Internal Audit Unit has vision and mission which organized 2. Provide assurance on the feasibility of financial reports. 3. Actively monitor the implementation of internal control, in a systematic and measured manner, and also in line provide support in improving the implementation with the applicable standards, ranging from preparation, of GCG, and evaluate the implementation of risk implementation to monitoring of the follow-up results. managament. The vision and mission of Internal Audit Unit are as follows: vision As a “Smart Partner” for the Management, Business Unit/Work Unit and subsidiaries in order to achieve the Company’s objectives as well as a driving force for the whole range of the Company and its subsidiaries, Structure and position of the Internal audit Unit As set forth in the applicable capital market regulations, IA is a unit that is independent of other work units and is directly responsible to the President Director. Below, is a chart of the organizational structure of Telkom’s IA. president Director Board of Commissoner Svp Internal audit Harry Suseno Hadisoebaroto vp Infrastructure & operations audit Dani Ramdani vp Integrated & Financial audit Heru Muara Sidik vp planning & Development audit Yanti Iswari vp It audit Setia Dwi Kusumawardani Duties and responsibilities of Internal audit Based on Internal Audit Charter, duties and responsibilities 4. To examine and assess the efficiency and effectivity of the Internal Audit are: in the field of finance, accounting, operational, 1. Composing Annual Internal Audit plan; human capital, marketing, IT, and other activity; 2. To execute the Annual Internal Audit Plan that has 5. To review and/or audit the Company’s financial been consulted by the Audit Committee or has been statement periodically; reviewed by Audit Committee; 6. To inspect the compliance to the related regulation ; 3. To examine and evaluate the adequacy of internal 7. To identify the alternative improvement and control and risk management system based on the efficiency and to increase efficiency and effectivity Company’s Policy; of the utility of sources and fund; 214 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS8. To create audit report and to deliver that report to the President Director and the Board of Commissioner c.q. Head of Audit Committee; Internal audit Unit Composition Telkom’s Internal Audit is chaired by a Senior Vice President of Internal Audit (“SVP of Internal Audit”), who is appointed 9. To monitor, analize and report the implementation and dismissed by the President Director with the approval of the improvement that has been recommended. of the Board of Commissioners. As of the end of 2016, the Give objective improvement recommendation SVP of Internal Audit is assisted by 63 members. and information about the activity that has been inspected to all management level of the Company profile of Svp of Internal audit and the afiliation of the Company; 11. Providing consultation needed by the Company’s management and its affilation company which the coverage of the assignment has been agreed before. 12. Do the activity from number 2 until 10 to the Company’s afiliation upon request by the President Director of the Company (management instruction); 13. Collaborating with the Audit Committee, including monitoring the follow up of the recommendation by the result of the inspection that have a significant impact and deliver the report to the Audit Committee; 14. Composing the evaluation methodology and progam Harry Suseno Hadisoebroto Born : Bandung, June 24, 1966 Age : 50 nationality and Domicile Indonesian, domiciled in Indonesia. position and appointment Basis Senior Vice President of Internal Audit based on the Board of Directors Resolution No. 1905/PS720/HCC- 10/2015 dated June 9, 2015 which effectively prevail from July 1, 2015. term of office July 1, 2015 – present to increase the quality of internal audit activity cooperating/coordinating with Audit Committee; education 1. Graduate Study: Civil Engineering (Ir.), 1990, Bandung 15. To review and/or depth inspection of the Institute of Technology, Indonesia audit committee request in order to follow up 2. Postgraduate Study: Engineering – Project whistleblower and or allegations of fraud (fraud) on the Company or its affiliated company, and deliver Management (MSc.), 1999, University of Manchester, Institute of Science and Technology, Manchester, the results of the investigation to the Director and United Kingdom the Audit Committee; 16. Do thepreliminary inspection with a particular purposes. Carreer History 1. SVP Internal Audit, Telkomsel (Mei 1, 2014 – Juni 30, 2015) 2. VP Infrastructure & Supply Management Audit, Telkom (April 1, 2011 - April 30, 2014) 3. AVP Infrastructure Audit, Telkom (Januari 1, 2010 - Maret 31, 2011) 4. Deputy General Manager Kandatel Malang, Telkom(November 1, 2007 - Desember 31, 2009) Qualification and professional Certification of Internal audit In order to improve the competence and education of the internal auditors, the Company is continously strive to engage them on professional certification programs in the area of Internal Audit, both local and international. dimiliki oleh anggota Internal Audit. type of Certification Qualified Internal Auditor (QIA) Certified Fraud Examiner (CFE) Certified Information System Audit (CISA) Certified Management Accountant (CMA) Certified Behavior Consultant (CBC) ISO 27001:2013 BCMS (ISO 22301) ITSMS (ISO 20000-1) QMS (ISO 9000) Certified Accountant (CA) Jumlah 5 1 2 2 1 3 1 2 1 3 215 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSInternal audit Charter Telkom’s Internal Audit Unit is equipped with an Internal InternaL ControL SYSteM Audit Charter as a company’s formal document, comprising of description of vision, mission, structure, status, duties and responsibilities of IA, including requirements for IA’s review of the effectiveness of the Internal Control System The management of the Company is responsible for personnel as an auditor. The drafting of Internal Audit implementing internal control over financial reporting Charter guided by the international standards for IA sufficiently. Internal control over financial reporting profession practices, issued by the Institute of Internal is a process designed by, or under the supervision of Auditor (“IIA”), and has been approved by the President the President Director and the Finance Director, and Director as well as the Audit Committee based on the conducted by the Board of Directors, management, Board of Directors’ Resolution No.Tel.09/PW000/UTA/ and other personnel to provide reasonable assurance COP-C0000000/2015 regarding Internal Audit Charter. training and education of Internal audit During 2016, the Company has involved its auditors in various trainings. The list of trainings which attended by the Internal Audit in 2016 are as follows: programs Certification Training Operational Training Competency Enhancement Training number of participants number of Days 12 30 73 48 43 183 regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with the Financial Accounting Standards issued by the Indonesian Institute of Accountants. With the existing limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, independent audits are conducted regularly to ensure that financial reporting can provide reasonable information. In addition, projections of any evaluation of the effectiveness in the future have a risk that control may not suffice due to changes in conditions, or because the level of compliance with the policies or procedures may deteriorate. Task Implementation of Internal Audit Unit In accordance with the Annual Internal Audit Work Plan, The management has assessed the effectiveness of internal control over the Company’s financial reporting in 2016, IA Unit has implemented 63 consultations and on December 31, 2016. In conducting the assessment, the audit objects. activity tW-I tW-II tW-III tW-Iv Audit Consulting Evaluating Review Total IA 6 5 1 2 14 8 3 2 4 17 9 2 1 3 15 8 4 2 3 17 tahun 2016 31 14 6 12 63 management used the criteria established by the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the assessment, the management has concluded that as of December 31, 2016, the internal control over financial reporting was effective. The effectiveness of internal control over financial reporting on December 31, 2016, has been audited by KAP Purwantono, Sungkoro & Surja, an independent registered public accounting firm, as stated in their report included As per December 31, 2016, the Internal Audit has in the Consolidated Financial Statements. In 2016, there completed 21 Audit/consultations and delivered 269 were also no significant changes in internal control over recommendations, with the details as follows: the company’s financial reporting throughout the fiscal year just ended that would affect or reasonably likely to materially affect the internal control over the company’s activity total recommendations Follow-up Status Closed open financial reporting. Audit Consulting Total IA 210 59 269 123 52 175 87 7 94 216 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTelkom and its Subsidiary are committed to continuously improving the internal control process and internal control over financial reporting as well as monitoring of the financial reporting control and its procedures to ensure compliance with the requirements of the Sarbanes-Oxley Act and the relevant rules set out by COSO. 2016 evaluation results As of December 31, 2016, control and procedures for disclosure were effective Supervisor & participant 1. The Company’s President Director or, equivalent to Chief Executive Officer (“CEO”) and 2. Finance Director, equivalent to Chief Financial Officer (“CFO”) objective executor Financial and operational Control Compliance with other Laws and regulations 1. To ensure that the information required to be disclosed in the report has been recorded, processed, summarized and reported within the specified period in accordance with the specified terms and form and in accordance with the terms applicable to the Company. 2. To ensure that the decision making is timely in accordance with the required disclosure To ensure that the Company’s policies, decisions and all business activities are in accordance with the prevailing laws and regulations, whether internal or external, such as legal advisory, legal opinions, legal reviews, and litigations. rISK ManaGeMent SYSteM Legal & Compliance Unit under the Corporate Secretary Department Telkom implements the risk management to protect its assets and business activities as well as to create value for its stakeholders. The risk management also constitutes a form of compli-ance towards the prevailing regulations. The role and function of risk management are very important in supporting the telecommunication business that has a wide scope of business ar-ea, requires a big investment, has a high competition level, rapid development of technology, regulated business as well as change in the ways of communication. General Illustration regarding the risk Management System of the Issuer The implementation of risk management system in Telkom shall be based on the Regulation of Minister of SOE No.1 Of 2011 which obliges SOE to implement risk management. Further, the implementation of risk management also constitutes the obligation of Telkom as a company listed in the New York Stock Exchange (NYSE) to fulfill the Sarbanes- Oxley Act, especially arti-cle 302 and 404. The implementation of risk management of Telkom in 2006 was begun with the formation of Risk Management & Legal Compliance (RMLC) Unit under the coordination of Executive Vice President (EVP). Further, in 2007 the Directorate of Compliance & Risk Management (CRM) was formed under the control of Director of CRM. With an improving level of awareness on risk management and the existence of bigger business challenge, in 2013 the function of the Direc-torate of CRM was changed into the Directorate of Wholesale & International, meanwhile, to implement the management of Governance, Risk & Compliance the Department of Compli-ance, Risk Management & General Affair (“CRMGA”) was formed under the supervision of Head of CRMGA. In line with the business dynamic and organization that is keep growing, in 2016 the function of Risk Management was conducted by Sub-Directorate of Risk & Process Management which constitutes a part of the Directorate of Finance. The journey in managing Telkom’s Risk Management from 2006 to 2016 has led the company to the level whereby the risk has been considered in the decision making of strategy, operation, compliance supervision or in the internal control over financial reporting (ICOFR). 217 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSBelow is the diagram showing the development of risk management function in Telkom 2006 Unit risk Management & Legal Complience (rmlc) 2013 Departemen Complience, risk Management & General affair (“CrMGa”) 2007 2016 Direktorat Complience & risk Management (Crm) SubDit risk & process Management, Dit KeU Diagram of the Development of risk Management Function in telkom of 2006-2016 In 2016, Telkom kept trying to improve the implementation of risk management by emphasiz-ing the Revenue Assurance & Fraud Management System. Further, in the next year of 2017, Telkom will strengthen the Enterprise Risk Profile Group & Advisory through BCM, Revenue As-surance & Fraud, Insurance Management and ERM of Telkom Group. Risk Management Policies of Telkom refers to the Regulation of Board of Directors No.PD.614.00/r.00/HK.200/ COP-D0030000/2015 dated September 30, 2015 regarding Telkom Enterprise Risk Management and Regulation of Finance Director No.PR.614.01/r.00/HK200/COP-D0030000/2016 regarding the implementing guideline for Telkom Enterprise Risk Management. The objectives of the implementation of risk managements are to: 1. Ensure that all risks that may disturb the action to achieve company’s objectives can be anticipated in advance and responded properly as well as to get new opportunities that support the action to achieve Company’s objective. 2. Prepare the Framework Standard to implement the Company’s Risk Management so that the risk management can be more coordinated and integrated. The main framework of Telkom’s Risk Management shall refer to the framework from COSO (COSO ERM Framework), which shall cover three main components namely: 1. The implementation of company’s risk management must be able to support the compa-ny’s objective from the aspects of strategic, operational, reporting and compliance. GIC e t a r t S S n tIo a G tIn r e C n LIa p M o C o p e r r e p o Internal environment objetive Setting event Indentification risk assessment risk response Control activities B S U U S B I n S I e D S I S a r Y U n I t e n t I t Y - D I v I S I L o n e v e L Information & Communication Monitoring Diagram CoSo erM Framework 218 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS Strategic Aspect: The management and implementation of risk management shall be made in order to give added values through the process of company’s planning such as on the preparation of Company’s Long Term Plan (Corporate Strategic Scenario), Annual Budgeting (RKAP) or the process of strategic decision making. Operational Aspect: The implementation of risk management to protect company’s asset are conducted through among others: 1. Physical security management for infrastructure security 2. IT Security Management System which shall cover confidentiality, integrity and availability 3. Management of Occupational Health and Safety (OHS) System 4. The Development of Business Continuity Management, Disaster Recovery Plan and Crisis Management Team 5. The Management of Revenue Assurance and Anti Fraud Program Compliance Aspect : Risk management shall be made in order to give added values through: • compliance management upon the External or Internal Reporting Aspect : The risk management shall be made in order to give added value through the stipulation of the disclosure controlling process of financial reporting through the Disclosure Control Procedure (“DCP”). Regulation • compliance management upon the provisions of SOX through the design and implementation of adequate internal control 2. Company’s risk management shall be implemented in all organization levels within the company which shall cover the Enterprise level, Division, Business Unit and Subsidiary. In line with such matter, good governance of Telkom’s risk management shall be adjusted with the structure and hierarchy of organization policies namely: Board of Directors Risk Committee To determine the policies in relation to the risk management and to ensure that company’s risk management has been implemented in all company’s manage-ment processes effectively. To determine certain policies, review and recommendation upon the company’s risk and to give the feedback or guideline to the responsible person of company’s risk. Company’s Risk Management Unit To coordinate the implementation of company’s risk management policies. Internal Audit Unit Unit Manager All Employees Subsidiary To give an independent opinion to the Board of Directors, Risk Committee, and Company’s Risk Management unit. To implement and supervise all company’s risk management processes in the unit that he/she manages. To conduct company’s risk management policies based on their role and position effectively and efficiently. To implement the risk management in the subsidiary in the framework of imple-mentation pursuant to the risk management framework of Telkom. 3. The implementation of company’s risk management shall consist of 8 components of process namely: a. Internal development. b. Objective setting. c. Event identification. d. Risk assessment. e. Risk response. f. Control activities. g. Information and communication. h. Monitoring. To be able to conduct 8 components of process in the framework of COSO well, Telkom develops and maintain company’s risk management through the structural and operational aspects. a) Structural aspect; to develop the supportive internal environment, namely: • To build the commitment and Tone at the Top. • To put the foundation of risk management in framework of b) Operational Aspect; to focus on: • The implementation of risk assessment in the level of corporate, business unit and subsidiary as well as the preparation of adequate mitigation plan. GCG. • To form a Risk Management Organization Unit. • The development of Policy, Guideline for Risk Acceptance Criteria (RAC), Guideline for Risk Assessment (Risk & Control Self Assessment/RCSA) and Good Governance. • The development of competence in the field of risk management. • The provision of adequate tools and system. • The development of risk assessment methodology for specific function that combines the implementation of COSO ERM Framework with standard reference or other guideline. • The maintenance aspect that is focused on the process of information, communication, review and continuous improvement. 219 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSIn the implementation of risk management system, Telkom also pays attention and combines the said COSO framework with other relevant reference and guideline among others: 1 2 3 4 5 ISO 31000 ISO 27001 ISO 22301 ISO 20000 ISO 18001 Enterprise Risk Management as the implementation comparison and complementary Information Security Management System (ISMS) as a reference in the development of risk management to ensure Information Security in terms of Confidentiality, Integrity and Availability. Business Continuity Management System (BCMS) as a reference in the effort to ensure business continuity Information Technology Service Management (ITSM) as a reference to ensure IT ser-vice Occupational Health and Safety Assessment System (OHSAS) as a reference to support the implementation of SMK3 based on Government Regulation No.50 of 2012 regarding the implementation of SMK3 organization of risk Management in the Corporate Level Telkom implements risk management system in all organization levels, namely: 1. Corporate Level. 2 Business Unit in the Company’s Office. 3. Business Unit (Division/Center). 4. Subsidiary. In reference to the Regulation of Board of Directors and the Regulation of the Director of Hu-man Capital Management in 2016, Telkom’s risk management function is implemented by Sub-Directorate of Risk & Process Management in the Directorate of Finance under the following structure: vp rISK & proCCeSS ManaGeMent avp Governance and Quality Management process Management project Leader 1 process Management project Leader 2 risk Managament project Leader 1 risk Managament project Leader 2 types of risk and Management Method Risk management system helps Telkom to identify significant risks for the business sustainabil-ity. Telkom has identified the risks in Indonesia specifically, namely the risk of social and poli-tic, macro economy, disaster and other risks. Further for the business risks, Telkom has identi-fied the risk of operational, finance, law and compliance, regulation, inherent risk to the fixed and mobile telecommunication business. In addition to such risks, Telkom also conducts the quantitative and qualitative disclosure upon the market risk. 220 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStype of risk risk that is faced the Impact to telkom Mitigation/risk Management a. risks related to Indonesia Politic and Social The disruption of politic stability and social Have negative impact to the business, operation, 1. Monitoring of the influence of social instability to specific issues financial condition, business proceeds and political instability to the disruption prospect as well as market price for securities of operational/service 2. The maintenance of awareness through the improvement of safety & Security functions Macro Economy The change of global, regional, or 1. Have the impact on the business, financial 1. Monitoring of the influence of Indonesian economic activities condition, business proceeds or business macro economy to the change to The fluctuation of Rupiah Exchange rate prospect. increase the expense through Cost 2. Have a material adverse effect to the business, Leadership program. The increase of loan interest rate financial condition, business proceeds or 2. To look for the opportunity to The decrease of government or company’s credit rating business prospect increase the spending of APBN pursuant to the government focus (Maritime, Tourism, Energy, Transportation, etc) Risk of Disaster Flood, thunder, storm, earthquake, tsunami, Disrupting its business operations and give 1. Transfer of risk by using the volcano eruption, epidemic, fire, drought, negative impact to the financial performance and insurance of assets to anticipate the power shut down and other event beyond profit, business prospect as well as market price natural disaster and fire. our control of securities 2. Coordination with ASKALSI (Indonesian Sea Cable Association) to secure SKKL. 3. Preventive & Corrective Action by preparing the Disaster Recovery Plan and Crisis Management Team. Other Risks Indonesian corporate information Disrupting its business operation and giving the The use of a competent legal consultant disclosure standard is significantly different negative impact to the financial performance and that has experience with the issues than what is implemented in other profit, business prospect as well as market price on corporate law in other countries countries including the United States of of securities particularly the United States of America The difference in the regulation of dividend determination The issue on the legal certainty in Indonesia and United States of America including the implementation of law The possibility on the difference in the interest of controlling shareholders with the interest from other shareholders America 221 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStype of risk risk that is faced the Impact to telkom Mitigation/risk Management B. Business related risks Operational Risk The failure in the sustainability of network Has the negative impact to the business, financial 1. Implementation of BCM, BCP, and operation, main system, gateway on our condition, proceeds from the operation and DRP network or other operator’s network business prospect 2. Certification of Integrated Management System (IMS) for infrastructure management Threat of physical and cyber security, such Has the negative impact to the business, financial 1. The upgrade of Preventive Action in as theft, destruction, or other action condition, proceeds from the operation materially the form of Vulnerability Assessment and Penetration Test periodically 2. Monitor and Identification all of types of attack in the real time as well as to choose and conduct a necessary action immediately 3. Preparing the recommendation to handle Cyber Attack based on the historical incident analysis 4. Intensive coordination with relevant parties to handle the Cyber Attack Risk in relation to internet service May face a lawsuit and damage the reputation To be more prudent in the preparation of contract with content provider partner Leak of revenue due to the internal Has a negative impact to our business proceeds 1. Acceleration of leak detection time capability weakness or external factor and revenue indicated as an external fraud in real time 2. Monitoring the critical point of the leak of revenue especially on the rejected billing call New technology Has an impact on the competitive power 1. The preparation of Technology Roadmap by taking into account future technologies and the possible implementation of competitor’s technologies 2. Acceleration of IDN (Indonesia Digital Network) program to support future services The limit of operation period, damage Can create loss to financial condition, proceeds 1. The planning to change the Satellite or ruin, delay or failure to launch, or the from operation and capability to give services of which operation period will be revocation of Satellite license immediately expired 2. The insurance of Satellite operation during the active period 3. Insurance for Manufacturing and Launching of new Satellite. 4. Developing the understanding with Regulator in relation to the Satellite operation by Telkom Financial Risk Interest Rate Risk Has an adverse effect to the business, financial Interest rate swap contract from the con-dition and proceeds from the operation float interest rate to become the fix interest rate upon certain loan term Foreign exchange rate risk Has negative impact on the financial condition or Placement of time deposit and hedging proceeds from the operation to cover the fluctuation risk of foreign exchange The limit to fund cap-ital expenditure Has a material adverse effect to the business, Maintaining and improving the financial condition, opera-tional performance and Company’s performance to obtain business pro-spect the trust from National or Global fund institution/source Legal and Compliance Penalty/fine by KPPU in relation to the reducing our revenue and has negative impact to Strengthening Legal Review towards Risk price fixing and the occurrence of class the business, reputation and profit corporate action plan or certain action contract 222 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStype of risk risk that is faced the Impact to telkom Mitigation/risk Management Regulation Risk The change of Indonesian or International Has the impact to the business, financial condition, 1. Analysis on the impact of the Regulation operational performance and business prospect regulation plan towards the industry in general and Telkom in particular. 2. Giving inputs so that the regulation that will be stipulated will give positive impact to the company and industry. Risk in relation Losing the cable phone customers and Has a material adverse effect on the proceeds 1. Improving QoS – Quality of Service to Fix and Mobile revenue from the service of cable phone from operation, financial condition and our for cable phone customers. Telecommunication voice call business prospect 2. Giving Value Added Service Business The competition on the internet service Has a negative impact on the business, financial 1. Strengthening the perception and (fixed Broadband) condition operational performance and business quality of IndiHome as New Digital prospect Life Style The competition on mobile service has a negative impact on the business, financial 1. Acceleration of the launch of the condition operational performance and business infrastructure for 4G service prospect 2. Improving QoS – Quality of Service 2. Acceleration on the launching of the infrastructure for fixed broadband service review on management system During 2016 Telkom’s risk management system has been the effectiveness of risk Integrated Management System • The application of SMK 3 Online managed by Security & Safety Unit for Health and Safety documentation management implemented effectively in support-ing every policy and • The application of Security & Safety managed business process of Telkom and its subsidiaries. The by Security & Safety Unit for the moni-toring of assessment on the effectiveness of Risk management Physical Security management implementation was conducted through the evaluation • The application of Telkomcare for the coordination pro-cess, namely: with Crisis Management Team 1. One-on-one Evaluation/discussion with business unit as necessary. To maintain the quality of risk management, Telkom has 2. Workshop for the sharing in the implementation also implemented the risk manage-ment competence and development of ERM with the sub-sidiaries as development through trainings. Moreover, Telkom has also necessary. conducted so-cializations as well as workshop in relation 3. Audit Program on Risk Management Implementation to the risk management in the office of the division and as necessary. subsidiaries so that every person in Telkom is able to 4. Evaluation with the Committee for Risk, Compliance understand risks with the same point of view. and Revenue Assurance in BoD level as necessary. 5. Evaluation with Planning and Risk Monitoring Evaluation Committee (KEMPR) as neces-sary. table of training of telkom’s risk Management in 2016 The effectiveness of Telkom’s risk management system is integrated with the use of support-ing infrastructure by using a risk management information application (tools)/ system, among others: 1. Generic Tools Enterprise Risk Management Online (ERM Online) which is used by all units for the management of Risk Assessment 2. Specific Tools for the purpose of certain risk management such as: 1 2 3 4 5 no. type of training Risk based Audit Risk Assessment ICOFR Internal Auditor BCMS time January 2016 August 2016 October 2016 ISMS & Internal Auditor ISMS November 2016 Transaction and Accounting for Hedging November 2016 • The application of Fraud Management System (FRAMES) which is used as an early detection During 2016 Telkom received the visits or was asked by external parties to conduct sharing ses-sions for the system for the possibility of Customer Fraud implementation of Risk Management, Internal Control, • The application of i-Library managed by the Process Management, Good Corporate Governance and Division of Network of Broadband and to be used Insurance Management among others from: for the management of documentation system of 223 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• PUSDIK of the Ministry of : March 31, 2016 Email : whistleblower@telkom.co.id or: Finance ka301@telkom.co.id • Directorate of Risk : April 4, 2016 Fax : +62-021 5271800 Management for State Finance The Ministry of Finance • • Pelindo II Medan : May 13, 2016 Internal Auditor of the : May 25 – 27, 2016 Ministry of Finance • Ministry of KOMINFO : November 3, 2016 Website : www.telkom.co.id Surat Audit Committee PT Telkom Indonesia (Persero) Tbk Graha merah Putih Lt. 5 Jl. Jend. Gatot Subroto Kav 52, Jakarta 12710 In 2016, Telkom received awards or certifications for its implementation of Telkom’s risk man-agement system The Complaint must fulfil the following requirements: from external parties namely: external Institution type of award 1. It is submitted through the website, email, fax or letter. 2. It gives the information regarding the issue on internal control, accounting, auditing, breach of regulation, allegation on the fraud and/or allegation of corruption, PT. SGS Indonesia Integrated Management System for the and the breach of code of ethics. Infrastructure Management which covers : 3. The information that is reported must be supported • The Certificate of ISO 9001:2008 - with sufficient evidence and those are reliable to be Quality Management System • The Certificate of ISO 27001:2013 - Information Security Management System • The Certificate of ISO 22301:2012 - Business Continuity Management System • The Certificate of IS0 20000:2011 – IT Service Management System WHIStLeBLoWInG SYSteM Whistleblowing System (WBS) constitutes the system that collect complaints regarding any violation in the Company. Since 2006, Telkom has implemented a whistleblower program which was designed to receive, review, and follow up the complaints from the employees of Telkom Group and from the third party by keep maintaining the reporter’s confidentiality. The implementation of the whistleblower program managed by the Audit Committee was stipulat-ed under the Decision of the Board of Commissioner and ratified with the Decision of the Board of Directors. Mechanism for the violation report Employees of Telkom Group or any third party may used as the initial data to conduct further investigation. protection to the reporter Through the Decision of the Board of Commissioner No.08/KEP/DK/2016 dated June 8, 2016 regarding the Procedure for the Handling of Complaint (Whistleblower) PT Telkom Indonesia, Tbk and the consolidated Subsidiaries which was then ratified with the Regulation of the Board of Directors No.PD.618.00/r.00/HK200/ COP-C0000000/2016 dated December 21, 2016, Telkom warrants and ensures the protection of reporter’s confidentiality, both the employee or any third party who submit the complaint or report on the allegation of violation. Telkom always prioritizes the confidentiality and presumption of innocent and the principles of Telkom’s Whis-tleblower in following up any complaint or report as submitted in accordance with the proce-dure of handling Telkom’s Whistleblower. the Complaint Handling The complaint handling to fulfil the Regulation of OJK No.IX.1.5 and Sarbanes-Oxley Act 2002 Section 301 regarding Public Company Audit Committee must be placed in order to improve Good Corporate Governance (GCG). Therefore, complaint requirements are necessary in order to keep that the reporter conveys the complaint in a full responsibility and not to conduct a defamation submit any complaint regarding any issues on accounting that may destroy the good reputation of a person. and auditing, breach of regulation, allegation on the fraud and/or allegation of corruption, and the breach of code The Audit Committee will follow up the complaint from of ethics directly to the President Commissioner or to the the third party or the employees of Telkom Group in Chairman of Audit Committee through email, fax or letter relation to: to the following address: 224 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 1. Accounting and Auditing The issues on the accounting and internal control upon the financial reporting which has the possibility to cause the material misrepresentation in the financial report as well as the issues on the audit especially the implementation of accounting standard including those related to the independence of Public Accountant Office. 2. Violation of Regulation Violations against the capital market regulation and laws and regulations in relation to the operation of the Company as well as the violation against company’s internal regula-tion which has the possibility to cause any loss. 3. Fraud and/or the allegation of corruption Fraud and/or the allegation of corruption which is conducted by the official and/or the employee of the company. 4. Code of Ethics The behavior of Management and employees of the company that is disgraceful with the potential of causing damages on Telkom’s reputation or causing losses to the company. The behavior of management and employee that is disgraceful are among others dishonesty, conflict of interest with Telkom, or providing any misleading information to public. Telkom has also developed a work mechanism between Audit Committee and Internal Audit including the protocol with Telkomsel to follow up the complaints that are being received. In addition to it, the whistleblower program has also been socialized and understood by the employees. the Complaint Handling Mechanism of telkom and Subsidiaries Investigation process column Whistleblowing and Follow-ups Bahan evaluasi archives expert Cc Follow- upt Follow-up report approval to Follow-up appointment of expert Yes Case review Subsidiaries? need experts? the Investigation report on the result of Investigation Yes No tpta? No Yes No Letter of the president Director to Subsidiary Copied (CC) to (1) president Director of telkom, (2) audit Committee and (3) Internal audit of the Subsidiary Subsidiary Discussion Follow- up? Yes No Forming an Investigation team Yes tL combined? response Letter note of tL note of tL Documentation end No Investigation by subsidiary the audit report tpta Subsidiary tpta report No Joint team? tpta - Joint tpta report Follow-up Follow-up report 225 t i d u A e e t t i m m o C I R D – S E R P n o i t a g i t s e v n I e e t t i m m o C i y r a d i s b u S R H I S B U PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS the party that Manages the Complaint Whistleblower Protection Officer (“WPO”) constitutes the member of Audit Committee that is assigned to handle the complaint by: 1. Receiving the complaint. 2. Administering the complaint. The Investigation Committee has its role in: 1. Conducting further investigation upon the complaint that has been initially assessed by the Internal Auditor. 2. Preparing reports on the result of further investigation and submitting the reports to the President Director to be copied to the Audit Committee. 3. Conducting the initial verification whether the complaint is in line with the criteria. 4. Monitoring the follow up of the complaint. the result of Complaint Handling The Audit Committee through the meeting shall whistleblower application but after those were reviewed determine: by the Audit Committee there was only 1 (one) complaint a. To give approvals to follow up of complaints received. that fell in the cate-gory of whistleblower, The balance did b. To give approvals on whether a complaint is to be not fall in the category of whistleblower (complaint on the followed up by an internal or external party. service/product). In 2016, there are 40 incoming complaints in the c. To give an assessment on whether the follow up of a complaint is already sufficient or not. The Internal Auditor has the role in: 1. Conducting the initial assessment on the complaint received by the Audit Committee. 2. Preparing initial assessment reports and submitting the reports to the President Director to be copied to the Audit Committee. SIGnIFICant LeGaL DISpUteS Description Total Complaint Fulfil the requirements total 40 1 remarks Received complaints Complaint that is proper to be followed up During 2016, there were 69 legal disputes encountered by Telkom which consist of 9 Criminal Litigation and 60 Private lawsuit.. In addition, there was also 1 (one) significant dispute encountered by Telkom’s Subsidiaries. Until the end of 2016 there is no legal issue faced by Board of Commissioners and Board of Directors. table of recapitulation of 2014-2016 Lawsuits against telkom Status In process Final and binding (inkracht) Sub Total Total telkom’s Legal Issues 2014 2015 2016 Criminal Civil Criminal Civil Criminal Civil - 1 1 2 - 2 3 2 1 3 6 4 10 13 9 - 9 36 24 60 69 226 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSFor Telkom’s information diclosure purposes, the following is detail information relating to significant lawsuits encountered by the Company in 2016. table of 2016 Lawsuit against telkom object of Dispute type of Court Status of Dispute Financial Impli-cations Supreme Court Telkom became a defendant in Suoreme Court about legal dispute regarding supposition violation on Article 5, Law No. 5 Year 1998 about Monopoly and Prohibition of Unfair Business Competition which has been submitted by the KPPU. 18 The Supreme Court has been decided on February 26, 2016 which basically they grant the application from the KPPU and punish Telkom to pay fina in the amount of Rp18 billion. That particular decision received by Telkom on December 14, 2016 and Telkom has been paid that fine on January 5, 2017 for Comission the Supervision of Business Competition (KPPU) The Supreme Court already made a decision about this case 25 Subssidiaries Telkomsel along with other Operators were under investigation by KPPU relating to the allegation of SMS cartel practices committed by the Operators. KPPU has issued a Decision, punishing Telkomsel to pay a fine in the amount of 25 billion Rupiahs. Based on the official announcement of Supreme Court, tha case has been decided that the KPPU Decision still prevail and the district court decision that negate the KPPU’s Decision is canceled InForMatIonS reGarDInG aDMInIStratIve SanCtIonS In 2016 Financial Year, there is no Administrative Sanctions by the Capital Market Authority and other Authority sentenced to The Company, Board of Directors of The Company and Board of Commissioners of The Company. Therefore there is no information about Administrative Sanctions in this sections. 227 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCorporate CULtUre “The Telkom Way” has become Telkom’s corporate culture or corporate values since 10 June 2013 as stipulated by the Board of Directors under Decree of the Board of Directors of Limited Liability Company (Persero) PT Telekomunikasi Indonesia Tbk, No.PD.201.00/r.00/HK250/COP-B0020000/2013 on Leadership Architecture and Corporate Culture. Furthermore, guidelines for the implementation of the Corporate Culture within the Telkom Group environment are set out in Regulation of the Director of Human Capital & General Affairs of Telkom No.PR.201.01/r.00/HK250/ COP-B0400000/2013 on the Corporate Culture of Telkom Group. The stipulation of the corporate culture above refers to the concept of the management of Telkom Group, which is based on the 8S elements, namely Spirituality, Style, Shared Values, Strategy, Staff, Skill, System, and Structure. The Corporate Culture is formulated in detail as follows: tHe teLKoM WaY KeY BeHavIor (IMAGINE, FOCUS, ACTION) PRACTICES TO BE WINNER Core vaLUeS (SOLID, SPEED, SMART) POWER PLAY TO BE THE STAR BaSIC reLIeF : aLWaYS tHe BeSt (INTEGRITY, ENTHUSIASM, TOTALY) POWER PLAY TO BE THE STAR IFa Imagine Focus action Solid Speed Smart • Planning Victory • Set The Target • Risk Anticipation • Focus • Set Quick win • Source Optimization • Real Action • Evaluation • Continous improvement • Sinergy • Common Vision • Trust • Iniciative • Fast Service • Decision Speed • Target Understanding • Set The Priority • Integrity aLWaYS tHe BeSt Integrity Integrity • • Positive Behaviour • Honesty enthusiasm totaly • Enthusiasm • Sincerity • Will To be The Best • Totality • Self Improvement • Commitment to Work • Philosophy to be the Best: Always The Best Always the Best is a basic belief to always give the best in every job. Always the Best has the essence of “Ihsan” which in this sense is translated into “the best”. Any individual of the Telkom Group who has the spirit of Ihsan will always give better work results than expected, that the attitude of ihsan will therefore automatically be guided by a sincere heart when any activity undertaken is a form of worship to the God Almighty. 228 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• Philosophy to be the Best: Integrity, Enthusiasm, - Smart - All individuals of the Telkom Group are Totality required to work smartly, that is to understand the Always the Best urges every individual of the Telkom goals to be achieved, to determine priorities and Group to have integrity, enthusiasm, and totality. to always look for new better ways to achieve the • Principles to be the Star: Solid, Speed, Smart goals. Principles to be the Star of The Telkom Way means • Practices to be the Winner : Imagine - Focus – Action 3S which stands for Solid, Speed, Smart which also Practices to be the Winner of The Telkom Way means becomes the core values or great spirit. IFA which stands for Imagine, Focus, Action which is - Solid - All individuals of the Telkom Group must also the Key Behaviors. provide the best (Always The Best) and increase solidarity among all individuals of the Telkom Group as one Great Team. - Speed - All individuals of the Telkom Group must work quickly at every opportunity to win the competition because the fast ones will beat the slow ones. the telkom Way #1 philosophy to be the Best “Insan terbaik” principles to be the Star “Insan Bintang” : Solid, Speed, Smart (3s) practice to be the Winner 229 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSthe 2016 Cultural activation program process of Culture audit & alignment Warrant telkom Group role Modeling Compelling Story • Set Senior Leader in TELKOM Group as a Role Model with sustain commitment (Annual Program Setting) • Provide Improvement and series of Role Model Coaching Session to Culture Agent • Culture Agent Recruitment • Promote “Leaders Talk Values Program” • Cerpen KIPAS BUDAYA TTW Acticity : Promote Disruptive Culture Project than specific logic “Go digital”, “Go to Customer Experience”, “Be move Learn” • Develop Interctive website of TTW Insight for TELKOM Group • Continuing Innovative culture inspiring legend • Culture Award “Finding The Culture Heroes” • Promote the digital work environment • Strengthen TTW than National day event Formal System & procedure Upgrade Skill to Change • Translate disruptive & digital culture into The Telkom Way behavior thru Digital Culture Appreciative Injury • Culture Agent Recharging • Culture Agent Onboarding Session • Running TTW Refreshment (Digital Culture) for all • Design Culture Fit Test for New Hire employee (online/offline) • Develop Performance Indicator and Evaluation for Role • Running TTW for Frontliner (From Culture to Customer Model & Culture Agent • Define Symbol and Artistic Experience) • Role Model Learn & Share • Seminar Session 4 Leader : “Leader as a Coach” 230 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS The internalization of corporate culture was conducted using a top-down approach. The CEO of Telkom Group Calender of event Calendar of Events (COE) is a medium to communicate the is a role model for Corporate Culture and assigns all Unit cultural activation program of each month as a reference Head to be Role Models. Role Models also have to select or guide for the units of Telkom Group in planning and and assign Culture Agents whose tasks are to arrange the implementing the cultural activation programs in order to initiation of cultural activation activities in the relevant instill the corporate cultural values to the employees’ daily units and to motivate all employees to participate in it work behaviors. so that the process of internalization of The Telkom Way goes well. To date, Telkom Group has 767 Culture Agents (440 CAs from Telkom & 327 CAs from the Subsidiary) who, before carrying out his duties as culture agents, are Calendar of event Culture activation program 2016 provided with the Culture Agent on Boarding program to Cultural activation was carried out with the aim to provide skills and knowledge and common perception as internalize the corporate cultural values in the behavior Culture Agents. of all employees and express it in all of the Company’s events and business activities. In order to accelerate the implementation of corporate culture at the unit level, all of the Unit Heads were In 2016, a Culture Program Calendar of Events was instructed to establish a Cultural Activation Provocation prepared on the basis of national public holidays approach Community (Komunitas Provokasi Aktivasi Budaya/ KIPAS Budaya) in their respective units. As of December 2016, there were 132 groups of KIPAS Budaya. Each unit is granted the discretion to name its KIPAS Budaya in accordance with its respective goals and awesome. The as a means of strengthening the implementation of the values of The Telkom Way. The events include: • Kartini’s Day event, held in April with the aim to give meanings and adopt the values of Kartini’s struggle in theme of the activities of KIPAS Budaya is adjusted to promoting education for women. the company’s business strategy. In 2016 the theme was set nationally, namely, “Go Digital, Go to Customer Experience, and Be more lean”. As a reference for the unit cultural activation events, a Calendar of Events of Culture Program was published on the basis of National Public Holidays approach. • telkomer’s Back to School, held in May in commemoration of National Education Day. In this event, Telkomers carry out teaching and sharing activities in a number of schools or communities as to how to use the internet healthily, use gadgets wisely and about the professions of the Telkomers which are expected to inspire Indonesian students to advance the country. 231 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS• Kids Go to office, held in June in early holidays between academic years of the children. In the event The internalization and strengthening of Corporate Culture were also carried out in a number of innovative which carries the theme “My Parents My Inspiration (Ayah-Ibuku Inspirasiku)”, the employees are allowed to invite their children to be involved directly by playing ways, including through: • Culture Quiz, which aims to measure the understanding and awareness of Telkomers Group on the corporate the roles of their parents at work. This event aims to culture. The quiz is held periodically and online. provide experience and inspiration of the professions of Telkomers at work and to introduce the existing • Culture Story, is a digital media (e-magz) containing a collection of articles on current topics related to The work culture at the same time. Telkom Way corporate culture. • Customer’s Day event held in September which carries the theme “We Care U More”, the implementation of • Corporate Culture e-Learning, which aims to improve the employees’ understanding on The Telkom Way, which refers to the theme of National Customer Day and can be accessed through Telkom’s portal. In 2016, “Authentic Services and Experience (Pelayanan dan the topic of the e-Learning was “Diarium-New Digital Pengalaman yang Otentik)”. To provide services and Paradigm For Strengthening The Telkom Way” and experience for customers by prioritizing corporate was a mandatory e-Learning for all employees. character and culture as well as the Company’s vision. • raise Youth Spirit event, held in October in • role Model Learn & Share, is a benchmarking activity of the Role Models in the corporate cultural activation commemoration of the Youth Pledge Day (Hari of the Telkom Way in their respective units. Sumpah Pemuda) by filling it with activities. • Mother Day’s event, held in December with a number of activities such as Parenting Seminars and visits to Nursing Homes organized by women. From Culture to Customer’s experience As an effort to implement corporate culture that can be experienced directly by the customers of Telkom Group, the first step was the implementation of the Culture to Customer Experience training for frontline supervisors joined by 100 frontline supervisors of PT Telkom Akses. 232 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSFinding the telkom Group Culture Heroes In recognition of the units and employees that have actively activated The Telkom Way corporate culture, in 2016 the “Finding the Telkom Group Culture Heroes” event was held. This event awarded The Most Admired Culture Activation Unit, The Most Inspiring Role Models and The Most Inspiring Culture Agent. The Awards were handed out directly by the CEO of Telkom Group at the 2016 Telkom Award night. telkom Smart office To support the creation of a digital work environment, the Company has developed a digital lifestyle based work station (Telkom Smart Office Project) and designed the existing rooms carrying the theme “Working at Telkom Group has to be fun”. evaluation on the effectiveness of the implementation of corporate culture The effectiveness of corporate culture is evaluated by measuring the Cultural Health Index using a Corporate Cultural Entropy Survey. To date, Telkom Group has managed to maintain the Corporate Cultural Health Index at the level of PRIME or HEALTHY. telkom Becomes a Corporate Culture Benchmark Telkom’s efforts in activating The Telkom Way corporate culture attract other companies to conduct benchmarking visits, including from: BPKP, the Ministry of Public Housing, PERTAMINA, PERURI, the Ministry of Energy and Mineral Resources, the Center for Planning and Development of the HR of the Ministry of Environment and Forestry (Pusrenbang SDM KLHK), and PT Terminal Teluk Lamong. 233 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCoDe oF ConDUCt Implementation of Code of Conduct for Directors, Board of Commissioners, and employees Pursuant to the Sarbanes Oxley-Act (“SOA”) 2002 Socialization of Code of Conduct and efforts to enforce them Every year, Telkom posts socialization materials to employees about understanding corporate governance, business ethics, integrity pact, fraud, risk management, internal control (“SOA”), whistleblowing, banning section 406, Telkom owns and runs the code of conduct gratification, IT governance, ensuring information security which applies to all levels of the organization. Telkom and other integrated matters related to corporate Code of Conduct is established by the Decree of Directors governance practices. No.KD.201.01/2014 on Business Ethics in Telkom Group Telkom also organizes business ethics program online Environment. Telkom Code of Conduct is applicable survey program to all employees through the media to members of the Board of Directors, members of the portal/intranet, which ended with the willingness of Board of Commissioners and employees of Telkom family employees to run the business ethics. Understanding and in dealing with customers, suppliers, contractors, fellow application of business ethics and the results of the survey employees and other parties who have a relationship with is annually audited internally and externally through the the company. principles of the Code of Conduct Principles of Telkom’s Code of Conduct regulates the following: 1. Employee Ethics; which is the system of values or norms that are used by all employees and leaders in the daily work with the following scope; a. Main Behavior of Employees: i. Capacity and Capability of Employees ii. Duties and Prohibitions iii. Confidentiality of Information iv. Infrastructure v. Work environment b. Main Behavior of Leaders: i. Behavior of Leaders ii. Behavior of Directors iii. Behavior of Chief Executive Officer (CEO) and Chief Financial Officer (CFO) 2. Business Ethics, which is the system of values or norms that is upheld by the Company as guidelines for the Company, Management, and its Employees to interact with its environment with the following scope: a. Relationship with Regulator b. Relationship with Stakeholder c. Additional Terms SOA 404 audit process. The audit is executed in order to implement appropriate environment control according to the work schemes on COSO internal control on the entity level internal control audit. eMpLoYee proGraM StoCK oWnerSHIp The employee and/or management stock ownership program, or Employee Stock Ownership Program (“ESOP”), is a form of employee participation to also gain ownership of Telkom. During the Initial Public Offering (IPO) of 14 November 1995, as many as 116,666,475 shares are owned by 43,218 employees. Further, on 14 June 2013, Telkom has transferred a part of its buy back shares in the form of employee-owned stock as part of the annual work incentive for the 2012 financial year. As many as 59,811,400 recovered shares (equivalent to 299,057,000 shares after stock split) were transferred to 24,993 employees with a total fair value of Rp 661 billion. Telkom did not hold the ESOP program in 2016, thus, no information is available on the number of shares and/or options, implementation period, requirements for eligible employees/management, and the implementation price shown in this Report. Until the end of 2016, there are no code of conduct violations by Board of Commissioner, Board of Directors, and Telkom employee. As of 21 March 2016, as many as 14,373 employees and retirees are listed as Telkom shareholders with a total of 110,256,210 shares. 234 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS235 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS236 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTELKOM’S SOCIAL RESPONSIBILITIES 239 The Strategy For Telkom’s Social Responsibilities 239 Social Responsibilities To The Customers 240 Social Responsibilities To The Employees 243 Social Responsibilities To Society’s Social And Economy 247 Social Responsibilities To The Environment 237 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTheme: Telkom Indonesia for Indonesia PLANET PEOPLE PROFIT DIGITAL COMMUNITY DIGITAL MARKETING DIGITAL ECONOMY Digital Park wifi Corner BLC Broadband Learning Center, Digital Book Indonesia Digital Learning My Teacher My Hero UKM Go Digital Online Marketing Training SOE Creative House Digital village SocioDigi Leader Digital Lounge Creative Camp Disability Care Veterans’ House Renovation Development of public utilities Clean Water, Electrification 1000 Mobile Phone Free Repair Aid to Victims of Natural Disasters (Garut, Sumedang) 238 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTHE STRATEGY FOR TELKOM’S SOCIAL RESPONSIBILITIES The strategy for Telkom Group’s social responsibilities refers to the concept of 3P profit-people-planet and the paradigm of “Telkom exists for Indonesia, grows and develops together with Indonesians”. In relation to the said matters, Telkom Group implements the social responsibilities within 2 categories of program, namely Social Responsibilities Program (Program Tanggung Jawab Sosial Telkom - Telkom TJSL) implemented by Telkom Group and Partnership and Environment Development Program (Program Kemitraan dan Bina Lingkungan - PKBL) mandated to Telkom as an SOE. The elaboration regarding PKBL will be presented separately in other part of this Report. Telkom TJSL will be elaborated in this Report based on the need of the annual reporting. A more comprehensive information regarding Telkom TJSL will be presented in the Sustainability Report (Laporan Keberlanjutan) that may be downloaded from the company website at www.telkom.co.id. Strategy and Scope of activities The implementation of Telkom TJSL has the theme of “Telkom Indonesia For Indonesia” which covers the issues of Telkom’s social responsibilities that are deemed relevant and significant, by emphasizing the three principles of Telkom TJSL, which are: 1. Digital environment, which is the development, provision and management of telecommunication infrastructure and various facilities of information and communication technology (ICT) to support and connect all activities of the society, including the environment conservation activities. 2. Digital Community, which is the support for community empowerment through education on optimization of the ICT utilization to assist the activities of people’s daily lives. 3. Digital Economy, which is the development of ICT in various public services used by the society, as well as the support on micro and medium enterprises, especially in the creative industry sector, in relation to the optimization of ICT utilization. These Telkom TJSL principles shall be implemented in various programs which include social responsibilities to the customers, employees and environment as well as the societiy’s social and economy development. Budget And Realization Budget of Telkom TJSL comes from the operational expense which is recorded as the budget of TJSL pursuant to the Regulation of Board of Directors No.PD.701.00/2014 dated 14 October 2014. Total funds that have been allocated for the year of 2016 was in the amount of Rp24.13 billion and it has been realized up to the amount of Rp19.26 billion. Such amount of budget is increased compared to the year of 2015 which was Rp18.25 billion. SOCIAL RESPONSIBILITIES TO THE CUSTOMERS: TO PRIORITIZE THE CUSTOMERS Telkom Group produces telecommunication, information and digital products and services; therefore, the information regarding consumers health and safety are not as relevant and significant and also not available to be presented in the Report. Moreover, Telkom Group provides information of goods and/or services to the customers through the labeling or goods and/ or services such as fact sheet, catalogue, manual, and other forms. The provision of information of goods and/or services is required to make it easy for customers to use and maintain the quality of goods and/or services that have been purchased. Enhancing Customer Satisfaction As part of our commitment to conduct efforts to meet customer expectations, we have realized various programs aimed at increasing customer satisfaction, whice are the following: • Telkom Integrated Quality Assurance (TIQA) Program Enhancing employees’ orientation to be more concerned about the customers’ satisfaction to the service, which is done through the implementation of the Telkom Integrated Quality Assurance (TIQA) program using the ROSE (Raise on Service Excellence) framework. • Warranty After Sales The application of fair compensation through the implementation of post-sale warranty (service level guarantee/SLG) in order to ensure post-sale service compliance are implemented. • Customer service The implementation of service policies, as Telkom’s commitment to provide the best service to customers, include: o Service Delivery Determination of the management of Service Level Agreement (SLA) provision for the control of service delivery, especially in relation to network infrastructure. o Service Assurance Determination of product standards and a basic solution using service level guarantee (SLG) by involving Engineers on Site (EoS) to assist the problem handling activities located at the customer’s location or at the Telkom’s office with both shared and dedicated EoS. o Measurement of Quality of Service We measured the quality of service at various stages in accordance to the service processes. In the process of interaction with distribution channels, we conducted mystery shopping and mystery calling to ensure that quality service standards are applied consistently. An indicator of the measurement results is the Service Quality Index that is monitored and evaluated every month. 239 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCustomer Complant Handling For cellular customers, Telkomsel has a call center with the “Caroline” trade mark, which is an abbreviation of We provide a wide range of facilities and infrastructure Customer Care Online. Caroline can be contacted through that enables customers to submit their complaints on the following numbers: the quality of products and services that do not conform • “133” by Halo customers; to the qualifications that have been previously offered. • “188” (24 hours, fees apply) by simPATI and Kartu As The general policy is that a complaint regarding the customers; compatibility between product brochures with actual • “0807-1811811” (local landline tariff) for the national products is resolved in less than 24 hours. However, level. the settlement of customer complaints associated with administrative issues and disputes regarding fees require 2. The Segment of Corporate Customers a longer time, due to the stages of verification. Telkom has an account management team in managing the relationship with corporate We categorize the handling of customer complaints into customers which is supported with Engineer on Site two groups. 