Telkom Indonesia Annual Report 2017

Plain-text annual report

20172017 Annual Report AccelerAting the indonesiAn digitAl economy A PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices B B PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsTata Kelola Perusahaan Tanggung Jawab Sosial Perusahaan Program Kemitraan dan Bina Lingkungan (PKBL) Lampiran DIsclAImEr This Annual Report, hereinafter called “Report”, presents PT Telkom Indonesia (Persero) Tbk performance for the period of January 1 to December 31, 2017. “Telkom”, “The Company” or “We” refer to PT Telkom Indonesia (Persero) Tbk as a parent company, while “Telkom Group” refers to the Telkom family comprising of parent company, subsidiary entities, as well as domestic and international tier 2 subsidiaries. The word “Government” in this Report means the Government of the Republic of Indonesia, while “the United States of America” denotes the Government of the United States of America. In making this Report, we refer to the Circular Letter of Financial Services Authority No. 30/ SEOJK.04/2016 on Annual Report Format and Content for Issuers and Public Companies and several other regulations. Some parts of this Report could also be found on Report Form 20-F in accordance with the Securities and Exchange Commission (“SEC”) of the United States of America. However, this Report is not attached to Report Form 20-F. When we prepared this Report, we selected and presented important information and data for the investors, the government and other parties. The materials of this Report came from various reliable documents and sources. Financial data is presented in Rupiah (Rp) and US Dollar (US$). This report also contains our forward-looking statement such as our targets, expectations, estimations, or projections in the future. Even after careful consideration, we realize that this information is subject to risks and uncertainties. Hence, in line with the implementation of good corporate governance, we could not guarantee that the said forward-looking statement will be entirely fulfilled. In addition to the Annual Report, we have also prepared a Sustainability Report of 2017. We suggest to all parties to take a look to our Sustainability Report since the information and data presented will complement this Report. Our Annual Report and Sustainability Report are available for download at http://www.telkom.co.id Furthermore, we invite all readers to submit questions and suggestions to this Report to: Investor Relation Unit Andi Setiawan Tel. Fax. +62-21-5215 109 +62-21-5220 500 PT Telkom Indonesia (Persero) Tbk E-mail investor@telkom.co.id Telkom Landmark Tower, 39th Floor Facebook TelkomIndonesia Jl. Jend. Gatot Subroto Kav.52 Instagram telkomindonesia Jakarta 12710, Indonesia Twitter @telkomindonesia PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) Tbk 1 1 rEPOrT THEmE ACCELERATING THE INDONESIAN DIGITAL ECONOMY Aligning to our transformation toward digital telecommunication company, we are taking an important role in accelerating Indonesian digital economy. Our advanced and integrated infrastructures open up a variety of economic opportunities. We are also catalyzing Indonesian digital economy by providing various digital technologies and platforms as well as by becoming a medium for digital startups to develop their innovations. This is Telkom, for Indonesia. 2 2 PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) Tbk THEmEs cONTINUITY 20172017 Annual Report AccelerAting the indonesiAn digitAl economy 2017 Accelerating the Indonesian Digital Economy Aligning to our transformation toward digital telecommunication company, we are taking an important role in accelerating Indonesian digital economy. Our advanced and integrated infrastructures open up a variety of economic opportunities. We are also catalyzing Indonesian digital economy by providing various digital technologies and platforms as well as by becoming a medium for digital startups to develop their innovations. This is Telkom, for Indonesia. 2016 Annual Report maximo BUiLDiNG iNDoNESiaN DiGiTaL ECoNomY 2016 Building Economy With integrated infrastructures, Telkom Indonesian Digital 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. 2015 Building Society In order to realize a digital society, Indonesian Digital 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. 2014 Sustainable Competitive Growth through Digital Business Investing in digital business is a necessity for Telkom to improve competitiveness while maintaining sustainable competitive growth in the future. 2013 Creating Global Talents and Opportunities 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. PT Telkom Indonesia (Persero) Tbk 3 BrIEF PrOFIlE OF TElKOm AND ITs sUBsIDIArIEs BRIEF PROFILE OF TELKOM Company’s Name PT Telkom Indonesia (Persero) Tbk Commercial Name Telkom Business Field, Type of Products and Services Telecommunication and information Media and edutainment Telecommunication Infrastructure Corporate Status Public Company, State-Owned Enterprise Ownership 52.09% The Government of the Republic of Indonesia 47.91% Public Legality NPWP 01.000.013.1-093.000 TDP 101116407740 SIUP 510/3-0689/2013/7985-BPPT Date of Establishment November 19, 1991 Legal Basis of Establishment and Transformations legal basis of establishment Pursuant to the Government Regulation No.30 of 1965 on Establishment of State Telecommunication Corporation. legal basis of transformation Pursuant to the Government Regulation No.25 of 1991, the Company’s status is transformed into state-owned limited liability company (“company”) based on Notarial Deed of Imas Fatimah, S.H., No.128, dated September 24, 1991 approved by the Minister of Justice of the Republic of Indonesia through Decree No.C2 6870.HT.01.01.Year.1991 dated November 19, 1991 and announced in State Gazette of the Republic of Indonesia No.5 of January 17, 1992 Supplement to the State Gazette No.210. 4 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Address and Contact of Corporate Office Graha Merah Putih Jl. Japati No. 1, Bandung Jawa Barat, Indonesia - 40133 Phone Fax : +62-22-4521404 :+62-22-7206757 Call center : 147 Website E-mail Social media Facebook Instagram Twitter : www.telkom.co.id : corporate_comm@telkom.co.id investor@telkom.co.id :TelkomIndonesia : telkomindonesia : @telkomindonesia Stock Listing The Company was listed at Indonesia Stock Exchange (IDX) and New York Stock Exchange (NYSE) on November 14, 1995 Stock Symbol Indonesia Stock Exchange: TLKM New York Stock Exchange: TLK Stock Type Series A Dwiwarna shares and Series B shares Authorized Capital 1 A series Dwiwarna share 399,999,999,999 B series share Issued and Fully Paid Capital 1 A series Dwiwarna share 100,799,996,399 B series share Rating idAAA (Pefindo) for the year 2014, 2015, 2016, 2017 and 2018 Services Centers 7 Telkom Regional Offices (“Telkom Regional”) 60 Telecommunication Zones 535 Plasa Telkom Outlets 4 GraPARI Telkom Group in Bandung, Surabaya, Tangerang and Medan 10 International GraPARI in Saudi Arabia, Singapore, Hong Kong, Macau, Taiwan and Malaysia 432 GraPARI in Indonesia, including those managed by third parties 761 GraPARI Mobile Units 1,142 IndiHome Mobile Units Subsidiary Entities and Associations 11 Direct operating subsidiaries 1 Direct inactive subsidiary 22 Indirect subsidiaries 5 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices BRIEF PROFILE OF TELKOM’S SUBSIDIARIES This part shows the brief profile of direct operating subsidiaries. www.telkomsel.com www.telkomakses.co.id PT Telekomunikasi Selular (Telkomsel) PT Telkom Akses (Telkom Akses) PT Graha Sarana Duta (Telkom Property) Cellular operators with more than 196.3 million customers, 160.7 thousand BTS with the widest coverage in Indonesia. Products and Services: • Kartu Halo (postpaid) • simPATI (prepaid) for the middle class segment • Kartu As (prepaid) with affordable prices • LOOP (prepaid) for the young adult segment • Mobile Financial Service (TCASH) • Digital Advertising • Enterprise Digital Services Construction and management service for network infrastructures. fixed-broadband access Products and Services: • Constructions service fixed-broadband access network • Operations and maintenance services access network of fixed-broadband (Managed Services) Property service provider offering mainly smart environmentally-friendly properties concept. and Products and Services: Property property management, development, property lease and property facilities. www.patrakom.co.id www.metra.co.id www.mitratel.co.id PT Patra Telekomunikasi Indonesia (Patrakom) PT Multimedia Nusantara (Telkom Metra) PT Dayamitra Telekomunikasi (Mitratel) the Broadband satellite business maritime business, natural resources/ agricultures, banking and oil & gas segment. for Products and Services: • Vessel Tracking Management System Investment and holding company, expanding to various basic services, company digital services and ICT industry which is adjacent to business portfolio service through acquisitions and erecting a strong business ecosystem. services provider National scale telecommunication tower infrastructure (tower provider), high quality with competitive price and number of towers (end of year 2017) reaching up to 11,061 units and 13,083 tenants. (VTMS) • Vessel Management System (VMS) • Mobile Satellite Service (MSS) • Stabilized Antenna Satellite Services • Radio-IP • VSAT-SCPC • VSAT-IP • Prepaid Vessel Broadband (coconet) 6 Mitratel also manages tower through reseller business scheme of 6,285 tenants, bringing the total tenant Mitratel including tenants of the reseller business to 19,368 tenant. Products and Services: • Built to Suit (B2S) • Collocation & Reseller • Microcell • Solution Services (Tower Related Service) Service Products and Services: Satellite, Bill Payment Switching, System Integration, Manage (cloud), BPO-Resource Management, Customer Relationship Management, e-Commerce, Data Center, Digital Directory, Digital Printing, e-Payment Platform, Online Payment Solution, e-Health, Digital Music, Premise Integration Integration Service, System Maritime, e-Tourism Platform, Integrated Digital Media, Agency, Service Desk Management, Data Analytic, Bill Payment Aggregator, Direct Carrier Billing, Digital Advertising Platform, Manage Network Service, Corporate Venture Capital, Health Service, Internet Data Center, Consumer Broadband, MediaHub, IoT, Medical Device, BPO-ESS, e-Logistic, TaaS. PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Jalin Pembayaran Nusantara (Jalin) PT Telekomunikasi Indonesia International (Telin) PT Metranet (Metranet) www.telin.co.id ATM, EDC and electronic money management services to support national payment gateway. Products and Services: System and/or network management of card payment instruments (APMK) including switching, routing and settlement service. Mobile and online media businesses by increasing online visits, enriching services and optimizing monetization process. On November 2016, Metranet became a holding company since the acquisition of 52% share of PT Melon Indonesia (Melon) to strengthen digital content business. Products and Services: • U-Ad provides platform digital advertising • U-Point, virtual payment instrument Global operator which offers solutions and is enabler for digital businesses supported by international service infrastructures focusing on connectivity and cloud, reaching more than 27 countries with global offices in 11 countries to realize Telkom as global digital hub. Products and Services: • Voice Wholesale • Data Connectivity • Mobile Network Operator and Mobile Virtual Network Operator • Business Process Outsourcing • Data Center • Satellite Service • Solution Service (Internet Security, IPX, Go Presence) www.telkominfra.co.id www.pins.co.id PT Infrastruktur Telekomunikasi Indonesia (Telkom Infra) PT PINS Indonesia (PINS) for domestic service Telecommunication management (managed and service) international infrastructure solutions provider with business and capabilities in submarine cable portfolio the operation through and maintenance of Submarine Cable Communications System. Products and Services: Energy Solution, Service, Construction Solution. Submarine Infrastructure Managed and Cableship Mobility Services, CPE Services, and IoT Services/M2M Solution. Products and Services: • Premise Equipment & Integration Comprising of CPE Trading, Mobile Device Trading, CPE Mobile Service, Enterprise Premise Integration, ICT Security and M2M Solution • Internet of Things (IoT) solutions 7 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesHighlights Management Report About Telkom Indonesia Analysis and Discussion 8 8 PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Appendices Transform and Digitize TELKOM’S DIGITAL TRANSFORMATION To be one of top ten telecommunication companies in Asia Pacific with the largest market capitalization, we have digitalized our business by adapting the connectivity-based business into end-to-end digital service experience business for the purpose of making transformation into Digital Telco. The spirit of transformation into Digital Telco came from 3 paradigms, namely Digital (building and strengthening digital business), Lean (more agile, faster and more productive), Customer Experience (always oriented towards providing the best customer experience). To Achieve The Goal, We Need To Drive Transformation Across Three Main Parts Building A Digital Business • Add value to the core business through compelling digital offers • Provide a mediation platform by opening up assets to digital players • Capture part of the digital value chain through partnership/ investments Transforming Into Digitized Enterprise • Digitized Operations • Transform back-end functions • Digital touch point Adopting Digital culture • Agile in value experimentation and speed • Foster collaboration practices • Data driven fast decision PT Telkom Indonesia (Persero) Tbk 9 9 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices PrODUcTs AND cUsTOmErs PROVIDING VARIOUS CUSTOMER SEGMENT INTEGRATED SERVICES FOR EVERY Enterprise mobile consumer Focusing on corporate, small, medium, and micro-scaled business and institutions customers by providing end-to-end ICT solution. government Focusing on cellular customers by providing mobile voice, SMS, value added-service and mobile broadband. (residential) Focusing on retail customers by providing immobile telephone service, pay TV, internet data and other telecommunication services. 10 10 PT Telkom Indonesia (Persero) Tbk PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights191.6 million 4.7 million Prepaid customers Postpaid customers 5.3 million Fixed-Broadband customers (include 2.9 million IndiHome customers) 105.8 million mobile Broadband customers 196.3 million cellular customers 111.1 million Broadband customers 11 million Fixed Wireline (POTs) customers 1,453 corporate customers 300,416 small, medium and micro-scaled Business customers 944 Government Institution customers 12 198 Other licensed Operator (OlO) customers Internet service Provider (IsP), Value Added service, Network Access Provider (NAP) customers 21 Transponder & closed User Group (cUG) customers 206 Global Partners / customers Wholesale and International Business Others licensed operator and Focusing on other international providing interconnection service, circuit, satellite, tower & international business infrastructure leasing and providers by Serving various customers by providing digital and property services. PT Telkom Indonesia (Persero) Tbk 11 11 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesINFrAsTrUcTUrEs WE CONTINUE TO SUPPORT THE NATIONAL DEVELOPMENT AND DIGITALIZATION BY PROVIDING EQUITABLE INFRASTRUCTURES AND CONNECTIVITY IN THE OUTERMOST, FRONTIER AND LEAST DEVELOPED REGIONS Telkom-3s (1180BT) SHM MOS MAN LON LUX AMS PRS MRS MDR FRA SWI MLN PAL WRS KIV VNA SOF IST DUB LSB EIG ALG CAI RYD DUB ND DJI IMEWE BBG SEA-ME-WE 5 SEA-ME-WE 4 BTM DUM JHB SEO SHI TWN TYO C2C APCN-2 SHA HKG MAC RGN BKK HAN BSW SG JKT SBYDPS IGG DIL SJC DVO MDO SJ TOR CHG NYX SLO LAX ASH FASTER TNG-IA AAG HWI JUS UNITY GUA SEA-US SP mobile Network Fiber Optic Access Network Fiber Optik Backbone Network id-Access Indonesia Digital Access 160,705 BTs • 50,324 BTS 2G • 110,381 BTS 3G/4G 29,061 tower 12 18.6 million FTTH home passed 7.2 million optical distribution port (ODP) Total: 155,524 km • Domestic: 90,854 km • International: 64,670 km 352,642 AP PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsSHM MOS MAN LON LUX AMS DUB LSB PRS MRS MDR WRS KIV FRA SWI VNA SOF MLN PAL IST EIG ALG CAI RYD SEO SHI TWN TYO C2C APCN-2 SHA HKG MAC RGN BKK HAN BSW SG JKT SBYDPS IGG DIL SJC DVO MDO DUB ND DJI IMEWE BBG SEA-ME-WE 5 SEA-ME-WE 4 BTM DUM JHB We continually invest in infrastructures in the Indonesia Digital Network program including access networks (id-Access), backbone networks (id-Ring) to data centers and digital platforms (id-Con). Our fiber optic networks spread from Aceh to Papua, becoming foundation of digital business growth. Global and national submarine cable network comprising of SEA-ME-WE 5, SEA-US, BSCS, DMCS, AAG, SJC, IGG, SMPCS and ASBL connecting Europe, Asia and America. Telkom-2 (1570BT) SJ TOR CHG NYX SLO LAX ASH FASTER TNG-IA JUS UNITY GUA SEA-US AAG HWI id-ring Indonesia Digital Ring Point of Presence (PoP) SP id-con Indonesia Digital Convergence satellite Data center Digital Platform • Domestic: 42 PoP • International: 57 PoP • Telkom-2: 24 TPE • Telkom-3s: 49 TPE 102,200 m2 gross facility data center • Big Data & Analytics • API Factory 13 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesOPErATIONs AND sErVIcEs ArEA WE ARE PRESENT IN VARIOUS PARTS OF THE WORLD TO PROVIDE TOTAL SOLUTION SERVICES FOR OUR CUSTOMERS 11 7 FOOTPrINTs all over the World rEGIONAl Divisions 60 TElEcOmmUNIcATION Zones 535 PlAsA Telkom Outlets B G H c A D E F 14 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights4 GraPArI Telkom Group 442 GraPArI in Indonesia and Overseas 761 mOBIlE GraPARI Units 1,142 mOBIlE IndiHome Units Head and Regional Offices International Offices A. Corporate Office B. Regional Division I Sumatera C. Regional Division II Jakarta D. Regional Division III West Java E. Regional Division IV Central Java and Special Region of Yogyakarta F. Regional Division V East Java, Bali and Nusa Tenggara G. Regional Division VI Kalimantan H. Regional Division VII Eastern Indonesia Area 1. Singapore 2. Hong Kong 3. Timor-Leste 4. Australia 5. Malaysia 6. Macau 7. Taiwan 8. USA 9. Myanmar 10. Saudi Arabia 11. New Zealand 15 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTABlE OF cONTENTs rEADING THE rEPOrT cONTENT For ease of stakeholders, Telkom divided this report into two main parts. First Part, from the front page of the Report to the “Management Report” and “Statement Letter”, are dedicated to readers who want to understand Telkom briefly. Investors and other stakeholders who want to understand more detail about Telkom may continue to read this Report from First Part to Second Part, namely the “About Telkom” section and so forth until end of this Report. 1 4 16 18 26 44 102 16 THEmE Disclaimer Report Theme Themes Continuity TElKOm HIGHlIGHTs Brief Profile of Telkom and Subsidiary Entities Telkom’s Digital Transformation Products and Customers Infrastructures Operations and Services Area TABlE OF cONTENTs HIGHlIGHTs Financial Data Overview Stock Highlight Bonds, Sukuk or Convertible Bonds Information mANAGEmENT rEPOrT Report of the Board of Commissioners Report of the President Director Statement Letter of Responsibility for 2017 Annual Report ABOUT TElKOm INDONEsIA Company’s Identity of Telkom Indonesia Vision and Mission 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 Ventures Chronology of Registration of Stocks Chronology of Listing of Bonds and Other Securities Name and Address of Institution and/or Supporting Capital Market Professionals 1 2 3 4 9 10 12 14 20 22 24 28 34 42 46 48 50 52 54 62 64 76 88 91 92 97 99 101 104 ANAlYsIs AND DIscUssION Performance Highlight Operational Overview by Segment Marketing Overview Comprehensive Financial Performance Solvency Receivables Collectability Capital Structure Capital Expenditure Material Commitment for Capital Expenditure Material Information and Fact After Accountant Reporting Date Macroeconomy Indonesian Telecommunication Industry Business Prospects and Sustainability of the Company Comparison Between Targets and Realizations 105 120 124 139 139 140 140 142 144 144 145 147 148 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Corporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Appendices Targets or Projections for the Next Year Dividend Realization of Public Offering Fund Material Transaction Information Containing Conflict of Interest, Transaction with Affiliated Parties, Investment, Divestment and Acquisition Changes in Regulation Changes in Accounting Policy cOrPOrATE GOVErNANcE Implementation and Strengthening GCG Road Map 2013-2018 Corporate Governance Principle and Platform Corporate Governance Assessment Corporate Governance Structure General Meeting of Shareholders (GMS) The Board of Commissioners Audit Committee Committee for Nomination and Remuneration Committee for the Planning and Risk Evaluation and Monitoring Board of Directors Corporate Secretary Information Access and Company’s Data to Public Internal Audit Unit Internal Control System Risk Management System Whistleblowing System Implementation of Share Ownership Policy of Board of Directors and Board of Commissioners Significant Legal Disputes Information Regarding Administrative Sanctions Corporate Culture Corporate Code of Conduct Telkom Employee Stock Ownership Program cOrPOrATE sOcIAl rEsPONsIBIlITY (csr) Corporate Social Responsibility Strategy Corporate Social Responsibilities towards Customers: Prioritizing Customer Satisfaction Corporate Social Responsibilities towards Employees: Building Human Capital Corporate Social Responsibilities towards Socioeconomic Society Corporate Social Responsibilities towards Environment: Environment Conservation and Preservation PArTNErsHIP AND cOmmUNITY DEVElOPmENT PrOGrAm (PKBl) PKBL Summary PKBL Report APPENDIcEs Glossary List of Abbreviations Cross Reference to OJK Circulation Letter No.30/SEOJK.04/2016 cONsOlIDATED FINANcIAl sTATEmENTs Audited Consolidates Financial Statements 2017 Audited PKBL Financial Statements 2017 Feedback Form of PT Telkom Indonesia (Persero) Tbk 2017 Annual Report 152 232 244 254 274 149 149 150 150 151 151 154 156 160 160 161 168 178 182 185 189 201 204 205 207 209 216 220 221 221 222 230 231 235 235 237 239 242 246 247 256 260 264 PT Telkom Indonesia (Persero) Tbk 17 HIGHLIGHTS 20 Financial Data Overview 22 Stock Highlight 24 Bonds, Sukuk or Convertible Bonds Information “Telkom Indonesia maintained strong performance in 2017, with growth in Revenue, EBITDA and Net Income by 10.2%, 8.6%, and 14.4% year on year respectively. Telkom’s market capitalization reached Rp447.6 trillion, or 6.3% of total capitalization in Indonesia Stock Exchange (IDX).” FINANcIAl DATA OVErVIEW 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 Total comprehensive profit for the year Total comprehensive profit 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 (ROE) (%)(2) Operating Profit Margin (%)(3) Current Ratio (%)(4) Total Liabilities to Equity (%)(5) Total Liabilities to Total Assets (%)(6) Debt to Equity Ratio(%)(7) Debt to EBITDA Ratio (%)(8) EBITDA to Interest Expense (x)(9) 2017 128,256 85,362 64,609 43,933 32,701 22,145 10,556 30,369 19,952 10,417 223.6 22,355 2017 198,484 86,354 92,713 2,185 2,148 2017 11,572 15,080 6,504 33,156 2017 11.2 23.9 34.3 104.8 93.1 43.5 31.6 54.9 23.3 Years ended on December 31, 2016 116,333 77,888 59,498 39,195 29,172 19,352 9,820 27,073 17,331 9,742 196.2 19,619 2015 102,470 71,552 51,415 32,418 23,317 15,489 7,828 23,948 16,130 7,818 157.8 15,777 2014 89,696 61,564 45,673 29,206 21,274 14,471 6,803 22,041 15,296 6,745 148.1 14,813 Years ended on December 31, 2016 179,611 74,067 84,384 7,939 1,847 2015 166,173 72,745 75,136 12,499 1,807 2014 141,822 55,830 67,721 1,976 1,767 Years ended on December 31, 2016 10,309 12,564 6,326 29,199 2015 9,641 11,321 5,439 26,401 2014 8,099 13,002 3,560 24,661 Years ended on December 31, 2016 10.8 22.9 33.7 120.0 87.8 41.2 30.1 53.4 21.2 2015 9.3 20.6 31.6 135.3 96.8 43.8 37.0 67.3 20.7 2014 10.2 21.4 32.6 106.1 82.4 39.4 27.3 51.3 25.2 2013 82,967 57,700 41,776 27,846 20,290 14,205 6,085 20,402 14,317 6,085 147.4 14,742 2013 128,555 51,834 59,823 4,638 304 2013 5,313 15,662 3,923 24,898 2013 11.0 23.7 33.6 116.0 86.6 40.3 26.4 48.5 27.8 NOTE : (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 equity. (8) Debt to EBITDA ratio is calculated as net d ebt divided by EBITDA. (9) EBITDA to interest ratio is calculated as EBITDA divided by cost of fund. 20 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Revenue (Rp Billion) 200,000 150,000 100,000 50,000 0 EBITDA (Rp Billion) 82,967 89,696 102,470 116,333 128,256 41,776 45,673 51,415 59,498 64,609 80,000 60,000 40,000 20,000 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Net income (Rp Billion) Net income per share (Rp) 14,205 14,471 15,489 19,352 22,145 147.4 148.1 157.8 196.2 223. 6 40,000 30,000 20,000 10,000 0 Asset (Rp Billion) 200,000 150,000 100,000 50,000 0 400.0 300.0 200.0 100.0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Equity (Rp Billion) 128,555 141,822 166,173 179,611 198,484 59,823 67,721 75,136 84,384 92,713 100,000 80,000 60,000 40,000 20,000 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 21 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicessTOcK HIGHlIGHT TELKOM’S STOCK INFORMATION IN IDX In the table below, we present 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: Price per share of common stock calendar Year Highest lowest closing Volume (shares) Outstanding shares Excluded Treasury stock market capitalization (rp billion) 2013 2014 2015 2016 First Quarter Second Quarter Third Quarter Fourth Quarter 2,580 3,010 3,170 4,570 3,510 4,010 4,570 4,400 (in rupiah) 1,760 2,060 2,485 3,045 3,045 3,305 3,950 3,640 2,150 2,865 3,105 3,980 3,325 3,980 4,310 3,980 27,839,305,000 97,100,853,600 216,720 24,035,761,600 98,175,853,600 288,792 18,742,850,400 98,198,216,600 312,984 23,017,915,300 99,062,216,600 401,184 5,852,647,000 98,198,216,600 335,160 5,808,895,400 99,062,216,600 401,184 5,821,745,500 99,062,216,600 434,448 5,534,627,400 99,062,216,600 401,184 2017 4,840 3,780 4,440 21,225,443,500 99,062,216,600 447,552 First Quarter 4,190 Second Quarter 4,670 Third Quarter 4,840 3,780 4,010 4,500 4,130 4,520 4,680 4,560,626,200 99,062,216,600 416,304 4,954,694,500 99,062,216,600 455,616 4,320,051,800 99,062,216,600 471,744 Fourth Quarter 4,710 3,910 4,440 7,390,071,000 99,062,216,600 447,552 September October November December January February 2018 4,750 4,710 4,350 4,460 4,460 4,460 4,080 4,610 4,010 3,910 4,110 3,920 3,920 3,920 4,680 4,030 4,150 4,440 4,000 3,990 4,000 1,389,011,400 99,062,216,600 471,744 3,756,859,100 99,062,216,600 406,224 2,341,006,100 99,062,216,600 418,320 1,292,205,800 99,062,216,600 447,552 5,561,255,800 99,062,216,600 403,200 3,517,617,500 99,062,216,600 402,192 2,043,638,300 99,062,216,600 403,200 On the last IDX trading day in 2017, which was on December 29, 2017, the closing price for our common stock was Rp4,440. With the share price, Telkom’s market capitalization reached Rp447.6 trillion, or 6.3% of the total capitalization in the Indonesia Stock Exchange (IDX). Volume (In million shares) 500 450 400 350 300 250 200 150 100 50 0 22 1st Quarter 2016 2nd Quarter 2016 3rd Quarter 2016 4th Quarter 2016 1st Quarter 2017 2nd Quarter 2017 3rd Quarter 2017 4th Quarter 2017 Price (Rp) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights TELKOM’S STOCK INFORMATION IN 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 Highest lowest closing Price per ADs (NYsE) (in Us Dollars) 2013 2014 2015 2016 2017 2018 First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter September October November December January February 25.31 24.38 23.54 34.65 26.92 30.96 34.65 33.57 36.19 31.34 34.45 36.19 34.55 16.88 16.95 17.05 21.22 21.22 25.06 29.63 27.17 28.10 28.10 30.26 33.50 29.15 35.95 34.26 34.55 29.73 31.96 32.36 32.51 32.51 30.50 29.15 30.35 28.12 29.50 28.12 17.93 22.62 22.20 29.16 25.43 30.73 33.04 29.16 32.22 31.17 33.67 34.30 32.22 34.30 30.04 31.08 32.22 29.03 30.05 29.03 Volume (in ADs) 134,122,210 104,501,896 87,438,232 110,532,172 24,848,124 31,010,592 27,153,358 27,520,098 76,122,383 23,813,869 16,694,062 14,436,754 21,177,698 4,821,106 8,566,928 7,916,528 4,694,242 22,941,047 12,934,482 10,006,565 On the last trading day in NYSE for the year of 2017, which was on December 29, the closing price for Telkom’s 1 ADS was in the amount of $32.22. Effective from October 26, 2016, we changed the Depository Receipt (DR) from 1 Depository Shares (DS) representing 200 shares to 1 DS represents 100 shares. The presentation on the table above have accomodated the ratio change. Volume (In million ADS) Price (US$) 4 3.5 3 2.5 2 1.5 1 0.5 0 1st Quarter 2016 2nd Quarter 2016 3rd Quarter 2016 4th Quarter 2016 1st Quarter 2017 2nd Quarter 2017 3rd Quarter 2017 4th Quarter 2017 40 35 30 25 20 15 10 5 0 23 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices INFORMATION OF CORPORATE ACTION RELATED TO STOCK On June 29, 2016, the Company sold back 172,800,000 treasury stocks (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). In 2017, the Company did not carry out any other stock-related corporate actions related to shares such as the sale of treasury stock, stock split, reverse stock, dividend disbursement, distribution of bonus shares, Employee Stock Ownership Program (ESOP) and changes to the nominal value of shares. BONDs, sUKUK Or cONVErTIBlE BOND INFOrmATION Bond Outstanding (rp million) Date of Issue maturity Date Term (Year) Interest rate (%) Underwriter Trustee rating (Pefindo) Telkom’s Bond II 2010 serie B 1,995,000 June 25, 2010 July 6, 2020 10 10.20 PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas PT CIMB Niaga Tbk IdAAA Telkom’s Bond I Telkom 2015 serie A Telkom’s Bond I Telkom 2015 serie B Telkom’s Bond I Telkom 2015 serie C Telkom’s Bond I Telkom 2015 serie D 2,200,000 June 23, 2015 June 23, 2022 7 9.93 2,100,000 June 23, 2015 June 23, 2025 10 10.25 1,200,000 June 23, 2015 June 23, 2030 15 10.60 1,500,000 June 23, 2015 June 23, 2045 30 11.00 PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Tbk PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Tbk PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Tbk PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Tbk PT Bank Permata Tbk PT Bank Permata Tbk PT Bank Permata Tbk PT Bank Permata Tbk IdAAA IdAAA IdAAA IdAAA 24 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights25 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesMANAGEMENT REPORT 28 34 42 Report of the Board of Commissioners Report of the President Director Statement Letter of Responsibility for the 2017 Annual Report “Board of Commissioners and Directors work together in responding to changes in behavior and community needs for telecommunications services in the digital era, resulting in the Company’s performance is satisfactory.” REPORT OF THE BOARD OF COMMISSIONERS “ We applaud the Board of Directors’ accomplishments in response to various changes in community behavior and the need for telecommunications services during the current digital era. Various innovations and investment initiatives were carried out in 2017 to express our steadfast commitment to accelerate our efforts to turn Indonesia into a thriving digital economy. In terms of financial performance, we have recorded healthy Revenue, EBITDA and Net Profit performances amid our transformation journey in becoming a world-class digital telecommunication company. ” Hendri Saparini President Commissioner 28 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Appendices Our respected shareholders and stakeholders, REVIEW ON THE COMPANY’S FUTURE BUSINESS PROSPECTS Praise to Allah SWT, God the Almighty, for making Telkom Group successful after a very challenging year 2017 by recording We view that our future business as promising, along with the healthy growth. OUR PERSPECTIVE ON THE MACROECONOMY AND INDUSTRY LANDSCAPE Overall, 2017’s global economy was relatively stable and showed a positive trend of recovery compared to the previous year. The potential growth of the digital business, either fixed or cellular segment. Penetration of the fixed broadband and smartphone as well as the average data consumption of Indonesian people is considered relatively low, all of which provide opportunities for future business growth. Thus, to capture these opportunities, we constantly continue to build and strengthen our integrated infrastructure network, such as of the fiber optic cables both positive upward trend in the global economy was marked by backbone and access, including submarine cables connected to economic recovery in developed countries like the United States, other parts worldwide, data centers, 3G/4G BTS networks, and Europe and Japan on top of strong economic growth of some satellites to reach every corner in Indonesian region. In addition, developing economies including ASEAN. we will also continue to innovate by strengthening services through various platforms and digital ecosystems that cover the Meanwhile, Indonesia’s economy in 2017 also noted a good payment system (digital payment), advertising, lifestyle (video, performance at 5.07%. Household consumption remained the key music and games) as well as e-commerce. driver of domestic economic growth, supported by Government spending on infrastructure in particular alongside better primary We see utilization of the digital information and communication commodities’ prices. technology (digital ICT) will bring positive impacts to the improvement of economic competitiveness, so that Telkom will The information and telecommunication sectors respectively have a strategic position in building and accelerating the growth recorded excellent growth at 9.81%, higher than the national of the digital-based economy in Indonesia. For this, Indonesian economic growth. In other words, the telecommunications Government has also provided support namely Stimulus industry contributed significantly to the growth of the national Package XIV in 2016 on e-commerce roadmap to push forward economy as a whole. Further, the overall growth of the improvement and expansion of economic activities throughout telecommunications industry in 2017 was also indicated by the Indonesia efficiently, which is also connecting people and rapidly changing needs and behaviors of society, these have networks globally. This is one of the initiatives to realize the impacted the demand for good quality broadband services to Government’s medium-term vision of turning Indonesia the grow, both for mobile and fixed services. Meanwhile, connectivity largest digital economy in Southeast Asia by 2020. and various digital-based services have increasingly become a necessity to support people daily activities including banking and Besides, we are fully aware that every prospect and business shopping on digital platforms online. opportunity will always be filled with challenges and obstacles. As for the fixed line segment, the main challenge faced by the Company is how to accelerate penetration of fixed-broadband services across Indonesia, given the vast geographical and archipelagic characteristics Indonesia has. While in the mobile segment, changes in communication patterns from voice and PT Telkom Indonesia (Persero) Tbk 29 Highlights Management Report About Telkom Indonesia Analysis and Discussion SMS services to data service become our primary concern, on top We also see that the Board of Directors has paid close attention of the stronger competition in data services. However, we believe to the importance of enhancing digital capability in line with the that with a combination of right strategy and effective execution, industry’s changing demands by moving toward all-out digital the Company can overcome these challenges and obstacles. services. Meanwhile, the Company’s ICT business also recorded ASSESSMENT OF THE BOARD OF DIRECTORS’ PERFORMANCE IN 2017 a positive socio-economic impact for wider community members. The Board of Commissioners would like to congratulate the Company for such an excellent performance of the Board of In supervising the performance of the Board of Directors, the Directors for 2017. We will continue our support so that Telkom Board of Commissioners is responsible for ensuring that all the can grow sustainably and is able to drive the digital economy in Company’s accomplishments are aimed toward the Company’s Indonesia through innovative products and services. The Board vision, mission, strategic objectives and program planning. of Commissioners remains committed to providing motivation, direction and input as part of our efforts to promote more We recognize the Board of Directors’ good performance sustainable future growth for all segments of Telkom services. throughout 2017 was aided through the development and implementation of strategies being carried out in order to achieve 2018 TARGET the Company’s strategic objectives. As for financial performance, compared with the previous year, the Company’s Revenue grew In fulfilling many people’s changing behavior in terms of by 10.2% to Rp128.3 trillion, EBITDA grew by 8.6% to Rp64.6 telecommunications needs for digital services, we will keep trillion, and Net Profit increased by 14.4% to Rp22.1 trillion. Those pushing forward with the Company’s transformation initiative to positive figures were recorded during a slow growth in voice and make Telkom a digital telecommunications company. Therefore SMS services, alongside the tight competition for data services the Company must continue to strengthen the development in the mobile segment of the market. The data reflects the ability of digital infrastructure in both fixed line and mobile segments of the Board of Directors to make necessary strategic changes in in an effort to provide the best digital experience including the response to ongoing unfavorable circumstances. development of new innovative products or services, while strengthening the business ecosystem to reach a sustainable From operational perspective, as of the end of 2017, Telkomsel’s growth in all digital segments of the market. Moreover, to subscribers grew 12.9% to 196.3 million customers across further enhance digital capability, it is necessary to undertake Indonesia, in addition to over 160 thousand BTS, where 110 acquisition and alliance initiatives that must be done selectively thousand BTS of which were comprised of 3G and 4G BTS needed by considering risk and return aspects coupled with synergy of to deliver the best mobile broadband services. By the end of our resources and collective actions at Telkom Group. 2017, Telkom recorded 2.9 million subscribers of IndiHome fixed broadband service and grew by 82.6% from the previous year. In terms of financial and operational performance, we expect This is a remarkable operational performance number, which Telkom to raise the bar higher even better than the industry’s demonstrates the Board of Directors’ ability to understand growth has projected, in order to maintain or even increase the industry and gain competitive advantages through a set of our market share. To that end, we have approved an adequate strategic work programs. allocation of capital expenditures to support both organic and inorganic expansion efforts to achieve this strategic goal. 30 PT Telkom Indonesia (Persero) Tbk BOARD OF COMMISSIONERS From Left to Right Cahyana Ahmadjayadi (Independent Commissioner), Dolfie Othniel Fredric Palit (Independent Commissioner), Hendri Saparini (President Commissioner), Pamijati Pamela Johanna Waluyo (Independent Commissioner), Margiyono Darsasumarja (Independent Commissioner), Rinaldi Firmansyah (Commissioner), Hadiyanto (Commissioner) 31 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkGOOD CORPORATE GOVERNANCE PRACTICES ASSESSMENT ON THE PERFORMANCE OF BOARD OF COMMISSIONERS’ COMMITTEES The Board of Commissioners has always emphasized the importance of implementing good corporate governance (GCG) As part of our supervisory role, we are assisted by 3 (three) as one of our main supervisory focuses. The implementation committees comprised of an Audit Committee, Nomination and of GCG’s best practices will support the achievement of the Remuneration Committee, and Planning and Risk Evaluation and Company’s sustainable performance. Monitoring Committee (KEMPR). As of 2017, we assess that all Committees under the Board of Commissioners have performed In line with the Company’s growing business activities, we feel greatly in providing recommendations and in giving full support that a comprehensive risk management protocol is required to to the Board of Commissioners so that our supervisory function identifying any potential risks. The Board of Commissioners to the Board of Directors can be implemented accordingly. always plays an active role in monitoring and providing recommendations on the risks faced by the Company. The The Audit Committee has shown good work, which includes Board of Commissioners also believes that throughout 2017, the in overseeing the effectiveness of internal control function as Board of Directors has applied its best GCG practices effectively part of Internal Control Over Financial Reporting (ICOFR) work and consistently by instilling the values of transparency, description, reviewing of financial information, reviewing of accountability, responsibility, independence and fairness. Internal Auditor’s findings, and providing recommendations SOCIAL AND ENVIRONMENTAL RESPONSIBILITY Meanwhile, the Nomination and Remuneration Committee has on the best practices of good corporate governance (GCG). been assisting us in providing recommendations on policies, We appreciate each member of the Board of Directors who has criteria and selection of strategic vacant positions within taken real community action through a consistent Corporate the Company including subsidiaries according to the GCG Social and Environmental Responsibility (CSR) initiative. In principles. Both the Planning and Risk Evaluation and Monitoring the long run, Telkom’s CSR program aims to help accelerate Committee have played an important role in conducting a the development of the national digital economy between comprehensive evaluation to the Board of Directors’ proposals medium and micro businesses. Telkom’s strategic positioning related to the Company’s Work and Budget Plan in monitoring its is complemented by a widely distributed connectivity network implementation throughout 2017. throughout the country, equipped with comprehensive services including e-commerce platform, will facilitate the expansion of Moving forward, we will constantly encourage all members of marketing network resources for medium and micro business the Committees to continually improve their capabilities and players. To these ends objective to deliver larger benefits to the broaden their knowledge on the industry, business, finance community, Telkom has also continued our CSR collaboration and telecommunications technology so that they can work with other State-Owned Enterprises (SOEs) such as through the better when assisting Board of Commissioners in overseeing development of BUMN Creative House (RKB), Digital Village to Board of Directors. support the digital economic development, and Digital Library (PaDi) to raise literacy of Indonesian people on in light of today’s ongoing digital technological advances. REVIEW ON WHISTLEBLOWING SYSTEM (WBS) IMPLEMENTATION/MANAGEMENT Based on our observation results, implementation/management of our whistleblowing system in Telkom Group was properly carried out in 2017. The whistleblowing system helps us to monitor any potential fraud and policy violations, including violations of regulations of Telkom Group and subsidiaries. The Board of Commissioners is also responsible for monitoring and making decision on policy matters that relate to cases being reported through the whistleblowing system. 32 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Throughout 2017, we received 28 complaints, of which 2 of them APPRECIATION TO STAKEHOLDERS were worth investigating. In overall, we have assessed that the implementation of the whistleblowing system for all employees Last but not least, we extend our highest appreciation to the and stakeholders being conducted by the management worked Board of Directors and management, and all our employees for well in 2017. CHANGES COMMISSIONERS IN 2017 IN COMPOSITION OF BOARD OF all your strong dedication during 2017. We are thankful and would like to express our gratitude to all shareholders, customers, business partners and other stakeholders for their continuous support and trust to Telkom Group. According to the Annual General Meeting of Shareholders (AGMS) In our mission to accelerate Indonesia’s digital economy, we resolution dated 21 April 2017, there was a change in composition continue our commitment to increase the value delivered to all of the Board of Commissioners’ members. One of the Board stakeholders through investment and innovation that goes hand members, Mr. Pontas Tambunan, concluded his position, duties in hand with Telkom’s initiative to transform the Company into a and responsibilities as Commissioner. Hence, we welcome two new more reliable digital telecommunication company regionally. members, Mrs. Devy W. Suradji and Mr. Cahyana Ahmadjayadi, as Independent Commissioner and Commissioner, respectively. In the future, we hope to build further cooperation and a more solid synergy with all stakeholders in a way that can improve our Besides those changes, Mr. Dolfie Othniel Fredric Palit, our former performance in the years to come. Commissioner, is now serving Telkom Group’s Independent Commissioner; and Mr. Rinaldi Firmansyah, our former Independent Commissioner, is now sitting as Commissioner. Jakarta, April 5, 2018 On 22 December 2017, Mrs. Devy W. Suradji was appointed as member of the Board of Directors in another SOE, and therefore as of 31 December 2017, Telkom’s Board of Commissioners composition is as follows: Hendri Saparini President Commissioner Hendri Saparini Hadiyanto Rinaldi Firmansyah : President Commissioner : Commissioner : Commissioner Dolfie Othniel Fredric Palit : Independent Commissioner Margiyono Darsasumarja : Independent Commissioner Pamijati Pamela Johanna Waluyo : Independent Commissioner Cahyana Ahmadjayadi : Independent Commissioner We believe that the new Board of Directors can perform better supervision going forward. With various educational backgrounds, expertise and experience, the Board of Commissioners will always be ready to deal with future challenges while ensuring that supervision of Telkom’s business activities and corporate governance performs well consistently. We would also like to take this opportunity to express our gratitude and appreciation for the previous members of the Board of Commissioners, particularly Mr. Pontas Tambunan and Mrs. Devy W. Suradji, for the roles and contribution given during their terms of office at Telkom. 