1. Personal Customer Segment (EoS) for priority customers, Corporate Customer Access Network (CCAN) Team for service delivery and Corporate Customer Care Center (C4) to handle the a. Telkom provides a customer service center that customers complaint which is contactable through the can be directly visited in every regional office and number “500250” and email: tele-am@telkom.co.id for branch office, known as Plasa Telkom. business customers and free special service for enterprise b. Telkom also provides an online complaint center in the customers through the number “08001Telkom” Company’s website (www.telkom.co.id) and the “147” (08001835566) and email: c4@telkom.co.id. call center. SOCIAL RESPONSIBILITIES TO THE EMPLOYEES: HUMAN CAPITAL WITH DIGITAL KNOWLEDGE Telkom Group ensures gender equality and work opportunity equality to employees who are competent and have the expertise as well as the plan for career development. In the implementation of election of members of Board of Directors and Board of Commissioners, Telkom Group does not consider gender as a specific issue. This is reflected as two Board of Commissioners members are women, namely Hendri Saparini and Pamiyati Pamela Johanna Waluyo. Gender Equality Gender quality it also represent in our recruitment process for new employees, competency development, managerial position and remuneration. a. Gender Equality in Recruitment The following table presents the data of total employees recruitment of Telkom Group based on gender. Classification New employees: New employees per age group 18-25-year-old 26-30-year-old Total 2016 2015 Men Women Total Men Women Total 200 20 220 202 24 226 402 44 446 170 66 226 200 30 230 370 85 455 240 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS b. Gender Equality in Competency Development The following table presents the data of competency development of Telkom Group based on gender. Type of Training Participation Certification Training SUSPIM Training Regular Training Technical Operational Management Total Men Women 308 446 19,849 12,385 7,464 20,603 118 62 5,598 3,493 2,105 5,778 2016 Total 2015 Hour Participant Training Men Women Total Hour Training 426 508 14,168 38,880 471 243 25,447 498,885 13,335 15,878 177,191 9,569 321,694 3,883 9,452 26,381 551,933 14,049 168 28 3,179 488 2,691 3,375 639 271 21,712 21,680 16,514 379,389 4,371 111,913 12,143 267,476 17,424 422,781 c. Gender Equality in Managerial Position The following table presents the data of managerial positions of Telkom Group based on gender. Managerial Position Band Position I Band Position II Band Position III Total Men 2016 Women Total Men 2015 Women Total 110 420 1,661 2,191 8 40 212 260 118 460 1,873 2,451 92 402 1,686 2,180 6 28 205 239 98 430 1,891 2,419 d. Gender Equality in Remuneration In the aspect of remuneration, Telkom Group complies with the Government Regulation regarding the standard of regional minimum wage (Upah Minimum Regional - UMR). During 2016, there was no employee of Telkom group who received remunerations below UMR. The following table presents the data of remuneration of Telkom Group based on gender. Position Senior Management Mid Management Supervisor Others Employee Turn Over Men (Index) Women (Index) 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 We always endeavor to create and maintain comfortable working environment, work life balance, good employee management policy and appealing renumeration package so that Telkom’s employee turnover rate is relatively low. 241 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSThe following is a table of comparison of Telkom employee turn over rate, not including subsidiary entities, in the last two years. 2016 2015 2014 2013 2012 Total number of Telkom Employees 15,018 16,097 17,279 17,881 19,185 Employee turnover rate • By own request/voluntary • Becoming a political party official • Becoming an SOE director/ government official • Disciplinary misconduct • Marry another Telkom employee 11 11 0 0 0 0 8 8 - 1 2 - 20 17 - - 1 2 14 14 - - - - Turn Over percentage (%) 0,01 0,07 0,12 0,08 22 10 - 12 - - 0,11 Occupational safety and Health (OSH) For Telkom, a good performance of OSH, which is embodied with the achievement of zero accident and low levels of absent, will increase employees productivity and ultimately support the improvement of operational performance as well as financial performance of the Company, which also means meeting the expectations of employees as one of the stakeholders in a strategic position. The implementation of OSH aspects itself is included in point 3 of the global sustainable development goals (SDGs): “Good Health and Well-Being”, and therefore, Telkom has interest in recording the best performance of OSH aspects. We organized Zero Accident Program based on labor legislations and OSH regulation from the local Office of Manpower. This program is evaluated and redeveloped every year. The following table represent the data of safe work hours Telkom for period 2014-2016. Location Telkom Witel Jabar Barat Utara (Bekasi) Telkom Witel Jabar Barat (Bogor) TelkomWitel Jakarta Barat Telkom Witel Jakarta Selatan Telkom Witel Jakarta Timur Telkom Area Jakarta Utara Telkom Area Tangerang Telkom Regional Sumatera Telkom Regional Jawa Barat Telkom Regional Jawa Tengah Telkom Regional Jawa Timur Telkom Regional Kalimantan Kawasan Timur Indonesia Telkom GMP Bandung (Japati) Telkom GMP Jakarta Telkom Area Jakarta Pusat Witel Riau Kepulauan (RIKEP) Batam Witel Riau Daratan (RIDAR) DIY Maluku Timur 242 Safe Work Hours 2016 2015 2014 1,110,416 1,988,131 3,764,728 2,786,477 2,296,028 3,009,952 3,631,392 18,012,836 5,658,458 5,658,458 12,314,243 5,107,194 5,592,672 3,241,802 3,642,121 4,516,536 1,670,056 817,656 729,414 3,591,120 8,666,697 4,265,880 1,114,848 2,048,184 2,483,192 3,204,192 13,848,352 5,171,923 7,017,171 10,828,032 4,471,856 5,412,640 3,600,280 13,749,318 3,809,288 1,373,696 889,904 6,971,000 3,204,992 3,148,888 2,181,146 2,458,200 1,704,260 1,738,720 2,207,095 2,683,906 8,884,232 5,160,189 1,589,177 9,152,000 4,471,856 8,186,134 3,740,736 3,679,508 3,809,288 - - - - PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEmployee Complaint Handling We provide employee corner applications to help employees find and study the human resources policy SOCIAL RESPONSIBILITIES TO THE SOCIETY’S SOCIAL AND ECONOMY: TO SYNERGIZE AND TO BE DEVOTED Initiative for Telkom’s social responsibilities to the aspect of the services and to act as a means for employees to give society’s social and economy shall be directed to develop the inputs to the management, which consists of: system of digital economy. This constitutes an important matter 1. Employee helpdesk - employee feedback management because it supports the development of digital economy in program, ranging from providing feedbacks, Indonesia. In conducting such effort, Telkom Group synergizes responding to feedbacks, up to documenting and both internally and externally with many parties, be it the conducting a review as a feedback to the management. Ministry, SMEs as the partners to be developed, or other SOEs. The service provided is web-in service, email-in service through HR_helpdesk@telkom.co.id or phone-in SOE Creative House service at number 1500305. 2. Employee wiki - search engine services to search for SOE Creative House constitutes the synergy program among answers, definition as well as procedures of human SOEs in improving the quality of SMEs in Indonesia. The main capital management is now quick and easy to use. By goal of Telkom’s involvement is to assist SMEs in improving the entering keywords that you would like to know about, quality of production, marketing and sales of goods as well as Employee Wiki can give you the answer. logistic aspect. This program has been determined as the knot 3. Employee aspiration - an adaptation of the Employee for three development areas, which are: Suggestion System (ESS), which is the mechanism used by the Company to collect employees’ creative ideas, which are suggestions from employees that are collected, classified and sent to an expert or committee to be evaluated. After that, the advice can be adopted by the Company, and in this case, the company can • Center for competence; to assist in improving the competence in relation to the development of products, management and other technical operations. • Center for commerce; to assist the marketing and sales, especially to support SMEs in utilizing the digital advertising, digital payment, e-commerce and blanja.com as the also provide rewards. marketing and sales facility. 4. Employee reference – a catalog for valid human capital • Center for capital; to assist SMEs in the funding. policies that provides a brief explanation of each required policy as well as its regulatory documents. Currently, there are 25 SOEs involved in SOE Creative House and it is planned to be established in 514 regencies. Telkom itself, by the end of 2016, has been present in 15 cities. In 2017, Telkom is expected to have implemented this program in all 467 targeted cities. One of Telkom’s activities in supporting SOE Creative House is to organize O2O sales channel. Telkom provides the digital application and digital kiosk which become the outlet for people with low literacy. Digital kiosk will be stationed in the post office so that people may shop through the digital application and directly order the desired goods. SOE For the Nation - SOE Creative House In the program of SOE Creative House, Telkom Group gave the support in the form of the training of business to be digitalized into the e-commerce platform, www.blanja.com. With this SOE Creative House, Telkom hopes that the actors of SME would be able to utilize the same platform to sell products of both partnered SME and the SOE. 243 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSThe Development of Digital Startup Telkom Group has the entrepreneur development program which has its basis on the ecosystem of digital startup. This program has some activities, which are the process of incubation, acceleration and funding through the capital venture. Bandung Techno Park, Bandung Digital Valley and Jogja Digital Valley has become the backbones of the incubation in three cities. The participants that pass the selection of incubation then will join the acceleration program in Jakarta Digital Valley. Digital Startup that has the potential will be assisted with funding by Telkom through its subsidiary, MDI. Incubation Acceleration Venture Product Validation Business Model Validation Market Validation Value Validation Kampung Digital (Digital Village) Digital Village constitutes a program of Telkom TJSL to stimulate the development of digital economy in the real sector. The pilot project of Digital Village has been conducted in three sub-district located in the area of Sleman Regency. This program supports the farmer to utilize the digital technology to improve the quality of farming activities. Indonesia Digital Learning (IDL) & My Teacher My Hero 244 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTelkom Group Gives Back in 2016 (Telkom Group Berbagi 2016) In the holy month of Ramadhan and in order to celebrate Eid Mubarak 1437H, Telkom Group organized the Program of Telkom Group Gives Back in 2016, consisting of: o Telkom Group Ramadhan Safari of 2016, with the donation activities to 3,000 orphans. o Cheap Market, which was conducted within the SOE Ramadhan Safari, to provide and sell 29,000 packages of staple food with a cheap price at 29 regencies/cities in Indonesia, as well as breaking the fast with 3,000 orphans. SOE For the Nation - 71st anniversary of RI SOE To Teach Directors of SOEs perform as teachers to inspire and motivate students through a variety of stories about their industries Low-Priced Market Distribution of aid to the less fortunate and the disabled in the form of food packages Development of Remote, Border and Conflict- Prone Villages Village gate establishment, community development and communication infrastructure development Renovation of Houses Program Tribute to the citizens who joined the armed units officially recognized by the government and actively participated in battles defending the Unitary State of the Republic of Indonesia Establishment of Daycare Center Construction of facilities for a daycare center, equipped with various facilities such as a playground, children’s library, learning facilities and nursing area Archipelago Awareness for Students The instillation of a sense of pride as citizen shaving a richness diversity of the Archipelago Consultation for Ex-Convicts Business motivation and mental counseling to encourage ex-convicts Provision of Clean Water Facilities and Public Toilets (Mandi Cuci Kakus) Construction of Clean Water Facilities and Public Toilets (Mandi Cuci Kakus/MCK) in several places to improve public health through the provision of more hygienic sanitation facilities Consultation for Ex-Athletes Consultation for Ex-Athletes in the form of mentoring and monitoring for a period of 6 months and providing assistance of a total of 100 million Rupiah Aid for Prayers Facilities Distribution of aids in various forms of repair and construction of prayers facilities across the working areas of Telkom Indonesia Household Electrification Electrical installation in 14 houses and provision of assistance of electricity token for 1 year Natural Disaster Assistance Aids for flash floods in some areas of Garut and Sumedang Regency, West Java Free repairs for 1000 mobile phones In support of the SOE for the Nation (BUMN Hadir untuk Negeri) and the 2016 Christmas and New Year Securities (Siaga Natal dan Tahun Baru 2016) programs, Telkom held an event of Free Repair Services for 1000 Mobile Phones (Service 1000 Handphone Gratis) as part of its CSR program for the general public. The event sets a new record at the Indonesian Museum of Records. This Program constitutes the synergy of Telkom Group with other SOE as the form of dedication and presentation of SOE to Indonesia in the celebration of the 71st anniversary of RI. This Program was prepared by the Ministry of SOE and Telkom has the mandate to manage such program in the region of West Java. 245 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDisability Care MoU between KEMENAKER and SOE employ the Disabled in BUMN. TelkomGroup has employed people with special needs (Disabled) since 2014 currently in the total of 14 persons Cooperate with DEPNAKER as well as the organization for disabled people (PPDI, PERTUNI, and PERTRI) Cooperate with Kick Andy Foundation to communicate this program to the public. Constitutes CSR Program of Telkom within BUMN for the Nation to Disabled people, whereby Telkom jointly with other BUMN give the assistance to the Disabled Community to prepare manpowers. The assistance given include: • Tools for disabled people • Training and certification (including I-CHAT) Awarding GANTARI for Disabled people who inspire and contribute to the environment and community DISABILITY CARE Disability Care is the program that constitutes the continuation of MoU between the Ministry of Manpower and Ministry of SOE. Through this program, Telkom Group has employed employees with special needs (disabled) since 2014 and it has planned to recruit more employees with special needs, including to develop the application of i-CHAT to help deaf people in the communication. The given assistance covers the aids for disability and Training and Certification (including I-CHAT), Awards for the disabled who inspire and contribute to the environment and community. Employee Volunteer Program Telkom Group has an Employee Volunteer Program (“EVP”) as the place for community social activities that are initiated by people of Telkom Group (“Telkomers”) either individually or through the community in the environment of Telkom Group. There are two groups of EVP participants, namely: 1. EVP Role Model, means social activities of Telkom’s employees conducted by senior leaders as the role model in Telkom Group. 2. EVP of Employees Community, means social activities conducted by the employees within the employees’ communities. 246 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEVP activities are divided into four categories, namely: • Service for Education Service for Education conducted during 2016 is the teaching activity in formal or non-formal education institutions. • Service for Cultural Conservation Social Activities in the sector of traditional culture are conducted through the teaching activities or active participation in the cultural developments for the young generation. • Service for Environment Service for Environment (saveplanet) includes a direct involvement in the social activities for the improvement of environment, such as activities to clean the environment conducted by Bicycles and Motorcycles Community as well as the activities to plant trees conducted by the Labor Union of Telkom. • Service for Social Community Service for Social Community includes the Telkomers’s social activities that become the initiator of social actions, such as through the provision of clean water to the village community that suffers from drought also conducting the bike to work campaign in Bandung City. Telkom facilitates the communication and information facilities of EVP activities through the website (http://www.evp. telkom.co.id). In 2016, Telkom recorded 5,352 Telkomers have been registered in EVP program. SOCIAL RESPONSIBILITIES TO THE ENVIRONMENT: TO SUPPORT THE ENVIRONMENT CONSERVATION We participate in the environment conservation program called Telkom Go Green Action. This Program is coordinated by Telkom Property and covers all operational aspects of Telkom including the aspect of office building management. We have conducted various operational initiatives as the realization of participation in the environment conservation. Such initiatives are as follows: 1. Energy saving and mitigation of carbon dioxide emission. Since 2009 we have implemented the program which was designated to reduce the use of electric energy in the operational activities. Therefore, we also contributed to the mitigation of carbon dioxide emission which is also produced by the power plant that are using fossil fuel. Such program not only reduced the emission of C02, but also gave the effect on the reduction of fee incurred by the company as shown in the following table: Data on the Saving for Electric Consumption from the Initiative to Use LED Lamps. No Year Total Locations Total Installations Saving of Kwh Saving of Rp Reduction of (Kg CO2) 1 2 3 2014 2015 2016* * In 2016 no additional of LED lamp. 84 191 0 48,118 34,783 0 8,920,043 8,147,754,217 7,947,757.92 12,733,125 13,048,932,710 11,345,214.59 7,873,951 8,259,202,854 7,015,690.35 Data on the Saving for Electric Consumption from the Initiative to Use the Environmentally Friendly AC. No Year Total Locations Total Installations Saving of Kwh Saving of Rp Reduction of (Kg CO2) 1 2 3 2014 2015 2016 15 460 0 202 6,642 0 28,690 37,297,260 25,562.97 2,222,807 2,889,649,620 1,980,521.39 1,246,703 1,620,713,952 1,110,812.41 247 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS2. Energy Efficiency in Office Buildings We restructured the system of energy supply in the office buildings that we manage to improve the efficiency in the use of power energy. Energy efficiency of such office buildings reduced the total of power utilization from 478,923.86 Mwh in 2015 to become 415,428.32 Mwh in 2016. In addition, such energy efficiency also reduced the emission of CO2 from 426,714 Ton CO2 Eq, to become 370,147 Ton CO2 Eq. As shown in the following graphic: 500,000.00 400,000.00 300,000.00 200,000.00 100,000.00 0.00 Konsumsi Lsitrik (Wmh) Emisi CO2 (Ton Eqv CO2) 2014* 2015 2016 3. The Use of Renewable Energy We have also conducted the change of our energy consumption from the non-renewable energy to the renewable energy, such as the use of wind and solar 5. The Management of Garbage and Waste of Hazardous and Toxic Materials (Bahan Berbahaya dan Beracun - B3) We implement the policy of waste selection into 3 energy as the mitigation efforts to carbon dioxide major groups namely organic waste, non-organic emission. Thousands of environmentally friendly BTS has waste, and B-3 waste. been operated by using renewable energy namely solar cell and micro hydro power. Carbon dioxide that has been The management of organic and non-organic were reduced has reached 961.39 Ton CO2 Eq per year. conducted through the cooperation with local Cleaning Office. Meanwhile for the waste under the group of B-3 In addition, we utilized the power plant that combines waste, the management is conducted by the third party the use of generator, solar cell and wind power for the having the authority to manage such wastes. However, installation of BTS in certain areas having sufficient in regard to waste produced from mercury lamps wind and solar energy potential. The use of such which is considered B-3, we assign its management renewable energy was saving fuel up to 98% meanwhile to the producers of Philips and Osram light since both 2% of fuel is still needed to maintain the generator set. companies have the facilities to manage mercury waste. 4. The Concept of Paperless Office We have implemented a concept that uses an 6. The Management and The Use of Recycled Water We commit to manage water and conduct the efficiency application for online official note and it has been in using water. We implement the policy through the implemented nationwide. During 2016, official note save the water campaign and by installing automatic letter made through the application of online official faucets. We only use the water to support building note has reached 281,236 (2015:294,563) pieces. With operation and to fulfill the need to drink for employees the assumption that the average official note consists which is mainly supplied by regional enterprise for of 2 sheets of paper and addressed to 3 recipients and drinking water (Perusahaan Daerah Air Minum - PDAM). further each forwards it to 3 persons, then by using the application of online official note we have saved the papers in the amount of 10,124 (2015:10,604) ream We also conduct the installation of biopori and water reservoir around the office to reserve the rain water as of papers. 248 well as conducting water recycle in a simple way by using charcoal-based filter. The recycled water will then be used to wash the operational vehicles and to water the trees in the office park. PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS 249 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS250 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPaRtneRShiP & Community DeveloPment PRogRam (PCDP) 252 253 PCDP Summary PCDP Report 251 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPaRtneRShiP anD Community DeveloPment PRogRam (PCDP) SummaRy PCDP Rp442.89 billion Community DeveloPment PRogRam Rp81.97 billion PaRtneRShiP PRogRam Rp360.92 billion 2016 Partnership Program Realization 2016 Community Development Program Realization trading industry Aid for victims of natural disasters Rp0.94 billion Rp203.48 billion 6,371 Partners Rp60.92 billion 1,784 Partners Development of education and training Rp35.68 billion livestock Rp13.29 billion 351 Partners Fisheries Rp7.97 billion 278 Partners Plantation Rp5.40 billion 201 Partners others Rp1.16 billion 22 Partners Service Rp61.52 billion 1,751 Partners Farming Rp7.18 billion 200 Partners Development of people’s health facilities Rp10.42 billion Development of public facilities Rp13.37 billion Construction and repair of prayer facilities Rp10.62 billion Environment Conservation Rp0.91 billion Eradication of poverty Rp1.64 billion Improvement of partners’ capacity Rp8.39 billion 252 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSRePoRt on the PaRtneRShiP anD Community DeveloPment PRogRam (PCDP) For Telkom, Partnership and Community Development Program (PCDP) is not only fulfilling an obligation of an SOE, but also the effort to manage the concequences of the policies and operational activities to the community and the natural environment in a transparent and ethical manner. The implementation of Telkom PCDP is also in line with the concept of 3P (profit, people, planet) which has the synergy with Telkom’s Corporate Social Responsibility Program (Telkom TJSL). In addition to it, Telkom PCDP also supports the activities to achieve Telkom’s objective to develop digital economy in Indonesia. legal BaSiS anD gooD goveRnanCe oF PCDP Telkom’s commitment in implementing PCDP is in line with and refers to ministerial regulation number PER-09/ MBU/07/2015 regarding Partnership and Community Development Program. legal BaSiS FoR the management oF PCDP • Article 88 & Article 90 of the Indonesian Law No.19 of 2003 regarding BUMN • Ministerial Regulation Number PER-09/MBU/07/2015 Partnership Program 1. Digitalization of Partnership Programs regarding the Partnership Program and Community 2. Enhancement of Partners’ Capacity Development Program of SOE • Company Regulation Number PD.702.00/r.00/ PR000/CDC-A1040000/2015 dated December 10, 2015 regarding the Management of PCDP. • Regulation of the Company (Persero) PT Telekomunikasi Indonesia Tbk. Number: PR.702.01//r.00/PR000/CDC-A1040000/2016 dated June 2, 2016 regarding the Guideline for the Implementation of PCDP Operation. Community Development Program 1. Aid for Natural Disasters 2. Aid for Education 3. Aid for People’s Health 4. Aid for Public Facilities 5. Aid for Prayer Facilities 6. Aid for Nature Conservation 7. Poverty Alleviation The implementation of Telkom PCDP is under the controlled by Community Development Centre (CDC) Unit, while the other programs of TJSL Telkom namely Telkom CSR PR is controlled by Corporate Communication sub-department. In conducting PCDP activities, CDC may coordinate with the relevant working units or subsidiaries. The implementation of Good Corporate Governance (GCG) in the management of funds and various PCDP activities constitute the important step from Telkom that must be complied with, as a State-Owned Enterprise (SOE) as well as a public company, which has listed its shares in the New York Stock Exchange and Indonesia Stock Exchange. Below is the diagram illustrating Telkom’s good governance in implementing the Partnership and Community Development Program (PCDP) 253 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSBaSiS FoR the gooD CoRPoRate goveRnanCe oF telKom PCDP gmS: • To ratify the Annual Report of PCDP as well as to give the release and discharge of responsibilities (acquite at de charge) to the Board of Directors and to release the Board of Commissioners from the supervision of the PCDP management in the financial year that has been reviewed by Auditor. Board of Commissioners To ensure the Management of PCDP has complied with the prevailing regulations and to approve and determine the budget for PCDP which shall be calculated as costs assignment for Supervision assignment for management Board of Directors, In the management of PCDP BOD shall be obliged to convey the report on the implementation of PCDP to the Minister/Shareholders with a copy to BOC Report of accountability • Financial Report • Annual Report of PCDP management of PCDP audit Committee performs its duties based on the Decision of the Board of Commissioners assignment of audit geneRal auDit oF PCDP Prior to the General Audit of PCDP, KAP must submit the Audit Plan to the Audit Committee as the assignor Performing the audit management implementation Management of Telkom PCDP (Community Development Center) In implementing PCDP, CDC shall refer to the Blueprint of PCDP which shall be valid for five years. The blueprint shall become the basis for the annual plan of PCDP and also the reference in measuring the satisfaction of beneficiary and partners. To maintain the accountability of PCDP implementation, each year Telkom conducts a general audit towards the Annual Report and Financial Report of PCDP. Below diagram explains the corporate governance of PCDP in managerial and operational level in the implementation of PCDP by CDC. CoRPoRate goveRnanCe oF CDC (the management oF PCDP) Blueprint of CDC long-term Plan (5 years) of telkom’s PCDP management general audit of PCDP Prior to General Audit of PCDP, KAP must convey the Audit Plan to Audit Committee as assignor measurement of mB & People’s opinion to the telkom’s PCDP management Budget Committee (the Control of Quarterly Budget) Community Development Center (management of PCDP) information management System of PCDP RKm & RKa PCDP Short-term Plan (1 year) of the telkom’s PCDP management Business Process of the PCDP management as determined by Sgm CDC • Financial Report of PCDP • Annual Report of PCDP gmS: To ratify the Annual Report of PCDP as well as to give the release and discharge of responsibilities (acquite at de charge) to the Board of Directors and to release the Board of Commissioners from the supervision of the PCDP management in the financial year that has been reviewed by Auditor. 254 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSthe oBjeCtive oF PaRtneRShiP anD Community DeveloPment PRogRam Telkom PCDP has a general objective which is to support the economy growth and improve people’s welfare, as indicated by the parameter of national economy growth, the percentage of contribution from economy sector and the improvement of Gini Index which show the index of welfare gap between society groups. In particular, Telkom PCDP is shown through the people empowerment in the economy sector and social sector which are related to Telkom’s main business directly or indirectly. Telkom see that PCDP has been implemented in line with the objective of global development under the concept of SDGs (Sustainable Development Goals), which covers: • Objective 1 – “Without Poverty – To end the poverty in any form across the globe.” • Objective 3 – “Good Health and Welfare – To ensure a healthy living and to promote the welfare for all people of any age” • Objective 8 – “Economy Growth and Proper Employment – To support the sustainable and inclusive economy growth, to provide job opportunities as wide as possible, as well as to create proper employments for all”. • Objective 11 – “Sustainable City and Community – To develop the inclusive, safe, high quality, resilient and sustainable cities and communities” StRategy FoR the Realization oF telKom PCDP Telkom as the Digital Telco Company is actively involved in the community development to accelerate the realization of digital society, such as through Partnership and Community Development Program (PCDP). This Program constitutes the implementation of three pillars of Social and Environment Responsibility program (TJSL/CSR) of Telkom, namely People, Planet & Profit (3P). 3 PillaR CSR PRogRam RealiSaSi PeoPle 1. 2. 3. Education & Training Public Health Place of worship training & education 1.092 Digital Library in di 639 Cities 1. 2. My Teacher My Hero (IDL) * Digital Training for 2.400 Teachers 3. Broadband Learning Center (BLC) & Digital Lounge Planet Victims of natural disasters 1. 2. Public Facilities 3. Nature conservation Facility 1. “BUMN Hadir untuk Negeri” (SOE for the Nation) Program PRoFit 1. 2. 3. Distribution of Partnership Fund Poverty Alleviation Small and Medium Enterprises Capacity Building Capacity Building Sme 1. Digitization of the Partnership Program Management 2. Digital Training 1.871 participants 3. National & International Partner Exhibition 255 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS exeCutive oRganizational StRuCtuRe The Executive Organizational Structure of Telkom PCDP is as follows. telkom group Ceo human Capital management Director CDC Finance Department human Capital Department CDC-Sub Department SeCRetaRiat DiviSion PaRtneRShiP DiviSion enviRonment DeveloPment DiviSion FinanCial DiviSion Planning anD ContRol DiviSion PaRameteR oF SuCCeSS Further, Telkom has set some parameters as the basis to examine the success of Telkom PCDP implementation of, which are: 1. CSR-Indeks. To measure the impact of CSR activities on customer loyalty and company reputation. In 2016, the CSR-Index shows the value of 70.18, which illustrates that the CSR activities that we have done had 70% effect on customer loyalty and the company reputation. 2. Net Promotor Score - NPS To measure how often people recommend of Telkom products as the impact of CSR activities. NPS measurement results in 2016: NPS Pertnership Programe PRomoteRS 46,69% PaSSive 43.78% DetRaCtoRS 9,73% NPS = Promoters - Detractors NPS Community Development Programe PRomoteRS 45.70% PaSSive 38.01% DetRaCtoRS 16.29% NPS = Promoters - Detractors nPS 36,76% nPS 29.41% 256 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS3. The effectiveness of funds distribution for the Partnership Program. This parameter compares the total funds for the Partnership Program that have been distributed to the partners of Telkom with the total available funds in the ongoing year. In 2016, the achievement of effectiveness level for the distribution of funds for the Partnership Program was 98.64% with the score of 3 from the total available funds in the amount of Rp365,91 billion. This achievement is far better compared to the level of effectiveness of the distribution in the year 2015, in the amount of 90,28% with the score of 3. table of the effectiveness of funds distribution for the Partnership Program 2014-2016 Distributed amount Available amount Effectiveness level of the funds distribution Score for the effectiveness level of the funds distribution 4. Payment Collectibility for the Partnership Program. Source of Funds (billion Rp) 2016 2015 2014 360.92 365.91 98.64% 3 348.97 384.34 90.28% 3 411.72 498.92 82.52% 1 This parameter is measured by comparing the average balance of payment collectability to the total amount of loan that have been distributed (loan balance). The level of payment collectability for Partnership Program in 2016 has reached 88.54% with the score of 3. This achievement is far better compared to the level of payment collectability in 2015, in the amount of 71,73% with the score of 3. table of Payment Collectibility for the Partnership Program 2014-2016 Collectability Level The Score for Collectability Level BuDget anD Realization year 2014 2015 2016 82.02% 71.37% 88.54% 3 3 3 The Budget for Telkom PCDP is coming from the reserve of company’s profit based on the direction from the Ministry of SOE. In 2016, Telkom distributed the PCDP funds in the amount of Rp442,89 billion. The distribution of funds for Partnership Programs and Community Development Programs are in the amount of Rp360,92 billion and Rp81,97 billion respectively or 81% and 19% from the total funds of PCDP. The realization of distribution of PCDP funds for the financial year 2016 is presented in the following table. table of the Distribution of Funds for the Partnership and Community Development Program for 2014-2016 no 1 2 type of Program 2016 2015 Rp billion Rp billion % of Change Partnership Program Community Development *) Total 360.92 340.96 81.97 442.89 72.41 413.37 5.9 13 7.1 257 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSSince 2001 to 2016, Telkom PCDP has distributed the a. SmartBisnis funds in the amount of Rp3,71 trillion, with the allocation SmartBisnis constitutes a service application for the Partnership Program in the amount of Rp3,10 for the proposal for funding in the digital-based trillion and for Community Development Program in the Partnership Program that is accessable by the amount of Rp0,61 trillion distributed to 34 Provinces in public through the website of smartbisnis. Indonesia. PaRtneRShiP PRogRam Through this application, the proposal for funding in the Partnership Program may be conducted at any time without any necessity to visit Telkom’s office. The Partnership Program constitutes the empowerment of people’s welfare which was conducted through: b. Virtual Account a) The grant of soft loan; To improve the service for the transaction of b) The training of enterpreneurship; and loan repayment in the Partnership Program, c) The development of creativity to UMKMs that Telkom has also implemented the digital-based constitute as partners. installment payment through the virtual account. Each partner which loan proposal has been To improve the quality of management for the approved will be granted with unique numbers Partnership Program, in 2016 Telkom PCDP focused on which have its function as the account for the the implementation of 2 main activities that support the development of digital economy, which are: payment of installment. From 46,246 partners, active partners are 33,983 partners or 73%. 1. Digitalization of the Partnership Program Management Telkom uses the digital technology in the data management of partners in the Partnership Program since 2007. Telkom implemented the service for loan application in the Partnership Program through smartbisnis website and the installment payment through virtual account to ensure the transparency and accountability of fund management. 258 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSDigital telkom for Community to receive proposals to provide services Sme Community aSSiSteD PaRtneR viRtual aCCount Sim PCDP StaRBox Information System Configuration for Partnership Program Management 2. Enhancement of Partner Capacity Enhancement of Partner Capacity in 2016 conducted through digital tranings, national and international exhibitions, and export traning. a. Training for Digital UKM The Road to Global Market This training was organized by Telkom since 2015 and continued in 2016 to assist the partners in promoting and marketing their products to the global market by using the facilities of blanja.com. In 2016, Telkom has also organized the training with the total participants of 1, 871 UKMs, 92 of them are Telkom’s Partners. b. Training for Export Telkom also held a training for export so that the partners may know the procedures and requirements for cross borders trading. c. National and International Exhibition In 2016, Telkom facilitated its partners to participate in exhibitions, namely Inacraft 2016, Safex exhibition in Algeria, and Sail to Karimata with an international scale organized by the Department of Maritime and Ocean. In 2016, the Partnership Program funds were disbursed in the amount of Rp 360.92 billion to 10,956 Assisted Partners from various sectors including: industry, trading, farming, livestock, plantation, fishery, services and others. Set out below are the realization data of numbers of Assisted Partners and Partnership Program Fund Disbursements per Sector and per province. 259 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTStable of total Partners and Distribution of Funds in the Partnership Program per Business Sector of 2014-2016 no. Business Sector 1 2 3 4 5 6 7 Industry Trading Farming Livestock Plantation Fishery Service 8 Others jumlah CagR (%) total Partners total Distribution (Rp billion) 2016 2015 2014 2016 2015 2014 1,784 6,371 200 351 201 276 1,751 22 1,895 6,972 229 429 207 333 1,896 20 2,183 6,675 222 428 203 296 2,116 40 60.92 56.37 70.50 203.48 193.97 206.22 7.18 13.29 5.40 7.97 61.52 1.16 6.77 12.81 5.56 9.21 55.32 0.95 6.72 14.83 6.36 9.75 70.27 11.77 10,956 11,981 12.163 360.92 340.96 396.42 -8.56% -1.50% 5.85% -13.93% table of total Partners and Distribution of Funds in the Partnership Program per Province 2016 no 1 2 Aceh North Sumatera 3 West Sumatera 4 5 6 7 8 9 10 11 12 Riau Mainland Riau Island South Sumatera Jambi Bengkulu Lampung Bangka Belitung DKI Jakarta Banten 13 West Java 14 15 16 17 Central Java D.I Yogyakarta East Java/Madura East Kalimantan 18 West Kalimantan 19 20 21 22 23 24 25 26 27 28 Central Kalimantan South Kalimantan North Kalimantan Bali NTB NTT South Sulawesi Central Sulawesi South-east Sulawesi North Sulawesi 29 West Sulawesi 30 31 32 Gorontalo Maluku North Maluku 33 West Papua 34 East Papua 260 Province total Partner total Distribution (Rp billion) 223 478 249 250 171 274 112 136 186 146 594 265 2,053 1,328 161 1,430 455 321 237 236 79 121 84 73 367 169 81 133 24 148 79 121 40 132 5.75 12.85 6.80 6.90 5.68 7.76 5.80 5.42 5.34 6.25 24.20 9.99 67.20 44.91 6.40 46.83 12.86 10.81 7.43 6.43 3.26 6.87 3.67 3.19 7.73 4.82 2.87 5.71 0.76 5.92 1.55 4.47 0.80 3.68 total 10,956 360.92 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSThe number of recipients of the Partnership Program 2. Aid for Education and Training funds was decreased by 8.56% in 2016 compared to 2015, Aid for education and training from Telkom, which while the amount of funds being disbursed in 2016 was is referred to as Indonesia Digital Learning, has the increased by 5.85%, thus the average amount of loans in highest portion in PBL with the purpose improving 2016 was higher than the previous year. Community DeveloPment PRogRam people’s capability to the use of digital technology and to develop digital economy. Through this aid program, Telkom provides the facility of Digital Libraries (PADI) and implements the My Teacher My Hero Program as The Environment Development Program is a program well as develops the Facilities of Broadband Learning of empowerment of the social conditions of the Center (BLC) and Creative Camp. communities in the business areas of the Company. The focuses of assistance provided by Telkom during 2016 included the followings: 1. Aid for victims of natural disasters Throughout 2016 there were several natural disasters. Three events that received much attention because of the impacts of the disasters were a flash flood in Garut, West Java, a flood in Southern Bandung and an earthquake in Pidie Jaya Regency, Aceh. 261 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS3. Aid for People’s Health the areas surrounding Toba Lake. The location for the Toba Aid for people’s health was given by Telkom in the Lake reforestation is at Sibatu Ni Loteng, Girsang Sipangan form of Disability Care Program in collaboration Bolong district, Simalungun Regency. 50 thousand trees with Kick Andy Foundation, the prevention of rabies were planted within 10 Ha of land. . disease in Ambon, the distribution of basic food in Ramadan in 29 Cities / Regencies across Indonesia totaling 29,000 packages, donations to 3,000 orphans and sacrificing of 497 animals. 7. Aid for the Eradication of Poverty Through the aid for the eradication of poverty, Telkom expects to be able to improve the standard of living of poor people either in the city or village areas. The aid given was in the form of renovation 10 retirement homes and the donation for the orphanages. 4. Aid for the Development of Infrastructure and Public Facilities The development of infrastructure and public facilities was implemented in the sector of facilities and infrastructure of telecommunication, by taking into account the direct or indirect impact to the local economic activities. Such assistance include in the form of procurement of Garden Alley in Makassar. 5. Aid for Prayer Facilities The aid was distributed in various forms of repair or In 2016, the distribution of the Environment Development construction of prayer facilities in all working areas Program funds gave priority to providing assistance in of the Company. The aid was distributed in the improving the quality of Indonesian society in anticipation form of donation for the construction of mosques, of the era of digitalization through Education and Training construction of churches and construction of hindu Development which spent Rp. 35.68 billion or 43.53% of the temples. In 2016, Telkom distributed the aid for total disbursements of the Environment Development Program. prayers facilities in the form of renovation of The The Public Utility assistance spent Rp. 13.37 billion or 16.31%. Mosque of Al Ikhlas Waisai in Raja Ampat and the However, the Company did not rule out the Environment Church of GKPS Sipingan Panei Tonga Pematang Development Program in other fields, with the total actual Siantar. 6. Aid for Environment Conservation disbursements of the Environment Development Program amounting to Rp.81.96 billion or 99.95% of the disbursement commitment of Rp. 82 billion. The following data presents the As an effort to create an environmentally friendly areas, we also conducted greening activities such as the reforestation realization of total beneficiaries and the distribution of funds for Telkom’s Community Development Program based on the of a mangrove forest by planting mangrove seeds at the program categories and province. North Beach of Java in particular Mangunharjo Beach, Tugu District, Semarang City and also the reforestation of 262 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS table of total Beneficiaries and the Distribution of Funds for Community Development Program in 2014-2016 no. Business Sector 1 2 3 4 5 6 7 8 Aid for victims of natural disasters Development of education and training Development of people’s health facilities Development of public facilities Construction and the repair of prayer facilities Environment Conservation Eradication of poverty Improvement of partners’ capacity total total aid objects total Distribution (Rp billion) 2016 2015 2014 2016 2015 2014 20 492 154 221 382 30 22 115 17 336 62 170 219 27 2 42 69 683 220 262 515 39 8 0 1,436 875 1,796 0.94 35.68 10.42 13.37 10.62 0.91 1.64 8.39 81.97 1.30 41.15 1.47 15.74 8.47 0.75 0.01 3.52 72.41 4.37 40.83 8.49 9.48 16.23 0.80 1.04 0 81.18 table of total Beneficiaries and the Distribution of Funds for Community Development Program by Province in 2016 no Province total aid objects total Distribution (Rp billion) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Aceh Sumatera Utara Sumatera Barat Riau Daratan Riau Kepulauan Sumatera selatan Jambi Bengkulu Lampung Bangka Belitung DKI Jakarta Banten Jawa Barat Jawa Tengah D.I Yogyakarta Jawa Timur/Madura Kalimantan Timur Kalimantan Barat Kalimantan Tengah 20 Kalimantan Selatan 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Kalimantan Utara Bali NTB NTT Sulawesi Selatan Sulawesi Tengah Sulawesi Tenggara Sulawesi Utara Sulawesi Barat Gorontalo Maluku Maluku Utara Papua Barat Papua Timur 15 107 13 12 4 12 3 1 14 4 117 12 346 196 24 228 91 40 10 28 5 5 4 15 86 2 5 9 1 7 8 1 2 9 total 1,436 0.85 3.19 0.67 0.28 0.07 0.53 0.08 0.01 0.49 0.05 34.33 0.25 17.41 4.63 0.77 9.18 0.93 1.22 0.12 0.37 0.05 0.11 0.10 1.18 1.42 0.18 0.07 0.17 0.02 0.05 0.96 0.02 1.25 0.96 81.97 The actual disbursements of the Environment Development Program in 2016 amounted to Rp.81.97 billion, an increase of 13.20% from Rp.72.41 billion in 2015. The number of Aid Objects also increased by 64.11% from 875 aid objects in 2015 to 1,436 aid objects in 2016. 263 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS264 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSAPPENDICES 266 Glossary 270 List of Abbreviation 272 Cross Reference to FSA Circulation Letter NO.30/SEOJK.04/2016 281 Feedback Form 265 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSGLOSSARY 3G The generic term for third generation mobile Broadband A signaling method that includes or handles a relatively telecommunications technology. 3G offers high speed wide range (or band) of frequencies. connections to cellular phones and other mobile devices, enabling video conference and other applications requiring broadband connectivity to the internet. BSS Base Station Subsystem, the section of a cellular telephone network responsible for handling traffic and 3.5G A grouping of disparate mobile telephony and data signaling between a mobile phone and the network switching subsystem. A BSS is composed of two parts: technologies designed to provide better performance the BTS and the BSC. than 3G systems, as an interim step towards deployment of full 4G capability. 4G/LTE A fourth generation super BTS Base Transceiver Station, equipment that transmits and receives radio telephony signals to and from other fast internet network telecommunication systems. technology based on Internet Protocol (IP) that makes the process of data transfer much faster and stable. Adjusted EBITDA Adjusted EBITDA is defined as earnings before interest, CDMA Code Division Multiple Access, a transmission technology where each transmission is sent over multiple frequencies and a unique code is assigned to each data or voice tax, depreciation and amortization. Adjusted EBITDA transmission, allowing multiple users to share the same and other related ratios in this Annual Report serve as frequency spectrum. additional indicators on our performance and liquidity, which is a non-GAAP financial measure. ADS American Depositary Share (also known as an American CPE Customer Premises Equipment, any handset, receiver, set-top box or other equipment used by the consumer of wireless, fixed line or broadband services, which is Depositary Receipt, or an “ADR”), a certificate traded on a the property of the network operator and located on the U.S. securities market (such as New York Stock Exchange) customer premises. representing a number of foreign shares. Each of our ADS represents 200 of our Series B shares having a par value of Rp50 per share (“common stock”). ARPU Average Revenue per User, a measure used primarily by telecommunications and networking companies which states how much money we make from the average user. It is defined as the total revenue from specified services divided by the number of consumers for those services. Bandwidth The capacity of a communication link. Bapepam-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan, or the Indonesian Capital Market and Financial Institution Supervisory Agency, the predecessor to the OJK. DLD Domestic Long Distance, a long distance call service designed for customers who live in different areas but still within one country. These areas normally have different area codes. e-Commerce Electronic Commerce, the buying and selling of products or services over electronic systems such as the internet and other computer networks EDGE Enhanced Data rates for GSM Evolution, a digital mobile phone technology that allows improved data transmission rates as a backward-compatible extension of GSM. 266 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSEdutainment Education and Entertainment. Homepass A connection with access to fixed line voice, IPTV and broadband services. Fiber Optic Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted through thin filaments of glass. Interconnection The physical linking of a carrier’s network with equipment or facilities not belonging to that network. Fixed Line Fixed wireline and fixed wireless. IP Internet Protocol, the method or protocol by which data is sent from one computer to another on the internet. Fixed Wireline A fixed wire or cable path linking a subscriber at a fixed location to a local exchange, usually with an individual IPO Initial Public Offering, the first sale of stock by a company phone number to the public. FTTH Fiber To The Home are the implementation of fiber optic network that reaches up to customer point or known as customer premise. IPTV Internet Protocol Television, a system through which television services are delivered using the Internet Protocol suite over a packet-switched network such as the internet, instead of being delivered through tradition Gateway A peripheral that bridges a packet based network (IP) and a circuit based network (PSTN). Gbps Gigabyte per second, the average number of bits, characters, or blocks per unit time passing between equipment in a data transmission system. This is typically measured in multiples of the unit bit per second or byte per second GPRS General Packet Radio Service, a data packet switching technology that allows information to be sent and received across a mobile network and only utilizes the network when there is data to be sent. ISP Internet Services Provider, an organization that provides access to the internet. Mbps Megabyte per second, a measure of speed for digital signal transmission expressed in millions of bits per second. Metro Ethernet Bridge or relationship between locations that are apart geographically, this network connects LAN customers at several different locations. MHz Megahertz, a unit of measure of frequency equal to one million cycles per second. GMS General Meeting of Shareholders, which may be an Annual General Meeting of Shareholders (“AGMS”) or an Mobile Broadband The marketing term for wireless internet access through a Extraordinary General Meeting of Shareholders (“EGMS”). portable modem, mobile phone, USB Wireless Modem or other mobile devices GSM Global System for Mobile Telecommunication, a European standard for digital cellular telephone. 267 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSMSAN Multi Service Access Node, represent the third generation Roaming A general term referring to the extension of connectivity of optical access network technology and are single service in a location that is different from the home platforms capable of supporting traditional, widely location where the service was registered. deployed, access technologies and services as well as emerging ones, while simultaneously providing a gateway to a NGN core. MSAN will enable us to provide Triple Play services that distribute high speed internet access, voice packet services and IPTV services simultaneously through the same infrastructure. Network Access Point A public network exchange facility where ISPs connected with one another in peering arrangements. OJK Otoritas Jasa Keuangan, or the Indonesian Financial Services Authority, the successor of Bapepam-LK, is an independent institution with authority to regulate and supervise financial services activities in the banking sector, capital market sector as well as non-bank financial industry sector. PSTN Public Switched Telephone Network, a telephone network operated and maintained by us and the KSO Units for us and on our behalf. Pulse The unit in the calculation of telephone charge. Radio Frequency Spectrum The part of the electromagnetic spectrum corresponding to radio frequencies, i.e. frequencies lower than around 300 GHz (or, equivalently, wavelengths longer than about 1 mm). Reverse Stock The compression of shares to become smaller amount of shares using higher value per share. Satellite Transponder Radio relay equipment embedded in a satellite that receives signals from earth and amplifies and transmits the signal back to the earth. SCCS Submarine Communications Cable System, a cable laid on the sea bed between land-based stations to carry telecommunication signals across stretches of ocean. SME Small and Medium Enterprise. SMS Short Messaging Service, a technology allowing the exchange of text messages between mobile phones and between fixed wireless phones. Stock Split Splitting the number of shares becoming more shares using lower value per share. SOA Sarbanes-Oxley Act, effective from July 30, 2002, also known as Public Company Accounting Reform and Investor Protection Act and Corporate and Auditing Accountability and Responsibility Act. Switch A mechanical, electrical or electronic device that opens or closes circuits, completes or breaks an electrical path, or selects paths or circuits, used to route traffic in a telecommunications network. RMJ Regional Metro Junction, an inter-city cable network installation service in one regional (region/province). TIMES Telecommunication, Information, Media, Edutainment and Service. 268 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSTPE a normalized way to refer to transponder bandwidth it simple means how many transponders would be used if the same total bandwidths used only 36 Mt transponder (1 TPE = 36 MHz). Treasury Stock Company’s share that has been buy back from the outstanding share temporarily. UMTS Universal Mobile Telephone System, one of the 3G mobile systems being developed within the ITU’s IMT-2000 framework. USO Universal Service Obligation, the service obligation imposed by the Government on all telecommunications services providers for the purpose of providing public services in Indonesia. VSAT Very Small Aperture Terminal, a relatively small antenna, typically 1.5 to 3.0 meters in diameter, placed in the user’s premises and used for two-way communications by satellite. 269 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSLIST OF ABBREVIATION Keyword Description AAG ARPU B2S BEI BSCS BTS BUMN CAPEX CDN CFU CGPI CORE COSO CSR CSS DMCS DR DS Asia America Gateway Average Revenue per User Built to Suit Bursa Efek Indonesia Batam Singapore Cable System Base Transceiver Station Badan Usaha Milik Negara Capital Expenditure Content Delivery Network Customer Facing Unit Corporate Governance Perception Index Center of Reformation Committee of Sponsoring Organizations of the Treadway Commission Corporate Social Responsibility Corporate Strategic Scenario Dumai Malacca Cable System Depository Receipt Depository Shares EBITDA Earning Before Interest Tax Depreciation and Amortization Edutainment Education and Entertainment EDC ERM ESOP FTTH Gbps GCG GHz GPRS GSM HCM ICT Electronic Data Capture Enterprise Risk Management Employee Stock Ownership Program Fiber To The Home Gigabyte per second Good Corporate Governance Gigahertz General Packet Radio Service Global System for Mobile Telecommunication Human Capital Management Infomation and Communication Technology ICOFR Internal Control Over Financial Reporting Indonesia Digital Learning International Domain Name Indonesia Global Gateway The Indonesian Institute for Corporate Governance Internet Protocol Initial Public Offering Internet Protocol Television Internet Services Provider IDL IDN IGG IICG IP IPO IPTV ISP 270 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSKeyword Description KAP KEMPR KNR KPPU LSE MAKE Mbps MDI MHz MSS MVNO NYSE OLO OTT PaDi PKBL PSTN Kantor Akuntan Publik Komite Evaluasi Monitoring dan Perencanaan Penanggulangan Risiko Komite Nominasi dan Remunerasi Komisi Pengawasan Persaingan Usaha, or Commission for the Supervision of Business Competition London Stock Exchange Most Admired Knowledge Enterprise Megabyte per second Metra Digital Investama Megahertz Mobile Satellite Service Mobile Virtual Network Operator New York Stock Exchange Other License Operator Over The Top Pustaka Digital Program Kemitraan Bina Lingkungan Public Switched Telephone Network Perumtel Perusahaan Umum Telekomunikasi PN PoP Perusahaan Negara Point of Presence REKODE Riset Kebijakan dan Otonomi Daerah RKAP RMJ RUPS RUPST RUPSLB Rencana Kerja dan Anggaran Perusahaan Regional Metro Junction Rapat Umum Pemegang Saham Rapat Umum Pemegang Saham Tahunan Rapat Umum Pemegang Saham Luar Biasa SEA-ME-WE-5 South East Asia – Middle East – Western Europe 5 SEA-US South East Asia-United States SEC SJC SME SMK3 SMS SOE SOX STB TIMES UMTS USO VoIP VSAT Witel Securities and Exchange Commission South East Asia Japan Small and Medium Enterprise Sistem Manajemen Keselamatan dan Kesehatan Kerja Short Messaging Service State-Owned Enterprise Sarbanes Oxley Act Set Top Box Telekomunikasi, informasi, media, edutainment, dan services Universal Mobile Telephone System Universal Service Obligation Voice over Internet Protocol Very Small Aperture Terminal Wilayah Telekomunikasi 271 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCROSS REFERENCE TO FSA CIRCULATION LETTER NO.30/SEOJK.04/2016 CRITERIA EXPLAINATION PAGES I 1 2 3 II 1 a. b. 2 a. FORM OF ANNUAL REPORT Annual Report should be able to be reproduced in printed document copy and electronic document copy. Annual Report presented as printed document should be printed on light-colored, good quality, A4- sized paper, bound and possible to be reproduced in good quality. Annual Report presented as electronic document copy is the Annual Report converted to pdf format. CONTENT OF ANNUAL REPORT General Requirements Annual Report should at least contain information about: 1) key financial data highlight; 2) share information (if any); 3) directors’ report; 4) board of commissioners’ report; 5) issuer or public company’s profile; 6) management discussion and analysis; 7) issuer or public company’s governance: 8) issuer or public company social and environmental responsibility; 9) audited annual financial report; and 10)statement of directors and board of commissioners on the responsibility for the annual report. Annual Report may present information in the form of images, graphs, tables, and/or diagrams by including clear title and/or description to be easily read and understood. Description of the Contents of Annual Report Key Financial Data Highlight Highlights of Key Financial Data presents information in comparative form over a period of 3 (three) financial years or since the commencement of business if the Issuer or Public Company has been running for less than 3 (three) years, and should at least contain: ✓ ✓ ✓ ✓ ✓ 20 1) revenue; 2) gross profit; 3) profit (loss); 4) profit (loss) attributable to parent and non-controlling interests; 5) comprehensive profit (loss); 6) comprehensive profit (loss) attributable to parent and non-controlling; 7) net profit (loss) per share; 8) total assets; 9) total liabilities 10) total equity; 11) profit (loss) to total asset ratio; 12) profit (loss) to equity ratio; 13) profit (loss) to revenue ratio; 14) current ratio; 15) liabilities to equity ratio; 16) liabilities to total asset ratio; and 17) other financial information and ratios relevant to issuer or public company and their industry type. 272 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA b Share Information PAGES 23-25 EXPLAINATION Information of share (if any) at least contains: 1) Shares issued for three months period (if any) presented in comparative form in the last 2 (two) financial years at least contain: a) outstanding shares; b) market capitalization by the price in the stock exchange where the share is listed; c) highest, lowest, and closing share price by the price in the stock exchange where the share is listed d) traded volume in the stock exchange where the share is listed. 2) In the event of corporate actions such as stock split, reverse stock, stock dividend, bonus share, and par value decrease, share price information referred to in point 1) should then include explanation concerning at least: a) date of corporate actions; b) ratio of stock split, reverse stock, stock dividend, bonus share, and par value decrease; c) amount of outstanding shares before and after corporate actions; and d) share price before and after corporate actions. 3) In the event that the company’s share trade is suspended and/or delisted during the year reported, Issuer or Public Company should explain the reason for such suspension and/or delisting; and 4) In the event that such suspension and/or delisting referred to in point 3) still goes on until the final period of Annual Report, the Issuer or Public Company should explain the action carried out by the company in solving the matter.. c Director’s Report Report from the Directors at least contains: 1) brief description about the performance of issuer or public company, 34-40 that at least: a) strategies and strategic policies of issuer or public company; b) comparison between achievement of results and targets; and c) constraints experienced by issuer or public company; 2) description of business prospects; 3) implementation of issuer or public company’s governance; and 4) changes in the composition of the board of directors and reasons for such changes (if any). d Board of Commissioners’ Report Report from Board of Commissioners’ at least contains: 1) assessment on the performance of the directors in managing the 28-32 issuer or public; 2) supervision of implementation of issuer or public company’s strategies; 3) views on the business prospects of issuer or public company established by the.; 4) views on the implementation of issuer or public company’s governance; 5) changes in the composition of board of commissioners and reasons for such changes; and 6) frequency and method of advising the member of directors. e Profile of Issuer or Public Company The Issuer or Public Copmany’s Profile at least contains: 1) name of issuer or public company, including, if any, changes in names, reasons for such changes, and the effective date of name; 2) access to issuer or public company, including branch or representative offices that enables people to obtain information: a) address; b) telephone number; c) facsimile number; d) e-mail address; and e) web site address. 3) brief history of the issuer or public company; 4) vission dan mission of issuer or public company; 5) business activities under the latest articles of association, business activities conducted during the financial year, and type of goods and/ or services offered; 6-9 7 50-51 48-49 52-53 273 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION 6)organizational structure of issuer or piblic company in a form of chart, of at least to 1 (one) structural level under the directors, with name and position included; 7) profile of the directors, consisting of at least: a) name and position that corresponds to the duties and responsibilities; b) latest photograph; c) age; d) nationality; e) educational background.; f) employment record, consisting of (1) legal basis of being appointed as member of directors for the first time at the related issuer or public company; (2) double position, either as member of directors, commissioners, and/or committee as well as other positions (if any); and (3) work experience and the time period both inside and outside the issuer or public company; g) education and/or trainings participated by member of directors in enhancing the competencies within a financial year (if any); and h) affiliation with other member of directors, commissioners, and major shareholders (if any), consisting of the names of affiliated parties; 8) Profile of Board of Commissioners, consisting of: a) Name; b) Latest photograph; c) Age; d) Nationality; e) Educational background; f) Employment record, consisting of: (1)Legal basis of being appointed as member of Board of Commissioners that is not of Independent Commissioners at the related Issuer or Public Company; (2)Legal basis of being appointed as member of Board of Commissioners that is of Independent Commissioners at the related Issuer or Public Company; (3) Double position, either as member of Borad of Commissioners, Directors, and/or Committee, as well as other positions (if any); and (4) Work experience and the time period both inside and outside the Issuer or Public Company; g) Education and/or trainings participated by member of Board of Commissioners in enhancing the competencies within a financial year (if any); h) Affiliation with other member of Board of Commissioners and Major Shareholders (if any), consisting of the names of affiliated parties; and i) Independence Commissioners’ disclosure of independency in terms of the board has served more than 2 period (if any). 9) In the event of a change in the composition of the Board of Commissioners and/or Directors taking place after the fiscal year until the deadline of Annual Report submission, management composition stated in the Annual Report is then the composition of the Board of Commissioners and/or Directors both the latest and the previous one; 10) Number of employees and description of the range of educational background and ages in a financial year; 11) Name of Shareholders and ownership percentage at the end of financial year. Information includes among others: a) Shareholders having 5% (five percent) or more shares of Issuer or Public Company; b) Member of Directors and Board of Commissioners owning shares of Issuer or Public Company; and c) Group of public shareholders each having less than 5% (five percent) share ownership of Issuer or Public Company; 12) Number of shareholders and ownership percentage per financial year end presented in the following classifications a) Local institution ownership; b) Foreign institution ownership; c) Local individual ownership ; and d) Foreign individual ownership; PAGES 62-63 74-83 64-73 7, 81-82 86-89 89-91 89-91 13) Information concerning major and controlling shareholder of Issuer or Public Company, both direct and indirect, until the individual owner, presented in the form of scheme or diagram; 92-93 274 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION f. Management Discussion and Analysis 14) Names of subsidiaries, associated companies, joint ventures in which Issuer or Public Company owns control with the entities, along with the percentage of share ownership, line of business, total asset, and operating status of such companies (if any); For subsidiaries, information on company address should be added; 15) Chronology of shares listing, number of shares, share value, and offering price from the beginning of listing up to the end of the financial year and name of Stock Exchange where Issuer or Public Company’s shares are listed (if any); 16) Chronology of other securities listing other than the securities reffered to in point 15) that contains the least securities’ name, year of issuance, maturity date, offering value, and rating (if any); 17) Names and addresses of institutions and/or capital market supporting professionals; 18) In the event that capital market supporting professionals provide services periodically to the Issuer or Public Company, there should be information on services provided, fees and period of assignment; and 19) Award and certification received by the Issuer or Public Company, both national and international scale during the fiscal year (if any), that includes: a) Name of Award and/or certification; b) Rewarding body or institution; and c) Validity period of the award and/or certification (if any). Annual Report must contain discussion and analysis of Financial Report and other significant information by emphasizing material changes taking place during the year under review. It should at least contain: 1) Operational review by business segment in accordance with the industry of Issuer or Public Company, consisting of at least: a) Production, which includes process, capacity and its development; b) Revenue and c) Profitability. 2) Comprehensive financial performance including a comparison between the financial performance of the last two financial years, explanation on the causes of such changes and their impact, which among others includes: a) Current assets, non-current assets, and total assets; b) Short-term liabilities, long-term liabilities, and total liabilities; c) Equity; d) Revenue, expenses and profit (loss), other comprehensive revenue and comprehensive income (loss); and e) Cash flow; 3) Capability to pay debts by presenting relevant ratio; 4) Collectable accounts of Issuer or Public Company receivable by presenting relevant ratio; 5) Capital structure and Management’s policies on the capital structure, as well as basis of the policy making; 6) Discussion on material commitment for the investment of capital goods with explanation concerning: a) Purpose of such commitment; b) Sources of funds expected to fulfill the said commitment; c) Currency of denomination; d) Steps taken by the Issuer or Public Company to protect the position of related foreign currency against risks; 7) Discussion on capital goods investments realized within the last financial year, that at least contains: a) Type of capital goods investments; b) Purpose of capital goods investments; c) Value of capital goods investments issued. 8) Material information and facts occurring after the date of accountant’s report (if any); PAGES 94-98 98-99 100-101 102-103 102-103 54-60 107-120 122-139 140 140 141 144 142 146 275 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION 9) Business prospects of Issuer or Public Company in relation to the industry, economy in general, and international market, and accompanied with the supporting quantitative data from reliable data resource; 10) Comparison between target/projection at the beginning of financial year and the realization, that includes:: a) Revenue; b) Profit (loss); c) Capital structure; or d) Other information deemed necessary by the Issuer or Public Company. 11) Target/projection of the Issuer or Public Company within 1 (one) year, that includes: a) Revenue; b) Profit (loss); c) Capital structure; d) Devidend policy; or e) Other information deemed necessary by the Issuer or Public Company. PAGES 151-152 153 154 12) Marketing aspects of the goods and/or services of Issuer or Public Company, including among others marketing strategies and market share; 156-157 13) Description of dividend during the past 2 (two) financial years (if any), includes at least: a) Dividend policy; b) Date of cash dividend payment and/or date of non-cash dividend distribution; c) Amount of dividend per share (cash and/or non-cash); and d) Amount of dividend paid per year. 14) Realization of the use of proceeds from Public Offering is under the following conditions: a) In the event that during the financial year reported, the Issuer is obliged to submit Report on Realization of Use of Proceeds, then Annual Report should disclose accumulated realization of use of proceeds until the end of the financial year; and b) In the event that there is a change in the use of proceeds as stipulated in Financial Services Authority Regulation on Report on Realization of Use of Proceeds, the Issuer should then explain such change; 15) Material information (if any) concerning, among others investment, expansion, divestment, merge, acquisition, debt/capital restructuring, affiliated transaction, and transaction with conflict of interests, taking place during the financial year (if any). Information includes: a) Date, value and object of transaction; b) Name of transacting parties; c) Nature of affiliated relation (if any); d) Explanation of fairness of transaction; and e) Compliance with related rules and regulations. 154 155 155 16) Description of changes in regulation which have a significant effect on the Issuer or Public Company and its impacts on the financial report (if any); and 158-160 17) Changes in the accounting policy, rationale and impacts on the financial statement (if any); 161 276 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSPAGES 201-211 174-181 182-190 CRITERIA EXPLAINATION g Governance of Issuer or Public Company Governance of Issuer or Public Company at least contains brief description of: 1) Directors, consisting of among others: a) Scope of work and responsibility of each member of the Directors; b) Disclosure that the Directors have charter of Directors; c) Disclosure of procedures, basis of decision, and amount of remuneration for members of Directors, along with the relation between remuneration and the performance of Issuer or Public Company; d) Disclosure of company policies and the implementation on frequency of Directors meetings, including joint meetings with the Board of Commissioners and attendance of members of Directors in such meetings; e) Disclosure of resolutions of GMS of 1 (one) previous year and the realization during the fiscal year, along with reasons in the event that there is a resolution not yet realized: (1) Resolutions of GMS realized in one financial year; and (2) Reasons in the event that there is a resolution not yet realized. f) Disclosure of resolutions of GMS during financial year, that includes: (1) Resolutions of GMS realized in one financial year; and (2) Reasons in the event that there is a resolution not yet realized; and g) Disclosure of company policies on performance assessment of members of Directors; 2) Board of Commissioners, consisting of among others: a) Description of responsibility of the Board of Commissioners; b) Disclosure that the Board of Commissioners has charter of Board of Commissioners; c) Disclosure of procedures, basis of decision, and amount of remuneration for members of Board of Commissioners; d) Disclosure of company policies and the implementation on frequency of Board of Commissioners meetings, including joint meetings with the Directors, and attendance of members of Board of Commissioners in such meetings; e) Disclosure of Issuer or Public Company’s policies on performance assessment of members of Directors and Board of Commissioners and its implementation, including among others: (1) Procedure of performance assessment implementation; (2) Criteria of assessment; and (3) Parties conducting the assessment. f) Disclosure of performance assessment of committee supporting the duties of Board of Commissioners; and g) In the event that the Board of Commissioners did not establish Committee of Nomination and Remuneration, the least information to disclose includes: (1) Reasons for not establishing a committee; and (2) Procedure of nomination and remuneration implemented during financial year. 3) Sharia Supervisory Board, for Issuer or Public Company running business under the principles of sharia as expressed in the Articles of - Association, contains at least: a) Name; b) Tasks and responsibilities of Sharia Supervisory Board; and c) Frequency and method of advising and supervisory on the compliance of Sharia Principles in Capital Market toward the Issuer or Public Company; 277 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION 4) Audit Committee, consisting of among others: a) Name and position in the committee; b) Age; c) Nationality; d) Educational background; e) Employment record, consisting of: (1) Legal basis of appointment as member of committee; (2) Double position, either as member of Board of Commissioners, Directors, and/or committee and other positions (if any); and (3) Work experience and the time period, both inside and outside the Issuer or Public Company; f) Period of service of Audit Committee members; g) Disclosure of independence of Audit Committee; h) Disclosure of company policies and the implementation on frequency of Audit Committee meetings and the attendance of Audit Committee members in such meetings; i) Education and/or trainings participated within a financial year (if any); and j) Brief description activities carried out by Audit Committee during the financial year based on what is stated in Audit Committee Charter; 5) Other committees the Issuer or Public Company has in order to support the function and tasks of Directors and/or Board of Commissioners, such as Nomination and Remuneration Committee, consisting of among others: a) Name and position in the committee.; b) Age; c) Nationality; d) Educational background; e) Employment record, consisting of: (1) Legas basis of appointment as committee member; (2) Double position, either as member of Board of Commissioners, Directors and/or committee and the other positions (if any); and (3) Work experience and the time period both inside and outside the Issuer or Public Company; f) Period of service of committee members; g) Description of the tasks and responsibilities; h) Disclosure that the committee has charter of committee; i) Disclosure of independence of committee members; j) Disclosure of company policies and the implementation on frequency of committee meetings and the attendance of committee members in such meetings; k) Education and/or trainings participated within a financial year (if any); and l) Brief description activities carried out by committee during the financial year; 6) Corporate Secretary, consisting among others: a) Name; b) Domicile; c) Employment record, consisting of: (1) Legal basis of appointment as Corporate Secretary; and (2) Work experience and the time period both inside and outside the Issuer or Public Company; d) Educational background; e) Education and/or trainings participated within a financial year; and f) Brief description activities carried out by Corporate Secretary during the financial year. PAGES 190-194 194-201 212-213 7) Internal Auditing Unit, consisting among others: a) Name of Internal Auditing Unit’s chief; b) Employment record, consisting of: 214-216 (1) Legal basis of appointment as Internal Auditing Unit’s chief; and (2) Work experience and the time period both inside and outside the Issuer or Public Company; c) Qualification/certification as an Internal Audit (if any); d) Education and/or trainings participated within a financial year; e) Structure and position of Internal Auditing Unit; f) Description of tasks and responsibilities of Internal Auditing Unit; g) Disclosure that the the unit has charter Internal Auditing Unit; and h) Brief description of tasks implementation of Internal Auditing Unit during the fiscal year; 278 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION 8) Description of internal control system implemented by Issuer or Public Company, consisting of at least: a) Operational and financial control, along with compliance with other prevailing rules and regulations; and b) Review on effectiveness of internal control system; PAGES 216-217 9) Risk management system implemented by Issuer or Public Company, consisting of at least: a) General description of risk management system of Issuer or Public 217-224 Company; b) Types of risks and efforts to manage such risks; and c) Review on effectiveness of the risk management system of Issuer or Public Company; 10) Material litigation faced by the Issuer or Public Company, subsidiaries, present members of the Board of Commissioners and Directors (if any), including among others: a) Material of the case/claim; b) Status of settlement of case/claim; and c) Impacts on the financial condition of the Issuer or Public Company; 11) Information on administrative sanctions to Issuer or Public Company, members of the Board of Commissioners and Directors, by capital market authority and other authorities during the fiscal year (if any); 12) Information on code of conducts and culture of Issuer or Public Company (if any) consisting of: a) Main points of code of conducts; b) Form of socialization of code of conducts and efforts to enforce it; and c) Disclosure of that code of conducts is applicable to member of Directors, Board of Commissioners, and employers of Issuer or Public Company; 13) Information on corporate culture or corporate values (if any); 14) Explanation on employees and/or Management share ownership program carried out by Issuer or Public Company, including among others amount, period of time, requirements for eligible employees and/or Management, and exercise price (if any): a) Amount of share and/or options; b) Time period of exercise; c) Requirements for eligible employees and/or Management; and d) Exercise price; 15) Explanation on Whistleblowing System at the Issuer or Public Company to report misconducts causing potential loss to the company or the stakeholders (if any), consisting of among others: a) Means of submitting the report on misconducts; b) Protection for whistleblower; c) Handling of whistleblowing; d) Party managing whistleblowing; and e) Results of whistleblowing handling, consisting of at least: (1) Number of whistleblowing registered and processed in financial year; and (2) Follow up of whistleblowing; 226-227 227 234 228-233 234 224-226 16) Implementation of Public Company Governance Guidelines for Issuer that issues Equity Securities or Public Company, consisting of: 166-172 a) Disclosure of implemented recommendations; and/or b) Explanation concerning unimplemented recommendation, including reasons for such conditions and alternatives (if any); 279 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSCRITERIA EXPLAINATION h Social and Environmental Responsibility of Issuer or Public Company 1) Information on Issuer or Public Company’s social and environmental responsibility consisting of policies, types of programs, and cost, in relation of the aspects of among others:: a) Environment, among others: (1) Use of environmentally friendly and recyclable material and energy; (2) Issuer or Public Company’s waste management system; (3) Mechanisms of complaints on environmental concern; (4) Certification in the field of environment; b)Labor practices, occupational health and safety, among others: (1) Equality in gender and work opportunity; (2) Work facility and safety; (3) Employees turnover; (4) Level of work accident; (5) Eduation and/or training. (6) Remuneration; and (7) Mechanisms of complaints on Employment concern; c) Social and community development, among others: (1) Use of local work force; (2) Empowerment of the Issuer or Public Company’s surrounding community, among others by the use of raw materials produced by the community or provision of education to the community; (3) Improvement of social facilities and infrastructure; (4) Other forms of donations; and (5) Communication on anti currption policy and procedure in the Issue or Public Company, as well as training on anti corruption (if any). d) Product and/or services responsibility, among others: (1) Consumers’ health and safety; (2) Product and/or services information; and (3) Facilities for customers’ complaints, number of complaints and complaints handling. 2) Issuer or Public Company may disclose information referred to in point 1) as part of the Annual Report or in a separate report, such as submitted at the same time as Sustainability Report or Corporate Social Responsibility Report, and therefore the Issuer or Public Company is excluded to disclose information on social and environmental responsibility in the Anuual Report; and 3) The report reffered to in point 2) is submitted to Financial Services Authority at the same time as the Annual Report submission. The Financial Report contained in the Annual Report should be presented in accordance with Financial Accounting Standard in Indonesia and has been audited by Accountant. The said Financial Report should contain statement regarding responsibility on the Financial Report in compliance with Regulations in Capital Market sector on the Directors’ responsibility to the Financial Report or Regulations in Capital Market sector on periodical report of Securities Companies in the event that the Issuer is a Securities Company; dan PAGES 238-249 and SR ✓ ✓ ✓ 42 Audited Financial Report Statement of members of Directors and Board of Commissioners on the Responsibility for the Annual Report Statement of members of Directors and Board of Commissioners on the Responsibility for the Annual Report is composed in accordance to the format of Statement of members of Directors and Board of Commissioners on the Responsibility for the Annual Report as attached in the Appendix as an inseparable part of the FSA Circulation Letter.. i j 280 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTSFEEDBACK FORM OF PT TELKOM INDONESIA (PERSERO) TBK 2016 ANNUAL REPORT Thank you for reading our 2016 Annual Report. To improve the quality of future Annual Report, we would like to ask you to provide us with feedback by completing the following form: Questions. 1. In your opinion , this Annual Report provides information on various activities implemented by PT Telkom Indonesia (Persero) Tbk. SA A M D 2. In your opinion , the material in this Annual Report includes data and information are easily understood. SA A M D SD SD 3. In your opinion , the material in this Annual Report includes data and information are sufficiently complete SA A M D SD 4. In your opinion, the material in this Annual Report includes data and information are accountable and can be validated for decision making process SA A M D SD Notes: SA: Strongly Agree A: Agree M: Moderate D: Disagree SD: Strongly Disagree 5. In your opinion, what information do you feel was useful in this Annual Report?? a. …………………………………………………………………………………………………………………...........…………………………………………………… b. ………………………………………………………………………………………………………………………………………………………...........……………… c. ……………………………………………………………………………………………………………………………………………………...........………………… 6. In your opinion, what information do you feel was not useful in this Annual Report? a. …………………………………………………………………………………………………………………… b. …………………………………………………………………………………………………………………… c. …………………………………………………………………………………………………………………… 7. In your opinion, the information in this Annual Report is well presented, well designed and laid out with suitable photographs? a. …………………………………………………………………………………………………………… b. …………………………………………………………………………………………………………… c. …………………………………………………………………………………………………………… 8. In your opinion, what information was missing or incomplete and should be included in future Annual Report? a. ……………………………………………………………………………………………………………………… b. ……………………………………………………………………………………………………………………… c. ……………………………………………………………………………………………………………………… Your Profile Full Name Age and Gender Institution/Company : ……………………………………………………………………… : ............ Yrs M / F : ……………………………………………………………………………… Type of Institution/Company : Government Industry Media NGO Public Other Please send back this form to: : PT Telekomunikasi Indonesia, Tbk. Investor Relations Grha Merah Putih 5th Floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia T +62 21 521 5109 F +62 21 522 0500 email : investor@telkom.co.id www: telkom.co.id 281 PT Telkom Indonesia (Persero) Tbk TELKOM GROUPFINANCIAL AND OPERATIONAL HIGHLIGHTSMANAGEMENT REPORTABOUT TELKOM INDONESIAMANAGEMENT DISCUSSION AND ANALYSISCORPORATE GOVERNANCECORPORATE SOCIAL RESPONSIBILITYPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMAPPENDICESCONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENT 2016 Audited Consolidated Financial Statement 2016 Audited PKBL Financial Statement PERUSAHAAN PESEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016 AND FOR THE YEAR THEN ENDED WITH INDEPENDENT AUDITOR’S REPORT TABLE OF CONTENTS Independent Auditor’s Report Consolidated Statement of Financial Position Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Page 1 2 3-4 5 6-120 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2016 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Notes 2016 2015 ASSETS CURRENT ASSETS Cash and cash equivalents Other current financial assets Trade receivables - net of provision for impairment of receivables Related parties Third parties Other receivables - net of provision for impairment of receivables Inventories - net of provision for obsolescence Advances and prepaid expenses Claim for tax refund Prepaid taxes Assets held for sale 2c,2e,2u,3,31,37 2c,2e,2u,4,31,37 2g,2u,2ab,5,37 2c,31 2g,2u,37 2h,6 2c,2i,2m,7,31 2t,26 2t,26 2j,9 29,767 1,471 894 6,469 537 584 5,246 592 2,138 3 28,117 2,818 1,104 6,413 355 528 5,839 66 2,672 - Total Current Assets 47,701 47,912 NON-CURRENT ASSETS Long-term investments Property and equipment - net of accumulated depreciation Prepaid pension benefit cost Advances and other non-current assets Intangible assets - net of accumulated amortization Deferred tax assets - net 2f,8 2l,2m,2aa,9,34 2s,29 2c,2g,2i,2n,2u,10,31,37 2d,2k,2n,2aa,11 2t,26 Total Non-current Assets TOTAL ASSETS LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables Related parties Third parties Other payables Taxes payable Accrued expenses Unearned income Advances from customers and suppliers Short-term bank loans Current maturities of long-term borrowings Total Current Liabilities 2o,2u,12,37 2c,31 2u,37 2t,26 2c,2u,13,31,37 2r,14 2c,31 2c,2m,2p,2u,15a,31,37 2c,2m,2p,2u,15b,31,37 NON-CURRENT LIABILITIES Deferred tax liabilities - net Unearned income Other liabilities Long service award provisions Pension benefits and other post-employment benefits obligations Long-term borrowings - net of current maturities 2t,26 2r,14 2s,30 2s,29 2c,2m,2p,2u,16,31,37 Total Non-current Liabilities TOTAL LIABILITIES EQUITY Capital stock Additional paid-in capital Treasury stock Other equity Retained earnings Appropriated Unappropriated Net equity attributable to: Owners of the Parent Company Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 1c,18 2v,19 2v,20 2f,2u,21 28 2b,17 1,847 114,498 199 11,508 3,089 769 131,910 179,611 1,547 11,971 172 2,954 11,283 5,563 840 911 4,521 39,762 745 425 29 613 6,126 26,367 34,305 74,067 5,040 4,931 (2,541 ) 339 15,337 61,278 84,384 21,160 105,544 179,611 1,807 103,700 1,331 8,166 3,056 201 118,261 166,173 2,075 11,919 290 3,273 8,247 4,360 805 602 3,842 35,413 2,110 371 11 501 4,171 30,168 37,332 72,745 5,040 2,935 (3,804 ) 508 15,337 55,120 75,136 18,292 93,428 166,173 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 1 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the Year Ended December 31, 2016 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) REVENUES Operation, maintenance and telecommunication service expenses Depreciation and amortization expenses Personnel expenses Interconnection expenses General and administrative expenses Marketing expenses Loss on foreign exchange - net Other income Other expenses OPERATING PROFIT Finance income Finance costs Share of profit (loss) of associated companies PROFIT BEFORE INCOME TAX INCOME TAX (EXPENSE) BENEFIT Current Deferred PROFIT FOR THE YEAR Notes 2c,2r,22,31 2c,2r,24,31 2k,2l,2m,9,11 2c,2r,2s,23,31 2c,2r,31 2c,2r,25,31 2r 2q 2l,2r,9c 2r,9c 2c,31 2c,2p,2r,31 2f,8 2t,26 OTHER COMPREHENSIVE INCOME Other comprehensive income to be reclassified to profit or loss in subsequent periods: Foreign currency translation Change in fair value of available-for-sale financial assets Share of other comprehensive income of associated companies Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Defined benefit plan actuarial (loss) gain – net of tax Other comprehensive income - net TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year attributable to: Owners of the parent company Non-controlling interests Total comprehensive income for the year attributable to: Owners of the parent company Non-controlling interests BASIC AND DILUTED EARNINGS PER SHARE (in full amount) Net income per share Net income per ADS (100 Series B shares per ADS) 2f,2q,21 2u,21 2f,8 2s,29 2b,17 2b,17 2x,27 2016 2015 116,333 102,470 (31,263 ) (18,532 ) (13,612 ) (3,218 ) (4,610 ) (4,132 ) (52 ) 750 (2,469 ) 39,195 1,716 (2,810 ) 88 38,189 (10,738 ) 1,721 (9,017 ) 29,172 (40 ) 0 (1 ) (2,058 ) (2,099 ) 27,073 19,352 9,820 29,172 17,331 9,742 27,073 (28,116 ) (18,534 ) (11,874 ) (3,586 ) (4,204 ) (3,275 ) (46 ) 1,500 (1,917 ) 32,418 1,407 (2,481 ) (2 ) 31,342 (8,365 ) 340 (8,025 ) 23,317 128 (1 ) (2 ) 506 631 23,948 15,489 7,828 23,317 16,130 7,818 23,948 196.19 19,619.11 157.77 15,777.00 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 2 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the Year Ended December 31, 2016 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Attributable to owners of the parent company Retained earnings Descriptions Balance, January 1, 2016 Capital contribution Acquisition of a business Acquisition of non-controlling interest Cash dividends Sale of treasury stock Profit for the year Other comprehensive income Balance, December 31, 2016 Notes Capital stock Additional paid- in capital 1d 2w,28 20 2b,17 2f,2q,2s,2u,17 5,040 - - - - - - - 5,040 2,935 - - - - 1,996 - - 4,931 Treasury stock (3,804 ) - - - - 1,263 - - (2,541 ) Other equity Appropriated 508 - - (129 ) - - - (40 ) 339 Unappropriated 55,120 - - - (11,213 ) - 19,352 (1,981 ) 61,278 15,337 - - - - - - - 15,337 Net Non-controlling interests Total equity 75,136 - - (129 ) (11,213 ) 3,259 19,352 (2,021 ) 84,384 18,292 183 10 (9 ) (7,058 ) - 9,820 (78 ) 21,160 93,428 183 10 (138 ) (18,271 ) 3,259 29,172 (2,099 ) 105,544 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 3 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the Year Ended December 31, 2015 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Attributable to owners of the parent company Retained earnings Descriptions Balance, January 1, 2015 Capital contribution Cash dividends Sale of treasury stock Profit for the year Other comprehensive income Balance, December 31, 2015 Notes Capital stock Additional paid- in capital 2w, 28 20 2b,17 2f,2q,2s,2u,17 5,040 - - - - - 5,040 2,899 - - 36 - - 2,935 Treasury stock (3,836 ) - - 32 - - (3,804 ) Other equity Appropriated 381 - - - - 127 508 Unappropriated 47,900 - (8,783 ) - 15,489 514 55,120 15,337 - - - - - 15,337 Net Non-controlling interests Total equity 67,721 - (8,783 ) 68 15,489 641 75,136 18,271 34 (7,831 ) - 7,828 (10 ) 18,292 85,992 34 (16,614 ) 68 23,317 631 93,428 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 4 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOW For the Year Ended December 31, 2016 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Notes 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from: Customers Other operators Total cash receipts from customers and other operators Interest income received Cash payments for expenses Payments for corporate and final income taxes Cash payments to employees Payments for interest costs Payments for value added taxes - net Other cash receipts - net Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Redemption of time deposits and available-for-sale financial assets Proceeds from sale of property and equipment Proceeds from insurance claims Dividends received from associated company Purchase of property and equipment (Increase) decrease in advances for purchases of property and equipment Purchase of intangible assets Placement in time deposits and available-for-sale financial assets Acquisition of non-controlling interests in subsidiaries Business acquisition - net of acquired cash Additional contribution on long-term investments (Increase) decrease in other assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank loans and other borrowings Proceeds from sale of treasury stock Capital contribution of non-controlling interests in subsidiaries Cash dividends paid to the Company’s stockholders Repayments of bank loans and other borrowings Cash dividends paid to non-controlling interests of subsidiaries Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR 9 9 8 9,39 11,39 1d 1d 8 15,16 20 28 15,16 3 3 113,288 2,828 116,116 1,736 (42,433 ) (11,304 ) (11,207 ) (3,455 ) (2,696 ) 474 47,231 2,159 765 60 23 (26,787 ) (1,338 ) (1,098 ) (983 ) (138 ) (137 ) (43 ) (40 ) 98,002 2,700 100,702 1,386 (35,922 ) (9,299 ) (10,940 ) (2,623 ) (210 ) 575 43,669 - 733 119 18 (26,499 ) (67 ) (1,439 ) (146 ) - (114 ) (62 ) 36 (27,557 ) (27,421 ) 7,479 3,259 183 (11,213 ) (10,555 ) (7,058 ) (17,905 ) 1,769 (119 ) 28,117 29,767 20,561 68 5 (8,783 ) (10,427 ) (7,831 ) (6,407 ) 9,841 604 17,672 28,117 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 5 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL a. Establishment and general information Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (the “Company”) was originally part of “Post en Telegraafdienst”, which was established and operated commercially in 1884 under the framework of Decree No. 7 dated March 27, 1884 of the Governor General of the Dutch Indies. Decree No. 7 was published in State Gazette No. 52 dated April 3, 1884. In 1991, the status of the Company was changed into a state-owned limited liability corporation (“Persero”) based on Government Regulation No. 25/1991. The ultimate parent of the Company is the Government of the Republic of Indonesia (the “Government”) (Notes 1c and 18). The Company was established based on notarial deed No. 128 dated September 24, 1991 of Imas Fatimah, S.H. Its deed of establishment was approved by the Ministry of Justice of the Republic of Indonesia in its Decision Letter No. C2-6870.HT.01.01.Th.1991 dated November 19, 1991 and was published in State Gazette No. 5 dated January 17, 1992, Supplement No. 210. The Articles of Association has been amended several times, the latest amendment of which was about, among others, in compliance with the Financial Services Authority Regulations and the Ministry of State- Owned Enterprises Regulations and Circular Letters, addition of main and supporting business activities of the Company, addition of special right of Series A Dwiwarna stockholders, revision regarding the change in authority limitation of the Board of Directors which requires approval from the Board of Commissioners in performing such managing activities of the Company as well as improvement in the editorial and systematic of Articles of Association related to the addition of Articles of Association substance based on notarial deed No. 20 dated May 12, 2015 of Ashoya Ratam, S.H., MKn. The latest amendment was accepted and approved by the Ministry of Law and Human Rights of its Letter No. AHU-AH.01.03-0938775 dated June 9, 2015 and MoLHR decision’s No. AHU- 0936901.AH.01.02.Th.2015 dated June 9, 2015. Indonesia (“MoLHR”) the Republic of in In accordance with Article 3 of the Company’s Articles of Association, the scope of its activities is to provide telecommunication network and telecommunication and information services, and to optimize the Company’s resources in accordance with prevailing regulations. In regard to achieve objective, the Company is involved in the following activities: a. Main business: i. Planning, building, providing, developing, operating, marketing or selling or leasing, and maintaining telecommunications and information networks in a broad sense in accordance with prevailing regulations. ii. Planning, developing, providing, marketing/selling, and improving telecommunications and iii. information services in a broad sense in accordance with prevailing regulations. Investing including equity capital in other companies in line with achieving the purposes and objectives of the Company. b. Supporting business: i. Providing payment transactions and money transferring services through telecommunications and information networks. ii. Performing activities and other undertakings in connection with the optimization of the Company's resources, which among others, include the utilization of the Company's property and equipment and moving assets, information systems, education and training, repairs and maintenance facilities. iii. Collaborating with other parties in order to optimize the information, communication or technology resources owned by other parties as service provider in information, communication and technology industry as to achieve the purposes and objectives of the Company. The Company’s head office is located at Jalan Japati No. 1, Bandung, West Java. 6 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) a. Establishment and general information (continued) The Company was granted several networks and/or services licenses by the Government which are valid for an unlimited period of time as long as the Company complies with prevailing laws and fulfills the obligation stated in those licenses. For every license issued by the Ministry of Communication and Information (“MoCI”), an evaluation is performed annually and an overall evaluation is performed every 5 (five) years. The Company is obliged to submit reports of networks and/or services annually to the Indonesian Directorate General of Post and Informatics (“DGPI”), which replaced the previous Indonesian Directorate General of Post and Telecommunications (“DGPT”). The reports comprise information such as network development progress, service quality standard achievement, numbers of customers, license payment and universal service contribution, while for internet telephone services for public purpose, Internet Interconnection Service, and Internet Access Service, there are additional informations required such as operational performance, customer segmentation, traffic, and gross revenue. Details of these licenses are as follows: License License of electronic money issuer License of money remittance License to operate internet service provider License to operate network access point License to operate internet telephone services for public purpose License to operate fixed domestic long distance network License No. Bank Indonesia License No. 11/432/DASP Bank Indonesia License No. 11/23/bd/8 302/KEP/DJPPI/ KOMINFO/8/2013 331/KEP/DJPPI/ KOMINFO/09/2013 127/KEP/DJPPI/ KOMINFO/3/2016 839/KEP/ M.KOMINFO/05/2016 License to operate fixed international network 846/KEP/ M.KOMINFO/05/2016 Type of services Electronic money Grant date/latest renewal date July 3, 2009 Money remittance August 5, 2009 service Internet service provider August 2, 2013 Network Access Point September 24, 2013 Internet telephone services for public purpose Fixed domestic long distance and basic telephone services network Fixed international and basic telephone services network March 30, 2016 May 16, 2016 May 16, 2016 License to operate fixed closed network 844/KEP/ M.KOMINFO/05/2016 Fixed closed network May 16, 2016 License to operate circuit switched based local fixed line network License to operate data communication system services 948/KEP/ M.KOMINFO/05/2016 Circuit Switched based local fixed line network May 31, 2016 191/KEP/DJPPI/ KOMINFO/10/2016 Data communication October 31, 2016 system services 7 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Company’s Board of Commissioners, Directors, Audit Committee, Corporate Secretary and Employees 1. Board of Commissioners and Directors Based on resolutions made at Annual General Meeting (“AGM”) of Stockholders of the Company as covered by notarial deed No. 50 of Ashoya Ratam, S.H., MKn., dated April 22, 2016, and AGM of Stockholders of the Company as covered by notarial deed No. 26 of Ashoya Ratam, S.H., MKn., dated April 17, 2015, the composition of the Company’s Boards of Commissioners and Directors as of December 31, 2016 and 2015, respectively, was as follows: President Commissioner Commissioner Commissioner Commissioner Independent Commissioner Independent Commissioner Independent Commissioner President Director Director of Finance Director of Digital and Strategic 2016 2015 Hendri Saparini Dolfie Othniel Fredric Palit Hadiyanto Pontas Tambunan Rinaldi Firmansyah Margiyono Darsasumarja Pamiyati Pamela Johanna Alex Janangkih Sinaga Harry Mozarta Zen Hendri Saparini Dolfie Othniel Fredric Palit Hadiyanto Margiyono Darsasumarja Rinaldi Firmansyah Parikesit Suprapto Pamiyati Pamela Johanna Alex Janangkih Sinaga Heri Sunaryadi Portfolio Indra Utoyo Indra Utoyo Director of Enterprise and Business Service* Director of Wholesale and International Services Director of Human Capital - Muhammad Awaluddin Honesti Basyir Honesti Basyir Management Herdy Rosadi Harman Herdy Rosadi Harman Director of Network, Information Technology and Solution Abdus Somad Arief Director of Consumer Service Dian Rachmawan Abdus Somad Arief Dian Rachmawan *On September 9, 2016, Muhammad Awaluddin was appointed as Director of PT Angkasa Pura II. Based on Board of Directors’ decision No. 33/REG/IX/2016 dated September 13, 2016, Honesti Basyir as Director of Wholesale and International Service was appointed to act as Director of Enterprise and Business Service. 2. Audit Committee and Corporate Secretary The composition of the Company’s Audit Committee and the Corporate Secretary as of December 31, 2016 and 2015, were as follows: Chairman Secretary Member Member Member Member Corporate Secretary 2016* Rinaldi Firmansyah Tjatur Purwadi Margiyono Darsasumarja Dolfie Othniel Fredric Palit Sarimin Mietra Sardi Pontas Tambunan Andi Setiawan 2015 Rinaldi Firmansyah Tjatur Purwadi Parikesit Suprapto Dolfie Othniel Fredric Palit - - Andi Setiawan *The changes of Audit Committee are based on Board of Commissioners’ decision No. 09/KEP/DK/2016 dated July 27, 2016. 8 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Company’s Board of Commissioners, Directors, Audit Committee, Corporate Secretary and Employees (continued) 3. Employees As of December 31, 2016 and 2015, the Company and subsidiaries (“Group”) had 23,876 employees and 24,785 employees (unaudited), respectively. c. Public offering of securities of the Company The Company’s shares prior to its Initial Public Offering (“IPO”) totalled 8,400,000,000, consisting of 8,399,999,999 Series B shares and 1 Series A Dwiwarna share, and were wholly-owned by the Government. On November 14, 1995, 933,333,000 new Series B shares and 233,334,000 Series B shares owned by the Government were offered to the public through an IPO and listed on the Indonesia Stock Exchange (“IDX”) and 700,000,000 Series B shares owned by the Government were offered to the public and listed on the New York Stock Exchange (“NYSE”) and the London Stock Exchange (“LSE”), in the form of American Depositary Shares (“ADS”). There were 35,000,000 ADS and each ADS represented 20 Series B shares at that time. In December 1996, the Government had a block sale of its 388,000,000 Series B shares, and in 1997, distributed 2,670,300 Series B shares as incentive to the Company’s stockholders who did not sell their shares within one year from the date of the IPO. In May 1999, the Government further sold 898,000,000 Series B shares. To comply with Law No. 1/1995 on Limited Liability Companies, at the AGM of Stockholders of the Company on April 16, 1999, the Company’s stockholders resolved to increase the Company’s issued share capital by the distribution of 746,666,640 bonus shares through the capitalization of certain additional paid-in capital, which were made to the Company’s stockholders in August 1999. On August 16, 2007, Law No. 1/1995 on Limited Liability Companies was amended by the issuance of Law No. 40/2007 on Limited Liability Companies which became effective on the same date. Law No. 40/2007 has no effect on the public offering of shares of the Company. The Company has complied with Law No. 40/2007. In December 2001, the Government had another block sale of 1,200,000,000 shares or 11.9% of the total outstanding Series B shares. In July 2002, the Government further sold a block of 312,000,000 shares or 3.1% of the total outstanding Series B shares. At the AGM of Stockholders of the Company held on July 30, 2004, the minutes of which are covered by notarial deed No. 26 of A. Partomuan Pohan, S.H., LLM., the Company’s stockholders approved the Company’s 2-for-1 stock split for Series A Dwiwarna and Series B share. The Series A Dwiwarna share with par value of Rp500 per share was split into 1 Series A Dwiwarna share with par value of Rp250 per share and 1 Series B share with par value of Rp250 per share. The stock split resulted in an increase of the Company’s authorized capital stock from 1 Series A Dwiwarna share and 39,999,999,999 Series B shares to 1 Series A Dwiwarna share and 79,999,999,999 Series B shares, and the issued capital stock from 1 Series A Dwiwarna share and 10,079,999,639 Series B shares to 1 Series A Dwiwarna share and 20,159,999,279 Series B shares. After the stock split, each ADS represented 40 Series B shares. During the EGM held on December 21, 2005 and the AGMs held on June 29, 2007, June 20, 2008 and May 19, 2011, the Company’s stockholders approved phase I, II, III and IV plan, respectively, of the Company’s program to repurchase its issued Series B shares (Note 20). 9 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) c. Public offering of securities of the Company (continued) During the period December 21, 2005 to June 20, 2007, the Company had bought back 211,290,500 shares from the public (stock repurchase program phase I). On July 30, 2013, the Company has sold all such shares (Note 20). At the AGM held on April 19, 2013 as covered by notarial deed No. 38 dated April 19, 2013 of Ashoya Ratam, S.H., MKn., the stockholders approved the changes to the Company’s plan on the treasury stock acquired under phase III (Note 20). At the AGM held on April 19, 2013, the minutes of which were covered by notarial deed No. 38 of Ashoya Ratam, S.H., MKn., the stockholders approved the Company’s 5-for-1 stock split for Series A Dwiwarna and Series B shares. Series A Dwiwarna share with par value of Rp250 per share was split into 1 Series A Dwiwarna share with par value of Rp50 per share and 4 Series B shares with par value Rp50 per share. The stock split resulted in an increase of the Company’s authorized capital stock from 1 Series A Dwiwarna and 79,999,999,999 Series B shares to 1 Series A Dwiwarna and 399,999,999,999 Series B shares. The issued capital stock increase from 1 Series A Dwiwarna and 20,159,999,279 Series B shares to 1 Series A Dwiwarna and 100,799,996,399 Series B shares. After the stock split, each ADS represented 200 Series B shares. Effective from October 26, 2016, the Company conducted a ratio change of Depository Receipt from 1 ADS represents 200 series B shares become 1 ADS represents 100 series B shares (Note 18). On May 16 and June 5, 2014, the Company deregistered from Tokyo Stock Exchange (“TSE”) and delisted from the LSE, respectively. As of December 31, 2016, all of the Company’s Series B shares are listed on the IDX and 70,005,900 ADS shares are listed on the NYSE (Note 18). On June 25, 2010 the Company issued the second rupiah bonds with a nominal amount of Rp1,005 billion for Series A, a five-year period and Rp1,995 billion for Series B, a ten-year period, respectively, are listed on the IDX (Note 16b.i). On June 16, 2015, the Company issued Continuous Bonds I Telkom Phase I 2015, with a nominal amount Rp2,200 billion for Series A, a seven-year period, Rp2,100 billion for Series B, a ten-year period, Rp1,200 billion for Series C, a fifteen-year period and Rp1,500 billion for Series D, a thirty-year period, respectively which are listed on the IDX (Note 16b.i). On December 21, 2015, the Company has sold the remaining shares of treasury stock phase III (Note 20). On June 29, 2016, the Company has sold the shares of treasury stock phase IV (Note 20). 10 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries As of December 31, 2016 and 2015, the Company has consolidated the following directly or indirectly owned subsidiaries (Notes 2b and 2d): (i) Direct subsidiaries: Subsidiary/place of incorporation PT Telekomunikasi Selular (“Telkomsel”), Jakarta, Indonesia Nature of business/date of incorporation or acquisition by the Company Telecommunication - provides telecommunication facilities and mobile cellular services using Global Systems for Mobile Communication (“GSM”) technology / May 26, 1995 PT Dayamitra Telekomunikasi (“Dayamitra”), Jakarta, Indonesia Telecommunication/ May 17, 2001 PT Multimedia Nusantara (“Metra”), Jakarta, Indonesia Network telecommunication services and multimedia/ May 9, 2003 PT Telekomunikasi Indonesia International (“TII”), Jakarta, Indonesia Telecommunication/ July 31, 2003 PT Telkom Akses (“Telkom Akses”), Jakarta, Indonesia PT Graha Sarana Duta (“GSD”), Jakarta, Indonesia PT PINS Indonesia (“PINS”) Jakarta, Indonesia Construction, service and trade in the field of telecommunication/ November 26, 2012 Leasing of offices and providing building management and maintenance services, civil consultant and developer/ April 25, 2001 Year of start of commercial operations 1995 Percentage of ownership interest 2016 2015 Total assets before elimination 2016 2015 65 65 89,781 84,086 1995 100 100 10,689 9,341 1998 100 100 10,020 8,563 1995 100 100 7,147 5,604 2013 100 100 5,098 3,696 1982 99,99 99,99 4,333 3,581 Telecommunication construction 1995 100 100 3,146 2,960 and services/ August 15, 2002 PT Infrastruktur Telekomunikasi Indonesia (“Telkom Infratel”), Jakarta, Indonesia Construction, service and trade in the field of telecommunication/ January 16, 2014 2014 100 100 1,015 647 PT Patra Telekomunikasi Telecomunication - provides 1996 100 100 472 472 Indonesia (“Patrakom”), Jakarta, Indonesia satellite communication system, services and facilities/ September 28, 1995 PT Metranet (“Metranet”), Jakarta, Indonesia Multimedia portal service/ April 17, 2009 2009 100 99.99 370 66 PT Jalin Pembayaran Nusantara (“Jalin”), Jakarta, Indonesia Payment services – principal, switching, clearing and settlement activities/ November 3, 2016 PT Napsindo Primatel Telecommunication - provides Internasional (“Napsindo”), Jakarta, Indonesia Network Access Point (NAP), Voice Over Data (VOD) and other related services/ December 29, 1998 2016 100 - 15 - 1999; ceased operations on January 13, 2006 60 60 5 5 11 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (i) Indirect subsidiaries: Subsidiary/place of incorporation PT Sigma Cipta Caraka (“Sigma”), Tangerang, Indonesia Telekomunikasi Indonesia International Pte. Ltd., Singapore PT Infomedia Nusantara (“Infomedia”), Jakarta, Indonesia Nature of business/date of incorporation or acquisition by the Company Information technology service - Year of start of commercial operations 1988 Percentage of ownership interest 2016 2015 Total assets before elimination 2016 2015 100 100 4,289 3,587 system implementation and integration service, outsourcing and software license maintenance/ May 1,1987 Telecommunication/ December 6, 2007 Data and information service - provides telecommunication information services and other information services in the form of print and electronic media and call center services/ September 22,1999 2008 100 100 2,566 1,618 1984 100 100 1,860 1,622 PT Telkom Landmark Tower (“TLT”), Jakarta, Indonesia Telekomunikasi Indonesia International (“TL”) S.A., Timor Leste Service for property development and management/ February 1, 2012 Telecommunication/ September 11, 2012 2012 55 55 1,683 1,245 2012 100 100 755 854 PT Metra Digital Media Directory information services/ 2013 99,99 99,99 684 618 (“MD Media”), Jakarta, Indonesia January 22, 2013 PT Finnet Indonesia (“Finnet”), Information technology services/ 2006 60 60 629 513 Jakarta, Indonesia October 31, 2005 Telekomunikasi Indonesia Telecommunication/ 2010 100 100 441 326 International Ltd., Hong Kong PT Metra Digital Investama (“MDI”), Jakarta, Indonesia PT Metra Plasa (“Metra Plasa”), Jakarta, Indonesia December 8, 2010 Trading and/or providing service related to information and tehnology multimedia, entertainment and investment/ January 8, 2013 Network & e-commerce services/ April 9, 2012 2013 99.99 99.99 331 4 2012 60 60 325 85 PT Nusantara Sukses Investasi Service and trading/ 2014 99,99 99,99 227 165 (”NSI”), Jakarta, Indonesia September 1, 2014 PT Administrasi Medika Health insurance administration 2002 100 75 204 160 (“Ad Medika”), Jakarta, Indonesia PT Melon (“Melon”), Jakarta, Indonesia PT Graha Yasa Selaras (“GYS”), Jakarta, Indonesia Telekomunikasi Indonesia Internasional Pty Ltd. (“Telkom Australia”), Australia services/ February 25, 2010 Content provider/ November 14, 2016 Tourism service/ April 27, 2012 Telecommunication/ January 9, 2013 2010 2012 100 51 178 - 51 51 174 160 2013 100 100 161 171 12 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (ii) Indirect subsidiaries: (continued) Subsidiary/place of incorporation PT Sarana Usaha Sejahtera Insanpalapa (”TelkoMedika”), Jakarta, Indonesia Nature of business/date of incorporation or acquisition by the Company Health services, medicine services including pharmacies, laboratories and other health care support/ November 30, 2015 Year of start of commercial operations 2008 Percentage of ownership interest 2016 2015 Total assets before elimination 2016 2015 75 75 72 49 PT Satelit Multimedia Indonesia (“SMI”), Jakarta, Indonesia Satellite services/ March 25, 2013 2013 99.99 99.99 18 13 Telekomunikasi Indonesia Telecommunication/ 2014 100 100 9 52 International (“Telkom USA”), Inc., USA December 11, 2013 PT Nusantara Sukses Sarana (“NSS”), Jakarta, Indonesia Building and hotel management service and other services/ September 1, 2014 PT Nusantara Sukses Realti Service and trading/ - - 99.99 99.99 99.99 99,99 (”NSR”), Jakarta, Indonesia PT Metra TV (“Metra TV”), Jakarta, Indonesia September 1, 2014 Subscription-broadcasting services/ January 8, 2013 a) Metra 2013 99.83 99,83 - - - - - - On November 30, 2015 Metra acquired 13,850 shares of TelkoMedika (equivalent to 75% ownership) with acquisition cost amounting to Rp69.5 billion. TelkoMedika engaged in health procurement and medicinal services including the establishment of pharmacies, hospital, clinic, or other healthcare support. Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 10, 11, 12, 13, 14 dated May 25, 2016, Metra purchased 2,000 shares of Ad Medika from the non- controlling interest equivalent to 25% ownership amounting to Rp138 billion. b) Sigma Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 09 dated December 18, 2015, which was approved by MoLHR through its decision letter No. AHU- AH.01.03-09904427 dated December 22, 2015, Sigma purchased 55% ownership in PT Media Nusantara Global Data ("MNDG") which is engaged in data center services. The acquisition cost amounted to Rp45 billion and the fair value of identifiable net assets amounted to Rp30 billion resulting in a goodwill of Rp15 billion (Note 11). Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 15 dated June 29, 2016, Sigma purchased 13,770 shares of PT Pojok Celebes Mandiri (“PCM”) (equivalent to 51% ownership) from Metra amounting to Rp7.8 billion. 13 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) c) TII On May 19, 2015, Pachub Acquisition Co. was incorporated, with Telekomunikasi Indonesia International (USA) obtaining 100% direct ownership. On May 29, 2015, Telkom USA and Pachub Acquisition Co entered into an agreement and plan of merger with AP Teleguam Holdings, Inc. On May 30, 2016, the agreement related to the merger was terminated. d) Jalin On November 3, 2016, the Company established a wholly-owned subsidiary under the name PT Jalin Pembayaran Nusantara (“Jalin”) which was approved by the MoLHR through its Decision Letter No. AHU-0050800.AH.01.01 dated November 15, 2016. Jalin is engaged in organizing ICT (Information, Communication & Telecommunication) business focuses on non cash payment to support national payment gateway. e) Metranet On November 10, 2016, Metranet increased its share capital from Rp244 billion to Rp325 billion by issuing 18,800,000 new shares which were wholly-owned by the Company. Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 08 and 09 dated November 14, 2016, Metranet purchased 4,900,000 shares of Melon (equivalent to 49% ownership) from SK Planet Co. and 300,000 shares of Melon (equivalent to 3% ownership) from Metra amounting to US$13,000,000 or Rp170.4 billion and Rp13.2 billion, respectively. As a result of this transaction, Metranet acquired 52% ownership in Melon and the remaining shares are held by Metra. e. Authorization for the issuance of the consolidated financial statements The consolidated financial statements were prepared and approved for issuance by the Board of Directors on March 2, 2017. 14 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company and subsidiaries (collectively referred to as “the Group”) have been prepared in accordance with Financial Accounting Standards ("Standar Akuntansi Keuangan” or “SAK") including Indonesian Statement of Financial Accounting Standards ("Pernyataan Standar Akuntansi Keuangan" or “PSAK”) and interpretation of Financial Accounting Standards ("Interpretasi Standar Akuntansi Keuangan" or “ISAK”) in Indonesia published by the Financial Accounting Standards Board of Indonesian Institute of Accountant and Regulation No. VIII.G.7 of the Capital Market and Financial Institution Supervisory Agency (“Bapepam-LK”) regarding the Presentation and Disclosure of Financial Statements of Issuers or Public Companies, enclosed in the decision letter KEP-347/BL/2012. a. Basis of preparation of financial statements The consolidated financial statements, except for the consolidated statements of cash flows, are prepared on the accrual basis. The measurement basis used is historical cost, except for certain accounts which are measured using the basis mentioned in the relevant notes herein. The consolidated statements of cash flows are prepared using the direct method and present the changes in cash and cash equivalents from operating, investing and financing activities. Figures in the consolidated financial statements are presented and rounded to billions of Indonesian rupiah (“Rp”), unless otherwise stated. Accounting Standards Issued but not yet Effective Effective January 1, 2017:  Amendments to PSAK 1: Presentation of Financial Statements on Disclosure Initiative. The amendments provide clarification on the application of the requirements of materiality, the flexibility of systematic order of the notes to the financial statements and the identification of significant accounting policies.  PSAK 3 (Adjustment 2016): Interim Financial Reporting. The PSAK provides clarification that the interim financial report is incomplete if the interim financial statements and any disclosure incorporated by cross-reference are not made available to users of the interim financial statements on the same terms and at the same time. If the users of the interim financial statements can not access information in cross-reference with the requirement and the same time, the interim financial statements are considered incomplete.  PSAK 24 (Adjustment 2016): Employee Benefits. The PSAK provides clarification that high-quality corporate bonds should be assessed at the currency level and not at the country level.  PSAK 58 (Adjustment 2016): Non-current Assets Held for Sale and Discontinued Operations. The PSAK provides clarification that changes in the method of disposal of an asset or disposal group are considered a continuation of the original plan of disposal. It also clarify that the changes in the method of disposal does not change the date of classification as asset or disposal group.  PSAK 60 (Adjustment 2016): Financial Instruments: Disclosures. The PSAK provides clarification that the entity must assess the nature of servicing arrangements as provided in paragraph PP30 and paragraphs 42C to determine whether the entity has a continuing involvement in financial assets and whether the disclosure requirements related to continuing involvement are met. 15 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of preparation of financial statements (continued)  ISAK 31: Interpretation on the Scope of PSAK 13: Investment Property. The ISAK provides an interpretation of the characteristics of the building used as part of the definition of investment property in PSAK 13: Investment Property. The building as investment property refer to structures that have physical characteristics generally associated as a building with the walls, floors, and roofs are attached to the assets. Effective January 1, 2018:  Amendments to PSAK 2: Statement of Cash Flows on Disclosure Initiative. These amendments require the entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.  Amendments to PSAK 46: Income Taxes on Recognition of Deferred Tax Assets for Unrealised Losses. These amendments: - Add illustrative examples to clarify that the deductible temporary differences arise when the carrying amount of debt instruments measured at fair value and the fair value is less than the taxable base, regardless of whether the entity expects to recover the carrying amount of a debt instrument by sale or by use, for example by holding it and collecting contractual cash flows, or a combination of both. - Clarify that in order to assess whether taxable profits will be available against which it can utilise a deductible temporary difference, the assessment of that deductible temporary difference carried out in accordance with tax law. - Clarify that tax reduction from the reversal of deferred tax assets is excluded from the estimation of future taxable profit. The entity compares the deductible temporary differences with future taxable profit that excludes tax deductions resulting from the reversal of those deductible temporary differences to assess whether the entity has sufficient future taxable profit. - The estimate of probable future taxable profit may include the recovery of some of an entity’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this. The following new or amended standards, that will be effective on January 1, 2018, are considered to be not applicable to the Group’s consolidated financial statements:  PSAK 69: Agriculture.  Amendments to PSAK 16: Agriculture: Bearer Plants. b. Principles of consolidation The consolidated financial statements consist of the financial statements of the Company and the subsidiaries over which it has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has the power over the investee, exposure or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect its returns. The Group re-assesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary. Assets, liabilities, income and expenses, of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gain control until the date the Group ceases to control the subsidiary. 16 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b. Principles of consolidation (continued) Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the Company and to the non-controlling interests, even if this results in the non- controlling interests having a deficit balance. Intercompany balances and transactions have been eliminated in the consolidated financial statements. In case of loss of control over a subsidiary, the Group:  derecognizes the assets (including goodwill) and liabilities of the subsidiary at the carrying amounts on the date when it loses control;  derecognizes the carrying amounts of any non-controlling interests of its former subsidiary on the date when it loses control;  recognizes the fair value of the consideration received (if any) from the transaction, events, or condition that caused the loss of control;  recognizes the fair value of any investment retained in the subsidiary at fair value on the date of loss of control;  recognizes any surplus or deficit in profit or loss that is attributable to the Group. c. Transactions with related parties The Group has transactions with related parties. The definition of related parties used is in accordance with the Bapepam-LK’s Regulation No. VIII.G.7 regarding the Presentations and Disclosures of Financial Statements of Issuers or Public Companies, enclosed in the decision letter No. KEP-347/BL/2012. The party which is considered as a related party is a person or entity that is related to the entity that is preparing its financial statements. Under the Regulation of Bapepam-LK No.VIII.G.7, a government-related entity is an entity that is controlled, jointly controlled or significantly influenced by the government. Government in this context is the Minister of Finance or the Local Government, as the shareholder of the entity. Formerly, the Group in its disclosure applied the definition of related party used based on PSAK 7 “Related Party”. Key management personnel are identified as the persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of the Group. The related party status extends to the key management of the subsidiaries to the extent they direct the operations of subsidiaries with minimal involvement from the Company’s management. d. Business combinations Business combination is accounted for using the acquisition method. The consideration transferred is measured at fair value, which is the aggregate of the fair value of the assets transferred, liabilities incurred or assumed and the equity instruments issued in exchange for control of the acquiree. For each business combination, non-controlling interest is measured at fair value or at the proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Acquisition-related costs are expensed as incurred. The acquiree’s identifiable assets and liabilities are recognized at their fair values at the acquisition date. 17 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Business combinations (continued) Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of net assets acquired is in excess of the aggregate consideration transferred, the Group re-assess whether it has correctly identified all of the assets acquired and all of the liabilities assumed, and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re- assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit and loss. When the determination of consideration from a business combination includes contingent consideration, it is measured at its fair value on acquisition date. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss when adjustments are recorded outside the measurement period. Changes in the fair value of the contingent consideration that qualify as measurement-period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill. Measurement-period adjustments are adjustments that arise from additional information obtained during the measurement period, which cannot exceed one year from the acquisition date, about facts and circumstances that existed at the acquisition date. In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss. Based on PSAK 38 (Revised 2012), “Common Control Business Combination”, the transfer of assets, liabilities, shares or other ownership instruments among the companies under common control would not result in a gain or loss for the Company or individual entity in the same group. Since the restructuring transaction between entities under common control does not result in a change of the economic substance of the ownership of assets, liabilities, shares or other instruments of ownership, which are exchanged, assets or liabilities transferred are recorded at book value using the pooling-of-interests method. In applying the pooling-of-interests method, the components of the financial statements for the period during which the restructuring occurred must be presented in such a manner as if the restructuring has occurred since the beginning of the earliest period presented. The excess of consideration paid or received over the carrying value of interest acquired, net of income tax, is directly recognized to equity and presented as “Additional Paid-in Capital” under the equity section of the consolidated statement of financial position. At the initial application of PSAK 38 (Revised 2012), all balances of the Difference In Value of restructuring Transactions of Entities under Common Control was reclassified to “Additional Paid- in Capital” in the consolidated statement of financial position. e. Cash and cash equivalents Cash and cash equivalents comprises cash on hand and in banks and all unrestricted time deposits with original maturities of three months or less at the time of placement. Time deposits with maturities of more than three months but not more than one year are presented as part of “Other Current Financial Assets” in the consolidated statement of financial position. 