33 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkREPORT OF THE BOARD OF DIRECTORS “ The company constantly increases its digital capability and continues to innovate with the support of smart network and IT infrastructure to digitize every business process in serving customers and providing the best customer experience. ” Alex J. Sinaga President Director 34 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Appendices The respected shareholders, Board of Commissioners, and all customer experience and to enhance the competitiveness and stakeholders, the Company value to establish the Company’s position as one of the top 10 (ten) major telecommunication market capitalization On behalf of the Board of Directors we wish to extend praise to companies in the Asia Pacific region by 2020. God Almighty for His blessings, as PT Telkom Indonesia (Persero) Tbk has successfully passed 2017 with a record of excellent To create more effective and efficient business management, financial and operational performance. the Company transforms the organization from its original MACRO-ECONOMIC TELECOMMUNICATION INDUSTRY IN 2017 CONDITIONS AND The Indonesian economy in 2017 showed a satisfactory growth approach to product portfolio based on Customer Facing Unit (CFU) in accordance with customer segmentation, by continuing to optimize its synergy potential. This is intended to make the Company more adaptable in anticipating customer needs. of 5.07%, higher than the previous year which marked 5.02%. In order to ensure sustainable growth, in 2017, the Company This reveals that the systematic efforts of the Government in pursues 3 (three) main programs: Leading Digital Capability to the management of various policies, including the package of Provide Excellent Customer Experience; Champion of Digital in economic policies and intensive infrastructure development Home, Personal, Enterprise and Wholesale Service; and Smart in various fields in recent years have exerted a positive impact. Inorganic Growth. Through these three main programs, the Domestic consumption contributes significantly to Gross Company is able to innovate and successfully increase its digital Domestic Product (GDP) which reflects an increase in people’s capability with the support of smart network and IT infrastructure purchasing power. This condition strengthens expectations that in serving customers and providing the best customer experience. the economy in coming years will grow better. In addition, Telkom is also actively exploring inorganic business growth opportunities, both in terms of acquisitions and The Information and Communication Sector, which includes the partnerships, in order to strengthen the business ecosystem of telecommunications industry, based on Indonesia Statistics the Company to enhance its capabilities and company values. Bureau (BPS) data, recorded growth of 9.81% in 2017, better than the previous year which marked 8.87%. This growth is driven by PERFORMANCE IN 2017 increasing demand for data connectivity and digital service & solutions. In recent years, the contribution of data connectivity In the midst of very tight and disruptive competition, the and digital service & solutions to the total revenue of operators Company’s business transformation, which includes business has enlarged considerably. Changes in customer needs that portfolio and customer segmentation throughout 2017, has increasingly lead to these services demand operators respond resulted in excellent financial and operational performance. The quickly and innovatively to maintain sustainable growth. Company’s revenue grew 10.2%, to Rp128.3 trillion from Rp116.3 STRATEGIC WORKING PROGRAM trillion in 2016, surpassing the industry average as targeted. Data, Internet and Information Technology Services grew by 28.7% to Rp55.3 trillion from Rp42.9 trillion in 2016 and were The vision of the Company “Be the King of Digital in the key drivers of consolidated revenue growth, with contribution to Region” means that the Company is transforming into a Digital total revenues significantly increased from 37% in 2016 to 43.2% Telco, through the strengthening of broadband connectivity, in 2017, while the enterprise segment revenues grew by 21% to the development of a digital mediation platform, and the Rp19.1 trillion from Rp15.8 trillion in 2016. This demonstrates how improvement of digital services & solution services. The Company the Company is on the right track towards evolving into a Digital also conducts digitization of internal business processes and Telecommunication Company. adopts a digital culture. These three things aim to create the best 35 Highlights Management Report About Telkom Indonesia Analysis and Discussion The Company also recorded strong growth of earnings before In the enterprise segment covering corporate customers, Micro, interest, taxes, depreciation, and amortization (EBITDA) which Small and Medium Enterprises, and government agencies, went from 8.6% to Rp64.6 trillion. The increase in total expenses, the Company provides end-to-end ICT solution services by 9.6% to Rp85.4 trillion, shows that the Company is still able to covering connectivity, platforms, applications, business process control costs quite well in the midst of aggressive infrastructure outsourcing, and managed services. This segment recorded development investment. Net Profit grew very significantly, significant revenue growth, with total in-service bandwidth by 14.4% to Rp22.1 trillion, with margin increasing to 17.3% growing 10.9% to 2,799 Gbps from 2,524 Gbps in 2016. compared to 2016 at 16.6%. As for the Wholesale and International Business segment, the The mobile segment still contributes the most to the Company’s Company provides various services comprising carrier traffic, consolidated revenues, with growth of 7.2% to Rp90.1 trillion, wholesale connectivity, satellite services, telecommunication increasing from Rp. 84 trillion in 2016. PT Telekomunikasi Selular tower services, managed telecommunications services, and as a subsidiary still maintains an excellent level of profitability, infrastructure. The Company also manages the international with EBITDA margin and Net Profit margin better than 2016. footprint in 11 countries, and 57 Point of Present (PoP) in 27 countries. This segment contributed revenue growth of 26.8% to The number of PT Telekomunikasi Selular’s customers reached Rp7.4 trillion, increasing from Rp5.9 trillion in 2016. 196.3 million by the end of 2017, increasing 12.9% from 173.9 million at the end of 2016. This growth was achieved because of In 2017, capital expenditure realization was Rp33.2 trillion or an effective marketing program, supported by the superiority of about 25.8% of revenue. The capital expenditure is used to build PT Telekomunikasi Selular, both in terms of service quality and broadband infrastructure which includes 3G/4G BTS, submarine network coverage, reaching almost all parts of Indonesia. and terrestrial fiber optic backbone network, Telkom3S, and Telkom4 satellite (Red & White Satellite), fiber optic access Mobile broadband customers at the end of year 2017 reached network, and data center. As of the end of 2017, the Company 105.8 million, increasing 24.9% from the 84.7 million reported had a total of 160,705 BTS, fiber optic backbone cable of 155,524 in 2016, with broadband data traffic growing twice as rapidly, or by 126.2%, to 2,168,245 TB from 958,733 TB in 2016. PT Telekomunikasi Selular also managed to increase the range of km, and domestic and international gross facility data center of 102,200 m2. 4G LTE to 490 cities and districts throughout Indonesia by the ACCELERATING INDONESIAN DIGITAL ECONOMY end of 2017. In order to realize an “Indonesian digital economy”, there are In the customer segment, IndiHome revealed very good several important factors which include Government regulation performance, contributing 64% to this segment revenue. and policy, human resource capability, logistics system, IndiHome is an integrated fiber optic-based service package infrastructure development and digital services acceleration, that includes home phone service, high-speed internet, and along with cyber security. The Company is committed to interactive television service with IPTV technology. The number accelerating the growth of an Indonesian digital economy by of IndiHome customers grew 82.6% to 2.9 million customers in building infrastructure and digital platforms aggressively, as well 2017 from 1.6 million customers by the end of 2016. as developing a digital ecosystem. 36 PT Telkom Indonesia (Persero) Tbk BOARD OF DIRECTORS Sitting Alex J. Sinaga (President Director) Standing From Left to Right David Bangun (Director of Digital and Strategic Portfolio), Mas’ud Khamid (Director of Consumer Service), Dian Rachmawan (Director of Enterprise and Business Service), Herdy R. Harman (Director of Human Capital Management), Harry M. Zen (Director of Finance), Abdus Somad Arief (Director of Wholesale and International Service), Zulhelfi Abidin (Director of Network and IT Solution) 37 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkThe development of infrastructure and digital services has been For e-commerce, the Company has developed an e-commerce realized in the form of Indonesia Digital Network (IDN) program marketplace through its subsidiary with brand blanja.com; it which consists of id-Access (Indonesia Digital Access), id-Ring is a joint venture with E-bay, integrated with digital payment, (Indonesia Digital Ring), and id-Convergence (Indonesia Digital advertising, and e-logistics. By the end of 2017, blanja.com Convergence). id-Access is broadband access to fiber optic-based already had about 3 million registered users. customers for fixed-broadband and 3G/4G technology for mobile broadband. id-Ring is a fiber optic-based highway broadband as a OVERVIEW OF COMPANY PROSPECTS backbone network connecting the islands of Indonesia, from Sabang to Merauke. id-Convergence is an integrated IT service platform The Company’s opportunities to grow in the future are still wide complete with data center and various digital service platforms. open driven by the increasing need for data connectivity and digital service & solution services in every economic activity of Through 2017, the Company realized the id-Access program in the the community. form of construction of 160,705 BTS, of which 68.7% are 3G and 4G BTS, with 3G and 4G BTS coverage covering 85% and 80% of In the mobile segment, future growth potential will be in line with the Indonesian population, respectively. To support high-quality increasing smartphone usage. Smartphone penetration, which data transmission, 58% of BTS backhaul fiberization program has is currently around 55%, has promising growth potential ahead. been performed. The Company also has fixed broadband access The growing presence of smartphones will drive demand for of 18.6 million fiber homes-passed and 352,642 Wi-Fi Access mobile broadband and digital service & solutions. After winning Points as of the end of 2017, utilized to serve all customers the 2.3 GHz frequency auction with a 30 MHz spectrum width in segments including BTS backhaul fiberization. October 2017, the increased need for mobile broadband access For id-ring program, the Company has built submarine and operational costs as well as creating new business opportunities. terrestrial fiber-optic backbone cables and satellites in the Government programs on SIM card registration starting in framework of arranging telecommunication access to all parts October 2017 will have a long-term positive impact on improving of Indonesia, including remote, underdeveloped and primitive customer efficiency and quality and creating a healthier industry. and service quality will be met with capital expenditure and regions. As of the end of 2017, network fiber optic backbone has reached 445 districts/cities. In the customer segment, fixed-broadband service penetration in Indonesia is still very low while the number of middle-class For the id-convergence program, the Company has built and households increases from year to year. It opens up opportunities developed various digital platforms to support digital services & for high-speed broadband services. The Company responds to solutions, including IT & cloud services, managed security services, these opportunities through IndiHome products that provide digital financial technology (fintech), e-commerce, big data fixed-broadband services, IPTV, and digital services, including analytic, Internet of Things (IoT), and its supporting ecosystem. smart home solutions. For fintech, the Company, through PT Telekomunikasi Selular, For the enterprise segment, the needs of corporate, MSME, has developed mobile payment with TCASH brand to provide a and governments for end-to-end ICT solution services are digital payment experience to customers. Currently, TCASH is increasing. Corporate is increasingly in need of business process one of the largest electronic money services in Indonesia with digitization in order to improve competitiveness. Meanwhile, the over 13 million registered customers and an active customer penetration of connectivity and digital solutions for MSME is still base of around 3 million. TCASH has been supported by more low. Governmental agencies, both central and local, increasingly than 40,000 merchant outlets throughout Indonesia with Near need digital services to improve service to the community. The Field Communication (NFC) and QR Code technology. The above conditions provide an opportunity for the Company to gain fintech business is also strengthened by a subsidiary, PT Jalin business growth in this segment. Pembayaran Nusantara, as a switching provider that manages non-cash payment transactions as well as one of the switching agencies of National Payment Gateway (NPG). 38 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights For the wholesale & international business segment, the Company PERFORMANCE TARGET IN 2018 and a consortium of global operators have successfully completed the construction of the South East Asia - United States (SEA - US) The Company strives to ensure sustainable growth. In 2018, submarine cable project that connects Manado - Indonesia with the Company established 3 (three) main programs, including Los Angeles - the United States, more than 15,000 km in length. Delivering Best Customer Experience which provides the best Earlier in 2016, the Company and other consortiums completed experience for customers in enjoying Telkom services digitally; the construction of a submarine cable network connecting Dumai - Expanding Digital Business which is an effort to maintain and Indonesia, the Middle East and Western Europe through the South enhance digital connectivity to encourage ICT and digital services East Asia - Middle East - Western Europe 5 (SEA-ME-WE 5) more & solution services as a new growth engine; and Intensifying Smart than 20,000 km long. To integrate SEA-US network with SEA-ME- Inorganic which is an active effort in acquisition or partnership WE 5, the Company has built an Indonesian marine cable project activities to strengthen digital capability and increase company Global Gateway (IGG) of more than 5,480 km, connecting Dumai – value. With 3 (three) main programs and various derivative Manado, to be completed by the middle of 2018. The integration of programs systematically organized, the Company is expected to the entire marine cable system will become an important milestone grow above the industry average in 2018. in realizing the Company as a Global Digital Hub. The Company is also actively initiating inorganic initiatives, both through acquisitions and partnerships, to enhance added value, BUILDING HUMAN RESOURCES AND DIGITAL CULTURE capability, and to strengthen the ecosystem of providing digital The Company recognizes the importance of building services. In November 2017, the Company, through its subsidiary, human resources with digital culture as a part of corporate PT Sigma Cipta Caraka, gained 60% of PT Bosnet Distribution transformation. The values that Telkom’s cultural reference Indonesia shares in e-logistic ICT solutions. In the same month, champion include The Telkom Way as a value system formulated the Company through its subsidiary, PT Telekomunikasi Indonesia as Philosophy to Be the Best, Principles to Be the Star, and International, took over a majority position in TS Global Network Practices to Be the Winner. This value system gives the spirit Sdn Bhd, a provider of satellite communication solutions and for every part of Telkom to always give the best, to exert total services in Malaysia. In December 2017, the Company through its capability, enthusiasm, and integrity. subsidiary, PT Multimedia Nusantara, acquired a 60% stake in PT Nutech Integrasi, which operates as an e-transportation service Every Telkom person is also encouraged to build synergies solution provider. toward common goals, have initiative in serving and finding new ways to solve problems. The internalization of values of The Company also performs leveraging of its property assets, The Telkom Way is always achieved through various activities i.e. land and buildings, both from previously idle and from of cultural activation, especially in daily work activities, so that the program of modernization and transformation of network the behavior and characteristics of the winners are imprinted in infrastructure. These property assets generally have strategic every person of Telkom. locations in various cities in Indonesia which can be developed into property investments such as office buildings, hotels, In order to build digital competence, the Company provides retails, and other productive forms. The development of these training to strengthen digital culture, such as digital business, investments is made through a subsidiary, PT Graha Sarana Duta, user interface (UI), and user experience (UX). The Company has which cooperates with third parties with appropriate schemes; also provided digital tools for employees in their daily operations, therefore, these property assets will provide greater benefits for i.e. corporate portal applications, which include e-offices, the Company in the near future. e-budgeting, files sharing, collaboration, career management, training and so forth. Besides, the Company also motivates employees to develop a digital-based innovation culture through the Digital Amoeba program that yields products, services, business process improvements and many more. 39 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk SOCIAL AND ENVIRONMENTAL RESPONSIBILITY AS WELL AS PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM (PKBL) THE OF DEVELOPMENT GOVERNANCE IMPLEMENTATION CORPORATE The Company implements governance, that refers to the Good We are fully aware that Telkom is an integral part of society; Corporate Governance (GCG) framework to faithfully conform therefore, we always strive to realize social responsibility to the to international regulations or provisions at the national level community and the environment where we live. and international best practice. The Company always upholds The implementation of the Company’s social responsibility of its implementation consistently across all levels of the the principles of good governance and improves the quality with the theme “Telkom Indonesia for Indonesia” with 3 (three) Company’s operations. pillars covering The Digital Environment which is the provision of digital facilities to support and to connect various community With reference to the Committee of Sponsoring Organizations activities; The Digital Society which is to support community of the Treadway Commission (COSO) Framework, the Company empowerment through education about the optimal utilization applies risk management to protect its assets and business of digital services to facilitate daily life of the community; and activities and create value for its stakeholders, which is also The Digital Economy which is the support for micro, small, and a form of compliance with applicable regulations. The role medium enterprises, especially in a creative industry sector, in and function of risk management which are very important the form of SME “go digital”, “go online” and “go global” training in supporting telecommunication business that has a wide and SME product exhibitions. area coverage requires a major investment, has a high level of competition, has rapid technological development, and is Telkom as a State-Owned Enterprise (BUMN) performs social constrained by various regulations. responsibility in the form of Partnership and Community Development Programs (PKBL) in the form of welfare The Company is continuously working to improve the policy and improvement programs and community social life, based on the infrastructure of GCG support systems through new initiatives provisions of the Ministry of SOE. to strengthen the quality of implementation of governance practices through 3 (three) Main Pillars: Governance Structure During 2017, Partnership Program funds that have been Strengthening, Governance Process Strengthening, and Cultural distributed totaling Rp269.58 billion to 8,367 Partners, consisting Strengthening. The Company also continues to strengthen of business sectors of industry, trade, agriculture, livestock, the implementation of Enterprise Risk Management (ERM) plantation, fishery, services, and others spread across various with continuous improvement in policy and risk management provinces in Indonesia. Realization of Community Development frameworks, including improving internal controls to ensure the Program amounted to Rp81.97 billion or 99.97% of funding reliability of financial statements, as the Company has adopted commitment, amounting to Rp82 billion, covering 7 (seven) International Financial Reporting Standards (IFRS) since 2011. areas, which are Natural Disaster Victim Assistance, Education Assistance, Health Enhancement Assistance, Infrastructure Development Assistance or Public Facilities, Worship Facilities, Natural Conservation Assistance and Social Assistance for Poverty Reduction. 40 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights THE CHANGE OF THE BOARD OF DIRECTORS MEMBERS OF 2017 With the change of the Board of Directors, we believe that the Company can grow even more rapidly. The diversity of educational background, expertise, and experience of the Board of Directors The Annual General Meeting of Shareholders (AGMs) of the become one of the Company’s main capital assets to continue Company held on April 21, 2017 stipulates the change of the to innovate in the face of increasingly tough challenges ahead. nomenclature and the composition of the Board of Directors. We express our deepest gratitude and highest appreciation for The change in the composition of the Board of Directors was the members of the Board of Directors who have terminated implemented on March 15, 2017, as Mr. Indra Utoyo, Director of their term of office in the Company for all of their contributions. Digital and Strategic Portfolio, was appointed to be the Director of Hopefully, the new mandate in new place can be performed as PT Bank Rakyat Indonesia, Tbk, and on 20 April 2017, Mr. Honesti excellently as possible. Basyir, the Director of Wholesale and International Service and the Director of Enterprise and Business Service was considered On this occasion, representing the Board of Directors, we the Managing Director of PT Kimia Farma (Persero), Tbk. also extend our highest gratitude and appreciation to our shareholders, Board of Commissioners, customers, business At the AGMS, three new members of the Board of Directors were partners, and other stakeholders for the support provided to also determined, namely Mr. Mas’ud Khamid, Mr. David Bangun, enable us to achieve excellent performance throughout 2017. and Mr. Zulhelfi Abidin, respectively appointed as the Director of Customer Service, the Director of Digital and Strategic Portfolios, We also extend our greatest appreciation to management and and the Director of Network and IT Solutions. Mr. Abdus Somad all employees for the dedication and hard work in ensuring the Arief, who was originally the Director of Network and IT Solution, achievement of this excellent performance. Moreover, we invite was appointed as the Director of Wholesale and International all management and employees to work harder and smarter to Service, while Mr. Dian Rachmawan, who was the Director of achieve better performance in the future. Customer Service, was appointed the Director of Enterprise and Business Service. Our performance and achievement throughout 2017 are presented comprehensively in this Annual Report, including The composition of the Board of Directors after the change is as Consolidated Financial Statements and the Center for follows: Alex J. Sinaga : President Director Harry M. Zen : Director of Finance Mas’ud Khamid : Director of Customer Service Herdy R. Harman : Director of Human Capital Management Zulhelfi Abidin : Director of Network and IT Solution David Bangun : Director of Digital and Strategic Portfolio Abdus Somad Arief : Director of Wholesale and International Service Dian Rachmawan : Director of Enterprise and Business Service Management of Partnership and Community Development Program Financial Statements in Fiscal Year of 2017 audited by Purwantoro, Sungkoro & Surja Public Accounting Firm, (member of Ernst & Young Global Limited firm) with the opinion of the Financial Statement presented fairly in all material respects. Jakarta, April 5, 2018 Alex J. Sinaga President Director 41 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk STATEMENT OF THE MEMBER OF BOARD OF COMMISSIONERS REGARDING WITH RESPONSIBILITY FOR 2017 ANNUAL REPORT PT TELKOM INDONESIA (PERSERO) TBK We the undersigned hereby declare that all the information in the PT Telkom Indonesia (Persero) Tbk 2017 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, April 5, 2018 Board of Commissioners Hendri Saparini President Commissioner Hadiyanto Commissioner Rinaldi Firmansyah Commissioner Dolfie Othniel Fredric Palit Independent Commissioner Margiyono Darsasumarja Independent Commissioner Pamijati Pamela Johanna Waluyo Independent Commissioner Cahyana Ahmadjayadi Independent Commissioner Devy W. Suradji Commissioner (as of December 22, 2017) Pontas Tambunan Commissioner (as of April 21, 2017) STATEMENT OF THE MEMBER OF BOARD OF DIRECTORS REGARDING WITH RESPONSIBILITY FOR 2017 ANNUAL REPORT PT TELKOM INDONESIA (PERSERO) TBK We the undersigned hereby declare that all the information in the PT Telkom Indonesia (Persero) Tbk 2017 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, April 5, 2018 Board of Directors Alex J. Sinaga President Director Harry M. Zen Director of Finance David Bangun Director of Digital & Strategic Portfolio Mas’ud Khamid Director of Consumer Service Zulhelfi Abidin Director of Network & IT Solution Herdy R. Harman Director of Human Capital Management Abdus Somad Arief Director of Wholesale & International Service Dian Rachmawan Director of Enterprise and Business Service Honesti Basyir Director (as of April 20, 2017) Indra Utoyo Director (as of March 15, 2017) ABOUT TELKOM INDONESIA 46 48 50 52 54 62 64 76 88 91 92 97 99 Company’s Identity of Telkom Indonesia Vision and Mission 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 Ventures Chronology of Registration of stocks Chronology of Listing of Bonds and Other Securities 101 Name and Address of Institutions and/or Supporting Capital Market Professionals “Our long journey has made important records in the Indonesian telecommunications industry. Now, by transforming ourselves towards digital telecommunication company, we are again becoming an important part of Indonesia’s digital economy journey.” COMPANY’S IDENTITY OF TELKOM INDONESIA 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 work they do and improve ordinary things to be in better condition, and will eventually shape Telkom to become the best telecommunications player. Logo The current 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. 46 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkPhilosophy of Color Red - Brave, Love, Energy, White - Pure, Peace, Light, Black - Base Color Tenacious Unified Symbolizes willpower. Reflects the company spirit Reflects the spirit of to always be optimistic and Telkom to provide the best Grey - Transition Color brave in facing challenges. for the nation. Symbolizes technology. PT Telekomunikasi Indonesia (Persero) Tbk 47 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkVISION AND MISSION The vision of the Company “Be the King of Digital in the Region” means that the Company is transforming into a Digital Telco, through the strengthening of broadband connectivity, the development of a digital mediation platform, and the enhancement of digital services & solution services. The Company also conducts digitization of internal business processes and adopts digital culture. These three things are intended to create the best customer experience as well as to enhance the Company’s competitiveness and value to establish the Company’s position as one of the top 10 (ten) largest telecommunication companies in terms of market capitalization in the Asia Pacific by 2020. VISION Be the King of Digital in the Region Tata Kelola Perusahaan Tanggung Jawab Sosial Perusahaan Program Kemitraan dan Bina Lingkungan (PKBL) Lampiran MISSION Lead Indonesian Digital Innovation and Globalization Lead Indonesian Digital Innovation 1. Telkom leads active role to improve Indonesian competitiveness. 2. Being a leading digital company, Telkom should be a role model in developing digital ecosystems and collaboration to perform a variety of innovations. 3. Telkom promotes and empowers local digital innovation & development. Lead Globalization Leverage Indonesian digital innovation to compete globally. PT Telkom Indonesia (Persero) Tbk 49 BRIEF HISTORY OF TELKOM Telkom Before and After Independence of Indonesia Era Phase 1 Telkom was established on October 23, Phase 2 Our institution as the Postal Service, 1856 by the Government of the Telegraph and Telecommunications was Netherlands, under the name “Post en taken over by the Government of Indonesia Telegraafdienst”, we were originally an from the Netherlands after independence institution serving postal and telegraph in 1945. Through Perpu No.19 of 1960 and services. The telephone presence then PP No.240 of 1961, we changed into State rivaled the postal and telegraph service, Post and Telecommunication Company (PN so we became the Postal Service, Postel). Then through PP No.30 of 1965, we Telegraph and Telephone (Post, Telegraph changed again into State Telecommunication en Telepjone Dienst) serving postal and Company (PN Telecommunications). telecommunications services. Since Furthermore, through PP No.36 of 1974, we 1892, our telephone service was already became Public Company Telekomunikasi used for long distance and in 1929 our Indonesia (Perumtel). telephone service was connected to an international network. Telkom in Globalization Era Phase 3 In 1991, with the publication of PP No.25 of 1991, our status changed to state-owned limited liability company (Persero) PT Telkomunikasi Indonesia. This was our first step to becoming a public company. In 1995, we were listed on the Indonesia Stock Exchange (IDX) and New York Stock Exchange (NYSE). In the same year, we established Telkomsel to respond to the widespread use of GSM technology in the country through the launch of Kartu Halo postpaid. In 1997, Telkomsel succeeded in building GSM network in all provinces in Indonesia. 50 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkTelkom and New Paradigm in Digital Era Phase 4 Throughout the 2000s, along with the Phase 6 We are constantly transforming and development of over the top applications evolving into a digital telecommunication (OTT) or internet-based digital applications, company to respond the opportunities we embarked on a revolutionary and risks of disruption in the digital transformation to deal with digital disruption era. Disruptive competitive growth through various approaches. Some of the or innovation-based growth that is strategic things we did were changing the innovative and out of the ordinary product portfolio from infoComm to TIMES, becomes the cornerstone of our current build customer-centric organization, strategy and for the years to come. This develop infrastructure, improve human is reflected in the development of our resource capability and innovate business products and services affecting the disruption of the telecommunications industry, especially those based on digital services. model. Phase 5 ICT market (information and communications) in Indonesia was increasingly crowded by global competitors. Telkom initiated the International Expansion (InEx) as a global business expansion strategy to seek new sources of growth abroad. Telkom set a footprint in 11 countries and conducted business alliances with global companies. 51 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkBUSINESS ACTIVITIES BUSINESS ACTIVITIES BASED ON COMPANY’S ARTICLES OF ASSOCIATION PORTFOLIO, PRODUCT AND/OR SERVICE The Articles of Association of PT Telkom Indonesia (Persero) Company’s Articles of Association, which is the provision of Tbk No.16 dated May 16, 2017 stipulates the purpose and services in the telecommunication, informatics and network objective of business activities, which is to conduct business in service. Our business activities are developed in various business the telecommunication network and service, informatics and segments in accordance with technological transformation and In general, our business activities in 2017 are in line with the optimization of resources utilization. In correlation with the market development. purpose and objective, our business activities include: 1. Main Businesses By developing a diversified business portfolio, we strive to maximize our resources to deliver more value to our stakeholder. a. To plan, construct, provide, develop, operate, market/ Currently we have 6 portfolios grouped into 5 business segments sale/lease and maintain telecommunication network and based on the customers we serve. In addition to optimizing the informatics in a broad meaning by taking into account the assets we also offer other products beyond the 6 portfolios of laws and regulations. such products. 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. 52 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk Telkom Group’s Product Portfolio Business Segment Fixed Portfolio Comprises fixed voice and fixed-broadband Mobile Portfolio Comprises mobile broadband services, value- added service, mobile voice and SMS Network infrastructure portfolio Comprises network services, satellite, infrastructure and tower CONSUMER MOBILE Wholesale and International Portfolio Comprises wholesale services, which include interconnection and international business ENTERPRISE Enterprise digital portfolio Comprises ICT platform services and smart enabler platform services Consumer digital portfolio Comprises digital life services (e.g music and games), e-commerce and video/TV Property Comprises property development, property lease, property facilities and property management WHOLESALE AND INTERNATIONAL BUSINESS OTHERS The description of our product portfolios: • Fixed portfolio comprises fixed voice and fixed broadband services. Our bundling program is marketed under the retail brand “IndiHome”, which allows customers to choose one or more of our services, which consist primarily of broadband internet, fixed wireline phone and interactive TV services. • Mobile portfolio comprises mobile voice, SMS and value-added services, as well as mobile broadband. We provide mobile and cellular communications services with GSM technology. • Network infrastructure portfolio comprises our satellite operations, tower operations and infrastructure & network management. • Wholesale and international business portfolio comprises wholesale telecommunication services, which include our interconnection business and our international business. • Enterprise digital portfolio comprises information and communications technology platform and smart enabler platform services. • Consumer digital portfolio primarily comprises media and edutainment services that we offer to consumers such as mobile-based digital services, e-Commerce services and IPTV services. • Property, we aim to leverage our assets which are not currently being optimally utilized, to be developed into non network-related facilities such as office buildings, business buildings, hotels and other profitable investments. Services offered included property development, property lease, property facilities and property management. 53 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkAWARDS AND CERTIFICATIONS AWARDS JANUARY FEBRUARY MARCH APRIL MAY 54 25. Alex J. Sinaga was awarded as BUMN synergy figure in Anugerah Tokoh BUMN from Ministry of SOE. JANUARY 25 FEBRUARY 24 24. IndiHome won Top Brand for Internet Service Provider Fixed category in Top Brand Award 2017 from Top Brand. 28. Telkom won Best Block Trade in The Asset Triple A Regional Award from The Asset Magazine. MARCH 30 24. Telkom won Media Relation for Non- Financial BUMN category in PR Indonesia Award 2017 from SPS. 30. Alex J. Sinaga was awarded as Best Achiever CEO BUMN in Obsession Award 2017 from Men’s Obsession Magazine. APRIL 18 MAY 18 5. Telkom won Best Overall Corp University Silver Award in Global Council of Corporate University (Global CCU) Award from Annick Renaud Coulon. 18. Telkom was selected as Special Mention to IndiHome in Indonesia Most Creative Companies 2017 from SWA & PPM Management. 15. Telkom won Best Issuer for Infrastructure, utilities and transportation category in Bisnis Indonesia Award 2017 from Bisnis Indonesia. 18. Telkom was awarded as Top Performing Listed Companies 2017 in Best Listed Companies 2017 from Investor Magazine. 19. Telkom was selected as Best Companies to work for in HR Asia Award from HR Asia Magazine. Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkJUNE JULY MAY 19 JUNE 2 JUNE 9 JULY 18 JULY 27 19. Telkom won awards for three categories that are Top 15 Indonesia Most Admired Company Choice 2017, Top 10 Indonesia Most Admired Company Netizen Choice and Indonesia Most Admired Company Telecommunication category in Indonesia Most Admired Companies from Warta Ekonomi. 24. Telkom ranked 1st brand value in Indonesia in Most Valuable Indonesian Brands 2017 from SWA + Brand Finance. 2. Telkom achieve the highest award the Grand Stevie as the Organization of the Year (8 Gold, 5 Silver and 18 Bronze) in Asia Pacific Stevie Awards from Stevie International. 9. Telkom won awards for three categories Investor that are Best CEO, Best Relations Company and Best Corporate Communication in Asia Excellence Award from Corporate Governance Asia. 6. Telkom was awarded as Telecom Service Provider of The Year in Asia Pacific ICT Award from Frost and Sullivan. 11. Telkom won awards for four categories ranked 2nd Indonesia Best that are Public Companies Based on WAI, ranked 4th ASEAN Best Public Companies 1st Indonesia Based on WAI, ranked Best Public Companies Based on WAI Telecommunication Services category and ranked 1st ASEAN Best Public Companies Based on WAI Telecommunication Services category in Wealth Added Creator Award 2017 from SWA, Stern & Co. 18. IndiHome won Fixed Broadband category and SLI 007 in Original Brand Award 2017 from SWA and Bdigest. 27. Telkom was ranked 653 in Forbes Global 2000 List 2017 from Forbes. 55 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkAUGUST 15 AUGUST 18 SEPTEMBER 6 SEPTEMBER 14 AUGUST SEPTEMBER OCTOBER 56 15. Ranked 1st Best Managed Company and ranked 1st Most Committed to Corporate Governance in Asia’s Best Companies from Finance Asia. 18. Alex J. Sinaga was selected as Green CEO Social Business Innovation 2017 in Business Innovation & Green CEO Award from Warta Ekonomi. 25. Alex J. Sinaga was selected as Best Communicator CEO BUMN category in PR Indonesia Best Communicators 2017 from PR Indonesia Magazine. 30. Telkom won Indonesia Digital Learning/ in Social Social Outstanding Indonesia’s Best Corporate Initiatives 2017 from SWA & MIX. Campaign 6. Telkom won the best program for Education Quality Improvement category through Indonesia Digital Learning program, Community Improvement Economy category through Telkom Craft program and Public Health Quality Improvement category through Telkom Disability Care program in Nusantara CSR Awards from La Tofi School. 14. Telkom won awards for four categories that are ranked 2nd Most Organized Investor Relations, ranked 1st Strongest to Corporate Governance, Adherence ranked 1st Most Consistent Dividend Policy and ranked 2nd Best Strategic CSR in 7th Annual Institutional Investor Awards for Corporates from Alpha Southeast Asia. 19. Telkom was selected as Indonesia Living in Living Legend Legend Companies Companies from SWA & Bdigest. 4. IndiHome won IBBA Internet Broadband category in The Indonesian Best Brand Award from SWA, Mars and Metro TV. 10. Telkom was ranked 44 World’s Best Employers in Forbes Global 2000 List 2017 from Forbes. 10. Telkom was ranked 142 Top Regarded in Forbes Global 2000 List 2017 from Forbes. Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkOCTOBER 13 OCTOBER 14 OCTOBER 31 NOVEMBER NOVEMBER 6 10. Telkom Disability Care’s Video was selected as Runner Up of CSR profile category in Festival Film Nusantara from Puspen TNI + The Latofi school of CSR. 13. IPRA was awarded the Golden World “In House Corporate Award 2017 Communication” for “Synergizing the platform to manage complexity” communication strategy to Corporate Communication of PT Telkom Indonesia (Persero) Tbk in Golden World Award for Excellent in Public Relations 2017 from International Public Relations Association (IPRA). category 14. Telkom was selected as Best of the IBA Awards to be eligible for the 2017 Grand Stevie Awards thropy for winning 37 awards consisting of 8 gold, 10 silver and 19 bronze in International Business Award (IBA) 2017 from Stevie International. 31. Alex J. Sinaga was selected as Spoke Person of The Year in Indonesia PR of The Year from Mix Magazine. 31. IndiHome won Top Fixed Internet Provider in Top IT & Telco 2017 from TI TELCO, such as ASPEKTI (Asosiasi Perusahaan Telematika Konsultan Indonesia), IKTII (Ikatan Konsultan TI Indonesia), ATSI (Asosiasi Penyelenggara Telekomunikasi Seluruh Indonesia), ABDI (Asosiasi Big Data Indonesia). 31. IndiHome ranked 1st ISP Fixed category in Social Media Award from Media Wave and Marketing Magazine. 3. Abdus Somad Arief was awarded Leadership Excellence in Technology Innovation in Indonesia Best Employer Brand Awards 2017 from World HRD Congress, Employer Branding Institute - India. 6. Telkom was selected as Industry Leader in BUMN Performance Excellence Award (KPKU) from Forum Excellence BUMN. 57 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk9. Community Development Center Telkom was won Business Practitioner category in ICSB Indonesia Presidential Award from International Council for Small Business and ACSB. 10. Telkom was won awards for three categories that are Top Shares 2017, Top Corporate Reputation 2017 in Telecommunication sector and Top in Telecommunication Issuer 2017 in Top Capital Market 2017 sector from Business News in IPEI collaboration with Institute, IFLC (Investment & Financial Learning Center), Asia Business Research Center (ABRC). Indonesia, InfoVesta, 21. Telkom became of Telecommunication in Economic Challenges Awards 2017 from Metro TV. the winner category 27. Telkom won Top 50 Big Cap - Public Listed Companies & Best Non-Financial Sector in The 9th IICD CG Awards from IICD Partnership with Kontan. 28. Telkom was selected as 2017 Indonesia Telecom Service Provider of The Year & 2017 Indonesia Fixed Broadband Service Provider of The Year in Indonesia Excellence Award from Frost and Sullivan. NOVEMBER 21 NOVEMBER 28 58 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkDECEMBER DECEMBER 2 DECEMBER 15 DECEMBER 19 DECEMBER 20 2. PGRI Award to PT Telkom Indonesia improving for high dedication teacher competence in Commemoration of 72nd Anniversary of PGRI from PGRI. Indonesia in in 8. Alex J. Sinaga was selected as Top 5 Most Admired CEO in Telco Sector in Indonesia Most Admired CEO Award 2017 from Warta Ekonomi. 14. Telkom Indonesia as the Best BUMN of 2017 Non-Financial category in Telecommunication and Broadcasting Sector in Indonesia Financial Figures Award from Investor Magazine. 15. Telkom Indonesia was appreciated as Infrastructure Development Contribution in Mastel Award 2017 from Mastel. 19. Telkom Indonesia won Most Trusted Company Based on CGPI from IICG and SWA. 20. Telkom Indonesia was selected as the Implementing Agency for Testing of the Best Domestic Telecommunication Tool and Equipment in Appreciation Partners SDPPI Sector 2017 from Ministry of Communication and Informatics. 20. Telkom Indonesia as The Winner of Indonesian Employers of Choice Award 2017 in Indonesian Employers of Choice Award 2017 from SWA. 59 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCERTIFICATIONS No Years Sertification Recipient Institution Validity Period 2014 2014 2014 2014 2014 2014 ISO 9001:2008 ISO/IEC 27001:2013 ISO/IEC 20000-1:2011 Telkom Telkom Telkom SGS United Kingdom Ltd SGS United Kingdom Ltd SGS Hong Kong LLtd BSI-CSA STAR (Cloud Security Telkom Sigma British Standards Certification) Institution (BSI) BS OHSAS 18001:2007 Telkom Sigma IQNeT & DQS GmBH TMS 621081 Telkom Sigma British Standards Institution (BSI) 2014 EMS ISO 14001 Telkom Sigma British Standards Institution (BSI) 2014 OHSAS 18001:2007 Telkom Akses British Standards 2015 ISO 22301:2012 Telkom Institution (BSI) SGS International Certification Service Singapore Pte Ltd 2015 2015 2015 2015 2015 2016 ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 Telkom Infra URS International Telkom Metra TUV Rheinland AdMedika Guardian Independent ISO 9001:2008 ISO/IEC 27001:2013 Metrasat ILCS Certification (GIC) TUV Rheinland Bureau Veritas Tier III Data Center Certification Telkom Sigma Uptime Institute for Constructed Facilities (TCCF) Sentul 2017 2017 2017 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018 2018 2017 2016 Tier III Data Center Certification Telkom Sigma Uptime Institute 2017 for Constructed Facilities (TCCF) Serpong 2016 Health & Safety Certification Telkom Sigma British Standards Institution (BSI) 2016 Integrated Management System Telkom Sigma British Standards Certification PAS 99:2012 Institution (BSI) 2016 ISO 27001 Telkom Sigma British Standards 2016 2016 2016 2016 Tier III Data Center Tier IV Data Center ISO 20000 - 1:2011 ISO 27001:2013 Institution (BSI) Telin Singapore Uptime Institute Telin Singapore Uptime Institute Telin Telin PT SGS PT SGS 2019 2019 2019 2018 2019 2019 2017 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 60 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkNo 24 25 26 27 28 29 30 31 32 Years Sertification Recipient Institution Validity Period 2016 2016 ISO 9001: 2015 ISO 17025:2008 Telkom Property LLOYD Register Test Lab (Digital National Accreditation Service Division) Committee 2016 ISO 17025:2008 Calibration Lab National Accreditation (Digital Service Committee 2016 ISO 9001:2008 2016 2016 ISO 27001:2013 ISO/IEC 27001:2013 Division) PINS Infomedia AdMedika United Registration of System (URS) TUV NORD Indonesia British Standards Institution (BSI) 2016 ISO 9001:2008 Telkom Akses British Standards Institution (BSI) 2016 2016 CIQS 2000:2009 ISO 9001:2008 Telkom Akses TPCC Patrakom TUV Rheinland Cert 2019 2019 2019 2017 2019 2019 2017 2019 2018 GmbH Am Grauen Stein – 51105 KoIn 33 2017 OHSAS 18001:2007 Patrakom TUV Rheinland Cert 2020 GmbH Am Grauen Stein – 51105 KoIn 34 35 36 37 2017 ISO9001:2015 Telkom Akses British Standards Institution (BSI) 2017 OHSAS 18001:2007 Telkom Akses British Standards Institution (BSI) 2017 Payment Card Industry Data Telkom Sigma TUV Rheinland Security 2017 ISO/IEC 27001:2005 Finnet TUV Rheinland 2019 2019 2018 2020 61 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbkr o t c e r i D f o d r a o B C O R P O R A T E O F F I C E B U S I N E S S U N I T TELKOM ORGANIZATIONAL STRUCTURE The following organizational structure is the latest version as of December 31, 2017. President Director (Alex Janangkih Sinaga) COO Director of Enterprise & Business Service (COO) (Dian Rachmawan) Director of Consumer Service (CRO) (Mas’ud Khamid) Director of Wholesale & International Service (Abdus Somad Arief) Director of Network, IT & Solution (Zulkifli Abidin) Director of Digital & Strategic Portofolio (David Bangun) AVP Secretary of Directorate EBIS AVP Secretary of Directorate CONS AVP Secretary of Directorate WINS AVP Secretary of Directorate NITS AVP Secretary of Directorate DSP VP Enterprise Planning Strategy (Yusron Haryadi) VP Planning & Resource Management VP Enterprise Bussines Development (Dudy Effendi) VP Marketing Management (Jemy V. Confido) VP Enterprise Parenting Operation (Bagyo Nugroho) VP Enterprise Performance Integration (Joni Heri) OVP Consumer Fulfillment (Sujito) OVP Consumer Assurance (Agus Winarno) VP Wholesale & International Development (Mohamad Ramzy) VP Wholesale & International Voice (Erik Orbandi) VP Wholesale & International Network Service (Bastian Sembiring) EGM TV Video Division (Aris Hartoni) EVP Wholesale Service Division (Priyono) EVP Enterprise Service Division (Siti Choiriana) EVP Business Service Division (Tri Gunadi) EVP Government Service Division (Mohammad Salsabil) ICTO Project Business Service (Wahjudjati) MILES Project Business (Natal Iman Ginting) VP Infrastructure Strategy & Governance (Era Kamali Nasution) SVP Synergy & Portfolio (Pramasaleh Hario Utomo) VP IT Strategy & Governance (Sihmirmo Adi) VP Solution (Admiral Dasrin) VP Infrastructure Management (Moh Riza Sutjipto) EGM Service Operation Division (Herlan Wijanarko) EGM Service & Solution Division (Imam Santoso) EGM Planning & Deployment Division (Revolin Simulsyah) EGM Information Technology (Alip Priyono) VP Portfolio Management (Kukuh Pribadijanto) EVP Strategic Investment (Setyanto Hantoro) 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) Satellite Project of Telkom (Tonda Priyanto) EGM Digital Service Division (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) 62 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk Director of Finance (Harry M. Zen) Director of Human Capital Management (Herdy Rosadi Harman) SVP Corporate Secretary (Afriwandi) SVP Internal Audit (Harry Suseno Hadisoebroto) SVP Program Management Office (Ikhsan) CEO’S Office AVP Sekretariat Direktorat KEU AVP Sekretariat Direktorat HCM SVP Financial Planning & Analysis (Edi Witjara) VP HC Strategic Management (Dwi Heriyanto B) VP Budgeting & Analysis (Devindra Kamal) VP HC Development (Dharma Syahputra) VP Subsidiaries & Business Alignment (Devy Alzy) VP HC Organizational Effectiveness (Djonet Hartono) Financial Controller Team VP Telkom Smart Office (Ardi Purwanto) Personal Assistant BOD VP Corporate Communication (Arif Prabowo) VP Regulatory Management (Henry Christiadi) VP Corporate Office Support (Hardi Purwanto) VP Legal & Compliance (Junian Sidharta) VP Planning & Development Audit (Imam Santoso) VP Infrastructure & Operation Audit (Rahadian Krishna Sundara) VP Information Technology Audit (Setia Dwi Kusumawardani) VP Integrated & Financial Audit (Agus Widjajanto) PMO Controller Team AVP PMO Planning & Design AVP Monitoring & Reporting AVP Communications & Supporting VP Risk & Process Management (M. Noor Hidayat) VP Investor Relation (Andi Setiawan) VP Corporate Finance & Financial Policy (Siti Rakhmawati) SGM SSO Finance Center (Fajar Wibawa) SGM SSO Procurement & Sourcing Center (Weriza) SGM Asset Management Center (Heru Kurniawan) Project T-ISCM SGM Assessment Center Indonesia (Teuku Zilmahram) 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 (Aris Devi Tjahjanto) 63 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk PROFILE OF BOARD OF COMMISSIONERS MEMBER OF THE BOARD OF COMMISSIONERS AS OF DECEMBER 31, 2017 HENDRI SAPARINI President Commissioner Personal Education Born : Kebumen, June 16, 1964 Hendri Saparini’s educational background Age : 53 years old is a Bachelor’s degree from Gadjah Mada University majoring in Economics Citizenship and Domicile in 1988, a Masters of International Hendri Saparini is 53 years old and Development Policy, and Doctoral degree was born in Kebumen, on June 16, on International Political Economy, both 1964. She is an Indonesian citizen from University of Tsukuba, Japan. and lives in Jakarta. Besides being President Commissioner, Hendri Position and Basic Appointment Saparini known as the Founder Center Her position of being a President of Reformation (CORE) Indonesia Commissioner of Telkom is as well as member of the National accordance with the basis in of Economic and Industry Committee. 