18 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Investments in associated companies An associate is an entity over which the Group (as investor) has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but does not include control or joint control over those operating policies. The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the investor’s share of the net assets of the associate since the acquisition date. On acquisition of the investment, any difference between the cost of the investment and the entity's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as follows: a. Goodwill relating to an associate or a joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment. b. Any excess of the entity's share of the net fair value of the investee's identifiable assets and liabilities over the cost of the investment is included as income in the determination of the entity's share of the associate or joint venture's profit or loss in the period in which the investment is acquired. The consolidated statements of profit or loss and other comprehensive income reflect the Group’s share of the results of operations of the associate. Any change in the other comprehensive income of the associate is presented as part of other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate, the Group recognizes it share of the change in the consolidated statements of changes in equity. Unrealized gain and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The Group determines at each reporting date whether there is any objective evidence that the investments in associated companies are impaired. If there is, the Group calculates and recognizes the amount of impairment as the difference between the recoverable amount of the investments in the associated companies and their carrying value. These assets are included in “Long-term Investments” in the consolidated statements of financial position. The functional currency of PT Citra Sari Makmur (“CSM”) is the United States dollar (“U.S. dollars”), and Telin Malaysia is the Malaysian ringgit (“MYR”). For the purpose of reporting these investments using the equity method, the assets and liabilities of these companies as of the statement of financial position date are translated into Indonesian rupiah using the rate of exchange prevailing at that date, while revenues and expenses are translated into Indonesian rupiah at the average rates of exchange for the year. The resulting translation adjustments are reported as part of “translation adjustment” in the equity section of the consolidated statements of financial position. g. Trade and other receivables Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost, less provision for impairment. This provision for impairment is made based on management’s evaluation of the collectibility of the outstanding amounts. Receivables are written off in the year they are determined to be uncollectible. 19 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) h. Inventories Inventories consist of components, which are subsequently expensed upon use. Components represent telephone terminals, cables, and other spare parts. Inventories also include Subscriber Identification Module (“SIM”) cards, handsets, set top boxes, wireless broadband modems and blank prepaid vouchers, which are expensed upon sale. The costs of inventories consist of the purchase price, import duties, other taxes, transport, handling, and other costs directly attributable to their acquisition. Inventories are recognized at the lower of cost and net realizable value. Net realizable value is the estimate of selling price less the costs to sell. Cost is determined using the weighted average method. The amounts of any write-down of inventories below cost to net realizable value and all losses of inventories are recognized as expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of general and administrative expenses in the year in which the reversal occurs. Provision for obsolescence is primarily based on the estimated forecast of future usage of these inventory items. i. Prepaid expenses Prepaid expenses are amortized over their future beneficial periods using the straight-line method. j. Assets held for sale Assets (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. Assets that meet the criteria to be classified as held for sale are reclassified from property and equipment and depreciation on such assets is ceased. k. Intangible assets Intangible assets mainly consist of software. Intangible assets are recognized if it is highly probable that the expected future economic benefits that are attributable to each asset will flow to the Group, and the cost of the asset can be reliably measured. Intangible assets are stated at cost less accumulated amortization and impairment losses, if any. Intangible assets are amortized over their estimated useful lives. The Group estimates the recoverable value of its intangible assets. When the carrying amount of an intangible asset exceeds its estimated recoverable amount, the asset is written down to its estimated recoverable amount. 20 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k. Intangible assets (continued) Intangible assets are amortized using the straight-line method, based on the estimated useful lives of the intangible assets as follows: Software License Other intangible assets Years 3-6 3-20 1-30 Intangible assets are derecognized on disposal, or when no further economic benefits are expected, either from further use or from disposal. The difference between the carrying amount and the net proceeds received from disposal is recognized in the consolidated statements of profit or loss and other comprehensive income. l. Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property and equipment includes: (a) purchase price, (b) any costs directly attributable to bringing the asset to its location and condition, and (c) the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Property and equipment, except land rights, are depreciated using the straight-line method based on the estimated useful lives of the assets as follows: Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satelite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunication peripherals Office equipment Vehicles Customer Premises Equipment (“CPE”) asset Other equipment Years 15-40 2-15 3-15 5-15 3-25 3-20 5-25 3-20 3-20 5 2-5 4-8 4-5 2-5 Significant expenditures related to leasehold improvements are capitalized and depreciated over the lease term. The depreciation method, useful life and residual value of an asset are reviewed at least at each financial year-end and adjusted, if appropriate. The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset is already of the age and in the condition expected at the end of its useful life. Property and equipment acquired in exchange for a non-monetary asset or for a combination of monetary and non-monetary assets are measured at fair value unless, (i) the exchange transaction lacks commercial substance; or (ii) the fair value of neither the asset received nor the asset given up is reliably measurable. 21 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) l. Property and equipment (continued) Major spare parts and standby equipment that are expected to be used for more than 12 months are recorded as part of property and equipment. When assets are retired or otherwise disposed of, their cost and the related accumulated depreciation are derecognized from the consolidated statement of financial position and the resulting gains or losses on the disposal or sale of the property and equipment are recognized in the consolidated statements of profit or loss and other comprehensive income. Certain computer hardware can not be used without the availability of certain computer software. In such circumstance, the computer software is recorded as part of the computer hardware. If the computer software is independent from its computer hardware, it is recorded as part of intangible assets. The cost of maintenance and repairs is charged to the consolidated statements of profit or loss and other comprehensive income as incurred. Significant renewals and betterments are capitalized. Property under construction is stated at cost until the construction is completed, at which time it is reclassified to the property and equipment account to which it relates. During the construction period until the property is ready for its intended use or sale, borrowing costs, which include interest expense and foreign currency exchange differences incurred on loans obtained to finance the construction of the asset, as long as it meets the definition of a qualifying asset are, capitalized in proportion to the average amount of accumulated expenditures during the period. Capitalization of borrowing cost ceases when the construction is completed and the asset is ready for its intended use. m. Leases In determining whether an arrangement is, or contains a lease, the Group performs an evaluation over the substance of the arrangement. A lease is classified as a finance lease or operating lease based on the substance, not the form of the contract. Finance lease is recognized if the lease transfers substantially all the risks and rewards incidental to the ownership of the leased asset. Assets and liabilities under a finance lease are recognized in the consolidated statements of financial position at amounts equal to the fair value of the leased assets or, if lower, the present value of the minimum lease payments. Any initial direct costs of the Group are added to the amount recognized as assets. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the year in which they are incurred. Leased assets are depreciated using the same method and based on the useful lives as estimated for directly acquired property and equipment. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease terms, the leased assets are fully depreciated over the shorter of the lease terms and their economic useful lives. Lease arrangements that do not meet the above criteria are accounted for as operating leases for which payments are charged as an expense on the straight-line basis over the lease period. 22 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n. Deferred charges - land rights Costs incurred to process the initial legal land rights are recognized as part of the property and equipment and are not amortized. Costs incurred to process the extension or renewal of legal land rights are deferred and amortized using the straight-line method over the shorter of the legal term of the land rights or the economic life of the land. o. Trade payables Trade payables are obligations to pay for goods or services that have been acquired from suppliers in the ordinary course of business. Trade payables are classified as current liabilities if the payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method. p. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statements of profit or loss and other comprehensive income over the period of the borrowings using the effective interest method. Fees paid on obtaining loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facilities will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facilities will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facilities to which it relates. q. Foreign currency translations Indonesia International Pte. Ltd., Singapore, Telekomunikasi The functional currency and the recording currency of the Group are both the Indonesian rupiah, except for the functional currency of Telekomunikasi Indonesia International Pte. Ltd., Hong Kong, Telekomunikasi Indonesia International Inc., USA and Telekomunikasi Indonesia International S.A., Timor Leste whose accounting records are maintained in U.S. dollars and Telekomunikasi Indonesia International, Pty. Ltd., Australia whose accounting records are maintained in Australian dollars. Transactions in foreign currencies are translated into Indonesian rupiah at the rates of exchange prevailing at transaction date. At the consolidated statements of financial position dates, monetary assets and liabilities denominated in foreign currencies are translated into Indonesian rupiah based on the buy and sell rates quoted by Reuters prevailing at the consolidated statements of financial position dates, as follows (in full amount): U.S. dollar (“US$”) 1 Australian dollar (“AU$”) 1 Euro 1 Yen 1 2016 2015 Buy Sell Buy Sell 13,470 9,721 14,170 115.01 13,475 9,726 14,181 115.10 13,780 10,076 15,049 114.47 13,790 10,092 15,064 114.56 23 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) q. Foreign currency translations (continued) The resulting foreign exchange gains or losses, realized and unrealized, are credited or charged to the consolidated statements of profit or loss and other comprehensive income of the current year, except for foreign exchange differences incurred on borrowings during the construction of qualifying assets which are capitalized to the extent that the borrowings can be attributed to the construction of those qualifying assets (Note 2l). r. Revenue and expense recognition i. Cellular and fixed wireless telephone revenues Revenues from postpaid service, which consist of usage and monthly charges, are recognized as follows:  Airtime and charges for value added services are recognized based on usage by subscribers.  Monthly subscription charges are recognized as revenues when incurred by subscribers. Revenues from prepaid service, which consist of the sale of starter packs (also known as SIM cards and start-up load vouchers) and pulse reload vouchers, are recognized initially as unearned income and recognized as revenue based on total of successful calls made and the value added services used by the subscribers or the expiration of the unused stored value of the voucher. ii. Fixed line telephone revenues Revenues from usage charges are recognized as customers incur the charges. Monthly subscription charges are recognized as revenues when incurred by subscribers. Revenues from fixed line installations are deferred and recognized as revenue on the straight- line basis over the expected term of the customer relationships. Based on reviews of historical information and customer trends, the Company determined the term of the customer relationships is 18 years. iii. Interconnection revenues from network interconnection with other domestic and Revenues international telecommunications carriers are recognized monthly on the basis of the actual recorded traffic for the month. Interconnection revenues consist of revenues derived from other operators’ subscriber calls to the Group’s subscribers (incoming) and calls between subscribers of other operators through the Group’s network (transit). iv. Data, internet, and information technology service revenues Revenues from data communication and internet are recognized based on service activity and performance which are measured by the duration of internet usage or based on the fixed amount of charges depending on the arrangements with customers. Revenues from sales, installation and implementation of computer software and hardware, computer data network installation service and installation are recognized when the goods are delivered to customers or the installation takes place. Revenue from computer software development service is recognized using the percentage-of- completion method. v. Network revenues Revenues from network consist of revenues from leased lines and satellite transponder leases which are recognized over the period in which the services are rendered. 24 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r. Revenue and expense recognition (continued) vi. Other revenues Revenues from sales of handsets or other telecommunications equipments are recognized when delivered to customers. Revenues from telecommunication tower leases are recognized on straight-line basis over the lease period in accordance with the agreement with the customers. Revenues from other services are recognized when services are rendered to customers. vii. Multiple-element arrangements Where two or more revenue-generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of accounting is accounted for separately. The total revenue is allocated to each separately identifiable component based on the relative fair value of each component and the appropriate revenue recognition criteria are applied to each component as described above. viii. Agency relationship Revenues from an agency relationship are recorded based on the gross amount billed to the customers when the Group acts as principal in the sale of goods and services. Revenues are recorded based on the net amount retained (the amount paid by the customer less amount paid to the suppliers) when, in substance, the Group has acted as agent and earned commission from the suppliers of the goods and services sold. ix. Customer loyalty programme The Group operates a loyalty programme, which allows customers to accumulate points for every certain multiple of the telecommunication services usage. The points can be redeemed in the future for free or discounted products or services, provided other qualifying conditions are achieved. Consideration received is allocated between the telecommunication services and the points issued, with the consideration allocated to the points equal to their fair value. Fair value of the points is determined based on historical information about redemption rate of award points. Fair value of the points issued is deferred and recognized as revenue when the points are redeemed or expired. x. Expenses Expenses are recognized as they are incurred. s. Employee benefits i. Short-term employee benefits All short-term employee benefits which consist of salaries and related benefits, vacation pay, incentives and other short-term benefits are recognized as expense on undiscounted basis when employees have rendered service to the Group. ii. Post-employment benefit plans and other long-term employee benefits Post-employment benefit plans consist of funded and unfunded defined benefit pension plans, defined contribution pension plan, other post-employment benefits, post-employment health care benefit plan, defined contribution health care benefit plan and obligations under the Labor Law. 25 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) s. Employee benefits (continued) ii. Post-employment benefit plans and other long-term employee benefits (continued) Other long-term employee benefits consist of Long Service Awards (“LSA”), Long Service Leave (“LSL”), and pre-retirement benefits. The cost of providing benefits under post-employment benefit plans and other long-term employee benefits calculation is performed by an independent actuary using the projected unit credit method. The net obligations in respect of the defined pension benefit plans and post-retirement health care benefit plans are calculated at the present value of estimated future benefits that the employees have earned in return for their service in the current and prior periods less the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of Government bonds that are denominated in the currencies in which the benefits will be paid and that have terms to maturity approximating the terms of the related retirement benefit obligation. Government bonds are used as there are no deep markets for high quality corporate bonds. Plan assets are assets owned by defined benefit pension and post-retirement health care benefits as well as qualifying insurance policy. The assets are measured at their fair value as of reporting dates. The fair value of qualifying insurance policy is deemed to be the present value of the related obligations (subject to any reduction required if the amounts receivable under the insurance policies are not recoverable in full). Remeasurement, comprising of actuarial gain and losses, the effect of the asset ceiling (excluding amounts included in net interest on the net defined benefit liability (asset)) and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability (asset)) are recognized immediately in the consolidated statements of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognized immediately in profit or loss on the earlier of:  The date of plan amendment or curtailment; and  The date that the Group recognized restructuring-related costs. Net interest is calculated by applying the discount rate to the net defined benefit liability or assets. Gain or losses on curtailment are recognized when there is a commitment to make a material reduction in the number of employees covered by a plan or when there is an amendment of defined benefit plan terms such as that a material element of future services to be provided by current employees will no longer qualify for benefits, or will qualify only for reduced benefits. Gain or losses on settlement are recognized when there is a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan (other than the payment of benefit in accordance with the program and included in the actuarial assumptions). For defined contribution plans, the regular contributions constitute net periodic costs for the period in which they are due and, as such are included in personnel expenses as they become payable. 26 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) s. Employee benefits (continued) iii. Share-based payments The Company operates an equity-settled, share-based compensation plan. The fair value of the employees’ services rendered which are compensated with the Company’s shares is recognized as an expense in the consolidated statements of profit or loss and other comprehensive income and credited to additional paid-in capital at the grant date. iv. Early retirement benefits Early retirement benefits are accrued at the time the Company and subsidiaries makes a commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary redundancy. A commitment to a termination arises when, and only when a detailed formal plan for the early retirement cannot be withdrawn. t. Income tax Current and deferred income taxes are recognized as income or an expense and included in the consolidated statements of profit or loss and other comprehensive income, except to the extent that the tax arises from a transaction or event which is recognized directly in equity, in which case, the tax is recognized directly in equity. Current tax assets and liabilities are measured at the amounts expected to be recovered or paid using the tax rates and tax laws that have been enacted at each reporting date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Where appropriate, management establishes provisions based on the amounts expected to be paid to the tax authorities. The Group recognizes deferred tax assets and liabilities for temporary differences between the financial and tax bases of assets and liabilities at each reporting date. The Group also recognizes deferred tax assets resulting from the recognition of future tax benefits, such as the benefit of tax losses carried forward to the extent their future realization is probable. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates and tax laws at each reporting date which are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The carrying amount of deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax assets and liabilities are offset in the consolidated statements of financial position, except if these are for different legal entities, in the same manner the current tax assets and liabilities are presented. Amendment to taxation obligation is recorded when an assessment letter (“Surat Ketetapan Pajak” or “SKP”) is received or, if appealed against, when the results of the appeal are determined. The additional taxes and penalty imposed through an SKP are recognized in the current year profit or loss, unless objection/appeal is taken. The additional taxes and penalty imposed through the SKP are deferred as long as they meet the asset recognition criteria. Indonesian tax regulation set up several type that subject to final tax. Final tax which charged to gross value of transaction remains subject to the transaction even though the subject are losses. Refer to PSAK No. 46 revised, final tax is not required in scope of PSAK No. 46. Final income tax on construction services and lease is presented as part of “Other Expenses”. 27 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments The Group classifies financial instruments into financial assets and financial liabilities. Financial assets and liabilities are recognized initially at fair value including transaction costs. These are subsequently measured either at fair value or amortized cost using the effective interest rate method in accordance with their classification. i. Financial assets The Group classifies its financial assets as (i) financial assets at fair value through profit or loss, (ii) loans and receivables, (iii) held-to-maturity investment or (iv) available-for-sale financial assets. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of financial assets at initial recognition. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the assets. The Group’s financial assets include cash and cash equivalents, other current financial assets, trade receivables and other receivables and other non-current financial assets. a. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets classified as held for trading. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing it in the near term and for which there is evidence of a recent actual pattern of short-term profit taking. Gains or losses arising from changes in fair value of the trading securities are presented as other (expenses)/income in consolidated statements of profit or loss and other comprehensive income in the period in which they arise. Financial asset measured at fair value through profit loss consists of derivative asset- put option which is recognized as part of “Other Current Financial Assets” in the consolidated statements of financial position. b. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables consist of, among other assets, cash and cash equivalents, other current financial assets, trade and other receivables, and other non-current assets (long- term trade receivables and restricted cash). These are initially recognized at fair value including transaction costs and subsequently measured at amortized cost, using the effective interest method. c. Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities on which management has the positive intention and ability to hold to maturity, other than: a) b) c) those that the Group, upon initial recognition, designates as at fair value through profit or loss; those that the Group designates as available-for-sale; and those that meet the definition of loans and receivables. financial assets were classified as held-to-maturity No December 31, 2016 and 2015. investments as of 28 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) i. Financial assets (continued) d. Available-for-sale financial assets Available-for-sale investments are non-derivative financial assets that are intended to be held for indefinite periods of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or that are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available- for-sale financial assets primaly consist of mutual funds, and corporate and government bonds, which are recorded as part of “Other Current Financial Assets” in the consolidated statements of financial position. Available-for-sale securities are stated at fair value. Unrealized holding gain or losses on available-for-sale securities are excluded from income of the current period and are reported as a separate component in the equity section of the consolidated statement of financial position until realized. Realized gain or losses from the sale of available-for-sale securities are recognized in the consolidated statements of profit or loss and other comprehensive income, and are determined on the specific identification basis. ii. Financial liabilities The Group classifies its financial liabilities as (i) financial liabilities at fair value through profit or loss or (ii) financial liabilities measured at amortized cost. The Group’s financial liabilities include trade and other payables, accrued expenses and interest-bearing loans and other borrowings, and other liabilities. Interest-bearing loans and other borrowings consist of short-term bank loans, two-step loans, bonds and notes, long-term bank loans and obligations under finance leases. a. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial liabilities classified as held for trading. A financial liability is classified as held for trading if it is incurred principally for the purpose of selling or repurchasing it in the near term and for which there is evidence of a recent actual pattern of short-term profit taking. No financial liabilities were categorized as held for trading as of December 31, 2016 and 2015. b. Financial liabilities measured at amortized cost Financial liabilities that are not classified as liabilities at fair value through profit or loss fall into this category and are measured at amortized cost. Financial liabilities measured at amortized cost are trade and other payables, accrued expenses, and interest-bearing loans and other borrowings, and other liabilities. Interest-bearing loans and other borrowings consist of short-term bank loans, two-step loans, bonds and notes, long-term bank loans and obligations under finance leases. 29 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) iii. Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle them on a net basis, or realize the assets and settle the liabilities simultaneously. The right of set-off must not be contingent on a future event and must be legally enforceable in all of the following circumstances: a. b. c. the normal course of business; the event of default; and the event of insolvency or bankruptcy of the Group and all of the counterparties. iv. Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or liability settled, in an arms’ length transaction. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 37. v. Impairment of financial assets The Group assesses the impairment of financial assets if there is objective evidence that a loss event has a negative impact on the estimated future cash flows of the financial assets. Impairment is recognized when the loss event can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognized. For financial assets carried at amortized cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in the collective assessment of impairment. The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. 30 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) v. Impairment of financial assets (continued) For available-for-sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is recognized in profit or loss as an impairment loss. The amount of the cumulative loss is the difference between the acquisition cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized. vi. Derecognition of financial instrument The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial asset. The Group derecognizes a financial liability when the obligation specified in the contract is discharged or cancelled or has expired. v. Treasury stock Reacquired Company shares of stock are accounted for at their reacquisition cost and classified as “Treasury Stock” and presented as a deduction to equity. The cost of treasury stock sold/transferred is accounted for using the weighted average method. The portion of treasury stock transferred for employees ownership program is accounted for at its fair value at grant date. The difference between the cost and the proceeds from the sale/transfer value of treasury stock is credited to “Additional Paid-in Capital”. w. Dividends Dividend for distribution to the stockholders is recognized as a liability in the consolidated financial statements in the year in which the dividend is approved by the stockholders. The interim dividend as a liability based on the Board of Directors’ decision supported by the approval from the Board of Commissioners. x. Basic and diluted earnings per share and earnings per ADS Basic earnings per share is computed by dividing profit for the year attributable to owners of the parent company by the weighted average number of shares outstanding during the year. Income per ADS is computed by multiplying the basic earnings per share by 100, the number of shares represented by each ADS. The Company does not have potentially dilutive financial investments. y. Segment information The Group's segment information is presented based upon identified operating segments. An operating segment is a component of an entity: a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); b) whose operating results are regularly reviewed by the Group's chief operating decision maker i.e., the Directors, to make decisions about resources to be allocated to the segment and assess its performance, and c) for which discrete financial information is available. 31 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) z. Provision Provisions are recognized when the Group has present obligations (legal or constructive) arising from past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and the amount can be measured reliably. Provisions for onerous contracts are recognized when the contract becomes onerous for the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfill the contract. aa. Impairment of non-financial assets At the end of each reporting period, the Group assesses whether there is an indication that an asset may be impaired. If such indication exists, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the Cash-Generating Unit (“CGU”) to which the asset belongs (“the asset’s CGU”). The recoverable amount of an asset (either individual asset or CGU) is the higher of the asset’s fair value less costs to sell and its value in use. Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated net future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, the Group uses an appropriate valuation model to determine the fair value of the asset. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses of continuing operations are recognized in profit or loss as part of “Depreciation and Amortization” in the consolidated statements of profit or loss and other comprehensive income. At the end of each reporting period, the Group assesses whether there is any indication that previously recognized impairment losses for an asset, other than goodwill, may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss for an asset, other than goodwill, is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited such that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment been recognized for the asset in prior periods. Reversal of an impairment loss is recognized in profit or loss. Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment loss relating to goodwill cannot be reversed in future periods. ab. Critical Accounting Estimates and Judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. 32 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ab. Critical Accounting Estimates and Judgements (continued) i. Retirement benefits The present value of the retirement benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations. The Group determines the appropriate discount rate at the end of each reporting period. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the obligations. In determining the appropriate discount rate, the Group considers the interest rates of Government bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related retirement benefit obligations. If there is an improvement in the ratings of such Government bonds or a decrease in interest rates as a result of improving economic conditions, there could be a material impact on the discount rate used in determining the post-employment benefits obligations. Other key assumptions for retirement benefit obligations are based in part on current market conditions. Additional information is disclosed in Notes 29 and 30. ii. Useful lives of property and equipment The Group estimates the useful lives of its property and equipment based on expected asset utilization, considering strategic business plans, expected future technological developments and market behavior. The estimates of useful lives of property and equipment are based on the Group’s collective assessment of industry practice, internal technical evaluation and experience with similar assets. The Group reviews its estimates of useful lives at least each financial year-end and such estimates are updated if expectations differ from previous estimates due to changes in ecpectation of physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of the assets. The amounts of recorded expenses for any year will be affected by changes in these factors and circumstances. A change in the estimated useful lives of the property and equipment is a change in accounting estimates and is applied prospectively in profit or loss in the period of the change and future periods. Details of the nature and carrying amounts of property and equipment are disclosed in Note 9. iii. Provision for impairment of receivables The Group assesses whether there is objective evidence that trade and other receivables have been impaired at the end of each reporting period. Provision for impairment of receivables is calculated based on a review of the current status of existing receivables and historical collection experience. Such provisions are adjusted periodically to reflect the actual and anticipated experience. Details of the nature and carrying amounts of provision for impairment of receivables are disclosed in Note 5. iv. Income taxes Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such determination is made. Details of the nature and carrying amount of income tax are disclosed in Note 26. 33 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 3. CASH AND CASH EQUIVALENTS The breakdown of cash and cash equivalents is as follows: Cash on hand Cash in banks Related parties PT Bank Mandiri (Persero) Tbk (“Bank Mandiri”) PT Bank Negara Indonesia (Persero) Tbk (“BNI”) PT Bank Rakyat Indonesia (Persero) Tbk (“BRI”) Others Sub-total Third parties The Hongkong and Shanghai Banking Corporation Ltd. (“HSBC”) Standard Chartered Bank (“SCB”) PT Bank Permata Tbk (“Bank Permata”) Development Bank of Singapore (”DBS”) PT Bank Muamalat Indonesia Tbk (“Bank Muamalat”) Citibank, N.A. (“Citibank”) Others (each below Rp75 billion) Sub-total Total cash in banks Time deposits Related parties BRI BNI PT Bank Tabungan Negara (Persero) Tbk (“Bank BTN”) Bank Mandiri Sub-total 2016 Balance 2015 Balance Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent - 10 - 10 Currency Rp - 41 6 1 1 0 - 6 5 0 - 8 - 0 13 2 - - 6 5 - 7 - 0 - 2 - 1 0 - 2 0 0 1 3 0 0 0 - 47 - 25 - - 5 1,897 548 1 11 1 0 581 84 68 0 95 107 22 0 3,415 176 4 - 0 74 43 14 96 101 0 6 24 5 12 1 146 33 0 0 12 1 0 0 1 749 4,164 4,076 632 4,043 336 3,356 1,552 67 14,062 - 51 11 1 1 0 - 22 5 0 - 11 - 0 8 10 1 - 31 1 - 0 - - - 27 - 2 0 - 1 - 0 1 19 0 0 0 672 707 1 8 1 0 508 299 72 0 140 155 14 0 2,577 110 18 6 0 430 13 12 0 0 - 61 373 103 26 4 86 15 - 0 13 8 0 0 0 1,278 3,855 - 201 - 1 - - 5 2,831 2,763 3,031 9 885 2,863 69 12,451 Rp US$ JPY EUR HKD AUD Rp US$ EUR SGD Rp US$ Rp US$ US$ HKD SGD Rp US$ SGD Rp US$ Rp US$ Rp US$ Rp US$ EUR Rp US$ SGD EUR AUD TWD MYR HKD MOP Rp US$ Rp US$ Rp Rp US$ 34 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 3. CASH AND CASH EQUIVALENTS (continued) 2016 Balance 2015 Balance Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Currency Time deposits (continued) Third parties PT Bank CIMB Niaga Tbk (“Bank CIMB Niaga”) PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk (“BJB”) PT Bank OCBC NISP Tbk (“OCBC NISP”) Bank Permata PT Bank Mega Tbk (“Bank Mega”) PT Bank UOB Indonesia (“UOB”) PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”) SCB Bank Muamalat Bank ANZ (“Bank ANZ”) PT Bank Bukopin Tbk (“Bank Bukopin”) PT Bank Pan Indonesia Tbk (”Bank Panin”) Others (each below Rp75 billion) Sub-total Total time deposits Grand Total Rp Rp US$ Rp US$ Rp Rp US$ Rp Rp Rp US$ SGD Rp Rp Rp US$ Rp Rp - - - - 10 - - 14 - - - 18 15 - - - - - - 2,025 2,020 - 1,550 134 1,492 1,226 185 1,345 461 - 242 139 305 200 148 - - 59 11,531 25,593 29,767 - - 10 - - - - 70 - - - - - - - - 55 - - 1,605 1,884 138 950 - 1,692 1,265 960 300 146 550 - - 142 - 1,173 759 91 146 11,801 24,252 28,117 Interest rates per annum on time deposits are as follows: Rupiah Foreign currencies 2016 3.20%-10.00% 0.10%-2.00% 2015 3.75%-10.50% 0.10%-3.00% The related parties in which the Group places its funds are state-owned banks. The Group placed the majority of its cash and cash equivalents in these banks because they have the most extensive branch networks in Indonesia and are considered to be financially sound banks, as they are owned by the State. Refer to Note 31 for details of related party transactions. 35 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 4. OTHER CURRENT FINANCIAL ASSETS The breakdown of other current financial assets is as follows: 2016 Balance 2015 Balance Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Time deposits Related parties BNI Bank Mandiri Third parties UOB SCB Total time deposits Available-for-sale financial assets Related parties PT Bahana TCW Investment Mangement (”Bahana TCW”) PT Mandiri Manajemen Investasi State-owned enterprises Government Sub-total Third parties Total available-for-sale financial assets Escrow accounts Others Total Rp US$ US$ US$ Rp Rp US$ US$ Rp Rp US$ Rp US$ AUD - - 1 - - - 4 2 - - 2 - - 0 63 - 13 - 76 559 500 55 27 1,141 17 1,158 112 22 98 - 5 1,471 - 20 - 1 - - 4 2 - - 3 - 0 1 - 278 - 11 289 55 - 59 29 143 17 160 2,121 41 192 1 14 2,818 The time deposits have maturities of more than three months but not more than one year, with interest rates as follows: Rupiah Foreign currencies Refer to Note 31 for details of related party transactions. 2016 5.75%-6.00% 0.58%-1.64% 2015 - 0.85%-0.88% 36 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 5. TRADE RECEIVABLES Trade receivables arise from services provided to both retail and non-retail customers, with details as follows: a. By debtor (i) Related parties Indonusa PT Indosat Tbk (“Indosat”) State-owned enterprises Others Total Provision for impairment of receivables Net (ii) Third parties Individual and business subscribers Overseas international carriers Total Provision for impairment of receivables Net b. By age (i) Related parties Up to 3 months 3 to 6 months More than 6 months Total Provision for impairment of receivables Net (ii) Third parties Up to 3 months 3 to 6 months More than 6 months Total Provision for impairment of receivables Net 37 2016 2015 431 370 151 348 1,300 (406 ) 894 2016 2015 7,801 1,252 9,053 (2,584 ) 6,469 342 361 270 378 1,351 (247 ) 1,104 8,020 1,194 9,214 (2,801 ) 6,413 2016 2015 690 39 571 1,300 (406 ) 894 2016 2015 5,566 658 2,829 9,053 (2,584 ) 6,469 772 61 518 1,351 (247 ) 1,104 5,816 522 2,876 9,214 (2,801 ) 6,413 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 5. TRADE RECEIVABLES (continued) b. By age (continued) (iii) Aging of total trade receivables 2016 2015 Not past due Past due up to 3 months Past due more than 3 to 6 months Past due more than 6 months Total Gross 4,535 1,721 697 3,400 10,353 Provision for impairment of receivables Gross Provision for impairment of receivables 266 202 4,353 2,235 583 3,394 10,565 216 2,364 3,048 177 401 495 1,917 2,990 The Group has made provision for impairment of trade receivables based on the collective assessment of historical impairment rates and individual assessment of its customers’ credit history. The Group does not apply a distinction between related party and third party receivables in assessing amounts past due. As of December 31, 2016 and 2015, the carrying amounts of trade receivables of the Group considered past due but not impaired amounted to Rp3,005 billion and Rp3,430 billion, respectively. Management believes that receivables past due but not impaired, along with trade receivables that are neither past due nor impaired, are due from customers with good credit history and are expected to be recoverable. c. By currency (i) Related parties Rupiah U.S. dollar Others Total Provision for impairment of receivables Net (ii) Third parties Rupiah U.S. dollar Australian dollar Others Total Provision for impairment of receivables Net 2016 2015 1,300 0 0 1,300 (406 ) 894 1,328 23 0 1,351 (247 ) 1,104 2016 2015 7,565 1,437 40 11 9,053 (2,584 ) 6,469 7,761 1,436 14 3 9,214 (2,801 ) 6,413 38 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 5. TRADE RECEIVABLES (continued) d. Movements in the provision for impairment of receivables Beginning balance Provision recognized during the year (Note 25) Receivables written off Ending balance 2016 2015 3,048 743 (801 ) 2,990 3,096 1,010 (1,058 ) 3,048 The receivables written off relate to both related party and third party trade receivables. Management believes that the provision for impairment of trade receivables is adequate to cover losses on uncollectible trade receivables. As of December 31, 2016, certain Rp4,550 billion have been pledged as collateral under lending agreements (Notes 15, 16b and 16c). the subsidiaries amounting receivables of trade to Refer to Note 31 for details of related party transactions. 6. INVENTORIES Components SIM cards, set top boxes, and blank prepaid vouchers Others Total Provision for obsolescence Components SIM cards, set top boxes and blank prepaid vouchers Others Total Net Movements in the provision for obsolescence are as follows: Beginning balance Provision recognized during the year Inventory written off Ending balance 2016 2015 299 168 164 631 (18 ) (29 ) 0 (47 ) 584 2016 2015 41 11 (5 ) 47 342 131 96 569 (14 ) (27 ) 0 (41 ) 528 43 2 (4 ) 41 inventories in operations, maintenance, and The telecommunication service expenses as of December 31, 2016 and 2015 amounted to Rp2,105 billion and Rp1,937 billion, respectively (Note 24). recognized as expense and included Management believes that the provision is adequate to cover losses from declines in inventory value due to obsolescence. Certain inventories of the subsidiaries amounting to Rp256 billion have been pledged as collateral under lending agreements (Notes 15, 16b and 16c). As of December 31, 2016 and 2015, modules and components held by the Group with book value amounting to Rp199 billion and Rp219 billion, respectively, have been insured against fire, theft, and other specific risks. Modules are recorded as part of property and equipment. Total sum insured as of December 31, 2016 and 2015 amounted to Rp220 billion and Rp291 billion, respectively. Management believes that the insurance coverage is adequate to cover potential losses of inventories arising from the insured risks. 39 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 7. ADVANCES AND PREPAID EXPENSES Frequency license (Notes 34c.i and 34c.ii) Prepaid rental Advances Salaries Advance to employee Others Total Refer to Note 31 for details of related party transactions. 8. LONG-TERM INVESTMENTS 2016 2015 3,056 1,234 394 229 32 301 5,246 2,935 1,055 729 347 28 745 5,839 Percentage of ownership Beginning balance Additions (Deductions) 2016 Share of net profit (loss) of associated company Dividend Share of other comprehensive income of associated company Ending balance Long-term investments in associated companies: Tiphonea Indonusab Teltranetc PT Melon Indonesia (“Melon”) d PT Integrasi Logistik Cipta Solusi (“ILCS”) e Telin Malaysiaf CSMg Sub-total Other long-term investments Total Long-term investments 24.43 20.00 51.00 51.00 49.00 49.00 25.00 1,404 221 71 50 40 6 - 1,792 15 1,807 - - - (67 ) - - - (67 ) 43 (24 ) 108 - (33 ) 17 2 (6 ) - 88 - 88 (23 ) - - - - - - (23 ) - (23 ) (1 ) - - - - - - (1 ) - (1 ) 1,488 221 38 - 42 0 - 1,789 58 1,847 Summarized financial information of the Group’s investments accounted under the equity method for 2016: Tiphone Indonusa Teltranet ILCS Telin Malaysia CSM Statements of financial position Current assets Non-current assets Current liabilities Non-current liabilities Equity (deficit) Statements of profit or loss and other comprehensive income Revenues Operating expenses Other income (expenses) including finance costs - net Profit (loss) before tax Income tax expense Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income for the year 7,709 743 (1,248 ) (3,762 ) 3,442 27,310 (26,445 ) (231 ) 634 (166 ) 468 (5 ) 463 170 444 (532 ) (405 ) (323 ) 605 (583 ) (17 ) 5 (33 ) (28 ) 7 (21 ) 66 88 (78 ) (2 ) 74 66 (149 ) (3 ) (86 ) 21 (65 ) (0 ) (65 ) 131 29 (73 ) (1 ) 86 116 (112 ) 0 4 0 4 (0 ) 4 9 10 (35 ) (6 ) (22 ) 8 (43 ) - (35 ) - (35 ) - (35 ) 161 761 (594 ) (1,206 ) (878) 131 (221 ) (88 ) (178 ) - (178 ) - (178 ) 40 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 8. LONG-TERM INVESTMENTS (continued) Percentage of ownership Beginning balance Additions (Deductions) 2015 Share of net (loss) profit of associated company Dividend Share of other comprehensive income of associated company Ending balance Long-term investments in associated companies: Tiphonea Indonusab Teltranetc Melond ILCSe Telin Malaysiaf CSMg Sub-total Other long-term investments Total long-term investments 24.65 20.00 51.00 51.00 49.00 49.00 25.00 1,392 221 52 43 38 6 - 1,752 15 1,767 - - 43 - - 19 - 62 - 62 32 - (24 ) 7 2 (19 ) - (2 ) - (2 ) (18 ) - - - - - - (18 ) - (18 ) (2 ) - - - - (0 ) - (2 ) - (2 ) 1,404 221 71 50 40 6 - 1,792 15 1,807 Summarized financial information of the Group’s investments accounted under the equity method for 2015: Tiphone Indonusa Teltranet Melon ILCS Telin Malaysia CSM Statements of financial position Current assets Non-current assets Current liabilities Non-current liabilities Equity (deficit) Statements of profit or loss and other comprehensive income Revenues Operating expenses Other income (expenses) including finance costs - net Profit (loss) before tax Income tax expense Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income for the year 6,539 1,261 (1,657 ) (3,073 ) 3,070 501 333 (535 ) (568 ) (269 ) 22,060 (21,295 ) 599 (559 ) (265 ) 500 (130 ) 370 (7 ) 363 (82 ) (42 ) - (42 ) - (42 ) 117 58 (35 ) (1 ) 139 0 (72 ) 9 (63 ) 16 (47 ) - (47 ) 131 27 (57 ) (2 ) 99 105 32 (54 ) (1 ) 82 201 (184 ) 111 (108 ) 2 19 (5 ) 14 0 14 (0 ) 3 (0 ) 3 0 3 18 10 (17 ) - 11 6 (40 ) (3 ) (37 ) - (37 ) - 185 1,221 (731 ) (1,535 ) (860 ) 164 (364 ) (74 ) (274 ) - (274 ) - (37 ) (274 ) a Tiphone was established on June 25, 2008 as PT Tiphone Mobile Indonesia Tbk. Tiphone is engaged in the telecommunication equipment business, such as for celullar phone including spare parts, accessories, pulse reload vouchers, repair service and content provider through its subsidiaries. On September 18, 2014, the Company through PINS acquired 25% ownership in Tiphone for Rp1,395 billion. As of December 31, 2016 and 2015, the fair value of investment amounting to Rp1,500 billion and Rp1,351 billion, respectively. The fair value was calculated by multiplying number of shares by the published price quotation as of December 31, 2016 and 2015 amounting to Rp855 and Rp770 per share, respectively. Reconciliation of information December 31, 2016 and 2015 is as follows: financial to the carrying amount of long-term investment in Tiphone as of Assets Liabilities Net assets Group’s proportionate share of net assets (24.43% in 2016 and 24.65% in 2015) Goodwill Carrying amount of long-term investment 2016 2015 8.452 (5.010 ) 3,442 841 647 1,488 7,800 (4,730 ) 3,070 757 647 1,404 41 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 8. LONG-TERM INVESTMENTS (continued) b Indonusa had been a subsidiary of the Company until 2013 when the Company disposed 80% of its interest in Indonusa. On May 14, 2014, based on the Circular Resolution of the Stockholders of Indonusa as covered by notarial deed No. 57 dated April 23, 2014 of FX Budi Santoso its Letter No. AHU-02078.40.20.2014 dated April 29, 2014, Indonusa’s stockholders approved an increase in its issued and fully paid capital by Rp80 billion. The Company has waived its right to own the new shares issued and transferred it to Metra and, as a result, Metra’s ownership in Indonusa increased to 4.33%. Investment in Teltranet is accounted for under the equity method, which covered by an agreement between Metra and Telstra Holding Singapore Pte. Ltd. dated August 29, 2014. Teltranet is engaged in communication system services. Metra does not have control as it does not determine the financial and operating policies of Teltranet. Isbandi, S.H., which was approved by the MoLHR in c d Melon previously was an associate. In 2016, the Company purchased Melon 52% stake through Metranet, thus becoming a consolidated subsidiary (Note 1d). ILCS is engaged in providing E-trade logistic services and other related services. e f Telin Malaysia is engaged in telecommunication services in Malaysia. g CSM is engaged in providing Very Small Aperture Terminal (“VSAT”), network application services and consulting services on telecommunications technology and related facilities. The unrecognized share of losses of CSM for the year ended December 31, 2016 dan 2015 amounting to Rp219 billion and Rp215 billion, respectively. 9. PROPERTY AND EQUIPMENT At cost: Directly acquired assets Land rights Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Property under construction Assets under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Accumulated depreciation and impairment losses: Directly acquired assets Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Assets unde finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Net Book Value January 1, 2016 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2016 1,270 6,033 1,036 19,823 876 119,047 8,146 37,887 13,822 11,351 632 1,062 475 99 4,580 5,940 63 94 73 22 90 252 232,673 89 10 - - - - - - - 12 - 5 - - - - - - - - - - 116 59 311 13 218 751 2,603 80 6,746 161 318 73 139 60 1 17,169 229 77 63 3 - 125 - 29,199 (1 ) (3 ) (37 ) (160 ) (41 ) (11,319 ) - (302 ) (77 ) (82 ) - (12 ) (147 ) - - (815 ) (56 ) (22 ) - - - - (13,074 ) - 1,486 104 609 - 11,221 219 460 1,116 916 (5 ) 259 (1 ) - (17,199 ) - - - - - - - (815 ) 1,417 7,837 1,116 20,490 1,586 121,552 8,445 44,791 15,022 12,515 700 1,453 387 100 4,550 5,354 84 135 76 22 215 252 248,099 January 1, 2016 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2016 - - - - - - - - - - - - - - - - - - - - - 290 106 1,588 329 9,957 415 1,534 1,145 1,067 77 141 69 - 542 47 19 43 2 80 13 17,464 (2 ) (37 ) (160 ) - (10,686 ) - (302 ) (70 ) (62 ) - (11 ) (66 ) - (815 ) (56 ) - - - - - (12,267 ) 6 - (1 ) - (32 ) (23 ) (455 ) (25 ) (40 ) (1 ) 3 (1 ) - - - - - - - - (569 ) 2,435 692 16,650 333 62,302 7,098 20,301 10,164 9,468 461 846 168 99 2,054 44 32 94 19 98 243 133,601 114,498 2,141 623 15,223 4 63,063 6,706 19,524 9,114 8,503 385 713 166 99 2,327 53 13 51 17 18 230 128,973 103,700 42 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) At cost: Directly acquired assets Land rights Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Property under construction Assets under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Accumulated depreciation and impairment losses: Directly acquired assets Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunications peripherals Office equipment Vehicles Other equipment Assets under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Net Book Value January 1, 2015 Additions Deductions Reclassifications/ Translations December 31, 2015 1,184 4,571 943 19,208 6 107,573 7,927 33,114 12,776 10,242 602 951 346 99 3,853 5,882 102 44 21 22 - 252 209,718 86 263 41 126 870 4,278 93 4,458 381 408 37 150 135 - 14,623 260 - 50 52 - 90 - 26,401 - - (151 ) (66 ) - (2,318 ) (1 ) (227 ) (92 ) (58 ) - (46 ) (2 ) - - (202 ) (39 ) - - - - - (3,202 ) - 1,199 203 555 - 9,514 127 542 757 759 (7 ) 7 (4 ) - (13,896 ) - - - - - - - (244 ) 1,270 6,033 1,036 19,823 876 119,047 8,146 37,887 13,822 11,351 632 1,062 475 99 4,580 5,940 63 94 73 22 90 252 232,673 January 1, 2015 Additions Deductions Reclassifications/ Translations December 31, 2015 1,954 669 13,861 4 54,764 6,099 18,762 7,978 7,624 322 659 113 97 1,681 79 5 6 15 - 217 114,909 94,809 183 105 1,441 - 10,575 607 1,327 1,250 940 70 107 57 2 848 13 8 45 2 18 13 17,611 - (151 ) (62 ) - (2,290 ) (1 ) (225 ) (85 ) (58 ) - (45 ) (1 ) - (202 ) (39 ) - - - - - (3,159 ) 4 - (17 ) - 14 1 (340 ) (29 ) (3 ) (7 ) (8 ) (3 ) - - - - - - - - (388 ) 2,141 623 15,223 4 63,063 6,706 19,524 9,114 8,503 385 713 166 99 2,327 53 13 51 17 18 230 128,973 103,700 43 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) a. Gain on disposal or sale of property and equipment Proceeds from sale of property and equipment Net book value Gain on disposal or sale of property and equipment 2016 2015 765 (152 ) 613 733 (8 ) 725 b. Asset impairment In 2014, the Group decided to cease its fixed wireless business no later than December 14, 2015. The Company assessed the recoverable amount to be Rp549 billion and determined that the assets for fixed wireless CGU were further impaired by Rp805 billion. The recoverable amount has been determined based on value in use calculation using the most recent cash flows projection approved by management. The cash flows projection included cash inflows from the continuing use of the assets during the remaining service period and projected net cash flows to be received for the disposal of the assets for fixed wireless CGU at the end of service period. Projected net cash flows to be received for the disposal of the assets were determined based on cost approach, adjusted for physical, technological and economic obsolescence. Management applied a pre-tax discount rate of 13.5% derived from the Company’s post-tax weighted average cost of capital and benchmarked to externally available data. In addition, management also applied technological and economic obsolescence rate of 30% based on the Company’s internal data, due to the lack of comparable market data because of the nature of the assets. The determination of value in use calculation is most sensitive to the technological and economic obsolescence rate assumption. An increase in technological and economic obsolescence rate to 40% would result in a further impairment of Rp70 billion. Loss on impairment of assets is recognized as part of “Depreciation and Amortization” in the consolidated statement of profit or loss and other comprehensive income. In connection with the restructuring of fixed wireless business (Note 34c.ii), the Company accelerated its depreciation of fixed wireless assets. As of December 31, 2015, all of the Company’s fixed wireless assets have been fully depreciated. In 2016, the Company derecognized its fixed wireless assets with cost and accumulated depreciation amounting to Rp5,203 billion, respectively. Management believes that there is no indication of impairment in the assets of other CGUs as of December 31, 2016. c. Others (i) Interest capitalized to property under construction amounted to Rp444 billion and Rp328 billion for the years ended December 31, 2016 and 2015, respectively. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization ranged from 10.20% to 11.00% and 6.84% to 11.00% for the years ended December 31, 2016 and 2015, respectively. (ii) No foreign exchange loss was capitalized as part of property under construction for the years ended December 31, 2016 and 2015. 44 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (iii) In 2016 and 2015, the Group received proceeds from the insurance claim on lost and broken property and equipment, with a total value of Rp77 billion and Rp119 billion, respectively, and were recorded as part of “Other Income” in the consolidated statements of profit or loss and other comprehensive income. In 2016 dan 2015, the net carrying values of those assets of Rp19 billion and Rp35 billion, respectively, were charged to the consolidated statements of profit or loss and other comprehensive income. (iv) In 2016, Telkomsel decided to replace certain equipment units with net carrying amount of Rp528 billion, as part of its modernization program. Accordingly, Telkomsel accelerated the depreciation of such equipment units. The impact of the change was an increase in the depreciation expense for the year ended December 31, 2016 amounting to Rp489 billion. In 2015, Telkomsel decided to replace certain equipment units with a net carrying amount of Rp1,967 billion, as part of its modernization program. Accordingly, Telkomsel accelerated the depreciation of such equipment units. The impact of the change was an increase in the depreciation expense for the year ended December 31, 2016 amounting to Rp274 billion. This modernization program will decrease profit before income tax in 2017 amounting to Rp30 billion. In 2014, the useful lives of Telkomsel’s buildings and transmissions were changed from 20 years to 40 years, and from 10 years to 15 and 20 years, respectively, to reflect the current economic lives of the buildings and the transmissions. The impact of reduction in depreciation expense for the year ended December 31, 2016 amounting to Rp244 billion. The impact of the changes in the estimated useful lives of the buildings and transmissions in future periods is an increase in the profit before income tax as follows: Years 2017 2018 (v) Exchange of property and equipment Amount 198 135 In 2012 and 2011, the Company entered into a Procurement and Installation Agreement for the Modernization of the Copper Cable Network through Optimalization of Asset Copper Cable Network through Trade In/Trade Off method with PT Len Industri (“LEN”) and PT Industri Telekomunikasi Indonesia (“INTI”), respectively. In 2016 and 2015, the Company derecognized the copper cable network asset with net carrying value of Rp3 billion and Rp2 billion, respectively, and recorded the fiber optic network asset from the exchange transaction of Rp801 billion and Rp683 billion, respectively. In 2016 and 2015, Telkomsel’s certain equipment units with net carrying amount of Rp636 billion and Rp5 billion, respectively, were exchanged with equipment from Ericsson AB and PT Huawei Tech Investment (“Huawei”). As of December 31, 2016, Telkomsel’s equipment units with net carrying amount of Rp3 billion are going to be exchanged with equipment from Ericsson AB and Huawei and, therefore, these equipment units were reclassified as assets held for sale in the consolidated statements of financial position. 45 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (vi) The Group owns several pieces of land located throughout Indonesia with Building Use Rights (“Hak Guna Bangunan” or “HGB”) for a period of 10-45 years which will expire between 2017 and 2053. Management believes that there will be no issue in obtaining the extension of the land rights when they expire. (vii) As of December 31, 2016, the Group’s property and equipment excluding land rights, with net carrying amount of Rp105,144 billion were insured against fire, theft, earthquake and other specified totalling Rp11,861 billion, US$1,236 million, HKD3 million and SGD40 million. Management believes that the insurance coverage is adequate to cover potential losses from the insured risks. interruption, under blanket policies including business risks, (viii) As of December 31, 2016, the percentage of completion of property under construction was around 58.15% of the total contract value, with estimated dates of completion between January 2017 and December 2018. The balance of property under construction mainly consists of buildings, transmission installation and equipment, cable network and power supply. Management believes that there is no impediment to the completion of the construction in progress. (ix) All assets owned by the Company have been pledged as collateral for bonds (Notes 16b.i and 16b.ii). Certain property and equipment of the Company’s subsidiaries with gross carrying value amounting to Rp11,385 billion have been pledged as collateral under lending agreements (Notes 15 and 16). (x) As of December 31, 2016, the cost of fully depreciated property and equipment of the Group that are still used in operations amounted to Rp54,993 billion. The Group is currently performing modernization of network assets to replace the fully depreciated property and equipment. (xi) In 2016, the total fair values of land rights and buildings of the Group, which are determined based on the sale value of the tax object (“Nilai Jual Objek Pajak” or “NJOP”) of the related land rights and buildings, amounted to Rp28,521 billion. (xii) The Company and Telkomsel entered into several agreements with tower providers to lease spaces in telecommunication towers (slot) and sites of the towers for a period of 10 years. The Company and Telkomsel may extend the lease period based on mutual agreement with the relevant parties. In addition, the Group also has lease commitments for transmission installation and equipment, data processing equipment, office equipment, vehicles and CPE assets with the option to purchase certain leased assets at the end of the finance lease terms. 46 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) c. Others (continued) Future minimum lease payments required for assets under finance lease are as follows: Years 2016 2017 2018 2019 2020 2021 Thereafter Total minimum lease payments Interest Net present value of minimum lease payments Current maturities (Note 15b) Long-term portion (Note 16) 2016 2015 - 987 892 816 771 740 954 5,160 (1,150 ) 4,010 (658 ) 3,352 1,027 991 888 800 766 724 873 6,069 (1,489 ) 4,580 (641 ) 3,939 The details of obligations under finance leases as of December 31, 2016 and 2015 are as follows: PT Tower Bersama Infrastructure Tbk PT Profesional Telekomunikasi Indonesia PT Solusi Tunas Pratama PT Putra Arga Binangun PT Bali Towerindo Sentra PT Naragita Dinamika Komunika Others (each below Rp75 billion) Total 2016 2015 1,465 1,295 241 217 112 5 675 4,010 1,589 1,460 340 227 132 84 748 4,580 10. ADVANCES AND OTHER NON-CURRENT ASSETS The breakdown of advances and other non-current assets as of December 31, 2016 and 2015 is as follows: Advances for purchases of property and equipment Prepaid rental - net of current portion (Note 7) Claim for tax refund - net of current portion (Note 26) Prepaid taxes (Note 26) Deferred charges Frequency license - net of current portion (Note 7) Security deposit Long-term trade receivables - net of current portion Restricted cash Others Total 2016 2015 5,432 2,471 1,428 1,228 387 320 144 35 31 32 11,508 3,653 2,190 1,013 60 444 404 96 172 111 23 8,166 47 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 10. ADVANCES AND OTHER NON-CURRENT ASSETS (continued) Prepaid rental covers rent of leased line and telecommunication equipment and land and building under lease agreements of the Group with remaining rental periods ranging from 1 to 40 years. As of December 31, 2016 and 2015, deferred charges represent deferred Indefeasible Right of Use (“IRU”) Agreement charges. Total amortization of deferred charges the years ended December 31, 2016 and 2015 amounted to Rp40 billion and Rp46 billion, respectively. for Refer to Note 31 for details of related party transactions. 11. INTANGIBLE ASSETS The details of intangible assets are as follows: Gross carrying amount: Balance, January 1, 2016 Additions Deductions Reclassifications/translations Acquisition Balance, December 31, 2016 Accumulated amortization and impairment losses: Balance, January 1, 2016 Amortization Deductions Reclassifications/translations Balance, December 31, 2016 Net Book Value Gross carrying amount: Balance, January 1, 2015 Additions Deductions Reclassifications/translations Balance, December 31, 2015 Accumulated amortization and impairment losses: Balance, January 1, 2015 Amortization Deductions Reclassifications/translations Balance, December 31, 2015 Net Book Value Goodwill Software License Other intangible assets Total 336 - - (4 ) 117 449 (29 ) - - - (29 ) 420 6,267 925 - 20 10 7,222 (3,748 ) (1,027 ) - (1 ) (4,776 ) 2,446 68 9 (2 ) - - 75 (49 ) (7 ) - - (56 ) 19 580 27 - - - 607 (369 ) (34 ) - - (403 ) 204 7,251 961 (2 ) 16 127 8,353 (4,195 ) (1,068 ) - (1 ) (5,264 ) 3,089 Goodwill Software License Other intangible assets Total 322 15 - (1 ) 336 (29 ) - - - (29 ) 307 4,771 1,489 (1 ) 8 6,267 (2,862 ) (883 ) 1 (4 ) (3,748 ) 2,519 67 1 - - 68 (43 ) (6 ) - - (49 ) 19 572 9 - (1 ) 580 (335 ) (34 ) - - (369 ) 211 5,732 1,514 (1 ) 6 7,251 (3,269 ) (923 ) 1 (4 ) (4,195 ) 3,056 (i) Goodwill resulted from the acquisition of Sigma (2008), AdMedika (2010), data center BDM (2012), Contact Centres Australia Pty. Ltd. (2016) (Note 1d). In addition, there was an acquisition of 80% ownership of PT Griya Silkindo Drajatmoerni (“GSDm”) by NSI. (2015), and Melon (2014), MNDG (ii) The remaining amortization periods of software range from 1-5 years. (iii) As of December 31, 2016, the cost of fully amortized intangible assets that are still used in operations amounted to Rp3,096 billion. 48 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 12. TRADE PAYABLES 2016 2015 Related parties Purchases of equipment, materials and services Payables to other telecommunication providers Sub-total Third parties Purchases of equipment, materials and services Radio frequency usage charges, concession fees and Universal Service Obligation (“USO”) charges Payables to other telecommunication providers Sub-total Total Trade payables by currency are as follows: 1,223 324 1,547 9,434 1,256 1,281 11,971 13,518 Rupiah U.S. dollar Others Total Refer to Note 31 for details of related party transactions. 13. ACCRUED EXPENSES Operation, maintenance and telecommunication services Salaries and benefits General, administrative and marketing expenses Interest and bank charges Total Refer to Note 31 for details of related party transactions. 14. UNEARNED INCOME a. Current portion of unearned income Prepaid pulse reload vouchers Telecommunication tower leases Other telecommunications services Others Total b. Non-current portion of unearned income Other telecommunications services Indefeasible Right of Use Total 2016 2015 11,270 2,196 52 13,518 2016 2015 6,165 2,993 1,914 211 11,283 2016 2015 4,959 199 189 216 5,563 2016 2015 256 169 425 1,891 184 2,075 9,593 1,328 998 11,919 13,994 11,169 2,791 34 13,994 4,459 1,689 1,859 240 8,247 3,630 165 96 469 4,360 289 82 371 49 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 15. SHORT-TERM BANK LOANS AND CURRENT MATURITIES OF LONG-TERM BORROWINGS a. Short-term bank loans Lenders Related parties BNI Sub-total Third parties UOB Bank CIMB Niaga PT Bank DBS Indonesia SCB PT Bank Danamon Indonesia, Tbk (“Danamon”) Others Sub-total Total 2016 Outstanding 2015 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp Rp Rp Rp - - - - - - - 143 143 269 143 95 90 60 111 768 911 - - - - - - - 25 25 200 152 - 39 80 106 577 602 Other significant information relating to short-term bank loans as of December 31, 2016 is as follows: Borrower Currency Total facility (in billions) Maturity date Interest payment period Interest rate per annum Security UOB November 22, 2013 Infomedia December 20, 2016 Finnet Rp Rp 200 November 22, 2017 Monthly 300 December 21, 2018 Monthly Bank CIMB Niaga April 28, 2013a GSD Rp 85 January 1, 2017 f Monthly October 29, 2014 December 14, 2015b Infomedia Solusi Humanikad Balebatc Rp Rp 50 January 18, 2017 Monthly 17 July 30, 2017 Monthly 11.5%-12% Trade receivables (Note 5) None 1 month JIBOR+ 2.25% 10.9%- 11.5% Trade receivables (Note 5) and property and equipment (Note 9) 10.00% Trade receivables (Note 5) 13.00% Trade receivables (Note 5), inventories (Note 6) and property and equipment (Note 9) BNI October 31, 2016 December 31, 2016 PT. Bank DBS Indonesia April 12, 2016 SCB June 26, 2015 Danamon Telkom Infra Telkom Infra Rp Rp 44 October 31, 2017 Monthly 101 November 30, 2017 Monthly Sigmae USD 0.02 July 31, 2017 Semi-annually 1 month JIBOR+ 3.35% 1 month JIBOR+ 3.35% Trade receivables (Note 5) Trade receivables (Note 5) Trade receivables (Note 5) 3.25% (USD) / 10.75% (IDR) GSD Rp 91 December 30, 2016f Monthly 10.50% None December 15, 2016 Infomedia Rp 60 December 15, 2017 Monthly 8.75% Trade receivables (Note 5) The credit facilities were obtained by the Company’s subsidiaries for working capital purposes. a Based on the latest amendment dated November 11, 2014. b Based on the latest amendment dated December 14, 2015. c MD Media’s subsidiary. d Infomedia’s subsidiary. e Facility in USD. Withdrawal can be executed in USD and IDR. f Unsettled loan will be automatically extended. 50 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 15. SHORT-TERM BANK LOANS AND CURRENT MATURITIES OF LONG-TERM BORROWINGS (continued) b. Current maturities of long-term borrowings Two-step loans Bonds and notes Bank loans Obligations under finance leases Total 16. LONG-TERM LOANS AND OTHER BORROWINGS Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Total Notes 16a 16b 16c 9c.xii Notes 16a 16b 16c 16d 9c.xii 2016 2015 225 1 3,637 658 4,521 224 49 2,928 641 3,842 2016 2015 1,067 9,322 11,929 697 3,352 26,367 1,296 9,499 15,434 - 3,939 30,168 Scheduled principal payments as of December 31, 2016 are as follows: Notes 16a 16b 16c 16d 9c.xii Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Total a. Two-step loans Total 2018 2019 Year 2020 2021 1,067 9,322 11,929 697 3,352 26,367 201 0 4,675 53 626 5,555 182 220 2,313 107 605 3,427 183 2,115 2,219 107 613 5,237 Thereafter 335 6,987 1,612 323 166 0 1,110 107 634 2,017 874 10,131 Two-step loans are unsecured loans obtained by the Government from overseas banks which are then re-loaned to the Company. Loans obtained up to July 1994 are payable in rupiah based on the exchange rate at the date of drawdown. Loans obtained after July 1994 are payable in their original currencies and any resulting foreign exchange gain or loss is borne by the Company. Lenders Overseas banks Total Current maturities (Note 15b) Long-term portion 2016 Outstanding 2015 Outstanding Currency Yen US$ Rp Original currency (in millions) 6,143 22 - Original currency (in millions) 6,911 26 - Rupiah equivalent 707 295 290 1,292 (225 ) 1,067 Rupiah equivalent 792 363 365 1,520 (224 ) 1,296 51 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) a. Two-step loans (continued) Lenders Overseas banks Principal payment schedule Semi-annually Semi-annually Semi-annually Interest payment period Semi-annually Semi-annually Semi-annually Interest rate per annum 2.95% 3.85% 8.25% Currency Yen US$ Rp The loans were intended for the development of telecommunications infrastructure and supporting telecommunications equipment. The loans will be settled semi-annually and due on various dates through 2024. The Company had used all facilities under the two-step loans program since 2008. Under the loan covenants, the Company is required to maintain financial ratios as follows: a. Projected net revenue to projected debt service ratio should exceed 1.2:1 for the two-step loans b. originating from Asian Development Bank (“ADB”). Internal financing (earnings before depreciation and finance costs) should exceed 20% compared to annual average capital expenditures for loans originating from the ADB. As of December 31, 2016, the Company has complied with the above-mentioned ratios. b. Bonds and notes Bonds and notes Bonds 2010 Series B 2015 Series A Series B Series C Series D Medium Term Notes (“MTN”) GSD Series A Series B Finnet MTN I Promissory notes PT Huawei PT ZTE Indonesia (“ZTE”) Total Unamortized debt issuance cost Total Current maturities (Note 15b) Long-term portion 2016 Outstanding 2015 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent - - - - - - - - - 0 1,995 2,200 2,100 1,200 1,500 220 120 - - 1 9,336 (13 ) 9,323 (1 ) 9,322 - - - - - - - - 1 1 1,995 2,200 2,100 1,200 1,500 220 120 200 14 14 9,563 (15 ) 9,548 (49 ) 9,499 Rp Rp Rp Rp Rp Rp Rp Rp US$ US$ 52 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) i. Bonds 2010 Bonds Principal Series B 1,995 Issuer The Company Listed on IDX Interest payment period June 25, 2010 July 6, 2020 Quarterly Issuance date Maturity date Interest rate per annum 10.20% The bonds are secured by all of the Company’s assets, movable or non-movable, either existing or in the future (Note 9c.ix). The underwriters of the bonds are PT Bahana Securities (“Bahana”), PT Danareksa Sekuritas, and PT Mandiri Sekuritas and the trustee is Bank CIMB Niaga. The Company received the proceeds from the issuance of bonds on July 6, 2010. The funds received from the public offering of bonds net of issuance costs, were used to finance capital expenditures which consisted of wave broadband (bandwidth, softswitching, datacom, information technology and others) and infrastructure (backbone, metro network, regional metro junction, internet protocol, and satellite system) and to optimize legacy and supporting facilities (fixed wireline and wireless). As of December 31, 2016, the rating of the bonds issued by PT Pemeringkat Efek Indonesia (Pefindo) is idAAA (stable outlook). Based on the indenture trusts agreement, the Company is required to comply with all covenants or restrictions, including maintaining financial ratios as follows: 1. Debt to equity ratio should not exceed 2:1 2. EBITDA to finance costs ratio should not be less than 5:1 3. Debt service coverage is at least 125% As of December 31, 2016, the Company has complied with the above-mentioned ratios. 2015 Bonds Principal Issuer Series A Series B Series C Series D Total 2,200 The Company 2,100 The Company 1,200 The Company 1,500 The Company 7,000 Listed on IDX IDX IDX IDX Issuance date Maturity date June 23, 2015 June 23, 2022 June 23, 2015 June 23, 2025 June 23, 2015 June 23, 2030 June 23, 2015 June 23, 2045 Interest payment period Quarterly Quarterly Quarterly Quarterly Interest rate per annum 9.93% 10.25% 10.60% 11.00% The bonds are secured by all of the Company’s assets, movable or non-movable, either existing or in the future (Note 9c.ix). The underwriters of the bonds are Bahana, PT Danareksa Sekuritas, PT Mandiri Sekuritas, and PT Trimegah Sekuritas and the trustee is Bank Permata. 53 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) i. Bonds (continued) The Company received the proceeds from the issuance of bonds on June 23, 2015. The funds received from the public offering of bonds net of issuance costs, were used to finance capital expenditures which consisted of wave broadband, backbone, metro network, regional metro junction, information technology application and support, and merger and acquisition of some domestic and international entities. As of December 31, 2016, Corporate bond ratings provided by (Pefindo) is idAAA (stable outlook). Based on the indenture trusts agreement, the Company is required to comply with all covenants or restrictions, including maintaining financial ratios as follows: 1. Debt to equity ratio should not exceed 2:1 2. EBITDA to finance costs ratio should not be less than 4:1 3. Debt service coverage is at least 125% As of December 31, 2016, the Company has complied with the above-mentioned ratios. ii. MTN GSD Notes Series A Series B Currency Rp Rp Total Principal 220 120 340 Issuance date November 14, 2014 March 6, 2015 Interest payment period Maturity date November 14, 2019 Semi-annually March 6, 2020 Semi-annually Interest rate per annum 11% 11% Based on Agreement of Issuance and Appointment of Monitoring and Insurance Agents of Medium Term Notes (MTN) PT Graha Sarana Duta Year 2014 dated November 13, 2014 as covered by notarial deed No. 30 of Arry Supratno, S.H., GSD will issue MTN with the principle amount up to Rp500 billion in series. PT Mandiri Sekuritas act as the Arranger, Bank Mandiri as the Monitoring and Insurance Agent, and PT Kustodian Sentral Efek Indonesia (“KSEI”) as the payment agent and custodian. The funds obtained from MTN are used for investment projects. Trade receivables, inventories, land and building related with investment development funded by MTN that are owned or will be owned by GSD, have been pledged as collateral for MTN (Notes 5, 6, and 9c.ix) Under to the agreement, GSD is required to comply with all covenants or restriction including maintaining financial ratios as follows : 1. Debt to equity ratio should not exceed 6.5:1 2. EBITDA to interest ratio should not be less than 1.2:1 3. Minimum current ratio is 120% 4. Maximum leverage ratio is 450% As of December 31, 2016, GSD has complied with the above-mentioned ratios. 54 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) ii. MTN (continued) Finnet Notes Currency Principal Issuance date Maturity date MTN I Finnet year 2015 Rp 200 July 1, 2015 July 1, 2022 Interest payment period Quarterly Interest rate per annum 11% Based on Agreement of Debt Acknowledgement of Medium Term Notes (MTN) I Finnet Year 2015 as covered by notarial deed No. 47 dated June 30, 2015 of Utiek R. Abdurachman, S.H., MLI., MKn., Finnet will issue MTN through private placement with the principal amounting to Rp200 billion. PT BNI Asset Management acts as the arranger, Bank Mega as the trustee and KSEI as the payment agent and custodian. The funds obtained from MTN are used for Finnet’s working capital related to Retail National Channel Bank project as Telkomsel’s billing payment aggregator. The rating of the MTN issued by PT Fitch Rating Indonesia is A (ind). The MTN is not secured by any specific collateral. The MTN are secured by all of Finnet’s assets, movable or non- movable either existing or in the future. Under the agreement, Finnet is required to comply with all covenants or restrictions, including maintaining financial ratios as follows : 1. Debt to equity ratio should not exceed 3.5:1 2. EBITDA to interest ratio should not be less than 2.5:1 In 2016, Finnet has made early payments on MTN amounting to Rp200 billion through refinancing of UOB with the term of the agreement for 2 year. iii. Promissory Notes Supplier Currency Principal* PT Huaweia ZTE US$ US$ Issuance date April 30, 2013 0.2 Principal payment schedule - Interest payment period Semi-annually 0.1 August 20, 2009b February 4, 2017 Semi-annually Interest rate per annum 6 months LIBOR+1.5% 6 months LIBOR+1.5%s *In original currency aHas been fully paid on July 30, 2016 bBased on the latest amendment on August 15, 2011 Based on Agreement of Frame Supply and Deferred Payment Arrangement between the Company, ZTE and PT Huawei, the promissory notes issued by the Company to ZTE and PT Huawei are vendor financing facilities with no collateral covering 85% of Hand-over Report (Berita Acara Serah Terima) projects with ZTE and PT Huawei. 55 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans Lenders Related parties BNI BRI Bank Mandiri Sub-total Third parties Syndication of banks The Bank of Tokyo-Mitsubishi-UFJ, Ltd. Bank CIMB Niaga PT Bank Sumitomo Mitsui Indonesia UOB United Overseas Bank Limited (“UOB Singapore”) PT Bank ANZ Indonesia Japan Bank for International Cooperation (“JBIC”) PT Bank Central Asia Tbk (“BCA”) ABN Amro Bank N.V., Hong Kong (“AAB Hong Kong”) Others Sub-total Total Unamortized debt issuance cost Current maturities (Note 15b) Long-term portion 2016 Outstanding 2015 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp Rp US$ Rp Rp Rp US$ Rp US$ US$ Rp US$ Rp - - - - - - - - - 36 - - 16 - - - 3,222 1,871 1,232 6,325 3,650 2,361 - 1,162 647 500 484 240 - 211 - - 37 9,292 15,617 (51 ) 15,566 (3,637 ) 11,929 - - - - - 75 - - - - - 75 22 - 0 - 3,430 1,806 2,191 7,427 4,900 2,370 1,035 770 370 - - 90 1,035 303 111 0 19 11,003 18,430 (68 ) 18,362 (2,928 ) 15,434 Other significant information relating to bank loans as of December 31, 2016 is as follows: Borrower Currency Total facility* Current period payment Principal payment schedule Interest payment period Interest rate per annum Security 1,000 Quarterly Semi- annually (2014-2020) 242 Quarterly Semi- annually (2016-2022) Semi- annually (2016-2022) 8 Quarterly 91 Monthly (2016-2020) Monthly 3 months JIBOR+3.00% 3 months JIBOR+2.5% 3 months JIBOR+2.5% 1 months JIBOR+3.35% Trade receivables (Note 5) and property and equipment (Note 9) All assets All assets Trade receivables (Note 5) and property and equipment (Note 9) Syndication of banks December 19, 2012 (BNI, BRI and Bank Mandiri) a Dayamitra Rp 2,500 March 13, 2015 (BNI and BCA) a&h The Company Rp 2,900 March 13, 2015 (BNI and BCA) a&h BNI GSD Rp 100 March 13, 2013a&c Sigma Rp 1,400 56 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans (continued) Borrower Currency Total facility* Current period payment Principal payment schedule Interest payment period Interest rate per annum Security BNI (continued) November 20, 2013 The Company Rp 1,500 January 10, 2014 a&c Sigma Rp 247 July 21, 2014 a Metra Rp 40 November 3, 2014 a&g Telkom Infratel April 8, 2015 a Telkomsel June 10, 2015 a Metra Rp Rp Rp 450 1,000 44 October 12, 2015a Telkom Akses Rp 1,400 October 31, 2016 Telkom Infra Rp June 27, 2013 NSI Rp 59 4 March 17, 2014 NSI Rp 0.7 June 27, 2014 NSI Rp 2.5 375 Quarterly None Semi- annually (2015-2018) Monthly (2016-2022) 38 Monthly 3 months JIBOR+2.65% 1 month JIBOR+3.35% 13 Semi- annually (2015-2017) Monthly 10.00% 131 Quarterly (2015-2018) Monthly 1 month JIBOR+3.35% 667 15 April 14, 2018 Semi- annually (2015-2017) Quarterly 3 months JIBOR+1.95% Monthly 10.00% 151 Quarterly Semi- annually (2016-2019) - Quartely (2017-2019) Monthly 0 Monthly (2014-2023) Monthly 0 Monthly (2014-2023) Monthly 0 Monthly (2014-2023) Monthly 3 months JIBOR+2.9% 1 month JIBOR+3.35% 11% 12.25% 13.5% Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) None Trade receivables (Note 5) and property and Equipment (Note 9) Trade receivables (Note 5), inventories (Note 6), and property and equipment (Note 9) Trade receivables (Note 5) Property and equipment (Note 9) Property and equipment (Note 9) Property and equipment (Note 9) The Bank of Tokyo – Mitsubishi UFJ, Ltd. October 9, 2014 Dayamitra Rp 600 120 Quarterly (2016-2019) Quarterly 3 months JIBOR+2.4% March 13, 2015 a&h Metra March 13, 2015 a&h Infomedia April 8, 2015 a Telkomsel Rp Rp Rp April 8, 2015 a Telkomsel US$ 400 250 1,000 0.075 57 12 Quarterly (2016-2020) 5 Quarterly (2016-2020) April 14, 2018 April 14, 2018 667 0.075 Quarterly Quarterly Quarterly Quarterly 3 months JIBOR+2.15% 3 months JIBOR+2.15% 3 months JIBOR+1.95% 3 months LIBOR+1.2% Trade receivables (Note 5) and property and equipment (Note 9) None None None None These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans (continued) Borrower Currency Total facility* Current period payment Principal payment schedule Interest payment period Interest rate per annum Security The Bank of Tokyo – Mitsubishi UFJ, Ltd. (continued) November 2, 2015 Dayamitra Rp 400 - Quarterly (2017-2020) Quarterly 3 month JIBOR+2.6% March 13, 2015 a&h Dayamitra Rp October 3, 2016 Dayamitra Rp 100 500 3 - Quarterly (2016-2020) Semi- annually (2019-2024) Quarterly Quarterly 3 month JIBOR+2.15% 3 month JIBOR+2.25% BRI July 20, 2011a Dayamitra Rp 1,000 220 Quarterly Semi- annually (2013-2017) 3 months JIBOR+1.40% and 3 months JIBOR+3.50% Trade receivables (Note 5) and property and equipment (Note 9) None Property and equipment (Note 9) Property and equipment (Note 9) October 30, 2013 GSD Rp 70 8 Monthly (2014-2021) Monthly October 30, 2013 GSD Rp 34 45 Monthly (2014-2021) Monthly 10.00% Trade receivables (Note 5), property and equipment (Note 9) and lease agreement 10.00% Trade receivables (Note 5), property and equipment (Note 9) and lease agreement None 3 months JIBOR+2.65% Property and equipment (Note 9) None Property and equipment (Note 9) Property and equipment (Note 9) None 9.5% Trade receivables (Note 5) and property and equipment (Note 9) November 20, 2013 The Company Rp 1,500 375 December 18, 2015 Dayamitra Rp 800 - Bank Mandiri November 20, 2013 The Company Rp 1,500 375 August 11, 2014 August 11, 2014 Graha Yasa Selaras Graha Yasa Selaras Rp Rp 71 71 Semi- annually (2015-2018) Semi- annualy (2017-2020) Semi- annually (2015-2018) Monthly (2016-2021) 4 Quarterly Quarterly 3 months JIBOR+2.70% Quarterly Monthly 3 months JIBOR+2.65% 3 months JIBOR+3.25% 2 Monthly (2016-2021) Monthly 3 months JIBOR+3.25% April 8, 2015 a Telkomsel Rp 1,000 667 September 27, Patrakom Rp 70 - 2016 April 14, 2018 Quarterly (2017-2019) Quarterly Monthly 3 months JIBOR+1.95% Bank CIMB Niaga March 31, 2011 GSD Rp 24 3 Monthly (2011-2020) Monthly 9.75% March 31, 2011 GSD Rp 13 2 Monthly (2011-2019) Monthly 9.75% September 9, 2011 GSD Rp 41 4 Monthly (2011-2021) Monthly 9.75% Property and equipment (Note 9) and lease agreement Property and equipment (Note 9) and lease agreement Property and equipment (Note 9) and lease agreement 58 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans (continued) Borrower Currency Total facility* Current period payment Principal payment schedule Interest payment period Interest rate per annum Security Bank CIMB Niaga (continued) September 20, 2012a TLT Rp 1,150 - Monthly (2015-2030) Quarterly 3 Months JIBOR +3.45% September 20, 2012a TLT Rp August 26, 2013d Balebatf Rp 118 3.5 - 1 Monthly (2015-2030) Monthly (2013-2018) Monthly Monthly 9.00% Property and equipment (Note 9) Property and equipment (Note9) 13% Trade receivables (Note 5), inventories (Note 6) and property and equipment (Note 9) PT Bank Sumitomo Mitsui Indonesia March 13, 2015 a&h Metra Rp 400 12 March 13, 2015a&h Infomedia Rp March 13, 2015a&h Dayamitra Rp 250 100 5 3 Quarterly (2016-2020) Quarterly (2016-2020) Quartely (2016-2020) Quarterly Quarterly Quarterly 3 months JIBOR+2.15% 3 months JIBOR+2.15% 3 months JIBOR+2.15% UOB September 22, 2016 Dayamitra Rp 500 UOB Singapore September 9, 2016 TII USD 0.06 - Semi-annually (2018-2024) Quarterly 3 months JIBOR+2.2% - Semi-annually (2019-2022) Quarterly 3 months LIBOR+1.5% Bank ANZ Indonesia March 13, 2015 a&h GSD Rp 249.5 - June 13, 2020 Quarterly April 8, 2015 a Telkomsel US$ 0.075 0.075 April 14, 2018 Quarterly JBIC March 28, 2013a&e BCA July 9, 2009b and July 5, 2010b The Company US$ 0.03 0.006 Semi-annually (2014-2019) Semi- annually Telkomsel Rp 4,000 111 Semi-annually (2009-2016) Quarterly 3 months JIBOR+1.00% 3 months JIBOR+2.00% 3 months LIBOR+1.20% 2.18% and 6 months LIBOR+1.20% None None None Property and equipment (Note 9) None None None None None The credit facilities were obtained by the Group for working capital purposes. * In original currency a As stated in the agreements, the Group is required to comply with all covenants or restrictions such as dividend distribution, obtaining new loans, and maintaining financial ratios. As of December 31, 2016, the Group has complied with all covenants or restrictions, except for certain loans. As of December 31, 2016, the Group has been granted waivers from creditors where payment is no longer required as a consequence of breaching the agreements. b Telkomsel has no collateral for its bank loans, or other credit facilities. The terms of the various agreements with Telkomsel’s lenders and financiers require compliance with a number of covenants and negative covenants as well as financial and other covenants, which include, among other things, certain restrictions on the amount of dividends and other profit distributions which could adversely affect Telkomsel’s capacity to comply with its obligation under the facility. The terms of the relevant agreements also contain default and cross default clauses. As of December 31, 2016 Telkomsel has complied with the above covenants. 59 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans (continued) c Based on the latest amendment on January 12, 2015. d Based on the latest amendment on September 22, 2014. e In connection with the agreement with NEC Corporation Consortium and TE SubCom, the Company entered into a loan agreement with JBIC, for the procurement of goods and services from NEC Corporation Consortium and TE SubCom for the Southeast Asia Japan Cable System project. The facilities consist of facilities A and B amounting to US$18.8 million and US$12.5 million, respectively. f MD Media’s subsidiary. g Based on the latest amendment on July 13, 2015. h On March 13, 2015, the Company, GSD, Metra and Infomedia entered into several credit facilities agreements with PT Bank Sumitomo Mitsui Indonesia, The Bank of Tokyo - Mitsubishi UFJ, Ltd., PT Bank ANZ Indonesia and syndication of banks (BCA and BNI) amounting to Rp750 billion, Rp750 billion, Rp500 billion, and Rp3,000 billion, respectively. As of December 31, 2016 the unused facilities for PT Bank Sumitomo Mitsui Indonesia, The Bank of Tokyo – Mitsubishi UFJ, Ltd., PT Bank ANZ Indonesia amounted to Rp82.5 billion, Rp82.5 billion and Rp250.5 billion, respectively. i Based on the latest amendment on November 14, 2016. d. Other borrowing Borrower Currency Total facility (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security PT Sarana Mukti Infrastruktur October 12, 2016 DMT Rp 700 - Semi- annually (2017-2025) Quarterly 3 months JIBOR+2.20% Property and equipment (Note 9) Under the agreement, DMT is required to comply with all covenants or restrictions, including maintaining financial ratios as follows : 1. Debt to equity ratio should not exceed 5:1 2. Net debt to EBITDA ratio should not exceed 4:1 3. Minimal Debt service coverage is 100% As of December 31, 2016, DMT has complied with the above-mentioned ratios. 17. NON-CONTROLLING INTERESTS The details of non-controlling interests are as follows: Non-controlling interests in net assets of subsidiaries: 2016 2015 Telkomsel GSD Metra TII Total 20,778 141 208 33 21,160 Non-controlling interests in net comprehensive income (loss) 2016 2015 of subsidiaries: Telkomsel Metra TII GSD Total 9,790 (40 ) (3 ) (5 ) 9,742 18,024 137 95 36 18,292 7,818 (5 ) (2 ) 7 7,818 60 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 17. NON-CONTROLLING INTERESTS (continued) Material partly-owned subsidiary As of December 31, 2016 and 2015, the non-controlling interest holds 35% ownership interest in Telkomsel (Note 1d) which is considered material to the company (Note 1d). The summarized financial information of Telkomsel below is provided based on amounts before elimination of inter-company balances and transactions. Summarized statements of financial position Current assets Non-current assets Current liabilities Non-current liabilities Total equity Attributable to: Equity holders of parent company Non-controlling interest 2016 2015 28,818 60,963 (21,891 ) (8,520 ) 59,370 38,592 20,778 25,660 58,426 (20,020 ) (12,565 ) 51,501 33,477 18,024 Summarized statements of profit or loss and other comprehensive income Revenues Operating expenses Other income Profit before income tax Income tax expense - net Profit for the year from continuing operations Other comprehensive income (expenses) - net Net comprehensive income for the year Attributable to non-controlling interest Dividend paid to non-controlling interest Summarized statements of cash flows Operating activities Investing activities Financing activities Net increase in cash and cash equivalents 2016 2015 86,725 (49,751 ) 483 37,457 (9,263 ) 28,194 (222 ) 27,972 9,790 7,036 76,055 (46,429 ) 105 29,731 (7,363 ) 22,368 (29 ) 22,339 7,818 7,810 2016 2015 42,827 (12,794 ) (24,132 ) 5,901 36,130 (12,951 ) (19,456 ) 3,723 61 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 18. CAPITAL STOCK Description Series A Dwiwarna share Government Series B shares Government The Bank of New York Mellon Corporation* Commissioners (Note 1b): Hendri Saparini Dolfie Othniel Fredric Palit Hadiyanto Directors (Note 1b): Alex Janangkih Sinaga Indra Utoyo Honesti Basyir Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan Public (individually less than 5%) Total Treasury stock (Note 20) Total Description Series A Dwiwarna share Government Series B shares Government The Bank of New York Mellon Corporation* Commissioners (Note 1b): Hendri Saparini Dolfie Othniel Fredric Palit Hadiyanto Parikesit Suprapto Directors (Note 1b): Alex Janangkih Sinaga Heri Sunaryadi Indra Utoyo Muhammad Awaluddin Honesti Basyir Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan Public (individually less than 5%) Total Treasury stock (Note 20) Total Number of shares 2016 Percentage of ownership Total paid-up capital 1 51,602,353,559 7,000,589,980 414,157 372,741 875,297 920,349 1,972,644 1,945,644 828,012 828,314 888,854 40,450,227,048 99,062,216,600 1,737,779,800 100,799,996,400 0 52.09 7.07 0 0 0 0 0 0 0 0 0 40.84 100.00 0 100.00 0 2,580 350 0 0 0 0 0 0 0 0 0 2,023 4,953 87 5,040 Number of shares 2015 Percentage of ownership Total paid-up capital 1 51,602,353,559 8,161,361,980 18,982 17,084 519,640 502,555 42,723 37,965 1,182,295 1,154,755 1,155,295 37,663 37,965 98,505 38,429,695,633 98,198,216,600 2,601,779,800 100,799,996,400 0 52.55 8.31 0 0 0 0 0 0 0 0 0 0 0 0 39.14 100.00 - 100.00 0 2,580 408 0 0 0 0 0 0 0 0 0 0 0 0 1,922 4,910 130 5,040 * The Bank of New York Mellon Corporation serves as the Depositary of the registered ADS holders for the Company’s ADSs. The Company issued only 1 Series A Dwiwarna share which is held by the Government and can not be transferred to any party, and has a veto in the General Meeting of Stockholders of the Company with respect to election and removal from the Boards of Commissioners and Directors, issuance of new shares, and amendments of the Company’s Articles of Association. 62 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 19. ADDITIONAL PAID-IN CAPITAL Proceeds from sale of 933,333,000 shares in excess of par value through IPO in 1995 Excess of value over cost of selling 215,000,000 shares under the treasury stock plan phase II (Note 20) Excess of value over cost of selling 211,290,500 shares under the treasury stock plan phase I (Note 20) Difference in value arising from restructuring transactions between entities under common control Excess of value over cost of treasury stock transferred to employee stock ownership program (Note 20) Excess of value over cost of selling 22,363,000 shares under the treasury stock plan phase III (Note 20) Excess of value over cost of selling 864,000,000 shares under the treasury stock plan phase IV (Note 20) Capitalization into 746,666,640 Series B shares in 1999 Net 2016 2015 1,446 1,446 576 544 478 228 36 1,996 (373 ) 4,931 576 544 478 228 36 - (373 ) 2,935 Difference in value arising from restructuring and other transactions of entities under common control amounting Rp478 billion arose from the early termination of the Company’s exclusive rights to provide local and inter-local fixed line telecommunication services, for which the Company is required by the Government the development of telecommunication infrastructure. As of December 31, 2016 and 2015, the accumulated development of the related infrastructure amounting to Rp537 billion, respectively. this compensation funds received to use from the for 20. TREASURY STOCK Phase I II III - IV Basis EGM AGM AGM BAPEPAM - LK AGM Period December 21, 2005 - June 20, 2007 June 29, 2007 - December 28, 2008 June 20, 2008 - December 20, 2009 October 13, 2008 - January 12, 2009 May 19, 2011 - November 20, 2012 Number of Shares 1,007,999,964 215,000,000 339,443,313 4,031,999,856 645,161,290 Amount Rp5,250 Rp2,000 Rp3,000 Rp3,000 Rp5,000 Maximum Purchase Movements in treasury stock as a result of the repurchase of shares are as follows: Beginning balance Sale of treasury stock Number of shares 2,601,779,800 (864,000,000 ) 2016 % Rp Number of shares 2015 % 2.58 (0.86 ) 3,804 2,624,142,800 (22,363,000 ) (1,263 ) 2.60 (0.02 ) Rp 3,836 (32 ) Ending balance 1,737,779,800 1.72 2,541 2,601,779,800 2.58 3,804 63 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 20. TREASURY STOCK (continued) Pursuant to the AGM of Stockholders of the Company held on June 11, 2010, the stockholders approved the change in the Company’s plan for treasury stock phases I, II, and III to become: (i) for reissuance inside or outside stock exchange, (ii) for retirement of the stock by deducting from equity, (iii) for equity stock conversion and (iv) for funding purposes. Pursuant to the AGM of Stockholders of the Company held on May 19, 2011, the stockholders approved to execute the repurchase plan for treasury stock phase IV. In 2012, the Company bought back 237,270,500 shares (equivalent to 1,186,352,500 shares after stock split) from the public (part of stock repurchase program phase IV) for Rp1,744 billion. In the AGM on April 19, 2013, the Company's stockholders approved the change to the plan for the treasury stock phase III, which was decided to be used for the implementation of the Employee Stock Ownership Program (“ESOP”) for the year 2013. On July 30, 2013, the Company resold 211,290,500 shares (equivalent to 1,056,452,500 shares after stock split) of treasury stock phase I with fair value amounting to Rp2,368 billion (net of related costs to sell the shares). The excess amounting to Rp544 billion in value of the treasury shares sold over their acquisition cost was recorded as additional paid-in capital (Note 19). On June 13, 2014, the Company resold 215,000,000 shares (equivalent to 1,075,000,000 shares after stock split) of treasury stock phase II with fair value amounting to Rp2,541 billion (net of related costs to sell the shares). The excess amounting to Rp576 billion in value of the treasury stock sold over their acquisition cost was recorded as additional paid-in capital (Note 19). On December 21, 2015, the Company resold 4,472,600 shares (equivalent to 22,363,000 shares after stock split) of treasury stock phase III with fair value amounting to Rp68 billion (net of related costs to sell the shares). The excess amounting to Rp36 billion in value of the treasury stock sold over their acquisition cost was recorded as additional paid-in capital (Note 19). On June 29, 2016, the Company resold 172,800,000 shares (equivalent to 864,000,000 shares after stock split) of treasury stock phase IV with fair value of Rp3,259 billion (net of related costs to sell the shares). The excess amounting to Rp1,996 billion in value of the treasury stock sold over their acquisition cost was recorded as additional paid-in capital (Note 19). 21. OTHER EQUITY Effect of change in equity of associated companies Unrealized holding gain on available-for-sale securities Transalation adjustment Difference due to acquisition of non controlling interests in subsidiaries Other equity components Total 2016 2015 386 38 503 (637 ) 49 339 386 38 543 (508 ) 49 508 64 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 22. REVENUES Telephone revenues Cellular Usage charges Monthly subscription charges Fixed lines Usage charges Monthly subscription charges Call center Others Total telephone revenues Interconnection revenues Data, internet, and information technology service revenues Celullar internet and data Short Messaging Services (“SMS”) Internet, data communication and information technology services Pay TV Others Total data, internet, and information technology service revenues Network revenues Other revenues Sales of handset Telecommunication tower leases Call center service E-payment E-health CPE and terminal Others Total other revenues Total revenues 2016 2015 38,238 259 38,497 3,847 3,311 290 94 7,542 46,039 4,151 28,308 15,980 13,073 1,546 64 58,971 1,444 1,490 733 678 424 415 192 1,796 5,728 36,853 432 37,285 4,635 2,821 275 102 7,833 45,118 4,290 19,665 15,132 12,307 581 135 47,820 1,231 1,516 721 668 126 192 221 567 4,011 116,333 102,470 The detail of net revenues received by the Group from agency relationships for the years ended December 31, 2016 and 2015 are as follows: Gross revenues Compensation to value added service providers Net revenues Refer to Note 31 for details of related party transactions. 2016 2015 29,319 (1,011 ) 28,308 20,414 (749 ) 19,665 65 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 23. PERSONNEL EXPENSES The breakdown of personnel expenses is as follows: Salaries and related benefits Vacation pay, incentives and other benefits Pension benefit cost (Note 29) Early retirement program Long Service Awards (“LSA”) expense (Note 30) Net periodic post-employment health care benefit cost (Note 29) Other employee benefit cost (Note 29) Other post-employment benefit cost (Note 29) Others Total 2016 2015 7,122 4,219 1,068 628 237 163 82 48 45 13,612 5,684 4,575 432 683 152 216 53 47 32 11,874 Refer to Note 31 for details of related party transactions. 24. OPERATION, MAINTENANCE AND TELECOMMUNICATION SERVICE EXPENSES The breakdown of operation, maintenance and follows: telecommunication service expenses is as Operation and maintenance Radio frequency usage charges (Notes 34c.i and 34c.ii) Concession fees and USO charges Leased lines and CPE Cost of IT services Cost of handset sold (Note 6) Electricity, gas and water Cost of SIM cards and vouchers (Note 6) Vehicles rental and supporting facilities Tower leases Insurance Others Total 2016 2015 17,047 3,687 2,217 2,578 1,563 1,481 960 624 367 322 256 161 31,263 15,129 3,626 2,230 1,913 882 1,493 1,014 444 296 646 312 131 28,116 Refer to Note 31 for details of related party transactions. 25. GENERAL AND ADMINISTRATIVE EXPENSES The breakdown of general and administrative expenses is as follows: General expenses Provision for impairment of receivables (Note 5d) Professional fees Travelling Training, education and recruitment Meeting Collection expenses Social contribution Others Total Refer to Note 31 for details of related party transactions. 66 2016 2015 1,626 743 594 436 399 207 152 134 319 4,610 1,032 1,010 424 347 393 163 368 116 351 4,204 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION a. Claims for tax refund The Company Value Added Tax (“VAT”) (Note 26e.i) Corporate income tax Subsidiaries Corporate income tax VAT Income tax Article 23 - Withholding tax on services Total claims for tax refund Current portion Non-current portion b. Prepaid taxes The Company Income tax Article 19 - Revaluation of fixed assets (Note 26f) VAT Subsidiaries Corporate income tax VAT Income tax Article 23 - Withholding tax on services Total prepaid taxes Current portion Non-current portion c. Taxes payable The Company Income taxes 2016 2015 335 473 66 1,146 - 2,020 (592 ) 1,428 2016 2015 538 1,075 62 1,639 52 3,366 (2,138 ) 1,228 2016 2015 Article 4 (2) - Final tax Article 21 - Individual income tax Article 22 - Withholding tax on goods delivery and imports Article 23 - Withholding tax on services Article 25 - Installment of corporate income tax Article 26 - Withholding tax on non-resident income VAT VAT - Tax collector 29 141 2 42 - 136 297 647 298 479 290 12 0 1,079 (66 ) 1,013 750 350 16 1,596 20 2,732 (2,672 ) 60 37 51 2 23 17 2 396 528 67 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) c. Taxes payable (continued) Subsidiaries Income taxes Article 4 (2) - Final tax Article 21 - Individual income tax Article 22 - Withholding tax on goods delivery and imports Article 23 - Withholding tax on services Article 25 - Installment of corporate income tax Article 26 - Withholding tax on non-resident income Article 29 - Corporate income tax VAT Total Taxes Payable 63 121 2 93 136 16 1,100 776 2,307 2,954 d. The components of income tax expense (benefit) are as follows: Current The Company Subsidiaries Deferred The Company Subsidiaries Net income tax expense 2016 2015 671 10,067 10,738 (844 ) (877 ) (1,721 ) 9,017 54 113 1 102 237 9 1,548 681 2,745 3,273 201 8,164 8,365 (38 ) (302 ) (340 ) 8,025 The reconciliation between the income tax expense calculated by applying the applicable tax rate of 20% to the profit before income tax less income subject to final tax, and the net income tax expense as shown in the consolidated statements of profit or loss and other comprehensive income is as follows: 2016 2015 Profit before income tax Less: income subject to final tax - net Income tax expense calculated at the Company’s applicable statutory tax rate of 20% Difference in applicable statutory tax rate for subsidiaries Non-deductible expenses Final income tax expense Deffered tax assets that cannot be utilized - net Deffered tax assets on fixed asset revaluation for tax purpose Others Net income tax expense - net 38,189 (1,684 ) 36,505 7,301 1,904 491 345 56 (1,415 ) 335 9,017 31,342 (1,531 ) 29,811 5,962 1,511 322 111 - - 119 8,025 68 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) d. The components of income tax expense (benefit) are as follows (continued): The reconciliation between the profit before income tax and the estimated taxable income of the Company for the year ended December 31, 2016 and 2015 is as follows: 2016 2015 Profit before income tax Add back consolidation eliminations Consolidated profit before income tax and eliminations Less: profit before income tax of the subsidiaries Profit before income tax attributable to the Company Less: income subject to final tax Temporary differences: Provision for personnel expenses Net periodic pension and other post-retirement benefits costs Valuation of fair value of put option and long-term investment Deferred installation fee Provision for incentive to subscribers’ migration Depreciation and gain on sale of property and equipment Provision for impairment of assets Provision for onerous contracts Finance leases Provision for impairment and trade receivables written-off Other provisions Net temporary differences Permanent differences: Tax penalties Trade receivables written-off Employee benefits Net periodic post-retirement health care benefit costs Donations Equity in net income of associates and subsidiaries Others Net permanent differences Taxable income of the Company Current corporate income tax expense Final income tax expense Total current income tax expense of the Company Current income tax expense of the subsidiaries Total current income tax expense 38,189 24,613 62,802 (40,166 ) 22,636 (670 ) 21,966 560 513 172 50 - (1,880 ) (1,186 ) (547 ) (337 ) (43 ) (106 ) (2,804 ) 640 590 302 163 162 (19,445 ) 129 (17,459 ) 1,703 340 331 671 10,067 10,738 31,342 15,553 46,895 (31,007 ) 15,888 (591 ) 15,297 127 12 117 (33 ) (209 ) (948 ) - 547 231 (206 ) 296 (66 ) 29 - 232 216 175 (15,590 ) 258 (14,680 ) 551 110 91 201 8,164 8,365 69 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) d. The components of income tax expense (benefit) are as follows (continued): Tax Law No. 36/2008 which is futher regulated in Government Regulation No. 81/2007 as amended by Government Regulation No. 77/2013 and lastly by Government Regulation No. 56/2015 stipulates a reduction of 5% from the top rate applicable to qualifying listed companies, for those whose stocks are traded in the IDX which meet the prescribed criteria that the public owns 40% or more of the total fully paid and traded shares, and such shares are owned by at least 300 parties, with each party owning less than 5% of the total paid-up shares. These requirements must be met by a company for a period of 183 days in one tax year. The Company has met all of the required criteria; therefore, for the purpose of calculating income tax expense and liabilities for the financial reporting the year ended December 31, 2016 and 2015, the Company has reduced the applicable tax rate by 5%. The Company applied the tax rate of 20% for the year ended December 31, 2016 and 2015. The subsidiaries applied a tax rate of 25% for the year ended December 31, 2016 and 2015. The company will submit the above corporate income tax computation in its income tax return (“Surat Pemberitahuan Tahunan” or Annual Tax Return) for fiscal year 2016 that will be reported to the tax office based on prevailing regulations. The amount of corporate income tax for the year ended December 31, 2015 agreed with what was reported in the annual tax return. e. Tax assessment (i) The Company In November 2013, the Company received tax underpayment assesment letters (“SKPKBs”) No. 00056/207/07/093/13 to No. 00065/207/07/093/13 dated November 15, 2013, for the underpayment of VAT for the period January to September and November 2007 amounting to Rp142 billion. On January 20, 2014, the Company filed its objection to the Tax Authorities. The Company has received the rejection of its objection through The Directorate General of Taxation (“DGT”) decision letters No. 2498 to 2504 and 2541 to 2543/WPJ.19/2014 dated December 16 and 18, 2014, respectively. The Company accepted the assessment on the underpayment of VAT amounting to Rp22 billion (including penalty of Rp10 billion). The accepted portion was charged to the 2014 consolidated statements of profit or loss and other comprehensive income and the portion of VAT Interconnection amounting to Rp120 billion (including penalty Rp39 billion) is recognized as claim for tax refund. The Company has filed an appeal to the rejection Interconnection underpayment of No. Tel. 59/KU000/COP-10000000/2015 to No. Tel. 68/KU000/COP-10000000/2015 dated March 12, 2015. As of the date of approval and authorization for the issuance of these consolidated financial statements, the appeal is still in process. objection VAT the on of 70 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (i) The Company (continued) In November 2014, the Company received SKPKBs as the result of the tax audit for fiscal year 2011 from the Tax Authorities. Based on the letters, the Company received VAT underpayment assessment for the tax period January to December 2011 amounting to Rp182.5 billion (including penalty of Rp60 billion) and corporate income tax underpayment assessment amounting to Rp2.8 billion (including penalty of Rp929 million). The Company has paid the underpayment. The accepted portion on the underpayment VAT, amounting to Rp4.7 billion (including penalty of Rp2 billion) was charged to the 2014 consolidated statements of profit or loss and other comprehensive income and the portion of VAT Interconnection amounting to Rp178 billion (including penalty of Rp58 billion) is recognized as claim for tax refund. The Company filed an objection on VAT Interconnection assessment in 2011 on January 7, 2015 to the Tax Authorities. Regarding the case, The Tax Authorities rejected the Company’s objection through its decrees No. 1907 to 1914 dated October 20, 2015 for the tax period January to August 2011, No. 2026 to 2028 dated November 2, 2015 for the tax period October to December 2011 and No. 2642/WPJ.19/2015 dated December 29, 2015 for the tax period September 2011. The Company has filed an appeal to the rejection of the objection on January 20, 2016. As of the date of approval and authorization for the issuance of these consolidated financial statements, the appeal is still in process. The Company received a letter from the Tax Authorities No. Pemb-00427/WPJ.19/ KP.0405/RIK.SIS/2015 dated June 29, 2015 regarding the Notice of Field Examination for The Tax period January to December 2014. On April 20, 2016 the Company received assessment letter for overpayment of Income Tax No. 00022/406/14/093/16 that determined the amount of income tax overpayment for fiscal year 2014 amounting to Rp 51.5 billion. On May 3, 2016 the Tax Authorities issued Field Tax Audit Notification Letter for tax period January to December 2012. The Company has received SKPKBs as the result of the tax audit. Based on the letters, the Company received corporate income tax underpayment assessment amounting to Rp991.6 billion (including penalty of Rp321.6 billion), VAT underpayment assessment amounting to Rp467 billion (including penalty of 153.5 billion), VAT underpayment assessment on taxable services from outside customs territory amounting to Rp1.2 billion (including penalty of Rp392 billion), VAT underpayment assessment on tax collected amounting to Rp57 billion (including penalty of Rp18.5 billion). Tax Collection Letter (“STP”) for VAT amounting to Rp37.5 billion, withholding tax article 21 underpayment assessment amounting to Rp16.2 billion (including penalty of Rp5.3 billion), final withholding tax article 21 underpayment assessment amounting Rp1.2 billion (including penalty of Rp407 million), withholding tax article 23 underpayment assessment amounting to Rp63.5 billion (including penalty of Rp20.6 billion), withholding tax article 4 (2) underpayment assessment amounting to Rp25 billion (including penalty of Rp8.1 billion) and withholding tax article 26 underpayment assessment amounting to Rp197.6 billion (including penalty of Rp64 billion). incoming The Company has agreed regarding recalculation of interconnection services amounting to Rp35 billion, withholding tax amounting to Rp613 million and withholding tax article 26 amounting to Rp311.5 million that have been recorded in consolidated statements of profit or loss and other comprehensive income. The company filed an objection against the remaining unapproved parts on November 16, 2016. As of the date of approval and authorization for the issuance of these consolidated financial statements, the objection is still in process. tax credit on input 71 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (i) The Company (continued) The Company received a letter from the Tax Authorities dated August 23, 2016 regarding Field Tax Audit Notification for tax period January to December 2015. As of the date of approval and authorization for the issuance of these consolidated financial statements, the audit process is still ongoing. (ii) Telkomsel In December 2013, the Tax Court accepted Telkomsel’s appeal on the 2006 VAT and withholding taxes totaling Rp116 billion. In February 2014, Telkomsel received the refund. On July 3, 2015, in response to Telkomsel’s letter claiming for interest income related to favorable 2006 VAT and withholding tax verdicts, the Tax Authorities informed Telkomsel that the claim cannot be granted since the Tax Authorities filed a request for judicial review to the Supreme Court (“SC”). On August 19, 2016, Telkomsel received a notification from Tax Court that the Tax Authorities filed a request for judicial review to SC for the VAT case amounting to Rp108 billion. The contra memorandum for judicial review was sent on September 14, 2016. On April 21, 2010, the Tax Authorities filed a judicial review request to the Indonesian SC for the Tax Court’s acceptance of Telkomsel’s request to cancel the Tax Collection Letter (“STP”) for the underpayment of December 2008 income tax article 25 amounting to Rp429 billion (including a penalty of Rp8.4 billion). In May 2010, Telkomsel filed a contra-appeal to the SC. In July 2016, the case has been announced on SC Website in favor of the Tax Authorities. Although Telkomsel has not received the official verdict from the Court, conservatively the tax penalty of Rp8.4 billion has been recognized. The tax base of Rp421 billion shall not become an additional tax expense as the nature of corporate income tax amount is creditable for Telkomsel. In May and June 2012, Telkomsel received the refund of penalty on 2010 income tax article 25 underpayment amounting to Rp15.7 billion based on the Tax Court’s verdict. On July 17, 2012, the Tax Authorities filed a judicial review request to the SC on the Tax Court’s Verdict. On September 14, 2012, Telkomsel filed a contra-appeal to the SC. In July 2016, conservatively, Telkomsel recognized the tax penalty of Rp15.7 billion as it has similar legal substance with 2008 penalty of income tax case. On May 24, 2012, Telkomsel filed an objection to the Tax Authorities for the 2010 underpayment of value added tax of Rp290.6 billion (including penalty of Rp67 billion) and recorded it as a claim for tax refund. On May 1, 2013, the Tax Authorities rejected Telkomsel’s objection. Subsequently, on July 29, 2013, Telkomsel filed an appeal to the Tax Court. On March 16, 2015, the Tax Court accepted Telkomsel’s appeal and May 13, 2015, Telkomsel received a refund for value added tax and amounting to Rp290.6 billion. On June 24, 2015, The Tax Authorities filed a judicial review to the SC and on May 2, 2016, Telkomsel received a notification from Tax Court regarding the judicial review. Subsequently, on May 27, 2016 Telkomsel filed a contra-appeal to the SC. As of the date of approval and authorization for issuance of these financial statements, the judicial review is still in process. 72 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (ii) Telkomsel (continued) On November 7, 2014, as a result of a tax audit by the Tax Authorities, Telkomsel received assessment letters for underpayment of corporate income tax, VAT and withholding tax amounting to Rp257.8 billion, Rp2.9 billion and Rp2.2 billion (including penalty of Rp85.3 billion), respectively. In December 2014, Telkomsel accepted the assessment of Rp7.8 billion for the underpayment of corporate income tax, Rp1 billion for the underpayment of VAT and Rp2.2 billion for the underpayment of the withholding tax (including penalty of Rp3.5 billion). The accepted portion was charged to the 2014 statement of profit or loss and other comprehensive income. In December 2014, Telkomsel paid the assessments and filed objection letters to the Tax Authorities for the underpayment of corporate income tax of Rp250 billion (including penalty of Rp81.1 billion) and VAT of Rp1.9 billion (including penalty of Rp670 million). In November and December 2015, Telkomsel received the rejection letters from the Tax Authorities for corporate income tax of Rp250 billion and VAT of Rp 1.4 billion. The remaining amount of Rp250 million was charged to the 2015 statement of profit or loss and other comprehensive income. In August 2015, Telkomsel received a letter from the Tax Authorities requesting Telkomsel to change the fiscal useful life of asset tower. Claim for tax refund of 2011 Corporate Income Tax related to tower depreciation of Rp125.5 billion was reclassified to deferred tax liabilities, Rp60 billion penalty was charged to the 2015 profit or loss. On February 15, 2016, Telkomsel filed an appeal to the Tax Authorities for the 2011 underpayment of corporate income tax of Rp250 billion (including penalty of Rp81.1 billion). Subsequently, on March 17, 2016, the Company also filed an appeal to the Tax Court for the underpayment of VAT amounting Rp1.2 billion (including penalty of Rp392 million). In December 2016, after the court hearing sessions ended, Telkomsel reviewed the corporate income tax developments and resulted in adjustment of Rp18 billion. Therefore, the amount of claim for tax refund reduce from Rp66 billion to Rp48 billion. As of the date of approval and authorization for issuance of these financial statements, Telkomsel has not received the Tax Court’s verdict. On July 28, 2016, Telkomsel received the tax audit instruction letter for compliance of fiscal year 2014. As of the date of approval and authorization for issuance of these financial statements, the tax audit still in process. f. Tax incentives In December 2015, the Company took advantage of the Economic Policy Package V in the form of tax incentives for fixed assets revaluation as stipulated in the Ministry of Finance Regulation (“PMK”) No. 191/PMK.010/2015 juncto PMK No. 233/PMK.03/2015 juncto PMK No. 29/PMK.03/2016. In accordance with the PMK, the Company is allowed to revalue its fixed assets for tax purposes and will obtain lower income tax when the application of the revaluation is submitted to DGT during the period between the effective date of PMK and December 31, 2016. The final income tax is determined at a rate ranging from 3%-6% on the excess of the revalued amount of fixed assets over its original net book value depending on the timing of submission of application to the DGT. 73 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) f. Tax incentives (continued) On December 29, 2015, the Company filed an application for fixed assets revaluation using self- assessed revaluation amount and has paid the related final income tax amounting to Rp750 billion. Based on the PMK, the self-assessed revaluation amount should be evaluated by a Public Independent Appraiser (“KJPP”) or valuation specialist, which is registered with the Government before December 31, 2016. Upon verification of the completeness and accuracy of the application, the DGT may issue approval letter within 30 days after the receipt of complete application. The Company has appointed KJPP to assess the fixed assets revaluation of the Company. The Company submitted the completeness of fixed assets revaluation documents phase 1 to DGT on September 29, 2016. On November 10, 2016, DGT issued approval regarding fixed assets revaluation amounting to Rp7,078 billion with related final income tax amounting to Rp212 billion. On December 15, 2016, the Company resubmitted the request regarding fixed assets revaluation for tax purpose for the request proposed in 2016 that covered outdoor production equipments with estimated increase of assets value amounting to Rp8,960 billion with related final income tax amounting to Rp538 billion. As of the date of approval and authorization for issuance of these financial statements, the Company is still waiting for the fixed assets revaluation report from KJPP. The fixed assets revaluation for tax purpose resulting a deductible temporary difference that originated from higher tax base of fixed assets compared to the assets' accounting book value. The temporary difference creates deferred tax assets because there will be future economic benefits that flow to the Company when the carrying amount of assets has been recovered. In 2016, the Company recorded deferred tax assets amounting to Rp1,415 billion from the excess of the revalued amount of fixed assets which has been approved by DGT over the previous tax base net book value. g. Deferred tax assets and liabilities The details of the Group's deferred tax assets and liabilities are as follows: (Charged) credited to the consolidated statements of profit or loss (Charged) credited to the consolidated statements of other comprehensive income December 31, 2015 (Charged) credited to the equity December 31, 2016 102 (41 ) 112 10 (142 ) (68 ) (27 ) 825 34 12 871 844 126 - - - - - 126 - - - - 126 - - - - - - - - - - - - 563 388 209 75 69 1 1,305 (772 ) (11 ) (11 ) (794 ) 511 The Company Deferred tax assets: Net periodic pension and other post- employment benefits costs Provision for impairment of receivable Provisions for employee benefit Deferred installation fee Accrued expenses and provision for inventory obsolescence Finance leases Total deferred tax assets Deferred tax liabilities: Difference between accounting and tax bases of property and equipment Valuation of long-term investment Land rights, intangible assets and others Total deferred tax liabilities Deferred tax liabilities of the Company - net 335 429 97 65 211 69 1,206 (1,597 ) (45 ) (23 ) (1,665 ) (459 ) 74 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) g. Deferred tax assets and liabilities (continued) The details of the Group's deferred tax assets and liabilities are as follows (continued): Telkomsel Deferred tax assets: Provisions for employee benefits Provision for impairment of receivables Total deferred tax assets Deferred tax liabilities: Finance leases Difference between accounting and tax bases of and equipment property Intangible assets Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of other subsidiaries - net Deferred tax liabilities - net Deferred tax assets of other subsidiaries - net Deferred tax assets - net (Charged) credited to the consolidated statements of profit or loss (Charged) credited to the consolidated statements of other comprehensive income December 31, 2015 (Charged) credited to the equity December 31, 2016 349 138 487 (385 ) (1,395 ) (52 ) (1,832 ) (1,345 ) (306 ) (2,110 ) 201 201 55 5 60 (164 ) 913 4 753 813 14 1,286 50 435 74 - 74 - - - - 74 5 79 3 129 - - - - - - - - - - 4 4 478 143 621 (549 ) (482 ) (48 ) (1,079 ) (458 ) (287 ) (745 ) 258 769 (Charged) credited to the consolidated statements of profit or loss (Charged) credited to the consolidated statements of other comprehensive income December 31, 2014 Reclassification December 31, 2015 The Company Deferred tax assets: Provision for impairment of receivable Net periodic pension and other post-employment benefits costs Accrued expenses and provision for inventory obsolescence Provisions for employee benefit Deferred installation fee Finance leases Total deferred tax assets Deferred tax liabilities: Difference between accounting and tax bases of property and equipment Valuation of long-term investment Land rights, intangible assets and others Total deferred tax liabilities Deferred tax liabilities of the Company - net Telkomsel Deferred tax assets: Provisions for employee benefits Provision for impairment of receivables Recognition of interest under USO arrangements Total deferred tax assets Deferred tax liabilities: Difference between accounting and tax bases of property and equipment Finance leases Intangible assets Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of other subsidiaries - net Deferred tax liabilities - net Deferred tax assets - net (41 ) 3 135 25 (7 ) 47 162 (139 ) 24 (9 ) (124 ) 38 16 9 0 25 350 (131 ) 9 228 253 (59 ) 233 107 470 330 76 72 72 22 1,042 (1,458 ) (69 ) (14 ) (1,541 ) (499 ) 323 129 0 452 (2,044 ) (254 ) (61 ) (2,359 ) (1,907 ) (248 ) (2,654 ) 95 75 - 2 - - - - 2 - - - - 2 10 - - 10 - - - - 10 1 13 (1 ) - - - - - - - - - - - - - - - - 299 - - 299 299 - 299 - 429 335 211 97 65 69 1,206 (1,597 ) (45 ) (23 ) (1,665 ) (459 ) 349 138 0 487 (1,395 ) (385 ) (52 ) (1,832 ) (1,345 ) (306 ) (2,110 ) 201 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) g. Deferred tax assets and liabilities (continued) As of December 31, 2016 and 2015, the aggregate amounts of temporary differences associated with investments in subsidiaries and associated companies, for which deferred tax liabilities have not been recognized were Rp34,568 billion and Rp28,295 billion, respectively. Realization of the deferred tax assets is dependent upon the Group’s capability in generating future profitable operations. Although realization is not assured, the Group believes that it is probable that these deferred tax assets will be realized through reduction of future taxable income when temporary differences reverse. The amount of deferred tax assets is considered realizable; however, it can be reduce if actual future taxable income is lower than estimates. h. Administration From 2008 to 2016, the Company has been consecutively entitled to income tax rate reduction of 5% for meeting the requirements in accordance with the Government Regulation No. 81/2007 as amended by Governemnt Regulation No. 77/2013 and lastly by Government Regulation No. 56/2015 in conjunction with the Ministry of Finance Regulation No. 238/PMK.03/2008. On the basis of historical data, for the year ended December 31, 2016, the Company calculates the deferred tax using the tax rate of 20%. The taxation laws of Indonesia require that the Company and its local subsidiaries to submit individual tax returns on the basis of self-assessment. Under prevailing regulations, the DGT may assess or amend taxes within a certain period. For fiscal years 2007 and earlier, the period is within ten years of the time the tax became due, but not later than 2013, while for fiscal years 2008 and onwards, the period is within five years of the time the tax became due. The Ministry of Finance of the Republic of Indonesia has issued Regulation No. 85/PMK.03/2012 dated June 6, 2012 as amended by PMK No. 136-PMK.03/2012 dated August 16, 2012 concerning the appointment of State-Owned Enterprises ("SOEs") to withhold, deposit and report VAT and Sales Tax on Luxury Goods ("PPnBM") according to the procedures outlined in the Regulation which is effective from July 1, 2012. The Ministry of Finance of the Republic Indonesia also has issued Regulation No. 224/PMK.011/2012 dated December 26, 2012 concerning the appointment of SOEs to withhold income tax article 22 as amended by PMK No. 16/PMK.010/2016 dated February 3, 2016. The Company has withheld, deposited, and reported VAT, PPnBM and also income tax article 22 in accordance with the Regulation. 27. BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share is computed by dividing profit for the year attributable to owners of the parent company amounting to Rp19,352 billion and Rp15,489 billion by the weighted average number of shares outstanding during the period totaling 98,638,501,532 shares and 98,176,527,553 shares after stock split for the year ended December 31, 2016 and 2015, respectively. The weighted average number of shares takes into account the weighted average effect of changes in treasury stock transaction during the year. Basic earnings per share amounting to Rp196.19 and Rp157.77 (in full amount) for the year ended December 31, 2016 and 2015, respectively. The Company does not have potentially dilutive financial investments as of December 31, 2016 and 2015. 76 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 28. CASH DIVIDENDS AND GENERAL RESERVE Pursuant to the AGM of Stockholders of the Company as stated in notarial deed No. 26 dated April 17, 2015 of Ashoya Ratam, S.H., MKn., the Company’s stockholders approved the distribution of cash dividend and special cash dividend for 2014 amounting to Rp7,319 billion (Rp74.55 per share) and Rp1,464 billion (Rp14.91 per share), respectively. On May 21, 2015, the Company paid the cash dividend and special cash dividend totalling Rp8,783 billion. Pursuant to the AGM of Stockholders of the Company as stated in notarial deed No. 50 dated April 22, 2016 of Ashoya Ratam, S.H., MKn., the Company’s stockholders approved the distribution of cash dividend and special cash dividend for 2015 amounting to Rp7,744 billion (Rp78.86 per share) and Rp1,549 billion (Rp15.77 per share), respectively. On May 26, 2016, the Company paid the cash dividend and special cash dividend totalling Rp9,293 billion. On December 27, 2016, the Company had paid an interim dividend amounting to Rp1,920 billion or totalling Rp19.38 per share. Appropriation of Retained Earnings Under the Limited Liability Company Law, the Company is required to establish a statutory reserve amounting to at least 20% of its issued and paid-up capital. The balance of the appropriated retained earnings of the Company as of December 31, 2016 and 2015 amounting to Rp15,337 billion, respectively. 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS The details of pension and other post-employment benefit liabilities are as follows: Prepaid pension benefit cost The Company - funded MDM Infomedia Total prepaid pension benefit cost Pension benefit and other post-employment benefit obligations Pension benefit The Company - unfunded Telkomsel Patrakom Sub-total pension benefit Net periodic post-employment health care benefit Other post-employment benefit Obligation under the Labor Law Pension benefit and other post-employment benefit obligations Notes 29a.i.a 29a.i.b 29a.ii 29b 29c 29d 2016 2015 197 1 1 199 2,507 1,193 0 3,700 1,592 502 332 6,126 1,329 2 0 1,331 2,500 803 - 3,303 118 497 253 4,171 77 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) The breakdown of the net benefit expense recognized in the consolidated statements of profit or loss and other comprehensive income is as follows: Pension benefit cost The Company - funded The Company - unfunded Telkomsel MDM Infomedia Patrakom Total pension benefit cost Net periodic post-employment health care benefit cost Other post-employment benefit cost Obligation under the Labor Law Total Notes 29a.i.a 29a.i.b 29a.ii 23 23,29b 23,29c 23,29d 2016 2015 608 279 181 0 0 0 1,068 163 48 82 1,361 12 251 168 1 0 - 432 216 47 53 748 Defined benefit plan actuarial gain (losses) Notes 2016 2015 The Company - funded The Company - unfunded Telkomsel Infomedia Patrakom MDM Post-employment health care benefit Other post-employment benefit Obligation under the Labor Law Sub-total Deferred tax effect at the applicable tax rates Defined benefit plan actuarial gain (losses) - net 29a.i.a 29a.i.b 29a.ii 29b 29c 29d (492 ) (119 ) (292 ) 0 0 (1 ) (1,309 ) (20 ) (33 ) (2,266 ) 208 (2,058 ) 186 (187 ) (15 ) 1 0 0 540 (11 ) (20 ) 494 12 506 a. Pension benefit costs i. The Company a. Funded pension plan The Company sponsors a defined benefit pension plan for employees with permanent status prior to July 1, 2002. The pension benefits are paid based on the participating employees’ latest basic salary at retirement and the number of years of their service. The plan is governed by the pension laws in Indonesia and managed by Telkom Pension Fund (Dana Pensiun Telkom or “Dapen”). The participating employees contribute 18% (before March 2003: 8.4%) of their basic salaries to the pension fund. The Company’s contributions to the pension fund for the years ended December 31, 2016 and 2015 amounted to Rpnil, respectively. 78 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) a. Funded pension plan (continued) The following table presents the changes in projected pension benefit obligations, changes in pension benefit plan assets, funded status of the pension plan and net amount recognized in the consolidated statements of financial position as of December 31, 2016 and 2015, and for the years ended December 31, 2016 and 2015, on the defined benefit pension plan: Changes in projected pension benefit obligations Projected pension benefit obligations at beginning of year Charged to profit or loss: Service costs Past service cost - plan amendments Interest costs Pension plan participants’ contributions Actuarial (gain) losses Pension benefits paid Settlement 2016 2015 16,505 17,402 363 245 1,444 44 1,680 (1,432 ) - 218 (55 ) 1,445 45 (1,666 ) (808 ) (76 ) Projected pension benefit obligations at end of year 18,849 16,505 Changes in pension benefit plan assets Fair value of pension plan assets at beginning of year Interest income Return on plan assets (excluding amount included in net interest expense) Pension plan participants’ contributions Pension benefits paid Plan administration cost Fair value of pension plan assets at end of period Funded status Effect of asset ceiling Prepaid pension benefit cost 2016 2015 17,834 1,458 1,188 44 (1,432 ) (46 ) 19,046 197 - 197 18,929 1,576 (1,837 ) 45 (808 ) (71 ) 17,834 1,329 - 1,329 79 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) a. Funded pension plan (continued) As of December 31, 2016 and 2015, plan assets consists of: Cash and cash equivalents Equity instruments Finance Consumer goods Infrastructure, utilities and transportation Construction, property and real estate Basic industry and chemical Trading, service and investment Mining Agriculture Miscellaneous industries Equity-based mutual fund Fixed income instruments Corporate bonds Government bonds Mutual funds Non-public equity: Direct placement Property Others 2016 Quoted in 2015 Quoted in active market Unquoted active market Unquoted 1,064 1,039 1,206 536 577 130 216 62 71 361 1,296 - 7,978 30 - - - - - - - - - - - - - - 3,817 - - 174 188 301 1,335 1,153 953 637 573 163 183 45 29 240 1,120 - 7,257 - - - - - - - - - - - - - - - 3,587 - - 163 156 240 Total 14,566 4,480 13,688 4,146 Pension plan assets also include Series B shares issued by the Company with fair values totalling Rp395 billion and Rp445 billion, representing 2.07% and 2.49% of total plan assets as of December 31, 2016 and 2015, respectively, and bonds issued by the Company with fair value totalling Rp311 billion and Rp464 billion representing 1.63% and 2.60% of total assets as of December 31, 2016 and 2015, respectively. 80 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) a. Funded pension plan (continued) The expected return is determined based on market expectation for returns over the entire life of the obligation by considering the portfolio mix of the plan assets. The actual return on plan assets was Rp2,600 billion and (Rp332 billion) for the years ended December 31, 2016 and 2015, respectively. Based on the Company’s policy issued on January 14, 2014 regarding Dapen’s Funding Policy, the Company will not contribute to Dapen when Dapen’s Funding Sufficiency Ratio (FSR) is above 105%. Based on Dapen’s financial statement as of December 31, 2016, Dapen’s FSR is above 105%. Therefore, the Company does not expect to contribute to the defined benefit pension plan in 2016. Based on the Company’s policy issued on July 1, 2014 regarding Pension Regulation by Dana Pensiun Telkom, there is an increase in monthly benefits given to the pensioners, widow/widower or the children of participants who stopped working before the end of June, 2002. During 2015, the Company made settlements to pensioners, widow/widower or the children of participant who has monthly pension benefits under Rp1,500,000 and choose to withdraw their pension benefits in lump sum. Based on the Company’s policy issued on June 24, 2016 regarding Pension Regulation by Dana Pensiun Telkom, widow/widower or the children of participants who enrolled before April 20, 1992, will receive increase in monthly pension benefits from 60% to 75% of pension benefits received by the pensioners which effective starting from January 1, 2016. In addition, the Company provide other benefits to increase the pensioner’s welfare which only provided in 2016. The Company provide other benefit of Rp6 million to monthly pension beneficiaries who retired before end of June 2002 and other benefit of Rp3 million to monthly pension beneficiaries who retired starting from the end of June 2002 until the end of May 2016. The movements of the prepaid pension benefit cost during the years ended December 31, 2016 and 2015 are as follows: Prepaid pension benefit cost at beginning of year Net periodic pension benefit cost Actuarial gain (losses) recognized in OCI Asset ceiling recognized in OCI Return on plan assets (excluding amount included in net interest expense) Prepaid pension benefit cost at end of year 2016 2015 1,329 (640 ) (1,680 ) - 1,188 197 1,170 (27 ) 1,666 357 (1,837 ) 1,329 81 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) a. Funded pension plan (continued) The components of net periodic cost for the years ended December 31, 2016 and 2015 are as follows: Service costs Past service cost - plan amendments Plan administration cost Net interest cost Settlement Net periodic pension benefit cost Amount charged to subsidiaries under contractual agreements Net periodic pension benefit cost Amounts recognized in OCI are as follows: Actuarial (gain) losses recognized during the year due to: Experience adjustments Changes in demographic assumptions Changes in financial assumptions Effect of asset ceiling Return on plan assets (excluding amount included in net interest expense) Net 2016 2015 363 245 46 (14 ) - 640 (32 ) 608 218 (55 ) 71 (131 ) (76 ) 27 (15 ) 12 2016 2015 70 140 1,470 - (1,188 ) 492 (991 ) 137 (812 ) (357 ) 1,837 (186 ) The actuarial valuation for the defined benefit pension plan was performed, based on the measurement date as of December 31, 2016 and 2015, with reports dated February 22, 2017 and February 25, 2016, respectively, by PT Towers Watson Purbajaga (“TWP”), an independent actuary in association with Willis Towers Watson (“WTW”) (formerly Towers Watson). The principal actuarial assumptions used by the independent actuary as of December 31, 2016 and 2015 are as follows: Discount rate Rate of compensation increases Indonesian mortality table b. Unfunded pension plan 2016 2015 8.00% 8.00% 2011 9.00% 8.00% 2011 The Company sponsors unfunded defined benefit pension plans and a defined contribution pension plan for its employees. The defined contribution pension plan is provided to employees hired with permanent status on or after July 1, 2002. The plan is managed by Financial Institutions Pension Fund (Dana Pensiun Lembaga Keuangan or “DPLK”). The Company’s contribution to DPLK is determined based on a certain percentage of the participants’ salaries and amounted to Rp9 billion and Rp7 billion for the years ended December 31, 2016 and 2015, respectively. 82 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) b. Unfunded pension plan (continued) Since 2007, the Company has provided pension benefit based on uniformulation for both participants prior to and from April 20, 1992 effective for employees retiring beginning February 1, 2009. In 2010, the Company replaced the uniformulation with Manfaat Pensiun Sekaligus (“MPS”). MPS is given to those employees reaching retirement age, upon death or upon becoming disabled starting from February 1, 2009. The Company also provides benefits to employees during a pre-retirement period in which they are inactive for 6 months prior to their normal retirement age of 56 years, known as pre-retirement benefits (Masa Persiapan Pensiun or “MPP”). During the pre-retirement period, the employees still receive benefits provided to active employees, which include, but are not limited to, regular salary, health care, annual leave, bonus and other benefits. Since 2012, the Company has issued a new requirement for MPP effective for employees retiring since April 1, 2012, whereby the employee is required to file a request for MPP and if the employee does not file the request, such employee is required to work until the retirement date. The following table presents the changes of the unfunded projected pension benefit obligations of MPS and MPP for the years ended December 31, 2016 and 2015: Unfunded projected pension benefit obligations at beginning of year Service costs Interest costs Actuarial losses recognized in OCI Benefits paid by employer Unfunded projected pension benefit obligations at end of period 2016 2015 2,500 64 215 119 (391 ) 2,507 2,326 60 191 187 (264 ) 2,500 The components of total periodic pension benefit cost for the years ended December 31, 2016 and 2015 are as follows: Service costs Net interest cost Total Amounts recognized in OCI are as follows: Actuarial (gain) losses recognized during the year due to: Experience adjustments Changes in demographic assumptions Changes in financial assumptions Net 83 2016 2015 64 215 279 60 191 251 2016 2015 (9 ) 30 98 119 (30 ) 50 167 187 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) i. The Company (continued) b. Unfunded pension plan (continued) The actuarial valuation for the defined benefit pension plan was performed, based on the measurement date as of December 31, 2016 and 2015, with reports dated February 22, 2017 and February 25, 2016, respectively, by TWP independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary for the years ended December 31, 2016 and 2015 are as follows: Discount rate Rate of compensation increases Indonesian mortality table ii Telkomsel 2016 2015 7.75% - 8.00% 6.10% - 8.00% 2011 9.00% varies 2011 Telkomsel provides a defined benefit pension plan to its employees. Under this plan, employees are entitled to pension benefits based on their latest basic salary or take-home pay and the number of years of their service. PT Asuransi Jiwasraya (“Jiwasraya”), a state-owned life insurance company, manages the plan under an annuity insurance contract. Until 2004, the employees contributed 5% of their monthly salaries to the plan and Telkomsel contributed any remaining amount required to fund the plan. Starting 2005, the entire contributions have been fully made by Telkomsel. Telkomsel’s contributions to Jiwasraya amounted to Rp83 billion and Rp192 billion for the years ended December 31, 2016 and 2015, respectively. The following table presents the changes in projected pension benefit obligation, changes in pension benefit plan assets, funded status of the pension plan and net amount recognized in the consolidated statement of financial position for the years ended December 31, 2016 and 2015, on Telkomsel’s defined benefit pension plan: 2016 2015 Changes in projected pension benefit obligation Projected pension benefit obligation at beginning of year Charged to profit or loss: Service costs Net interest cost Actuarial (gain) losses recognized in OCI Benefits paid Projected pension benefit obligation at end of year Changes in pension benefit plan assets Fair value of plan assets at beginning of year Interest income in profit or loss Return on plan assets (excluding amount included in net interest expense) Employer’s contributions Benefits paid Fair value of plan assets at end of year Funded status Provision for pension benefit cost 1,415 107 130 392 (10 ) 2,034 612 56 100 83 (10 ) 841 (1,193 ) (1,193 ) 1,281 101 106 (64 ) (9 ) 1,415 469 39 (79 ) 192 (9 ) 612 (803 ) (803 ) 84 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) a. Pension benefit costs (continued) (ii) Telkomsel (continued) The movements of the provision for pension benefit cost for the years ended December 31, 2016 and 2015: 2016 2015 Provision for pension benefit cost at beginning of year Periodic pension benefit cost Actuarial (gain) losses recognized in OCI Return on plan assets (excluding amount included in net interest expense) Employer contributions Provision for pension benefit cost at end of year 803 181 392 (100 ) (83 ) 1,193 812 168 (64 ) 79 (192 ) 803 The components of the periodic pension benefit cost for the years ended December 31, 2016 and 2015 are as follows: Service costs Net interest cost Total periodic pension benefit cost Amounts recognized in OCI are as follows: 2016 2015 107 74 181 2016 2015 Actuarial (gain) losses recognized during the year due to: Experience adjustments Changes in financial assumptions Return on plan assets (excluding amount included in net interest expense) Net 32 360 (100 ) 292 101 67 168 (20 ) (44 ) 79 15 The actuarial valuation for the defined benefit pension plan was performed, based on the measurement date as of December 31, 2016 and 2015, with reports dated February 7, 2017 and February 12, 2016, respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2016 and 2015, are as follows: Discount rate Rate of compensation increases Indonesian mortality table 2016 2015 8.25% 8.00% 2011 9.25% 8.00% 2011 85 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) b. Post-employment health care benefits provisions The Company provides post-employment health care benefits to all of its employees hired before November 1, 1995 who have worked for the Company for 20 years or more when they retire, and to their eligible dependents. The requirement to work for 20 years does not apply to employees who retired prior to June 3, 1995. The employees hired by the Company starting from November 1, 1995 are no longer entitled to this plan. The plan is managed by Yakes. The defined contribution post-employment health care benefit plan its provided to employees hired with permanent status on or after November 1, 1995 or employees with terms of service less than 20 years at the time of retirement. The Company’s contribution to the plan amounted to Rpnil for the years ended December 31, 2016 and 2015, respectively. The following table presents the changes in projected post-employment health care benefit provision, change in post-employment health care benefit plan assets, funded status of the post- employment health care benefit plan, and net amount recognized in the Company’s consolidated statement of financial position as of December 31, 2016 and 2015 and for the years ended December 31, 2016 and 2015: 2016 2015 Changes in projected post-employment health care benefit provision Projected post-employment health care benefit obligation at beginning of year Charged to profit or loss: Service costs Net interest cost Actuarial (gain) losses Post-employment health care benefits paid Projected post-employment health care benefit provision at end of year Changes in post-employment health care benefit plan assets Fair value of plan assets at beginning of year Interest income Return on plan assets (excluding amount included in net interest expense) Post-employment health care benefits paid Administrative expense paid Fair value of plan assets at end of year Funded status Provision for post-employment health care benefit 10,942 11,505 9 994 1,828 (416 ) 49 961 (1,187 ) (386 ) 13,357 10,942 10,824 982 519 (416 ) (144 ) 11,765 (1,592 ) (1,592 ) 11,064 924 (647 ) (386 ) (131 ) 10,824 (118 ) (118 ) 86 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) b. Post-employment health care benefits provisions (continued) As of December 31, 2016 and 2015, plan assets consists of: Cash and cash equivalents Equity instruments: Manufacturing & consumer Finance industries Construction Infrastructure and telecommunication Wholesale Mining Other Industries: Services Agriculture Biotechnology and Pharma Industry Others Equity-based mutual funds Fixed income instruments: Fixed income mutual funds Unlisted shares: Private placement Others Total 2016 2015 Quoted in active market Unquoted Quoted in active market Unquoted 894 754 540 351 245 101 27 17 44 6 2 1,311 7,241 - - 11,533 - - - - - - - - - - - - - 232 - 232 811 571 566 301 211 70 12 33 23 6 3 1,129 6,837 - - 10,573 - - - - - - - - - - - - - 213 38 251 Yakes plan assets also include Series B shares issued by the Company with fair value totalling Rp217 billion and Rp174 billion, representing 1.84% and 1.61% of total assets as of December 31, 2016 and 2015, respectively. The expected return is determined based on market expectation for the returns over the entire life of the obligation by considering the portfolio mix of the plan assets. The actual return on plan assets was Rp1,357 billion and Rp147 billion for the years ended December 31, 2016 and 2015, respectively. The movements of the provision for projected post-employment health care benefit obligations for the years ended December 31, 2016 and 2015 are as follows: Projected post-employment health care benefit obligations at beginning of year Net periodic post-employment health care benefit Actuarial losses (gain) recognized in OCI Return on plan assets (after deducting the value which is included in net interest expense) Projected post-employment health care benefit obligations at end of year 2016 2015 118 165 1,828 (519 ) 1,592 441 217 (1,187 ) 647 118 87 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) b. Post-employment health care benefits provisions (continued) The components of net periodic post-employment health care benefit cost for the years ended December 31, 2016 and 2015 are as follows: Service costs Plan administration cost Net interest cost Periodic post-employment health care benefit cost Amount charged to subsidiaries under contractual agreement Net periodic post-employment health care benefit cost less cost charged to subsidiaries 2016 2015 9 144 12 165 (2 ) 163 49 131 37 217 (1 ) 216 Amounts recognized in OCI are as follows: Actuarial (gain) losses recognized during the year due to: Experience adjustments Changes in demographic assumptions Changes in financial assumptions Return on plan assets (excluding amount included in net interest expense) Net 2016 2015 26 66 1,736 (519 ) 1,309 (53 ) 92 (1,226 ) 647 (540 ) The actuarial valuation for the post-employment health care benefits was performed based on measurement date as of December 31, 2016 and 2015 with reports dated February 22, 2017 and February 25, 2016, respectively, was performed by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2016 and 2015 are as follows: Discount rate Health care costs trend rate assumed for the next year Ultimate health care costs trend rate Year that the rate reaches the ultimate trend rate Indonesian mortality table c. Other post-employment benefits provisions 2016 2015 8,50% 7,00% 7,00% 2017 2011 9.25% 7.00% 7.00% 2016 2011 The Company provides other post-employment benefits in the form of cash paid to employees on their retirement or termination. These benefits consist of final housing allowance (Biaya Fasilitas Perumahan Terakhir or “BFPT”) and home passage leave (Biaya Perjalanan Pensiun dan Purnabhakti or “BPP”). 88 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) c. Other post-employment benefits provisions (continued) The movements in the projected other post-employment benefit obligations for the years ended December 31, 2016 and 2015 are as follows: Unfunded projected benefit obligations at beginning of year Charged to profit or loss: Service costs Net interest cost Actuarial losses recognized in OCI Benefits paid by employer Provision for other post-employment benefits 2016 2015 497 7 41 20 (63 ) 502 488 8 39 11 (49 ) 497 The components of the projected other post-employment benefit cost for the years ended December 31, 2016 and 2015 are as follows: Service costs Net interest cost Total Actuarial (gain) losses recognized during the year due to: Experience adjustments Changes in demographic assumptions Changes in financial assumptions Net 2016 2015 7 41 48 2016 2015 2 0 18 20 8 39 47 20 (0 ) (9 ) 11 The actuarial valuation for the other post-employment benefits was performed based on the measurement date as of December 31, 2016 and 2015, with reports dated February 22, 2017 and February 25, 2016, respectively by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2016 and 2015 are as follows: Discount rate Indonesian mortality table d. Obligation under the Labor Law 2016 2015 7,75% 2011 9.00% 2011 Under Law No. 13 Year 2003, the Group is required to provide minimum pension benefits, if not covered yet by the sponsored pension plans, to its employees upon retirement age. The total related obligation recognized as of December 31, 2016 and 2015 amounted to Rp332 billion and Rp253 billion, respectively. The related employee benefits cost charged to expense amounted to Rp82 billion and Rp53 billion for the years ended December 31, 2016 and 2015, respectively (Note 23). The and in OCI Rp20 billion for the years ended December 31, 2016 and 2015, respectively. recognized to Rp33 amounted actuarial losses billion 89 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) e. Maturity Profile of Defined Benefit Obligation (“DBO”) The timing of benefits payments and weighted average duration of DBO for 2016 are as follows (in billions of Rupiah): Expected Benefits Payment The Company Funded Unfunded Telkomsel Post-employment health care benefits Other post- employment benefits 16,888 20,052 17,289 11,827 2,872 238 9 0 2,914 263 29 5 - - - - 1,653 6,257 5,758 936 - - - - 6,273 8,401 8,648 6,711 2,986 245 1 0 578 139 47 3 - - - - 9.15 years 4.33 years 11.33 years 13.81 years 3.62 years Time Period Within next 10 years Within 10-20 years Within 20-30 years Within 30-40 years Within 40-50 years Within 50-60 years Within 60-70 years Within 70-80 years Weighted average duration of DBO f. Sensitivity Analysis 1% change in discount rate and rate of salary would have effect on DBO, as follows: Discount Rate Rate of Compensation 1% Increase 1% Decrease Increase (decrease) in amounts Sensitivity Funded Unfunded Telkomsel Post-employment health care benefits Other post-employment benefits (1,579 ) (68 ) (108 ) (1,544 ) (16 ) 1% Decrease 1% Increase Increase (decrease) in amounts (397 ) 384 (70 ) 70 (108 ) 115 1,860 73 116 1,882 18 2,034 - (1,687 ) - The sensitivity analysis have been determined based on a method that extrapolates the impact on DBO as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity results above determine the individual impact on the Plan’s end of the year DBO. In reality, the Plan is subject to multiple external experience items which may move the DBO in similar or opposite directions, and the Plan’s sensitivity to such changes can vary over time. There are no changes in the methods and assumptions used in calculating the sensitivity analysis from the previous period. 30. LSA PROVISIONS Telkomsel and Patrakom provide certain cash awards or certain number of days leave benefits to its employees based on the employees’ length of service requirements, including LSA and Long Service Leave (“LSL”). LSA are either paid at the time the employees reach certain years during employment, or at the time of termination. LSL are either certain number of days leave benefit or cash, subject to approval by management, provided to employees who meet the requisite number of years of service and with a certain minimum age. The obligation with respect to these awards which was determined based on an actuarial valuation using the Projected Unit Credit method, amounted to Rp613 billion and Rp501 billion as of December 31, 2016 and 2015, respectively. The related benefit costs charged to expense amounted to Rp237 billion and Rp152 billion for the years ended December 31, 2016 and 2015, respectively (Note 23). 90 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS a. Nature of relationships and accounts/transactions with related parties Details of the nature of relationships and accounts/transactions with significant related parties are as follows: Related parties The Government Ministry of Finance Nature of relationships parties Majority stockholder Nature of accounts/transactions Internet and data service revenues, other telecommunication service revenues, finance income, finance costs, and investment in financial instruments State-owned enterprises Entity under common control Internet and data service revenues, other Indosat Entity under common control Interconnection revenues, leased lines revenues, telecommunication services revenues, operating expenses and purchase of property and equipment PT Aplikanusa Lintasarta Entity under common control (“Lintasarta”) Indosat Mega Media PT Perusahaan Listrik Negara Entity under common control Entity under common control (“PLN”) satellite transponder usage revenues, interconnection expenses, telecommunication facilities usage expenses, operating and maintenance expenses, usage of data communication network system expenses Interconnection revenues, network service revenues, leased lines expenses, and usage of communication network system expenses Network service revenues Electricity expenses, finance income, finance costs, investment in financial instrument PT Pertamina (Persero) Entity under common control Internet and data service revenues, other (“Pertamina”) telecommunication service revenues PT Kereta Api Indonesia (“KAI”) Entity under common control Internet and data service revenues, other PT Pegadaian Entity under common control Internet and data service revenues, other telecommunication service revenues telecommunication service revenues PT Garuda Indonesia Tbk Entity under common control Internet and data service revenues, other PT Indonesia Comnet Plus Entity under common control Internet and data service revenues, other telecommunication service revenues (“ICON Plus”) telecommunication service revenues, interconnection revenues, network revenues and interconnection expenses PT Asuransi Jasa Indonesia Entity under common control Satellite insurance expenses and vehicle insurance (“Jasindo”) PT Adhi Karya Tbk (“Adhi Karya”) PT Waskita Karya Tbk (“Waskita”) INTI LEN Entity under common control Purchase of materials and construction services expenses Entity under common control Purchase of materials and construction services Entity under common control Purchase of property and equipment and construction services Entity under common control Purchase of property and equipment and construction services State-owned banks BNI Entity under common control Entity under common control Finance income and finance costs Internet and data service revenues, other Bank Mandiri Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income and finance costs BRI BTN telecommunication service revenues, finance income and finance costs Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income and finance costs Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income and finance costs 91 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) a. Nature of relationships and accounts/transactions with related parties (continued) Details of the nature of relationships and accounts/transactions with significant related parties are as follows (continued): Related parties PT Bank Syariah Mandiri (“BSM”) PT Bank BRI Syariah (“BRI Syariah”) Nature of relationships parties Entity under common control Nature of accounts/transactions Internet and data service revenues, other Entity under common control Internet and data service revenues, other telecommunication service revenues, and finance costs telecommunication service revenues, and finance costs Bahana Sarana Multi Infrastruktur CSM Entity under common control Entity under common control Associated company Available-for-sale financial assets, bonds and notes Finance costs Satelite transponder usage revenues, network Indonusa Associated company service revenues and transmission lease expenses Network service revenues and data communication expenses PT Poin Multi Media Nusantara (“POIN”) Associated company Purchase of handset Yakes Koperasi Pegawai Telkom Other related entities Other related entities (“Kopegtel”) PT Sandhy Putra Makmur Other related entities (“SPM”) Medical expenses Purchase of property and equipment construction and installation services, leases of buildings expenses, lease of vehicles expenses, purchases of vehicles, and purchases of materials and construction service, maintenance and cleaning service expenses, and RSA revenues Leases of buildings expenses, leases of vehicles expenses, purchase of materials and construction services, utilities of maintenance and cleaning services Koperasi Pegawai Telkomsel Other related entities Internet and data service revenues, other (“Kisel”) PT Graha Informatika Other related entities Nusantara (“Gratika”) PT Pembangunan Other related entities Telekomunikasi Indonesia (“Bangtelindo”) telecommunication service revenues, leases of vehicles expenses, printing and distribution of customer bills expenses, collection fee, other services fee, distribution of SIM cards and pulse reload voucher and purchase of property and equipment Interconnection revenues, network service revenues, installation expenses, maintenance expenses, and purchase of property and equipment Purchase of property and equipment Directors and commissioners Key management personnel Honorarium and facilities The outstanding balances of trade receivables and payables at year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. In 2016, the Group recorded impairment of receivables from related parties of Rp181 billion. This assessment is undertaken each financial year through examining the current status of existing receivables and historical collection experience. 92 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties The following are significant transactions with related parties: 2016 2015 Amount % of total revenues Amount % of total revenues REVENUES Majority Stockholder Government Entities under common control Indosat BRI Bank Mandiri BNI BTN Lintasarta Pegadaian Garuda Pertamina KAI ICON Plus Others Sub-total Other related entities Yakes Gratika Others Sub-total Associated companies Indonusa Telin Malaysia CSM Others Sub-total Total EXPENSES Entities under common control PLN Indosat Jasindo Pos Indonesia Others Sub-total Associated companies POIN Indonusa Others Sub-total 207 2,167 181 161 136 107 99 93 75 64 68 56 451 3,658 153 42 58 253 105 35 32 26 198 4,316 0.18 1.86 0.16 0.14 0.12 0.09 0.09 0.08 0.06 0.06 0.06 0.05 0.38 3.15 0.13 0.04 0.05 0.22 0.09 0.03 0.03 0.02 0.17 3.72 206 1,020 188 151 126 41 82 89 77 99 90 63 251 2,277 18 32 8 58 60 - 34 9 103 2,644 0.20 1.00 0.18 0.15 0.12 0.04 0.08 0.09 0.08 0.10 0.09 0.06 0.25 2.24 0.02 0.03 0.01 0.06 0.06 - 0.03 0.01 0.10 2.60 2016 2015 Amount % of total expenses Amount % of total expenses 1.38 1.25 0.35 0.06 0.07 3.11 1.94 0.19 - 2.13 738 977 256 - 32 2,003 1,485 - 9 1,494 1.05 1.39 0.37 - 0.05 2.86 2.13 - 0.01 2.14 1,037 939 267 49 51 2,343 1,459 145 - 1,604 93 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties (continued) The following are significant transactions with related parties (continued): EXPENSES (continued) Other related entities Kisel Kopegtel Yakes Others Sub-total Others Total FINANCE INCOME Majority stockholder Government Entity under common control State-owned banks Others Total FINANCE COSTS Majority stockholder Government Entity under common control State-owned banks Total PURCHASES OF PROPERTY AND EQUIPMENTS (Note 9) Entity under common control INTI LEN Adhi Karya Sub-total Other related entities Kopegtel Bangtelindo SPM Kisel Gratika Sub-total Others Total 2016 Amount % of total expenses 2015 Amount % of total expenses 771 533 - 140 1,444 160 5,551 2016 1.02 0.71 - 0.18 1.91 0.21 7.36 748 460 174 31 1,413 - 4,910 2015 1.07 0.66 0.25 0.04 2.02 - 7.02 Amount % of total finance income Amount % of total finance income 0.12 52.16 0.29 52.57 2 895 5 902 2016 0.64 58.99 0.43 60.06 9 830 6 845 2015 Amount % of total finance costs Amount % of total finance costs 64 1,228 1,292 2016 2.28 43.72 46.00 76 1,061 1,137 2015 3.06 42.77 45.83 Amount % of total purchases Amount % of total purchases 1.29 0.39 0.13 1.81 0.68 0.29 0.25 0.23 0.09 1.54 0.07 3.42 394 72 - 466 131 86 62 73 45 397 12 875 1.49 0.27 - 1.76 0.50 0.33 0.23 0.28 0.17 1.51 0.05 3.32 374 114 39 527 198 84 73 66 25 446 20 993 94 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties (continued) Presented below are balances of accounts with related parties (continued): DISTRIBUTION OF SIM CARD AND VOUCHER Other related entities Kisel Gratika Tiphone Total a. Cash and cash equivalents (Note 3) b. Other current financial assets (Note 4) c. Trade receivables - net (Note 5) d. Advances and prepaid expenses (Note 7) e. Advances and other non - current assets (Note 10) f. Trade payables (Note 12) Entities under common control INTI Indosat LEN Adhi Karya State-owned enterprises Sub-total Other related entities Total g. Accrued expenses (Note 13) Majority stockholder Government Entities under common control State-owned enterprises State-owned banks Subtotal Other related entities Kisel Others Total h. Advances from customers and suppliers Majority stockholder Government Entities under common control PLN Total 2016 2015 Amount % of total revenues Amount % of total revenues 4,600 408 3,441 8,449 2016 3.95 0.35 2.96 7.26 3,866 384 - 4,250 2015 3.77 0.37 - 4.14 Amount % of total assets Amount % of total assets 17,477 9.73 15,028 1,204 894 93 310 2016 0.67 0.50 0.05 0.17 2,555 1,104 15 6 2015 9.04 1,54 0.66 0.01 0.00 Amount % of total liabilities Amount % of total liabilities 0.84 0.37 0.18 0.11 0.08 1.58 0.50 2.08 0.02 0.17 0.07 0.24 0.16 0.01 0.43 0.03 0.02 0.05 443 160 9 - 89 701 1,374 2,075 16 114 68 182 188 - 386 19 - 19 0.61 0.22 0.01 - 0.12 0.96 1.89 2.85 0.02 0.16 0.09 0.25 0.26 - 0.53 0.03 - 0.03 625 275 137 81 60 1,178 369 1,547 12 127 52 179 118 5 314 19 12 31 95 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) b. Transactions with related parties (continued) Presented below are balances of accounts with related parties (continued): 2016 % of total liabilities Amount 2015 % of total liabilities Amount i. Short-term bank loans (Note 15) j. Two-step loans (Note 16a) k. Long-term bank loans - net (Note 16c) l. Other borrowing (Note 16d) 143 1,292 6,325 697 0.19 1.74 8.54 0.94 25 1,520 7,427 - 0.03 2.09 10.21 - c. Significant agreements with related parties i. The Government The Company obtained two-step loans from the Government (Note 16a). ii. Indosat The Company has an agreement with Indosat to provide international telecommunications services to the public. The Company has also entered into an interconnection agreement between the Company’s fixed line network (Public Switched Telephone Network or “PSTN”) and Indosat’s GSM mobile cellular telecommunications network in connection with the implementation of Indosat Multimedia Mobile services and the settlement of related interconnection rights and obligations. The Company also has an agreement with Indosat for the interconnection of Indosat's GSM mobile cellular telecommunications network with the Company's PSTN, which enable each party’s customers to make domestic calls between Indosat’s GSM mobile network and the Company’s fixed line network, as well as allowing Indosat’s mobile customers to access the Company’s IDD service by dialing “007”. The Company has been handling customer billings and collections for Indosat. Indosat is gradually taking over the activities and performing its own direct billing and collection. The Company has received compensation from Indosat computed at 1% of the collections made by the Company starting from January 1, 1995, as well as the billing process expenses which are fixed at a certain amount per record. On December 11, 2008, the Company and Indosat agreed to implement IDD service charge tariff which already took into account the compensation for billing and collection. The agreement is valid and effective starting from January to December 2012, and can be applied until a new agreement becomes available. On December 28, 2006, the Company and Indosat signed amendments on the interconnection agreements for the fixed line networks (local, SLJJ and international) and mobile network for the implementation of the cost-based tariff obligations under the MoCI Regulations No. 8/Year 2006. These amendments took effect starting on January 1, 2007. Telkomsel also entered into an agreement with Indosat for the provision of international telecommunications services to its GSM mobile cellular customers. The Company provides leased lines to Indosat and subsidiaries, namely PT Indosat Mega Media and Lintasarta. The leased lines can be used by these companies for telephone, telegraph, data, telex, facsimile or other telecommunication services. 96 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTY TRANSACTIONS (continued) c. Significant agreements with related parties (continued) iii. Others The Company has entered into agreements with CSM and Gratika for the utilization of the Company's satellite transponders or frequency channels of communication satellite and leased lines. Kisel is a co-operative that was established by Telkomsel’s employees to engage in car rental services, printing and distribution of customer bills, collection and other services principally for the benefit of Telkomsel. Telkomsel also has dealership agreements with Kisel for distribution of SIM cards and pulse reload vouchers. d. Key management personnel remuneration Key management personnels consist of the Boards of Commissioners and Directors of the Company. The Company provides remuneration in the form of honorarium and facilities to support the operational duties of the Board of Commissioners and short-term employment benefits in the form of salaries and facilities to support the operational duties of the Board of Directors. The total of such benefits is as follows: 2016 2015 Amount % of total expenses Amount % of total expenses Board of Directors Board of Commissioners 427 121 0.57 0.16 168 64 0.24 0.09 32. OPERATING SEGMENT The Group has four main operating segments, namely corporate, home, personal and others. The corporate segment provides telecommunications services, including interconnection, leased lines, satellite, VSAT, contact center, broadband access, information technology services, data and internet services to companies and institutions. The home segment provides fixed wireline telecommunications services, pay TV, data and internet services to home customers. The personal segment provides mobile cellular and fixed wireless telecommunications services to individual customers. Operating segments that are not monitored separately by the Chief Operation Decision Maker are presented as "Others", which provides building management services. No operating segments have been aggregated to form the operating segments of personal, home and others, while corporate operating segment is aggregated from business, enterprise, wholesale and international operating segments since they have the similar economic characteristics and similar in other qualitative criteria such as providing similar network services and serving corporate customers. Management monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, the financing activities and income taxes are not separately evaluated and allocated to operating segment. 97 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 32. OPERATING SEGMENT Segment revenues and expenses include transactions between operating segments and are accounted at prices that management believes represent market prices. Corporate Home Personal Others Total before elimination Elimination Total consolidated 2016 Segment results Revenues External revenues Inter-segment revenues Total segment revenues Expenses External expenses Inter-segment expenses Total segment expenses Segment results Other information Capital expenditures Depreciation and amortization Provision recognized in current period Segment results Revenues External revenues Inter-segment revenues Total segment revenues Expenses External expenses Inter-segment expenses Total segment expenses Segment results Other information Capital expenditures Depreciation and amortization Provision recognized in current period 24,177 32,675 56,852 (26,014 ) (22,331 ) (48,345 ) 8,507 7,803 5,077 12,880 (10,201 ) (2,375 ) (12,576 ) 304 83,990 2,724 86,714 (38,800 ) (12,503 ) (51,303 ) 35,411 363 2,395 2,758 (2,123 ) (426 ) (2,549 ) 209 116,333 42,871 159,204 (77,138 ) (37,635 ) (114,773 ) 44,431 (11,419 ) (4,437 ) (12,565 ) (778 ) (29,199 ) (4,148 ) (1,711 ) (12,549 ) (124 ) (18,532 ) (87 ) (424 ) (222 ) (10 ) (743 ) - (42,871 ) (42,871 ) - 37,635 37,635 (5,236 ) - - - 116,333 - 116,333 (77,138 ) - (77,138 ) 39,195 (29,199 ) (18,532 ) (743 ) Corporate Home Personal Others Total before elimination Elimination Total consolidated 2015 21,072 14,347 35,419 (20,239 ) (8,066 ) (28,305 ) 7,114 7,319 4,352 11,671 (6,705 ) (4,706 ) (11,411 ) 260 73,766 2,365 76,131 (41,130 ) (10,173 ) (51,303 ) 24,828 313 1,943 2,256 (1,978 ) (62 ) (2,040 ) 216 102,470 23,007 125,477 (70,052 ) (23,007 ) (93,059 ) 32,418 (10,007 ) (4,172 ) (11,321 ) (901 ) (26,401 ) (2,708 ) (1,203 ) (14,531 ) (92 ) (18,534 ) (560 ) (297 ) (148 ) (5 ) (1,010 ) - (23,007 ) (23,007 ) - 23,007 23,007 - - - - 102,470 - 102,470 (70,052 ) - (70,052 ) 32,418 (26,401 ) (18,534 ) (1,010 ) Geographic information: External revenues Indonesia Foreign countries Total 2016 2015 114,093 2,240 116,333 100,456 2,014 102,470 The revenue information above is based on the location of the customers. Non-current operating assets Indonesia Foreign countries Total 2016 2015 115,216 2,371 117,587 105,361 1,395 106,756 Non-current operating assets for this purpose consist of property and equipment and intangible assets. 98 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 33. TELECOMMUNICATIONS SERVICE TARIFFS Under Law No. 36 Year 1999 and Government Regulation No. 52 Year 2000, tariffs for operating telecommunications network and/or services are determined by providers based on the tariff type, structure and with respect to the price cap formula set by the Government. a. Fixed line telephone tariffs The Government has issued a new adjustment tariff formula which is stipulated in the Decree No. 15/PER/M.KOMINFO/4/2008 dated April 30, 2008 of the MoCI concerning “Mechanism to Determine Tariff of Basic Telephony Services Connected through Fixed Line Network”. This Decree replaced the previous Decree No. 09/PER/M.KOMINFO/02/2006. Under the Decree, tariff structure for basic telephony services connected through fixed line network consists of the following:  Activation fee  Monthly subscription charges  Usage charges  Additional facilities fee. b. Mobile cellular telephone tariffs On April 7, 2008, the MoCI issued Decree No. 09/PER/M.KOMINFO/04/2008 regarding “Mechanism to Determine Tariff of Telecommunication Services Connected through Mobile Cellular Network” which provides guidelines to determine cellular tariffs with a formula consisting of network element cost and retail services activity cost. This Decree replaced the previous Decree No. 12/PER/M.KOMINFO/02/2006. Under MoCI Decree No. 09/PER/M.KOMINFO/04/2008 dated April 7, 2008, the cellular tariffs of operating telecommunication services connected through mobile cellular network consist of the following:  Basic telephony services tariff  Roaming tariff, and/or  Multimedia services tariff with the following traffic structure:  Activation fee  Monthly subscription charges  Usage charges  Additional facilities fee. c. Interconnection tariffs The Indonesian Telecommunication Regulatory Body (“ITRB”), in its letter No. 262/BRTI/XII/2011 dated December 12, 2011, decided to change the basis for SMS interconnection tariff to cost basis with a maximum tariff of Rp23 per SMS effective from June 1, 2012, for all telecommunication provider operators. Based on letter No.118/KOMINFO/DJPPI/PI.02.04/01/2014 dated January 30, 2014 of the Director General of Post and Informatics, the Director General of Post and Informatics decided to implement new interconnection tariff effective from February 1, 2014 until December 31, 2016, subject to evaluation on an annual basis. Pursuant to the Director General of Post and Informatics letter, the Company and Telkomsel are required to submit the Reference Interconnection Offer (“RIO”) proposal to ITRB to be evaluated. 99 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 33. TELECOMMUNICATIONS SERVICE TARIFFS (continued) c. Interconnection tariffs (continued) ITRB Subsequently, letters No. 60/BRTI/III/2014 dated March 10, 2014 and No. 125/BRTI/IV/2014 dated April 24, 2014 approved Telkomsel and the Company’s revision of RIO regarding the interconnection tariff. Based on the letter, ITRB also approved the changes to the SMS interconnection tariff to Rp24 per SMS. its in c. Network lease tariffs Through MoCI Decree No. 03/PER/M.KOMINFO/1/2007 dated January 26, 2007 concerning “Network Lease”, the Government regulated the form, type, tariff structure, and tariff formula for services of network lease. Pursuant to the MoCI Decree, the Director General of Post and Telecommunication issued its Letter No. 115 Year 2008 dated March 24, 2008 which stated “The Agreement on Network Lease Service Type Document, Network Lease Service Tariff, Available Capacity of Network Lease Service, Quality of Network Lease Service, and Provision Procedure of Network Lease Service in 2008 Owned by Dominant Network Lease Service Provider”, in conformity with the Company’s proposal. e. Tariff for other services The tariffs for satellite lease, telephony services, and other multimedia are determined by the service provider by taking into account the expenditures and market price. The Government only determines the tariff formula for basic telephony services. There is no stipulation for the tariff of other services. 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS a. Capital expenditures As of December 31, 2016, capital expenditures committed under the contractual arrangements, principally relating to procurement and installation of data, internet and information technology, cellular, transmission equipment and cable network are as follows: Currencies Rupiah U.S. dollar Euro Total Amounts in foreign currencies (in millions) Equivalent in Rupiah 341 0.16 7,210 4,600 2 11,812 100 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) The above balance includes the following significant agreements: Initial date of agreement Significant provisions of the agreement November 14, 2013 Procurement and installation agreement of WIFI CISCO (i) The Company Contracting parties The Company and PT Cisco Technologies Indonesia The Company and Thales Alenia Space France The Company and PT Huawei Tech Investment The Company, Telkom Malaysia Berhad, TII, Alcatel-Lucent Submarine Networks and NEC Corporation July 14, 2014 October 23, 2014 January 30, 2015 The Company and PT ZTE Indonesia August 28, 2015 The Company and PT Datacomm Diangraha November 20, 2015 The Company and PT Sarana Global Indonesia December 31, 2015 The Company and PT Industri Telekomunikasi Indonesia December 29, 2015 The Company and PT Len Industri (Persero) December 29, 2015 Procurement of Telkom-3 Substitution (T3S) Satellite System Procurement and installation of Access Point Indonesia WIFI Platform Huawei Procurement and installation of Southeast Asia - Middle East - Western Europe 5 Cable System (SEA - ME - WE 5) Procurement and installation agreement of MSAN modernization for acceleration of the disposal of copper wire - Platform ZTE Procurement and installation agreement for Metro Ethernet Platform ALU Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Sibolga-Nias, Batam- Tanjung Balai Karimun, Larantuka-Kabalahi-Atambua Renewal agreement of procurement and installation agreement for the modernization of copper cable network through optimalization of asset copper cable network through Trade In/Trade Off method Renewal agreement of procurement and installation agreement for the modernization of copper cable network through optimalization of asset copper cable network through Trade In/Trade Off method The Company and Space System/Loral, LLC February 29, 2016 Procurement of Telkom 4 Satellite System The Company and NEC Corporation May 12, 2016 Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Indonesia Global Gateway The Company and PT Mastersystem Infotama The Company and Space Exploration Technologies Corp October 24, 2016 Procurement Agreement of Ekspand IP Backbone 2016 November 3, 2016 Launch services agreement of Telkom 4 Satellite System The Company and PT Huawei Tech Investment November 25, 2016 Procurement and installation agreement for DWDM Platform Huawei The Company and PT ZTE Indonesia December 15, 2016 Procurement agreement for STB Platform ZTE The Company and PT ZTE Indonesia December 15, 2016 Procurement agreement for ONT Retail Platform ZTE The Company, PT Sigma Cipta Caraka, PT Graha Sarana Duta and PT Huawei Tech Investment The Company and PT Lancs Arche Consumma December 29, 2016 Agreement establishing IOC-N December 30, 2016 Procurement and installation agreement for reengeenering and expansion network DWDM capacity Platform Coriant 101 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) The above balance includes the following significant agreements: (ii) Telkomsel Contracting parties Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy and Nokia Siemens Network GmbH & Co. KG Telkomsel, PT Ericsson Indonesia and PT Nokia Siemens Networks Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy, Huawei International Pte. Ltd., PT Huawei and PT ZTE Indonesia Initial date of agreement Significant provisions of the agreement April 17, 2008 The combined 2G and 3G CS Core Network Rollout Agreements April 17, 2008 Technical Service Agreement (TSA) for combined 2G and 3G CS Core Network March and June 2009 2G BSS and 3G UTRAN Rollout agreement for the provision of 2G GSM BSS and 3G UMTS Radio Access Network Telkomsel, PT Dimension Data Indonesia and PT Huawei February 3, 2010 Maintenance and Procurement of Equipment and Related Service Agreement for Next Generation Convergence Core Transport Rollout and Technical Support Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions February 8, 2010 Online Charging System (“OCS”) and Service Control Points (“SCP”) System Solution Development agreement Telkomsel and PT Application Solutions February 8, 2010 Technical Support Agreement to provide technical support services for the OCS and SCP Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions July 5, 2011 Development and Rollout agreement for Customer Relationship Management and Contact Center Solutions Telkomsel and PT Huawei March 25, 2013 Technical Support Agreement for the procurement of Gateway GPRS Support Node (“GGSN”) Service Complex Telkomsel and Wipro Limited, Wipro Singapore Pte. Ltd. and PT WT Indonesia April 23, 2013 Development and procurement of OSDSS Solution agreement Telkomsel and PT Ericsson Indonesia October 22, 2013 Telkomsel and PT Dimension Data Indonesia May 25, 2016 Procurement of GGSN Service Complex Rollout agreement Maintenance and Procurement of Equipment and Related Service Agreement for Next Generation Convergence RAN Transport Rollout (iii) GSD Contracting parties Initial date of agreement TLT and PT Adhi Karya November 6, 2012 Significant provisions of the agreement Structure and main contractor architecture services agreement for construction of Telkom Landmark Tower building 102 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) b. Borrowings and other credit facilities (i) As of December 31, 2016, the Company has bank guarantee facilities for tender bond, performance bond, maintenance bond, deposit guarantee and advance payment bond for various projects of the Company, as follows: Lenders Total facility Maturity BRI BNI Bank Mandiri 350 March 14, 2018 250 March 31, 2017 300 December 23, 2017 Currency Rp US$ Rp US$ Rp US$ Total 900 Facility utilized Original currency (in millions) Rupiah equivalent - 0 - 0 - 0 31 1 137 1 76 1 247 (ii) Telkomsel has US$3 million bond and bank guarantee and standby letter of credit facilities with SCB, Jakarta. The facilities expire on July 31, 2017. Under these facilities, as of December 31, 2016, Telkomsel has issued a bank guarantee of Rp20 billion (equivalent to US$1.5 million) for a 3G performance bond (Note 34c.i). The bank guarantee is valid until March 24, 2016. As of the date of approval and authorization for the issuance of the consolidated financial statements, the bank guarantee is not extended. Telkomsel has a Rp500 billion bank guarantee facility with BRI. The facility will expire on September 25, 2017. Under this facility, as of December 31, 2016, Telkomsel has issued a bank guarantee of Rp443 billion (equivalent to US$33 million) as payment commitment guarantee for annual right of usage fee valid until March 31, 2017 and Rp20 billion (equivalent to US$1.5 million) for a 3G performance guarantee that valid until May 31, 2017. As of the date of approval and authorization for the extension of the facility is still in process. Telkomsel has a Rp150 billion bank guarantee facility with BCA. The facility will expire on April 15, 2017. Telkomsel has also a Rp100 billion bank guarantee facility with BNI. The facility will expire on December 11, 2017. Telkomsel uses this facility to replace the time deposit required as guaranty for the USO program amounting to Rp52 billion (Note 34c.iv). (iii) TII has a US$15 million bank guarantee from Bank Mandiri. The facility will expire on December 18, 2017. The outstanding bank guarantee facility as of December 31, 2016 amounting to US$10 million. c. Others (i) 3G license to reference Letters No. the Decision With 07/PER/M.KOMINFO/2/2006, No. 268/KEP/M.KOMINFO/9/2009 and No. 191 year 2013 of the MoCI (Note 2i), Telkomsel is required, among other things, to: 1. Pay an annual BHP fee which is calculated based on a certain formula over the license term (10 years) as set forth in the Decision Letters. The BHP is payable upon receipt of the notification letter (“Surat Pemberitahuan Pembayaran”) from the DGPI. The BHP fee is payable annually up to the expiry date of the license. 2. Provide roaming access for the existing other 3G operators. 3. Contribute to USO development. 103 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (i) 3G license (continued) reference With 07/PER/M.KOMINFO/2/2006, No. 268/KEP/M.KOMINFO/9/2009 and No. 191 year 2013 of the MoCI (Note 2i), Telkomsel is required, among other things, to (continued): the Decision Letters No. to 4. Construct a 3G network which covers at least 14 provinces by the sixth year of holding the 5. 3G license. Issue a performance bond each year amounting to Rp20 billion or 5% of the annual fee to be paid for the subsequent year, whichever is higher. (ii) Radio Frequency Usage Based on the Decree No. 76 dated December 15, 2010 of the Government of the Republic of Indonesia, which amended Decree No. 7 dated January 16, 2009, the annual frequency usage fees for bandwidths of 800 Megahertz (“MHz”), 900 MHz and 1800 MHz are determined using a formula set forth in the Decree. The Decree is applicable for 5 years unless further amended. As an implementation of the above Decree, the Company and Telkomsel paid the first to fifth year annual frequency usage fees in 2010 to 2014. Based on Decision letter No. 983 issued in 2015, the MoCI determined that the sixth year (Y6), 2015 annual frequency usage fee of Telkomsel was Rp 2,398 billion. The fee was paid in December 2015. On July 6, 2015, Telkomsel received Decision Letter No. 644 Year 2015 dated June 30, 2015, of the MoCI, which replaced Decision Letter No.42 Year 2014 dated January 29, 2014, whereby the MoCI granted Telkomsel the rights to provide: (i) Mobile telecommunication services with radio frequency bandwidth in the 800 MHz, 900 MHz and 1800 MHz bands; (ii) Mobile telecommunication services IMT-2000 with radio frequency bandwidth in the 2.1 GHz bands (3G); and (iii) Basic telecommunication services. Conditional Business Transfer Agreement (“CBTA”) In order to maximize business opportunities within the group synergy, the Company restructured its fixed wireless business unit by transferring its fixed wireless business and subscribers to Telkomsel. On June 27, 2014, the Company signed a CBTA with Telkomsel to transfer such business and subscribers to Telkomsel (Notes 4, 9b, 31). Based on Decision Letter No. 934 dated September 26, 2014, the MoCI approved the transfer of the Company’s frequency usage license on radio frequency spectrum of 800 MHz, specifically on spectrum of 880-887.5 MHz paired with 925-932.5 MHz, to Telkomsel. Telkomsel can use the radio frequency spectrum since the Decision Letter was issued. During the transition period, the Company is still able to use the radio frequency spectrum of 880 - 887.5 MHz paired with 925 - 932.5 MHz at the latest until December 14, 2014. 104 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (ii) Radio Frequency Usage (continued) Conditional Business Transfer Agreement (“CBTA”) (continued) Based on MoCI Decision letter No. 807/KOMINFO/OJ-SOPI.4/SP.03.03/10/2016 dated October 13, 2016 stated that frequency migration process of frequency spectrum of 800 MHz has finished and Telkomsel has been able to use frequencies (880 - 887.5) MHz paired with (925 - 932.5) MHz nationwide. Regarding the case, the Company and Telkomsel agreed that all conditions as mentioned in CBTA have been met on September 30, 2016 and on October 21, 2016, the CBTA in 2016 has been completed. (iii) Future minimum lease payments under operating lease The Group entered into non-cancelable lease agreements with both third and related parties. The lease agreements cover leased lines, telecommunication equipment and land and building with terms ranging from 1 to 10 years and with expiry dates between 2017 and 2026. Periods may be extended based on the agreement by both parties. Future minimum lease payments and receivables under the operating lease agreements as of December 31, 2016 are as follows: As lessee As lessor Total 29,617 2,443 Less than 1 year 1-5 years More than 5 years 3,814 774 14,479 1,400 11,324 269 In connection with the restructuring of its fixed wireless business (Note 34c.ii), the Company is undertaking a negotiation to early terminate its operating lease agreements, and has recorded provisions for early termination amounting to Rp202 billion and Rp666 billion which are presented as “Other Expense” in 2015 and 2016, respectively. As of December 31, 2016, outstanding payable balance of operating lease agreements due to early termination amounting to Rp300 billion. The future minimum lease payments above include those related to lease agreements with telecommunication tower providers which were used for the fixed wireless business unit. (iv) USO forth the USO program and the basic policies underlying The MoCI issued Regulation No. 15/PER/M.KOMINFO/9/2005 dated September 30, 2005, which sets requires telecommunications operators in Indonesia to contribute 0.75% of their gross revenues (with due consideration for bad debts and interconnection charges) for USO development. Based on the Government’s Decree No. 7 year 2009 dated January 16, 2009 and Decree No. 05/PER/M.KOMINFO/2/2007 dated February 28, 2007, the contribution was changed to 1.25% of gross revenues (with due consideration for bad debts and/or interconnection in December 2012, Decree charges and/or connection charges). Subsequently, No. 05/PER/M.KOMINFO/2/2007 was replaced by Decree No. 45 year 2012 of the MoCi which was effective from January 22, 2013. The latest Decree stipulates, among other things, the exclusion of certain revenues that are not considered as part of gross revenues as a basis to calculate the USO charged, and changed the payment period which was previously on a quarterly basis to become quarterly or semi-annually. 