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 5th 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 Managing Director, ECONIT Advisory Group Member Committee OJK Development of Sharia Service 1 2 3 4 5 6 64 Period 2016 – now 2013 – now 2009 – now 2009 – 2012 2005 – 2013 2004 – now Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkHADIYANTO Commissioner Personal Education Born : Ciamis, October 10, 1962 Hadiyanto’s educational background is Age : 55 years old a Bachelor’s degree from Padjadjaran University majoring in Law, a Master Citizenship and Domicile of Law (LLM) from Harvard University Hadiyanto is 55 years old and was Law School in the United States, and a born in Ciamis, on October 10, 1962. Doctoral degree in Law from Padjadjaran He is an Indonesian citizen and University, Bandung. lives in Bogor. In addition to being a member of Telkom BOC, Hadiyanto Position and Basic Appointment is also a Secretary General of the His position of being a Commissioner of Ministry of Finance. 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 is effective from May 11, 2012 until the 5th 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 President Commissioner, PT Garuda Indonesia Tbk President Commissioner of PT Bank Export Indonesia Head of the Legal of Secretariat General of the Ministry of Finance Alternative Executive Director, World Bank Period 2006 – 2016 2007 – 2012 2007 – 2009 2005 – 2006 2003 – 2005 65 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkRINALDI FIRMANSYAH Commissioner Personal Position and Basic Appointment Born : Tanjung Pinang, June 10, 1960 His position of being an Independent Age : 57 years old Commissioner of Telkom is in accordance with the basis of appointment as a Citizenship and Domicile member of BOC that is an Independent Rinaldi Firmansyah is 57 years old and Commissioner, which is documented was born in Tanjung Pinang, on June 10, in Minister of State Owned Enterprise 1960. He is an Indonesian citizen and lives Letter No.SR-209/MBU/04/2015 about in Jakarta. In addition to being a member proposal to change the board of the of Telkom BOC, Rinaldi Firmansyah also Company, which was read at the Annual as Advisory Board Member at Daestrum General Meeting of Shareholder dated Capital, Managing Partner at Fidelitas April 17, 2015 and the transfer of his Capital, Commissioner of PT Elnusa Tbk, position as Commissioner, pursuant and Commissioner of PT Bluebird Tbk. to Ministerial Letter No. SR246/ Education MBU/04/2017 dated April 21, 2017, on the proposed Amendment of the Management Rinaldi Firmansyah’s educational of the Company, which was read in the background is a Bachelor’s degree from Annual General Meeting of Shareholders Bandung Institute of Technology in 1985, a Master of Business Administration from IPMI in 1988, and a Doctoral degree (AGM) on April 21, 2017. This decision is effective from April 17, 2015 until the 5th Annual General Meeting of Shareholder in Management from Padjadjaran since his appointment. University in 2014. 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 66 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkDOLFIE OTHNIEL FREDRIC PALIT Independent Commissioner Personal Position and Basic Appointment Born : Kijang, Kepulauan Riau, His position of being a Commissioner of October 27, 1968 Telkom is in accordance with the basis of Age : 49 years old appointment as a member of BOC that is not an Independent Commissioner, Citizenship and Domicile which is documented Minister of State Dolfie Othniel Fredric Palit is Owned Enterprise Letter No.SR-7777/ 49 years old and was born in Kijang, MBU/2/2014 about proposal to change Kepulauan Riau, on October 27, the board of PT Telkom Indonesia (Persero) 1968. He is an Indonesian citizen Tbk, which was read at the Extraordinary and lives in Jakarta. In addition to General Meeting of Shareholder dated being a member of Telkom BOC, he December 19, 2014 and the transfer of his is an Expert Staff of the Coordinating position as Independent Commissioner, Minister for Human Development pursuant to Ministerial Letter No. SR- and Culture. Education 246/MBU/04/2017 dated April 21, 2017, on the proposed Amendment of the Management of the Company, which was Dolfie Othniel Fredric Palit’s read in the Annual General Meeting of educational background is a Shareholders (AGM) on April 21, 2017. This Bachelor’s degree from Bandung Institute of Technology in 1995. decision is effective from April 21, 2017 until the 5th 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 Bank Century Supervisory Team Member of Budget Committee of House of Representative Members of Indonesian House of Representative Special Committee of the Law on the Healthcare and Social Security Agency Coordinator, Indonesia Corruption Watch (ICW) Executive Director, Institute for Strategic Consulting (Strategic Planning) Research Policy and Local Autonomy (REKODE) Executive Director, Bumi Indonesia Hijau Foundation Period 2012 – 2014 2012 – 2014 2009 – 2014 2011 2010 2004 – 2009 2001 – 2003 67 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkMARGIYONO DARSASUMARJA Independent Commissioner Personal Position and Basic Appointment Born : Klaten, September 14, 1976 His position of being an Independent Age : 41 years old Commissioner of Telkom is in accordance with the basis of appointment as a Citizenship and Domicile member of BOC that is an Independent Margiyono Darsasumarja is 41 years Commissioner, which is documented old and was born in Klaten, on in Minister of State Owned Enterprise September 14, 1976. He is an Indonesian Letter No.SR-209/MBU/04/2015 about citizen and lives in Jakarta. proposal to change the board of The Education Company, which was read at the Annual General Meeting of Shareholder at Margiyono Darsasumarja’s educational April 17, 2015 and his position changes background is a Bachelor’s degree from Commissioner into Independent from University of Indonesia majoring Commissioner based on the Minister of in Law in 2008, and a Master’s degree State Owned Enterprise Letter No. SR- in Cyber Law from the School of Law 241/MBU/04/2016 dated April 22, 2016 University of Leeds in 2012. 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 is effective from April 22, 2016 until the 5th Annual General Meeting of Shareholder since his first appointment. Period 2012 – 2015 2012 – 2014 2001 – 2011 Previous work experience and its time period are presented as follows: No. Position Coordinator of Advocacy and Partnership for Government Reform of the Bureaucracy reform Project Lecturer In Law and Media Ethics at Bakrie University Media Development Manager at Voice of Human Rights Media 1 2 3 68 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkPAMIJATI PAMELA JOHANNA WALUYO Independent Commissioner Personal Position and Basic Appointment Born : Jakarta, June 20, 1958 Her position of being Independent Age : 59 years old Commissioner of Telkom is in accordance with the basis of appointment as a Citizenship and Domicile member of BOC that is an Independent Pamijati Pamela Johanna Waluyo Commissioner, which is documented is 59 years old and was born in in Minister of State Owned Enterprise Jakarta, on June 20, 1958. She is Letter No. SR-209/MBU/04/2015 about an Indonesian citizen and lives in proposal to change the board of The Jakarta. Education Pamijati Pamela Johanna Waluyo’s educational background is a Company, which was read at the Annual General Meeting of Shareholder dated April 17, 2015. This decision is effective from April 17, 2015 until the 5th Annual General Meeting of Shareholder since Master’s degree from the University his appointment. of Tech. Delft, Netherlands in 1983. 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 69 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCAHYANA AHMADJAYADI Independent Commissioner Personal Position and Basic Appointment Born : Garut, July 12, 1955 His position of being a Independent Age : 62 years old Commissioner of Telkom is in accordance with the basis of appointment as a Citizenship and Domicile member of BOC that is an Independent Cahyana Ahmadjayadi is 62 years old Commissioner, which is documented and was born in July 12, 1955 in Garut. in Minister of State Owned Enterprise He is an Indonesian citizen and lives in Letter No. SR-246/MBU/04/2017 about Bandung. Education proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder dated Cahyana Ahmadjayadi’s educational background is a Bachelor’s degree of industrial engineering from Bandung April 21, 2017. This decision is effective from April 21, 2017 until the 5th Annual General Meeting of Shareholder since his Institute of Technology in 1980, appointment. Master degree in Law from University of Padjajaran in 2004, a Doctoral degree in Cyber Law from University of Padjajaran in 2010. Previous work experience and its time period are presented as follows: No. Position Commissioner, PT Bank Mandiri (Persero) Expert staff, Ministry of Communication and Informatics Founder Pengelola Nama Domain Internet Indonesia (PANDI) Period 2010-2013 2011 2006 Directorate of General Telematics Application-Ministry of Communication and Informatics 2005 Deputy for Communication & Infrormation Network, Ministry of Communication and Informatics Head of Telkom Regional V Division, West Java 2002 1993 1 2 3 4 5 6 70 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkMEMBER OF THE BOARD OF COMMISSIONERS ENDED IN 2017 DEVY W. SURADJI Commissioner Period : April 21, 2017 – December 22, 2017 Personal Education Born : Jakarta, April 9, 1970 Devy W. Suradji educational background Age : 47 years old is Bachelor’s degree in Aquaculture, Faculty of Fishery from Bogor Citizenship and Domicile Agricultural University in 1993, a Master Devy W. Suradji is 47 years old of Science in Health and Environmental and was born in April 9, 1970 Management, Departement of Biology in Jakarta. She is an Indonesia and Environmental Science, University of Citizen and lives in Jakarta. In New Haven, Connectocut-USA in 1996. addition to being a member of Telkom BOC, Devy W. Suradji Position and Basic Appointment is Special Expert Staff of the Her position of being a Commissioner of Minister of SOE. 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-246/ MBU/04/2017 about proposal to change the board of The Company, which was read at the Annual General Meeting of Shareholder dated April 21, 2017. Devy W. Suradji has ended his position, duties and responsibilities as Commissioner of Telkom since his appointment as a member of the Board of Directors in other SOE on December 22, 2017. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 Special Expert Staff of the Minister of SOE President Commissioner of the Board of Commissioner for PT Alam Bukit Tiga Puluh Interim Operations Director WWF-Indonesia WWF-International Fundraising Council Marketing Director (Marketing and Communication Director) WWF - Indonesia President Director PT Panda Lestari Period 2017 - now 2012 – now 2016 – 2017 2012–2016 2009 –2017 2011 - 2013 71 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkPONTAS TAMBUNAN Commissioner Period : April 22, 2016 – April 21, 2017 Personal Position and Basic Appointment Born : Jakarta, February 16, 1961 His position of being a Commissioner of Age : 57 years old Telkom is in accordance with the basis of appointment as a member of BOC that Citizenship and Domicile is not an Independent Commissioner, Pontas Tambunan is 57 years old which is documented in Minister of State and was born in February 16, 1961 in Owned Enterprise Letter No. SR-241/ Jakarta. He is an Indonesian citizen MBU/04/2016 about proposal to change and lives in Bekasi. In addition to being the board of The Company, which was a member of Telkom BOC, Pontas read at the Annual General Meeting of Tambunan is also as Deputy for the Shareholder dated April 22, 2016. Pontas Consturction and Transportation Tambunan ended his position, duties Facilities of Ministry of SOE. and responsibilities as Commissioner of Telkom in accordance with the resolution Education of the AGMS on April 21, 2017. Pontas Tambunan’s educational background is a Bachelor’s degree of Law from Tarumanegara University in 1986, and a Master from Gadjah Mada University in 2006. Previous work experience and its time period are presented as follows No. Position Deputy for the Consturction and Transportation Facilities of Ministry of SOE Commissioner PT Pertamina EP Finance Director of PT Perkebunan Nusantara V Assistant Deputy for the Infrastructure and Logistic Business Sector Commissioner of Pelabuhan Indonesia II (Persero) Commissioner of PT Sucofindo (Persero) Assistant Deputy for the Transportation Facilities Business Sector Commissioner of PT Wijaya Karya (Persero) Tbk 1 2 3 4 5 6 7 8 72 Period 2015 - now 2015 – 2016 2012 – 2015 2010 – 2012 2010 – 2012 2010 – 2012 2006 – 2012 2001 – 2012 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk2 3 4 5 6 7 8 9 10 11 EDUCATION, TRAINING, SEMINAR AND CONGRESS To improve the competence of the member of the Board of Commissioners, Telkom provides an opportunity for member of the Board of Commissioners to participate in education and training throughout the financial year 2017. No Education/Training Commissioner Name Time Place 1 Mobile World Congress Update Knowledge – Start Up Update Knowledge Technology (Silicon Valley) 1. Hendri Saparini 2. Dolfie Othniel Fredric Palit 3. Pamijati Pamela Johanna Waluyo 1. Dolfie Othniel Fredric Palit 2. Margiyono Darsasumarja 1. Hendri Saparini 2. Rinaldi Firmansyah 3. Pamijati Pamela Johanna Waluyo 7th Corprate University and Corporate Learning Summit 2017 Hadiyanto Cyber Risk Forum Margiyono Darsasumarja Panel Discussion of IKAI Cahyana Ahmadjayadi Risk Management Conference Rinaldi Firmansyah Focus Group Discussion Minisitry of SOE 1. Devy W. Suradji 2. Rinaldi Firmansyah 3. Pamijati Pamela Johanna 4. Margiyono Darsasumarja 5. Cahyana Ahmadjayadi February 27 – 30, 2017 Barcelona, Spanyol May 8 – 11, 2017 May 15 – 18, 2017 Mumbai and Bangalore, India San Fransisco, USA June 7-9, 2017 Berlin, Germany September 7 – 8, 2017 September 14, 2017 September 24 – 27, 2017 Las Vegas, USA Jakarta, Indonesia Toronto, Canada October 3, 2017 Bogor, Indonesia Risk Governance Master Class Cahyana Ahmadjayadi November 6 – 7, 2017 Singapore Update Knowledge Technology (Satellite) 1. Hendri Saparini 2. Rinaldi Firmansyah 3. Cahyana Ahmadjayadi Benchmark Study Implementation of Enterprise Architecture and Digital Transformation Hadiyanto November 20 – 23, 2017 San Francisco & Toronto November 20 – 24, 2017 Canberra, Australia 73 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCOMMISSIONER AFFILIATION RELATIONSHIPS In accordance with the principle of transparency to implement GCG, Telkom declares affiliation with the other member of the Board of Commissioners and major shareholders, including the name of the affiliated party. Financial Relationship with Familial Relationship with Board of Commisioners (BOC) BOC BOD Controlling Shareholder(1) BOC BOD Controlling Shareholder(1) Yes No Yes No Yes No Yes No Yes No Yes No Hendri Saparini Hadiyanto Rinaldi Firmansyah Dolfie Othniel Fredric Palit Margiyono Darsasumarja Pamijati Pamela Johanna Waluyo Cahyana Ahmadjayadi* Devy W. Suradji* Pontas Tambunan ** NOTE: √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ (1) The controlling shareholder in this matter is the Government of Indonesia represented by the Minister of SOEs as a primary shareholder * in position since April 21, 2017 ** no longer in position since April 22, 2017 STATEMENT OF INDEPENDENCE We 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, our Independent Commissioners have served since 2015 and 2016 so as not to serve more than two (2) periods. 74 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk75 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkPROFILE OF THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS AS OF DECEMBER 31, 2017 ALEX J. SINAGA President Director Personal Position and Basic Appointment Born : Pematang Siantar, His position as the President Director of September 27, 1961 Telkom is in accordance with Extraordinary Age : 56 years old General Meeting of Shareholders (EGM) of Telkom dated December 19, 2014. The Citizenship and Domicile decision is effective from December 19, Alex J. Sinaga is 56 years 2014 to the present. While the position old and was born in Siantar, as President Commissioner of PT September 27, 1961. He is an Telkomsel based on the Resolutions of Indonesian citizen, and lives in the Shareholders of Telkomsel effective Jakarta. Other than being the January 1, 2015. President Director of Telkom, Alex J. Sinaga is also the President Commissioner of Telkomsel. Education Alex J. Sinaga education background is a Bachelor degree in Electrical Engineering from Bandung Institute of Technology and a Master’s degree in Telematics from the University of Surrey, Guidford-England. Previous work experience and the time period is presented as follows: No. Position 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 Regional Division II Jakarta General Manager Telkom West Jakarta General Manager Telkom West Surabaya General Manager Telkom Malang 1 2 3 4 5 6 7 8 76 Period 2012 – 2014 2007 – 2012 2005 – 2007 2002 – 2005 2002 2000 – 2002 1998 – 1999 1997 – 1998 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk HARRY M. ZEN Director of Finance Personal Education Born : Tanjung Pinang, January 9, Harry M. Zen’s educational background 1969 Age : 49 years old is a Bachelor’s degree majoring in Metallurgy, Faculty of Engineering University of Indonesia and MBA Citizenship and Domicile in Corporate Finance and Financial Harry M. Zen is 49 years old and was Institutions & Market from the State born in Tanjung Pinang, on January 9, University of New York at Buffalo. 1969. He is an Indonesian citizen and lives in Jakarta. Other than being Position and Basic Appointment Director of Finance, Harry M. Zen His position as the Finance Director of is also the President Commissioner Telkom is in accordance with Annual of GSD (Telkom Property) and a General Meeting of Shareholders Commissioner of Telkomsel. (AGM) of Telkom on April 22, 2016. The decision is effective from April 22, 2016 to the present. Previous work experience and the time period is 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 Citi Global Corporate Banking, Citibank Co. Official Assistant Citi Global Consumer Banking, Citibank Co. Period 2008 – 2015 2007 – 2008 2001 – 2008 1996 – 2001 1993 – 1994 77 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkABDUS SOMAD ARIEF Director of Wholesale and International Service Personal Education Born : Sidoarjo, September 25, Abdus Somad Arief’s educational 1963 Age : 54 years old background is a Bachelor’s degree majoring in Electro Engineering and a Master’s degree in Information and Citizenship and Domicile Technology Systems from Bandung Abdus Somad Arief is 54 years Institute of Technology. old and was born in Sidoarjo, on September 25, 1963. He is an Position and Basic Appointment Indonesian citizen and lives in His position as the Wholesale and Jakarta. Other than being Director of International Service Director of Telkom is Wholesale and International Service, in accordance with Extraordinary General he is also serves as the President Meeting of Shareholders (EGM) of Telkom Commissioner of PT Telekomunikasi on December 19, 2014. While the position Indonesia International (Telin). as Wholesale and International Service Director based on the resolution of the Annual General Meeting of Shareholders (AGM) of Telkom on April 21, 2017. The decision is effective to the present. Previous work experience and its time period are presented as follows: No Position President Commisioner, PT Infrastruktur Telekomunikasi Indonesia (Telkom Infra) President Commisioner, PT Teltranet Aplikasi Solusi (Telkom Telstra) Network & IT Solution Director, Telkom Commisioner, PT Sigma Cipta Caraka (Telkom Sigma) Commisioner, PT Telekomunikasi Selular (Telkomsel) Commisioner, PT Daya Mitra Telekomunikasi (Mitratel) Network Director, Telkomsel President Commisioner, PT Pramindo Ikat Nusantara Executive General Manager Enterprise Service Division, Telkom Commissioner, PT Infomedia Nusantara Vice President of Business Development, Telkom Deputy Executive General Manager Enterprise Service Division, Telkom 1 2 3 4 5 6 7 8 9 10 11 12 78 Period 2015 – 2017 2015 – 2017 2014 – 2017 2015 2015 2012 – 2014 2012 – 2014 2011 – 2012 2009 – 2012 2010 - 2011 2008 – 2009 2007 – 2008 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk HERDY ROSADI HARMAN Director of Human Capital Management Personal Education Born : Bandung, June 28, 1963 Herdy Rosadi Harman’s educational Age : 54 years old background is a Bachelor’s degree from Padjdjaran University majoring in Law. Citizenship and Domicile He has a MBA degree from the Asian Herdy Rosadi Harman is 54 years Institute Management Philippines-Institute old and was born in Bandung, on Management Telkom University and Master June 28, 1963. He is an Indonesian of Law (LLM) from American University, citizen and lives in Jakarta. Other Washington DC, the United States. than being Director of Human Capital Management, he is also Position and Basic Appointment a Commissioner of GSD (Telkom His position as the Human Capital Property) and a President Management Director of Telkom is in Commissioner of Infomedia. accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision is 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 79 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkDIAN RACHMAWAN Director of Enterprise & Business Service Personal Education and Domicile Born : Surabaya, May 14, 1964 Dian Rachmawan’s educational Age : 53 years old background is a Bachelor’s degree Citizenship from Sepuluh November Institute of Technology majoring in Electro and Dian Rachmawan is 53 years old Telecommunication Engineering and was born in Surabaya, on 1987. He has a Master’s degree in in May 14, 1964. He is an Indonesian Communication and Real Time System, citizen and lives in Bogor. Other Telecommunication Engineering from than being Director of Enterprise & University of Bradford, England in 1994. Business Service, he is also the President Commissioner of Telkom Position and Basic Appointment Telstra since May 2017. His position as the Enterprise & Business Service Director of Telkom is in accordance with the resolution of the Annual General Meeting of Shareholders (AGM) of Telkom on April 21, 2017 and his previous position as Consumer Service Director of Telkom in accordance with the Extraordinary General Meeting of Shareholders (EGM) dated December 19, 2014. Previous work experience and its time period are presented as follows: No. Position Enterprise & Business Service Director, PT Telkom Consumer Service Director, PT Telkom CEO, PT Telekomunikasi Indonesia International (Hongkong) Limited Director of Network Operation & Engineering, PT Telkom Indonesia International Executive General Manager Division of Fixed Wireless Network, Telkom General Manager, Telkom South Jakarta General Manager for Interconnection & Partnership for Regional Division II Jakarta AVP Interconnection Planning, Head Quarter, PT Telkom 1 2 3 4 5 6 7 8 80 Period Apr 2017 – now Dec 2014 – Apr 2017 2011 – 2014 2007 – 2011 2005 – 2007 2004 – 2005 2001 – 2004 2000 – 2001 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkDAVID BANGUN Director of Digital & Strategic Portfolio Personal Education Born : Bandung, September 5, David Bangun’s educational background 1965 is a Bachelor’s degree of Electrical Age : 52 years old Engineering from Bandung Institute of Citizenship and Domicile in Electrical Engineering from Cornell David Bangun is 52 years old and University New York, USA. Technology and a Master of Engineering was born in Bandung, September 5, 1965. He is an Indonesian citizen Position and Basic Appointment and lives in Bandung. Other than His position as the Digital & Strategic being Director of Digital & Strategic Portfolio Director of Telkom is in Portfolio, he is also the President accordance with the Annual General Commissioner of Metra Digital Meeting of Shareholders (AGM) of Telkom Investama (MDI). on April 21, 2017. The decision is effective from April 21, 2017 to the present. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 President Director PT Dayamitra Telekomunikasi (Mitratel) Executive General Manager Network of Broadband Commissioner PT Telkom Internasional Executive General Manager Infratel Vice President Infrastructure & Service Planning Assistant Vice President Investment Analysis Period 2014 – 2017 2013 – 2014 2011 - 2014 2011 – 2013 2009 – 2011 2007 - 2009 81 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk ZULHELFI ABIDIN Director of Network & IT Solution Personal Education Born : Bukittinggi, January 1, Zulhelfi Abidin’s educational background 1962 is a Bachelor’s degree from Bandung Age : 55 years old Institute of Technology majoring in Information Engineering. He has a Citizenship and Domicile Master’s degree in Computer Science Zulhelfi Abidin is 55 years old and from University of Wollongong, Australia. was born in Bukittinggi, on January 1, 1962. He is an Indonesian citizen Position and Basic Appointment and lives in Jakarta. Other than His position as the Network & IT Solution being Director of Network & IT Director of Telkom is in accordance with Solution, he is also the President General Meeting of Shareholders (GMS) Commissioner of Telkom Infra. of Telkom on April 21, 2017. The decision is effective from April 21, 2017 to the present. Period 2015 –2017 2014 –2015 2012 –2015 2007 –2014 Previous work experience and its time period are presented as follows: No. Position Director of BRI Senior Executive Vice President, BRI Commissioner, Bank BRI Syariah Head of Information Systems Technology Division, BRI 1 2 3 4 82 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk MAS’UD KHAMID Director of Consumer Service Personal Education Born : Gresik, December 12, Ma’ud Khamid’s educational background 1964 is a Bachelor’s degree from Sepuluh Age : 53 years old November Institute of Technology majoring in Engineering Physics in 1989. Citizenship and Domicile Senior Executive Program and Global Mas’ud Khamid is 53 years old and Leadership Program from Kellogg was born in Gresik, on December School Management Northwestern 12, 1964. He is an Indonesian University of Chicago in 2006 and 2009 citizen and lives in Surabaya. Other and Executive Education in Harvard than being Director of Consumer Business School in 2015. Service, he is also the President Commissioner of PT Telkom Akses. Position and Basic Appointment His position as the Consumer Service Director of Telkom is in accordance with Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Previous work experience and its time period are presented as follows: No. Position 1 2 3 4 5 6 7 8 Chief of Commissioner, PT Sigma Citra Caraka (Telkom Sigma) Director of Sales, PT Telekomunikasi Selular (Telkomsel) Commissioner PT PINS Indonesia Executive General Manager Telkom Flexi, PT Telkom Indonesia Commissioner PT Metra Digital Media Executive General Manager Telkom West Area, PT Telkom Indonesia Executive General Manager Regional Jakarta Division, PT Telkom Indonesia Executive General Manager Jatim Division, PT Telkom Indonesia Period 2015 - 2017 2012 - 2017 2012 - 2014 2011 - 2012 2011 - 2012 2010 - 2011 2008 - 2010 2007 - 2008 83 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk MEMBER OF THE BOARD OF DIRECTORS ENDED IN 2017 INDRA UTOYO Director of Digital & Strategic Portfolio (as of March 15, 2017) Personal Education Born : Bandung, February 17, 1962 Indra Utoyo’s educational background is a Age : 56 years old Bachelor’s degree from Bandung Institute of Technology with major in Electro Citizenship and Domicile Telecommunication Engineering. He has Indra Utoyo is 56 years old and was an MBA degree in Communication and born in Bandung, on February 17, 1962. Signal Processing from Imperial College He is an Indonesian citizen and lives in of Science, Technology and Medicine, Bandung. Other than being Director University of London, England. of Digital & Strategic Portfolio, he is also the President Commissioner of Position and Basic Appointment Metra Digital Investama (MDI) and a His position as the Digital & Strategic Commissioner of Telkom Metra. Portfolio Director of Telkom is in accordance with Extraordinary General Meeting of Shareholders (EGM) of Telkom on May 11, 2012. The decision is 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 84 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkHONESTI BASYIR Director of Wholesale and International Service also acting as Director of Enterprise & Business Service (as of April 20, 2017) Personal Education Born : Padang, June 24, 1968 Honesti Basyir’s educational background Age : 49 years old is a Bachelor’s degree Bandung Institute Citizenship and Domicile Engineering. He has a Master’s degree in Honesti Basyir is 49 years old and Corporate Finance from Bandung School of Technology with major in Industrial was born in Padang, on June 24, of Management. 1968. He is an Indonesian citizen and lives in Bandung. Other than Position and Basic Appointment being Director of Wholesale and Previously, he served as Finance International Service, he is also Director, accordance to AGSM Telkom Director of Enterprise & Business in May 11, 2012 and as Wholesale and Service (since September 13, International Service Director of Telkom 2016), the President Commissioner is in accordance with Extraordinary of Telin and Telkom Metra. General Meeting of Shareholders (EGM) of Telkom on December 19, 2014. The decision is effective from December 19, 2014 to the present. 1 2 3 4 5 6 Previous work experience and its time period are presented as follows: No. Position Finance Director, Telkom Period 2012 – 2014 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 Controller1, Project Management Office Telkom Assistant Vice President, Business & Finance Analysis Telkom Project Management Consultant, Garuda Maintenance Facility 2009 – 2010 2006 – 2009 1992 – 1993 85 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkEDUCATION, TRAINING, SEMINAR AND 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 2017. No Education/Training Director Name Time Place 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Speaker at ITB General Lecture Alex J. Sinaga February 8, 2017 Bandung Participant of Executive Leadership Program (ELP) from the Ministry of SOE Alex J. Sinaga April 26, 2017 Bogor Speaker at IBD Expo 2017 Alex J. Sinaga September 20, 2017 Jakarta Lecturer at Seminar “BUMN Hadir di Kampus” Alex J. Sinaga October 28, 2017 Assessment Corporate Governance Perception Index (CGPI) 2017 Alex J. Sinaga November 9, 2017 Jakarta Jakarta Telco-exclusive Breakout Session at FinTech Festival Alex J. Sinaga November 15, 2017 Singapore Speaker and Participant at Coordination meeting of SOE Peer Review Accreditation Corporate Learning Improvement Process (CLIP) by The European Foundation for Management Development (EFMD) Assessment of Superior Performance Appraisal Criteria (KPKU) 2017 Alex J. Sinaga November 22, 2017 Bengkulu Alex J. Sinaga December 6, 2017 Jakarta Alex J. Sinaga December 11, 2017 Jakarta Speaker at Seminar Digitalizing Wonderful Indonesia Alex J. Sinaga December 14, 2017 Jakarta Executive Leadership Program International Telecom Weeks Capacity Asia 2017 Rakernakas PGRI 15 CHCO Sharing Session SWA Magazine 16 Leadership Training BPJS 17 OJK Leadership Training 18 General Lecture of University of Jakarta 19 Indonesia Business Development the Ministry of SOE 20 General Lecture Padjajaran University 21 Sharing Culture Development Paru Bandung Hospital Abdus Somad Arief April 28-29, 2017 Bandung Abdus Somad Arief May 16-17, 2017 USA Abdus Somad Arief December 12, 2017 Hongkong Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman Herdy Rosadi Harman 2017 2017 2017 2017 2017 2017 2017 2017 Jakarta Jakarta Jakarta Jakarta Jakarta Jakarta Bandung Bandung 22 23 24 25 26 Strategic Marger & Acquisition David Bangun January, 2017 USA ELP 1 Batch 2 (Executive Leadership Program) SOE - Telkom Speaker “IT Leader Forum” with the topic “Shaping Change Through Leadership” Keynote Speaker “Workshop Global Security Threat & Trends Telkom Group” Keynote Speaker Seminar, Topic : The Role of Broadband as a Competitive Advantage to Develop Indonesia’s Economy, Material Title: Telkom Broadband Infrastructure Readines to Accelerate Indonesia Broadband Plan Zulhelfi Abidin April 28 – 29, 2017 Bandung Zulhelfi Abidin July 13, 2017 Bogor Zulhelfi Abidin August 23, 2017 Jakarta Zulhelfi Abidin December 6, 2017 Jakarta 27 Speaker at SocialBakers Mas’ud Khamid May 15-20, 2017 Republik Ceko 86 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkDIRECTORS AFFILIATIONS AND RELATIONSHIPS In accordance with the principle of transparency to implement GCG, Telkom declares the affiliation with the other Board members, member of the Board of Commissioners and major shareholders, including the name of affiliated parties. Financial Relationship with Family Relationship with Directors (BOD) BOC BOD Controlling Shareholder(1) BOC BOD Controlling Shareholder(1) Yes No Yes No Yes No Yes No Yes No Yes No Alex J. Sinaga Harry M. Zen Abdus Somad Arief Herdy Rosadi Harman Dian Rachmawan David Bangun* Zulhelfi Abidin* Mas’ud Khamid* Indra Utoyo** Honesti Basyir*** √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ NOTE : (1) Controlling Shareholder in this matter is the Indonesian government represented by the Ministry of State Owned Enterprises as the primary shareholder * in position since April 21, 2017 ** in position until March 15, 2017 *** in position until April 20, 2017 87 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkTELKOM INDONESIA EMPLOYEES Employees are our most valuable asset. 24,065 of our employees work professionally throughout 2017 to realize our goal to transform ourselves to become digital telecommunication company and at the same time, to accelarate the development of the digital economy of Indonesia. In line with that, we continue to build the digital competence and digital culture of our employees. This is our commitment to Indonesia today and in the future. EMPLOYEE PROFILE Based on education level Age ranges 4,572 8,490 11,003 11.4% 16.9% 17.6% 54.1% Bachelor Diploma Preuniversity Postgraduate 12,000 10,000 8,000 6,000 4,000 2,000 0 75.8% 24.2% <30 years 31-45 years >45 years 24,065 Telkom Group Employees 58.0% 13,956 Telkom’s Employees 42.0% 10,109 Subsidiaries’ Employees Employees with right working culture are Telkom’s most valuable asset in achieving its vision to be “King of Digital”. As of the end of 2017, Telkom Group has 24,065 employees comprising 13,956 employees in the parent company and 10,109 employees in the subsidiaries. Continuing efforts to revitalize and improve the efficiency of human resources in previous years, the number of parent company employees in 2017 was 6.5% lower compared to 2016. Table of Telkom and Subsidiaries Employees in 2015-2017 No Telkom Group Employees 1 2 Telkom Employees Subsidiaries Employees Total 2017 13,956 10,109 24,065 2016 14,933 8,943 23,876 2015 16,097 8,688 24,785 NUMBER OF EMPLOYEES BY EDUCATION LEVEL AND AGE DISTRIBUTION By end of 2017, Telkom had 13,017 employees that held bachelor degree, represented 54.1% of Telkom’s total employees, higher than in 2016 which was 40.1%. In subsidiaries, employees who held bachelor degree represented 53.7% or 6,987 of total employees. In terms of distribution based on age, 13,062 employees were under 45 years, represented 54.3% of total Telkom employees. With such composition of educational background and age distribution, the company had potential to regenerate its employees better in line with the business requirements. 88 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkTable of Telkom and Subsidiaries Employees Based on Education in 2017 Education Preuniversity Diploma Undergraduate Graduate Telkom 3,201 2,776 6,030 1,949 Subsidiaries 876 1,452 6,987 794 2017 Telkom Group 4,077 4,228 13,017 2,743 % 16.9 17.6 54.1 11.4 Table of Telkom Employees Based on Education in 2015-2017 Education Preuniversity Diploma Undergraduate Graduate 2017 2016 2015 Total 3,201 2,776 6,030 1,949 % 22.9 19.9 43.2 14.0 Total 3,834 3,217 5,987 1,895 % 25.7 21.5 40.1 12.7 Total 4,541 3,655 6,082 1,819 % 28.2 22.7 37.8 11.3 Table of Telkom and Subsidiaries Employees Based on Age in 2017 Age (years old) Below 30 Between 30-45 Above 45 Table of Telkom Employees Based on Age in 2015-2017 Age (years old) Below 30 Between 30-45 Above 45 Telkom 1,452 2,703 9,801 Subsidiaries 3,120 5,787 1,202 2017 Telkom Group 4,572 8,490 11,003 % 19.0 35.3 45.7 2017 2016 2015 Total 1,452 2,703 9,801 % 10.4 19.4 70.2 Total 1,155 2,966 10,812 % 7.7 19.9 72.4 Total 893 3,386 11,818 % 5.5 21.1 73.4 NUMBER OF EMPLOYEES BY POSITION, STATUS OF PERSONNEL AND GENDER In general we have several levels of positions, namely senior management, middle management, supervisors, and other levels of officer. The largest composition of employees in 2017 was in supervisory positions of 48.0% or 11,547 of employees. In a subsidiary entity, the largest composition of employees was in other positions equal to 47.2% or 4,771 of employees. The number of male employees were 18,231 employees, more than the number of female employees of 5,834 employees. We do not differentiate male and female employees in terms of employment, but men have higher interest than women to work in our place, especially in the field operation. Table of Telkom and Subsidiaries Employees Based on Position in 2017 Position Senior Management Middle Management Supervisor Others Total Telkom Subsidiaries 2017 205 3,950 8,294 1,507 13,956 450 1,635 3,253 4,771 10,109 Telkom Group 655 5,585 11,547 6,278 24,065 % 2.7 23.2 48.0 26.1 100.0 89 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkTable of Telkom Employees Based on Position in 2015-2017 Level of Position Senior Management Middle Management Supervisor Others 2017 2016 2015 Total 205 3,950 8,294 1,507 % 1.5 28.3 59.4 10.8 Total 207 3,856 8,917 1,953 % 1.4 25.8 59.7 13.1 Total 187 3,281 9,913 2,716 % 1.2 20.4 61.6 16.9 Table of Telkom and Subsidiaries Employees Based on Gender in 2017 Gender Classification Male Female Telkom 10,881 3,075 Subsidiaries 7,350 2,759 2017 Telkom Group 18,231 5,834 % 75.8 24.2 Table of Telkom Employees Based on Gender in 2015-2017 Gender Classification Male Female 2017 2016 2015 Total 10,881 3,075 % 78.0 22.0 Total 11,803 3,130 % 79.0 21.0 Total 12,935 3,162 % 80.4 19.6 EQUAL OPPORTUNITIES IN THE COMPETENCY DEVELOPMENT We conduct employee competency development to be more innovative and to creative and contribute to the progress of the company. We provide equal opportunity for every employee to join our competency development program. In 2017, we spent Rp109.6 billion on competency development, increased by Rp14.5 billion or 15.2% compared to 2016. The amount did not include educational scholarships. Type of Competency Development Program Training Certification Educational Scholarship Total Type of Competency Development Program Training Certification Educational Scholarship Total Telkom 16,580 859 117 17,556 Telkom 14,722 266 117 15,105 2017 Subsidiaries 4,199 312 16 4,527 2016 Subsidiaries 11,659 20 1 11,680 Telkom Group 20,779 1,171 133 22,083 Telkom Group 26,381 286 118 26,785 % 94.1 5.3 0.6 100 % 98.5 1.1 0.4 100 90 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkSHAREHOLDERS COMPOSITION The authorized capital of the Company consists of 1 Series A Dwiwarna share, and 399,999,999,999 Series B shares (common 3. Shareholders with Less than 5% Ownership Telkom Shareholders with Individual Ownership Less than 5%, on stock). The authorized subscribed and paid-up capital are December 31, 2017 100,799,996,400 shares, consisting of a share of Series A Dwiwarna share and 100,799,996,399 Series B shares. A share of the Series A Dwiwarna Share is owned by the Government of the Republic of Indonesia (the “Government”). Group Ordinary Stocks Owned Ownership Percentage of Outstanding Common Shares (%) Composition of Shareholders Telkom on December 31, 2017 Business/Institution 39,692,722,020 40.07 Individual 15,978,300 0.01 Foreign Series A Dwiwarna Series B (Ordinary Stock) % Local Indonesian Government Public Sub Total Capital (placed and fully deposited) Treasury Shares (shares that have not been re-purchased) Total 1 1 51,602,353,559 52.09 47,459,863,040 47.91 99,062,216,599 100.0 1,737,779,800 - 1 100,799,996,399 100.0 Business/Institution Limited liability 1,527,847,372 Mutual funds 2,335,982,606 Insurance company 2,608,784,450 Pension funds 646,453,350 Others Individuals 78,777,750 553,317,192 1.54 2.36 2.64 0.65 0.08 0.56 Total 47,459,863,040 47.91 4. Percentage of Shares Owned Inside and Outside Telkom’s shareholder composition per December 31, 2017 in Indonesia details are as follows: On December 31, 2017, a total of 50,628 shareholders, including the Government, registered as holders of ordinary shares of the 1. Shareholders with more than 5% Ownership Company, including 37,639,647,870 ordinary shares owned by (Major Shareholder/Controller) Individual or Group Identity Type of Share Total Shares Seri A Seri B Government Percentage Owned 1 - 2,310 shareholders outside Indonesia. Thus 38.0% of our shares were owned by shareholders outside Indonesia and the rest were controlled by domestic shareholders. On the same date there were 90 ADS shareholders owning 76,327,568 ADS (1 ADS Government 51,602,353,559 52.09 equivalent to 100 common shares). 2. Ownership of Shares by Directors and Commissioners 5. List of 20 Largest Public Shareholders Here is a list of the 20 largest public shareholders until On December 31, 2017 there was no Commissioner or Director of December 31, 2017. the Company which has more than 1.0% of Company shares. Institutions BOD or BOC Total Shares Percentage Owned DJS KETENAGAKERJAAN PROGRAM JHT GIC S/A GOVERNMENT OF SINGAPORE Commissioner Hendri Saparini Hadiyanto Rinaldi Firmansyah Directors Alex J. Sinaga Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman 414,157 875,297 147,100 920,349 888,854 828,314 828,012 Total 4,902,083 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 BNYMSANV RE BNYMLB RE EMPLOYEES PROVIDEN BNYM RE VIRTUS VONTOBEL EMERGING MARKETS BBH BOSTON S/A VANGRD EMG MKTS STK INFD JPMCB NA RE-VANGUARD TOTAL INTERNATIONAL CITIBANK NEW YORK S/A GOVERNMENT OF NORW PT. PRUDENTIAL LIFE ASSURANCE - REF RBC S/A VONTOBEL FUND - EMERGING MARKETS BBH BOSTON S/A MATTHEWS PACIFIC TIGER FU JPMCB NA AIF CLT RE-STICHTING DEPOSITARY GIC S/A MONETARY AUTHORITY OF SINGAPORE SSB OBIH S/A ISHARES MSCI EMERGING MARKE PT. TASPEN SSB 2Q27 S/A ISHARES CORE MSCI EMERGING REKSA DANA SCHRODER DANA PRESTASI PLUS-9 CITIBANK NEW YORK S/A JOHN HANCOCK FUNDS SSB 1BA9 ACF MSCI EQUITY INDEX FUND B-IN HSBC BANK PLC S/A SAUDI ARABIAN MONETARY PT TASPEN (PERSERO) - THT Percentage 2.45 1.50 1.11 0.81 0.79 0.62 0.60 0.60 0.47 0.42 0.41 0.37 0.36 0.35 0.34 0.32 0.32 0.31 0.30 0.29 91 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOIN VENTURES Government *52.09% Public *47.91% *Composition of share ownership. Excludes treasury stock PT Satelit Multimedia Indonesia Metra TV Notes: Direct Subsidiaries (consolidated) Unconsolidated Indirect Subsidiaries (consolidated) 92 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk PT Nusantara Sukses Sarana PT Nusantara Sukses Realti PT Graha Sakura Nusantara 93 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk As of December 31, 2017, Telkom had consolidated the financial statements of all subsidiaries owned directly or indirectly as follows: SUBSIDIARIES WITH DIRECT OWNERSHIP Company PT Telekomunikasi Selular (“Telkomsel”), Jakarta, Indonesia Share Ownership 65% Business Field Operational Status Total Asset Before Elimination (Rp billion) Telecommunication - operators of telecommunication facilities and mobile phone services using the technology of Global System for Mobile Communications (“GSM”) Telecommunication Operating 85,748 Operating 13,606 Telecommunication network services and multimedia Operating 13,275 100% 100% 100% Telecommunication Operating 9,125 100% 99.99% 100% 100% 100% 100% 100% Construction, services and trade in telecommunications Office leasing and building management and maintenance services, civil consultant and developer Services and telecommunications development Construction, services and trade in telecommunications Telecommunications -providing satellite communications systems, services and related facilities. Multimedia portal services Payment Services - principal activities, switching activities, clearing and settlement Operating 5,716 Operating 5,641 Operating 3,473 Operating 1,871 Operating 576 Operating 524 Operating 225 Address Telkom Landmark Tower, 1st Tower, 1st -20th floor. Jl. Jend. Gatot Subroto Kav. 52 South Jakarta, 12710, Indonesia Telkom Landmark Tower, 2nd Tower, 25th-27th floor. Jl. Jend. Gatot Subroto Kav.52 South Jakarta, 12710, Indonesia Telkom Landmark Tower, 2nd Tower, 41th floor. Jl. Jend. Gatot Subroto Kav.52 South Jakarta, 12710, Indonesia Telkom Landmark Tower, 2nd Tower, 16-17 floor. Jl. Jend. Gatot Subroto Kav. 52, South Jakarta, 12710, Indonesia Telkom Building, West Jakarta. Jl. S. Parman Kav. 8 West Jakarta, 11440, Indonesia Multimedia Tower. Jl. Kebon Sirih No.10, Central Jakarta, 10110, Indonesia Annex Kuningan Plaza Building 7th floor. Jl. Rasuna Said Kav C11-C14 South Jakarta, Indonesia Mugi Griya Building, 5th floor. Jl. MT Haryono Kav. 10 Jakarta, 12810, Indonesia Jl. Pringgondani II, No. 33, Alternatif Cibubur, Depok 16954, Indonesia Mulia Business Park, J Building. Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta, 12780, Indonesia Dea Tower, 1st Tower, 8th floor. Jl. Mega Kuningan Barat IX Kav. E.4.3 No.1 Jakarta, 12950, Indonesia PT Dayamitra Telekomunikasi (“Dayamitra”), Jakarta, Indonesia PT Multimedia Nusantara (“Metra”), Jakarta, Indonesia PT Telekomunikasi Indonesia International (“Telin” or “TII”), Jakarta, Indonesia PT Telkom Akses (“Telkom Akses”), Jakarta, Indonesia PT Graha Sarana Duta (“GSD”), Jakarta, Indonesia PT PINS Indonesia (“PINS”) Jakarta, Indonesia PT Infrastruktur Telekomunikasi Indonesia (“Telkom Infratel”), Jakarta, Indonesia PT Patra Telekomunikasi Indonesia (“Patrakom”), Jakarta, Indonesia PT Metranet (“Metranet”), Jakarta, Indonesia PT Jalin Pembayaran Nusantara (“Jalin”), Jakarta, Indonesia 94 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCompany PT Napsindo Primatel Internasional (“Napsindo”), Jakarta, Indonesia Share Ownership 60% Operational Status Stopped Operating in January 13, 2006 Business Field Telecommunications providing the Network Access Point (NAP), Voice Over Data (VOD), and other related services SUBSIDIARIES WITH INDIRECT OWNERSHIP Total Asset Before Elimination (Rp billion) 5 - Address Company PT Sigma Cipta Caraka (“Sigma”), Tangerang, Indonesia Share Ownership 100% Telekomunikasi Indonesia International Pte. Ltd., Singapore PT Infomedia Nusantara (“Infomedia”), Jakarta, Indonesia 100% 100% PT Telkom Landmark Tower (“TLT”), Jakarta, Indonesia PT Metra Digital Media (“MD Media”), Jakarta, Indonesia 55% 99.99% Business Field Operational Status Total Asset Before Elimination (Rp billion) Information technology services - implementation and system integration, outsourcing, and maintenance and software licenses Telecommunication Data and information services - providing information services of telecommunication and other information services in the form of print and electronic media, and call center services Property development and management services Information services in a special directory form Operating 6,064 Operating 3,048 Operating 2,122 Operating 2,009 Operating 1,106 PT Finnet Indonesia (“Finnet”), Jakarta, Indonesia TS Global Network Sdn. Bhd. (“TSGN”), Petaling Jaya, Malaysia Telekomunikasi Indonesia International Ltd., Hong Kong PT Metra Digital Investama (“MDI”), Jakarta, Indonesia 60% Information technology services Operating 907 49% Satellite service Operating 818 100% Telecommunication Operating 710 Operating 658 99.99% Trade services, information technology and multimedia, entertainment and investment Address Graha Telkom sigma. Jl. Kapten Subijanto Dj Bumi, Serpong South Tangerang, 15321, Indonesia Damai, Maritime Square, #09- 63 Harbour Front Center, Singapore - 099253 Infomedia Nusantara PT Head Office. RS. Fatmawati 77-81 Jakarta, 12150, Indonesia Jl. Telkom Landmark Tower Building Jl. Jend Gatot Subroto Kav 52 South Jakarta, 12710, Indonesia Wisma Aldiron Dirgantara 2nd floor Suite 202-209 & 231- 237. Jl. Jend. Gatot Subroto Kav.72 Pancoran South Jakarta, 12780 Indonesia Menara Bidakara 1, 12th floor. Jl. Jend. Gatot Subroto Kav. 71-73, South Jakarta, 12870 Indonesia Teknorat ½ street, Cyber 3, 6300 Cyberjaya, Selangor Darul Ehsan, Malaysia 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, South 12950, Jakarta, Indonesia 95 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCompany Share Ownership Business Field Operational Status Total Asset Before Elimination (Rp billion) 100% Telecommunication Operating 639 99.99% Services and trade Operating 303 100% Health insurance administration services Operating 273 100% Digital content sales service Operating 231 60% Networking and e-commerce services Operating 203 51% Tourism services Operating 100% Telecommunication Operating 60% Provider system integrator services Operating 100% Telecommunication Operating 178 123 60 36 99.99% Satellite services Operating 18 99.99% Building and hotel management services Not Yet Operating 99.99% Services and trade Not Yet Operating 99.83% Subscription broadcasting services Operating - - - Telekomunikasi Indonesia International (“TL”) S.A, Dili, Timor Leste PT Nusantara Sukses Investasi (“NSI”), Jakarta, Indonesia PT Administrasi Medika (“Ad Medika”), Jakarta, Indonesia PT Melon Indonesia (“Melon”), Jakarta, Indonesia PT Metraplasa (“Metraplasa”), Jakarta, Indonesia PT Graha Yasa Selaras (“GYS”), Jakarta, Indonesia Telekomunikasi Indonesia International Pty. Ltd., (“Telkom Australia”), Sydney, Australia PT Nutech Integrasi (“Nutech”), Jakarta, Indonesia Telekomunikasi Indonesia International Inc. (“Telkom USA”), Los Angeles, USA PT Satelit Multimedia Indonesia (“SMI”), Jakarta, Indonesia PT Nusantara Sukses Sarana (“NSS”), Jakarta, Indonesia PT Nusantara Sukses Realti (“NSR”), Jakarta, Indonesia PT Metra TV (“Metra TV”), Jakarta, Indonesia 96 Address Timor Plaza 4th Floor, Rua Presidente Nicolao Lobato, Comoro, Dili Timor Leste Multimedia Tower, Gedung Annex 2nd floor. Jl. Kebon Central Sirih No 10-12, Jakarta, Indonesia STO Telkom Gambir Gedung C 3rd floor. Jl. Medan Merdeka Selatan No. 12, Central Jakarta, 10110, Indonesia Telkom Building, 7th floor. Jl Sisingamangaraja Kav 4-6, Kebayoran Baru, Jakarta, Indonesia Mulia Business Park, J Building. Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta 12780, Indonesia Jl. Cimanuk No. 33 Bandung Level 4, 241 Commonwealth Street Surry Hills NSW 2010, Australia Jl. Tanjung Barat Raya, No.17, Pasar Minggu, South Jakarta, 12510, Indonesia 800 Wilshire Boulevard, Suite 620 Los Angeles, California 90017 Telkom Landmark Tower, 2nd Tower, 41th floor. Jl. Jend. Gatot Subroto Kav.52 South Jakarta, 12710 Multimedia Tower, Jl. Kebon Sirih No 10-12, Central Jakarta, Indonesia Menara Multimedia, Kebon Sirih No Central Jakarta, Indonesia Jl. 10-12, Telkom Landmark Tower, 2nd Tower 41th floor. Jl. Jend. Gatot Subroto Kav.52 South Jakarta, 12710, Indonesia Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCHRONOLOGY OF REGISTRATION OF STOCKS Telkom is listed in the Indonesian Stock Exchange (BEI) and New York Stock Exchange (NYSE) since November 14, 1995, with shares code TLKM and TLK. Date Corporate Actions 13/11/1995 First Public Pre-Offering Composition of Shareholding Government of Republic of Indonesia 8,400,000,000 Public % - 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 1/10/2004 Denomination of Shares Nominal Value with Ratio of 1:2 10,320,470,712 9,839,528,568 - 48.8 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 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 0.3 46.9 46.9 Assignment of Shares Repurchase Program III to Employees through ESOP Program - 59,811,400 Composition of Shareholding 10,320,470,712 8,888,409,508 46.3 Assignment of Shares Repurchase Program I through Private Placement - 211,290,500 - Composition of Shareholding 10,320,470,712 9,099,700,008 Denomination of Shares Nominal Value with Ratio of 1:5 Assignment of Shares Repurchase Program II through Private Placement 51,602,353,560 45,498,500,040 - 1,075,000,000 - Composition of Shareholding 51,602,353,560 46,573,500,040 47.4 97 14/06/2013 30/07/2013 2/9/2013 13/06/2014 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk Composition of Shareholding Government of Republic of Indonesia Public % - 22,363,000 - Date Corporate Actions Assignment of Remaining Shares Repurchase Program III through Private Placement 21/12/2015 29/06/2016 Composition of Shareholding 51,602,353,560 46,595,863,040 47.5 Assignment of Remaining Shares Repurchase Program IV through Private Placement - 864,000,000 - Composition of Shareholding 51,602,353,560 47,459,863,040 47.9 2017 No corporate action - - - Share Ownership Composition 51.602.353.560 47.459.863.040 47.9 NOTE : 1. First shares buy back program began on 21 December 2005 (simultaneously with the EGMS at the time such program was approved) and ended in June 2007. 2. Second shares buy back program began on 29 June 2007 (simultaneously with the EGMS at the time such program was approved) and ended in June 2008. 3. Third shares buy back program began on 20 June 2008 (simultaneously with the EGMS at the time such program was approved) and ended in December 2009. 4. Fourth shares buy back program began on 19 May 2011 (simultaneously with the AGMS at the time such program was approved) and ended in November 2012. 98 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk CHRONOLOGY OF LISTING OF BONDS AND OTHER SECURITIES We 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. Bond Name Bond I Telkom Year 2002 Bond II Telkom Year 2010 Series A Amount (Rp million) Issuance Date Maturity Date Period (year) Interest Rate Underwriter Trustee Date of Repayment 1,000,000 July 16, July 16, 2007 5 17.00 % PT 2002 1,005,000 June 25, July 6, 2015 5 9.60 % 2010 Danareksa Sekuritas PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT BNI Tbk, PT BRI Tbk July 16, 2007 PT CIMB Niaga Tbk July 6, 2015 Subsequently on June 16, 2015, Telkom issued Shelf Registration 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. The bond was listed in BEI with PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas as the underwriters. PT CIMB Niaga Tbk was again appointed as the trustee. The report on the use of these bond funds is described further in the Analysis and Discussion section. Pefindo on March 9, 2017 has rated Shelf Registration Bond I Telkom Phase I Year 2015 and Bond II Series B Year 2010 for period March 9, 2017 until March 1, 2018 with idAAA (stable outlook) rating. Bond Name Amount (Rp million) Issuance Date Maturity Date Period (year) Interest Rate Underwriter Trustee Rating Bond II Telkom Year 2010 Series B Shelf Registration Bond I Telkom Year 2015 Series A 1,995,000 June 25, 2010 July 6, 2020 10 10.20 % PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas 2,200,000 June 23, June 23, 2022 7 9.93 % PT Bahana 2015 1 Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas PT CIMB Niaga Tbk idAAA PT Bank Permata Tbk idAAA 99 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkBond Name Amount (Rp million) Issuance Date Maturity Date Period (year) Interest Rate Underwriter Trustee Rating Shelf Registration Bond I Telkom Year 2015 Series B Shelf Registration Bond I Telkom Year 2015 Series C Shelf Registration Bond I Telkom Year 2015 Series D 2,100,000 June 23, 2015 June 23, 10 10.25 % PT Bahana 2025 Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas 1,200,000 June 23, 2015 June 23, 2030 15 10.60 % PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas 1,500,000 June 23, 2015 June 23, 30 11.00 % PT Bahana 2045 Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas PT Bank Permata Tbk idAAA PT Bank Permata Tbk idAAA PT Bank Permata Tbk idAAA NOTE : 1 Shelf Registration Bonds 1 Telkom 2015 Series A was issued June 16, 2015 but the official sale transaction was on June 23, 2015 100 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkNAME AND ADDRESS OF INSTITUTIONS AND/OR SUPPORTING CAPITAL MARKET PROFESSIONALS Supporting Capital Market Professionals External Auditor KAP Purwantono, Sungkoro & Surja (member firm of Ernst & Young Global Limited) Securities Admin Bureau PT Datindo Entrycom Trustee PT Bank CIMB Niaga Tbk PT Bank Permata Tbk. Central Custodian PT Kustodian Sentral Efek Indonesia Address Service Fee Assignment Period Bursa Efek Jakarta Building, 2nd Tower, 7th floor Jl. Jend. Sudirman Kav. 52 53 Jakarta - 12100 Wisma Sudirman Jl. Jend. Sudirman Kav 34 35 Jakarta - 10220 Graha Niaga, 20th floor Jl. Jend. Sudirman Kav. 58 Jakarta – 12190 WTC II Building 28th floor Jl. Jend Sudirman Kav.29 31 Jakarta 12920 Conducting Integrated Audit of PT Telkom Indonesia (Persero) Tbk (“Telkom”) and the General Audit of financial statements of subsidiaries. Publishing Consent Letter. Acting as a depository institution (Custodian) of ordinary Telkom shares traded on the Stock Exchange. Representing the interests of Bond holders with the Company for Bond II Telkom. Representing the interests of Bond holders with the Company for Telkom Shelf Registration Bond phase I. Bursa Efek Jakarta Building, Tower 1, 5th floor Jl. Jend. Sudirman Kav 52 53 Jakarta - 12190 - Providing a central depository and settlement of stock transactions on the Stock Exchange. - Storage services and Rp43.7 billion Since 2012 Rp136 million Since 1995 Rp75 million Since 2010 Rp75 million Since 2015 Rp10 million Since 1995 Ranking Agent PT Pemeringkat Efek Indonesia Panin Tower Senayan City, 17th floor Jl. Asia Afrika Lot. 19 Jakarta - 10270 settlement of securities transactions, distribution of corporate action results. Providing ranking on credit risk of Telkom bond issuance. ADS Custodian Bank The Bank of New York Mellon Corporation 101 Barclay Street, New York United States of America - 10286 Acting as a depository institution (Custodian) of ADS shares traded on the NYSE. Official Service Agent in the United States Puglisi and Associates Law Consultant Hadiputranto, Hadinoto & Partners Acting as an authorized representative in the US with regard to securities in accordance with the law and regulations. Acting as capital market legal counsel 850 Library Ave # 204, Newark United States of America - 19711 Bursa Efek Jakarta Building Tower 2 21st floor Jl. Jend. Sudirman Kav. 52 53, Jakarta - 12190 Rp150 million Since 2012 - Since 1995 US$500 Since 2012 Rp218 million Since 1995 Notary Notaris/PPAT Ashoya Ratam, SH, MKn Jl. Suryo No.54 Kebayoran Baru Jakarta 12180 Acting as notary Rp25 million Since 2012 101 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkANALYSIS AND DISCUSSION 104 Performance Highlight 105 Operations Overview by Segment 120 Marketing Overview 124 Comprehensive Financial Performance 139 Solvency 139 Receivables Collectability 140 Capital Structure 140 Capital Expenditure 142 Material Commitment for Capital Expenditure 144 Material Information and Fact after Accountant Reporting Date 144 Macroeconomy 145 Indonesian Telecommunication Industry 147 Business Prospect and Sustainability of the Company 148 Comparison Between Targets and Realizations 149 Targets or Projections for the Next Year 149 Dividend 150 Realization of Public Offering Fund 150 Material Transaction Information Containing Conflict of Interest, Transaction with Affiliated Parties, Investments, Divestments and Acquisitions Changes in Regulation Changes in Accounting Policy 151 151 “Our sustainable revenue growth demonstrates our success in managing and creating economic opportunities during the current transition toward digital communication era. Supported with strategic efforts to improve business efficiencies and productivities, we will continue to innovate and invest to add economic value for our stakeholders” PERFORMANCE HIGHLIGHT Continuing the positive performance in the previous years, our revenue continued to grow in 2017 with the largest revenue contribution from the mobile segment. Revenue 2017 Increased 10.2% compared to 2016 Rp128.3 T Rp64.6 T EBITDA Increased 8.6% Rp33.2 T Capital Expenditure Increased 13.5% Rp22.1 T NET INCOME Increased 14.4% Rp223.55 EPS Increased 13.9% The increase in our capital expenditure aims to accelerate the digital business, in line with the rapid development of the digital age. 196.3 Million Cellular Subscriber 2017 increased 12.9% compared to 2016 105.8 Million Subscriber Mobile Broadband* Increased 24.9% Compared to 2016 Increased 82.6% Compared to 2016 2.9 Million Subscriber IndiHome *include Flash user, Blackberry user, and PAYU 104 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkOPERATIONAL OVERVIEW BY SEGMENT PREFACE In 2017, we reorganized Telkom Group’s business portfolio based on a more specific customers segmentation. The reorganization caused a change in the management and organizational structure in managing our business portfolio. Inline with that, we changed the description of the business segment information that differ from the previous year’s business segment information and presented the new description in the consolidated financial report. In the 2016 report, we operated in four business segments, namely home, personal, corporate, and others. Starting from 2017, our report elaborates 5 main operational segments, namely mobile, consumer, enterprise, wholesale and international business (“WIB”), and other segments. The consumer segment provides fixed line telephone, pay TV, data, internet, and other telecommunication services to residential customers. The mobile segment provides mobile voice, SMS, value-added service, and mobile broadband products, and the enterprise segment provides end-to-end solution to corporate, MSME and goverment institution customers. Moreover, WIB segment provides interconnection, lease line, satellite, VSAT, broadband access, information technology, data and internet services to Other Licensed Operator and international customers. Other segment mainly provides digital service. The following diagram explains the restructuring of portfolio and transformation of business segments we did in 2017. Business Segment 2016 Products and Services Portofolio Business Segment 2017 HOME Focuses on retail customers PERSONAL Focusing on cellular customers CORPORATE Focuses on corporations and institutional -based customers OTHERS Focus on subsidiaries that support Telkom Group’s operation Fixed Portfolio Mobile Portfolio Network Infrastructure Portfolio Wholesale and International Portfolio Enterprise Digital Portfolio Consumer Digital Portfolio Property CONSUMER Focusing in retail customers MOBILE Focusing on cellular customers ENTERPRISE Focusing on corporate, government institutions and MSME WIB Focusing on Other Licensed Operators (0LO) and international client OTHERS Focus on digital and property service 105 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk SEGMENT PERFORMANCE HIGHLIGHTS The following table shows an overview of the performance of each of the business segments of Telkom Group from 2015 to 2017. Telkom’s Results of Operation By Segment Growth 2017-2016 (%) Years ended December 31, 2017 2016 2015 (Rp billion) (US$ million) (Rp billion) (Rp billion) Mobile Revenues External Revenues Inter-segment revenues Total segment revenues External expenses Inter-segment expenses Total Segment expenses Segment Results Depreciation and amortization Provision recognized in current period Consumer Revenues External Revenues Inter-segment revenues Total segment revenues External expenses Inter-segment expenses Total Segment expenses Segment Results Depreciation and amortization Provision recognized in current period Enterprise Revenues External Revenues Inter-segment revenues Total segment revenues External expenses Inter-segment expenses Total Segment expenses Segment Results Depreciation and amortization Provision recognized in current period WIB Revenues External Revenues Inter-segment revenues Total segment revenues External expenses Inter-segment expenses Total Segment expenses Segment Results 106 7.2 13.3 7.4 4.3 14.6 6.9 8.2 5.9 31.7 6.7 (84.7) (7.3) (6.0) (44.0) (13.7) 65.3 (1.5) (1.8) 21.0 30.5 25.2 15.9 55.8 29.9 (79.6) 54.1 661.3 26.8 5.9 11.9 18.0 16.8 17.6 (5.2) 90,073 3,086 93,159 (39,452) (14,382) (53,834) 39,325 (13,560) (291) 11,105 287 11,392 (10,360) (1,563) (11,923) (531) (2,839) (385) 19,130 16,801 35,931 (20,653) (15,027) (35,680) 252 (2,136) (668) 7,439 15,305 22,744 (12,333) (5,611) (17,944) 4,800 6,639 227 6,866 (2,908) (1,060) (3,968) 2,898 (999) (21) 819 21 840 (764) (115) (879) (39) (209) (28) 1,410 1,238 2,648 (1,522) (1,108) (2,630) 19 (157) (49) 548 1,128 1,676 (909) (414) (1,323) 354 83,998 2,724 86,722 (37,814) (12,547) (50,361) 36,361 (12,808) (221) 10,410 1,877 12,287 (11,024) (2,793) (13,817) (1,530) (2,881) (392) 15,816 12,877 28,693 (17,813) (9,647) (27,460) 1,233 (1,386) 119 5,866 14,451 20,317 (10,451) (4,805) (15,256) 5,061 71,203 4,847 76,050 (36,461) (10,483) (46,944) 29,106 (12,978) (136) 8,936 2,319 11,255 (9,988) (2,910) (12,898) (1,643) (2,500) (226) 16,818 4,276 21,094 (14,398) (4,633) (19,031) 2,063 (1,296) (611) 5,603 11,270 16,873 (8,957) (4,991) (13,948) 2,925 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkTelkom’s Results of Operation By Segment Depreciation and amortization Provision recognized in current period Other Revenues External Revenues Inter-segment revenues Total segment revenues External expenses Inter-segment expenses Total Segment expenses Segment Results Depreciation and amortization Provision recognized in current period OPERATIONAL HIGHLIGHT Growth 2017-2016 (%) 38.9 (46.6) 563.2 188.0 219.3 134.8 483.3 144.5 (59.7) 15.8 100.0 Unit Years ended December 31, 2017 2016 2015 (Rp billion) (US$ million) (Rp billion) (Rp billion) (2,382) (127) 126 602 728 (979) (70) (1,049) (321) (22) (2) (176) (9) 9 44 54 (72) (5) (77) (24) (2) (0) (1,715) (238) (1,893) (33) 19 209 228 (417) (12) (429) (201) (19) (1) 122 — 122 (243) — (243) (121) (13) — Year Ended on December, 31 2017 2016 2015 Broadband Subsribers Fixed broadband 1) IndiHome Mobile broadband 2) Total Broadband Subsribers Cellular Subsribers Postpaid (kartuHalo) (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers Prepaid (simPATI, Kartu As, Loop) (000) subscribers Total Cellular Subsribers (000) subscribers Fixed Line Subsribers Fixed wireline (POTS) Total Fixed Line Subsribers Other Subscribers Datacomm Satellite-transponder Network BTS 2G BTS 3G/4G Total BTS (3) Customer Services PlasaTelkom Grapari Telkom Group Grapari (Indonesia and abroad) Grapari Mobile IndiHome Mobile Employees (000) subscribers (000) subscribers Mbps MHz unit unit unit location location location unit unit people 5,266 2,965 105,808 111,074 4,739 191,583 196,322 10,957 10,957 938,040 5,050 50,324 110,381 160,705 535 4 442 761 1,142 4,329 1,624 84,729 89,058 4,180 169,740 173,920 10,663 10,663 764,397 6,801 50,344 78,689 129,033 566 416 487 3,983 1,069 73,887 77,870 3,509 149,131 152,641 10,277 10,277 532,549 4,648 48,394 54,895 103,289 572 414 392 24,065 23,876 24,785 (1) Total of fixed broadband subsribers including IndiHome triple play subscribers is 2.9 million, 1.6 million, and 1.1 million in 2017, 2016, and 2015 (2) Mobile broadband includes Flash user, Blackberry user, and PAYU (3) Since 2014 the BTS that we disclose is Telkomsel BTS 107 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk CONSUMER • Fixed Line • Pay TV • • Other Telecommunications Services Internet and Data MOBILE • Mobile voice • SMS • Mobile broadband • Value added service ENTERPRISE End to end service for Corporate and Institutional customers ICT Platform • Enterprise connectivity • • Data center and cloud Smart Enabler Platform • Payment • Digital advertising • Big data and data IT services Revenue (Rp Billion) Mobile Enterprise Consumer WIB Others Expenses (Rp Billion) services • Business process outsourcing services • Devices and hardware sales and services analytics • Network connectivity Mobile Enterprise Consumer WIB Others WHOLESALE AND INTERNATIONAL BUSINESS • Domestic & international carrier traffic • Wholesale connectivity • Tower • Satellite • Telecommunication & infrastructure managed service OTHERS • Digital Service 90,073 (70.4%) 126 (0.1%) 7,439 (5.8%) 19,130 (15.0%) 11,105 (8.7%) 39,452 (47.1%) 20,653 (24.7%) 12,333 (14.7%) 10,360 (12.4%) 979 (1.2%) 108 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk CONSUMER SEGMENT "IndiHome is our main product and service in the consumer segment. Supported by fiber optic network, we provide telecommunication, information, education, interactive TV and entertainment service for consumer customers." Consumer Revenue (Rp Billion) 11,105 10,410 8,936 2.9 million IndiHome subscribers, increased 82.6% 12,000 10,000 8,000 6,000 4,000 2,000 0 0 7,171,184 Optical Distribution Port (fiber optic based broadband access) 352,642 Acces Point Wi-Fi 2017 2017 2016 2016 2015 2015 Consumer Expenses (Rp Billion) 10,360 11,024 9,988 12,000 10,000 8,000 6,000 4,000 2,000 0 2017 2017 2016 2016 2015 2015 Consumer Result (Rp Billion) 745 (614) (1,052) 800 600 400 200 0 (200) (400) (600) (800) (1,000) (1,200) 2017 2016 2015 The Consumer segment includes operating results from business lines that provide services to individual customers, residential and apartment. The products offered include fixed line telephony, high speed data internet, interactive TV, and digital advertising as well as derivative products from the above service convergence (OTT, IoT, Artificial Intelligence, home online shopping). Since its launch in early 2015, IndiHome delivers excellent performance growth. In 2017, IndiHome contributed 64% to consumer segment revenues. The development of production equipment in the form of modernization from copper to fiber optic network, expansion to locations in accordance with target market, aggressive sales team and product innovation increasingly customized and supported by global-class content partners, IndiHome offers premium retail services such as HBO, Fox Channel, Cinemax, beIN SPORTS, Disney Channel, Discovery, AFC, CATCHPLAY, iflix and HOOQ. Otherwise we also work with local content, TV free to air, and other special channels. Customized service options are provided in the form of add on services such as global call, internet speed upgrades, Movin’, minipack, antivirus and wifi.id seamless to enjoy unlimited internet access from 352,642 Acces Point (AP) Indonesia Wi-Fi devices all over Indonesia. The programs are packed through a variety of product packages according to customer needs and of course with competitive prices. 110 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Assembly of Telkom Akses Technician which are in charge for installation and maintenance IndiHome service. As of December 31, 2017, IndiHome customers reached 2.9 million subscribers, increased by 82.6% compared to the previous year. We believe that the potential of IndiHome fixed broadband service is still huge. In the future, the need for high quality fixed broadband services will be increasingly needed along with the increasing economy in Indonesia. Moreover, fixed broadband penetration in Indonesia is still relatively low compared to regional countries. To ensure the availability of IndiHome services throughout Indonesia, we currently provide fiber optic based broadband access amounting to 7.2 million Optical Distribution Port (ODP) which expand following market developments. Consumer Segment’s Financial Performance 2015 – 2017 Consumer segment contributes revenue of 8.7% of our total revenues in 2017. Here is the consumer segment performance tables over the last three years: Consumer Segment Revenues Expenses Results 2017-2016 2017 2016 2015 (%) 6.7 (6.0) 221.3 (Rp billion) (US$ million) (Rp billion) (Rp billion) 11,105 (10,360) 745 819 (764) 55 10,410 (11,024) (614) 8,936 (9,988) (1,052) in 2017, revenues in the consumer segment amounted to Rp11,105 billion (US$819 million), an increase of Rp695 billion or 6.7% compared to Rp10,410 billion in 2016 in line with the increase in IndiHome subscribers. While expenses in 2017 decreased by Rp664 billion or 6.0% from Rp11,024 billion in 2016 to Rp10,360 billion (US$764 million). This prompted the consumer segment to book a profit of Rp745 billion (US$55 million), better than the previous year which recorded an operating loss of Rp614 billion, in other words, from 2016 to 2017 the segment result increased by 221.3%. In the period 2015-2016, consumer segment revenues increased by Rp1,474 billion, or 16.5% from Rp8,936 billion to Rp10,410 billion. Expenses also increased by Rp1,036 billion or 10.4% from Rp9,988 billion to Rp11,024 billion. Operating loss in this segment decreased by Rp438 billion or 41.6% due to higher revenue increase compared to expenses. PT Telkom Indonesia (Persero) Tbk 111 MOBILE SEGMENT "Through Telkomsel, we are committed to provide the best mobile service experience to support the society’s mobility by providing mobile voice, SMS, value added service and mobile broadband services. Mobile segment is a major contributor to our revenue, with mobile broadband becoming the backbone of future growth in line with increasing smartphone users in Indonesia." 196.3 million cellular subscribers, increased 12.9% 105.8 million mobile broadband subscribers, increased 24.9% 160,705 BTS spread over 150 TrueBEx city in indonesia 13 million registered TCASH users with 3 million active users TCASH can be used on 40,000 merchant outlets Mobile Revenue (Rp Billion) 90,073 83,998 71,203 100,000 80,000 60,000 40,000 20,000 0 2017 2016 2015 Mobile Expenses (Rp Billion) 39,452 37,814 36,461 40,000 30,000 20,000 10,000 0 2017 2016 2015 Mobile Result (Rp Billion) 50,621 46,184 34,742 60,000 50,000 40,000 30,000 20,000 10,000 0 2017 2016 2015 In the mobile segment, Telkom Group serves the customers through its subsidiary, Telkomsel. Mobile product portfolio consists of mobile voice, SMS, value added service and mobile broadband services. Market brand for postpaid customers is kartuHalo, while our prepaid customers consist of simPATI, Kartu As, and Loop consumers. Mobile broadband service Telkomsel Flash is supported by LTE/ HSPDA/3G/EDGE/GPRS technology. We also add more contents to improve our mobile customers’ experience, including cooperating with video streaming service provider, music streaming provider, and games developer. Telkomsel also complement its services with mobile financial technology (fintech) platform, TCASH and T-Wallet. TCASH is a new payment tool through mobile phone, available for prepaid and postpaid customer. While downloading T-Wallet through mobile phone, customers are able to conduct online shopping transactions, pay bills, and transfer money. Currently, there are approximately 3 million TCASH’s active users which used on 40,000 merchant outlets throughout Indonesia. Currently TCASH registered subscribers reach 13 million with 3 million active users that can be used in 40,000 merchants throughout Indonesia. To improve the quality of its service, Telkomsel invested in network and infrastructure development, building 31,672 BTS in 2017, so that total BTS were 160,705 BTS of which 110,381 of them were 3G/4G BTS or 69%. Our 3G base stations reach 85% of Indonesia’s population, while 4G BTS can reach about 80% of the Indonesia’s population. To support BTS operations, we have 29,061 towers, of which 11,061 towers were in Mitratel and 18,000 towers were under Telkomsel. In October 2017, Telkomsel was declared as the winner of the tender for the 2,300 MHz spectrum. Additional spectrum of 30 MHz will be utilized to strengthen 4G LTE service and maximize the quality of broadband service for customers all over Indonesia. In addition, we also conduct BTS modernization with fiber backhaul. Until 2017, 58% of BTS had been modernized. 112 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) With QR code scan, we make payments through TCASH at many merchants, cafes and restaurants throughout Indonesia. Mobile broadband subscribers reached 105.8 million in 2017, increased by 24.9% from 84.7 million subscribers in 2016, with traffic data broadband reach to 2,168,245 TB or increased 126.2% from 958,733 TB in 2016. Telkomsel also succeeded in increasing 4G LTE range to 490 cities and district across Indonesia at the end of 2017. The mobile segment performance remained strong and became the biggest contributor for consolidated revenue in 2017. Although SIM card penetration is already high, we believe that the potential growth of the cellular industry will continue, especially due to digital business, inline with increasing of smartphone users as device prices continue to slide downward. Mobile Segment’s Financial Performance 2015 – 2017 The mobile segment was the largest contributor to revenue in 2017, accounted for 70.4% of our total revenue. Below is the table of mobile segment performance over the last three years: Mobile Segment Revenues Expenses Results 2017-2016 2017 2016 2015 (%) 7.2 4.3 9.6 (Rp billion) (US$ million) (Rp billion) (Rp billion) 90,073 (39,452) 50,621 6,639 (2,908) 3,731 83,998 (37,814) 46,184 71,203 (36,461) 34,742 The mobile segment recorded revenues of Rp90,073 billion (US$6,639 million), an increase of Rp6,075 billion or 7.2% compared to Rp83,998 billion in 2016 due to increased data and internet consumption. Segment expenses in 2017 also increased by Rp1,638 billion, or 4.3%, to Rp39,452 billion (US$2,908 million), in line with the increase in revenue. Compared to 2016, the segment result increased by Rp4,437 billion or 9.6% to Rp50,621 billion (US$3,731 million). In the period 2015-2016, mobile segment revenues increased by Rp12,795 billion or 18.0% from Rp71,203 billion to Rp83,998 billion. Expenses also increased by Rp1,353 billion or 3.7% from Rp36,461 billion to Rp37,814 billion. Operating income increased by Rp11,442 billion or 32.9%. PT Telkom Indonesia (Persero) Tbk 113 ENTERPRISE SEGMENT "We provide end-to-end solution for corporate, MSME and government institution in Indonesia. By integrating various resources that we own, we offer superior ICT platform and smart enabler services that is superior." Enterprise Revenue (Rp Billion) 19,130 15,816 16,818 1,453 corporate subscribers 300,416 MSME subscribers and 944 government institution subscribers 20,000 15,000 10,000 5,000 0 2017 2016 2015 Enterprise Expenses (Rp Billion) 20,653 17,813 14,398 1,861 Gbps corporate internet and 938 Gbps datacomm 25,000 20,000 15,000 10,000 5,000 0 2017 2016 2015 Enterprise Result (Rp Billion) (1,523) (1,997) 2,420 102,200 m2 gross facilities (41,000 m2 aggregate capacity) data center 2,500 2,000 1,500 1,000 500 0 (500) (1,000) (1,500) (2,000) 2017 2016 2015 Enterprise segment provides service for corporate, MSME and government institution customers in relation to end-to-end solution service, which include the services of fixed (fixed voice & fixed broadband); network infrastructure (satellites); enteprise digital (connectivity, device, data center, cloud, IT service, BPO); digital life & smart platform (digital advertising, financial service, video/TV, e-commerce, others digital life, big data & smart platform, IoT; and extensive service (professional & advance service). These various services benefit customers as they are assisted by professionals to plan their required solutions, help reach targets on time, with efficient cost and minimum risk. Currently, we serve 302,813 customers, consisting of 1,453 corporate customers, 300,416 MSME customers and 944 government institution customers. To provide the best services for our customers, we developed data centers with 102,200 m2 gross facilities (aggregate capacity 41,000 m2) in Indonesia and Singapore. Until 31 December 2017, our datacomm capacity reached 938 Gbps and provide 1,861 Gbps bandwidth for corporate internet. Enterprise segment will have a favorable growth opportunity. The growth potential comes from the increasing need of corporate cutomers for integrated ICT service. ICT service is also increasingly required by the large number of Micro Small Medium Enterprises (MSME), most of which have not enjoyed a high quality ICT service yet. In addition, the Company has also developed a digital payment platform under the “T-Money” brand for business-to-business (B2B) segments. 114 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Telin-3 Data Center in Singapore. Likewise with government institutions that increasingly require integrated ICT services to be able to maximize the aspect of good corporate governance. Various government agencies and local governments increasingly utilize digital services to support them in improving services to the community through smart city platform as it has been used in 329 cities across Indonesia. To complement the various services in the enterprise segment, we also acquire and form a new subsidiary that supports our business. In 2017, we made several acquisitions including the acquisition of PT Bosnet Distribution Indonesia engaged in the FMCG (Fast Moving Consumers Good) ICT Solution and PT Nutech Integration engaged in the field of ICT Transportation through Telkom Metra. As for the establishment of a new subsidiary, in 2016 we established PT Jalin Payment Nusantara (Jalin) engaged in ICT focusing on non-cash payment system business that supports national payment gateway. Enterprise Segment’s Financial Performance 2015 – 2017 The revenue contribution of the enterprise segment on our revenues was 15.0% of total revenue in 2017. Here is the table of enterprise segment performance over the last three years: Enterprise Segment Revenues Expenses Results 2017-2016 2017 2016 2015 (%) 21.0 15.9 23.7 (Rp billion) (US$ million) (Rp billion) (Rp billion) 19,130 (20,653) (1,523) 1,410 (1,522) (112) 15,816 (17,813) (1,997) 16,818 (14,398) 2,420 In 2017, the segment’s operating revenues increased by Rp3,314 billion, or 21.0%, to Rp19,130 billion (US$1,410 million) compared to Rp15,816 billion in the previous year. This was mainly due to the increasing needs of customer digitalization especially in corporate customers, MSME and government institutions. The enterprise segment expenses also increased to Rp20,653 billion (US$1,522 million), increased by Rp2,840 billion or 15.9% compared to Rp17,813 billion in 2016. Due to the increase in revenue was higher than the increase in expense, operating loss improved to Rp1,523 billion (US$112 million) in 2017, better than operating loss of Rp1,997 billion in 2016. In the period of 2015-2016, the revenue of the enterprise segment decreased by Rp1,002 billion, or 6.0% from Rp16,818 billion to Rp15,816 billion. While expenses increased by Rp3,415 billion or 23.7% from Rp14,398 billion to Rp17,814 billion. The decrease in revenues and a substantial increase in operating expenses resulted in an operating loss of Rp1,997 billion in 2016, while in 2015 still recorded operating profit of Rp2,420 billion. PT Telkom Indonesia (Persero) Tbk 115 WHOLESALE AND INTERNATIONAL BUSINESS (WIB) SEGMENT "Wholesale and International Business segment mainly provides products and services to operators, other telecommunications service providers and international business. Strengthening the infrastructure and development of business models and new business innovations are the key factors to our success in winning the domestic market, penetrating the international market and competing with other large telecommunication companies in order to realize the company’s vision." 24 TPE Telkom-2 satellite & 49 TPE Telkom-3S satellite Foot print in 11 countries 155.524 km fiber optic backbone network 90,854 km (domestic) and 64,670 km (international) 57 (international) and 42 (domestic) points of presence (PoP) WIB Revenue (Rp Billion) 7.439 5.866 5.603 8.000 6.000 4.000 2.000 0 2017 2016 2015 WIB Expenses (Rp Billion) 12.333 10.451 8.957 15.000 12.000 9.000 6.000 3.000 0 WIB Result (Rp Billion) 0 (1.000) (2.000) (3.000) (4.000) (5.000) 2017 2016 2015 2017 2016 2015 (4.894) (4.585) (3.354) The wholesale and international business segment’s products and services include OLO service, domestic and international carrier traffic, wholesale connectivity, tower, satellite and telecommunication & infrastructure management services. Telkom’s international business is conducted by its subsidiary, Telin, which already established presences in 11 countries, namely Singapore, Hong Kong, Macau, East Timor, Australia, Myanmar, Malaysia, Taiwan, United States, Saudi Arabia and New Zealand. Several services, among others, include facilities-based operator, cellular operator, mobile virtual network operator (“MVNO), wholesale voice, wholesale data, and business process outsourcing. To support data and voice services, we have fiber optic based backbone network of 155,524 km, 90,854 km is domestic and 64,670 km is international. We also have 57 points of presence (PoP) in major cities around the world, including 23 PoP in Asia (9 PoP in Indonesia, 4 PoP in Singapore, 3 PoP in Hong Kong and 1 PoP each in Dili , Dubai, Kuala Lumpur, Seoul, Tokyo, Taipei and Yangoon), 21 PoP in Europe (1 PoP each in Amsterdam, Palermo, Milan, Stockholm, Luxembourg, Switzerland, Kiev, Warsaw, Moscow, Madrid, Sofia, Vienna, Frankfurt, Berlin, London, Manchester, Paris, Marseilles, Munich, Dublin and Brussels) and 13 PoP in America, namely 1 PoP in Toronto - Canada and 12 PoP in the United States (2 PoP in Los Angeles, and 1 each PoP in Ashburn, New York, Guam, Hawaii, Chicago, Seattle, Miami, Palo Alto, Santa Clara and San Jose). In domestic, we have 42 PoP comprising 8 main PoP in Batam (Batam Center and Bukit Dangas), Jakarta (Jatinegara and Cikupa), Surabaya (Rungkut and Kebalen) and Manado (Manado Centrum and Manado Paniki), and 34 primary PoP in 29 cities in Indonesia. 116 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCorporate Governance Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Telkom-3S Satellite was launched on February 15, 2017 in Guiana Space Center, Kourou, French Guiana. To improve services in both domestic and global, Telkom deploys submarine cable network. The global submarine cable deployment is partly our own investment and some others through a participation in a submarine cable consortium consisting of Batam Singapore Cable System (BSCS), Dumai Malacca Cable System (DMCS), Asia-America Gateway (AAG), South East Asia-Japan Cable System (SJC), South East Asia Middle East Western Europe 5 (SEA-ME-WE 5) and Southeast Asia-United States (SEA-US). While domestic submarine cable consists of Sulawesi Maluku Papua Cable System (SMPCS) and Aceh-Sibolga-Batam-Larantuka (ASBL). To connect European, Asian, and American continents, currently we are building Indonesia Global Gateway (IGG) submarine cable network which connecting 12 major city including Batam, Jakarta, Surabaya and Manado. IGG connects SEA-ME-WE5 that connecting Dumai (Indonesia), the Middle East and West Europe along approximately 20,000 km with SEA-US that connecting Manado (Indonesia) and Los Angeles (United States) along approximately 15,000 km. Until the end of 2017, 445 districts across Indonesia have been connected by fiber-based backbone infrastructure. Currently we have 2 satellites namely Telkom-2 and Telkom-3S. Telkom-2 has a capacity of 24 TPE (transponder equivalent to 36 Mhz) of C-band standard that reaches across Indonesia and most of Southeast Asia, while Telkom-3S has a capacity of 49 TPE consisting of 24 TPE C-band standard with coverage of all Indonesia and most of Southeast Asia region, 12 TPE extended C-band and 13 TPE Ku-band with coverage all over Indonesia. As an effort to improve our services, we plan to launch another satellite that is currently in the process. Wholesale and International Business Segment’s Financial Performance 2015 – 2017 The Wholesale and International Business segment contributed 5.8% to total revenues in 2017. The following table shows the performance of the Wholesale and International Business segment over the last three years: WIB Segment Revenues Expenses Results 2017-2016 (%) 26.8 18.0 (6.7) 2017 2016 2015 (Rp billion) (US$ million) (Rp billion) (Rp billion) 7,439 (12,333) (4,894) 548 (909) (361) 5,866 (10,451) (4,585) 5,603 (8,957) (3,354) The Wholesale and International Business segment recorded revenues of Rp7,439 billion (US$548 million) in 2017, an increase of Rp1,573 billion or 26.8% compared to Rp5,866 billion in 2016. The increase in revenue was in line with our increased infrastructure capacity, to provide a wider service to customers both in domestic and overseas. Operating expenses in 2017 increased by Rp1,882 billion or 18.0% to Rp12,333 billion (US$909 million) compared to Rp10,451 billion in 2016 primarily due to expenditures for infrastructure development. Due to the increase in expense was higher than the increase in revenue operating loss reached Rp4,894 billion (US$361 million) in 2017, an increase of Rp309 billion or 6.7%, compared to Rp4,585 billion in the previous year. In the period of 2015-2016, WIB segment revenues increased by Rp263 billion or 4.7% from Rp5,603 billion to Rp5,866 billion. Expenses also increased by Rp1,494 billion or 16.7% from Rp8,957 billion to Rp10,451 billion. Segment WIB still recorded an operating loss of Rp4,585 billion or an increase of Rp1,231 billion or 36.7% due to an increase in expenses greater than revenue increase. PT Telkom Indonesia (Persero) Tbk 117 OTHERS SEGMENT “Our business activities in this segment are digital service provisions. We will continue to strengthen our digital services as part of the business ecosystem to support the acceleration of Indonesia’s digital economy growth now and in the future.” 3 million registered users blanja.com 34 million active users MelOn Others Revenue (Rp Billion) 126 19 122 150 120 90 60 30 0 2017 2016 2016 Others Expenses (Rp Billion) 979 417 243 1,000 800 600 400 200 0 2017 2016 2015 Others Result (Rp Billion) 0 (200) (400) (600) (800) (1,000) 2017 2016 2015 (853) (398) (121) In digital services, Telkom currently offers digital lifestyle such as digital music, video and games with MelOn brand, while e-commerce service with blanja.com brand. Currently we have about 34 million active users MelOn and 3 million registers users accessing blanja.com. blanja.com is a joint venture between Telkom and eBay, which has the concept of an online-marketplace. Currently, blanja.com has thousands of merchants offering various products from different categories and also committed to bring MSMEs into digital (Go Digital) to compete in the global market. blanja.com has a mission to encourage the acceleration of Indonesia’s digital economy growth by increasing opportunities for original Indonesian products, including products of SOE partners. 118 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkOthers Segment’s Financial Performance 2015–2017 The contribution of others segments to our revenue in 2017 is 0.1%. Here are the other segment performance tables over the last three years: Others Segment Revenues Expenses Results 2017-2016 2017 2016 2015 (%) 563.2 134.8 (114.3) (Rp billion) (US$ million) (Rp billion) (Rp billion) 126 (979) (853) 9 (7) (63) 19 (417) (398) 122 (243) (121) Revenue in others segments recorded revenues of Rp126 billion (US$9 million), an increase of Rp107 billion or 563.2% compared to Rp19 billion in 2016. Meanwhile the increase in expenses in 2017 amounted to Rp562 billion or 134.8%, to Rp979 billion (US$72 million) This resulted in a loss of operating income increased by Rp455 billion or 114.3% to Rp853 billion (US$63 million) compared to Rp398 billion in 2016. In the period of 2015-2016, other segment income decreased by Rp103 billion or 84.4% from Rp122 billion to Rp19 billion. While expenses also increased by Rp174 billion or 71.6% from Rp243 billion to Rp417 billion. This caused an increase in operating loss by Rp277 billion or 228.9% from Rp121 billion to Rp398 billion. 119 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkMARKETING OVERVIEW MARKET SHARE MARKETING STRATEGY With 9.8% growth in 2017, higher than the economic growth of 5.1% in the same year, the telecommunication industry has a strategic role in fostering national economic growth. A healthy industry growth shows that people still have unmet communication and access to information. This means that the market share of the telecommunication industry is still wide open, especially with the growing purchasing power and the development of digital economy. We have implemented a comprehensive marketing and promotional strategy to bolster our brand and to boost sales, including through marketing communication activities and product and service distribution channel development. To increase sales, we also use above and below the line marketing channels to promote our services to certain parties and communities. We also continue to place advertisement in printed and electronic media and implement marketing methods such as point of sales broadcasting as well as promotion and In mobile segment, the three largest cellular operators in Indonesia sponsorship events. are Telkomsel, Indosat Ooredo and XL Axiata, which collectively accounted for more than 80% of the market share based on the estimated number of total subscribers as of December 31, 2017. The penetration of SIM cards in the cellular industry in Indonesia To be more effective and efficient, our marketing strategies are customized based on the characteristics of our targeted business and customer segments. is quite high making continued growth in penetration increasingly limited. Our subsidiary, Telkomsel, is still the largest provider with 1. Consumer approximately 196.3 million cellular subscribers, of which 105.8 million are mobile broadband subscribers. For the fixed broadband segment, in addition to optimizing marketing personnel in all branch offices in Indonesia, we under brand IndiHome and PT Link Net Tbk, which is affiliated with the Lippo Group and operates under the “LinkNet” brand, have a significant market share. we also compete with MNC Play Media and MyRepublic which entered the market in 2015. One of our fixed broadband products and services, IndiHome, which combines interactive television, internet and telephone programs, growth of 82.6% with total subscribers 2.9 million by Zone marking and aggressive direct sales strategies are applied in IndiHome product penetration in consumer segment, with positioning as premium retail service for consumer segment. With this strategy, IndiHome will continue to be expansive in providing both coverage and product services while maintaining high quality aspects, up-to-date infrastructure technology and service ease by developing various conventional good service channels (Grapari Telkom Group & Mobile IndiHome) or with digital services through myIndiHome. The measure of service quality follows the customer experience rules using the Net Promotion Score (NPS) approach. the end of 2017. While our enterprise customers accounted for 302,813 consisting of 1,453 corporate customers, 300,416 MSME 2. Mobile customers and 944 customers of government institution. Furthermore, for the telecommunication tower business line, we had approximately 29,061 towers in 2017, comprising approximately 11,061 towers owned by Mitratel and approximately 18,000 towers owned by Telkomsel. Overall, we have more tower numbers than our other competitor towers. In terms of industry growth, market share in this line of business has decreased in the last two years when the mobile network industry experienced market consolidation and the rearrangement of the spectrum. In the context of the digital economy, the dynamic development of the telecommunications sector has opened up new opportunities, particularly with the increasing growth of Over The Top services such as WhatsApp, Facebook, and Line, which provide a substitute service to basic telecommunications services such as voice and SMS. The presence of these Over The Top services has affected the use of legacy services, particularly SMS, which has resulted in traffic falling in past years. 