105 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (iv) USO (continued) Based on MoCI Decree No. 32/PER/M.KOMINFO/10/2008 dated October 10, 2008 (as amended by Decree No. 03/PER/M.KOMINFO/2/2010 dated February 1, 2010) which replaced MoCI Decree No. 11/PER/M.KOMINFO/04/2007 dated April 13, 2007 and MoCI Decree No. 38/PER/M.KOMINFO/9/2007 dated September 20, 2007, it is stipulated that, among others, in providing telecommunication access and services in rural areas (USO Program), the provider is determined through a selection process by Balai Telekomunikasi dan Informatika Pedesaan (“BTIP”) which was established based on MoCI Decree No. 35/PER/M.KOMINFO/11/2006 dated November 30, 2006. Subsequently, based on Decree No. 18/PER/M.KOMINFO/11/2010 dated November 19, 2010 of MoCI, BTIP was changed to Balai Penyedia dan Pengelola Pembiayaan Telekomunikasi dan Informatika (“BPPPTI”). a. The Company On March 12, 2010, the Company was selected in a tender by the Government through BTIP to provide internet access service centers for USO sub-districts for a total amount of Rp322 billion, covering Nanggroe Aceh Darussalam, North Sumatera, North Sulawesi, Gorontalo, Central Sulawesi, West Sulawesi, South Sulawesi and South East Sulawesi. On December 23, 2010, the Company was selected in a tender by the Government through BTIP to provide mobile internet access service centers for USO sub-districts for a total amount of Rp528 billion, covering Jambi, Riau, Kepulauan Riau, North Sulawesi, Central Sulawesi, Gorontalo, West Sulawesi, South East Sulawesi, Central Kalimantan, South Sulawesi, Papua and West Irian Jaya. In 2015, the program was ceased. On September 8, 2015, the Company filed an arbitration claim to the Indonesia National Board of Arbitration (“BANI”) for the settlement of the outstanding receivables of USO-PLIK and USO-MPLIK. On 22 September 2016, BANI decided that BPPPTI should pay the underpayment to the Company for USO-PLIK and USO-MPLIK project amounting to Rp127 billion and Rp342 billion, respectively. As of the date of the issuance of these consolidated financial statements, the Company has received payment from BPPPTI amounting to Rp278 billion. b. Telkomsel On January 16 and 23, 2009, Telkomsel was selected in a tender by the Government through BTIP to provide and operate telecommunication access and services in rural areas (USO Program) for a total amount of Rp1.66 trillion, covering all Indonesian territories except Sulawesi, Maluku and Papua. Accordingly, Telkomsel obtained local fixed-line licenses and the right to use radio frequency in the 2,390 MHz - 2,400 MHz bandwith. Subsequently, in 2010 and 2011, the agreements with BTIP were amended, which amendments cover, among other things, changing the price to Rp1.76 trillion and changing the term of payment from quarterly to monthly or quarterly. In January 2010, the MoCI granted Telkomsel operating licenses to provide local fixed-line services under the USO program. On December 27, 2011, Telkomsel (on behalf of Konsorsium Telkomsel, a consortium which was established with Dayamitra on December 9, 2011) was selected by BPPPTI as a provider of the USO Program in the border areas for all packages (package 1 - 13) with a total price of Rp830 billion. On such date, Telkomsel was also selected by BPPPTI as a provider of the USO Program (Upgrading) of “Desa Pinter” or “Desa Punya Internet” for 1, 2 and 3 packages with a total price of Rp261 billion. 106 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (iv) USO (continued) b. Telkomsel (continued) On March 31, 2014, the USO program for packages 1, 2, 3, 6 and 7 were ceased. As of September 18, 2014, Telkomsel filed an arbitration claim to BANI for the settlement of the outstanding receivable from BPPPTI. On October 23, 2015, BANI decided that Telkomsel should pay the overpayment by BPPPTI for the USO program amounting to Rp94.2 billion. Telkomsel accepted the decision and paid the overpayment in December 2015. On October 29, 2015, BPPPTI informed that operational license for USO program of “Desa Pinter” could not be issued. On January 2016, Telkomsel filed an arbitration claim to BANI for terminating the USO program. As of December 31, 2016 and 2015, the Company’s and Telkomsel’s net carrying amount of trade receivables for the USO programs which are measured at amortized cost using the effective interest method amounted to Rp178 billion and Rp179 billion, respectively (Note 5). 35. CONTINGENCIES In the ordinary course of business, the Group has been named as defendants in various legal actions in relation with land disputes, monopolistic practice and unfair business competition and SMS cartel practices. Based on management's estimate of the probable outcomes of these matters, the Group has recognized provision for losses amounting to Rp43 billion as of December 31, 2016. a. The Company, Telkomsel and seven other local operators are being investigated by The Commission for the Supervision of Business Competition (Komisi Pengawasan Persaingan Usaha or “KPPU”) for allegations of SMS cartel practices. On June 17, 2008, in case No. 26/KPPU-L/2007, the Company, Telkomsel and seven other local operators was investigated. As a result of the investigations, KPPU stated that the Company, Telkomsel and five other local operators had violated Law No. 5 year 1999 article 5 and charged the Company and Telkomsel in the amounts of Rp18 billion and Rp25 billion, respectively. Management believes that there are no such cartel practices that led to a breach of prevailing regulations. Accordingly, the Company and Telkomsel filed an appeal with the Bandung District Court and South Jakarta District Court on July 14, 2008 and July 11, 2008, respectively. Seven other local operators also filed an appeal in various court. Regarding the case, the KPPU requested the Supreme Court (SC) to consolidate the cases into the Central Jakarta District Court. Based on the SC’s decision letter dated April 12, 2011, the SC appointed the Central Jakarta District Court to investigate and resolve the case. On May 27, 2015, Central Jakarta District Court in case No. 03/KPPU/208/PN.JKT.PST decided that the Company, Telkomsel and seven other local operators upon the case. On July 23, 2015, KPPU filed an appeal to the SC regarding the case of SMS cartel practices. On February 29, 2016, the SC in case No. 9 K/Pdt.Sus-KPPU/2016 decided on the case in favor of KPPU, therefore that the Company and Telkomsel have to pay penalty charged by KPPU amounting to Rp18 billion and Rp25 billion. As of the date of approval and authorization for the issuance of the consolidated financial statements, the Company and Telkomsel have paid the penalty to the treasury fund. b. The Company is a defendant in a case filed in Makassar District Court by Andi Jindar Pakki and his affiliates over a land property at Jl. A.P. Pettarani. On May 8, 2013, the court pronounced its verdict that the Company to pay fair compensation or to vacate and surrender the disputed land to the plaintiffs. 107 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 35. CONTINGENCIES (continued) b. On May 20, 2013, the Company filed an appeal to the Makassar High Court, objecting to the District Court’s rulling. In December 2013, the Makassar High Court pronounced its verdict that was favorable to the plaintiffs and the Company filed an appeal to the SC. On January 9, 2015, the Company received the SC Notice No. 226/Pdt.G/2012/PN.Mks, regarding the case which rejected the Company’s appeal. On February 5, 2015, the Company requested for a judicial review of the case by the SC. On December 16, 2015, through its letter No. 336 PK/Pdt/2015, the SC decided on the case in favor of the Company. 36. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are as follows: U.S. dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) 2016 Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Advances and other non-current assets Total assets Liabilities Trade payables Related parties Third parties Other payables Accrued expenses Advances from customers and suppliers Current maturities of long-term liabilities Promissory notes Long-term liabilities - net of current maturities Total liabilities Assets (liabilities) - net 204.34 8.81 0 106.70 0.44 4.09 324.38 (0.18 ) (163.09 ) (5.40 ) (27.99 ) (0.48 ) (10.88 ) (0.10 ) (64.14 ) (272.26 ) 52.12 5.99 - - - - - 5.99 - (4.83 ) - (20.96 ) - (767.90 ) - (5,375.28 ) (6,168.97 ) (6,162.98 ) 20.94 0.35 0 3.88 0.10 - 25.27 (0.01 ) (6.21 ) (1.18 ) (0.18 ) - - - - (7.58 ) 17.69 3,032 122 0 1,488 7 56 4,705 (2 ) (2,246 ) (88 ) (381 ) (7 ) (235 ) (1 ) (1,482 ) (4,442 ) 263 108 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 36. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES (continued) Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Advances and other non-current assets Total assets Liabilities Trade payables Related parties Third parties Other payables Accrued expenses Advances from customers and suppliers Current maturities of long-term liabilities Promissory notes Long-term liabilities - net of current maturities Total liabilities Assets (liabilities) - net U.S. dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) 2015 494.19 30.37 1.69 104.19 0.40 3.88 634.72 (0.42 ) (202.04 ) (22.26 ) (34.45 ) (0.48 ) (12.04 ) (1.99 ) (187.48 ) (461.16 ) 173.56 11.37 - - - - - 11.37 - (10.73) - (25.45) - (767.90) - (6,143.18 ) (6,947.26 ) (6,935.89 ) 10.34 1.02 - 1.18 0.10 - 12.64 - (2.39 ) (1.65 ) (0.18 ) - - - - (4.22 ) 8.42 6,957 433 23 1,453 7 54 8,927 (6 ) (2,819 ) (330 ) (481 ) (7 ) (254 ) (28 ) (3,290 ) (7,215 ) 1,712 * Assets and liabilities denominated in other foreign currencies are presented as U.S. dollar equivalents using the buy and sell rates quoted by Reuters prevailing at the end of the reporting period. The Group’s activities expose them to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates, and interest rates. If the Group reports monetary assets and liabilities in foreign currencies as of December 31, 2016 using the exchange rates on March 2, 2017, the unrealized foreign exchange loss amounted to Rp22 billion. 37. FINANCIAL RISK MANAGEMENT 1. Fair value of financial assets and financial liabilities a. Classification i. Financial asset Fair value of financial asset through profit or loss Derivative asset – put option Loans and receivables Cash and cash equivalents Trade receivables and other receivables, net Other current financial assets Other non-current assets Available-for-sale financial assets Available-for-sale investment Total financial asset 2016 2015 - 172 29,767 7,900 313 210 1,158 39,348 28,117 7,872 2,486 379 160 39,186 109 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 1. Fair value of financial assets and financial liabilities (continued) a. Classification (continued) ii. Financial liabilites Financial liabilities measured at amortized cost Trade payables and other payables Accrued expenses Loans and other borrowings Short-term bank loans Two-step loans Bonds and notes Long-term bank loans Obligation under finance lease Other borrowings Total financial liabilities 2016 2015 13,690 11,283 911 1,292 9,323 15,566 4,010 697 56,772 14,284 8,247 602 1,520 9,548 18,362 4,580 - 57,143 b. Fair Value 2016 Financial assets measured at fair value Available-for-sale investment Total Financial liabilities for which fair value are disclosed Interest-bearing loans and other borrowings Two-step loans Bonds and notes Long-term bank loans Obligation under finance lease Other borrowings Total Fair value measurement at reporting date using Quoted prices in active markets for identical assets or liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Carrying value Fair Value 1,158 1,158 1,158 1,158 1,058 1,058 100 100 - - 1,292 9,323 15,566 4,010 697 30,888 1,312 9,684 15,404 4,010 689 31,099 - 9,342 - - - 9,342 - - - - - - 1,312 342 15,404 4,010 689 21,757 110 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 1. Fair value of financial assets and financial liabilities (continued) b. Fair Value (continued) 2015 Financial assets measured at fair value Available-for-sale investment Fair value through profit or loss Total Financial liabilities for which fair value are disclosed Interest-bearing loans and other borrowings Two-step loans Bonds and notes Long-term bank loans Obligation under finance lease Total Fair value measurement at reporting date using Quoted prices in active markets for identical assets or liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Carrying value Fair Value 160 172 332 160 172 332 55 - 55 105 - 105 - 172 172 1,520 9,548 18,362 4,580 34,010 1,538 9,541 18,314 4,580 33,973 - 8,972 - - 8,972 - - - - - 1,538 569 18,314 4,580 25,001 Available-for-sale financial assets primarily consist of mutual funds, and Corporate and Government bonds. Mutual funds actively traded in an established market are stated at Fair Value using quoted market price and classified within level 1. Corporate and Government bonds are stated at fair value by reference to prices of similar securities at the reporting date. Valuation of put option needs significant judgement from management because there is no market price quotation and lack of comparable instruments available in the market. As they are not actively traded in an established market, these securities are classified as level 2. Financial asset at fair value through profit or loss represents the Put Option on the 20% remaining ownership in Indonusa which was received as part of the divestment considerations. The valuation of put option requires significant management judgement due to the absence of quoted market prices and the lack of comparable instruments in the market. As the put option is subject to restrictions on redemption (such as transfer restrictions and initial lock-up periods) and observable activity for the investment is limited, this investment is therefore classified within level 3 of the fair value hierarchy. Reconciliations of the beginning and ending balances for items measured at fair value using significant unobservable inputs (level 3) as of December 31, 2016 and 2015 are as follows: Beginning balance Unrealized loss - recognized in the consolidated statements of profit or loss and other comprehensive income Ending balance 2016 2015 172 290 (172 ) - (118 ) 172 111 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 1. Fair value of financial assets and financial liabilities (continued) c. Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled between parties in an arm's length transaction. The Group determined the fair value measurement for disclosure purposes of each class of financial assets and financial liabilities based on the following methods and assumptions: (i) The fair values of short-term financial assets and financial liabilities with maturities of one year or less (cash and cash equivalents, trade and other receivables, other current financial assets, trade and other payables, accrued expenses, and short-term bank loans) and other non-current assets are considered to approximate their carrying amounts as the impact of discounting is not significant. (ii) The fair values of long-term financial asssets and financial liabilities (other non-current assets (long-term receivables and restricted cash) and liabilities) approximate their carrying amounts as they were measured based on the discounted future contractual cash flows. (iii) Available-for-sale financial assets primarily consist of mutual funds, Corporate and Government bonds. Mutual funds actively traded in an established market are stated at fair value using quoted market price or, if unquoted, determined using a valuation technique. Corporate and Government bonds are stated at fair value by reference to prices of similar securities at the reporting date. (iv) The fair values of long-term financial liabilities are estimated by discounting the future contractual cash flows of each liability at rates offered to the Group for similar liabilities of comparable maturities by the bankers of the Group, except for bonds which are based on market prices. The fair value estimates are inherently judgmental and involve various limitations, including: a. Fair values presented do not take into consideration the effect of future currency fluctuations. b. Estimated fair values are not necessarily indicative of the amounts that the Group would record upon disposal/termination of the financial assets and liabilities. 2. Financial risk management The Group’s activities expose it to a variety of financial risks such as market risks (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. Overall, the Group’s financial risk management program is intended to minimize losses on the financial assets and financial liabilities arising from fluctuation of foreign currency exchange rates and the fluctuation of interest rates. Management has a written policy for foreign currency risk management mainly on time deposit placements and hedging to cover foreign currency risk exposures for periods ranging from 3 up to 12 months. Financial risk management is carried out by the Corporate Finance unit under policies approved by the Board of Directors. The Corporate Finance unit identifies, evaluates and hedges financial risks. a. Foreign exchange risk The Group is exposed to foreign exchange risk on sales, purchases and borrowings that are denominated in foreign currencies. The foreign currency denominated transactions are primarily in U.S. dollars and Japanese yen. The Group’s exposures to other foreign exchange rates are not material. 112 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) a. Foreign exchange risk (continued) Increasing risks of foreign currency exchange rates on the obligations of the Group are expected to be offset by the effects of the exchange rates on time deposits and receivables in foreign currencies that are equal to at least 25% of the outstanding current foreign currency liabilities. The following table presents the Group’s financial assets and financial liabilities exposure to foreign currency risk: 2016 2015 U.S. dollar (in billions) Japanese yen (in billions) U.S. dollar (in billions) Japanese yen (in billions) 0.32 (0.27 ) 0.05 0.01 (6.17 ) (6.16 ) 0.63 (0.46 ) 0.17 0.01 (6.95 ) (6.94 ) Financial assets Financial liabilities Net exposure Sensitivity analysis A strengthening of the U.S. dollar and Japanese yen, as indicated below, against the Rupiah at December 31, 2016 would have decreased equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the reporting date. The analysis assumes that all other variables in particular interest rates, remain constant. December 31, 2016 U.S. dollar (1% strengthening) Japanese yen (5% strengthening) Equity/profit (loss) 7 (35 ) A weakening of the U.S.dollar and Japanese yen against the rupiah at December 31, 2016 would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. b. Market price risk The Group is exposed to changes in debt and equity market prices related to available-for-sale investments carried at fair value. Gains and losses arising from changes in the fair value of available-for-sale investments are recognized in equity. The performance of the Group’s available-for-sale investments is monitored periodically, together with a regular assessment of their relevance to the Group’s long-term strategic plans. As of December 31, 2016, management considered the price risk for the Group’s available-for- sale investments to be immaterial in terms of the possible impact on profit or loss and total equity from a reasonably possible change in fair value. c. Interest rate risk Interest rate fluctuation is monitored to minimize any negative impact to financial performance. Borrowings at variable interest rates expose the Group to interest rate risk (Notes 15 and 16). To measure market risk pertaining to fluctuations in interest rates, the Group primarily uses interest margin and maturity profile of the financial assets and liabilities based on changing schedule of the interest rate. 113 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) c. Interest rate risk (continued) At reporting date, the interest rate profile of the Group’s interest-bearing borrowings was as follows: Fixed rate borrowings Variable rate borrowings Sensitivity analysis for variable rate borrowings 2016 2015 (16,383 ) (15,416 ) (16,687 ) (17,925 ) As of December 31, 2016, a decrease (increase) by 25 basis points in interest rates of variable rate borrowings would have loss by Rp38.5 billion, respectively. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. increased (decreased) equity and profit or d. Credit risk The following table presents the maximum exposure to credit risk of the Group’s financial assets: Cash and cash equivalents Other current financial assets Trade and other receivables, net Other non-current assets Total 2016 2015 29,767 1,471 7,900 210 39,348 28,117 2,818 7,872 379 39,186 The Group is exposed to credit risk primarily from trade and other receivables. The credit risk is managed by continuous monitoring of outstanding balances and collection. Credit risk from balances with banks and financial institutions is managed by the Group’s Corporate Finance department in accordance with the Group’s written policy. The Group placed the majority of its cash and cash equivalents in state-owned banks because they have the most extensive branch networks in Indonesia and are considered to be financially sound banks, as they are owned by the State. Therefore, it is intended to minimize financial loss through banks and financial institutions’ potential failure to make payments. Trade and other receivables do not have any major concentration of risk whereas no customer receivable balances exceed 6% of trade receivables as of December 31, 2016. Management is confident in its ability to continue to control and sustain minimal exposure to credit risk given that the Group has recognized sufficient provision for impairment of receivables to cover incurred loss arising from uncollectible receivables based on existing historical data on credit losses. 114 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 37. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) e. Liquidity risk Liquidity risk arises in situations where the Group has difficulties in fulfilling financial liabilities when they become due. Prudent liquidity risk management implies maintaining sufficient cash in order to meet the Group’s financial obligations. The Group continuously performs an analysis to monitor financial position ratios, such as liquidity ratios and debt-to-equity ratios, against debt covenant requirements. The following is the maturity profile of the Group’s financial liabilities: December 31, 2016 Trade and other payables Accrued expenses Interest bearing loans and other borrowings Bank loans Bonds and notes Obligations under finance leases Two-step loans Other borrowings Carrying amount Contractual cash flows 2017 2018 2019 2020 2021 and thereafter 13,690 11,283 (13,690 ) (11,283 ) (13,690 ) (11,283 ) - - - - - - - - 16,477 9,323 (20,421 ) (19,670 ) (5,875 ) (969 ) (5,635 ) (967 ) (2,883 ) (1,187 ) (2,565 ) (3,000 ) (3,463 ) (13,547 ) 4,010 1,292 697 (5,160 ) (1,487 ) (1,007 ) (987 ) (279 ) (60 ) (892 ) (244 ) (118 ) (816 ) (216 ) (164 ) (771 ) (209 ) (153 ) (1,694 ) (539 ) (512 ) Total 56,772 (72,218 ) (33,143 ) (7,856 ) (5,266 ) (6,698 ) (19,755 ) December 31, 2015 Trade and other payables Accrued expenses Interest bearing loans and other borrowings Bank loans Bonds and notes Obligations under finance leases Two-step loans Total Carrying amount Contractual cash flows 2016 2017 2018 2019 2020 and thereafter 14,284 8,247 (14,284 ) (8,247 ) (14,284 ) (8,247 ) - - - - - - - - 18,964 9,548 (23,760 ) (20,919 ) (5,182 ) (1,032 ) 4,580 1,520 57,143 (6,069 ) (1,791 ) (75,070 ) (1,027 ) (293 ) (30,065 ) (4,339 ) (1,012 ) (991 ) (282 ) (6,624 ) (8,780 ) (1,008 ) (2,037 ) (1.226 ) (3,422 ) (16,641 ) (888 ) (247 ) (10,923 ) (800 ) (219 ) (4,282 ) (2,363 ) (750 ) (23,176 ) The difference between the carrying amount and the contractual cash flows is interest value. The interest value of variable-rate borrowings are determined based on the interest rates effective as of reporting date. 115 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 38. CAPITAL MANAGEMENT The capital structure of the Group is as follows: Short-term debts Long-term debts Total debts Equity attributable to owners of the parent company Total 2016 2015 Amount Portion Amount Portion 911 30,888 31,799 84,384 116,183 0.78% 26.59% 27.37% 72.63% 100% 602 34,010 34,612 75,136 109,748 0.55% 30.99% 31.54% 68.46% 100.00% The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and benefits to other stakeholders and to maintain an optimum capital structure to minimize the cost of capital. Periodically, the Group conducts debt valuation to assess possibilities of refinancing existing debts with new ones, which have more efficient cost that will lead to more optimized cost-of-debt. In case of idle cash with limited investment opportunities, the Group will consider buying back its shares of stock or paying dividend to its stockholders. In addition to complying with loan covenants, the Group also maintains its capital structure at the level it believes will not risk its credit rating and which is comparable with its competitors. Debt-to-equity ratio (comparing net interest-bearing debt to total equity) is a ratio, which is monitored by management to evaluate the Group’s capital structure and review the effectiveness of the Group’s debts. The Group monitors its debt levels to ensure the debt-to-equity ratio complies with or is below the ratio set out in its contractual borrowings arrangements and that such ratio is comparable or better than that of regional area entities in the telecommunications industry. The Group’s debt-to-equity ratio as of December 31, 2016 and 2015 is as follows: Total interest-bearing debts Less: cash and cash equivalents Net debts Total equity attributable to owners of the parent company Net debt-to-equity ratio 2016 2015 31,799 (29,767 ) 2,032 84,384 2.41% 34,612 (28,117 ) 6,495 75,136 8.64% As stated in Notes 16, the Group is required to maintain a certain debt-to-equity ratio and debt service coverage ratio by the lenders. For the year ended December 31, 2016 and 2015, the Group has complied with the externally imposed capital requirements. 116 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 39. SUPPLEMENTAL CASH FLOWS INFORMATION The non-cash investing activities for the years ended December 31, 2016 and 2015 are as follows: Acquisition of property and equipment credited to: Trade payables Non-monetary exchange Obligations under finance leases Interest capitalization Acquisition of intangible assets credited to: Trade payables 40. SUBSEQUENT EVENTS 2016 2015 6,199 636 368 188 4,979 - 452 - 41 179 a. On January 23, 2017, Telkom Akses received VAT restitution related to the overpayment assessment letter for period May - December 2014 amounting to Rp169.4 billion. b. On February 15, 2017, the Company successfully launched its ninth satellite, Telkom 3S, in Kourou, French Guiana with an investment of US$215 million or equivalent to Rp2,896 billion, that includes the cost of manufacturing satellite, launching services and insurance. 41. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) The following tables set forth a reconciliation of the consolidated statement of financial position as of December 31, 2016 and consolidated statements of profit or loss and other comprehensive income for the year ended December 31, 2016, in each case between PSAK and IFRS. PSAK RECONCILIATION IFRS ASSETS CURRENT ASSETS Cash and cash equivalents Other current financial assets Trade receivables - net of provision for impairment of receivables Related parties Third parties Other receivables - net of provision for impairment of receivables Inventories - net of provision for obsolescence Advances and prepaid expenses Claim for tax refund Prepaid taxes Assets held for sale Total Current Assets NON-CURRENT ASSETS Long-term investments Property and equipment - net of accumulated depreciation Prepaid pension benefit cost Advances and other non-current assets Intangible assets - net of accumulated amortization Deferred tax assets - net Total Non-current Assets TOTAL ASSETS 117 29,767 1,471 894 6,469 537 584 5,246 592 2,138 3 47,701 1,847 114,498 199 11,508 3,089 769 131,910 179,611 - - 29,767 1,471 594 (594 ) - - - - - - - 1,488 5,875 537 584 5,246 592 2,138 3 47,701 - (268 ) - - - - 1,847 114,230 199 11,508 3,089 769 (268 ) 131,642 (268 ) 179,343 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 41. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued) PSAK RECONCILIATION IFRS LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables Related parties Third parties Other payables Taxes payable Accrued expenses Unearned income Advances from customers and suppliers Short-term bank loans Current maturities of long-term borrowings Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities - net Unearned income Other liabilities Long service award provisions Pension benefits and other post-employment benefits Long-term borrowings - net of current maturities Total Non-current Liabilities TOTAL LIABILITIES EQUITY Capital stock Additional paid-in capital Treasury stock Other equity Retained earnings Net equity attributable to owners of the Parent Company Non-controlling Interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 1,547 11,971 172 2,954 11,283 5,563 840 911 4,521 39,762 745 425 29 613 6,126 26,367 34,305 74,067 5,040 4,931 (2,541 ) 339 76,615 84,384 21,160 105,544 179,611 1,295 (1,295 ) - - - - - - - - - - - - - - - - - (478 ) - (161 ) 418 (221 ) (47 ) 2,842 10,676 172 2,954 11,283 5,563 840 911 4,521 39,762 745 425 29 613 6,126 26,367 34,305 74,067 5,040 4,453 (2,541 ) 178 77,033 84,163 21,113 (268 ) 105,276 (268 ) 179,343 118 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 41. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued) PSAK RECONCILIATION IFRS REVENUES Operation, maintenance and telecommunication service expenses Depreciation and amortization expenses Personnel expenses Interconnection expenses General and administrative expenses Marketing expenses Loss on foreign exchange - net Other income Other expenses OPERATING PROFIT Finance income Finance costs Share of profit of associated companies PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Other comprehensive income to be reclassified to profit or loss in subsequent periods: Foreign currency translation Change in fair value of available-for-sale financial assets Share of loss of associated companies Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Defined benefit plan actuarial (loss) gain - net of tax Other comprehensive income - net TOTAL COMPREHENSIVE INCOME FOR THE YEAR Profit for the year attributable to: Owners of the parent company Non-controlling interests Total comprehensive income for the year attributable to: Owners of the parent company Non-controlling interests BASIC AND DILUTED EARNINGS PER SHARE (in full amount) Net income per share Net income per ADS (100 Series B shares 116,333 (31,263 ) (18,532 ) (13,612 ) (3,218 ) (4,610 ) (4,132 ) (52 ) 750 (2,469 ) 39,195 1,716 (2,809 ) 87 38,189 (9,017 ) 29,172 (40 ) 0 (1 ) (2,058 ) (2,099 ) 27,073 19,352 9,820 29,172 17,331 9,742 27,073 - - (24 ) - - - - - 1 - (23 ) - - - (23 ) - (23 ) - - - - - (23 ) (19 ) (4 ) (23 ) (19 ) (4 ) (23 ) 116,333 (31,263 ) (18,556 ) (13,612 ) (3,218 ) (4,610 ) (4,132 ) (52 ) 751 (2,469 ) 39,172 1,716 (2,809 ) 87 38,166 (9,017 ) 29,149 (40 ) 0 (1 ) (2,058 ) (2,099 ) 27,050 19,333 9,816 29,149 17,312 9,738 27,050 196.19 (0.20 ) 195.99 per ADS) 19,619.11 (19.26 ) 19,599.85 119 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 41. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued) a. Land rights Under PSAK, land rights are recorded as part of property and equipment and are not amortized, unless there is indication that the extension or renewal of land rights is not expected to be or will not be received. Costs incurred to process the extension or renewal of land legal rights are recognized as intangible assets and amortized over the shorter of the term of the land rights or the economic life of the land. Under IFRS, land rights are accounted for as finance lease and presented as part of property and equipment. Land rights are amortized over the lease term. b. Related party transactions Under Bapepam-LK Regulation No. VIII.G.7 regarding the Presentation and Disclosures of Financial Statements of Issuers or Public Companies, a government-related entity is an entity that is controlled, jointly controlled or significantly influenced by a government. Government in this context is the Ministry of Finance or the Local Government, as the shareholder of the entity. Under IFRS, a government-related entity is an entity that is controlled, jointly controlled or significantly influenced by a government. Government in this context refers to the Government of Indonesia, Government agencies and similar bodies whether local, national or international. 120 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) LAPORAN KEUANGAN TANGGAL 31 DESEMBER 2016 DAN UNTUK TAHUN YANG BERAKHIR PADA TANGGAL TERSEBUT BESERTA LAPORAN AUDITOR INDEPENDEN The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016 AND FOR THE YEAR THEN ENDED WITH INDEPENDENT AUDITORS’ REPORT Daftar Isi Table of Contents Halaman/ Page Surat Pernyataan SGM CDC Laporan Auditor Independen SGM CDC’s Statement Independent Auditors’ Report Laporan Posisi Keuangan .............................................. 1 .................................. Statement of Financial Position Laporan Aktivitas........................................................... 2 ............................................... Statement of Activities Laporan Arus Kas ......................................................... 3 ........................................... Statement of Cash Flows Catatan Atas Laporan Keuangan ................................... 4 - 37 .............................. Notes to the Financial Statements ************************ PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) LAPORAN POSISI KEUANGAN 31 Desember 2016 (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) STATEMENT OF FINANCIAL POSITION December 31, 2016 (Expressed in Rupiah) ASET Kas dan Setara Kas Pinjaman kepada BUMN Pembina lain/ Lembaga Penyalur setelah dikurangi penyisihan penurunan nilai sebesar Rpnil (2015: Rp11.444.509.078) Pinjaman kepada Mitra Binaan setelah dikurangi penyisihan kerugian penurunan nilai sebesar Rp89.312.658.468 (2015: Rp109.770.010.235) Aset Tetap Tidak Berfungsi Pinjaman Bermasalah setelah dikurangi penyisihan penurunan nilai sebesar Rp107.263.845.163 (2015: Rp82.673.017.234) 31 Desember 2016/ Catatan/ 31 Desember 2015/ December 31, 2015 Notes December 31, 2016 114.297.927.433 2b,4 119.512.444.975 - 2c,2d,5 4.999.999.996 518.310.497.236 - 2c,2d,6a,6b 7 458.634.533.531 - ASSETS Cash and Cash Equivalents Loan to other Foster SOE or Distributing Partners net of allowance for impairment losses of Rpnil (2015: Rp11,444,509,078) Loan to Foster Partners net of allowance for impairment losses of Rp89,312,658,468 (2015 : Rp109,770,010,235) Fixed Asset Not in Use - 2f,8 Troubled Loan net of allowance for impairment losses of Rp107,263,845,163 (2015: Rp82,673,017,234) - JUMLAH ASET 632.608.424.669 583.146.978.502 TOTAL ASSETS LIABIL ITAS DAN ASET NETO LIABILITAS LIABILITIES AND NET ASSETS LIABILITIES Liabilitas Lancar Lainnya Angsuran Belum Teridentifikasi Kelebihan Pembayaran Angsuran Utang Lain-lain - 549.272.950 160.352.992 25.000.000 2j,9 2h,10 2i,11 2j,12 10.972.947.055 467.059.449 158.652.706 119.546.500 Other Current Liabilities Unidentified Installments Overpayment of Installments Other Payables JUMLAH LIABILITAS 734.625.942 11.718.205.710 TOTAL LIABILITIES ASET NETO Aset Neto Tidak Terikat 631.873.798.727 2k,13 571.428.772.792 NET ASSETS Unrestricted Net Assets JUMLAH ASET NETO 631.873.798.727 571.428.772.792 TOTAL NET ASSETS JUMLAH LIABILITAS DAN ASET NETO 632.608.424.669 583.146.978.502 TOTAL LIABILITIES AND NET ASSETS Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan secara keseluruhan. The accompanying notes form an integral part of these financial statements taken as a whole. 1 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) LAPORAN AKTIVITAS Tahun yang Berakhir pada Tanggal 31 Desember 2016 (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) STATEMENT OF ACTIVITIES For the Year Ended December 31, 2016 (Expressed in Rupiah) Tahun yang Berakhir pada tanggal 31 Desember/ Year Ended December 31, 2016 Catatan/ Notes 2015 PERUBAHAN ASET NETO TIDAK TERIKAT PENDAPATAN Penerimaan dari BUMN Pembina Pendapatan Jasa Administrasi Pinjaman Pendapatan Bunga: Program Kemitraan 82.000.000.000 32.269.932.808 895.534.687 Program Bina Lingkungan Pendapatan Lain - lain 1.719.253.436 20.044.076.628 14 15 16a 16b 17 - 17.874.573.518 1.566.703.122 3.048.273.583 31.206.191 CHANGES IN UNRESTRICTED NET ASSETS REVENUE Revenue from Foster SOE Loan Administration Service Income Interest Income on: Partnership Program Community Development Program Other Income JUMLAH PENDAPATAN 136.928.797.559 22.520.756.414 TOTAL REVENUE BEBAN Dana Pembinaan Kemitraan (Pemulihan)/Kerugian Penyisihan Penurunan Nilai Pinjaman, neto - (5.485.680.021) Penyaluran Dana Bina Lingkungan Beban Pembinaan 81.969.451.645 - Beban Administrasi dan Umum Beban Sewa - - 18 6d 19 20 21 22 6.014.476.847 20.641.603.199 - 2.289.880.645 5.584.101.195 1.436.320.910 EXPENSES Fostering Partnership Funds (Recovery)/Allowance for Impairment of Loan, net Community Development Funds Distribution Empowerment Expenses General and Administration Expenses Rent Expenses JUMLAH BEBAN 76.483.771.624 35.966.382.796 TOTAL EXPENSES KENAIKAN (PENURUNAN) ASET NETO TIDAK TERIKAT TAHUN BERJALAN ASET NETO TERIKAT TAHUN BERJALAN KENAIKAN (PENURUNAN) ASET NETO TAHUN BERJALAN 60.445.025.935 (13.445.626.382) INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS FOR THE YEAR - - RESTRICTED NET ASSETS FOR THE YEAR 60.445.025.935 (13.445.626.382) INCREASE (DECREASE) IN NET ASSETS FOR THE YEAR NET ASSETS AT BEGINNING OF YEAR ASET NETO AWAL TAHUN 571.428.772.792 584.874.399.174 ASET NETO AKHIR TAHUN 631.873.798.727 571.428.772.792 NET ASSETS AT END OF YEAR Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan secara keseluruhan. The accompanying notes form an integral part of these financial statements taken as a whole. 2 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) LAPORAN ARUS KAS Tahun yang Berakhir pada Tanggal 31 Desember 2016 (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) STATEMENT OF CASH FLOWS For the Year Ended December 31, 2016 (Expressed in Rupiah) Tahun yang Berakhir pada tanggal 31 Desember/ Year Ended December 31, 2016 2015 60.445.025.935 (13.445.626.382) AKTIVITAS OPERASI Kenaikan (penurunan) Aset Neto tahun berjalan Penyesuaian (Pemulihan) kerugian penyisihan penurunan nilai pinjaman, neto (5.485.680.021) 20.641.603.199 Perubahan aset dan liabilitas Pinjaman kepada BUMN Pembina lain/ Lembaga Penyalur Pinjaman kepada Mitra Binaan Liabilitas Lancar Lainnya Beban Akrual Angsuran Belum Teridentifikasi Kelebihan Pembayaran Angsuran Utang Lain - lain KAS NETO DIGUNAKAN UNTUK AKTIVITAS OPERASI PENURUNAN KAS DAN SETARA KAS KAS DAN SETARA KAS PADA AWAL TAHUN KAS DAN SETARA KAS PADA AKHIR TAHUN 4.999.999.996 (54.190.283.684) (10.972.947.055) - 82.213.501 1.700.286 (94.546.500) 5.650.000.004 (66.741.740.864) 10.972.947.055 (879.175.000) 346.012.126 (1.154.632.743) (348.173.500) (5.214.517.542) (44.958.786.105) (5.214.517.542) (44.958.786.105) OPERATING ACTIVITIES Increase (decrease) in Net Assets for the year Adjustments (Recovery) allowance for impairment of loan, net Change in asset and liability Loan to other Foster SOE or Distributing Partners Loan to Fosters Partners Other Current Liabilities Accrued Expense Unidentified Installment Overpayment of Installment Other Payables NET CASH FLOWS USED TO OPERATING ACTIVITIES DECREASE IN CASH AND CASH EQUIVALENTS 119.512.444.975 164.471.231.080 114.297.927.433 119.512.444.975 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR Catatan atas laporan keuangan terlampir merupakan bagian yang tidak terpisahkan dari laporan keuangan secara keseluruhan. The accompanying notes form an integral part of these financial statements taken as a whole. 3 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 1. INFORMASI MENGENAI UNIT COMMUNITY DEVELOPMENT CENTER 1. INFORMATION DEVELOPMENT CENTER UNIT OF COMMUNITY a. Pendirian dan Informasi Umum a. Establishment and General Information Perseroan Lingkungan Indonesia Tbk Pusat Pengelolaan Program Kemitraan dan Program Bina (Community Development Center) (“CDC”) didirikan oleh (Persero) Perusahaan (BUMN PT Telekomunikasi Direksi Keputusan Pembina) melalui No. 61/ PS150/ CTG-10/ 2003 tentang Pembentukan Organisasi Pusat Pengelola Program Kemitraan dan Program Bina Lingkungan (Community Development Center). Keputusan Direksi ini telah berubah beberapa kali. Keputusan Direksi ini terakhir kali diubah melalui Direksi Keputusan No. KD. 12/ PS150/ COP-B0030000/2008 tanggal 5 Februari 2008 tentang Organisasi Pusat Pengelolaan Program Kemitraan dan (Community Program Bina Development Center). Lingkungan implementasi dari CDC didirikan sebagai Keputusan Menteri Badan Usaha Milik Negara (“BUMN”) No. KEP-236/ MBU/ 2003 tanggal 17 Juni 2003 tentang Program Kemitraan BUMN dan Usaha Kecil dan Program Bina Lingkungan. Keputusan Menteri BUMN tersebut didasarkan pada Undang-Undang Republik Indonesia No. 19 Tahun 2003 tentang penyisihan laba untuk pembinaan usaha serta pembinaan masyarakat. koperasi kecil Perseroan Pada tanggal 27 April 2007, Kementerian BUMN memberlakukan PER-05/MBU/2007 menggantikan Keputusan Menteri BUMN bentuk No. KEP-236/MBU/2003. Sebagai implementasi dari PER-05/MBU/2007, Direksi (Persero) Perusahaan PT Telekomunikasi Tbk mengeluarkan Keputusan Direksi No. KD. 30/ PR000/ COP - B0030000/ 2007 tanggal 6 Juni 2007 tentang Pengelolaan Program Kemitraan dan Program Bina Lingkungan yang kemudian diubah dengan Keputusan Direksi No. KD.21/ PR000/ COP-B0030000/2010 tanggal 19 April 2010 tentang Pengelolaan Program Kemitraan dan Program Bina Lingkungan. Indonesia 4 Perseroan Lingkungan Pusat Pengelolaan Program Kemitraan dan Program Bina (Community Development Center) (“CDC”) was established by (Persero) Perusahaan PT Telekomunikasi Indonesia Tbk (“Foster SOE”) based on Decree of the Directors No. 61/PS150/CTG-10/2003 regarding Establishment of Organization of Pusat Pengelolaan Program Kemitraan dan Program Bina Lingkungan (Community Development Center). This Decree of the Directors has been ammended latest amendment was under Decree of the Directors No. KD. 12/PS150/COPB0030000/ 2008 dated February 5, 2008 regarding Organization of Pusat Pengelolaan Program Kemitraan dan Program Bina (Community Development Center). times. The Lingkungan several CDC was established as an implementation from the Decree of Minister of State-Owned Enterprises (“SOE”) No. KEP-236/MBU/2003 dated June 17, 2003 regarding SOE’s Partnership Program and Small Enterprises and Community Development Program. The Decree of Minister SOE was based on The Law of Republic of Indonesia No. 19 Tahun 2003 to develop small cooperative business and community development. regarding allowance from profit KD. Indonesia Telekomunikasi Decree On April 27, 2007, Ministry of SOE issued PER-05/MBU/2007 replacing the Decree of Minister of SOE No. KEP-236/MBU/2003. As an implementation of PER-05/MBU/2007, the Directors of Perusahaan Perseroan (Persero) Tbk PT issued Directors the No. 30/PR000/COP-B0030000/2007 dated June 6, 2007 regarding Management of Partnership and Community Development Program which then is amended No. by of dated KD.21/PR0000/COP-B0030000/2010 April 19, 2010 regarding Management of Partnership and Community Development Program. Directors Program Program Decree the of PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 1. INFORMASI MENGENAI UNIT COMMUNITY DEVELOPMENT CENTER (lanjutan) 1. INFORMATION DEVELOPMENT CENTER UNIT (continued) OF COMMUNITY a. Pendirian dan Informasi Umum (lanjutan) a. Establishment and General Information (continued) Kementerian PER-05/MBU/2007 telah diubah beberapa kali dan termasuk perubahan pada tanggal 10 BUMN September 2013, mengeluarkan PER-08/MBU/2013 tentang perubahan keempat atas Peraturan Menteri BUMN No. PER-05/MBU/2007 tentang Program Kemitraan BUMN dengan Usaha Kecil dan Program Bina Lingkungan. Pada tanggal 22 Mei 2015, Kementerian BUMN telah menerbitkan Peraturan Menteri BUMN Nomor PER-07/MBU/05/2015 tentang Program Kemitraan Badan Usaha Milik Negara dengan Usaha Kecil dan Program Bina Lingkungan sebagai pengganti PER-08/MBU/2013. PER-09/MBU/07/2015, Pada tanggal 3 Juli 2015, Kementerian BUMN memberlakukan PER-09/MBU/07/2015 menggantikan Keputusan Menteri BUMN PER-07/MBU/05/2015. Sebagai implementasi Direksi dari (Persero) Perusahaan Tbk PT Telekomunikasi mengeluarkan Direksi No. PD.702.00/r.00/PR000/ CDC- A1040000/2015 tanggal 10 Desember 2015 tentang Pengelolaan Program Kemitraan dan Program Bina Lingkungan. Perseroan Peraturan Indonesia tanggal Desember 19 BUMN Pada 2016, memberlakukan Kementerian PER-03/MBU/12/2016 tentang Perubahan atas Peraturan Nomor Menteri PER-09/MBU/07/2015. BUMN Perseroan CDC Pusat berdomisili di Kantor Pusat Perusahaan (Persero) PT Telekomunikasi Indonesia Tbk (“Telkom”), Jl Japati No. 1 Bandung. Community Development (“CD”) Regional dan CD Witel berdomisili di Kantor Divisi Regional (“Divre”) dan Kantor Wilayah (“Witel”) Telkom yang tersebar di seluruh Indonesia. the regarding PER-05/MBU/2007 has been amended for several times including the amendment on September 10, 2013, Minister of SOE issued PER-08/MBU/2013 fourth amendment of regulation of Ministry of SOE No. PER-05/MBU/2007 regarding SOE Partnership Program with Small Business and Community Development Program. On May 22, issued PER-07/MBU/2015 regarding SOE Partnership Program with Small Business and Community Development replacing PER-08/MBU/2013. 2015, Minister of SOE Program On July 3, 2015, Ministry of SOE issued PER- 09/MBU/07/2015 replacing the Decree of Minister of SOE No. PER-07/MBU/2015. As an implementation of PER-09/MBU/07/2015, the Directors of Perusahaan Perseroan (Persero) Tbk PT of issued Directors No. PD.702.00/r.00/PR000/ CDC- A1040000/2015 dated 10 Desember 2015 regarding Management of Partnership Program and Community Development Program. Telekomunikasi Decree Indonesia the On December 19, 2016 Ministry of SOE issued the PER-03/MBU/12/2016 Amendments to Regulation of Ministry of SOE Number PER-09/MBU/07/2015. regarding Perseroan Perusahaan Head office of CDC is domiciled in Head office of (Persero) PT Telekomunikasi Indonesia Tbk (“Telkom”), Jl Japati No. 1 Bandung. Community Development (“CD”) Region and CD Witel is domiciled in Regional Division Office (“Divre”) and Witel Office (“Witel”) Telkom which spread all over Indonesia. b. Kegiatan Utama b. Primary Activities Kegiatan utama yang dilakukan CDC dalam program kemitraan dan program bina lingkungan (“PKBL”) meliputi kegiatan sebagai berikut: 1) Penyaluran dana membiayai modal pembelian aktiva meningkatkan produksi dan penjualan. pinjaman untuk kerja dan atau tetap dalam rangka 5 The primary activities of CDC in Partnership and Community Development Program Program (“PKBL”) following activities: 1) Distribution of funds to finance working capital loans and or purchase of fixed assets to increase production and sales. include the PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 1. INFORMASI MENGENAI UNIT COMMUNITY DEVELOPMENT CENTER (lanjutan) 1. INFORMATION DEVELOPMENT CENTER UNIT (continued) OF COMMUNITY b. Kegiatan Utama (lanjutan) b. Primary Activities (continued) 2) Penyaluran dana pinjaman tambahan untuk membiayai kebutuhan dana dalam pelaksanaan kegiatan usaha Mitra Binaan yang bersifat jangka pendek dalam rangka memenuhi pesanan dari rekanan usaha Mitra Binaan. 3) Pemberian bantuan dana bina lingkungan yang digunakan untuk tujuan yang memberikan manfaat kepada masyarakat di wilayah usaha dalam bentuk bantuan untuk: a. Korban bencana alam b. Pendidikan dan/atau pelatihan c. Peningkatan kesehatan d. Pengembangan prasarana dan/atau sarana umum e. Sarana ibadah f. Pelestarian alam g. Sosial kemasyarakatan dalam rangka pengentasan kemiskinan h. Pendidikan, pelatihan, pemagangan, pemasaran, promosi, dan bentuk bantuan terkait dengan upaya peningkatan kapasitas mitra binaan program kemitraan. lain yang 4) Pengawasan Binaan. 5) Pelaporan kegiatan PKBL. 2) Additional loan distribution to finance the short-term funding requirements for the operations of the Foster Partners to fulfill orders from the business partner of the Foster Partners. 3) Community development donation funds is used the community in the areas of business in the form of assistance for: for purposes that benefit a. Natural disaster victims b. Education and/or training c. Health improvement d. Developments of infrastructure and/or public facilities e. Places of worship f. Nature conservation g. Civil society alleviation h. Education, in order for poverty internships, trainings, promotions and other activities related to the improvement of productivity of foster partner from partnership program. kegiatan usaha Mitra 4) Monitoring of the operations of Foster Partners. 5) Reporting of PKBL activities. c. Sumber Dana c. Funding Resources Sumber dana CDC adalah berasal dari anggaran yang diperhitungkan sebagai biaya (Persero) Perusahaan PT Telekomunikasi Indonesia Tbk sebagai BUMN Pembina dan hasil pengembangan dana program. Perseroan Source of CDC’s funding is derived from budget which has been decided as part of (Persero) Perusahaan PT Telekomunikasi Indonesia Tbk expenses as Fosters SOE and fund development program. Perseroan 6 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 1. INFORMASI MENGENAI UNIT COMMUNITY DEVELOPMENT CENTER (lanjutan) 1. INFORMATION DEVELOPMENT CENTER UNIT (continued) OF COMMUNITY d. Susunan Pengelola d. Management Structure tanggal Susunan Pengelola CDC pada 31 Desember 2016 dan 2015 adalah sebagai berikut: Management Structure of CDC as of December 31, 2016 and 2015 is as follows: 31 Desember/December 31, 2016 2015 Senior General Manager Pengelola Fungsi Dukungan: Senior Manager Perencanaan dan Pengendalian Senior Manager Keuangan M.Sulthonul Arifin Haris Widjanarko Susilo Budi Utomo Nur Hassim Rusdi Haris Widjanarko Susilo Budi Utomo Senior Manager Program Kemitraan Senior Manager Muhammad Wahyudi Muhammad Wahyudi Program Bina Lingkungan Hery Susanto Hery Susanto Senior General Manager Supporting Management: Senior Manager of Planning and Controlling Senior Manager of Finance Senior Manager of Partnership Program Senior Manager of Community Development Program tentang KD.21/PR000/COP- Berdasarkan B0030000/2010 Pengelolaan Program Kemitraan dan Program Bina Lingkungan yang kemudian diubah dengan PD.702.00/r.00/PR000/ CDC- A1040000/2015 tanggal tentang Pengelolaan Program Kemitraan dan Program Bina Lingkungan, CDC disupervisi oleh Direktur Human Capital Management. Pada tanggal 31 Desember 2016 and 2015, Direktur HCM adalah Herdy Rosadi Harman. 10 Desember 2015 was amended Based on KD.21/PR000/COP-B0030000/2010 regarding Management of Partnership and Community Development Program Program by which PD.702.00/r.00/PR000/ CDC- A1040000/2015 tanggal 10 Desember 2015 regarding Management of Partnership Program and Community Development Program, CDC is supervised by the Director of Human Capital Management. As of December 31, 2016 and 2015, The Director of HCM is Herdy Rosadi Harman. Jumlah pengelola untuk tahun yang berakhir pada tanggal 31 Desember 2016 dan 2015 adalah sebagai berikut: Number of employees as of December 31, 2016 and 2015 is as follows: 31 Desember/December 31, 2016 2015 CDC Pusat 28 32 CDC Corporate Seluruh pegawai adalah pegawai yang memperoleh gaji dan manfaat lainnya dari BUMN Pembina sehingga masalah penerapan Imbalan Kerja (PSAK No. 24) dilaksanakan dan menjadi beban Telkom. Pemotongan dan penyetoran atas pajak penghasilan pasal 21 atas pegawai BUMN Pembina yang ditempatkan di CDC dilakukan oleh BUMN Pembina. All employees are employees who earn salaries and other benefits from Foster SOE implementation of Employee so Benefits (PSAK No. 24) is implemented by and charged to Telkom. that the Witholding and payment tax Article 21 of Foster SOE employee who is assigned at CDC are performed by Foster SOE. income for e. Otorisasi Penerbitan Laporan Keuangan e. Authorization of the Issuance of Financial Statement Laporan keuangan telah diselesaikan dan disahkan untuk diterbitkan oleh Pengelola CDC pada tanggal 25 Januari 2017. The financial statements were completed and authorized for issuance by CDC Management on January 25, 2017. 7 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Kebijakan akuntansi signifikan dan diterapkan dalam menyusun laporan keuangan untuk tahun yang berakhir pada tanggal 31 Desember 2016 dan 2015 adalah sebagai berikut: The significant accounting principles which are applied consistently in the preparation of the financial statements for the years ended December 31, 2016 and 2015 are follows: a. Dasar Penyusunan Laporan Keuangan Laporan keuangan disusun berdasarkan Standar Akuntansi Keuangan Entitas Tanpa Akuntabilitas Publik (SAK ETAP) yang diterbitkan oleh Dewan Standar Akuntansi Keuangan - Ikatan Akuntan Indonesia. Penerapan SAK ETAP atas penyusunan laporan keuangan didasarkan pada Surat Edaran Menteri Negara BUMN Nomor: tanggal 23 Februari SE-02/MBU/Wk/2012 2012 tentang Penetapan Pedoman Akuntansi Program Kemitraan dan Bina Lingkungan yang berlaku mulai tahun 2012. Laporan keuangan disusun dengan dasar akrual, kecuali untuk beberapa akun tertentu yang disusun berdasarkan pengukuran lain kebijakan sebagaimana diuraikan dalam akuntansi terkait. Laporan arus kas yang disajikan dengan menggunakan metode langsung, menyajikan penerimaan dan pengeluaran kas dan setara kas yang diklasifikasikan ke dalam aktivitas operasi, investasi dan pendanaan. tidak a. Basis of Statements Preparation of Financial The financial statement is prepared based on Non - Publicly Accountable Entities Financial Accounting Standards (SAK ETAP) that was issued by The Financial Accounting Standard Board - Indonesian Institute of accountants. The implementation of SAK ETAP in the preparation of the financial statement is based on Minister of SOE Circular Letter No. SE-02/MBU/Wk/2012 dated February 23, 2012 regarding of Accounting Standard for Partnership Program and Community Development that starting from 2012. Determination Guidance The financial statements are prepared on the accrual basis, except for certain accounts that are prepared based on other measurement as explained in related accounting policy. The statements of cash flows are presented using the indirect method, presenting cash receipt and payment and cash equivalents that are classified into operating, investing and financing activities. Tahun buku CDC adalah 1 Januari 31 Desember. - financial reporting period of CDC The January 1 - December 31. is Mata uang yang digunakan pada laporan keuangan juga adalah Rupiah merupakan mata uang fungsionalnya. yang in the Amounts financial statements are presented in Rupiah which also represents its functional currency. b. Kas dan Setara Kas b. Cash and Cash Equivalents Kas dan setara kas terdiri atas kas dan bank, dan semua deposito berjangka yang tidak dibatasi penggunaannya, yang jatuh tempo dalam tiga bulan atau kurang sejak tanggal penempatan. Cash and cash equivalents consist of cash on hand and in banks, and unrestricted time deposits with maturities of three months or less since placement date. 8 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN (lanjutan) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c. Pinjaman c. Loan Pinjaman pada awalnya diakui sebesar nilai wajar dan selanjutnya diukur pada biaya perolehan diamortisasi, setelah dikurangi penyisihan nilai. Penyisihan penurunan nilai dibentuk berdasarkan evaluasi Pengurus terhadap tingkat ketertagihan saldo pinjaman. penurunan Pinjaman kepada BUMN Pembina Lain atau Lembaga Penyalur merupakan pinjaman yang diberikan kepada unit PKBL atau Lembaga Penyalur sebagai bentuk sinergi antar unit PKBL. Pinjaman kepada mitra binaan dicatat sebagai pinjaman sebesar pokok pinjaman yang diberikan dan jasa administrasi pinjaman yang telah jatuh tempo sesuai dengan kontrak. Pendapatan jasa administrasi pinjaman dicatat sebagai pinjaman kepada mitra binaan dan pendapatan secara akrual untuk pinjaman yang berkualitas lancar dan kurang lancar. Pinjaman kepada mitra binaan dan BUMN Pembina Lain atau Lembaga Penyalur disajikan dalam laporan posisi keuangan pada kelompok aset lancar sebesar jumlah yang diharapkan dapat ditagih dari mitra binaan walaupun pengembalian pinjaman yang disepakati akan diterima melebihi satu tahun setelah akhir periode pelaporan. Loan are initially measured based on fair values and subsequently measured at amortized cost, after deducted by allowance for impairment for impairment are based on Management’s evaluation on the collectibility of these loan. losses. The allowance Loan to other Foster SOE or Distribution Partners represents loans given to PKBL unit or Distributing Partners as synergy form among PKBL units. Loan to foster partners are recognized in the amount of principal and administration service income earned as agreed in the contract. Administration service income are recorded as loan to foster partners and as revenues on accrual basis for loans classified as current and substandard loan. Loan to foster partners and other foster SOE or distributing partners are presented in statement of financial position as a current asset at its realizable agreed repayment of loan may be more than 1 year after reporting period. although value the Penggolongan kualitas pinjaman ditetapkan sebagai berikut: The classification of collectibility are as follows: loan based on its i. tepat waktu atau pembayaran Lancar adalah pembayaran angsuran pokok dan jasa administrasi pinjaman dilakukan terjadi keterlambatan angsuran pokok dan/atau jasa administrasi yaitu selambat-lambatnya 30 (tiga puluh) hari dari tanggal jatuh tempo pembayaran angsuran, sesuai dengan perjanjian yang telah disepakati. i. Current represents principal installment and administration service income payment are paid on time or those late payments of maximum 30 (thirty) days from the payment due date as agreed with the agreement. 9 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN (lanjutan) c. Pinjaman (lanjutan) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c. Loan (continued) ii. Kurang Lancar apabila pembayaran terjadi keterlambatan angsuran pokok dan/atau jasa administrasi pinjaman yang telah melampaui 30 (tiga puluh) hari dan belum melampaui 180 (seratus delapan puluh) hari dari tanggal jatuh tempo pembayaran angsuran sesuai dengan perjanjian yang telah disepakati. iii. Diragukan apabila terjadi keterlambatan pembayaran angsuran pokok dan/atau jasa administrasi pinjaman yang telah melampaui 180 (seratus delapan puluh) hari dan belum melampaui 270 (dua ratus tujuh puluh) hari dari tanggal jatuh tempo pembayaran angsuran sesuai dengan perjanjian yang telah disepakati. iv. Macet apabila terjadi keterlambatan pembayaran angsuran pokok dan/atau jasa administrasi pinjaman yang telah melampaui 270 (dua ratus tujuh puluh) hari dari tanggal jatuh tempo pembayaran angsuran sesuai dengan perjanjian yang telah disepakati. ii. Substandard when late payment of principal and/or administration service income payment are between 30 (thirty) days and 180 (one hundred and eighty) days the payment due date of installment as agreed in the agreement. from iii. Doubtful when late payment of principal income and/or administration payment are between 180 (one hundred and eighty) days and 270 (two hundred and seventy) days from the payment due date of installment as agreed in the agreement. service iv. Loss when late payment of principal and/ or administration service income payment over 270 (two hundred and seventy) days from the payment due date of installment as agreed in the agreement. d. Penyisihan Penurunan Nilai Pinjaman d. Allowance for Impairment of Loan Penyisihan pinjaman merupakan penyisihan atas pinjaman yang mungkin tidak tertagih. Penyisihan penurunan nilai pinjaman dibentuk berdasarkan terhadap taksiran Pengelola tingkat ketertagihan saldo pinjaman. Allowance for impairment of loan represents allowance for doubtful loan. This allowance is calculated based on the Management’s estimation of their collectibility. there firstly determines whether is CDC objective evidence that there are impairment, individually for significat loan or collectively for loan which are insignificant. If CDC decides that there is no objective evidence of individual loan are impairment, significant or insignificant, CDC classifies these loan as having similar credit risk characteristics and determining the impairment collectively. regardless those jumlahnya secara tidak CDC pertama kali menentukan apakah terdapat bukti objektif mengenai penurunan nilai secara individual atas pinjaman yang signifikan secara individual atau secara kolektif untuk penerimaan yang tidak Jika CDC individual. signifikan menentukan terdapat bukti objektif mengenai penurunan nilai atas aset keuangan yang dinilai secara individual, terlepas aset keuangan tersebut signifikan atau tidak, maka CDC memasukkan piutang tersebut ke dalam kelompok pinjaman yang memiliki karakteristik risiko kredit yang sejenis dan menilai penurunan nilai kelompok tersebut secara kolektif. 10 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN (lanjutan) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Penyisihan Penurunan Nilai Pinjaman (lanjutan) d. Allowance (continued) for Impairment of Loan Penyisihan pinjaman dihitung berdasarkan estimasi kerugian yang tidak dapat ditagih yaitu secara kolektif berdasarkan prosentase tertentu tingkat ketertagihan (collection) data historis yang ada (minimal 2 tahun). Pinjaman yang penurunan nilainya dinilai secara individual dan untuk itu kerugian penurunan nilai diakui, tidak termasuk dalam penilaian penurunan nilai secara kolektif. Allowance for impairment of loan is calculated based on estimated uncollectible loss, which collectively based on specific percentage of available historical collectibility rate (2 years of historical data at minimum). Loan which are impaired individually and of that losses are recognised, are not included in the collective impairment evaluation. e. Aset Tetap Tidak Berfungsi e. Fixed Asset Not in Use Aset tetap diakui berdasarkan harga perolehan dikurangi akumulasi penyusutan dan rugi penurunan nilai. Aset tetap disusutkan dengan menggunakan metode garis lurus berdasarkan estimasi masa manfaat aset tetap dengan tarif penyusutan sebagai berikut: Fixed asset is recognized at their historical costs less accumulated depreciation and loss from impairment. Fixed asset is depreciated using straight-line method based on the estimated useful life and depreciation rate as follow: Jenis Aset Komputer Inventaris kantor Tarif Penyusutan/ Masa Manfaat/ Depreciation Rate Useful Life 50% 50% 2 2 Asset type Computer Office equipment Aset tetap yang sudah tidak dapat digunakan atau dioperasikan karena rusak atau sebab lain diklasifikasikan sebagai aset tetap tidak berfungsi. Seluruh aset tetap dalam kondisi tidak dapat digunakan. Dengan demikian, aset tetap tersebut diklasifikasikan ke dalam aset tetap tidak berfungsi (Catatan 7). Fixed assets that can not be used or operated due to damaged or other reasons are classified as fixed assets not in use. All fixed assets are not in use. Therefore, such fixed assets classified as fixed assets not in use (Note 7). Pada tanggal 31 Desember 2016 dan 2015, nilai buku bersih aset tetap adalah nihil. As of December 31, 2016 and 2015, net book value of fixed asset is zero. f. Pinjaman Bermasalah f. Troubled Loan Pinjaman bermasalah merupakan pinjaman macet yang telah diupayakan pemulihannya dengan penjadwalan kembali (rescheduling) persyaratan peninjauan dan (reconditioning), namun terpulihkan. Pinjaman bermasalah disajikan sebesar nilai pokok pinjaman dengan besarnya alokasi penyisihan sebesar 100% dari saldo pinjaman bermasalah. kembali tidak to Troubled loan represent loss loan which has been attempted recovered by rescheduling and reconditioning but cannot be recovered. Troubled loan will be represented at loan principal value with 100% of troubled loan balance. be cara Tata bermasalah mengacu Menteri. penghapusbukuan pinjaman kepada Peraturan The procedures to write-off these troubled loan adhere to Regulation of Ministry. 11 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN (lanjutan) g. Beban Akrual 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g. Accrued Expenses Beban akrual adalah beban yang masih harus dibayar CDC yang timbul karena diterimanya jasa/ prestasi yang merupakan beban tahun berjalan tetapi belum dibayar sampai dengan akhir periode akuntansi. Accrued expenses are expenses that have to be paid by CDC which occur due to service received in the current period but no payment has been made until end of accounting period. h. Angsuran Belum Teridentifikasi h. Unidentified Installments belum teridentifikasi Angsuran adalah penerimaan angsuran yang belum dapat diidentifikasi nama mitra binaannya sampai dengan akhir periode pelaporan. Angsuran yang belum dapat diidentifikasi diakui dan disajikan sebagai liabilitas pada saat angsuran tersebut diterima. are in which installments the Foster Partners installments Unidentified received is unidentifiable until end of reporting period. Unidentifed recognized and presented as liability when the installment is received. installment is i. Kelebihan Pembayaran Angsuran i. Overpayment of Installments Kelebihan pembayaran angsuran adalah penerimaan angsuran yang melebihi saldo pinjaman kepada mitra binaan. Kelebihan pembayaran angsuran diakui dan disajikan sebagai liabilitas pada saat setoran diterima. Kelebihan pembayaran angsuran setiap Mitra Binaan sampai dengan nilai Rp100.000 diakui sebagai Pendapatan Lain-lain Program Kemitraan, sesuai dengan Peraturan Direktur Human Nomor: Capital Management PR.702.01/r.00/PR000/CDC-A1040000/2016 tanggal 2 Juni 2016 tentang Pedoman Pelaksanaan Operasional Program Kemitraan dan Program Bina Lingkungan.Peraturan ini menggantikan KD.21/PR.000/COP-B0030000/ 2010. of installments Overpayment represents repayment from foster partners which exceeds is loan balance. This overpayment its recognized and presented as liability when the installment is received. Overpayment of installment from each Foster Partners to maximum amount of Rp100,000 is recognizes as Partnership Program Other Income, based on Decree of the Human Capital Management Director Number: PR.702.01/r.00/PR000/CDC-A1040000/2016 dated on June 2, 2016 regarding Operational Guidelines of Partnership Program and Community Development Program. This decree KD.21/PR.000/COP- B0030000/ 2010. replaced j. Liabilitas Lancar Lainnya dan Utang Lain- lain j. Other Current Liabilities and Other Payables Liabilitas lancar lainnya dan utang lain-lain diakui pada saat terjadinya transaksi atau saat perjanjian kontrak. Utang lain-lain dan liabilitas lancar lainnya dicatat sebesar nilai transaksi atau perjanjian kontrak. Other current liabilities and other payables are recognized when transactions occur or when contract are completed. Other payables and other current liability is recognized based on transaction amount or contracts. 