120 Our marketing strategy for mobile customers is to encourage customers who are currently still using mobile services and SMS to use mobile broadband services. One of our efforts in 2017 is to offer a bundling device program with a wide selection of data packages. We also continue the promotion with various mobile package options to encourage mobile broadband users to increase the use of these services. Our promotional focus is targeting the youth segment with the Loop brand and data package options that match their characteristics and needs. In 2017, we introduced new products and changed the mobile package option to attract different customer groups. For example, we introduced HaloKick, a mobile package option for postpaid customers offering more rewards and benefits, including greater internet quota, content quota to access high definiton videos, TCASH balance, and Telkomsel POIN. In addition, we also changed the Talkmania package, as a mobile package option aimed at maintaining our legacy business and business data penetration. We also have various discount programs to increase customer awareness using MyTelkomsel applications. Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk3. Enterprise DISTRIBUTION CHANNEL We implement a “SMART CONNECTED SOCIETY” marketing strategy for enterprise customers which consist of: To strengthen our reach to customers throughout Indonesia, we a. SMART government initiative, under which we aim have various management strategies of the main distribution to become the Government’s strategic information network for our products and services, namely through: and communications technology (“ICT”) partner by collaborating with government on strategic ICT mega- deals that focus on the digital customer experience; b. an enterprise CONNECTED ecosystem initiative, under which we market end-to-end digital ICT solutions to our corporate customers which provide customized solutions for each of our customers; and c. the MSME digital SOCIETY initiative, under which we market basic ICT solutions in bundled packages to MSME in Indonesia through crafting the best-fit digital market platform and provide experience to digitize the business of MSME customers so that more efficient and effective to the customer. 4. Wholesale and International Business Our marketing strategy for wholesale and international business customers emphasizes on: a. Smart pricing, creative and innovative business schemes for business traffic (voice) as well as network services business to meet customer needs and achieving business goals; b. Eyeball aggregation strategy, maximizing business data & internet through aggregation of traffic from and / or to the customer; and c. Improving service for international data center, MNO, MVNO and BPO customers in order to maintain strong relationships with our customers for a long term basis. 1. Face to Face Customer Service Point Plasa Telkom and GraPARI serve as walk-in customer service points for customers to access all Telkom and Telkomsel’s products and services, including checking bills, making payments, subscription cancellation, promotion and complaint handling. As of 31 December 2017, we have 535 Plasa Telkom outlets, 432 GraPARI centers in Indonesia, 10 GraPARI overseas (Saudi Arabia, Singapore, Hong Kong, Macau, Taiwan and Malaysia) and 4 GraPARI Telkom Group. We also operate 761 GraPARI mobile units and 1,142 IndiHome mobile units. 2. Authorized Dealers and Retail Outlets This distribution network provides Telkomsel products such as starter packs, prepaid SIM cards and top-up vouchers. We operate an authorized dealers and retail outlets network across which is non-exclusive with a discount on all marketable products. 3. Partnership Stores This scheme is an extension of our distribution channels through cooperation with various third party marketing outlets, such as computer or electronic stores, banks through ATM networks and other business networks. 5. Other and Digital Services Our marketing strategy for Digital Service focus on Digital 4. Contact Centers Innovation, namely: a. Creating unique digital services such as digital music, video, gaming, e-commerce, and travelling with different experiences from before; Serving as call centers, we have contact centers that help customers access products and services including checking bills, promotional information, and handling complaints and access to certain service features. We operate a 24- b. Building Digital Business Model covering a wider market in hour contact center facility in Jakarta, Semarang, Bandung, order to support Indonesia Digital Economics; Surabaya, Makasar, Malang and Medan. c. Providing customer experience innovation through Digital Theme Park, Experience Center and Digital Experience in Telkom Group service outlets; d. Leveraging assets and inventory of Telkom Group as an insight in the improvement of digital services and customer experience; and 5. Account Management Team Especially for corporate customers, MSME and government institutions and wholesale, we have a team that manages relationships with those customer to explore opportunities in order to give an ICT solutions and develops a product and e. Growing Digital Business Portfolio through investments in Digital Startups until they become a part of Indonesian service distribution network. Digital Ecosystem. 121 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk 6. Sales Specialist 10. Website Sales Specialist have deep product and technical knowledge in We operate www.telkom.co.id and www.telkomsel.com in order order to provide appropriate and effective recommendations to facilitate our customers to access products and services. of solutions to corporate customers who work together with Some features of services available are e-billing, registration, our account management team. collective billing information and filing complaints. 7. Tele Account Management Team 11. Social Media We have tele account management team which supports our According to today’s growing digital lifestyle, we use social MSME customers and other prospective business customers media such as Facebook, Instagram and Twitter, to provide through inbound and outbound calls for pre-sales, sales and information and communicate with customers about our other customer service requirements. products and services. 8. Channel Partner For enterprise customers, we cooperate with VAR (Value Added Reseller) who carry out sales and marketing activities to meet specific enterprise customer demands and for retail customers to offer retail packages. We also work with third parties to conduct sales activities through certain events. 9. Digital Touch Point Digital touch point is a web-based and mobile-based service provided for IndiHome and corporate customers. We provide MyIndiHome as a mobile-based self-care service for IndiHome customers. Through the application, customers can make subscription requests, billing and payment management, reporting and monitoring network issues, and accessing video on demand and customer reward programs. 122 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk 123 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCOMPREHENSIVE FINANCIAL PERFORMANCE Throughout the year 2017, we still recorded good financial performance even though some businesses experienced slower growth. Total assets increased by 10.5% from Rp179,611 billion in 2016 to Rp198,484 billion in 2017 as well as revenues in 2017 increased by 10.2% from in Rp116,333 billion in 2016 to Rp128,256 billion in 2017. This drove an increase in net income in 2017 by 14.4%, from Rp19,352 billion in 2016 to Rp22,145 billion and EBITDA increased by 8.6% to Rp64,609 billion compared to Rp59,498 billion from previous year. The growth of our financial performance over the last three years can be seen in the following graph. 198,484 179,611 166,173 86,354 74,067 72,745 92,713 84,384 75,136 128,256 116,333 102,470 22,145 19,352 15,489 200,000 150,000 100,000 50,000 0 Total Asset Total Liabillity Total Equity Revenue Net Income 2017 2016 2015 FINANCIAL POSITION OVERVIEW These tables show financial position of Telkom for three years, from 2015 to 2017. Consolidated statements of financial position table Total Current Assets Total Non-Current Assets Total Assets Total Short-term Liabilities Total Long-term Liabilities Total Liabilities Total Equity attributable to owners of the parent company Growth 2017-2016 (%) (0.3) 14.4 10.5 14.1 19.5 16.6 9.9 Years ended December 31, 2017 2016 2015 (Rp billion) (US$ million) (Rp billion) (Rp billion) 47,561 150,923 198,484 45,376 40,978 86,354 92,713 3,506 11,124 14,629 3,344 3,020 6,365 6,833 47,701 131,910 179,611 39,762 34,305 74,067 84,384 47,912 118,261 166,173 35,413 37,332 72,745 75,136 124 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkFinancial Position Comparison Composition of Assets and Liability during 2017, 2016 and 2015 can be seen in the following diagram. Diagram of Assets Composition Telkom Group in 2015-2017 2017 2016 2015 150,923 (76.0%) 47,561 (24.0%) 131,910 (73.4%) 47,701 (26.6%) 118,261 (71.2%) 47,912 (28.8%) Current Asset Non Current Asset Diagram of Liability Composition Telkom Group in 2015-2017 2017 2016 2015 45,376 (52.5%) 40,978 (47.5%) 39,762 (53.7%) 34,305 (46.3%) 35,413 (48.7%) 37,332 (51.3%) Long-term Liabilities Short-term Liabilities Comparison of Financial Position as of December 31 2017 b. Non Current Assets Compared to as of December 31 2016 As of December 31, 2017, non-current assets reached Rp150,923 billion (US$11,124 million), increase by Rp19,013 1. Assets As of December 31, 2017, we recorded total assets of billion or 14.4% compared to Rp131,910 billion in 2016. Increase in non-current assets is mainly caused by: Rp198,484 billion (US$14,629 million), an increase of 10.5% • Increase in property and equipment by Rp15,673 billion from Rp179,611 billion in 2016. a. Current Assets or 13.7% due to increase in transmission network; • Increase in deferred tax asset by Rp2,035 billion or 264.6% due to asset revaluation; Current assets reached Rp47,561 billion (US$3,506 million) • Increase in other non-current asset by Rp762 billion or as of December 31, 2017, decreased by Rp140 billion or 6.6%.; 0.3% from Rp47,701 billion as at 31 December 2016. The • Increase in intangible asset by Rp441 billion or 14.3%; decrease in our current assets was mainly due to: and • Decrease in cash and cash equivalent by Rp4,622 • Increase in long-term investment by Rp301 billion atau billion or 15.5% due to dividend payment and capital 16.3%. expenditure; • Decrease in other receivables by Rp195 billion or These increase were offset by decrease in prepaid pension 36.3%; and benefit cost by Rp199 billion or 1.0%. • Decrease in prepaid tax Rp191 billion or 8.9%. These decrease were offset by: • Increase in other current asset by Rp1,937 billion or 36.9% due to radio frequency licensing; Increase in trade receivables by Rp1,859 billion or 25.2% due to increase in third party receivables by 2. Liabilities As of December 31, 2017 our liabilities amount to Rp86,354 billion (US$6,365 million), increased 16.6% from Rp74,067 billion in 2016. a. Short-term • • • Rp1,208 billion; Increase in other current financial asset by Rp702 billion or 47.7%; and Increase in claim for tax refund by Rp316 billion or 53.4%. As of December 31, 2017, our short-term liabilities reached Rp45,376 billion (US$3,344 million), increased 14.1% compared to Rp39,762 billion as at 31 December 2016. The short-term liabilities increase was mainly due to: 125 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk • Increase in trade payables by Rp2,056 billion or 15.2% Comparison of Financial Position as of December 31, 2016 due to an increase in third party debt of Rp2,707 billion; compared to as of December 31, 2015 • Increase in short-term bank loans by Rp1,378 billion or 151.3%; 1. Assets • Increase in accrued expenses by Rp1,347 billion As of December 31, 2016, total assets increased by 8.1% from or 11.9% due to operational, maintenance dan Rp 166,173 billion in 2015 to Rp 179,611 billion in 2016. telecommunication service expense; • Increase in current maturities of long term borrowings a. Current Assets by Rp688 billion or 15.2%; and As of December 31, 2016, our current assets were Rp47,701 • Increase in advances from customers and suppliers by billion compare to Rp47,912 billion as of December 31, Rp400 billion or 47.6%. The increase was compensated by: 2015. The decrease in current assets were mainly due to: • A decrease in other current financial assets by Rp1,347 billion, or 47.8% due to the withdrawal of escrow • A decrease in taxes payable by Rp164 miliar or 5.6%; and account related to the transfer of Flexi business; • A decrease in prepaid revenues by Rp136 billion or 2.4%. • A decrease in our advances and prepaid expense by b. Long-term Liabilities Rp593 billion, or 10.2%; • A decrease in prepaid tax amounted to Rp534 billion, As of December 31, 2017, our long-term liabilities reached or 20.0%; and Rp40,978 billion (US$3,020 million), increased by 6,673 billion or 19.5% from Rp34,305 billion as of December 31, 2016. The increase in long-term liabilities was due to: • • Increase employment benefits obligation by Rp4,069 billion or in pension benefits and other post- 66,4%; Increase in long-term borrowings by Rp1,607 billion or 6.1% due to increase in bank loans by Rp1,965 billion and other borrowings by Rp499 billion. The increase is compensated by decrease in obligation under finance leases by Rp342 billion, bonds and notes by Rp340 billion and two step loans by Rp175 billion; • • Increase in other liabilities by Rp565 billion or 1,948.3% Increase in deferred tax liabilities by Rp188 billion or 25.2%; and • Increase in long service award provision Rp145 billion or 23.7%. 3. Equity Our total equity increased by Rp6,586 billion or 6.2% from Rp105,544 billion as at December 31, 2016 to Rp112,130 billion (US$8,265 million) as of December 31, 2017. The increase was mainly due to total retained earning increase by Rp8,281 billion or 10.8% to Rp19,952 billion due to increase in total comprehensive income for the year attibutable to owners of the parent company. The increase was compensated by decrease in non controlling interest by Rp1,743 billion or 8.2%. • 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; and • 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 and Rp118,261 billion as of 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 noncurrent 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; and • An increase in deferred tax assets Rp568 billion, or 282.6%. 126 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk This increased was offset by decrease in prepaid pension • A decrease in deferred amounted to Rp1,365 billion, benefit costs amounted to Rp1,132 billion, or 85.0% due or 64.7% due to a decrease in deffered tax liabilities to an incrrease in defined benefit obligation by Rp2,344 of Telkom and Telkomsel by Rp459 billion and Rp950 billion or 14% due to a change in actuarial assumption billion respectively. The decrease of Telkomsel was related to a decrease in discount rate by 1% from 9% in related to assets transfer of flexi business (CBTA); 2015 to 8% in 2016. Meanwhile, fair value of pension assets • A decrease in obligations under finance leases increase by Rp1,212 billion or 6.8% due to actual benefit amounted to Rp587 billion, or 14.9%; from investment by Rp2,601 billion and was offset by • A decrease in two-step loans amounted to Rp229 benefit paid by Rp1,432 billion. billion, or 17.7%; and • A decrease in bond and notes by Rp177 billion, or 1.9%. 2. Liabilities As of December 31, 2016, total liabilities increased by 1.8% This decrease was offset by: from Rp72,745 billion in 2015 to Rp74,067 billion in 2016. • An increase in pension and other postemployment a. Short-term Liabilities benefits amounted to Rp1,955 billion, or 46.9% due to an increase in define benefit obligation by Rp2,415 As of December 31, 2016, our short-term liabilities were billion or 22% due to a change in actuarial assumption Rp39,762 billion compared to Rp35,413 billion as of related to a decrease in discount rate by 0.75% from December 31, 2015. The increases in short-term liabilities 9.25% in 2015 to 8.5% in 2016 resulting in actuarial were primarily due to: • An increase in accrued expenses by Rp3,036 billion, or 36.8% in line with operating, maintenance and 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 telecommunication service as well as an increase billion and Rp473 billion respectively; in expenses by 12%. This increases were related significantly with operational and maintenance • Other lending of Dayamitra by Rp697 billion; and • An increase in long service awards amounted to Rp112 expenses of Telkomsel Tower in line with an increase in billion, or 22.4%. tower leased addition in 2016 significantly. In addition, it was also due to an increase in employee benefit 3. Equity expenses of Telkom and Telkomsel Rp720 billion and Rp284 billion respectively, especially related to to an increase in incentives; Total equity increased by Rp12,116 billion, or 12.9%, from Rp93,428 billion as of December 31, 2015 to Rp105,544 billion as of December 31, 2016. The increase of equity was • 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%; and 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 • An increase in short-term bank loan Rp309 billion, or 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; and • 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. 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%; and • A decrease in other debts by Rp118 billion, or 40.7%. b. Long-term Liabilities As of December 31, 2016, our long-term liabilities were Rp34,305 billion compare to Rp37,332 billion as of December 31, 2015. The decrease in long-term 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 Rp1,097 billion; 127 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk PROFIT AND LOSS OVERVIEW The following table shows Telkom’s Comprehensive Income for three years from 2015 to 2017, with each item expressed as a percentage of total revenue or expense. Table of Comprehensive Income Growth 2017-2016 (%) Years ended December 31, 2017 2016 2015 (Rp billion) (US$ million) % (Rp billion) % (Rp billion) % 10.2 128,256 Revenues Telephone Revenus Cellular Usage charges Monthly subscription charges Fixed Line Usage charges Monthly subscription charges Call center Others Interconnection Revenues Data, Internet and Information Technology Revenues Celluler internet and data Short Messaging Service (SMS) Internet, data communication and information technology services Pay TV Others Network Revenues Other Telecommunications Revenues Sales of peripherals Telecommunication tower leases Call center service E-payment E-health CPE and terminal Power supply Others Expenses Depreciation and Amortization Expenses Operations, Maintenance and Telecommunication Services Expenses Operations and Maintenance Radio frequency usage charges Leased lines and CPE Concession fees and USO charges Cost of IT service Cost of sales of handset Electricity, gas and water Cost of SIM cards and vouchers (4.6) (3.2) (2.8) (73.0) (11.6) (21.2) (1.5) - (11.7) 24.7 16.2 34.1 (17.4) 15.4 25.7 451.6 29.7 53.0 53.8 8.6 43.1 19.1 13.3 179.2 1,831.0 49.0 9.6 10.3 17.1 16.9 16.0 1.1 1.4 69.4 4.3 8.0 46.5 Vehicles rental and supporting facilities (18.0) Tower leases Insurance 46.6 14.8 128 43,911 37,246 37,176 70 6,665 3,032 3,260 290 83 5,175 68,535 37,961 13,192 15,085 1,944 353 1,873 8,762 2,292 796 970 505 470 536 560 2,633 85,362 20,446 36,603 19,929 4,276 2,607 2,249 2,648 1,544 1,037 914 301 472 294 9,453 3,236 2,745 2,740 5 491 223 240 21 6 381 5,051 2,798 972 1,112 143 26 138 646 169 59 71 37 35 40 41 194 6,292 1,507 2,698 1,469 315 192 166 195 114 76 67 22 35 22 100.0 116,333 100.0 102,470 100.0 34.2 29.0 29.0 0.1 5.2 2.4 2.5 0.2 0.1 4.0 53.4 29.6 10.3 11.8 1.5 0.3 1.5 6.8 1.8 0.6 0.8 0.4 0.4 0.4 0.4 2.1 46,039 38,497 38,238 259 7,542 3,847 3,311 290 94 4,151 58,971 28,308 15,980 13,073 1,546 64 1,444 5,728 1,490 733 678 424 415 192 29 1,767 39.6 33.1 32.9 0.2 6.5 3.3 2.8 0.2 0.1 3.6 50.6 24.3 13.7 45,118 37,285 36,853 432 7,833 4,635 2,821 275 102 4,290 47,820 19,665 15,132 11.2 12,307 1.3 0.1 1.2 4.9 1.3 0.6 0.6 0.4 0.4 0.2 0.0 1.5 581 135 1,231 4,011 1,516 721 668 126 192 221 — 567 44.0 36.3 35.9 0.4 7.7 4.5 2.8 0.3 0.1 4.2 46.7 19.2 14.8 12.0 0.6 0.1 1.2 3.9 1.5 0.7 0.7 0.1 0.2 0.2 — 0.6 100.0 77,888 100.0 71,552 100.0 24.0 18,532 23.8 18,534 25.9 42.9 23.3 5.0 3.1 2.6 3.1 1.8 1.2 1.1 0.4 0.6 0.3 31,263 17,047 3,687 2,578 2,217 1,563 1,481 960 624 367 322 256 40.1 21.9 4.7 3.3 2.8 2.0 1.9 1.2 0.8 0.5 0.4 0.3 28,116 15,129 3,626 1,913 2,230 882 1,493 1,014 444 296 646 312 39.3 21.1 5.1 2.7 3.1 1.2 2.1 1.4 0.6 0.4 0.9 0.4 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkTable of Comprehensive Income Others Personnel Expenses Salaries and related benefits Vacation pay, incentives and other benefits Pension benefit cost Early retirement program Long Service Award (LSA) Expense Net periodic post employment health care benefits cost Other employee benefit cost Other post-employment benefit cost Others Interconnection Expenses Marketing Expenses General and Administrative Expenses General Expenses Provision for impairment of receivables Training, education and recruitment Collection expenses Travelling Professional fees Meeting Social contribution Others Other expenses Gain / loss on foreign exchange-net Other expenses Other Income Operating Profit Finance Income Finance Costs Share of profit of associated companies Profit Before Income Tax Income Tax (Expense) Benefit Profit for the Year Other comprehensive income (expenses) - net 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 Net comprehensive income attributable to owner of the parent company Net comprehensive income for the year attributable to non-controlling interest Growth 2017-2016 (%) Years ended December 31, 2017 2016 2015 (Rp billion) (US$ million) % (Rp billion) % (Rp billion) % 0.2 16.6 7.9 6.4 0.6 1.0 0.2 0.3 0.1 0.1 0.0 5.0 4.6 5.8 1.4 1.4 0.5 0.5 0.5 0.6 0.2 0.2 0.5 2.8 0.1 2.7 106.2 (0.6) 4.6 (13.6) 59.2 (100.0) 7.6 69.3 (24.4) (12.5) (24.4) (7.2) 27.5 14.1 (10.9) 101.1 33.1 (11.2) 8.9 (16.2) 16.4 47.0 (24.8) (49.7) (198.1) (46.5) 38.5 12.1 (16.4) (1.5) (30.7) 11.7 10.4 12.1 (11.1) 12.2 332 13,529 7,821 3,339 1,700 - 255 276 62 42 34 2,987 5,268 5,260 1,449 1,494 531 135 475 498 241 197 240 1,269 (51) 1,320 1,039 24 997 576 246 125 - 19 20 5 3 3 220 388 388 107 110 39 10 35 37 18 15 18 94 (4) 97 77 0.4 15.8 9.2 3.9 2.0 0.0 0.3 0.3 0.1 0.0 0.0 3.5 6.2 6.2 1.7 1.8 0.6 0.2 0.6 0.6 0.3 0.2 0.3 1.5 -(0.1) 1.5 43,933 3,238 1,434 (2,769) 61 106 (204) 4 42,659 3,144 (9,958) 32,701 (734) 2,410 (2,332) (172) 30,369 2,238 22,145 1,632 10,556 778 19,952 1,471 10,417 768 161 13,612 7,476 3,865 1,068 628 237 163 82 48 45 3,218 4,132 4,610 1,626 743 399 152 436 594 207 134 319 2,521 52 2,469 750 39,195 1,716 (2,810) 88 38,189 (9,017) 29,172 (2,099) 27,073 19,352 9,820 17,331 9,742 0.2 17.5 9.6 5.0 1.4 0.8 0.3 0.1 0.1 0.1 0.1 4.1 5.3 5.9 2.1 1.0 0.5 0.2 0.6 0.8 0.3 0.2 0.4 3.2 0.1 3.2 131 11,874 5,684 4,575 432 683 152 216 53 47 32 3,586 3,275 4,204 1,032 1,010 393 368 347 424 163 116 351 1,963 46 1,917 1,500 32,418 1,407 (2,481) (2) 31,342 (8,025) 23,317 631 23,948 15,489 7,828 16,130 7,818 129 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk Profit and Loss Comparison Composition of Revenues and Expenses during 2015 until 2017 can be seen in the following diagram. Diagram of Revenues Composition Telkom Group in 2015-2017 2017 2016 2015 68.535 (53,4%) 43.911 (34,2%) 1.873 (1,5%) 5.175 (4,0%) 8.762 (6,8%) 58.971 (50,7%) 46.039 (39,6%) 1,444 (1,2%) 4.151 (3,6%) 5.728 (4,9%) Data, Internet, and Information Technology Interconnection Telephone Other Connection Network 47.820 (46,7%) 45.118 (44,0%) 1.231 (1,2%) 4.011 (3,9%) 4.290 (4,2%) Diagram of Expenses Composition Telkom Group in 2015-2017 2017 2016 2015 36.603 (42,9%) 20.446 (24,0%) 13,529 (15,8%) 1.269 (1,5%) 2.987 (3,5%) 5.268 (6,2%) 5.260 (6,2%) 31.263 (40,1%) 18.532 (23,8%) 13.612 (17,5%) 2.521 (3,2%) 3.218 (4,1%) 4.132 (5,3%) 4.610 (5,9%) 28.116 (39,3%) 18.534(25,9%) 1.963 (2,7%) 11.874 (16,6%) 3.275 (4,6%) 3.586 (5,0%) 4.204 (5,9%) Operation, Maintenance and Telecommunication Services Personnel Marketing Other Depreciation and Amortization General and Administrative Interconnection Comparison of Profit and Loss for The Year Ended December 31, b. Fixed Lines Revenues 2017 Compared to Year Ended December 31, 2016 1. Revenues We recorded an increase in revenues by Rp11,923 billion or 10.2%, from Rp116,333 billion in 2016 to Rp128,256 billion Fixed line revenues decreased by Rp877 billion or 11.6%, from Rp7,542 billion in 2016 to Rp6,665 billion in 2017. The decrease in fixed line revenues occurred due to a decrease in usage charges by Rp815 billion or 21.2%. (US$9,453 million) in 2017. This increase is mainly due to the c. Data, Internet and Information Technology Services data, internet and information technology services revenue. Revenues a. Cellular Telephone Revenues We derived data, internet and information technology services revenues of Rp68,535 billion (US$5,051 million), Our cellular revenues accounted for 29.0% of our 2017 increase by Rp9,564 billion or 16.2% from Rp58,971 billion consolidated revenues. Our cellular revenues decrease in 2016. Revenue from this business activity accounted by Rp1,251 billion, or 3.2%, from Rp38,497 billion in 2016 for 53.4% of consolidated revenue in the year ended to Rp37,246 billion. The decrease is due to a decrease in December 31, 2017. Increase in data revenues, internet and usage charges revenue by Rp1,062 billion or 2.8%. information technology services is mainly due to: 130 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk • An increase in internet and celuller data by Rp9,653 g. Other Income billion or 34.1% due to the growth in mobile broadband Other income increased by Rp289 billion or 38.5%, from usage from 84.7 million subscribers in 2016 to 105.8 Rp750 billion in 2016 to Rp1,039 miliar (US$77 million) million subscribers in 2017; in 2017. • An increase in internet, data communications and information technology services revenue increased 2. Expenses by Rp2,012 billion or 15.4% in line with growing fixed Total expenses increased by Rp7,474 billion, or 9.6%, broadband subscribers from 4.3 million to 5.3 million, increased from Rp77,888 billion in 2016 to Rp85,362 billion which include IndiHome subscribers; (US$6,292 million) in 2017. • Increased Paid TV revenue by Rp398 billion or 25.7% as IndiHome subscribers accessed UseeTV; and a. Operations, Maintenance and Telecommunication • Increase in other income by Rp289 billion or 451.6%. Service Expenses This increase is compensated by a decrease in SMS revenue service expenses contributed 42.9% from the total by Rp2,788 billion or 17.4% due to over the top service. of Company’s expenses. Operations, maintenance The revenue of Data, Internet and Information Technology and telecommunication service expenses increased by Services without SMS revenue reached Rp55,343 billion or Rp5,340 billion, or 17.1%, from Rp31,263 billion in 2016 to Operations, maintenance and telecommunication increased 28.7%. d. Interconnection Revenues Our interconnection revenues consist of interconnection revenues from Telkom’s fixed line and interconnection Rp36,603 billion (US$2,698 million) in 2017. This increase was primarily attributable to the following: • An increase in operations and maintenance expenses by Rp2,882 billion, or 16.9%, due to an increase of network maintenance; revenues from Telkomsel’s cellular network. Interconnection revenues include international direct incoming calls • An increase in cost of IT services expense by Rp1,085 billion or 69.4% in line with increase in Telkom Sigma’s from IDD 007 services. Interconnection revenues in 2017 information technology revenue; increased by Rp1,024 billion or 24.7% from Rp4,151 billion in 2016 to Rp5,175 billion (US$381 million) in 2017, due to • An increase in radio frequency usage charges expense by Rp589 billion or 16.0% due to additional radio increased in domestic interconnection revenue. frequency by Telkomsel; e. Network Revenues Our network revenues increased by Rp429 Billion or 29.7%, from Rp1,444 billion in 2016 to Rp1,873 (US$138 • An increase in cost of SIM card and vouchers sales by Rp290 billion or 46.5%; • An increase in others expense by Rp171 billion or 106.2%; and million) in 2017. • An increase in tower leases expense by Rp150 billion f. Other Telecommunications Services Revenues Other telecommunications services increased by Rp3,034 billion or 53.0%, from Rp5,728 billion in 2016 to Rp8,762 billion (US$646 million) in 2017. The increased was mainly due to: • • • Increase in other income by Rp866 billion or 49.0%; Increase in peripheral sales by Rp802 billion or 53.8%; Increased electricity rental service amounting to Rp531 billion or 1831.0%; Increase in CPE and terminal revenue by Rp344 billion or 179.2%; and Increase in call center revenue by Rp292 billion or 43.1%. • • or 46.6%. b. Depreciation and Amortization Expenses Depreciation and amortization expenses increased by Rp1,914 billion, or 10.3%, from Rp18,532 billion in 2016 to Rp20,446 billion (US$1,507 million) in 2017 due to Telkomsel’s acceleration of transmission depreciation. c. Personnel Expenses Personnel expenses contributed 15.8% from our total expenses. This expense increases by Rp83 billion or 0.6%, from Rp13,612 billion in 2016 to Rp13,529 billion (US$997 million) in 2017. This increase was driven by: • A decrease in vacation pay, incentives and other benefits expenses by Rp526 billion, or 13.6%; and • A decrease in early retirement program by Rp628 billion due to no programs in 2017. 131 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk The decrease was offset by: 3. Operating Profit and Operating Profit Margin • An increase in pension benefit cost by Rp632 billion, or As a result of the foregoing, operating profit increased by 59.2% in line with increase in pensions obligation; Rp4,738 billion, or 12.1%, from Rp39,195 billion in 2016 to • An increase in salaries and related benefits expenses by Rp43,933 billion (US$3,238 million) in 2017. Operating profit Rp345 billion, or 4.6%; and margin increased from 33.7% in 2016 to 34.3% in 2017. • An increase in net periodic post-employment health care benefit cost by Rp113 billion, or 69.3%. 4. Profit before Income Tax and Pre-Tax Margin d. Interconnection Expense Our profit before income tax increased by Rp4,470 billion, or 11.7%, from Rp38,189 billion in 2016 to Rp42,659 billion Interconnection expense decreased by Rp231 billion, (US$3,144 million) in 2017. Pre-tax margin increased from or 7.2%, from Rp3,218 billion in 2016 to Rp2,987 billion 32.8% in 2016 to 33.3% in 2017. (US$220 million) in 2017 in line with decrease in usage charges revenues. 5. Income Tax Expense e. Marketing Expense Income tax expense increased by Rp941 billion, or 10.4%, from Rp9,017 billion in 2016 to Rp9,958 billion (US$734 million) in Marketing expenses increased by Rp1,136 billion, or 27.5%, 2017, inline with the increase in profit before income tax. from Rp4,132 billion in 2016 to Rp5,268 billion (US$388 million) in 2017. This increase was primarily due to an 6. Other Comprehensive Income increased promotion by Telkomsel. In 2017, other comprehensive income amounted to Rp2,332 f. General and Administrative Expenses General and administrative expenses increased by Rp650 billion, or 14.1%, from Rp4,610 billion in 2016 to Rp5,260 billion (US$172 million) due to an actuarial losses by Rp2,375 billion. In the previous year, Telkom’s other comprehensive income amounted to Rp2,099 billion. billion (US$388 million) in 2017. This increase primarily 7. Profit for the Year Attributable to Owners of the Parent Company due to: • An increase in provision for impairment of receivables by Rp751 billion, or 101.1% due to more prudent estimation methods undertaken by management; and • An increase in training, education and recruitment Profit for the year attributable to owners of the parent Company increased by Rp2,793 billion, or 14.4%, from Rp19,352 billion in 2016 to Rp22,145 billion (US$1,632 million) in 2017. expenses by Rp132 billion, or 33.1%. 8. Profit for the Year Attributable to Non-controlling Interest Profit for the year attributable to non-controlling interest This increase was offset by a decrease in general expenses increased by Rp736 billion, or 7.5%, from Rp9,820 billion in by Rp177 billion or 10.9%. 2016 to Rp10,556 billion (US$778 million) in 2017. g. Gain (loss) on Foreign Exchange – net Gain on foreign exchange – net amounted to Rp51 billion (US$4 million), while in 2016 loss on foreign exchange net by Rp52 billion. h. Other Expenses 9. Net Comprehensive Income for the Year Net Comprehensive income for the year increased by Rp3,296 billion, or 12.2%, from Rp27,073 billion in 2016 to Rp30,369 billion (US$2,238 million) in 2017. 10. Net Income per Share Other expenses decreased by Rp1,149 billion or 46.5%, from Rp2,469 billion in 2016 to Rp1,320 billion (US$97 Net income per share increased by Rp27.36 or 13.9%, from Rp196.19 in 2016 to Rp223.55 in 2017. million) in 2017. 132 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk Comparison of Profit and Loss for The Year Ended December 31, c. Data, Internet and Information Technology Services 2016 Compared to Year Ended December 31, 2015 Revenues 1. Revenues Our data, internet and information technology service Total revenues increased by Rp13,863 billion, or 13.5%, from revenues contributed 50.6% of our consolidated revenues Rp102,470 billion in 2015 to Rp116,333 billion in 2016. The as of December 31, 2016, compared to 46.6% as of increase in revenues in 2016 was due to the increase in data December 31, 2015. The increase of data, internet and internet and information technology service revenues and information technology service revenues amounted to cellular telephone revenues, and to a lesser extent others Rp11,151 billion, or 23.3%, from Rp47,820 billion in 2015 to telecomunication services revenues. Rp58,971 billion in 2016 was due to: a. Cellular Telephone Revenues • An increase in data cellular and internet revenues by Rp8.643 billion, or 44.0% due to a growth in mobile Cellular telephone revenues contributes 33.1% of our broadband usage from 73.9 million subscribers in consolidated income as of 31 December 2016. Cellular 2015 to 84.7 million subscribers in 2016 related to high telephone revenues increase by Rp1,212 billion, or 3.3%, adoption of smartphone (3G/4G); from Rp37,285 billion in 2015 to Rp38,497 billion in 2016. • An increase in Pay TV income by Rp965 billion, or This increase was due to an increase in usage charges by 166.1% due to an increased in UseeTV subscribers; Rp1,385 billion or 3.8% due to an increase in Telkomsel • An increase in SMS Revenues increased by Rp848 subscribers from 152.6 million to 173.9 million. billion, or 5.6%, driven from successful implementation 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%, of cluster-based pricing; and • 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. from Rp7,833 billion in 2015 to Rp7,542 billion in 2016. This increase was offset by decrease in other data and The decrease in fixed lines revenues was primarily due to internet revenues by Rp71 billion, or 52.6% from Rp135 decrease in usage charges by Rp788 billion, or 17.0% from billion in 2015 to Rp64 billion in 2016. Rp4,635 billion in 2015 to Rp3,847 billion in 2016. This decrease was due to an increase in monthly Interconnection revenues comprised interconnection subscription amounted to Rp490 billion, or 17.4% due to the revenues from our fixed line network and interconnection success of IndiHome bundling program implementation. revenues from Telkomsel’s mobile cellular network. d. Interconnection Revenues Including incoming international long-distance revenues from our IDD service (TIC007). Interconnection revenues decreased by Rp139 billion, or 3.2% from Rp4,290 billion in 2015 to Rp4,151 billion in 2016. 133 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk e. Network Revenues • An increase in leased lines and CPE amounted Rp665 Network revenues increased by Rp213 billion, or 17.3%, billion, or 34.8% used for operational and maintenance from Rp1,231 billion in 2015 to Rp1,444 billion in 2016 of leased lines; and primarily due to a decrease in leased line amounted and • Increased cost of SIM card sales and vouchers Rp180 an increase in number of leased transponder satellite from billion or 40.5%. 4,648 million MHz to 6,801 million MHz. f. Other Telecommunications Services Revenues Rp324 billion or 50.2%Rp324 billion or 50.2%. In 2016, revenues from other telecommunications service increased by Rp1,717 billion, or 42.8%, from Rp4,011 billion b. Depreciation and Amortization Expenses in 2015 to Rp5,728 billion in 2016. The increase was Depreciation and amortization expenses decreased by primarily due to: Rp2 billion, or 0.0%, from Rp18,534 billion in 2015 to The increase was compensated by decrease tower lease cost • An increase in other revenues by Rp1,200 billion, or Rp18,532 billion in 2016. 211.6% due to an increase in manage service revenues; • An increase in e-payment revenues by Rp298 billion or c. Personnel Expenses 236.5%; and Personnel expenses contributed 17.5% from our total • An increase in e-health revenues by Rp223 billion or expenses. This expense increases by Rp1,738 billion, or 116.1%. g. Other Income Other income decreased by Rp750 billion, from Rp1,500 14.6%, from Rp11,874 billion in 2015 to Rp13,612 billion in 2016. This increase was driven by: • An increase in employees’ salary expenses amounted to Rp1,792 billion, or 31.5%; and billion in 2015 to Rp750 billion in 2016. • An increase in net periodic pension costs amounted to Rp636 billion, or 147.2%. 2. Expenses Total expenses increased by Rp6,336 billion, or 8.9%, from This increase was offset by a decrease in employees Rp71,552 billion in 2015 to Rp77,888 billion in 2016 insentives expenses amounted Rp710 billion, or 15.5%. a. Operations, Maintenance and Telecommunication d. Interconnection Expense Service Expenses Interconnection expense decreased by Rp368 billion, or Operations, maintenance and telecommunication 10.3%, from Rp3,586 billion in 2015 to Rp3,218 billion in service expenses contributed 40.1% from the total of 2016 in line with decrease in interconnection revenues. Company’s expenses. Operations, maintenance and telecommunication service expenses increased by Rp3,147 e. Marketing Expense billion, or 11.2%, from Rp28,116 billion in 2015 to Rp31,263 Marketing expenses increased by Rp857 billion, or 26.2%, billion in 2016. This increase was primarily attributable to from Rp3,275 billion in 2015 to Rp4,132 billion in 2016. the following: • An increase in operations, maintenance and of 4G LTE and IndiHome. This increase was primarily due to an increased promotion 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 informatics technology services expenses by Rp681 billion, or 77.2%; 134 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk f. General and Administrative Expenses 5. Income Tax Expense General and administrative expenses increased by Rp406 Income tax expense increased by Rp992 billion, or 12.4%, from billion, or 9.7%, from Rp4,204 billion in 2015 to Rp4,610 Rp8,025 billion in 2015 to Rp9,017 billion in 2016, following billion in 2016 primarily due to: the increase in profit before income tax. • An increase in general and administrative expenses amounted to Rp594 billion, or 57.6%; and 6. Other Comprehensive Income • An increase in professional service expenses amounted In 2016, other comprehensive income amounted to Rp2,099 to Rp170 billion, or 40.1%. billion due to an actuarial losses amounted to Rp2,058 billion. In the previous year, Telkom recorded other comprehensive This increase was offset by: income in the amount of Rp631 billion. • A decrease in provision for doubtful impairment of receivables by Rp267 billion, or 26.4%; and 7. Profit for the Year Attributable to Owners of the Parent • A decrease in collection expenses amounted to Rp216 Company billion, or 58.7%. Profit for the year attributable to owners of the parent Profit for the year attributable to owners of the parent Company g. Gain (loss) on Foreign Exchange – net increased by Rp3,863 billion, or 24.9%, from Rp15,489 billion Loss on foreign exchange – net increased by Rp6 billion, in 2015 to Rp19,352 billion in 2016. from Rp46 billion in 2015 to Rp52 billion in 2016. h. Other Expenses Other expenses increased by Rp552 billion, from Rp1,917 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 25.4%, from Rp7,828 billion billion in 2015 to Rp2,469 billion in 2016. in 2015 to Rp9,820 billion in 2016. 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increased by Rp6,777 billion, or 20.9%, from Rp32,418 billion in 2015 to 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 Rp39,195 billion in 2016. Operating profit margin increased billion in 2016. from 31.6% in 2015 to 33.7% in 2016. 4. 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 in 2016. Pre-tax margin increased from 30.6% in 2015 to 32.8% in 2016. 10. Net Income per Share Net income per share increased by Rp38.42 or 24.4%, from Rp157.77 in 2015 to Rp196.19 in 2016. 135 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk 2015 to 2017. Cash Flow Table Net Cash provided by operating activities used in investing activities used in financing activities CASHFLOW OVERVIEW The following tables presents the information about our consolidated cash flow, as shown on our Consolidated Financial Report from Growth 2017-2016 (%) As of Desember 31, 2017 2016 2015 (Rp billion) (US$ million) (Rp billion) (Rp billion) Net increase in cash and cash equivalents (363.1) (4,654) 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 126.9 5.9 (15.5) 32 29,767 25,145 4.6 19.8 17.6 49,405 (33,007) (21,052) 3,641 (2,433) (1,552) (343) 2 2,194 1,853 47,231 (27,557) (17,905) 1,769 (119) 28,117 29,767 43,669 (27,421) (6,407) 9,841 604 17,672 28,117 Cashflow Comparison Composition of Cash Receipt and Cash Disbursement from 2015 to 2017 on graphic below. Diagram of Cash Receipt Composition Telkom Group in 2015-2017 2017 2016 2015 127,669 (90.3%) 1,550 (1.1%) 12,219 (8.6%) 118,326 (89.5%) 3,007 (2.3%) 10,921 (8.3%) 906 (0.7%) 20,634 (16.6%) 102,663 (82.7%) Operation Invesment Financing Diagram of Cash Disbursement Composition Telkom Group in 2015-2017 2017 2016 2015 78,264 (53.6%) 71,095 (54.5%) 58,994 (51.6%) 33,271 (22.8%) 34,557 (23.7%) 28,826 (22.1%) 30,564 (23.4%) 27,041 (23.6%) 28,327 (24.8%) Operation Invesment Financing 136 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk Comparison of Cash Flow for Year Ended December 31, 2017 2. Cash Flows from Investing Activities Compared to Year Ended December 31, 2016 In 2017, net cash flows used in investing activities was Rp33,007 billion (US$2,433 million) an increase of Rp27,557 Our total cash and cash equivalents as of December 31, 2017 billion in 2016. amounted to Rp25,145 billion (US$1,853 million), decreased by Rp4,622 billion or 15.5% compared to the year of 2016 amounted Cash receipts from investing activities amounted to Rp1,550 to Rp29,767 billion. The largest cash receipts by Rp127,669 or billion in 2017, compared to Rp3,007 billion recorded in 2016, 90.3% came from operations activities, followed by receipts The amount is decreased by Rp1,457 billion, or 48.5%. The from financing activities by Rp12,219 billion or 8.6% and from investment activities by Rp1,550 billion or 1.1%. cash receipts came from: • Proceeds from sale of property and equipment of Rp1,367 billion; Cash received is mostly used for operating activities by Rp78,264 • Proceeds from insurance claims of Rp155 billion; and billion or 53.6%, investment activity by Rp34,557 billion or • Dividends received from associated companies of Rp28 billion. 23.7% and financing activities by Rp33,271 billion or 22.8%. Cash disbursements from investing activities amounted 1. Cash Flows from Operating Activities to Rp34,557 billion, increased by Rp3,993 billion, or 13.1% In 2017, we recorded net cash provided by operating activities compared to Rp30,564 billion in 2016. Cash disbursements were Rp49,405 billion (US$3,641 million) compared to Rp47,231 billion in 2016. were used for: • Purchases of property and equipment of Rp32,294 billion; • Placement in time deposits and available-for-sale financial Cash receipts from operating activities amounted to assets of Rp676 billion ; Rp127,669 billion, increased by Rp9,343 billion, or 7.9% compared to 2016. The cash receipts came from: • Cash receipts from customers and other operator of Rp125,111 billion; • Interest income received of Rp1,431 billion; • Other cash receipts of Rp542 billion; and • Tax refund receipts of Rp585 billion. • Purchases of intangible assets of Rp508 billion; • Increases advances for purchases of property and equipment of Rp490 billion; • Additional contribution on Rp269 billion; long-term investments of • Business acquisition, net of acquired cash of Rp243 billion; and • Purchases in other assets of Rp77 billion. Cash disbursements from operating activities amounted 3. Cash Flows from Financing Activities to Rp78,264 billion, increased by Rp7,169 billion, or 10.1% Net cash flows used in financing activities in 2017 was compared to 2016. The cash disbursements were used for: • Cash payments for expenses of Rp49,604 billion; • Payment for corporate and final income taxes of Rp21,052 billion (US$1,552 million) compared to with Rp17,905 billion in 2016. Rp11,846 billion; • Cash payments to employees of Rp11,739 billion; • Payments for interest cost of Rp3,133 billion; and • Payment for value added taxes after of Rp1,942 billion. Cash receipts from financing activities amounted to Rp12,219 billion, which increased by Rp1,298 billion, or 11.9% from Rp10,921 billion in 2016. The cash receipts came from: • Proceeds from bank loans and other borrowings of Rp12,169 billion; and • Capital contribution of non-controlling interests in subsdiaries of Rp50 billion. In 2017, we have cash disbursement for financing activities of Rp33,271 billion. Compared to Rp28,826 billion in 2016, the amount increased by Rp4,445 billion or 15.4%. The cash disbursements were used for: • Cash devidends paid to the Company’s stockholders and to non-controlling stockholders of subsidiaries of Rp11,627 billion, and Rp12,355 billion; and • Repayment of bank loans and other borrowings of Rp9,289 billion. 137 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkComparison of Cash Flow for Year Ended December 31, 2016 Cash disbursements from investing activities amounted Compared to Year Ended December 31, 2015 to Rp30,564 billion, increased by Rp2,237 billion, or 7.9% compared to 2015. Cash disbursements were used for: As of December 31, 2016, total cash and cash equivalent amounted • Purchases of property and equipment of Rp26,787 billion; to Rp29,767 billion, increased by Rp1,650 billion, or 5.9% • Increases advances for purchases of property and compared to 2015. Operating activity accounted for the largest equipment of Rp1,338 billion; cash receipts Rp118,326 billion,or 89.5%, followed by financing • Purchases of intangible assets of Rp1,098 billion; activity amounted to Rp10,921 billion, or 8.3% and investing • Placement in time deposits and available-for-sale financial activity amounted to Rp3,007 billion, or 2.3%. In total, cash assets of Rp983 billion; receipts increased by Rp8,051 billion, or 6.5% compared to 2015. • Acquisition of non-controlling interest in subsidiary of Rp138 billion; The majority of cash used for operating activities amounted to • Acquisition of business, net of acquired cash of Rp137 billion; Rp71,095 billion, or 54.5% investment activities amounted to • Additional contribution on long-term investments of Rp43 Rp30,564 billion, or 23.4% and financing activities amounted to billion; and Rp28,826 billion, or 22.1%. Compared to 2015, cash disbursement • Increase in other assets of Rp40 billion. increased by Rp16,123 billion, or 14.1%. 1. Cash Flows from Operating Activities Net cash flows used in financing activities in 2016 was In 2016 net cash provided by operating activities was Rp47,231 Rp17,905 billion compared to with Rp6,407 billion in 2015. billion compared to Rp43,669 billion in 2015. Cash receipts Cash receipts from financing activities amounted to Rp10,921 from operating activities amounted to Rp118,326 billion, billion, which decreased by Rp9,713 billion, or 47.1% compared 3. Cash Flows from Financing Activities to 2015. The cash receipts came from: • Proceeds from loans and other borrowings of Rp7,479 billion; • Proceed from sale of treasury stock of Rp3,259 billion; and in • Capital contribution of non-controlling interests 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; and • Repayment of loans and other borrowings of Rp10,555 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; and • • Other cash receipts after netted with the other cash disbursement of Rp474 billion. 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 disbursements for expenses of Rp42,433 billion; • Payment for corporate and final income taxes of Rp11,304 billion; • Cash payments for employees of Rp11,207 billion; • Payments for interest cost of Rp3,455 billion; and • 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 compared to Rp27,421 billion in 2015, an increase of Rp136 billion or 0.5%. 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 Rp60 billion; and • Dividends received from associated entities of Rp23 billion. 138 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkSOLVENCY 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 2017 was better than its liquidity in 2016. 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 12-16 to the Consolidated Financial Statements. a. Short-term Liabilities Telkom and its subsidiary use and analyze short-term liquidity ratios 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 Current Ratio Quick Ratio Cash Ratio 2017 104.8% 81.3% 60.2% 2016 120.0% 98.4% 78.6% 2015 135.3% 109.6% 87.4% Our current ratio 104.8% indicates the availability of our current assets more than current debt. Therefore, we have the ability to repay the debt that matures in the short term. Similarly, our quick ratio and cash ratio 81.3% and 60.2% indicate our policies that concern on risk of short-term debt maturity date. b. Long-term Liabilities 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 debt-to-equity ratio, debt-to-EBITDA and EBITDA-to-interest-expense as shown in the following table. RATIO Debt To Equity Ratio Debt To EBITDA EBITDA to interest expense 2017 31.6% 54.9% 23.3X 2016 30.1% 53.4% 21.2X 2015 37.0% 67.3% 20.7X The debt to equity ratio 31.6% indicates that our equity is more than our long-term liabilities. This means we have more than enough capability to pay long-term liabilities. Similarly, the debt to EBITDA ratio 54.9% and the EBITDA ratio to interest expense by 23.3 times, indicates that our management of our long-term liabilities is highly controlled and has very low risk. RECEIVABLES COLLECTABILITY Our collectability rates in 2017 is 26.2 days with receivables rollover ratio of 13.9. We 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 Rp4,331 billion in 2017 and Rp2,990 billion in 2016. This was done to anticipate the uncollected parts of business receivables throughout 2017. In calculating and presenting the due receivables amount, we do not differentiate business receivables of affiliated party and receivables of third party. Consolidated receivables which due per December 31, 2017 and 2016 were of Rp3,354 billion and Rp3,005 billion respecteively. Receivables that were not impaired 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 Year 2015 -2017 RATIO Average collection ratio Receivables turnover ratio Average Collection Duration Ratio (%) 2017 26.2 13.9 2016 23.1 15.8 2015 26.8 13.6 139 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCAPITAL STRUCTURE We have funding resources available to run the Company resulting from short-term debt, long-term debt and equity. The largest composition of our capital structure comes from equity. The following are tables and diagrams which illustrating the capital structure and composition of Telkom during the last three years. Diagram of Capital Structure Composition Telkom Group in 2015-2017 2017 2016 2015 92,713 (72.3%) 33,183 (25.9%) 2,289 (1.8%) 84,384 (72.6%) 30,888 (26.6%) 911 (0.8%) Equity Long-term Liabillities Short-term Liabillities 75,136 (68.5%) 34,010 (31.0%) 602 (0.5%) Table of Capital Structure Telkom Group in 2015-2017 Capital Structure Short-term Long-term Debt Equity Total Invested Capital 2017 (Rp billion) (US$ million) 2016 (Rp billion) 2015 (Rp billion) 2,289 33,183 35,472 92,713 128,185 169 2,446 2,614 6,833 9,448 911 30,888 31,799 84,384 116,183 602 34,010 34,612 75,136 109,748 MANAGEMENT POLICY ON CAPITAL STRUCTURE Management policy on capital structure was drawn based on qualitative and quantitative approaches, in order to determine the optimal funding composition from equity and debt. Periodically, we assess its capital structure, leverage level and performance of the debt payment as the basis of decision for addition or payments of short-term or long-term debt. If possible, a financing scheme can be renewed with a more efficient funding scheme. We also maintains its capital structure well at the level it believes will not risk its credit rating, or at least equal to its competitors’ credit rating while at the same time maintains a capital structure to optimize the cost of capital (weighted average cost of capital) as well as tax benefits. In maintaining the balance of capital structure, we use several financial ratios. In 2017, Our debt-to-equity ratio (“DER”) was 31.6% and our debt service coverage ratio was 4.3 times, indicating the Company’s high ability to repay the debt. During 2017, the Company has complied with capital requirements provided by the external parties. For information of management policy on capital management, see Note 38 to the Consolidated Financial Statements. CAPITAL EXPENDITURE In line with our strategy of transforming into digital telecommunication Company, we invest our capital according to short-term, medium-term and long-term needs. In addition, dynamic technology changes and increased connectivity needs and the digital economy era are driving us to accelerate capital expenditure spending. AMOUNT OF CAPITAL EXPENDITURE The total capital expenditure of Telkom group in 2017 amounted Rp33,156 billion (US$2,444 million), increased by Rp3,957 billion or 13.5% compared to capital expenditure in 2016. The amount covered the investment of Telkom, as the parent Company and its subsidiaries. 140 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkThe Table of Capital Expenditure of Telkom Group Year 2015-2017 Years ended December 31, Telkom (parent company) Subsidiaries Telkomsel Others Subtotal for subsidiaries Total for Telkom Group (Rp billion) 11,572 15,080 6,504 21,584 33,156 2017 (US$ million) 853 1,111 479 1,591 2,444 2016 (Rp billion) 10,309 12,564 6,326 18,890 29,199 2015 (Rp billion) 9,641 11,321 5,439 16,760 26,401 Telkomsel as one of our subsidiaries, invested the largest capital expenditure with total Rp15,080 billion while Telkom invested capital expenditure amounting to Rp11,572 billion. The total investment of capital expenditure from other subsidiaries amounting to Rp6,504 billion. TYPES OF CAPITAL EXPENDITURE Capital expenditure carried out by Telkom can be categorized as follows: • Broadband services, comprises of broadband access, IT, application and content, as well as service node; • Network infrastructure, comprises of transmission network, metro ethernet and Regional Metro Junction (“RMJ”), and IP backbone as well as satellite; • Optimizing legacy, comprises of fixed wired telephone; and • Other supporting capital expenditures. PURPOSE OF CAPITAL EXPENDITURE In general, we invest capital expenditure for strengthening infrastructure and improving Company performance. This is to anticipate rapid market changes in line with the present era of digital economy. Diagram of Capital Expenditure Composition Telkom Group in 2015-2017 2017 2016 2015 15,080 (45.8%) 11,572 (34.9%) 6,504 (19,6%) 12,564 (43.0%) 10,309 (35.3%) 6,326 (21.7%) 11,321 (42.9%) 9,641 (36.5%) 5,439 (20.6%) Telkomsel Telkom Others Subsidiaries The following are some of Telkom’s capital expenditure and its subsidiaries: 1. Built 31,672 BTS units. Total BTS by the end of 2017 was 160,705 BTS, grew 24.5% from the previous year, including 110,381 BTS 3G/4G. 2. Built fiber optic network access to residential to support fixed broadband services, WiFi access point, broadband services for the enterprise segment, and support Telkom’s leading digital business supply strategy. In the end of 2017, Telkom has 18.6 million home-passed to support IndiHome fixed broadband services. 3. Completed the Southeast Asia-United States (SEA-US) cable project, which connects Manado - Indonesia to California - USA. 4. Built the Indonesian Global Gateway (IGG) submarine cable project to connect 12 cities in Indonesia including Batam, Jakarta, Surabaya and Manado is expected to be completed in 2018. 5. Developed Telkom satellite 4, tower and data center. 141 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) Tbk MATERIAL COMMITMENT FOR CAPITAL EXPENDITURE OBJECTIVES OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE We have several material contracts for capital expenditure by parent companies and subsidiaries. Material contract is mainly for the procurement and installation of transmission equipment and cable network. The following table presents a material contract for capital expenditure, including project-related agreements by Telkom and its subsidiaries. Telkom Parties to contract Contract date Agreement Consorsium NEC Corporation and PT NEC Indonesia PT Industri Telekomunikasi Indonesia May 5, 2014 May 28, 2013 PT Lintas Teknologi Indonesia November 17, 2015 PT Datacomm Diangraha November 20, 2015 PT Sisindokom Lintas Buana November 23, 2015 Space System/Loral, LLC NEC Corporation February 29, 2016 May 12, 2016 NEC Corporation July 18, 2016 PT Huawei Tech Investment October 10, 2016 PT Huawei Tech Investment November 25, 2016 PT Fiberhome Technologies Indonesia and PT Abhimata Citra Abadi PT ZTE Indonesia PT Asuransi Jasa Indonesia December 6, 2016 May 31, 2017 October 31, 2017 PT ZTE Indonesia November 1, 2017 Konsorsium Bisnis Submarine Cable November 10, 2017 PT ZTE Indonesia PT Lancs Arche Consumma December 22, 2017 December 22, 2017 Procurement agreement of Sulawesi Maluku Papua Cable System (SMPCS) Package-2 Procurement and installation agreement of Outside Plant Optic (OSP-FO) Access Procurement and installation agreement of DWDM Platform ALCATEL Procurement and Installation Agreement of Metro Ethernet Platform ALU Procurement and Installation Agreement of Expand PE VPN Cisco Procurement agreement of Telkom-4 Satellite System Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Indonesia Global Gateway Procurement and installation agreement of Radio IP Backhaul Node-B Telkomsel Platform NEC Procurement and installation agreement of 10 Gigabyte Capable Passive Optical Network (“XGPON”) Platform Huawei Procurement and installation agreement of DWDM Platform Huawei Procurement and installation agreement of XGPON Platform Fiber Home Procurement agreement for STB Platform ZTE Procurement Agreement for Telkom-4 Satellite Launch Insurance Services Procurement and Installation Agreement of STB 4K and ONT Enterrise Platform ZTE Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Sabang-Lhoksemawe- Medan Procurement for ONT Retail Platform ZTE Procurement and installation agreement of Expand Capacity of Network Capacity DWDM Platform Coriant for NARU 2017 Contract date April 17, 2008 Agreement Combined 2G and 3G Network Rollout agreements April 17, 2008 March and June, 2009 Technical Service Agreement (TSA) for Combined 2G and 3G Network 2G BSS and 3G UTRAN Rollout agreement as network provider of 2G GSM BSS and 3G UMTS Radio Access Network Telkomsel Parties To Contract PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy, dan Nokia Siemens Network GmbH & Co. KG PT Ericsson Indonesia and PT Nokia Siemens Networks PT Ericsson Indonesia Ericsson AB, PT Nokia Siemens Networks, NSN Oy, Huawei International Pte. Ltd., PT Huawei and PT ZTE Indonesia 142 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkParties To Contract PT Dimension Data Indonesia and PT Huawei Contract date February 3, 2010 Amdocs Software Solutions Limited Liability Company and PT Application Solutions PT Application Solutions Amdocs Software Solutions Limited Liability Company and PT Application Solutions PT Huawei Wipro Limited, Wipro Singapore Pte. Ltd. and PT WT Indonesia PT Ericsson Indonesia PT Dimension Data Indonesia February 8, 2010 February 8, 2010 July 5, 2011 March 25, 2013 April 23, 2013 October 22, 2013 May 25, 2016 Agreement Maintenance and procurement of equipment and related service agreement for Next Generation Convergence Core Transport Rollout and Technical Support Onlince Charging System (OCS) and Service Control Points (SCP) System Solution Development agreement Technical Support Agreement to provide technical support service for OCS and SCP Developing and extension of Rollout agreement for Customer Relationship Management and Contact Center Solutions Technical Support Agreement for the procurement of Gateway GPRS Support Node (GGSN) Service Complex Development and procurement of OSDSS Solution agreement Procurement of GGSN Service Complex Rollout agreement Maintenance and procurement of equipment and related service agreement for Next Generation Convergence RAN Transport Rollout SOURCES OF FUNDS OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE 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 2017, Company’s capital expenditures allocation was adjusted to the Company’s business plans. Please refer to the discussion of “Capital Expenditure”. DENOMINATED CURRENCIES OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE In conducting transactions related to material contracts for capital expenditure, we use the Rupiah and foreign currencies, they are US Dollar and Japanese Yen. The composition of the value of material contracts for capital expenditure as of December 31, 2017 by currency denomination was as follows: Table of Material Commitment based on Currencies Amounts in Foreign Currencies (in million) Equivalent in Rupiah (in billion) Rupiah US Dollar Euro Total - 192 0.21 - 6,737 2,604 3 9,344 FOREIGN CURRENCY RISK MITIGATION OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE When we are committed to the payment of capital expenditure with foreign currency, we understand that there is an uncertain foreign exchange rate risk. On the other hand, we also have the opportunity to gain foreign exchange gains from exchange rates on time deposits and receivables denominated in foreign currency, which set at least 25% of short-term liabilities in foreign currency payable. Under these conditions, we minimize exchange rate risk by “offsetting” a trade-off between the exchange rate losses from material contracts for capital expenditure and exchange rate gain from time deposits and accounts receivable. In general, it lowers the exposure of foreign currency exchange risk to immaterial. For more detail discussion of the material contracts for capital expenditure and foreign exchange rate risk can be seen in Notes 34 significant contracts and agreements and Notes 37 financial risk management in the Consolidated Financial Statements of 2017. 143 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkMATERIAL INFORMATION AND FACT AFTER ACCOUNTANT REPORTING DATE In line with the principles of transparency and accountability 4. On February 28, 2018, Metra signed a Conditional Sales in conducting good corporate Governance, we presented Purchase Agreement with shareholders of PT Swadharma material information and facts that occured after the date of the Sarana Informatika (“Swadharma”) for 36.5% share ownership accountant’s report, as follows: amounting to Rp219 billion and new share purchase through 1. On January 30, 2018, the Company, through Metranet, an increase of share capital valued at Rp178 billion so that entered into a conditional shares subscription agreement ownership of Metra became 51%. Swadharma is a company with Cellum Global Zrt. (“Cellum”) through two stages. In the engaged in the management of computer technology facilities, first phase, Metranet will subscribe new shares amounting to especially in the banking sector. These new investments are US$4,000,000 (equivalent to 20.4% ownership) and second expected to strengthen the Company business portfolio. phase at US$2,000,000 so the ownership of Metranet will be equivalent to 30.4% ownership. Cellum is mobile payment and commerce services solutions provider. These new shares are expected to strengthen TIMES portfolio, particularly strengthening the Fin-Tech Telkom Group’s business ecosystem. 2. Until the issuance of the consolidated financial statements, the Company and its subsidiaries have drawn down and entered into credit facility agreement: a. On January 4, 2018 and February 13, 2018, GSD withdrew loans from 2017’s facility agreement with BNI and Bank Mandiri amounting to Rp68 billion and Rp150 billion, respectively. b. On February 9, 2018, Telin entered into a credit facilities agreements with Bank of Tokyo Mitsubishi UFJ amounting to US$10 billion. c. On January 10, 2018, Telkomsel amended the overdraft agreement with Deutsche Bank, dated April 8, 2015, for total facilities up to Rp750 billion for the purpose of financing Telkomsel’s working capital. d. On February 26, 2018, Telkom Infra, Infomedia and the Company entered into several Joint Borrowing credit facilities agreements with Bank DBS amounting to Rp325 billion, Rp275 billion, and Rp50 billion, respectively. e. On February 26, 2018, the Company and Telin entered into several Joint Borrowing credit facilities agreements with Bank Mandiri amounting to Rp775 billion and Rp50 billion, respectively. f. On February 26, 2018, the Company entered into a Joint Borrowing credit facilities agreements with BNI amounting to Rp825 billion. g. On February 26, 2018, Telin entered into a special credit facilities agreements with Bank Mandiri amounting to Rp50 billion. 3. On February 27, 2018, The Minister of Communications and Multimedia Malaysia (“MCM”) has issued approvals for foreign 70% ownership of TSGN, through licensing amendments. MACROECONOMY GLOBAL ECONOMY IN 2017 The global economy in 2017 grew 3%, up from 2.4% in the previous year and higher than expected. The growth rate was the strongest since 2011, which is a positive signal of the global economic recovery at a fairly good pace despite several challenges such as conflicts in some regions. The good economic growth in emerging markets and developing economies was a major driver of global economic growth. The improvement in global growth also as resulted from an increase in manufacturing activities, trade and investment values, and the recovering prices for commodities such as oil, coal and CPO, favoring commodity exporting countries. China, Asia’s main economic power, managed to maintain a relatively stable economic growth at around 6.8%, supported by a recovery in export performance. Developed countries, especially the European region, experienced better economic growth in 2017, driven mainly by increased capital expenditures and improved export performance. In the United States, increased private consumption was an important factor driving its economic growth. While in Japan, rising economic growth was a combination of strong domestic market and rising exports as a result of the recovering global demand. ASEAN remained among the regions with high economic growth throughout 2017, buoyed by domestic consumption and trade activities and a recovery of major commodities. Based on the World Bank data, some countries posted relatively good growth rates, such as Malaysia 5.9%, and Vietnam 6.8%, Philippines 6.7%, Thailand 3.9% and Singapore around 3.6%. 144 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkINDONESIAN ECONOMY INDONESIAN TELECOMMUNICATIONS INDUSTRY SHIFT PATTERN IN TELECOMMUNICATIONS INDUSTRY Based on the Central Bureau of Statistics (BPS) data, the Indonesian economy grew quite well at 5.07% in 2017, slightly The telecommunications industry grew very well in 2017, higher than the previous year’s growth of 5.02%. Domestic continuing the trend in recent years. The Central Bureau of consumption still played a major role in the economic growth, Statistics (BPS) recorded the Information and Communication contributing for more than half of Indonesia’s Gross Domestic sector, which includes the telecommunications industry grew by Product (GDP), reflecting strong consumer purchasing power. 9.81% better than last year’s 8.87% or well above the national The Indonesian government was also able to manage inflation economic growth. This means that the telecommunications well throughout 2017, with a controlled inflation at 3.6%. industry is one of the main drivers of the national economy. The relatively low inflation allowed Bank Indonesia (BI) to The important thing in the telecommunications industry in establish a loose interest rate policy. BI’s 7-day reverse repo rate Indonesia in general is the ongoing change of communication moved down from 4.8% at the beginning of the year to 4.3% by pattern and behavior, where people have started to use data the end of 2017. The low interest rate also encouraged banking services more than voice service and SMS in communicating. intermediation activities with the business, including in order to This is in line with the increasing number of smartphone users support infrastructure development in Indonesia. with penetration reaching above 55% by the end of 2017. The emergence of a variety of over-the-top (OTT) platforms Meanwhile, the rupiah exchange rate against the US dollar that support text-based and video-based communication based on BI rate was relatively stable, where the Rupiah only services which in turn offer convenience and better experience depreciated by 0.5% during 2017. The rupiah exchange rate increasingly grows communication behavior using data services. moved from Rp13,485 per US$ at the beginning of the year to The growth in the use of data services is a key driver of the growth Rp13,548 per US$ at the end of 2017. The stable exchange rate of the domestic telecommunications industry. On the other hand, was supported by the national foreign exchange reserves of the use of voice service and SMS is declining rapidly over time. US$130 billion in December 2017, rising significantly from US$116 billion in the previous year. In order to improve the security and efficiency aspects of the industry, the government has enacted the SIM card registration The solid economic conditions in Indonesia led to an upgrade regulation through Regulation of the Minister of Communications in the credit rating from Standard & Poor’s (S&P) in May 2017 and Information No. 14 of 2017, with the registration period to investment grade (BBB-) with a stable outlook, following an starting in October 2017 until the end of February 2018. upgrade from another rating agency Fitch and Moody’s. The rating upgrades reflected the improvement in Indonesia’s risk On the other hand, demand for fixed broadband services is profile and impacted on lower financing costs. increasing, especially fiber optic-based services that offer high-speed internet. The need for high-speed internet services to residential is increasing as the community needs access to information, entertainment and others. 145 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCOMPETITION IN THE TELECOMMUNICATIONS INDUSTRY Telkom Group has a comprehensive range of products and services covering cellular, fixed broadband and fixed voice, enterprise, interconnection and satellite services with an overview of the competition as follows: 1. Mobile Business 2. Fixed Voice & Broadband Business (Fixed Business) The demand for fixed broadband services in Indonesia increased significantly throughout 2017, especially in big cities, marked by the increasing number of users of the services. Indonesian people increasingly expect high-quality internet connectivity in their residential, thus encouraging operators to continue to invest in and develop fixed broadband services in various regions of Indonesia. Fixed broadband services with content such as IPTV are also increasingly popular due to In mobile business, Telkomsel, Indosat and XL are the three their better prices and quality. In addition to Telkom through largest operators with a total market share estimated at its IndiHome brand, players in the fixed broadband business about 80% of the cellular industry in terms of revenue. Other include LinkNet, Biznet, MNC Play and MyRepublic which operators that join the competition in the mobile business began operating since 2015. include Hutchison and Smartfren. Telkomsel currently remains the market leader with the widest coverage as its excellence, Some strategies are carried out by fixed broadband operators while XL and Indosat continue to compete by offering more in the face of competition such as bundling services, offering competitive prices. Competition mainly takes place in Java internet with higher speed and providing more various where all operators focus on building their networks; while content. Currently, the penetration of fixed broadband outside Java, Telkomsel is relatively dominant supported by services, especially high-speed internet, in Indonesia is still its wide infrastructure. very low compared to some neighboring countries such as Singapore and Malaysia, thus becoming an opportunity for The year 2017 continued the trend of shifting from voice and the business growth of such services in line with the growth of SMS services (legacy services) to digital data and services middle class population in Indonesia. (digital business). The high competition was reflected by intens promotions by operators such as offering data bonuses 3. Enterprise Business and data packages at relatively low prices, in an effort to The main services provided by Telkom Group in the enterprise encourage customers to move from legacy to data services business is an integrated ICT solution service. The trend of while tapping into customer base and increasing market digitizing business processes in both companies, government share. Incentives to customers in the form of data bonuses agencies and MSMEs in order to create efficiency while or affordable price data package were possible considering providing the best experience has driven the demand for this the absence of handset subsidies in the cellular industry in ICT solution service. Indonesia. The competition of prices for data services was getting tighter following the SIM card registration obligation The fulfillment of services to the enterprise business which beginning in October 2017, where operators offered data is Telkom supported by several subsidiaries in Metra Holding packages at affordable price in the hope that more customers (Telkom Metra), such as Telkom Sigma in the aspect of system will register SIM cards in the operators’ respective networks. integration development, data center and cloud manage service needs, Infomedia in fulfilling call center and BPM, In the coming years, the growth in the number of new Metrasat and Patrakom in the provision of transponder subscribers is expected to slow as the number of SIM cards in and satellite communications, PINS in the provision of circulation is estimated to have reached more than 370 million, supporting telecommunication equipment and IoT solution, exceeding the 262 million population. The communication Finnet in providing billing payment switching and aggregator pattern in the community will continue to change, by shifting solutions, AdMedika in providing e-health services, MD and turning to using smartphone devices, using data and Media in providing digital advertising, Telkom Telstra in digital services, which can be used to obtain information, providing manage network and professional service, ILCS in entertainment, transactions and other economic activities. providing digital seaport solution, and Jalin which is engaged The presence of Over-The-Top (OTT) platforms will remain a manage ATM. The competitors in the enterpise business is challenge for mobile operators, considering that the services quite scattered but in general there is no single player that directly or indirectly substitute basic cellular services namely provides a complete solution or integrated. voice and SMS services that continue to show downward trend. in providing ATM (automated teller machine) switching and 146 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) Tbk 4. International Traffic and Interconnection Business Competition in international communication services today is not only dealing with other domestic and international BUSINESS PROSPECTS AND SUSTAINABILITY OF THE COMPANY NATIONAL PROJECTION POLITICAL AND ECONOMIC telecommunication operators, but also coming from digital Telkom believes that the business growth prospects in the companies that provide voice and video-based applications telecommunications industry are still quite well, marked by the such as Skype, Line and WhatsApp. To that end, in 2017 we high growth of data traffic and the relatively low penetration of expanded the global interconnection market by penetrating smartphones, especially 4G and fixed broadband. In recent years, into the voice-hubbing market, interconnecting inter-country the information and communications sector has grown very well traffic, and SMS A2P (Application to Person) SMS traffic and has become an important contributor to the national growth. market. The development of this interconnection market will Nevertheless, Telkom remains cautious about the economic and continue to continue in the coming years. political dynamics, both national and international, which may arise and negatively affect Telkom’s performance particularly in 5. Network and Satellite Infrastructure Business the short-term. Telkom through Mitratel has a telecommunication tower infrastructure business, with other major players, among Although in general some important economic indicators are others Tower Bersama Infrastructure, Sarana Menara expected to remain stable, but in 2018 we are aware potential Nusantara (Protelindo) and Solusi Tunas Pratama and increase on domestic interest rate considering it is very likely that Indosat and XL Axiata telecommunication operators. There the interest rates in the United States will increase following the are also some telecommunication tower providers with positive economic recovery. While from the political side, in 2018 fewer towers. Tower rental business continues to grow in the Indonesian political situation will be colored by 171 regional line with the expansion of telecommunication operators in head election simultaneously in various regions. Furthermore, in building BTS, especially outside Java Island. For urban areas, the second half of 2018, preparations for presidential elections telecommunication towers no longer grow and are replaced scheduled for April 2019 will also begin. This will directly or by microcells with the aim of targeting dense areas of density indirectly affect Telkom Group’s business, whether it be an with smaller radius. Mitratel continues to aggressively develop opportunity or a challenge that needs to be anticipated. itself in this microcell solution. Fundamentally Indonesia’s economy is still strong enough by Satellite industry in Indonesia is one of the industries with posting positive growth of 5.1% during 2017. The growth was a high level of competition in Southeast Asia. This can be influenced by increased investment and consumer purchasing seen from the shifting of market structure since 2003 from power supported by the controlled rate of inflation. The monopoly to oligopoly, and even allowing competition Indonesian economy is believed to continue to grow fairly well between Indonesian satellite operators and foreign satellite in the future. One of the important elements that can support operators. One of the main reasons for the demand for satellite Indonesia’s economic growth is better infrastructure such as toll services is still growing is the growth of telecommunication roads, railways, power plants, ports and airports that will facilitate needs in remote areas of Indonesia, especially in areas not yet the movement of goods and people in economic activities. connected by fiber optic. POTENTIAL TO BE THE BIGGEST DIGITAL ECONOMY IN SOUTHEAST ASIA President Joko Widodo has a vision that Indonesia can become Southeast Asia’s largest digital economy by 2020. To achieve this vision, the availability of infrastructure and the expansion of access to ICT services in all parts of Indonesia are of great importance. The government through the Ministry of Communications and Information has initiatives to build infrastructure one of which is through the construction of Palapa Ring which is a submarine cable network that connects the outer islands in the western, central and eastern parts of Indonesia. The Palapa Ring project is expected to be entirely completed by 2019 which will facilitate the expansion of access to ICT services throughout Indonesia so as to encourage the utilization of various digital services. This will further provide opportunities for growth in ICT-based economic activities (digital economy) such as e-commerce and also expand the range of marketing, expand financial inclusion and encourage the growth of creative industries in various fields. 147 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkIndonesia’s greatest challenge to become the digital economic giant in Southeast Asia is how to improve national digital competitiveness. In the IMD World Digital Competitiveness 2017 report, Indonesia’s score was still quite low compared to 63 countries surveyed using around 50 indicators. The lack of investment in the development of human resources (HR) in the field of digital technology was among the causes of the low competitiveness of Indonesia. The findings of the IMD World Digital Competitiveness 2017 report are in line with a survey conducted by the Center for Research and Development of Post and Information Technology (Puslitbang PPI) in 2015. The results of the survey indicate that farmers and fishermen groups have low literacy on internet access so it requires more intensive education to be part of the development of the digital economy. Equality in coverage and data access is also a major challenge in the telecommunications industry as a key driver of the development of the digital economy in Indonesia. With the highest average data access quality still in Java, there is still imbalance in the quality of broadband connectivity access in various regions in Indonesia. Indonesia is estimated to have more than 370 million SIM cards used by mobile users by the end of 2017, with smartphone users estimated more than 220 million. The number of smartphones continues to grow quite rapidly indicating that the potential demand for data and digital services will continue to increase. With the support of ICT infrastructure and a stronger digital ecosystem, Indonesia is at the forefront to become the largest digital economy in Southeast Asia. Telkom is committed to support the development of an equality telecommunications infrastructure in Indonesia towards the realization of this vision. At the same time, the dynamics of digital economy also brings business opportunities for companies, such as e-commerce and financial technology. In responding to the opportunities, Telkom has taken strategic measures to grow digital services supported by Telkom Group’s telecommunications network and infrastructure, such as the presence of an online shopping platform under the name blanja.com which supports the marketing of Micro Small and Medium Enterprise (MSME) products more broadly and a mobile payment platform through TCASH. The potential growth in the financial technology business is characterized by the growing digital financial transactions. As of the end of December 2017, TCASH was recorded to have approximately 15 million registered users, with 3 million activate users. Mobile financial services such as TCASH have a central role in accelerating the digital economy in Indonesia. COMPARISON BETWEEN TARGETS AND REALIZATIONS Our performance in 2017 was excellent with a revenue growth of 10.2%, EBITDA growth of 8.6%, and net income growth of 14.4%. In 2017, Telkom recorded a revenue growth which outperformed the industry average at 9.8%. In 2017, we achieved a profit of Rp128,256 billion, up 10.2% from last year’s profit. Our EBITDA margin was 50.4%, lower than the EBITDA margin of 2016 which was at 51.1%. Our net income margin realization reached 17.3%, higher than the 16.6% recorded in 2016. Furthermore, we have also exhausted capital expenditures of 25,8% of revenues in 2017, slightly exceeded the target set at approximately 23% -25% in the beginning of 2017. Strategies implemented by Telkom Group in 2017 to record such achievements included, among others, maintaining dominance in the cellular market and procuring capital expenditure for infrastructure development. Below is a table describing our targets or strategy projection in 2017. Indicator Realization in 2017 Targets in Early 2017 Revenue growth EBITDA Margin Revenue growth outperform average revenue, and revenue business continued to increase. the industry’s from digital Revenue growth expected to outperform the industry’s average revenue, and revenue from digital business continued to increase. The EBITDA margin and net income margin were to decline slightly in accordance with the development of broadband infrastructure, both in mobile and fixed line business, and further increased the revenue portion of the digital business segment. The EBITDA margin and net income margin were projected to decline slightly in accordance with the development of broadband infrastructure, both in mobile and fixed line business, and further increased the revenue portion of the digital business segment. Capital expenditure Capital expenditure amounted to 25,8% of revenue per year with a focus on building broadband infrastructure. to 23-25% Capital expenditure amounted of revenue per year with a focus on building broadband infrastructure. 148 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkTARGETS OR PROJECTIONS FOR THE NEXT YEAR From time to time, Telkom always strives to create sustainable growth. To that end, in 2018 we have established 3 main programs consisting of (1) Delivering Best Customer Experience, which is to build the best digital experience in a comprehensive range of aspects supported by a qualified infrastructure, to enhance more personal relationships and anticipate customer needs thus creating strong customer loyalty (customer stickiness); (2) Expanding Digital Business, where we will strive to maintain digital connectivity and drive digital solutions, both ICT services and digital services, as new growth engines; and (3) Intensifying Smart Inorganic, where we actively seek to explore acquisitions or partnerships to strengthen digital capability and enhance enterprise value. By 2018, Telkom targets revenue to be above industry projection. IndiHome’s contribution will be increased in our revenue with opportunities that are still open and wide for penetration. In addition, we will continue to maintain our dominance in the cellular market, and increase aggressiveness in digital business.. The increasing contribution of digital business is expected to affect the EBITDA and net income margins. On the other hand, the portion of revenues from legacy services, i.e. voice and SMS, will decrease. We have allocated a capital expenditure of around 24% -27% of revenue in 2018 to build broadband infrastructure in both cellular and fixed line segments. Generally, our strategy plan for 2018 is as follows: Telkom Group Strategy Targets in 2018 Indicator Revenue growth EBITDA margin Expenditure capital DIVIDEND 2018 Targets Revenue growth above the industry’s average. Digital business contribution to EBITDA and net income margins is in line with the acceleration of IndiHome and other digital businesses growths. Broadband expansion, both in mobile and fixed line businesses, will be continued and is expected to lower EBITDA and net income margins. Capital expenditure of 24-27% % of revenues with an investment focused on digital business infrastructure. In the last five years, we have a dividend pay out policy with the approval of the Annual General Meeting of Shareholders (“AGMS”). Each year, we distribute cash dividends to shareholders with a payout ratio ranging from 60% to 70%. Then, for performance in 2017, we will set the payment ratio, dividend amount, and total final dividend at the AGMS to be held in 2018. Here are dividend payment data and information from 2013 to 2017. Table of Dividend Payments of Telkom for 2013 - 2017 Dividen Year Dividend Policy Date of Dividend Payment in Cash and/or Date of Dividend Distribution in Non-Cash Payment Ratio / Payout ratio (%) 1 2012 2013 2014 AGMS, April 19, 2013 June 18, 2013 AGMS, April 4, 2014 AGMS, April 17, 2015 May 19, 2014 May 21, 2015 2015 AGMS, April 22, 2016 May 26, 2016 2016 AGMS, April 21, 2017 May 26, 2017 65 70 60 60 70 Dividend Amount paid per year (Million Rp) 8,352,5972 9,943,2943 8,782,8124 9,293,1845 13,546,4116 Dividend Amount per Share (cash and/or non- cash) after Stock Split (Rp) 87.24 102.40 89.46 94.64 136.75 1. The payment ratio shall be the profit percentage attributable to the owner of holding entity paid to the shareholders as dividends. 2. Consists of cash dividend in the amount of Rp7,067,582 million and special cash dividend in the amount of Rp 1,285,015 million. 3. Consists of cash dividend in the amount of Rp7,812,588 million and special cash dividend in the amount of Rp2,130,706 million. 4. Consists of cash dividend in the amount of Rp7,319,010 million and special cash dividend in the amount of Rp1,463,802 million. 5. Consists of cash dividend in the amount of Rp7,744,304 million and special cash dividend in the amount of Rp1,548,880 million. 6. Consists of cash dividend in the amount of Rp11,611,211 million and special cash dividend in the amount of Rp1,935,200 million. 149 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkREALIZATION OF PUBLIC OFFERING FUND As of December 31, 2017, We have several outstanding bonds held by investor as follows: Name of the Bond Amount Date of Issue Maturity Date Bond II Telkom 2010 series B 1.995.000 June 25, 2010 July 6, 2020 The Continuous Bonds I Telkom 2015 series A The Continuous Bonds I Telkom 2015 series B The Continuous Bonds I Telkom 2015 series C The Continuous Bonds I Telkom 2015 series D 2.200.000 June 23, 2015 June 23, 2022 2.100.000 June 23, 2015 June 23, 2025 1.200.000 June 23, 2015 June 23, 2030 1.500.000 June 23, 2015 June 23, 2045 Time Periode (year) 10 7 10 15 30 The rating of the bonds is AAA of Pefindo and secured by all of the Issuer Company’s assets, tradable or non-tradable, either existing or those that will exist in the future. The underwriters of the bonds are PT Bahana Sekuritas (“Bahana”), PT Danareksa Sekuritas, PT Mandiri Sekuritas and PT Trimegah Sekuritas, with PT Bank Permata Tbk as the appointed Trustee. In 2017, all public offering fund had been realized in accordance with the plan to use the proceeds from the public offering, by recording the remaining balance from the public offering can be seen in the following table. Realization of Public Offering Fund Public Offering Fund Public offering cost Net amount Realization: a. Business Development b. Acquisition Total realization Balance Amount (in billion rupiah) N/A N/A N/A N/A N/A N/A N/A For more details related to information about Bond please see Note 16 to the Consolidated Financial Statements. MATERIAL TRANSACTION INFORMATION CONTAINING CONFLICT OF INTEREST, TRANSACTION WITH AFFILIATED PARTIES, INVESTMENT, DIVESTMENT AND ACQUISITION As part of good corporate Governance (GCG) implementation, we comply with POJK No.31/POJK.04/2015 which requires companies to disclose material transaction information that may affect stock prices or investment decisions. Accordingly, in this report we declare to have identified and disclosed material transactions containing conflict of interest, transactions with affiliates, and investment, divestment and acquisition transactions throughout 2017, as follows: 1. On November 13, 2017, Telkom through its subsidiary, PT Sigma Cipta Caraka (Telkom Sigma), acquired 60% share of PT Bosnet Distribution Indonesia, a FMCG (Fast Moving Consumers Good). 2. On November 24, 2017, Telkom through its subsidiary, PT Telekomunikasi Indonesia International (Telin), has entered into conditional sales and purchase agreement to acquire up to 70% of equity of TS Global Network Sdn Bhd (TSGN), Malaysia’s premier satellite communications service and solution specialist. 3. On December 13, 2017, Telkom through its subsidiary, PT Multimedia Nusantara (Telkom Metra), acquired 60% share of PT Nutech integration that engaged in ICT Transportation. 150 Analysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPT Telkom Indonesia (Persero) TbkCHANGES IN REGULATION Compliance with regulations is a form of implementation of good corporate Governance (GCG) in Telkom. In 2017, Telkom has identified some new regulations in the telecommunication and information industry as well as the possibility of their impacts upon the operations, financial statements and business of Telkom. In 2017, there is no new Regulation Legislation provisions that have significant impact on the financial statements of Telkom. Laws and Regulations Having Significant Effect No Laws and Regulations Having Significant Effect Effects on Financial Statement 1 N/A N/A CHANGES IN ACCOUNTING POLICY SUMMARY OF SIGNIFICANT ACCOUNTING POLICY We prepare and publish the consolidated financial statements of Telkom and its subsidiaries under 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. In addition, we also follow the 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 KEP347/ BL/2012. Accounting standard and interpretation that have been certified by the Board of Financial Accounting Standard (“DSAK”), but have not been taken into effect for the ongoing financial report are disclosed in Note 2 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. 