12 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 2. IKHTISAR KEBIJAKAN AKUNTANSI YANG SIGNIFIKAN (lanjutan) k. Aset Neto 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k. Net Assets Aset neto diklasifikasikan menjadi aset bersih terikat dan aset bersih tidak terikat. Aset bersih terikat adalah aset yang penggunaannya dibatasi untuk program tertentu yang tidak dapat digunakan untuk kegiatan lainnya. Aset terikat adalah aset yang bersih penggunaannya tidak dibatasi untuk tujuan tertentu. tidak Net assets are classified into restricted net assets and unrestricted net assets. Restricted net assets represent assets that can only be utilized limited to spesific program purpose. Unrestricted net assets represent assets that can be utilized without being limited for specific purposes. l. Pendapatan dan Beban l. Revenue and Expense Pendapatan Revenue Pendapatan diakui dalam laporan aktivitas berdasarkan basis akrual. Revenue is recognized in the statement of activities based on accrual basis. Pendapatan Jasa Administrasi Pinjaman Loan Administration Service Income Pendapatan jasa administrasi pinjaman diukur dan dicatat sebesar nilai yang telah jatuh tempo sesuai dengan kontrak untuk pinjaman dengan status lancar dan kurang lancar. Administration service income is measured and recognized as incurred as stated in the contract for current and substandard loan. Pendapatan bunga Interest income Pendapatan bunga diakui secara akrual. Pendapatan bunga diukur dan dicatat sebesar nilai yang telah ditentukan. Interest income is recognized based on accrual is measured and basis. recorded amount stipulated determined. income on Interest based Beban Expense Beban diakui pada saat terjadinya. Expense is recognised as incurred. Dana pembinaan kemitraan diakui saat pembayaran dana tersebut. Fostering partnership funds are recognized when the funds are distributed. m. Perpajakan m. Taxation Pajak yang muncul dari seluruh transaksi yang terjadi di CDC menjadi beban CDC dan dilaporkan atas nama BUMN Pembina. Tax transactions in relation charged to CDC and reported by Foster SOE. to CDC are 3. PENGGUNAAN PERTIMBANGAN, ESTIMASI 3. ACCOUNTING JUDGEMENTS, ESTIMATION, DAN ASUMSI a. Pertimbangan AND ASSUMPTION a. Judgements Pengelola Dalam proses penerapan kebijakan akuntansi membuat PKBL, pertimbangan-pertimbangan berikut ini, yang terpisah dari estimasi dan asumsi, yang memiliki pengaruh signifikan terhadap jumlah yang dicatat dalam laporan keuangan: telah In the implementation process of PKBL accounting policies, Management has prepared these judgements, separated from estimation and assumption, which have the significant impact to the amounts recognized in the financial statements: 13 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 3. PENGGUNAAN PERTIMBANGAN, ESTIMASI 3. ACCOUNTING JUDGEMENTS, ESTIMATION, DAN ASUMSI (lanjutan) a. Pertimbangan (lanjutan) AND ASSUMPTION (continued) a. Judgements (continued) Implementasi PER-09/MBU/07/2015 The implementation of PER-09/MBU/07/2015 to relation implementation In of the PER-08/MBU/2013 as disclosed in Note 1a, effective January 1, 2013 until December 31, income 2015, CDC did not allocation from the Foster SOE and expenses the distribution of community related fund and related operational development expenses the Statements of Activities in (Note 19). recognized to to relation In implementation of the PER-09/MBU/07/2015 as disclosed in Note from January 1, 2016, CDC 1a. Started recognized income allocation from the Foster the distribution of community SOE and development the Statements of Activities. fund in general required the PER-09/MBU/07/2015 empowerment and expenses, administration expenses and rent expenses to recognized by Perusahaan Perseroan be (Persero) PT Telekomunikasi Indonesia Tbk as Foster SOE. Therefore, such expenses were not recorded by CDC in the Statement of Activity from July 3, 2015. general Empowerment and expenses, administration expenses and rent expenses from January 1, 2015 until July 2, 2015 were recorded on statement of activities and based PER-07/MBU/05/2015. PER-08/MBU/2013 on dengan Sehubungan penerapan PER-08/MBU/2013 yang telah diungkapkan dalam Catatan 1a, sejak 1 Januari 2013 sampai dengan 31 Desember 2015, CDC tidak mencatat alokasi laba dari BUMN pembina untuk program PKBL dan beban penyaluran bina lingkungan serta beban operasional yang terkait bina lingkungan tersebut dalam Laporan Aktivitas (Catatan 19). penyaluran dengan dana dengan Sehubungan penerapan PER-09/MBU/07/2015 yang telah diungkapkan dalam Catatan 1a. Sejak 1 Januari 2016, CDC kembali mencatat alokasi laba dari BUMN Pembina untuk program PKBL dan penyaluran dana bina lingkungan tersebut dalam Laporan Aktivitas. PER-09/MBU/07/2015 juga mensyaratkan beban pembinaan, beban administrasi dan umum dan beban sewa menjadi beban (Persero) Perusahaan PT Telekomunikasi Indonesia Tbk selaku BUMN Pembina. Dengan demikian, beban- beban tersebut tidak dicatat oleh CDC dalam Laporan Aktivitas sejak tanggal 3 Juli 2015. Perseroan Beban pembinaan, beban administrasi dan umum dan beban sewa dari tanggal 1 Januari 2015 sampai dengan 2 Juli 2015 dicatat dalam Laporan Aktivitas sesuai dengan PER-08/MBU/2013 dan PER-07/MBU/05/2015. 14 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 3. PENGGUNAAN PERTIMBANGAN, ESTIMASI 3. ACCOUNTING JUDGEMENTS, ESTIMATION, DAN ASUMSI (lanjutan) AND ASSUMPTION (continued) a. Pertimbangan (lanjutan) a. Judgements (continued) Penentuan mata uang fungsional The determination of functional currency Mata uang fungsional CDC adalah mata uang dari lingkungan ekonomi primer di mana CDC beroperasi. Mata uang tersebut adalah mata uang yang mempengaruhi pendapatan dan beban dari jasa yang diberikan. CDC menentukan bahwa mata uang fungsionalnya adalah Rupiah. CDC’s functional currency is currencies from premier economic environment where CDC operates. The related currency is currency that gives influence to revenues and expenses from services given. CDC determines that their functional currency is Rupiah. Penyisihan penurunan nilai pinjaman Allowance for impairment of loan Apabila terdapat bukti objektif bahwa rugi penurunan nilai telah terjadi atas pinjaman, CDC mengestimasi penyisihan kerugian penurunan nilai pinjaman yang secara khusus diidentifikasi tidak tertagih. Tingkat penyisihan ditelaah oleh Pengelola berdasarkan faktor-faktor yang mempengaruhi tingkat tertagihnya pinjaman tersebut. terdapat kemungkinan menggunakan CDC pertimbangan berdasarkan fakta dan situasi yang tersedia, termasuk tetapi tidak terbatas pada, jangka waktu hubungan CDC dengan mitra binaan dan status kredit pelanggan berdasarkan kualitas pinjaman (Catatan 5, 6 dan 8). If there is objective evidence that losses because of impairment has incurred on loan, CDC estimates an allowance for impairment loss of those loan specifically identified as uncollectible. The allowance examined by Management based several factors influencing of loan collectibility. CDC uses judgements based on available facts and situations, including but not limited to, CDC’s period of relationship with foster partners and foster partner’s credit status based on collectibility of loans (Notes 5, 6 and 8). b. Estimasi dan Asumsi b. Estimations and Assumptions Penyisihan penurunan nilai pinjaman Allowance for impairment of loan menggunakan CDC pertimbangan berdasarkan fakta-fakta terbaik yang tersedia untuk mengakui penyisihan secara individu lembaga penyalur atas mitra binaan dan terhadap tempo untuk menurunkan pinjaman individu jumlah yang diharapkan dapat ditagih. Pencadangan secara terdapat informasi tambahan yang diterima yang mempengaruhi jumlah yang diestimasikan. jumlah yang ini ditelaah individu jatuh jika CDC juga menaksir penyisihan penurunan nilai secara kolektif terhadap risiko kredit debitur mereka, yang dikelompokkan berdasarkan karakteristik kredit yang sama, yang meskipun tidak diidentifikasi secara spesifik memerlukan cadangan tertentu, memiliki risiko yang lebih besar tertagih dibandingkan dengan pinjaman yang diberikan kepada debitur. tidak 15 CDC uses judgement based on best facts available to recognize indiviual allowance for foster partners and distributing partners to adjust the individual loan to its realizable amount. This individual allowance will be assessed if there is additional information received which affect the estimated amount. risks, credit assesses regardless the allowance for CDC also impairment loss collectively, grouped by the same requires individually identified of allowance, have a higher risk of uncollectibility compared to loan given for impairment of loan is measured based on the evaluation of current value and historical rate of loan collectibility. to other debtors. Allowance PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 3. PENGGUNAAN PERTIMBANGAN, ESTIMASI 3. ACCOUNTING JUDGEMENTS, ESTIMATION, DAN ASUMSI (lanjutan) AND ASSUMPTION (continued) b. Estimasi dan Asumsi b. Estimations and Assumptions Penyisihan penurunan nilai pinjaman dihitung berdasarkan kajian nilai terkini dan historis tingkat ketertagihan dari pinjaman. Penyisihan pinjaman dihitung berdasarkan estimasi kerugian yang tidak dapat ditagih yaitu secara tertentu kolektif berdasarkan prosentase tingkat ketertagihan (collection) data historis yang ada (minimal 2 tahun). Penyisihan ini disesuaikan untuk mencerminkan hasil aktual dan estimasi (Catatan 5, 6 dan 8). berkala secara Allowance for impairment of loan is recognised based on the the estimation of uncollectible amount,which is done collectively based on a specific percentage of the two-year-minimum historical loan collectibility. This allowance is adjusted periodically to reflect actual result and estimation (Notes 5, 6 and 8). rate of 4. KAS DAN SETARA KAS 4. CASH AND CASH EQUIVALENT 31 Desember/December 31, 2016 2015 Program Kemitraan Kas di Bank: PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk 4.749.061.270 1.346.644.253 7.002.145.427 5.252.077.147 Jumlah Kas dan Setara Kas Program Kemitraan 6.095.705.523 12.254.222.574 Program Bina Lingkungan Kas di Bank: PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk 108.199.543.458 107.257.334.628 887.773 2.678.452 Jumlah Kas dan Setara Kas Bina Lingkungan 108.202.221.910 107.258.222.401 Partnership Program Cash in Bank: PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk Total Cash and Cash Equivalent Partnership Program Community Development Program Cash in Bank: PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk Total Cash and Cash Equivalent of Community Development Jumlah Kas dan Setara Kas 114.297.927.433 119.512.444.975 Total Cash and Cash Equivalent 5. PINJAMAN KEPADA BUMN PEMBINA 5. LOAN TO OTHER FOSTER SOE/ DISTRIBUTING LAIN/LEMBAGA PENYALUR PARTNERS PT Sang Hyang Seri (Persero) Bank UMKM Jatim Baitul Maal wat Tamwil Hidayah Penyisihan penurunan nilai pinjaman Penilaian individual Jumlah 31 Desember/December 31, 2016 2015 9.637.740.363 4.999.999.996 1.806.768.715 16.444.509.074 (11.444.509.078) (11.444.509.078) 4.999.999.996 - - - - - - - 16 PT Sang Hyang Seri (Persero) Bank UMKM Jatim Baitul Maal wat Tamwil Hidayah Allowance for impairment of loan Individual assessment Total PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 5. PINJAMAN KEPADA LAIN/LEMBAGA PENYALUR (lanjutan) BUMN PEMBINA 5. LOAN TO OTHER FOSTER SOE/ DISTRIBUTING PARTNERS (continued) PT Sang Hyang Seri (Persero) PT Sang Hyang Seri (Persero) Mutasi penyisihan penurunan nilai pinjaman adalah sebagai berikut: Movement the allowance for impairment of loan are as follows: 31 Desember/December 31, 2016 2015 Saldo awal Penambahan - Neto Penyesuaian Reklasifikasi sebagai pinjaman bermasalah 11.444.509.078 - (2.092.352.895) (9.352.156.183) 11.607.929.078 - (163.420.000) - Beginning balance Additions - Net Adjustment Reclassification to Troubled Loan - 11.444.509.078 Manajemen berpendapat bahwa saldo penyisihan penurunan nilai pinjaman cukup untuk menutup kerugian atas tidak tertagihnya pinjaman. Management believes the balance of allowance for impairment of loan is adequate to cover losses from uncollectible loan. that, 2012, perjanjian 27 Maret CDC Pada tanggal menandatangani nomor 332/HK840/CDC-A1050000/2012 dengan PT Sang Hyang Seri (Persero) (“SHS”) untuk penyaluran dana Program Kemitraan kepada para petani, yang disalurkan melalui SHS. Dalam perjanjian, SHS bertindak sebagai avalist (penjamin). Perjanjian berlaku selama 36 bulan, mulai tahun 2012 sampai dengan tahun 2015, dengan nilai plafon penyaluran pinjaman sebesar Rp17.000.000.000 yang telah disalurkan seluruhnya pada tahun 2012. (“SHS”) On March 27, 2012, CDC signed a contract number 332/HK840/CDC-A1050000/2012 with PT the Sang Hyang Seri (Persero) distribution of Partnership Program to farmers which will be distributed by SHS. In agreement, SHS acts as an avalist (guarantor). This contract is valid for 36 months, starting in 2012 to 2015, with funds distribution limit amounted Rp17,000,000,000 which have been fully disbursed in 2012. for funds Pada tanggal 1 Desember 2014, CDC dan SHS sepakat untuk mengadakan perubahan terhadap perjanjian tersebut. Pokok perubahan yang dilakukan adalah: ada - Tidak atas denda keterlambatan pembayaran setelah tanggal 1 November 2013. Denda yang diakui hingga tanggal 31 Oktober 2013 adalah sebesar Rp1.825.325.895. pengenaan - Masa berlaku pinjaman menjadi 36 bulan hingga bulan Oktober 2017. On December 1, 2014, CDC and SHS agreed to amend the contract. The amendmend points are: - Elimination of penalty arise from payment delay after November 1, 2013. Penalty charged which has been recognized until October 31, 2013 is amounting Rp1,825,325,895. - Term of agreement is extended to be 36 months until October 2017. Pada tanggal 26 Februari 2016, SGM CDC menerbitkan nota dinas penetapan pinjaman SHS sebagai pinjaman bermasalah. Setelah penetapan tersebut, pembayaran sebesar Rp1.825.325.895 dibatalkan dan sisa saldo pinjaman SHS sebesar Rp7.732.387.468 direklasifikasi menjadi pinjaman bermasalah. keterlambatan denda 17 troubled loan. After On February 26, 2016, SGM CDC issued Official Note that SHS’s loan receivable was categorized the decision, penalty as charged for late payment of Rp Rp1,825,325,895 was reversed and remaining SHS’s loan receivable of Rp7,732,387,468 was classified as troubled loan. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 5. PINJAMAN KEPADA LAIN/LEMBAGA PENYALUR (lanjutan) BUMN PEMBINA 5. LOAN TO OTHER FOSTER SOE/ DISTRIBUTING Bank UMKM Jatim tanggal 14 November 2014, CDC Pada menandatangani perjanjian No. Tel.529/ HK810/ CDC - A1010000/ 2014 dengan PT Bank BPR Jatim Bank UMKM Jawa Timur (“Bank UMKM Jatim”) dan PT Finnet Indonesia untuk penyaluran dana Program Kemitraan yang akan disalurkan melalui Bank UMKM Jatim. PT Finnet Indonesia menyediakan akun virtual yang digunakan sebagai media pembayaran bagi mitra binaan. Perjanjian berlaku selama 2 tahun, mulai dari November 2014 dan berakhir pada November 2016. Nilai pinjaman sejumlah Rp10.000.000.000 dan telah disalurkan seluruhnya oleh CDC kepada Bank UMKM Jatim pada bulan Desember 2014. Pada tanggal 23 Desember 2016, pinjaman ke Bank UMKM Jatim telah dilunasi. PARTNERS (continued) Bank UMKM Jatim for On November 14, 2014, CDC entered into an agreement No. Tel.529/ HK810/ CDC - A1010000/ 2014 with PT Bank BPR Jatim Bank UMKM Jawa (Bank UMKM Jatim) and PT Finnet Timur Indonesia the distribution of Partnership Program funds, which all will be distributed by PT Bank UMKM Jatim. PT Finnet Indonesia provides the virtual accounts for media of payment for each foster partner. This contract is valid for 2 years, starting from November 2014 until November 2016. The loan of Rp10,000,000,000 has been fully distributed by CDC to Bank UMKM Jatim on December 2014. On December 23, 2016, loan to Bank UMKM Jatim has been fully settled. Baitul Maal Wat Tamwil Hidayah (BMT Hidayah) Baitul Maal Wat Tamwil Hidayah (BMT Hidayah) tanggal 27 September 2011, CDC Pada menandatangani perjanjian nomor K.Tel.821/ HK810/CDC-A1050000/2011 dengan Baitul Maal Wat Tamwil Hidayah (BMT Hidayah) untuk penyaluran dana program kemitraan kepada komunitas konveksi batik dan pengrajin lidi, yang disalurkan melalui BMT Hidayah. Perjanjian berlaku selama 2 tahun, mulai tahun 2011 sampai dengan tahun 2013, dengan nilai plafon penyaluran pinjaman sebesar Rp2.200.000.000. Dalam perjanjian, BMT Hidayah yang bertindak sebagai avalist menjamin pengembalian pinjaman dengan coverage ratio minimal 50% dari nilai plafon penyaluran pinjaman atau sebesar Rp1.100.000.000. Sehubungan tersebut, dalam surat pernyataan dengan hal pengikatan penjaminan tanggal 6 Oktober 2011, BMT Hidayah menjaminkan sebidang tanah atas nama Drs Muhammad Hery Ngatiri, S.Ag sebagai Ketua BMT Hidayah yang berlokasi di Kelurahan Sangkrah, Kecamatan Pasar Kliwon Kota Surakarta seluas 91 M2. (penjamin) bersedia On September 27, 2011, CDC signed a contract No. K.Tel.821/CDC-A1050000/2011 with Baitul Maal Wat Tamwil Hidayah (BMT Hidayah) for the distribution of Partnership Program funds for batik garment communities and broom stick craftsmen. These fund were distributed through BMT Hidayah. The contract was valid for 2 years, from 2011 to 2013, with a maximum amount to be distributed of Rp2,200,000,000. that, BMT Hidayah, who acts as a guarantor, guarantees the from the repayment of, at a minimum, 50% maximum or to Rp1,100,000,000. In the collateral letter dated October 6, 2011, BMT Hidayah pledged a parcel of land owned by Drs Muhammad Hery Ngatiri. S.Ag (the Chairman of BMT Hidayah in Kelurahan Sangkrah, Kecamatan Pasar Kliwon, Surakarta) with an area of 91 sqm. In was agreed distributed, amount be Pada tanggal 26 Februari 2016, SGM CDC menerbitkan nota dinas penetapan pinjaman SHS sebagai pinjaman bermasalah. Setelah penetapan tersebut, saldo pinjaman per 31 Desember 2016 adalah Rp1.619.768.715 yang telah jatuh tempo pada November 2013 direklasifikasi menjadi pinjaman bermasalah. On February 26, 2016, SGM CDC issued Official Note that SHS’s loan receivable was categorized as troubled loan. After the decision, the balance of this is Rp1,619,768,715 which was due to be paid on November 2013 was reclassified to troubled loan. loan as at December 31, 2016 18 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 6. PINJAMAN KEPADA MITRA BINAAN 6. LOAN TO FOSTER PARTNERS a. Pinjaman Kepada Mitra Binaan Menurut a. Loan to Foster Partners Classified by Community Development (CD) Area Community Development (CD) Area Pinjaman kepada Mitra Binaan 31 Desember/December 31, 2016 2015 CD Area I Sumatera CD Area II DKI Jakarta & Banten CD Area III Jabar CD Area IV Jateng & DIY CD Area V Jatim & Madura CD Area VI Kalimantan CD Area VII Kawasan Timur Indonesia 58.432.585.847 123.718.052.152 113.328.491.852 80.916.609.472 95.838.619.083 86.948.859.417 69.178.953.031 63.700.890.582 110.618.047.384 111.741.448.694 64.173.013.797 63.823.658.079 47.944.585.670 85.663.884.410 Loan to Foster Partners CD Area I Sumatera CD Area II DKI Jakarta & Banten CD Area III Jabar CD Area IV Jateng & DIY CD Area V Jatim & Madura CD Area VI Kalimantan CD Area VII Kawasan Timur Indonesia Jumlah Penyisihan Penurunan Nilai Pinjaman 607.623.155.704 568.404.543.766 (89.312.658.468) (109.770.010.235) Total Allowance for Impairment of Loan Jumlah Pinjaman kepada Mitra Binaan - Neto 518.310.497.236 458.634.533.531 Total Loan to Foster Partners - Net b. Pinjaman kepada Mitra Binaan Menurut b. Loan to Foster Partners Classified by Sektor Sector Perdagangan Industri Jasa Peternakan Perikanan Pertanian Perkebunan Lainnya 31 Desember/December 31, 2016 2015 331.429.806.153 304.331.486.357 99.370.872.724 98.645.546.666 23.910.726.099 17.828.682.810 11.237.819.444 9.962.750.485 3.116.659.181 103.933.742.196 103.202.709.589 24.901.514.431 17.965.942.827 12.374.333.707 10.825.446.501 2.989.660.300 Trading Industry Service Farming Fishing Agriculture Plantation Others Jumlah Penyisihan Penurunan Nilai Pinjaman 607.623.155.704 568.404.543.766 (89.312.658.468) (109.770.010.235) Total Allowance for Impairment of Loan Jumlah Pinjaman kepada Mitra Binaan - Neto 518.310.497.236 458.634.533.531 Total Loan to Foster Partners - Net berpendapat Manajemen saldo penyisihan penurunan nilai pinjaman cukup untuk menutup kerugian atas tidak tertagihnya pinjaman. bahwa Management believes the balance of allowance for impairment of loan is adequate to cover losses from the uncollectible loan. that Termasuk didalam saldo pinjaman kepada Mitra binaan adalah saldo pinjaman tambahan. Pinjaman untuk membiayai kebutuhan dana pelaksanaan kegiatan usaha mitra binaan yang bersifat jangka pendek. disalurkan tambahan 19 of Included in loan receivable to foster partner is receivable. balance Additional loan is distributed to finance the short-term the funding business operations. requirements additional loan for PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 6. PINJAMAN KEPADA MITRA BINAAN (lanjutan) 6. LOAN TO FOSTER PARTNERS (continued) b. Pinjaman kepada Mitra Binaan Menurut b. Loan to Foster Partners Classified by Sektor (lanjutan) Sector (continued) tanggal 31 Desember 2016, saldo Pada saldo pinjaman pinjaman sebesar Rp72.260.000. Rincian pinjaman tambahan sebagai berikut: tambahan merupakan 2 kepada MB As of December 31, 2016, additional loan balance represents loan provided to foster partner amount of Rp72,260,000. The detail of additional loan balance is as follows. Wilayah/ Region Sektor/ Sector Jenis Usaha/ Business Type Kualitas Pinjaman/ Loan Quality Witel Jakarta Selatan/ South Jakarta region Witel Banten Timur / East (Tangerang)/ Banten region (Tangerang) Industri/ Industry Produksi Batik dan Handycraft/ Batik Production and Handycraft Kurang Lancar/ Substandard Industri/ Industry Konveksi Children clothes Baju Anak-Anak/ Kurang Lancar/ Substandard Nilai Pinjaman + Jasa/ Loan balance + Interest 61.125.000 11.135.000 Jumlah/ Total 72.260.000 c. Pendapatan Jasa Administrasi Pinjaman c. Loan Administration Service Income pendapatan jasa Besarnya prosentase administrasi pinjaman program kemitraan terhitung sejak tahun buku 2008 berdasarkan pada ketentuan pasal 12 ayat (2) Peraturan Menteri BUMN Nomor: PER-05/MBU/2007 tanggal 17 April 2007 sebesar 6% per tahun dari pokok pinjaman. Berdasarkan PER-09/MBU/07/2015 yang efektif tanggal 3 Juli 2015, besarnya jasa administrasi pinjaman adalah sebesar 6% per tahun dari saldo pinjaman awal tahun. Since 2008, the percentage of administration service income of loan for partnership program was based on the Decree on article 12 (2) of The Regulation of SOE Ministries No: PER- 05/MBU/2007 dated April 17, 2007, which is 6% per annum from the principal of the loan. Based on PER-09/MBU/07/2015 dated July 3, 2015, administration service income is 6% per annum from the opening balance of the loan. d. Penyisihan Pinjaman Kepada Mitra Binaan d. Allowance for Impairment of Loan to Foster Partners Mutasi penyisihan penurunan nilai pinjaman adalah sebagai berikut: Movement of allowance for impairment of loan is as follow: 31 Desember/December 31, 2016 2015 Saldo awal (Pembalikan) Penambahan - Neto (20.301.340.092) Reklasifikasi sebagai bermasalah 109.770.010.235 (156.011.675) 93.864.820.863 20.805.023.199 (4.899.833.827) Beginning balance (Reversal) Additional - Net Reclassification as troubled loan 89.312.658.468 109.770.010.235 20 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 6. PINJAMAN KEPADA MITRA BINAAN (lanjutan) 6. LOAN TO FOSTER PARTNERS (continued) d. Penyisihan Pinjaman Kepada Mitra Binaan d. Allowance for Impairment of Loan to Foster (lanjutan) Partners (continued) 31 Desember 2016/December 31, 2016 Umur Pinjaman (dari jatuh tempo)/ Loan Aging (from maturity date) Saldo Pinjaman/ Penyisihan/ Allowance % Loan Balance % Akumulasi Penyisihan 2016/ Accumulated Allowance 2016 Beban/ (Pemulihan) Penyisihan 2016 Expense/ (Recovery) Allowance 2016 _ Loan Quality _ Foster Partners Collective assessment Kualitas Pinjaman Mitra Binaan Dinilai secara kolektif Lancar < 30 hari/ < 30 days 444.563.003.572 1,09% 4.857.792.205 1.233.376.594 Current Kurang lancar Diragukan Macet Sub Jumlah Bermasalah Mitra Binaan BUMN Pembina lain/ Lembaga Penyalur Sub Jumlah Jumlah Kualitas Pinjaman BUMN Pembina lain/Lembaga Penyalur Dinilai secara individual Macet Lancar Sub Jumlah Mitra Binaan Dinilai secara kolektif Lancar Kurang lancar Diragukan Macet Sub Jumlah Bermasalah Jumlah 66.758.642.055 10,34% 6.900.348.611 3.649.657.866 Substandard > 30 hari ≤ 180 hari > 30 days < 180 days > 180 hari ≤ 270 hari > 180 days < 270 days 23.050.768.636 18,67% 4.303.776.211 990.831.970 > 270 hari/ > 270 days 73.250.741.441 100,00% 73.250.741.441 (26.331.218.197) 607.623.155.704 89.312.658.468 (20.457.351.767) 97.911.688.980 100,00% 97.911.688.980 15.238.671.746 Doubtful Loss Sub total Troubled Foster Partner Other Foster SOE/ 9.352.156.183 100,00% 9.352.156.183 (267.000.000) Distributing Partners 107.263.845.163 714.887.000.867 107.263.845.163 14.971.671.746 196.576.503.631 (5.485.680.021) Sub total Total 31 Desember 2015/December 31, 2015 Umur Pinjaman (dari jatuh tempo)/ Loan Aging (from maturity date) Saldo Pinjaman/ Penyisihan/ Allowance % Loan Balance % Akumulasi Penyisihan 2015/ Accumulated Allowance 2015 Beban/ (Pemulihan) Penyisihan 2015 Expense/ (Recovery) Allowance 2015 > 270 hari/ > 270 days 11.444.509.078 100% 11.444.509.078 (50.000.000) < 30 hari/ < 30 days 4.999.999.996 0,00% - (113.420.000) 16.444.509.074 11.444.509.078 (163.420.000) _ Loan Quality _ Other Foster SOE/ Distributing Partners Individual assessment Loss Current Sub total Foster Partners Collective assessment < 30 hari/ < 30 days 416.369.708.952 0,87% 3.624.415.611 (574.797.294) Current 34.226.922.072 9,50% 3.250.690.745 1.981.050.405 Substandard > 30 hari < 180 hari/ >30 days < 180 days > 180 hari < 270 hari/ > 180 days < 270 days 18.242.353.104 18,16% 3.312.944.241 2.275.955.549 > 270 hari/ > 270 days 99.581.959.638 100,00% 99.581.959.638 12.222.980.712 568.420.943.766 109.770.010.235 15.905.189.372 82.673.017.234 100% 82.673.017.234 4.899.833.827 667.538.470.074 203.887.536.547 20.641.603.199 21 Doubtful Loss Sub total Troubled Total PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 7. ASET TETAP TIDAK BERFUNGSI 7. FIXED ASSET NOT IN USE Mutasi Tahun 2016 Movement 2016 Harga Perolehan Komputer Inventaris Kantor Jumlah Harga Perolehan Akumulasi Penyusutan Komputer Inventaris Kantor Saldo Awal 1 Jan 2016/ Beginning Balance Jan 1, 2016 29.862.600 54.054.050 83.916.650 (29.862.600) (54.054.050) Jumlah Akumulasi Penyusutan (83.916.650) Nilai Buku - Penambahan/ Addition - - - - - - - Pengurangan/ Disposal Saldo Akhir 31 Des 2016/ Ending Balance Dec 31, 2016 - - - 29.862.600 54.054.050 83.916.650 - (29.862.600) - (54.054.050) Acquisition Cost Computer Office Equipment Total Acquisition Cost Accumulated Depreciation Computer Office Equipment - - (83.916.650) Total Accumulated Depreciation - Book Value Mutasi Tahun 2015 Movement 2015 Penambahan/ Pengurangan/ Disposal Saldo Akhir 31 Des 2015/ Ending Balance Dec 31, 2015 - - - - - - - 29.862.600 54.054.050 83.916.650 (29.862.600) (54.054.050) Acquisition Cost Computer Office Equipment Total Acquisition Cost Accumulated Depreciation Computer Office Equipment (83.916.650) Total Accumulated Depreciation - Book Value In relation to fixed assets not in use with nil book value, SGM CDC has submitted a Letter No: Tel. 243/KU710/CDC-A1000000/2012 dated November 19, 2012 to the Ministry of SOE requesting for Approval to write-off PKBL Telkom Unit’s fixed asset. However, until the completion date of the financial statement, this approval has not been received. Harga Perolehan Komputer Inventaris Kantor Jumlah Harga Perolehan Akumulasi Penyusutan Komputer Inventaris Kantor Jumlah Akumulasi Penyusutan Nilai Buku Saldo Awal 1 Jan 2015/ Beginning Balance Jan 1, 2015 29.862.600 54.054.050 83.916.650 (29.862.600) (54.054.050) (83.916.650) - Addition - - - - - - - Terkait dengan aset tetap tidak berfungsi yang nilai bukunya telah nihil tersebut di atas, SGM CDC telah mengirim Surat kepada Kementerian BUMN dengan Nomor: Tel.243/ KU710/ CDC - A1000000/ 2012 tanggal 19 November 2012, perihal Permohonan Ijin Penghapusan Aset Tetap Unit PKBL Telkom tersebut. Namun demikian sampai dengan tanggal penyelesaian laporan keuangan belum diperoleh izin penghapusan tersebut. 22 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 8. PINJAMAN BERMASALAH 8. TROUBLED LOAN a. Pinjaman Kepada Mitra Binaan Menurut a. Loan to Foster Partners Classified by Community Development (CD) Area Community Development (CD) Area Pinjaman mitra binaan bermasalah pada tanggal 31 Desember 2016 dan 2015 berdasarkan CD Regional adalah sebagai berikut: loan from foster partners as at Troubled December 31, 2016 and 2015 by CD Regional is as follow: 31 Desember/December 31, 2016 2015 22.906.428.079 22.045.423.531 CD Area I Sumatera 8.507.721.907 CD Area II DKI Jakarta & Banten 9.667.473.840 CD Area III Jabar 7.608.245.571 CD Area IV Jateng & DIY 9.446.672.858 CD Area V Jatim & Madura CD Area VI Kalimantan 8.939.010.806 CD Area VII Kawasan Timur Indonesia 18.379.765.863 16.458.468.721 11.483.391.100 9.595.728.427 11.628.270.532 12.195.319.767 11.722.785.212 CD Area I Sumatera CD Area II DKI Jakarta & Banten CD Area III Jabar CD Area IV Jateng & DIY CD Area V Jatim & Madura CD Area VI Kalimantan CD Area VII Kawasan Timur Indonesia 97.911.688.980 82.673.017.234 CD Corporate Jumlah Penyisihan Pinjaman Bermasalah 9.352.156.183 - CD Corporate 107.263.845.163 (107.263.845.163) 82.673.017.234 Total (82.673.017.234) Allowance for Impairment of Troubled Loan Jumlah Pinjaman Bermasalah - Neto - - Troubled Loan Distribution - Net Terkait dengan pinjaman mitra binaan bermasalah tersebut, CDC telah beberapa kali mengusulkan kepada Kementerian Badan Usaha Milik Negara untuk dihapusbukukan. Terakhir melalui surat SGM CDC Nomor tanggal Tel.181/KU000/CDC-A1000000/2016 28 Desember untuk diusulkan 2016 dihapusbukukan sebesar Rp106.408.887.863 yang merupakan pinjaman bermasalah periode 1 Januari 2001 sampai dengan 20 Desember 2016. Sampai dengan tanggal penyelesaian laporan keuangan untuk penghapusbukuan bermasalah belum diperoleh dari Kementerian BUMN. persetujuan pinjaman In relation to such troubled loan from foster partners, CDC has proposed several times to Ministry of State-Owned Enterprise (SOE) to write-off the trouble loan. The latest, SGM CDC sent the Letter No: Tel.181/KU000/CDC- A1000000/2016 dated December 28, 2016 regarding off proposal Rp106,408,887,863 which are troubled loans from January 1, 2001 until December 20, 2016. to write the Until the completion date of the financial statement, the approval for the proposal to write-off for the troubled loan has not been obtained from the Ministry of SOE. b. Pinjaman Bermasalah Diterima Kembali b. Repayment of Troubled Loan 31 Desember/December 31, 2016 2015 Saldo awal Penambahan 82.673.017.234 77.773.183.407 26.933.698.669 5.637.473.724 Beginning balance Additions Saldo akhir Jumlah pinjaman bermasalah 109.606.715.903 83.410.657.131 (107.263.845.163) (82.673.017.234) Ending balance Total troubled loan Pinjaman bermasalah Diterima kembali 2.342.870.740 737.639.897 Repayment of Troubled Loan 23 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 9. LIABILITAS LANCAR LAINNYA 9. OTHER CURRENT LIABILITIES 31 Desember/December 31, 2016 2015 PT Bank Rakyat Indonesia (Persero) Tbk PT Pos Indonesia (Persero) Tbk Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk PT Perkebunan Nusantara VIII PT Industri Nuklir Indonesia (Persero) - - - - 5.691.103.171 3.371.533.422 1.161.114.697 489.694.586 259.501.179 PT Bank Rakyat Indonesia (Persero) Tbk PT Pos Indonesia (Persero) Tbk Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk PT Perkebunan Nusantara VIII PT Industri Nuklir Indonesia (Persero) Jumlah liabilitas lancar lainnya - 10.972.947.055 Total other current liabilities Pengembalian dana Program BUMN Peduli Refunds of SOE Care Program liabilitas lancar dari PT Bank Rakyat Saldo Indonesia, PT Pos Indonesia dan PT Industri Nuklir Indonesia adalah pengembalian dana BUMN Peduli yang laporan pelaksanaannya masih dalam proses evaluasi oleh CDC yang sampai dengan tanggal proses 31 Desember penyelesaian. 2015 masih dalam tanggal 31 Desember Pada saldo pengembalian dana program BUMN Peduli sebesar Rp9.811.832.358 telah dicatat sebagai pendapatan lain-lain. 2016, Other current liabilities from PT Bank Rakyat Indonesia, PT Pos Indonesia and PT Industri Nuklir Indonesia represent repayments of remaining funds from SOE Care Program in which the realization reports were evaluated by CDC and until December 31, 2015 were still in progress. As of December 31, 2016, the balance of the refund of SOE Care Program is Rp9,811,832,358 has been recorded as other income. Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk Berdasarkan Keputusan Indonesia Komisaris PT Telekomunikasi Tbk No. 17/KEP/DK/2014/RHS tanggal 10 Desember 2014, besaran dana PKBL untuk tahun 2015 adalah sebagai berikut: (Persero) a) Program kemitraan sebesar Rp 0; lingkungan b) Program bina Rp82.000.000.000. sebesar Tbk Decree (Persero) Based on Commisioners of PT Telekomunikasi Indonesia No. 17/KEP/DK/2014/RHS dated December 10, 2014, the amount of Partnership and Community Development Programs Funds for 2015 is as follow: a) Partnership program amounting Rp 0; b) Community development program amounting Rp82,000,000,000. Sehingga total alokasi bagian laba dari BUMN Pembina adalah sebesar Rp82.000.000.000. Dana alokasi tersebut direalisasi pada bulan Februari, Maret, Oktober dan Desember 2015. The total of fund allocation from the Foster SOE was Rp82,000,000,000. The allocated fund were realized on February, March, October and December 2015. bina adalah Selama tahun 2015, realisasi penyaluran dana program sebesar lingkungan Rp72.410.726.781 dan biaya operasional PKBL adalah sebesar Rp8.428.158.522. Sehingga sisa dana bina lingkungan yang belum digunakan sebesar Rp1.161.114.697 menjadi sumber dana program bina lingkungan tahun 2016 dan diakui sebagai pendapatan lainnya di Laporan Aktivitas. During 2015, realization for fund distribution for community development program amounted to Rp72,410,726,781 and operational expenses is Rp8,428,158,522. Therefore, the remaining funds is Rp1,161,114,697 become the source of funds for community development program in 2016 and recognizes as other income in the Statement of Activities. 24 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 10. ANGSURAN BELUM TERIDENTIFIKASI 10. UNIDENTIFIED INSTALLMENTS Saldo Awal Teridentifikasi selama tahun berjalan Angsuran tahun berjalan yang belum teridentifikasi Saldo Akhir 31 Desember/December 31, 2016 2015 467.059.449 (366.782.723) 121.047.323 (141.876.560) 448.996.224 487.888.686 Beginning Balance Identified during the year Unidentified Installment during the year 549.272.950 467.059.449 Ending Balance 11. KELEBIHAN PEMBAYARAN ANGSURAN 11. OVERPAYMENT OF INSTALLMENTS 31 Desember/December 31, 2016 2015 Kelebihan Pembayaran Angsuran 160.352.992 158.652.706 Overpayment of Installments 12. UTANG LAIN - LAIN 12. OTHER PAYABLE Rincian utang lain-lain pada tanggal 31 Desember 2016 dan 2015 adalah sebagai berikut: Detail of other payable as of December 31, 2016 and 2015 are as follows: PT Finnet Indonesia PT PINS Indonesia Saldo Akhir 31 Desember/December 31, 2016 2015 25.000.000 - 12.500.000 107.046.500 25.000.000 119.546.500 PT Finnet Indonesia PT PINS Indonesia Ending Balance PT PINS Indonesia PT PINS Indonesia Utang kepada PT PINS Indonesia, pihak berelasi, adalah atas transaksi pengadaan untuk penyaluran program bina lingkungan. Payable to PT PINS Indonesia, related party, represents for procurement community development funds distribution. transactions PT Finnet Indonesia PT Finnet Indonesia PT Finnet Indonesia provides services to provice virtual accounts which are used in the Company’s agreement with Bank UMKM as tools of payment for Bank UMKM’s foster partners to pay their monthly receives Rp12,500,000 each month as collection fee. installment. Finnet PT PT Finnet Indonesia menyediakan akun virtual yang digunakan sebagai media pembayaran bagi mitra binaan dalam sinergi penyaluran CDC dengan Bank UMKM. Atas jasa ini, PT Finnet Indonesia memperoleh Rp12.500.000 per bulan sebagai biaya penagihan. 25 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 13. ASET NETO 13. NET ASSETS 31 Desember/December 31, 2016 2015 Aset Neto Tidak Terikat Aset Neto Terikat (631.873.798.727) (571.428.772.792) - - Unrestricted Net Assets Restricted Net Assets Jumlah (631.873.798.727) (571.428.772.792) Total Mutasi Aset Neto Movement of Net Asset 31 Desember/December 31, 2016 2015 Aset Neto Tidak Terikat Unrestricted Net Asset Aset Neto Tidak Terikat - Awal Tahun Penurunan Aset Neto Tidak Terikat 571.428.772.792 584.874.399.174 (13.445.626.382) 60.445.025.935 Unrestricted Net Asset - Beginning of Year Decrease in Unrestricted Net Asset profit Aset Neto Tidak Terikat - Akhir Tahun 631.873.798.727 571.428.772.792 Unrestricted Net Asset - End of Year 14. PENERIMAAN DARI BUMN PEMBINA 14. REVENUE FROM FOSTER SOE Sesuai keputusan Rapat Umum Pemegang Saham Tahunan (RUPST) PT Telekomunikasi Indonesia (Persero) Tbk (“Perseroan”) tanggal 22 April 2016, telah ditetapkan besaran dana Program Bina Lingkungan Telkom Group tahun buku 2016 sebesar Rp82.000.000.000 atau 0,53% dari laba bersih Perseroan tahun buku 2015 yang sumber dananya berasal dari beban Perseroan. Indonesia (RUPST) (Persero) Tbk In accordance with the decision of Shareholders' PT Annual General Meeting Telekomunikasi (the “Company”) on April 22, 2016, the amount of funds for Telkom Group Community Development Program 2016 was Rp82,000,000,000 or 0.53% of the net income for the financial year 2015 in which the funds are from the expense of the Company. nomor Direksi Peraturan Berdasarkan PD.309.00/r.00/HK230/COP-I3000000/2015 tanggal 18 Desember 2015 tentang Rencana Kerja dan Anggaran, telah ditetapkan anggaran Bina LIngkungan adalah sebesar Rp82.000.000.000. berasal Sumber Telkom dana Rp41.000.000.000 Telkomsel dan Rp41.000.000.000. Dana dari Telkom dan Telkomsel tunai masing-masing sebesar Rp41.000.000.000 dan Rp20.000.000.000. Sisa dana sebesar Rp21.000.000.000 berupa kegiatan yang telah dilaksanakan oleh Telkomsel yang dialihkan kepada CDC. telah diterima dari dari on the Directors Based Regulations PD.309.00/r.00/HK230/COP-I3000000/2015 dated December 18, 2015 regarding the Work Plan and Budget, budget of Community Development Program is Rp82,000,000,000. The source of funds are from Telkom for Rp41,000,000,000 and from Telkomsel from received of Telkom and Telkomsel were Rp41,000,000,000 Rp20,000,000,000, and respectively. The remaining of Rp21,000,000,000 were Community development programs conducted by Telkomsel which were transferred to CDC. for Rp41,000,000,000. Funds tidak Efektif 1 Januari 2013, terkait dengan implementasi PER-08/MBU/2013, CDC lagi mencatat alokasi dana BUMN Pembina sebagai pendapatan CDC. Setelah diterbitkannya PER-09/MBU/07/2015 yang mulai berlaku tanggal 3 Juli 2015, CDC masih mencatat alokasi dana BUMN Pembina selama periode transisi (hingga tanggal 31 Desember 2015). in relation Effective January 1, 2013, to the implementation of PER-08/MBU/2013, CDC no longer recognizing allocated income from Foster SOE as revenue of CDC. After the issuance of PER-09/MBU/07/2015 which effectively applied from July 3, 2015, CDC still used the same policy during transitional period (until December 31, 2015). Di tahun 2016, berdasarkan PER-09/MBU/07/2015, CDC mencatat alokasi dana dari BUMN Pembina sebagai pendapatan di Laporan Aktivitas. In 2016, based on PER-09/MBU/07/2015, CDC recognized the fund allocation for the Foster SOE as revenue in the Statement of Activities. 26 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 15. PENDAPATAN JASA ADMINISTRASI PINJAMAN 15. LOAN ADMINISTRATION SERVICE INCOME Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 CDC Pusat CD Area I Sumatera CD Area II DKI Jakarta & Banten CD Area III Jabar CD Area IV Jateng & DIY CD Area V Jatim & Madura CD Area VI Kalimantan CD Area VII Kawasan Timur Indonesia 257.557.486 4.376.192.376 4.607.937.527 5.396.954.184 4.151.961.960 6.609.937.170 4.114.213.402 2.755.178.703 150.000.000 3.691.762.709 2.292.422.961 2.652.856.629 2.028.006.708 3.539.389.210 2.217.056.647 1.303.078.654 Center of CDC CD Area I Sumatera CD Area II DKI Jakarta & Banten CD Area III Jabar CD Area IV Jateng & DIY CD Area V Jatim & Madura CD Area VI Kalimantan CD Area VII Kawasan Timur Indonesia Jumlah 32.269.932.808 17.874.573.518 Total 16. PENDAPATAN BUNGA 16. INTEREST INCOME a. Program Kemitraan a. Partnership Program Jasa Giro Deposito Jumlah Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 895.534.687 - 1.228.105.856 338.597.266 895.534.687 1.566.703.122 b. Bina Lingkungan b. Community Development Jasa Giro Deposito Jumlah Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 1.719.253.436 - 1.111.408.005 1.936.865.578 1.719.253.436 3.048.273.583 17. PENDAPATAN LAIN-LAIN 17. OTHER INCOME Current Account Deposits Total Current Account Deposits Total Pendapatan dari sisa dana Program BUMN Peduli Lainnya Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 18.882.961.931 1.161.114.697 21.206.191 10.000.000 20.044.076.628 31.206.191 27 Income from remaining fund of SOE Care program Others PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 18. DANA PEMBINAAN KEMITRAAN 18. FOSTERING PARTNERSHIP FUNDS Pameran/Promosi Pelatihan Pengembangan Jumlah Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 - - - - 3.061.151.199 2.929.825.648 23.500.000 6.014.476.847 Exhibition/ Promotion Training Development Total terkait dengan Efektif 3 Juli 2015 sampai dengan 31 Desember 2016, implementasi PER- 09/MBU/07/2015, dana pembinaan program kemitraan menjadi beban BUMN Pembina (Catatan 3a dan 19) sehingga CDC hanya mencatat dana pembinaan program kemitraan untuk periode 1 Januari 2015 sampai dengan 2 Juli 2015. Selama tersebut dicatat sebagai 2016, beban-beban bantuan peningkatan kapasitas mitra binaan program kemitraan sebagai bagian dari penyaluran dana bina lingkungan (Catatan 19). to the implementation Effective July 3, 2015 until December 31, 2016, in relation of PER- 09/MBU/07/2015, fostering partnership expenses of CDC were recognized by Foster SOE (Note 3a and 19), therefore CDC only recorded fostering partnership expenses for period January 1, 2015 until July 2, 2015. During 2016, such expenses recorded as capacity improvement donation to foster partners as part of community development funds distribution (Note 19). 19. PENYALURAN DANA BINA LINGKUNGAN 19. COMMUNITY DEVELOPMENT FUNDS DISTRIBUTION Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 Bantuan Bina Lingkungan Bantuan Pendidikan dan/atau Pelatihan Bantuan Pengembangan Prasarana dan/ atau Sarana Umum Bantuan Sarana Ibadah Bantuan Peningkatan Kesehatan Bantuan Peningkatan Kapasitas Mitra Binaan Program Kemitraan Bantuan Pengentasan Kemiskinan Bantuan Korban Bencana Alam Bantuan Pelestarian Alam Jumlah Program Bantuan Bina Lingkungan 35.682.026.990 13.367.649.200 10.615.321.340 10.414.976.500 8.394.233.850 1.641.990.000 941.871.265 911.382.500 81.969.451.645 Community Development Donation Education and/or Training Donation Improvement for Facility and/or Public Facility Donation Religion Facility Donation Healthcare Improvement Donation Capacity Improvement Donation to Foster Partners Poverty Alleviation Nature Disaster Victims Donation Natural Preservation Donation Total Community Development Program - - - - - - - - - tidak Efektif 1 Januari 2013, terkait dengan implementasi PER-08/MBU/2013, CDC lagi mencatat penyaluran dana bina lingkungan sebagai beban CDC (Catatan 3a). Implementasi ketentuan ini masih diterapkan oleh CDC hingga masa transisi pemberlakuan PER-09/MBU/07/2015 (hingga 31 Desember 2015). in relation Effective January 1, 2013, to the implementation of PER-08/MBU/2013, CDC has no longer recognized community development funds distribution as expense of CDC (Note 3a). CDC still treated the same until the end of transitional period of PER-09/MBU/07/2015 (until December 31, 2015). Di tahun 2016, CDC mencatat penyaluran dana bina lingkungan sebagai beban CDC (Catatan 3a). In 2016, CDC recognized community development funds distribution as expense of CDC (Note 3a). 28 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 19. PENYALURAN DANA BINA LINGKUNGAN 19. COMMUNITY DEVELOPMENT FUNDS (lanjutan) DISTRIBUTION (continued) Selama tahun 2015, CDC atas nama dan untuk telah melakukan kepentingan Grup Telkom, lingkungan untuk penyaluran program bina berbagai kegiatan. Penyaluran bina lingkungan sebesar Rp72.410.726.781. Penyaluran bina lingkungan dan beban operasional yang tidak termasuk ke dalam laporan keuangan CDC adalah sebagai berikut: During 2015, CDC on behalf of and for the benefit of Telkom Group has distributed community funds. Community programs development is Rp72,410,726,781. development distribution Community development distribution and its operational expense which are not included in CDC’s financial statements as are follows: Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 Bantuan Bina Lingkungan Bantuan Pendidikan dan/atau Pelatihan Bantuan Pengembangan Prasarana dan/ atau Sarana Umum Bantuan Sarana Ibadah Bantuan Peningkatan Kapasitas Mitra Binaan Program Kemitraan Bantuan Peningkatan Kesehatan Bantuan Korban Bencana Alam Bantuan Pelestarian Alam Bantuan Pengentasan Kemiskinan Jumlah Program Bantuan Bina Lingkungan Beban Operasional Program Kemitraan Program Bina Lingkungan Jumlah 41.150.756.851 15.734.881.300 8.467.194.000 3.525.756.880 1.467.383.000 1.305.604.750 750.150.000 9.000.000 Community Development Donation Education and/or Training Donation Improvement for Facility and/or Public Facility Donation Religion Facility Donation Capacity Improvement Donation to Foster Partners Healthcare Improvement Donation Nature Disaster Victims Donation Natural Preservation Donation Poverty Alleviation 72.410.726.781 Total Community Development Program 6.995.965.895 1.432.192.627 80.838.885.303 Operational Expense Partnership program Community Development program Total - - - - - - - - - - - - 20. BEBAN PEMBINAAN 20. EMPOWERMENT EXPENSES Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2015 2014 Beban Monitoring Mitra Binaan Beban Penagihan Pinjaman Beban Survei Calon Mitra Binaan Jumlah Efektif 3 Juli 2015, terkait dengan implementasi PER-09/MBU/07/2015, beban operasional program kemitraan menjadi beban BUMN Pembina (Catatan 3a dan 19) sehingga CDC hanya mencatat beban pembinaan program kemitraan untuk periode 1 Januari 2015 sampai 2 Juli 2015. - - - - 29 939.110.018 845.059.144 505.711.483 Foster Partners Monitoring Expenses Loan Collection Expenses Foster Partners Survey Expenses 2.289.880.645 Total of in relation the Effective July 3, 2015, implementation PER-09/MBU/07/2015, operational expenses of CDC will be recognized by Foster SOE (Note 3a and 19), therefore CDC only recorded empowerment expenses from January 1, 2015 until July 2, 2015. to PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 21. BEBAN ADMINISTRASI DAN UMUM 21. GENERAL AND ADMINISTRATION EXPENSES Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 Program Kemitraan - 5.584.101.195 Partnership Program Efektif 3 Juli 2015, terkait dengan implementasi PER-09/MBU/07/2015, beban operasional program kemitraan menjadi beban BUMN Pembina (Catatan 3a dan 19). Sehingga, CDC hanya mencatat beban administrasi dan umum untuk periode 1 Januari 2015 sampai 2 Juli 2015. in of to relation the Effective July 3, 2015, implementation PER-09/MBU/07/2015, operational expenses of Partnership Program will be recognized by Foster SOE (Note 3a and 19), therefore CDC only recorded general and administration expenses from January 1, 2015 until July 2, 2015. 22. BEBAN SEWA 22. RENT EXPENSES Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 Program Kemitraan - 1.436.320.910 Partnership Program Efektif 3 Juli 2015, terkait dengan implementasi PER-09/MBU/07/2015, beban operasional PKBL menjadi beban BUMN Pembina (Catatan 3a dan 19) sehingga CDC hanya mencatat beban sewa untuk periode 1 Januari 2015 sampai 2 Juli 2015. in relation the Effective July 3, 2015, to rent implementation of PER-09/MBU/07/2015, expenses of Partnership Program will be recognized by Foster SOE (Note 3a and 19), therefore CDC only recorded rent expenses from January 1, 2015 until July 2, 2015. 23. TRANSAKSI DAN SALDO DENGAN PIHAK 23. TRANSACTIONS AND BALANCES WITH BERELASI RELATED PARTIES Hubungan dan sifat saldo akun/ transaksi dengan pihak - pihak berelasi adalah sebagai berikut: The relationship and nature of account balances/ transactions with related parties were as follows: Hubungan/ Relation Pihak-pihak berelasi/ Related parties Transaksi/ Transaction ` BUMN Pembina/ Foster SOE Entitas sepengendali PT Telekomunikasi Indonesia Tbk / Under common control of PT Telekomunikasi Indonesia Tbk Entitas sepengendali PT Telekomunikasi Indonesia Tbk/ Under common control of PT Telekomunikasi Indonesia Tbk Entitas sepengendali PT Telekomunikasi Indonesia Tbk/ Under common control of PT Telekomunikasi Indonesia Tbk PT Telekomunikasi Indonesia (Persero) Tbk. PT Graha Sarana Duta PT Infomedia Nusantara PT Pins Indonesia 30 Pengalokasian pendapatan program bina lingkungan /Income allocation for community development program Penyedia jasa fitting out ruangan/ Room fitting out provider Penyedia jasa survei opini dan CSR Index/ Opinion Survey and CSR Index service provider Penyedia perangkat CPE (Customer Premises Equipment)/ CPE (Customer Premises Equipment) Provider PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 23. TRANSAKSI DAN SALDO DENGAN PIHAK 23. TRANSACTIONS AND BALANCES WITH BERELASI (lanjutan) RELATED PARTIES (continued) ` Hubungan/ Relation Pihak-pihak berelasi/ Related parties Transaksi/ Transaction Entitas sepengendali PT Telekomunikasi Indonesia Tbk/ Under common control of PT Telekomunikasi Indonesia Tbk PT Metra Digital Media Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas PT Telekomunikasi Indonesia Tbk / Entity under common control of PT Telekomunikasi Indonesia Tbk Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government Perusahaan dibawah entitas sepengendali oleh Pemerintah/ Entity under common control of the Government PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk PT Bank Rakyat Indonesia (Persero) Tbk Penyedia bantuan dana pelatihan Internet/ Fund provider for Internet training program Penyedia dana untuk transaksi operasional/ Funding company for operational transaction Penyedia dana untuk transaksi operasional/ Funding company for operational transaction Penyedia dana untuk transaksi operasional/ Funding company for operational transaction PT Sang Hyang Seri (Persero) BUMN Penyalur lain/ Other Foster SOE PT Finnet Indonesia Penyedia jasa virtual account/ Provider of virtual accounts PT Perkebunan Nusantara VIII Penerima Program BUMN Peduli/ Recipient of SOE Care PT Pos Indonesia Penerima Program BUMN Peduli/ Recipient of SOE Care PT Industri Nuklir Indonesia (Persero) dahulu/formerly PT Batan Teknologi (Persero) Penerima Program BUMN Peduli/ Recipient of SOE Care Perum Perumnas PT Perhutani Penerima Program BUMN Peduli/ Recipient of SOE Care Penerima Program BUMN Peduli/ Recipient of SOE Care 31 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 23. TRANSAKSI DAN SALDO DENGAN PIHAK 23. TRANSACTIONS AND BALANCES WITH BERELASI (lanjutan) RELATED PARTIES (continued) Rincian akun dan transaksi signifikan dengan pihak - pihak berelasi adalah sebagai berikut: The details of accounts and significant transactions with related parties are as follows: Aset Kas dan Setara Kas (Catatan 4) Program Kemitraan Kas di bank PT Bank Mandiri (Persero) Tbk. PT Bank Negara Indonesia (Persero) Tbk. Program Bina Lingkungan Kas di bank PT Bank Mandiri (Persero) Tbk. PT Bank Negara Indonesia (Persero) Tbk. Jumlah kas dan setara kas pada pihak afiliasi Pinjaman kepada BUMN Pembina Lain/ Lembaga Penyalur (Catatan 5) PT Sang Hyang Seri (Persero) Jumlah pinjaman 31 Desember/December 31, 2016 2015 4.749.061.270 7.002.145.427 1.346.644.253 5.252.077.147 6.095.705.523 12.254.222.574 108.199.543.458 107.257.334.628 Assets Cash and Cash Equivalents (Note 4) Partnership Program Cash in banks PT Bank Mandiri (Persero) Tbk. PT Bank Negara Indonesia (Persero) Tbk. Community Development Program Cash in banks PT Bank Mandiri (Persero) Tbk. PT Bank Negara Indonesia 2.678.452 887.773 (Persero) Tbk. 108.202.221.910 107.258.222.401 114.297.927.433 119.512.444.975 - - 9.637.740.363 9.637.740.363 Total cash and cash equivalent in affiliated parties Loan to Other Foster SOE or Distributing Partners (Note 5) PT Sang Hyang Seri (Persero) Total loan Jumlah aset pada pihak afiliasi 114.297.927.433 129.150.185.338 Total assets in affiliated parties Jumlah aset 632.608.424.669 583.146.978.502 Total assets Sebagai prosentase terhadap jumlah aset 18,06% 22,14% As percentage to total assets Liabilitas Liabilitas lancar lainnya PT Bank Rakyat Indonesia (Persero) Tbk PT Pos Indonesia (Persero) Tbk Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk PT Perkebunan Nusantara VIII PT Industri Nuklir Indonesia (Persero)/ dahulu PT Batan Teknologi Jumlah liabilitas lancar lainnya 31 Desember/December 31, 2016 2015 5.691.103.171 3.371.533.422 1.161.114.697 489.694.586 259.501.179 Liabilities Other current liabilities PT Bank Rakyat Indonesia (Persero) Tbk PT Pos Indonesia (Persero) Tbk Perusahaan Perseroan PT Telekomunikasi Indonesia Tbk PT Perkebunan Nusantara VIII PT Industri Nuklir Indonesia (Persero) /formerly PT Batan Teknologi 10.972.947.055 Total other current liabilities - - - - - - 32 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 23. TRANSAKSI DAN SALDO DENGAN PIHAK 23. TRANSACTIONS AND BALANCES WITH BERELASI (lanjutan) RELATED PARTIES (continued) Utang lain- lain (Catatan 12) PT Finnet Indonesia PT PINS Indonesia 31 Desember/December 31, 2016 2015 25.000.000 - 12.500.000 107.046.500 Other Payable (Note 12) PT Finnet Indonesia PT PINS Indonesia Jumlah utang lain-lain 25.000.000 119.546.500 Total other payable Jumlah liabilitas pihak afiliasi 25.000.000 11.092.493.555 Total liabilities in afffiliated parties Jumlah liabilitas 734.625.942 11.718.205.710 Total liabilities Sebagai prosentase terhadap jumlah liabilitas 3,40% 94,66% As percentage to total liabilities Beban Program Kemitraan PT Infomedia Nusantara PT Finnet Jumlah Jumlah beban operasional pihak afiliasi 31 Desember/December 31, 2016 2015 - - - - 3.845.488.368 150.000.000 3.995.488.368 3.995.488.368 Expenses Partnership Program PT Infomedia Nusantara PT Finnet Total Total operational expense in affiliated parties Jumlah beban 76.483.771.624 35.966.382.796 Total expense Sebagai prosentase terhadap jumlah beban 0% 11,1% As percentage to total expense 31 Desember/December 31, 2016 2015 Pendapatan Program Kemitraan Penerimaan dari BUMN Pembina 82.000.000.000 82.000.000.000 - - Revenue Partnership Program Revenue from Foster SOE Interest from Deposits PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Mandiri (Persero) Tbk Total Interest from Deposits Interest from Current Account - - - 284.400.006 54.197.260 338.597.266 Pendapatan Bunga Deposito PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Mandiri (Persero) Tbk Jumlah pendapatan bunga deposito Pendapatan Jasa Giro PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk 741.719.836 1.072.334.546 153.814.851 155.771.310 PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk Jumlah pendapatan jasa giro 895.534.687 1.228.105.856 Total interest from current account 33 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 23. TRANSAKSI DAN SALDO DENGAN PIHAK 23. TRANSACTIONS AND BALANCES WITH BERELASI (lanjutan) RELATED PARTIES (continued) Program Bina Lingkungan Pendapatan Bunga Deposito PT Bank Negara Indonesia (Persero) Tbk PT Bank Mandiri (Persero) Tbk Jumlah pendapatan bunga deposito Pendapatan Jasa Giro PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk Tahun yang Berakhir pada Tanggal 31 Desember/ Year Ended December 31, 2016 2015 - - - 109.917.807 21.304.109 131.221.916 1.719.253.436 1.107.748.983 - 3.659.022 Community Development Program Revenue from Deposits PT Bank Negara Indonesia (Persero) Tbk PT Bank Mandiri (Persero) Tbk Total interest from deposits Interest from Current Account PT Bank Mandiri (Persero) Tbk PT Bank Negara Indonesia (Persero) Tbk Jumlah pendapatan jasa giro 1.719.253.436 1.111.408.005 Total Interest from current account Pendapatan Lain-lain 20.044.076.628 21.206.191 Other Income Jumlah pendapatan dari pihak afiliasi 104.693.889.142 2.830.539.234 Total revenues from affiliated parties Jumlah pendapatan 137.084.809.234 22.520.756.414 Total revenue Sebagai prosentase terhadap jumlah pendapatan 76,31% 12,57% As percentage to total revenue 24. PEMBATASAN PENGGUNAAN DANA 24. RESTRICTED FUND USAGE Kep.100/MBU/2002 Program Kemitraan a. Penilaian Efektivitas Penilaian kinerja program kemitraan dan bina lingkungan berdasarkan Keputusan Menteri BUMN No. Kep.100/MBU/2002 tanggal 4 Juni 2002 mencakup Program Kemitraan dengan Indikator Tingkat Efektivitas penyaluran dan Tingkat Kolektibilitas Pengembalian Pinjaman. Tingkat efektivitas penyaluran dana dihitung jumlah dana yang dengan cara membagi disalurkan dengan jumlah dana yang tersedia. Jumlah dana yang disalurkan adalah seluruh dana yang disalurkan kepada usaha kecil dan koperasi dalam tahun yang bersangkutan yang terdiri dari pinjaman modal kerja. Sedangkan jumlah dana yang tersedia terdiri dari saldo awal periode ditambah dengan pengembalian pinjaman (pokok ditambah bunga) dan pendapatan bunga dari program kemitraan. 34 Kep.100/MBU/2002 Partnership Program a. Effectivity Performance The performance evaluation of partnership and community development program is based on the Minister of SOE Decree No. Kep.100/ MBU/ 2002 dated June 4, 2012 regarding The Effectiveness Indicator of Partnership Program Loan Distribution and the Collectibility of the Loan Repayments. loan distribution The effectiveness of is calculated by dividing the amount of distributed funds by the amount of the utilizable funds. Amount of distributed funds represents all current year to small enterprise businesses and cooperation. The funds are distributed as working capital loans. Utilizable funds is calculated by adding the beginning balance with repayments (principal and the interest repayments) and with interest income from partnership program. funds distribution loan PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 24. PEMBATASAN PENGGUNAAN DANA (lanjutan) 24. RESTRICTED FUND USAGE (continued) Kep.100/MBU/2002 (lanjutan) Kep.100/MBU/2002 (continued) Program Kemitraan (lanjutan) Partnership Program (continued) Tabel skor tingkat penyerapan dana Score of funds absorbtion table Penyerapan % Skor >90 3 85 s.d 90 2 80 s.d 85 1 <80 0 % of absorbtion Score Distribusi dana Jumlah Dana yang Disalurkan (Catatan 24) Dana Pembinaan Kemitraan (Catatan 18, 24) Saldo Awal Kas dan Setara Kas Program Kemitraan Pengembalian Pinjaman Mitra Binaan (Catatan 24) Pendapatan Jasa Administrasi Pinjaman (Catatan 15) Tahun yang Berakhir pada Tanggal 31 Desember 2016/ Year ended December 31, 2016 360.920.800.000 - 360.920.800.000 22.049.736.381 312.218.727.891 32.269.932.808 366.538.397.080 Fund Distribution Amount of Distribution (Note 24) Fostering Partnership Funds (Note 18, 24) Beginning Balance for Cash and Cash Equivalent of Partnership Program Loan Repayments from Foster Partners (Note 24) Loan Administration Service Income (Note 15) Tingkat efektivitas penyaluran Level of the effectiveness of the loan distribution (prosentase distribusi dana terhadap dana yang tersedia) 98,47% (percentage of fund distribution to available fund) Skor tingkat efektivitas penyaluran pinjaman 3 distribution Score of level of the effectiveness of the loan b. Tingkat kolektibilitas Penyaluran Pinjaman b. Collectibility level of the Loan Distribution suatu indikasi pinjaman. pengembalian Indikator lain dalam penilaian kinerja program kemitraan dan bina lingkungan yaitu tingkat kolektibilitas pengembalian pinjaman yang kemungkinan mana memberi tertagihnya Tingkat pinjaman kolektibilitas merupakan perbandingan antara rata-rata terhadap tertimbang kolektibilitas pinjaman jumlah pinjaman yang disalurkan (saldo pinjaman). Rata-rata tertimbang kolektibilitas pinjaman adalah perkalian antara bobot kolektibilitas pinjaman berdasarkan kualitas pinjaman (lancar: 100%, kurang lancar: 75%, diragukan: 25% dan macet: 0%). dengan saldo Another performance indicator of partnership and community development program is the collectibility of repayments which indicates the probability of a loan to be fully paid. The collectibility level is calculated by comparing the funds with weighted average collectibility distributed funds. Weighted average funds is the result of multiplying the collectibility weightage with the balance of each quality of the loan (e.g: current: 100%, substandard: 75%, doubtful: 25% and troubled: 0%) 35 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 24. PEMBATASAN PENGGUNAAN DANA (lanjutan) 24. RESTRICTED FUND USAGE (continued) Kep.100/MBU/2002 (lanjutan) Kep.100/MBU/2002 (continued) Skor tingkat kolektibilitas pengembalian pinjaman adalah sebagai berikut: Score of loan repayments collectibility level is as follows: Tingkat Pengembalian (%) Skor >70 3 40 s.d 70 2 10 s.d 40 1 <10 0 % of Collectibility Level Score Rata - rata tertimbang kolektibilitas pinjaman per 31 Desember 2016 adalah sebagai berikut: Weighted average amount of the collectibility of the loan as of December 31, 2016 is as follows: Kualitas Pinjaman Saldo pinjaman (Catatan 6e) (tidak diaudit)/ Loan balance (Note 6e) (unaudited) 2.942.482.190.207 Lancar 127.110.480.096 Kurang Lancar 40.875.922.000 Diragukan 332.148.894.359 Macet Jumlah 3.442.617.486.662 Tingkat kolektibilitas pengembalian pinjaman tertimbang (prosentase kolektibilitas pinjaman saldo pinjaman yang disalurkan) Nilai pinjaman tingkat kolektibilitas pengembalian terhadap rata-rata jumlah % 100% 75% 25% 0% 88,54% Jumlah rata-rata tertimbang/ Weighted Average Amount Loan Quality 2.942.482.190.207 95.332.860.072 10.218.980.500 - 3.048.034.030.779 Current Substandard Doubtful Troubled Total Loan repayment collectibility level (percentage of weighted average loan collectibility to loan distribution) 3 Score of repayments collectibility level 36 PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) CATATAN ATAS LAPORAN KEUANGAN 31 Desember 2016 dan Tahun yang Berakhir pada Tanggal tersebut (Disajikan dalam Rupiah) The original financial statements included herein are in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA TBK PUSAT PENGELOLAAN PROGRAM KEMITRAAN DAN PROGRAM BINA LINGKUNGAN (COMMUNITY DEVELOPMENT CENTER) NOTES TO THE FINANCIAL STATEMENTS December 31, 2016 and Year then Ended (Expressed in Rupiah) 24. PEMBATASAN PENGGUNAAN DANA (lanjutan) 24. RESTRICTED FUND USAGE (continued) Laporan Arus Kas - Metode Langsung Statement of Cash Flows - Direct Method Tahun yang Berakhir pada tanggal 31 Desember/ Year Ended December 31, 2016 2015 AKTIVITAS OPERASI Penerimaan Dana BUMN Pembina Pengembalian Pinjaman Mitra Binaan Angsuran Belum Teridentifikasi Pembayaran Utang Pendapatan Jasa Administrasi 61.000.000.000 82.000.000.000 312.218.727.891 267.227.495.235 346.012.126 (1.227.348.500) (366.782.723) - OPERATING ACTIVITIES Fund Received from Foster SOE Loan Repayments from Foster Partners Unidentified Installments Payable Payment Pinjaman Pendapatan Bunga Penyaluran Pinjaman Penyaluran Bina Lingkungan Dana Pembinaan Kemitraan Pendapatan Lain-lain Beban Pembinaan Beban Administrasi dan Umum Pembayaran Beban Sewa Restitusi kepada Mitra Binaan KAS NETO DIGUNAKAN UNTUK AKTIVITAS OPERASI PENURUNAN KAS DAN SETARA KAS KAS DAN SETARA KAS PADA AWAL TAHUN KAS DAN SETARA KAS PADA AKHIR TAHUN 32.269.932.808 2.614.788.123 29.443.919.585 4.614.976.705 (360.920.800.000) (340.959.090.000) Loan Administration Service Income Interest Income Loan Distribution (80.838.885.303) Community Development Fund Distribution Fostering Partnership Funds (6.014.476.847) Other Revenue 9.811.832.358 Empowerment Expenses (2.289.880.645) General and Administration Expenses (5.584.101.195) Payment of Rent Expenses (1.436.320.910) Refund to Foster Partners (52.918.714) (60.964.531.645) - 9.071.129.573 - - - (136.981.569) (5.214.517.542) (44.958.786.105) (5.214.517.542) (44.958.786.105) 119.512.444.975 164.471.231.080 114.297.927.433 119.512.444.975 NET CASH FLOWS USED TO OPERATING ACTIVITIES DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR 37

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