2. Transaction with Related Parties 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 2017, there was no new PSAK/ISAK that has significant impact to Telkom’s financial report. Table of Changes in Accounting Year 2017 No Accounting Policy 1 N/A The Impact on Financial Statements N/A 151 Corporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPT Telkom Indonesia (Persero) TbkCORPORATE GOVERNANCE 154 Implementation and Strengthening GCG Road Map 2013-2018 156 Corporate Governance Principle and Platform 160 Corporate Governance Assessment 160 Corporate Governance Structure 161 General Meeting of Shareholders 168 178 The Broad of Commissioners Audit Committee 182 Committee for Nomination and Remuneration 185 189 Committee for The Planning and Risk Evaluation and Monitoring Broad of Directors 201 Corporate Secretary 204 Information Access and Company Data to Public 205 Internal Audit Unit 207 Internal Control System 209 Risk Management System 216 Whistleblower System 220 Implementation of Share Ownership Policy of Board of Directors and Board of Commissioners 221 Significant Legal Disputes 221 Informations Regarding Administrative Sanctions 222 Corporate Culture 230 Corporate Code of Conduct 231 Employee Stock Ownership Program “We understand the importance of managing various business risks. To that end, we apply the principle of Good Corporate Governance as one of the important pillars that must be understood and implemented in every operational area. This is the key to our success in maintaining the reputation and trust of our stakeholders.” IMPLEMENTATION AND STRENGTHENING GCG ROAD MAP 2013-2018 2015 • The strengthening of Business Ethnics encompassing Telkom Group. • The launching of the Culture Year. • The strengthening of the governance organs through GCG assessment for subsidiary entities. • The strengthening of process to ensure surveillance. the governance ISO certification / 2016 • The Implementation of “ Role Model GCG”. 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 Company’s capabilities in carrying out strategic to portfolio management supported by a parenting mechanism more in line with business ecosystem demands. related steps to ensure • Continuing the strengthening of the governance process 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. 2014 for GCG though • The strengthening of the governance organs the implementation of an organization having the characteristics of a holding company encompassing subsidiary entities through the implementation of an Executive Board mechanism and implementational improvements. • The strengthening of the governance ISO/ISO certification process through process discipline fir “ New Telkom” • The implementation of the COSO 2013 Framework as a basis for Internal Control and Integrated Audit 154 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights2017 Enhancing GCG Framework, comply with regulation national and international best practices. the following 2018 • Improving Corporate Governance Practice to Enhance Competitive Advantage, based on ASEAN Corporate Governance Scorecard (OECD Corporate Governance Principles). • Implementation for some subsidiaries. 155 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCORPORATE GOVERNANCE PRINCIPLE AND PLATFORM We continuously committed for implementing good corporate governance (GCG) principles at all operational levels to create performance and accountability processes, as well as meeting the expectations of our stakeholders. 3. Principle of Responsibility Complying with the prevailing laws and regulations and implementing sound corporate principles. We ensure 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 Decree of the Board of Directors regarding GCG Guidelines assigned to ensure the compliance of all laws and regulations. No.29/2007 and GCG Group Guidelines No.602/2011 are our clear evidence of GCG implementation. The Decision of the Board 4. Principle of Independence of Directors contains several GCG implementation systems to Professional without any conflicts of interest nor pressure ensure that GCG has been applied to ethical internal and external from any party that is against the laws and regulations and transactions and in accordance with good corporate governance sound corporate principles. We explicitly have set forth the rules/authorities in regard to corporate decision making in the Board Charter and the Company’s Articles of Association. Furthermore, We implement several supplementary policies in the Company’s Corporate Governance Guidelines, such as policy regarding conflict of interest transactions, prohibition of political party donations, and prohibition on affiliations. 5. Principle of Equality and Equity We apply the principle of equality and equity in fulfilling the rights of stakeholders arising from agreements and prevailing laws and regulations. The implementation is conducted in several operational aspects, covering honoring minority shareholder rights, insider trading prohibition, balanced scorecard-based performance management, open bidding and e-procurement in the procurement of goods/services. practices. In addition, we continually strive to improve the policies and infrastructure of GCG support systems. Through new initiatives to strengthen the quality of governance practices’s implementation, by strengthening governance processes, and strengthening the culture that we refers as 3 main pillars. strengthening governance structures, IMPLEMENTATION OF BASIC GCG PRINCIPLES As one of the public companies that have listed their shares in IDX since more than 21 years ago, we have implemented all the basic principles of GCG, including: 1. Principle of Transparency Transparency in the decision-making process and providing material and relevant information regarding the Company. We routinely publish Financial Statements and Annual Report and other material information easily accessible to investors. Such information is provided in the form of Company’s website, print media and press releases, one-on-one meetings with investors, public expose and press gatherings. 2. 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 Company management effective. We ensure 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 Company management. Furthermore, Key Performance Indicator (KPI) criteria and operational targets are also clearly set out. 156 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsIMPLEMENTATION OF GCG PRINCIPAL BASED ON OJK CORPORATE GOVERNANCE GUIDANCE In addition to the application of GCG basic principles, We also implemented corporate governance principles based on OJK’s Corporate Governance Guidance for Public Company, as follow: Principle Recommendation Implementation Status Principle 1 Improving the value of shareholders Annual General Meeting (GMS) management. 1. Technical methods or procedures for open and closed voting that prioritize independence and interest of the shareholders. The Company already has technical procedures for voting set out in the procedures for the General Meeting of Shareholders. Comply 2. Members of the Board of Directors and the Board of Commissioners attend the Annual GMS. All of the members of the Board of Directors and the Board of Commissioners attended the GMS. Comply 3. A summary of minutes of GMS is available at the Website at least 1 year. We provided a Summary of Minutes of GMS at the Company’s Website under Investor Relations. Comply Principle 2 Improving the Public Listed Company Communication Quality with Shareholders or Investors. 1. To have a policy on communications between Public Company and shareholders and investors. 2. Post the policy on communications of a Public Company at the Website. Principle 3 Strengthen the Membership and Composition of Board of Commissioner. 1. Determining of Commissioners members should take into account the Company’s Conditions. number Board the 2. Determination of the composition of members of the Board of Commissioners takes into account the required variety of skills, knowledge and experience. We have a policy on communications with Investors through Non Deal Roadshow, One on One Meeting, Earnings Call, Public Expose, Conference and Investor Summit. We have made available materials of each Earnings Call, Conference and 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. Comply Comply We have complied with the provision applicable to the Company as Public Company as set out in Article 20 of POJK No.33/POJK.04/2014 that the number of members of the Board of Commissioners must be more than 2 (two) persons. At the Shareholders’ discretion, members of the Board of Commissioners have been appointed by taking into account a variety of skills, knowledge, experiences and the Company’s business conditions and complexity. Comply Comply Principle 4 Improving the Quality of Duty and Responsibility of Board of Commissioner. 1. The Board of Commissioners has a policy to self-assess the performance of the Board of Commissioners. Basically, the assessment of the performance of the Board of Commissioners is carried out by Class A Dwiwarna Shareholders through the mechanism of a Gweneral Meeting of Shareholders. Explain 2. The self-assessment policy is reported in an Annual Report. We do not have any self-assessment policy yet, therefore there is no self-assessment policy reported in the Annual Report. Explain 3. The Board of Commissioners has a policy of resignation in the event of involvement in any financial crimes. Comply In accordance with our Articles of Association, jo. Regulation of the Financial Services Authority No.33/POJK.04/2014 any member of the Board of Commissioners who does not meet any requirements to be a member of the Board of Commissioners as set out in the Articles of Association and Regulation of the Financial Services No.33/POJK.04/2014 including any involvement in any financial crimes, consequently his/her position will be null and void. Authority In the event that the member of the Board of Commissioners resigns, it will be resolved at a GMS. 157 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices Principle Recommendation Implementation 4. The Board of Commissioners or the NRC sets out a provision of succession in the Nomination Process of a member of the Board of Directors. Principle 5 Strengthening Membership and Compositions of Directors. 1. Determination of the number of members of Board of Directors takes into account the Company’s conditions and effectiveness in decision-making. 2. Determination of the Composition of members of Board of Directors takes into account a variety of skills, knowledges and experiences as required. 3. Members of the Board of Directors in charge of accounting and finance have skills and/or knowledge in accounting. 1. The Board of Directors has a policy to self- assess the performance of the Board of Directors. 2. The self-assessment policy is reported in an Annual Report. 3. The Board of Directors has a policy of resignation in the event of involvement in any financial crimes. Principle 6 Improving the Quality of Implementing Task and Responsibility of Board of Directors. The Nomination and Remuneration Committee sets out in the Nomination and Remuneration Committee Charter that among its duties is to give recommendations to the Board of Commissioners the Class A Dwiwarna which will Shareholders about the Planning of Succession of Members of the Board of Directors. inform 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/02/2015 on the requirements, procedures for the appointment and dismissal of a member of the Board of Directors of an SOE. Determination of the number of members of the Board of Directors of the Company refers to the Article 2 paragraph (1) and paragraph (2) POJK No.33/POJK.04/2014 regarding Board of Directors and Board of Commisioner listed Company which provides that the of Board of Directors of Listed Companies or Public Companies must consist of at least 2 (two) members which 1 (one) of them have to be appointed as the President Director. At the Shareholders’ discretion, members of the Board of Directors of the Company have been appointed by taking into account a variety of skills, knowledges, experiences, and the Company’s conditions and business complexity. The member of the Board of Directors in charge of accounting and finance in the Company is the Finance Director who has sufficient accounting and financial 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. The Board of Directors has a Self-Assessment policy as set out in the section of Performance Assessment of the Board of Commissioners and the Board of Directors. Results of the Self-Assessment of the Board of Directors are reported in the Company’s Annual Report under the section of Corporate Governance. In accordance with our Articles of Association jo. Regulation of the Financial Services Authority No.33/POJK.04/2014, any member of the Board of Directors who does not meet any 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, consequently 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. Status Comply Comply Comply Comply Comply Comply Comply Principle 7 158 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Principle Recommendation Implementation Improving Corporate Governance Aspect through Stakeholders Participation. 1. To have a Policy to prevent Insider Trading. of accordance with Regulation In the 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 includes Abuse of Authority or Position. 2. To have a Policy of Anticorruption and Antifraud. 3. To have a Policy on the Selection and Capacity Building of Suppliers and Vendors. 4. To have a Policy on the Fulfillment of Creditors’ Rights. 5. To have a Policy on whistleblowing system. 6. To have a Policy on the granting of long-term incentives to the Board of Directors and Employees. the existence of We are always committed to preventing Corruption in our Company. This is realized integrity pact through 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. We select our vendors and suppliers in accordance with our internal procurement 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. We have a policy to fulfill the rights of our creditors through the Corporate Finance Unit that sets out and manages the rights of our creditors. Indonesia, Tbk and to Decision of the Board of Pursuant Commissioners No.08/KEP/DK/2016 dated 8 June 2016 on the Provision of Complain Handling Procedures (Whistleblowers) at PT Telkom 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. In determining the incentives to be earned by the Board of Directors, we are guided by Regulation of the Minister of SOE’s No.PER-04/MBU/2014 on the Setup Guidelines 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 Labor 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. Status Comply Comply Comply Comply Comply Comply Principle 8 Improving the Implementation of Information Disclosure. 1. To use information technology more widely other than a Website as a medium of information disclosure. 2. The Annual Reports of Public Companies disclose the most current beneficial owners of the Company’s shareholding, at least 5% other than major shareholders and Controllers. We are also active in a variety of social media as a medium of information disclosure and product promotion. In addition, we also use the mailing list system as a medium of information disclosure and communication for investors. Comply We disclose the most current beneficial owners of the Company’s shareholding with 5% or more shareholding in our Annual Report under the section of Composition of Shareholding. Comply 159 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCORPORATE GOVERNANCE ASSESSMENT 3. The observation phase, when the Indonesian Institute for In assessing the implementation of our corporate Governance, we use Corporate Governance Perception Index (CGPI) as our assessment and ranking, its process including three phases with Corporate Governance (IICG) Jury reviews the Company and conducts discussions and question and answer sessions, as well as confirm the implementation of GCG in the Company to the Board of Directors, Board of Commissioners and Senior each of them have different values: Leader. 1. The self assessment phase, when the Company completes The results of the GCG assessment and grading are determined self assessment questionnaires based on GCG rating theme. from the self assessment results, completion of documents, papers and observations. From these results, Telkom has once 2. The document observation phase, when the Company again received the title of The Most Trusted Company, with a submits their policies, procedures, and other evidence that total score of 91.20. The GCG assessment theme of 2016/2017 is reflects GCG implementation in the Company. “Change Management in GCG Framework”. CORPORATE GOVERNANCE STRUCTURE We have a governance structure consisting of Main Organs and Supporting Organ, in accordance to the Law of the Republic of Indonesia No.40/2007 regarding Limited Liability Company. Main Organs of the Company consist of General Meeting of Shareholders (GMS), Board of Commissioners and Board of Directors. The Company’s Supporting Organs consist of Audit Committee, Committee for Nomination & Remuneration, Committee for Planning and Risk Evaluation & Monitoring, Corporate Secretary, Internal Auditor and Risk & Process Management Unit. First Unit General Meeting of Shareholders (GMS) DIRECTORS BOARD OF COMMISSIONERS Corporate Secretary Audit Committee Internal Auditor Risk & Management Unit Supporting Unit Committee for Nomination & Remuneration Committee for Planning and Risk Evaluation & Monitoring 160 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsGENERAL MEETING OF SHAREHOLDERS (GMS) 3. Determination of the Company’s Net Income, including dividend, in the financial year. In accordance with the Company’s Articles of Association and 4. The determination of remuneration for the members of the the laws and regulations, we conduct the GMS as the highest Board of Directors and Board of Commissioners. governance organ that facilitates shareholders to make key 5. The appointment of a Public Accounting Firm to Audit the decisions and strategies. We hold an Annual GMS (AGMS) once every year with the following regular discussion agenda: Company’s Financial Statements, including Audit of Internal Control over Financial Reporting and Appointment of a Public Accounting Firm to Audit the Financial Statements of 1. Approval of the Company’s Annual Report, including the Partnership and Community Development Programs. Board of Commissioners Supervisory Task Report. 2. Ratification of the Company’s Financial Statement and the Annual Partnership and Community Development Program Report, as well as the Exemption of Liabilities of the members of the Board of Directors and Board of Commissioners. AGMS RESOLUTION FOR 2015 FINANCIAL YEAR The AGMS of the 2015 Financial Year was conducted on April 22, 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 3 To approve the Annual Report of the Company which substantially have been presented 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. Resolution effective immediately. Resolution effective immediately. To ratify: 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”. c. 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. To approve the enforcement of Minister of State Owned Enterprise’s Regulation No.PER-09/ MBU/07/2015 dated July 3, 2015 regarding Partnership Program and Community Development Program as of the implementation of such regulation to become guidance for the Company in conducting the Partnership and Community Development Program, with due regard to provision in the field of Capital Market. Has been followed-up. 161 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesStatus of the AGMS Resolution • Dividend distribution was conducted on May 21, 2015. • The decision on reserve effective immediately. Agenda 4 AGMS Resolution 1. To Approve and determine the appropriation of the Company’s net profit for the 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. 5 6 1. To grant authority and authorize to the Board of Commissioners, with prior approval from Serie A Dwiwarna shareholder to determine the amount of tantieme which will be 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. Has been implemented. 2. To determine the amount of performance tantieme for the Board of Commissioners of the Company for the Financial Year 2015 and honorarium including facility and allowances for 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 Commissioners’ Resolution in the name of General Meeting of Shareholder. 1. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member 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. The PAF’s approval is effective immediately. 2. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member 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 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. Has been implemented. 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. 162 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsAgenda 8 AGMS Resolution 1. Honorably dismissal from their offices the following names: Status of the AGMS Resolution Resolution effective immediately. a. Mr. HERI SUNARYADI as Director; b. Mr. PARIKESIT SUPRAPTO as Independent 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 Commissioners and the Board of Directors of the Company. 2. To assign Mr. MARGIYONO 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. Mr. HARRY M ZEN as Director; b. Mr. 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 PAMIJATI 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. 163 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesAGMS RESOLUTION OF 2016 FINANCIAL YEAR In addition, we have conducted AGMS on 21 April 2017 for the performance of the financial year 2016 with details of the agenda and the realization of the resolution of the AGMS of the financial year 2016 as follows: Status of the AGMS Resolution Resolution effective immediately. Resolution effective immediately. • Dividend distribution was conducted on May 26, 2017. • The decision on reserve effective immediately. Agenda AGMS Resolution 1 2 To approve the Annual Report of the Company including the Board of Commissioners’ Supervision Duty Report for the Financial Year 2016, namely regarding the condition and operation and supervisory of the Company as substantially have been presented in the Meeting by the Board of Directors and the Board of Commissioners. 1. To ratify: a. The Company’s Consolidated Financial Statements for the Financial Year 2016 which has been audited by the Public Accountant Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) according to its report number RPC 3036/PSS/2017 dated March 2, 2017 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, 2016 and the financial performance and consolidated casf flow for the year ended on such date in accordance with Indonesian Financial Accounting Standards; b. Partnership and Community Development Annual Report for the Financial Year 2016 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 RPC-2925/PSS/2017 dated January 25, 2017 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, 2016 and financial performance and cash flow for the year ended on such date in accordance with the Non Publicly Accountable Entities Financial Accounting Standards; 2. Then, by the approval of the Company’s Annual Report for the Financial Year 2016 including Supervisory Task of the Board of Commissioner Report and the ratification of Financial Statement for the Financial Year 2016 and Annual Report on Partnership and Community Development Program for the Financial Year 2016, the Meeting hereby grant a full acquittal and discharge (volledig acquit et decharge) to members of the Board of Directors and the Board of Commissioners who serves in the Financial Year 2016 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 2016 and Annual Report of Partnership and Community Development for the Financial Year 2016. 3 1. To Approve and determine the appropriation of the Company’s net profit for the Financial Year ended on the December 31, 2016 in the amount of Rp19,352,026,828,926,- (nineteen trillion three hundred fifty two billion twenty six million eight hundred twenty eigh thousand and nine hundred and twenty six Rupiah) which will be allocated to: a. Dividend amounting to 60% of the net profit or in the amount of Rp11,611,211,188,567.60 (eleven trillion six hundred eleven billion two hundred eleven million one hundred eighty eight thousand five hundred sixty seven point six zero Rupiah) including amount of Interim Dividend which had been distributed to shareholders on the December 27, 2016 based on the Board of Directors Meeting which had been approved by the Board of Commissioners on the December 6, 2016 in amount Rp1,919,726,695,491.40 (one trillion nine hundred ninety billion seven hundred twenty six million six hundred ninety five thousand and four hundred ninety one point four zero Rupiah), therefore the amount of cash dividend will be distributed to shareholders in amount of Rp9,691,484,493,076.18 (nine trillion six hundred ninety one billion four hundred eighty four million four hundred ninety three thousand seventy six point one eight Rupiah) and added special dividend of 10% or amount of Rp1,935,200,213,724.32 (one trillion nine hundred thirty five billion two hundred million two hundred thirteen thousand seven hundred twenty four point three two Rupiah) distributed as cash dividend, therefore dividend (either cash dividend and special dividend) to shareholders per shares of Rp117.3675 (one hundred and seventeen point three six seven five Rupiah) and specifically dividen for Government/Republic of Indonesia will be paid in accordance with prevailling laws, with notes: • State of Rp6,056,439,231,453.30 (six trillion fifty six billion four hundred thirty nine million two hundred thirty one thousand four hundred fifty three point three zero Rupiah). • Public of Rp5,570,245,475,347.20 (five trillion five hundred seventy billion two hundred forty five million four hundred seventy five thousand three hundred forty seven point two zero Rupiah) 164 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsAgenda AGMS Resolution Status of the AGMS Resolution b. 30% of Net Profit of the Company or amount of Rp5,805,615,426,634.10 (five trillion eight hundred five billion six hundred fifteen million four hundred twenty six thousand six hundred thirty four point one zero Rupiah) determined as Retairned Earning. 2. To Approve the distribution of Cash Dividend and Special Dividend for the Financial Year 2016 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 5, 2017 up to 16:15 Western Indonesia Standard Time; b. Cash Dividend and Special Dividend shall be paid all at once on May 26, 2017. 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 1. To grant authority and authorize to series A Dwiwarna shareholder to determine the amount of tantiem for financial year 2016 and to determine honorarium allowance, facility and other incentive to members of the Board of Commissioners for financial year 2017. Has been implemented. 5 6 7 2. To grant authority and authorize to the Board of Commissioners by first obtaining written approval of series A Dwiwarna Shareholders to determine the amount of tantiem for financial year 2016 and to determine salary, allowance, facility and other incentive to members of the Board of Directors for financial year 2017. 1. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) to conduct an integrated audit of the Company for the Financial Year 2017 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 2017 and to audit the Financial Statements of Partnership and Community Development Program for the Financial Year 2017. 2. Reappointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) to audit the appropriation of funds for the Partnership and Community Development Program for the Financial Year 2017. 3. To grant authority to the Boards of Commissioners to: a. 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 reason of prevailling law and the agreement on the amount for audit fee is unattainable. b. Determine the amount of audit fee and other terms and conditions of appointment of the relevant Public Accounting Firm. The PAF’s approval is effective immediately. To approve the ratification of Minister of State Owned Enterprise’s Regulation number PER-03/ MBU/12/2016 regarding amendment of Minister of State Owned Enterprise’s Regulation number PER-09/MBU/07/2015 regarding State Owned Enterprise’s Partnership Program and Community Development Program. Has been followed-up. In the First Part: The meeting with the majority vote 79,071,727,019 (98.770%) of the total votes issued in the Meeting resolved to approve amandment of the Articles of Association related with the right of serie A Shareholder. Resolution effective immediately. In the Second Part: The meeting with the majority vote 79,071,727,020 (98.770%) of the total votes issued in the Meeting resolved to approve amandment of the Articles of Association which is not related with the right of serie A Shareholder. Therefore in the seventh Agenda of the Meeting resolved: 1. To approve amendment and/or adjustment standarization of the Articles of Association of public State Owned Enterprise related with the change of right share of series A Dwiwarna by recompile all of the Articles of Association, in accordance with Letter Minster of State Owned Enterprise as proxy of shareholder seri A Dwiwarna. 2. To grant authority to shareholder seri A Dwiwarna to amend and revise to the provisions of the Articles of Association of the Company as referred to in the event of any amendment and / or revision to the provisions issued by the competent authority including the institutions relating to the public company and / or shareholder series A Dwiwarna as necessary in the framework of submission of reporting and / or approval of amendment of the Articles of Association to the authorized institution. 3. To grant authority to the Board of Directors of the Company with rights of substitution to restate amendment and/or adjusment of the Articles of Association of the Company into 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/or authorized institution pursuant to the prevailing laws and regulations. 165 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesAgenda AGMS Resolution 8 1. Confirmation Honorably dismissal from their offices the following names: a. Mr. MUHAMMAD AWALUDDIN as Director as of September 9th 2016; b. Mr. INDRA UTOYO as Director as of March 15th 2017; and c. Mr. HONESTI BASYIR as Director as of April 20th 2017. Status of the AGMS Resolution Resolution effective immediately. with appreciation for contribution of dedication and thoughts during their term as the member of the Board of Directors of the Company. 2. Honorably dismissal Mr. HADIYANTO and Mr. PONTAS TAMBUNAN respectively as Commissioner with appreciation for contribution of dedicaation and thoughts during their term as member of the Board of Commissioner of the Company. 3. Changing of the nomenclature of the Board of Directors as follow: a. President Director to become President Director; b. Director to become Finance Director; c. Director to become Consumer Service Director; d. Director to become Human Capital Management Director; e. Director to become Network & IT Solution Director; f. Director to become Digital & Strategic Portfolio Director; g. Director to become Wholesale & International Service Director; and h. Director to become Enterprise & Business Service Director. 4. Divert task: a. Mr. HARRY M ZEN formerly as Director to become Finance Director; b. Mr. DIAN RACHMAWAN formerly as Director to become Enterprise & Business Service Director; c. Mr. HERDY ROSADI HARMAN formerly as Director to become Human Capital Management Director; and d. Mr. ABDUS SOMAD ARIEF formerly as Director to become Wholesale & International Service Director. 5. To appoint the following names: a. Mr. HADIYANTO as Commissioner; b. Ms. DEVY W SURADJI as Commissioner; c. Mr. CAHYANA AHMADJAYADI as Independent Commissioner; d. Mr. MAS’UD KHAMID as Consumer Service Director; e. Mr. ZULHELFI ABIDIN as Network & IT Solution Director; and f. Mr. DAVID BANGUN as Digital & Strategic Portfolio Director. with the term of office effective as of the close of the Meeting and ended at the closing of the fitfth Annual General Meeting of Shareholders without prejudice to the rights of General Meeting of Shareholders to dismiss at anytime. 6. For the members of the Board of Directors and the Board of Commissioners who are appointed as reffered in number 5 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. 7. By the dismissal, assignment and appointment as stated in number 1 and 2, 4 and 5 above mentionded, then composition of the member of the Board of the Company are becomes as follows: a. Board of Directors • Mr. ALEX J. SINAGA as President Director; • Mr. HARRY M. ZEN as Finance Director; • Mr. MAS’UD KHAMID as Consumer Service Director; • Mr. HERDY ROSADI HARMAN as Human Capital Management Director; • Mr. ZULHELFI ABIDIN as Network & IT Solution Director; • Mr. DAVID BANGUN as Digital & Strategic Portfolio Director; • Mr. ABDUS SOMAD ARIEF as Wholesale & International Service Director; and • Mr. DIAN RACHMAWAN as Enterprise & Business Service Director. 166 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsAgenda AGMS Resolution Status of the AGMS Resolution b. Board of Commissioners • Mrs. HENDRI SAPARINI as President Commissioner; • Mr. DOLFIE OTHNIEL FREDRIC PALIT as Independent Commissioner; • Mr. HADIYANTO as Commissioner; • Ms. DEVY W. SURADJI as Commissioner; • Mr. RINALDI FIRMANSYAH as Commissioner; • Mr. MARGIYONO DARSASUMARJA as Independent Commissioner; • Mrs. PAMIJATI PAMELA JOHANNA WALUYO as Independent Commissioner; and • Mr. CAHYANA AHMADJAYADI as Independent Commissioner. 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. 167 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTHE BOARD OF COMMISSIONERS We have a Board of Commissioners with collective duties and responsibilities to supervise the Board of Directors in performing its duties and responsibilities and advise the Board of Directors on the implementation of the business and the application of Good Corporate Governance (GCG) principles. WRITTEN POLICY CONCERNING DIVERSITY OF THE BOARD OF COMMISSIONERS We guarantee non-discrimination in the workplace, including in the selection and appointment of members of the Board of Commissioners. We apply this to meet the principles of fairness in the application of GCG and UU No.39 Year 1999 on Human Rights. Although we do not yet have a written policy on the diversity of the Board of Commissioners, we ensure that members of the Board of Commissioners are selected and appointed based on their expertise, proficiency, and integrity. Both men and women have equal opportunity to be appointed as members of the Board of Commissioners as long as they meet the stipulated requirements and conditions. As of December 31, 2017, we have men and women members of the Board of Commissioners with the necessary expertise and proficiency, including economics, public policy, media, telecommunications, marketing, and public relations. Table of The Diversity of Board of Commissioners, per 31 December 2017 No Name Position Gender Background of Expertise & Skill Level of Education 1 2 3 4 5 6 7 Hendri Saparini President Commissioner Rinaldi Firmansyah Commissioner Hadiyanto Dolfie Othniel Fredric Palit Margiyono Darsasumarja Pamijati Pamela Johanna Waluyo Cahyana Ahmadjayadi Commissioner Independent Commissioner Independent Commissioner Independent Commissioner Independent Commissioner Female Economics, Development Policy Doctor Male Male Male Engineering, Telecommunications, Business and Finance Business and Finance Doctor Doctor Public Policy and Economic Crime Bachelor Male Media, Media and Internet Law Master Female Sales, Marketing, Public Relations Master Male Engineering, Telecommunications, Law and Content Application Doctor THE COMPOSITION OF BOARD OF COMMISSIONERS Pursuant to the resolutions of the Annual General Meeting of Shareholders (AGMS) held on 21 April 2017, we changed the composition of the Board of Commissioners. Hadiyanto whose term of office ended at the 2017 AGMS was reappointed as Commissioner until the 2022 AGMS. Then, Pontas Tambunan was honorably dismissed from his position as commissioner. The 2017 AGMS decided to appoint Devy W. Suradji and Cahyana Ahmadjayadi as Commissioner and Independent Commissioner, with a term of office until the 2022 AGMS. However, on December 22, 2017, Devy W. Suradji was appointed to the Board of Directors of Perusahaan Perseroan (Persero) PT Angkasa Pura I based on the resolutions of the General Meeting of Shareholders of Limited Perusahaan Perseroan (Persero) PT Angkasa Pura I. Table of Composition of the Board of Commissioners of PT Telkom per December 31, 2016 No Name Title Hendri Saparini President Commissioner Dolfie Othniel Fredric Palit Commissioner Hadiyanto Pontas Tambunan Commissioner Commissioner Margiyono Darsasumarja Independent Commissioner Rinaldi Firmansyah Independent Commissioner Gender Female Male Male Male Male Male Pamijati Pamela Johanna Waluyo Independent Commissioner Female 1 2 3 4 5 6 7 168 Appointment Discharge Date December 19, 2014 December 19, 2014 May 11, 2012 April 22, 2016 April 17, 2015 April 17, 2015 April 17, 2015 AGMS 2019 AGMS 2019 AGMS 2017 AGMS 2017 AGMS 2020 AGMS 2020 AGMS 2020 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights1 2 3 4 5 6 7 1 2 3 4 Table of Composition of the Board of Commissioners of PT Telkom per December 31, 2017 No Name Title Hendri Saparini Rinaldi Firmansyah Hadiyanto President Commissioner Commissioner Commissioner Dolfie Othniel Fredric Palit Independent Commissioner Margiyono Darsasumarja Independent Commissioner Gender Female Male Male Male Male Appointment Discharge Date December 19, 2014 AGMS 2019 April 17, 2015 April 21, 2017 AGMS 2020 AGMS 2022 December 19, 2014 AGMS 2019 April 17, 2015 Pamijati Pamela Johanna Waluyo Independent Commissioner Female April 17, 2015 Cahyana Ahmadjayadi Independent Commissioner Male April 21, 2017 AGMS 2020 AGMS 2020 AGMS 2022 Double Position of the Board of Commissioners Some members of Telkom’s Board of Commissioners hold more than one positions, either in Telkom or in Telkom’s subsidiary. Complete information regarding the double position of the Board of Commissioners may be seen in the following table: Table of Double Position of Telkom’s Board of Commissioners No Name Hendri Saparini Rinaldi Firmansyah Title Other Title President Commissioner None PT Telkom Commissioner 1. Member Audit Committee (Non Voting Hadiyanto Commissioner Member) 2. Member KNR 1. Member KNR 2. Chairman KEMPR Dolfie Othniel Fredric Palit Independent Commissioner 1. Member Audit Committee 2. Member KNR 3. Member KEMPR 5 Margiyono Darsasumarja Independent Commissioner 1. Chairman Audit Committee 2. Member KNR 3. Member KEMPR 6 7 Pamijati Pamela Johanna Waluyo Independent Commissioner 1. Chairman KNR 2. Member KEMPR Cahyana Ahmadjayadi Independent Commissioner 1. Member Audit Committee 2. Member KNR 3. Member KEMPR Remarks: KEMPR (Committee for Planning and Risk Evaluation and Monitoring), KNR (Committee for Nomination and Remuneration) Subsidiary None None None None None None None 169 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCRITERIA FOR SELECTING MEMBERS OF THE BOARD OF COMMISSIONERS All of these requirements must be fully met by all of the Independent Commissioners during their terms of office. We elect and appoint members of the Board of Commissioners under the Company’s Articles of Association, who at the time of appointment and during their terms of office are required to: 1. Have good character, moral, and integrity; 2. Legally capable; 3. Within 5 (five) years prior to the appointment and during their terms of office: a. Have not been declared insolvent; In accordance with the Articles of Association of the Company, the number and conditions of Independent Commissioners are subject to the regulation applicable to the capital market, which in this case is OJK Regulation No. 33/POJK.04/2014 concerning the Board of Directors and the Board of Commissioners of Issuers or Public Companies. Article 20 paragraph (3) stipulates that if the Board of Commissioners consists of more than 2 members, the number of Independent Commissioners must be at least 30% b. Have not served as members of any Board of Directors of the total members of the Board of Commissioners. and/or Board of Commissioners who were found guilty of causing any company to be declared insolvent; c. Have not been sentenced for committing any criminal act that is detrimental to state finances and/or related to the financial sector; or d. Have not served as members of any Board of Directors and/or Board of Commissioners who during their terms of office: • Have failed to hold an AGMS; • Have caused their accountability as members of any such Board of Directors and/or Board of Directors to be rejected by the GMS or have failed to provide accountability as members of any such Board of Directors and/or Board of Commissioners to the GMS; or • Have caused any company that obtained any permit, approval, or registration from the OJK to fail to satisfy its obligation to submit an Annual Report and/or financial statements to the OJK; 4. Are committed to complying with the applicable laws and regulations; and 5. Have knowledge and/or expertise required by the Company. All of these requirements must be met without exception by all of the members of the Board of Commissioners. INDEPENDENCE INDEPENDENT COMMISSIONER STATEMENT OF EACH In performing their duties and responsibilities, each Independent Commissioner must maintain their independence. Therefore, we require Independent Commissioners to sign the Integrity and Independence Pact at the time of appointment, which will be renewed annually. By 2017, all of our Independent Commissioners have declared such written independence commitment. Table of Independence Statement of Each Independent Commissioner Name Position Date of Signing Status Dolfie Othniel Fredric Palit Independent Commissioner April 21, 2017 First Time as Independent Commissioner Margiyono Darsasumarja Independent Commissioner April 21, 2017 Renewal Pamijati Pamela Johanna Waluyo Independent Commissioner April 21, 2017 Renewal Cahyana Ahmadjayadi Independent Commissioner April 21, 2017 First Time CRITERIA FOR SELECTING COMMISSIONERS INDEPENDENT THE BOARD CHARTER OF THE BOARD OF COMMISSIONERS In addition to referring to the criteria for selecting members of the Board of Commissioners, we elect and appoint Independent Commissioners under the following additional criteria: 1. Be not any persons who have been employed or had duties and responsibilities to plan, lead, control, or supervise the Company’s operations for the past six months, except for the reappointment as Independent Commissioners for the following period; 2. Have no share whether directly or indirectly in the Company; 3. Have no affiliation with the Company, any member of the Board of Commissioners, member of the Board of Directors, or Shareholder of the Company; and 4. Have no business relationship whether directly or indirectly with the Company’s business operations. We adopt a Board Charter of the Board of Commissioners as a reference for the Board of Commissioners in performing its duties to conform with GCG practices under Decision Letter of the Board of Commissioners No. 16/KEP/DK/2013 dated December 17, 2013. The Charter of the Board of Commissioners contains the code of conduct, authority, duties, responsibilities, obligations, division of tasks, meetings, provisions on conflict of interest, shareholding, and the relationship of the Board of Commissioners to the Board of Directors and the GMS. In addition, in carrying out its duties and functions, the Board of Commissioners are also guided by the Articles of Association and the joint decree between the Board of Commissioners and the Board of Directors. 170 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights AUTHORITIES, DUTIES, AND RESPONSIBILITIES OF THE BOARD OF COMMISSIONERS The Board of Commissioners has the following duties and responsibilities: 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, give advice to the Board of Directors. 5. To propose to GMS, through the Board of Directors, the appointment of public accountant to conduct the audit towards Company’s Financial Report including the audit for the internal control over financial report, pursuant to the prevailing provisions from the capital market authority whereby the Company’s shares are listed and/or registered. 6. To give the report regarding the supervision duties that have been conducted in the financial year that has just ended to GMS. 2. To supervise the policies of Company’s management 7. To conduct other supervisory duties as determined by GMS. conducted by the Board of Directors as well as to give advice to the Board of Directors including to give advice regarding the development plan of the Company, annual plan and budget of the Company, 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 pursuant to the provisions of laws and regulations, Articles of Association of the Company and GMS resolutions. Any member of Board of Commissioners shall be jointly responsible for all Company’s losses caused by the mistake or negligence of the member of Board of Commissioners in performing the duties. Members of Board of Commissioners shall not be liable for the Company’s loss if they can prove that: 1. Such loss is not caused by their mistake or negligence; 2. They have performed 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 with the management activities causing the loss; and 5. To conduct the duties and responsibilities in good faith, full 4. They have taken the action to prevent the occurrence or responsibility, and prudentially. continuation of such loss. 6. To scrutinize and review the Annual Report prepared by the Board of Directors as well as to sign the said Annual Report. 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. THE BOARD OF COMMISSIONERS’ MEETING Based on the Regulation of OJK No.33/POJK.04/2014 Article 31, the Board of Commissioners shall be obliged to conduct the meeting for at least 1 (one) time within 2 (two) months or at any time as deemed necessary. The quorum for all of Board of Commissioners’ meeting shall be the presence of more than half of total members of Board of Commissioners. In addition, Then, in addition to performing its duties and responsibilities, the Board of Commissioners shall also be obliged to organize joint Board of Commissioners also has the following powers: 1. To give the opinion and inputs to AGMS regarding the periodic report and other report from the Board of Directors. 2. To supervise the implementation of working plan and 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 to be taken. 4. To give opinions and inputs to GMS regarding any other important issue deemed important for the management of the Company. meeting with the Board of Directors 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 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. Throughout 2017, the Board of Commissioners has convened 21 internal meetings and 13 joint meetings between the Board of Commissioners and the Board of Directors. The following tables describe the agenda and the frequency of attendance of members of the Board of Commissioners in the meetings. 171 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTable of the Agenda and Attendance in the Board of Commissioners’ Meetings No 1. 2. 3. Date Agenda/Discussion of the Meeting Board of Commissioners present at the Meeting HS HD PT DWS DOFP MGD RF PJW CA Wednesday, January 18, 2017 1. Discussions on the Strategic Approval of the Fit Project 2. Update on the Integrated Audit of the √ 2016 Financial Year 3. Miscellaneous Friday, February 3, 2017 Proposed Candidate of Telkom’s Board of Directors √ Wednesday, February 8, 2017 1. Approval Request for the Release Commitment Budget Capex Phase 1 of 2017 - - - N/A √ N/A 2. Re-explanation of the Fit Strategic √ √ √ N/A Project Approval 3. Telkom Board of Directors Member Nomination - - - √ √ √ √ √ N/A √ N/A √ √ √ N/A 4. Friday, February 24, 2017 1. Extension of Committee Membership and Committee Staff 2. Recommendation regarding Increase of the Secretariat Staff Pay 3. Determination of Moving Date to TLT 4. Progress Update on Strategic Project Thursday, March 23, 2017 1. Recommendations regarding Change in Telkomsel’s Management Wednesday, April 5, 2017 2. Approval Request on Strategic Fit Project 1. Determination of GMS Chairmanship of 2017. 2. Recommendation Remuneration Committee of 2017 of regarding the Company the 5. 6. 3. Recommendations on Remuneration Increase for Double Position of Board of Directors 7. Thursday, April 26, 2017 1. Recommendation on Changes to the Audit Committee Membership. 2. Recommendation on Changes to the Nomination and Remuneration Committee Membership 3. Miscellaneous 8. Wednesday, May 31, 2017 1. Discussions on CSS Ratification Date Change. √ √ - - - N/A - √ √ √ N/A - N/A √ √ √ - N/A √ √ - N/A √ √ √ √ N/A √ - N/A √ √ √ √ - √ 2. Changes to the Company’s Articles of Association Threshold √ √ N/A √ 3. DSP Director Project Briefing 4. Miscellaneous 9. Tuesday, June 13, 2017 1. Discussions on the Final Threshold of the Articles of Association 10. 11. 12. Wednesday, July 12, 2017 Monday, July 31, 2017 Wednesday, August 16, 2017 2. Miscellaneous 1. Submission of CSS Draft 2018-2022. 2. Miscellaneous 1. Submission of CSS Draft 2018-2022. 2. Miscellaneous Remuneration √ √ √ √ √ √ √ √ N/A N/A N/A N/A √ √ - - - - - - - √ √ √ √ √ √ √ √ √ √ - - √ √ √ √ √ √ √ √ 172 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Date Agenda/Discussion of the Meeting Board of Commissioners present at the Meeting HS HD PT DWS DOFP MGD RF PJW CA No 13. 14. 15. 16. Monday, September 4, 2017 Wednesday, September 13, 2017 Monday, October 2, 2017 Discussions Strategic Fit Project regarding Approval of 1. Discussions on the Final Approval regarding Telkom Project 2. Transfer of Remuneration Consultant 3. Miscellaneous 1. Extension of Work Tenure for Board of Commissioner Staff 2. Miscellaneous Thursday, October 12, 2017 1. Discussions on the Final Approval for Strategic Fit Project 17. Wednesday, November 1, 2017 2. Submission of Board of Commissioner Resolution of Assignment for Managers of Subsidiary Companies Requiring the Approval of Category A Dwiwarna Shareholders regarding Method 1. Submission of RKAP 2018 First Draft. 2. Discussions on Strategic Project 3. Miscellaneous the Approval for 18. 19. Thursday, November 2, 2017 Discussions on the Approval of Strategic Project Tuesday, 28 November 2017 1. Submission of the 2018 Board of Commissioners Secretariat Budget Plan 2. Submission of the Date for the Fit and Proper Test for the President Director Candidate of PT Daya Mineral (Mitratel) 20. Wednesday, 1. Approval on the Ratification of the 2018 December 6, 2017 RKAP 2. Discussions on the Approval for Strategic Fit Project 21. Tuesday, December 19, 2017 1. Recommendation on the Adjustment of Stipends for PDLN 2. Submission of the MISD Application. 3. Mitratel President Director Candidate 4. Discussions on the Approval for Strategic Fit Project - - - - - - - √ - √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ N/A N/A √ N/A - - - √ - N/A √ √ √ √ √ √ N/A N/A √ √ N/A √ - - - N/A √ √ √ √ √ √ √ √ N/A - - √ √ - √ Total Attendances Total Meetings Attendance Level of the Board of Commissioners (%) 21 21 100 12 21 57 2 6 33 9 15 60 4 21 19 20 21 95 17 21 81 18 21 86 15 15 100 Remarks: HS (Hendri Saparini), HD (Hadiyanto), PT (Pontas Tambunan), DWS (Devy W. Suradji), DOFP (Dolfie Othniel Fredric Palit), MGD (Margiyono Darsasumarja), RF (Rinaldi Firmansyah), PJW (Pamijati Pamela Johanna Waluyo), CA (Cahyana Ahmadjayadi). 173 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTable of Agenda and Board of Commisioner’s Attendance of The Joint Meeting Date Agenda/Discussion of the Meeting Board of Commissioners who were present HS HD PT DWS DOFP MGD RF PJW CA No 1 Tuesday, January 24, 2017 1. Company Performance for December 2016 2. Progress Update regarding Integrated Audit for the 2016 Financial Year 2 Friday, February 24, 2017 1. IFAS Integrated Audit 2016 Sign-Off 2. Company Performance for January 2017 3 Thursday, March 23, 2017 1. Company Performance for Tuesday, April 25, 2017 February 2017 2. Elaboration on the Implementation of PMK No. 213/2016 at Telkom Company Performance 2017 for March Wednesday, May 24, 2017 Company Performance for April 2017 Wednesday, June 21, 2017 Company Performance for May 2017 Monday, 31 July 2017 1. Company Performance for June Thursday, August 24, 2017 Wednesday, September 20, 2017 2017 2. Ratification of CSS 2018-2022 Company Performance for July 2017 1. Company Performance for August 2017 2. Miscellaneous Tuesday, October 24, 2017 Company Performance for September 2017 Tuesday, November 28, 2017 1. Company Performance for October 2016 2. Submission of RKAP Plan for 2017 Friday, December 8, 2017 Ratification of 2018 RKAP Tuesday, December 19, 2017 Company Performance for November 2017 4 5 6 7 8 9 10 11 12 13 Total Attendances Total Meetings Attendance Level of the Board of Commissioners (%) √ √ √ √ √ √ √ √ √ √ √ √ √ 13 13 100 - - - - √ √ √ √ √ √ √ √ √ 9 13 69 √ N/A - N/A √ N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2 3 67 √ - - - √ - - √ √ - 4 10 40 - - √ - √ - - - - √ - - - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ 3 13 23 13 13 13 13 100 100 √ N/A √ N/A - - √ √ √ √ √ √ - √ - 9 13 69 N/A √ √ √ √ √ √ √ √ √ √ 10 10 100 Remarks: HS (Hendri Saparini), HD (Hadiyanto), PT (Pontas Tambunan), DWS (Devy W. Suradji), DOFP (Dolfie Othniel Fredric Palit), MGD (Margiyono Darsasumarja), RF (Rinaldi Firmansyah), PJW (Pamijati Pamela Johanna Waluyo), CA (Cahyana Ahmadjayadi). 174 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsTable of Agenda and Board of Directors’ Attendance of The Joint Meeting No Date Agenda/Discussion of the Meeting 1 2 3 4 5 6 7 8 9 10 11 12 13 Tuesday, January 24, 2017 1. Company Performance for December 2016 2. Progress Update regarding Integrated Audit for the 2016 Financial Year Friday, February 24, 2017 1. IFAS Integrated Audit 2016 Sign-Off. 2. Company Performance for January 2017 Thursday, March 23, 2017 1. Company Performance for February 2017 2. Elaboration on the Implementation of PMK No. 213/2016 at Telkom Company Performance for March 2017 Company Performance for April 2017 Company Performance for May 2017 Tuesday, April 25, 2017 Wednesday, May 24, 2017 Wednesday, June 21, 2017 Monday, 31 July 2017 1. Company Performance for June 20177 Thursday, August 24, 2017 Wednesday, September 20, 2017 Tuesday, October 24, 2017 Tuesday, November 28, 2017 Friday, December 8, 2017 Tuesday, December 19, 2017 2. Ratification of CSS 2018-2022 Company Performance for July 2017 1. Company Performance for August 2017 2. Miscellaneous Company Performance for September 2017 1. Company Performance for October 2016. 2. Submission of RKAP Plan for 2017 Ratification of 2018 RKAP Company Performance for November 2017 Board of Directors who were present PD Dir. NITS Dir. WINS Dir. EBIS Dir. KEU Dir. HCM Dir. CONS Dir. DSP √ √ √ √ √ √ √ √ - - √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Total Attendances Total Meetings Attendance Level of the Board of Commissioners (%) 11 13 85 12 13 92 12 13 92 12 13 92 13 13 100 11 13 85 13 13 13 13 100 100 Remarks: PD (President DIrector), Dir. NITS (Director of Network, IT, & Solution), Dir. WINS (Director of Wholesale and International Service), Dir. EBIS (Director of Enterprise & Business Service), Dir. KEU (Director of Finance), Dir. HCM (Director of Human Capital Management), Dir. CONS (Director of Consumer Service), dan Dir. DSP (Director of Digital & Strategic Portfolio). ASSESSMENT OF THE PERFORMANCE OF THE BOARD OF COMMISSIONERS ASSESSMENT OF THE COMMITTEE UNDER THE BOARD OF COMMISSIONERS The Shareholders shall assess the performance of the Board of Commissioners during the current Financial Year based on a report of performance of the Board of Commissioners accounted for in the AGMS. The criteria used to assess are performance report of the Board of Commissioners that are accounted for in the Company’s Annual General Meeting of Shareholders. Through the report Shareholders conduct an assessment of the performance of the Board of Commissioners during the current financial year. The party conducting the assessment of the Board of Commissioners of the Company is the Shareholder through the Annual General Meeting of Shareholders of the Company. The Board of Commissioners has been assisted by a number of committees, including the Audit Committee, the Committee for Nomination and Remuneration, and the Committee for Planning and Risk Evaluation and Monitoring (KEMPR). In 2017, the Audit Committee assisted the Board of Commissioners in overseeing the audit process conducted by independent auditors. In addition, the Audit Committee also provided very good assistance in evaluating and providing recommendations on both internal and external audit results. In addition, The Committee for Nomination and Remuneration (KNR) assisted the Board of Commissioners in supporting the Board of Directors in making strategic decisions. The Committee has performed its responsibilities well in providing recommendations related to the nomination and remuneration of the Board of Directors and the top management. 175 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesMeanwhile, the Committee for Planning and Risk Evaluation and Monitoring (KEMPR) assisted the Board of Commissioners in business planning and risk management. With the assistance of the Committee, the Board of Commissioners could give considerations to the Board of Directors on Telkom’s long-term business continuity, including the Company’s decisions on Mergers & Acquisitions (M&A). BOARD OF COMMISSIONER REMUNERATION POLICY KNR* by the instruction from Board of Commissioners create remuneration draft. The Result will be decide in AGMS 1 3 KNR ask Independent Party for Suggestion 2 Independent Party give its suggestion to KNR 5 4 AGMS Board of Commissioners Remuneration Mechanism and Procedure *KNR : Committee for Nomination and Remuneration We determine the remuneration of the Board of Commissioners For 2017, the total remuneration paid to the entire Board of through the following procedures: 1. The Board of Commissioners requests the KNR to draft a Commissioners was Rp76.3 billion. Taxes from remuneration borne by our Company amounted to Rp4.9 billion. The table below sets forth the remuneration that our Commissioners remuneration proposal for the Board of Commissioner. received in 2017: 2. The Committee for Nomination and Remuneration requests an independent party to draw up a framework on the Table on the Recapitulation of Remuneration for Telkom’s remuneration of the Board of Commissioner. Board of Commissioners 3. The Committee for Nomination and Remuneration proposes the remuneration to the Board of Commissioners. 4. The Board of Commissioner proposes remuneration for the Board of Commissioner the GMS. Value (Rp million) Board of Commissioners Salary & and other Wages Bonuses Total 5. The GMS delegates authority and power to the Board Hendri Saparini of Commissioners with the prior approval of Series A Rinaldi Firmansyah Shareholders to determine the remuneration for the Board of Commissioner. Hadiyanto Pontas Tambunan (4) 1,326 10,518 11,844 1,194 1,194 9,408 10,602 9,464 10,658 311 6,288 6,599 Margiyono Darsasumarja 1,194 9,408 10,602 Dolfie Othniel Fredric Palit Pamijati Pamela Johanna Waluyo Cahyana Ahmad Jayadi (3) Devy W. Suradji (2) Parikesit Suprapto (5) 1,194 9,466 10,660 1,194 9,408 10,602 820 820 311 311 1,131 1,131 - 2,564 2,564 Remarks: (1) “THR” refers to tunjangan hari raya or religious holiday allowance (2) Since the AGMS on April 21, 2017 up to December 22, 2017 (3) Since the AGMS on April 21, 2017 (4) Up to AGMS on April 22, 2017 (5) Up to AGMS on April 22, 2016 The structure of the remuneration of the Board of Commissioners 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 SOE’s. Based on the said regulation, the income component for members of the Board of Commissioners consists of: 1. Salaries; 2. Allowances; 3. Facilities; and 4. Bonus/Incentive. 176 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsTHE BOARD OF COMMISSIONERS PARTICIPATION IN BPJS KESEHATAN PROGRAM ASSESSMENT OF DIRECTORS’ PERFORMANCE We use a balance scorecard with four main measurement We held a discussion on the follow up of SOE Minister’s Letter aspects, namely financial, customer, internal business process, Number SE-06/MBU/10/2017 regarding SOE Participation in the and learning and growth in the implementation of an assessment National Security Agency Operation Program. In principle, we of the performance of members of the Board of Directors. In always support the Government to realize its programs, including addition, we also use criteria based on three KPI elements that the National Health Insurance Program. We then decided to are shared KPI, common KPI, and specific KPI. involve all Directors and members of the Board of Commissioners and their families to participate in BPJS Kesehatan Program. Shared KPI is a KPI with the same naming, target, realization and achievement for all Directors. Common KPIs are KPIs with the same naming and targets, but different realizations and achievements for each Board of Directors. Specific KPI is a different KPI for each Board of Directors and is a specific program that becomes the main task and priority of each Director and Directorate he leads. Assessment on the performance of the Board of Directors shall be conducted by the Board of Commissioners or by the GMS, with reference to the achievement of the Key Performance Indicator (“KPI”) of the Board of Directors in the implementation of its duties and responsibilities in accordance with the Company’s Articles of Association and achievement of the realization of the RKAP. Assessment on the performance of the Board of Directors is initiated by filling out the realization of Contract Management (“KM”) online and followed up by face-to-face meetings for the clarification process and final performance final assignment submitted to the Performance Committee and President Director for final determination and submitted to the Board of Commissioners. Furthermore, we also evaluate the performance of the Board of Directors based on Criteria for Superior Performance Appraisal (“KPKU”) of SOE’s. KPKU is the criterion of performance superiority assessment based on Malcolm Baldrige Criteria for Performance Excellence (MBCFPE). In 2017, the performance of the Board of Directors is again assessed by the team appointed by the Ministry of SOE’s to assess the performance advantage of the SOE’s KPKU. The results of the assessment in the last three years showed a significant increase in performance. Table of KPKU Results Assessment Year 2014-2017 Year 2014 2015 2016 2017 Score 667 722.25 730.5 746.50 177 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesAUDIT COMMITTEE COMPOSITION OF THE AUDIT COMMITTEE Pursuant to Financial Services Authority (OJK) Regulation In accordance with the OJK Regulation and the US SEC, the Audit No.55/POJK.04/2015 dated December 23, 2015 and the US Committee shall consist of at least three members, one of whom SEC Exchange Act 10A-3 and in compliance with the principles is an Independent Commissioner acting as chairperson. The of good corporate governance (GCG) and other regulations, we remaining two members shall be independent. have an Audit Committee which runs its functions accordingly. The Audit Committee assists the Board of Commissioners in carrying out its oversight function in accordance with the Audit Committee Charter last adjusted in 2013 by Decision of the Board of Commissioners No.07/KEP/DK/2013 dated July 22, 2013. Pursuant to the resolutions of the 2017 AGMS dated April 21, 2017 which stipulate changes to the composition of the Board of Commissioners, we also adjusted the composition of the Audit Committee under Decision of the Board of Commissioners No.05/KEP/DK/2017 dated April 28, 2017 on the Composition In relation to OJK Regulation No.55/POJK.04/2015 dated of the Audit Committee of Perusahaan Perseroan (Persero) PT December 23, 2015 on the Establishment and Guidelines of Telekomunikasi Indonesia Tbk, as follows: Implementation of the Works of Audit Committee, we have conducted an internal review. So far, we have not found any significant matters that need to be re-adjusted even though our Audit Committee Charter was last adjusted in 2013. Table of the Composition of Audit Committee Per December 31, 2017 Title Chairman Name Duplicate Position Status Basis of Appointment Margiyono Darsasumarja* Independent Commissioner of Decision Commissioners DK/2017 dated April 28, 2017. Board of No.05/KEP/ the Secretary Tjatur Purwadi Independent member Member Rinaldi Firmansyah* Commissioner/ Non Voting Member Dolfie Othniel Fredric Palit* Independent Commissioner Cahyana Ahmadjayadi* Independent Commissioner Sarimin Mietra Sardi Independent Member of the Board of Decision Commissioners No.05/KEP/ DK/2014 dated March 25, 2014, then set out in Decision of the Board of Commissioners No.09/KEP/ DK/2016 dated July 27, 2016, and lastly stipulated under the decision of the Board of Commissioners No.05/KEP/DK/2017 dated April 28, 2017. of Decision Commissioners DK/2017 dated April 28, 2017. Board of No.05/KEP/ the of Decision Commissioners DK/2017 dated April 28, 2017. Board of No.05/KEP/ the of Decision Commissioners DK/2017 dated April 28, 2017. Board of No.05/KEP/ the of the Decision Board of No.04/KEP/ Commissioners DK/2016 dated March 31, 2016 lastly stipulated under the decision of the Board of Commissioners No.05/ KEP/DK/2017 dated April 28, 2017. Term of Service 2017 - present 2014 - present 2017 - present 2015 - present 2017 - present 2016 - present Remarks: *Profile of members of Audit Committee can be seen on the profile of the Board of Commissioners Table of the Composition of the Previous Audit Committee Title Chairman Secretary Member Name Rinaldi Firmansyah* Tjatur Purwadi Duplicate Position Status Independent Commissioner Non-affiliated external member Margiyono Darsasumarja* Independent Commissioner Dolfie Othniel Fredric Palit* Commissioner/ Non Voting Member Pontas Tambunan* Sarimin Mietra Sardi Commissioner/ Non Voting Member Independent Member Remarks: *Profile of members of Audit Committee can be seen on the profile of the Board of Commissioners 178 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPROFILE OF AUDIT COMMITTEE MEMBERS THAT ARE NOT MEMBERS OF THE BOARD OF COMMISSIONERS Sarimin Mietra Sardi Born : Ujungpandang, September 17, 1958 Age : 59 years Tjatur Purwadi Born : Surabaya, January 28, 1956 Age : 61 years Citizenship Domicile Indonesian citizen, domiciled in Indonesia. Title and Basis of the Appointment Secretary and Member of the Audit Committee under Decision of the Board of Commissioners of Limited Liability Citizenship and Domicile Indonesian citizen, domiciled in Indonesia Title and Basis of the Appointment Member of the Audit Committee under Decision of the Board of Commissioners of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk No.04/KEP/DK/2016 dated March 31, 2016 and latest under Decision of the Board of Commissioners No.09/KEP/DK/2016 dated July 27, 2016. Company PT Telekomunikasi Indonesia Tbk No.05/KEP/ Term of Service DK/2014 dated March 25, 2014 and latest under Decision March 31, 2016 up to the present. Letter of the Board of Commissioners No.09/KEP/DK/2016 dated July 27, 2016. Tjatur Purwadi currently is not holding any position inside or outside the Company other than the office of Secretary of the Audit Committee. Education D4 Accounting at Sekolah Tinggi Akuntansi Negara (STAN), Jakarta. S2 Master of Management at Universitas Pendidikan Indonesia Term of Service 2014 up to present. Education S1 Accounting at University of Gadjah Mada, Yogyakarta. S2 Master of Management in Finance at University of Padjajaran, Bandung. conducting Career Experience 2014 – Present Secretary/Member of the Audit Committee. (Responsible to facilitate the Audit Committee members’ performance preparing documentation, making reports of changes to the Audit Committee Charter, and coordinating the selection process of independent auditors. In accordance with Decision of the Board of Commissioners No.09/KEP/DK/2016, he was appointed as Secretary and financial expert concurrently for the Audit Committee). correspondence, 2012 – 2014 Director - Assurance Team KAP Tanudiredja, Wibisana & Rekan/ PwC. 1979 – 2012 PT Telkom Indonesia (Persero) Tbk (Holding a number of strategic offices including Vice President (VP) - Financial & Logistic Policy and Head of Internal Audit). (UPI), Jakarta. Career Experience 2016 – Present Independent Member of the Audit Committee. (Responsible for supervising and monitoring the integrated audit process, financial statement consolidation process, effectivity of internal control of financial reporting. In accordance with Decision of the Board of Commissioners No.09/KEP/DK/2016, he was appointed as member of the Audit Committee). 1982 – 2014 PT Telkom Indonesia (Persero) Tbk. (Holding a number of strategic offices including Deputy SGM Finance Operation and Director of Finance & HR of Telkom Pension Fund). 179 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesSCOPE, DUTIES, AND RESPONSIBILITIES OF AUDIT COMMITTEE INDEPENDENCE OF AUDIT COMMITTEE The Audit Committee shall perform its duties and responsibilities statement of integrity and independence as a commitment to as follows: uphold GCG principles and have integrity at all times and be 1. To assist the Board of Commissioners in selecting process of independent in performing their duties and responsibilities. independent auditors to conduct the integrated audit for the Accordingly, we are convinced that the decisions made Company. through the Audit Committee will be free of pressure from any We require all members of the Audit Committee to sign a 2. To oversee the integrated audit process for the Company and other parties. the audit process of the subsidiaries of which the financial statements are consolidated into the Company’s consolidated AUDIT COMMITTEE’S MEETING financial statements. 3. To give independent opinions in the event of any different Regulation of the Financial Services Authority No.55/ opinion between the management and the independent POJK.04/2015 dated December 23, 2015 on the Establishment auditors. and Guidelines of Implementation of the Works of Audit 4. To give pre-approval of non-audit services to be assigned to Committee, in particular Article 13, stipulates that the Audit the independent auditors. 5. To review any financial information to be published by the Company, such as financial statements, projections, and any other financial information. Committee shall hold regular meetings at least once in three months. However, the Audit Committee Charter sets out that the Audit Committee shall hold meetings once every month. 6. To monitor the adequacy of the management’s efforts to build and operate effective internal control, in particular the internal control of financial reporting. 7. To monitor the effectiveness of the Company’s Internal Audit. 8. To monitor the follow-up of internal auditor’s findings by the Pursuant to the above provisions, the Audit Committee held 23 meetings throughout 2017. The meetings were held in accordance with the requirements of the Audit Committee Charter and aimed to facilitate the performance of duties and responsibilities of each member of the Audit Committee. Board of Directors. 9. To provide means for receiving, reviewing, and following up on complaints involving the Company and its consolidated subsidiaries. 10. To monitor the compliance of the Company with the laws and regulations on capital market and any other laws and regulations in relation to the Company’s business. 11. To monitor the effectiveness of risk management policies created and implemented by the management. 12. To perform such other duties as assigned by the Board of Commissioners. Table of the Attendance of Audit Committee’s Meetings Name Total Meetings Total Attendance Margiyono Darsasumarja Tjatur Purwadi Rinaldi Firmansyah Dolfie Othniel Fredric Palit Cahyana Ahmadjayadi(1) Sarimin Mietra Sardi 23 23 23 23 12 23 Remark: (1) started in April 28, 2017 22 22 22 17 10 23 Percentage of Attendance (%) 96 96 96 74 83 100 180 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsEDUCATION AND TRAINING To build the capacity of the Audit Committee members to carry out their duties and responsibilities, we organized and engaged them in various training programs, workshops, conferences and seminars throughout 2017. Table of Education and Training of Audit Committee Name Training Program Date Location Rinaldi Firmansyah RIMS 2017 CANADA CONFERENCE September 24-27, 2017 Toronto Margiyono Darsa Sumardja Cyber Risk Forum in Las Vegas September 7-8, 2017 Las Vegas Cahyana Ahmadjayadi 3rd Pitch Training Swiss Innovation Challenge Indonesia 2017 Agustus 27, 2017 Panel Discussion on the Participation of the Audit Committee in the Implementation of POJK No.13/POJK.03/2017 regarding the Use of Public Accountant Services and Public Accountant Offices in Bank Financial Services, Capital Market, Non-Bank Financial Industry. September 14, 2017 Bandung Jakarta Tjatur Purwadi Recent PSAK Workshop according to IFRS Convergence January 1, 2017 May 16-19, 2017 Bali Master Class Risk Governance November 6-7, 2017 Singapore Panel Discussion on the Participation of the Audit Committee in the Implementation of POJK No.13/POJK.03/2017 regarding the Use of Public Accountant Services and Public Accountant Offices in Bank Financial Services, Capital Market, Non-Bank Financial Industry. September 14, 2017 Jakarta Sarimin Mietra Sardi Recent PSAK Workshop according to IFRS Convergence January 1, 2017 Mei 16-19, 2017 Bali RIMS 2017 CANADA CONFERENCE September 24-27, 2017 Toronto Panel Discussion on the Participation of the Audit Committee in the Implementation of POJK No.13/POJK.03/2017 regarding the Use of Public Accountant Services and Public Accountant Offices in Bank Financial Services, Capital Market, Non-Bank Financial Industry. September 14, 2017 Jakarta RIMS 2017 CANADA CONFERENCE September 24-27, 2017 Toronto PERFORMANCE AND AUDIT COMMITTEE’S ACTIVITIES IMPLEMENTATION OF During 2017, 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 2017 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 implemented by the Company, accounting standard 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, therefore the quality of financial report released by Management can be presented properly and there is no material misstatement. 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 2017 The Audit Committee has conducted the review and discussion regarding the proposal of Internal Audit Unit’s working program for 2017 in relation to the risks that may occur in 2017 before such work program is determined by the Management. The Audit Committee conducted a quarterly discussion on the findings and recommendation of the result of audit process and internal consultation made by Internal Audit Unit, including the monitoring of the follow-up acts completed by the Management. 181 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices3. 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 2017 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 2017, the audit process for the financial report in the financial year of 2017 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 2017 To provide opportunities and convenience to all parties in submitting complaints either from the Telkom Group employees or from outside the Telkom Group (third parties), the Audit Committee has prepared a Whistleblower application system that can be accessed easily from anywhere through the Internet. COMMITTEE FOR NOMINATION AND REMUNERATION We have a Committee for Nomination and Remuneration assisting the Board of Commissioners in overseeing the qualification determination and the nomination and remuneration process of the Board of Commissioners, the Board of Directors and the executive officers. The committee plays an important role in the application of GCG principles, in particular to ensure the process of selection and remuneration policy making conforms with professional and independent considerations without pressure from any other parties. The Committee for Nomination and Remuneration works under OJK Regulation No.34/POJK.04/2015 regarding Nomination and Remuneration Committee of Issuers or Public Companies. In addition, we also have a Committee for Nomination and Remuneration Charter stipulated by Decision of the Board of Commissioners No.06/KEP/DK/2017 dated April 28, 2017 regarding Composition of the Nomination and Remuneration Committee of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk. COMPOSITION OF THE COMMITTEE FOR NOMINATION AND REMUNERATION OJK Regulation No.34/POJK.04/2015 regarding Nomination and Remuneration Committee of Issuers of Public Companies stipulates that the Nomination and Remuneration Committee shall consist of at least three members, one of whom is an Independent Commissioner who shall serves concurrently as Chairman of the Nomination and Remuneration Committee. The remaining two members may be appointed from any members of the Board of Commissioners, external parties, or management parties under the Board of Directors. Until now, KNR does not have any members from external parties. Pursuant to such regulation, the Board of Commissioners issued Decision of the Board of Commissioners No.06/KEP/ DK/2017 dated April 28, 2017 on the Composition of the Nomination and Remuneration Committee of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk which stipulates that the Nomination and Remuneration Committee Members are as follows. Table of the Composition of the Committee for Nomination and Remuneration Position Member’s Name Chairman/ Member Pamijati Pamela Johanna Waluyo*/Independent Commissioner Secretary Ario Guntoro/Secretary of the Board of Commissioners Duties of each member To be responsible to give the directions and coordination of the implementation of duty. To be responsible to give and manage the administration and documentation of the Committee Member Hadiyanto */ Commissioner Rinaldi Firmansyah*/ Independent Commissioner Dolfie Othniel Fredric Palit*/Independent Commissioner Margiyono Darsasumarja*/ Independent Commissioner Cahyana Ahmadjayadi*/ Independent Commissioner be responsible the to To coordinate inputs coming from the parties relationship that with controlling shareholders in relation to the issue of nomination and remuneration. has the 182 Remarks: *profile of member of KNR can be seen on the profile of the Board of Commissioners. PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPROFILE OF MEMBER OF KNR THAT ARE NOT MEMBER OF THE BOARD OF COMMISSIONERS Ario Guntoro – Secretary of KNR Born : Prabumulih, January 27, 1970 Age : 47 years Citizenship and Domicile Indonesian Citizen, domicile in Indonesia. Title and Basis of Appointment Secretary of the Nomination and Remuneration Committee based on the Decision of the Board of Commissioners No.15/ KEP/DK/2013 dated December 16, 2013. Term of Service Year 2013 up to present. Education 1993 Bachelor degree in economics from University of Gadjah Mada. Career Experience 2008 – 2013 Holding the office of Secretary of the Planning and Risk Evaluation and Monitoring Committee (KEMPR) of PT Telkom Indonesia (Persero) Tbk. 2004 – 2008 Member of Committee For The Planning And Risk Evaluation And Monitoring (KEMPR) PT Telkom Indonesia (Persero) Tbk. 2004 Serving as special advisor to PT PPA (Persero). 1999 – 2004 Working at the Indonesian Bank Restructuring Agency (BPPN), with the last position as Assistant Vice President of HIPA Division. 1994 – 1999 Working at private banks, holding a range of offices from Corporate Officer to Brand Manager. SCOPE, 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. b. The succession planning of members of the Board of Directors. c. Assessment based on the parameter that has been prepared as the evaluation material for the capability of members of the Board of Directors. 4. Provide recommendations to the Board of Directors to be submitted to the General Meeting of Shareholders through the shareholders of the A Dwiwarna Series concerning the policies, amount and/or structures for the remuneration of the Board of Directors and Board of Commissioners. 5. Remuneration of Directors and Board of Commissioners in the form of salary or honorarium, allowances and facilities that are fixed and incentives that are variable. 6. Review the employment contract and/or performance statement of each member of the Board of Directors. In general, the Chairman of the Committee for Nomination and Remuneration shall perform a function as a director and coordinator of the performance of the Committee’s duties. The Secretary of the Committee shall assist the Chairman in preparing and managing the administration and documentation of the Committee’s activities. The members of the Committee shall coordinate the inputs of the parties relating to the controlling shareholders related to the nomination and remuneration. INDEPENDENCE OF THE COMMITTEE FOR NOMINATION AND REMUNERATION Each member of the Committee for Nomination and Remuneration is required to uphold GCG principles and has a commitment to maintain integrity and independence in performing their duties and responsibilities to ensure that they make professional decisions without pressure from any other parties. Accordingly, we require each member of the Committee for Nomination and Remuneration to sign a statement of integrity and independence. MEETING OF THE COMMITTEE FOR NOMINATION AND REMUNERATION OJK Regulation No.34/POJK.04/2014 regarding Nomination and Remuneration Committee of Issuers or Public Companies requires that the Nomination and Remuneration Committee shall hold meetings at least once every four months. In 2017, the Committee for Nomination and Remuneration held 36 meetings, including 26 meetings by circulation. Table of Agenda and Attendance of the Meeting of the Committee for Nomination and Remuneration 2017 Name Total Meetings Total Attendance Percentage of Attendance (%) 36 31 10 20 28 35 34 35 23 Hendri Saparini Hadiyanto Pontas Tambunan (2) Devy W. Suradji (3) Dolfie Othniel Fredric Palit Margiyono Darsasumarja Rinaldi Firmansyah Pamijati Pamela Johanna Waluyo Cahyana Ahmadjayadi (1) Remarks: (1)since April 28, 2017 (2)until April 21, 2017 (3)until Desember 22, 2017 36 36 13 23 36 36 36 36 23 100 86 77 87 78 97 94 97 100 183 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesEDUCATION AND TRAINING OF KNR In financial year 2017, we did not require the members of the Committee for Nomination and Remuneration to engage in any educational and training activities to improve their competence and capacity because the activities of the Committee for Nomination and Remuneration, in particular the remuneration proposal process, were supported by professional and experienced independent consultants. PERFORMANCE AND IMPLEMENTATION OF KNR’S ACTIVITIES Throughout 2017, the Committee for Nomination and Remuneration assisted the Board of Commissioners in making strategic decisions, including: Letter/Decision Date Letter of the Board of Commissioners No.027/SRT/DK/2017 regarding Recommendation on Nominees of the Board of Directors of Telkom January 25, 2017 Letter of the Board of Commissioners No.042/SRT/DK/2017 regarding Mechanism of Selection of Top Talent of One Level under the Board of Directors February 10, 2017 Letter of the Board of Commissioners No. 043/SRT/DK/2017 regarding Recommendation on Nominees of the Board of Directors of PT Telkom Indonesia, Tbk February 13, 2017 Letter of the Board of Commissioners No.051/SRT/DK/2017 regarding Concurrent Appointment of Secretary and Member of the Audit Committee of Telkom March 6, 2017 Letter of the Board of Commissioners No.052/SRT/DK/2017 regarding Appointment of the Nomination and Remuneration Committee Staff March 6, 2017 Letter of the Board of Commissioners No.059/SRT/DK/2017 regarding New Honorarium Changes Letter of the Board of Commissioners No.060/SRT/DK/2017 regarding New Honorarium Changes Letter of the Board of Commissioners No.096/SRT/DK/2017 regarding Request for Tantiem for Financial Year 2016 and Remuneration of the Board of Directors and the Board of Commissioners for Financial Year 2017 March 8, 2017 March 8, 2017 April 21, 2017 Letter of the Board of Commissioners No.098/SRT/DK/2017 regarding Recommendation on Commissioners and Nominees of Directors of Telkomsel April 26, 2017 Decision of the Board of Commissioners No.06/KEP/DK/2017 regarding Composition of the Nomination and Remuneration Committee of PT Telkom Indonesia, Tbk April 28, 2017 Letter of the Board of Commissioners No.107/SRT/DK/2017 regarding Approval of Proposed Changes to the Members of the Board of Commissioners of Telkomsel May 5, 2017 Letter of the Board of Commissioners No.142/SRT/DK/2017 regarding Procedures for Recommending the Company’s Representatives to Become Candidate Members of the Board of Directors and the Board of Commissioners of Subsidiary July 11, 2017 Letter of the Board of Commissioners No.181/SRT/DK/2017 regarding Changes of the Company’s Representatives at Subsidiary August 30, 2017 Letter of the Board of Commissioners No.197/SRT/DK/2017 regarding Survey Consultants of the Remuneration of the Company Management for Year 2017 September 19, 2017 Letter of the Board of Commissioners No.202/SRT/DK/2017 regarding Appointment of Secretariat Staff of the Board of Commissioners in Document Administration Oktober 2, 2017 Letter of the Board of Commissioners No.205/SRT/DK/2017 regarding Delivery of Proposal for Changes of the Company’s Representatives in Strategic Subsidiary Oktober 2, 2017 Letter of the Board of Commissioners No.206/SRT/DK/2017 regarding Request for Approval of Recommended Representatives of PT Telkom in Subsidiary Oktober 2, 2017 Letter of the Board of Commissioners No.213/SRT/DK/2017 regarding Appointment of Secretary of the KEMPR at the Secretariate of the Board of Commissioners of PT Telkom Indonesia, Tbk Oktober 12, 2017 Letter of the Board of Commissioners No.217/SRT/DK/2017 regarding Completeness of Documents Required for the Approval of the Company’s Recommended Representatives in Subsidiary Oktober 17, 2017 Decision of the Board of Commissioners No.09/KEP/DK/2017 regarding Procedures for Filling the Positions of Management of Strategic Subsidiaries of PT Telkom Indonesia, Tbk Oktober 17, 2017 Letter of the Board of Commissioners No.227/SRT/DK/2017 regarding Appointment of Secretariat Staff of the Board of Commissioners for Institutional Relationships Oktober 26, 2017 Letter of the Board of Commissioners No.232/SRT/DK/2017 regarding Explanations of the Completeness of Documents Required for the Approval of the Company’s Representatives in Subsidiaries of PT Telkom Indonesia, Tbk Oktober 31, 2017 Letter of the Board of Commissioners No.238/SRT/DK/2017 regarding Appointment of the KEMPR Staff at the Secretariat of the Board of Commissioners Oktober 28, 2017 Letter of the Board of Commissioners No.239/SRT/DK/2017 regarding Appointment of Secretariat Staff of the Board of Commissioners for Audit Committee Document Administration November 10, 2017 Letter of the Board of Commissioners No.248/SRT/DK/2017 regarding Delivery of Schedules of Fit and Proper Tests for the Nominees of President Director of Mitratel November 10, 2017 Letter of the Board of Commissioners No.253/SRT/DK/2017 regarding Request for Approval of the Recommended Representatives of Telkom in PT Daya Mitratel December 4, 2017 No 1. 2. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 184 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCOMMITTEE FOR THE PLANNING AND RISK EVALUATION AND MONITORING We have a Committee for Planning and Risk Evaluation and Monitoring which assists the Board of Commissioners in performing its duties of risk planning, management, and evaluation. This is in line with our commitment to run the Company with good planning and by taking into account various risks. The Committee performs its duties and responsibilities, as stipulated by the Committee for Planning and Risk Evaluation and Monitoring Charter, under Decision of the Board of Commissioners No.04/KEP/DK/2011 dated March 24, 2011 regarding Charter of the Planning and Risk Evaluation and Monitoring Committee of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk. The decision stipulates, among other things, as follows: 1. The establishment and the appointment of its members; 2. The structure and requirements of membership, duties, responsibilities, and authority; and 3. The scope of works, meetings, reporting, term of office, and funding. COMPOSITION OF KEMPR The composition of the Committee for Planning and Risk Evaluation and Monitoring (KEMPR) is stipulated by Decision of the Board of Commissioners No.07/KEP/DK/2017 dated May 8, 2017 regarding Composition of the Planning and Risk Evaluation and Monitoring Committee of Telkom as follows. Table of Composition of Committee for the Planning and Risk Evaluation and Monitoring Title Name Term of Service Duties of Each Member Chairman of KEMPR Hadiyanto*/ Commissioner Starting from February 8, 2015 Member of KEMPR Dolfie Othniel Fredric Palit*/ Independent Commissioner Margiyono Darsasumarja*/ Independent Commissioner Starting from May 12, 2015 Starting from May 12, 2015 Pamijati Pamela Johanna Waluyo*/ Independent Commissioner Starting from May 12, 2015 Cahyana Ahmadjayadi*/ Independent Commissioner Starting from May 8, 2017 Devy W. Suradji(1)*/Commissioner Starting from May 8, 2017 Sri Hartati Rahayu Starting from March 31, 2016 To give the direction, to coordinate and monitor the implementation of duties of all Members of Committee. To conduct the supervision and monitoring towards the implementation of RJPP/CSS, RKAP and the enterprise risk management as well as the implementation of initiative for the non organic business growth. To give the review, 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 duty supervise management of the Company conducted by the Board of Directors. to Remarks: * profile of the Members of KEMPR can be seen on the profile of the Board of Commissioners. (1) Until December 22, 2017 185 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPROFILE OF MEMBER OF KEMPR OUTSIDE THE MEMBER OF THE BOARD OF COMMISSIONERS SCOPE, DUTIES, AND RESPONSIBILITIES OF KEMPR Sri Hartati Rahayu Committee for the Planning and Risk Evaluation and Monitoring Born : Majalengka, December 21, 1971 has the following duties and responsibilities: Age : 46 years old Citizenship and Domicile 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 Indonesian citizen, domiciled in Indonesia. Directors; Title and Basis of Appointment 2. To conduct the evaluation towards the implementation of RJPP and RKAP to be in line with the target of RJPP and RKAP Member of the Risk and Risk Evaluation and Monitoring and as have been ratified by the Board of Commissioners; and Evaluation Committee based on Decision of the Board of 3. To conduct the monitoring towards the implementation of Commissioners No.12/KEP/DK/2016. enterprise risk management within the Company. Term of Service March 31, 2016 up to present. Education 1995 INDEPENDENCE OF KEMPR The Committee for Planning and Risk Evaluation and Monitoring is not regulated by any regulator. However, we still require the Committee to have good integrity and maintain its independence Bachelor degree in Law from University of Padjajaran. as set forth in the KEMPR Carter Chapter 4 point 4.b. 1999 Master’s 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) from London School of Economics and Political Science (LSE), London, United Kingdom. Career Experience 2016 – Present Risk Evaluation and Monitoring Committee Member. KEMPR’S MEETING In 2017, KEMPR conducted 6 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: Meeting Attendance Table of Committee for Planning and Risk Evaluation and Monitoring 2017 Name Total Attendance Percentage of Attendance (%) 2010 – 2011 Independent member of Audit Committee and Risk Monitoring Committee of PT Bank DBS Indonesia. Hadiyanto Dolfie Othniel F.P* Margiyono D.S 6 2 6 6 6 6 6 100% 33% 100% 100% 100% 100% 100% Pamijati Pamela Johanna Waluyo Cahyana Ahmadjayadi** Devy W. Suradji(1)** Sri Hartati Rahayu Remarks: * Could not join meeting due to state duty ** Defined as a member of KEMPR as of May 2017 (1) Until December 22, 2017 2008 – 2009 Head of Legal and Corporate Secretary PT Bank Barclays Indonesia. 2002 – 2005 Vice President Global Consumer Group Legal Counsel CitiGroup Indonesia - Citibank N.A. 186 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsEDUCATION AND TRAINING OF KEMPR In the financial year of 2017 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 In addition, in line with the implementation of RJPP 2017- 2021 and the preparation of RJPP 2018-2022, the KEMPR review the Company’s Inorganic Program, sharpen the monitoring of RJPP Implementation specially regarding determination of deliverables that reflecting strategic that have been conducted by KEMPR for the financial year of objectives achievement 2017 are among others: No Date 1. June 7-9, 2017 Name of Training 7th Corporate University and Corpo- rate Learning Summit 2017, Berlin Organizer Remarks - Financial Education and Training Agen- cy & Fleming Conference 2. September 7-8, 2017 Cyber Risk Forum Risk & Insur- ance Manage- ment Society 3. November 6-7, 2017 Risk Gover- nance Master Class Training & Certification Enterprise Risk Management Academy 4. November 20-24, 2017 5. December 6-8, 2017 Benchmark Study Imple- mentation of Enterprise Architecture and Digital Transforma- tion, Canberra, Australia Yogyakarta ERM 2017 International Conference - Enterprise Risk Management Academy It is also an education/ training of the Audit Committee It is also an education/ training of the Audit Committee - - IMPLEMENTATION OF KEMPR’S ACTIVITIES b. Preparation of RJPP 2018-2022 In the preparation of RJPP 2018 -2022, the KEMPR focused, on: • The implementation of the Company’s transformation process to Digital Telco; • The sharpening of implementation of inorganic programs which aim not only financial targets, but also to improve the competence of Telkom in telecommunications, information, media, edutainment, and other services; • The importance of measures to anticipate the decline in legacy business; and • Proactively monitoring the development of regulations and taking appropriate measures to prevent such development of regulations from adversely affecting the Company. 2. Company’s Work and Budget Plan as well as Capital Expenditure a. Monitoring focus of RKAP and Capital Expenditure of 2017 In the implementation of RKAP 2017, the KEMPR’s monitoring focus is, among others, on the implementation of efforts to keep expense growth from exceeding revenue growth; the monetization of IndiHome’s business; the achievement of Telkomsel’s performance, the management of several strategic businesses of the Company in the digital area such as e-commerce and digital financial Pursuant to charter KEMPR, the Decision of the Board of services; and the management of subsidiaries. Commissioners No.10/KEP/DK/2017 dated October 27, 2017 regarding Amount of Certain Action of the Board of Directors On the capital expenditure side, the monitoring of capital that Must First Obtain a Written Approval from the Board of Commissioners, and/or Seri A Shareholder, as well as Decision of the Board of Commissioners No.02/KEP/DK/2017 dated February 24, 2017 regarding Standard Operating Procedures (SOP) In Relation to the Process of Approval from the Board of expenditure is primarily directed at the absorption of budgets and due performance of development; the preparation of capital expenditure monitoring system (capex tracking); and the effectiveness of capital expenditures for revenue and service quality improvement. Commissioners, consist of: 1. Company’s Long Term Plan (“RJPP”) a. Evaluation of RJPP 2017-2021 b. Evaluation to the Proposal of RKAP and Capital Expenditure of 2018 The evaluation of the proposal of RKAP and capital In monitoring the implementation of RJPP 2017-2021, the expenditure of 2018 focuses on 4 (four) things as follows: KEMPR focuses, among others, on the implementation • The need for improvement of digital business of the Company’s transformation program, updating of previously identified risk profiles at the time of preparation of RJPP 2017-2021, and monitoring of international foot print performance. management in the Telkom Group to give added values to the Company; • Setting the of priority or focus of RKAP and capital expenditure of 2018 on the business sectors that are strategic for the Company; 187 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices• Sharpening of inorganic programs to aim not only ecosystem initiatives, the optimization of My IndiHome as at the achievement of financial targets but also the a hub to improve customer experience and loyalty, and the improvement of the Company’s capability in all of its implementation of dynamic pricing for IndiHome services. portfolios; and The mitigation programs to reduce the uncertainty of • The strengthening of capability of subsidiaries to inorganic initiatives are developed through the preparation increase the wallet share from non-Telkom Group of a comprehensive analysis of changes in macroeconomic, markets. political, social, security and environmental conditions. 3. Enterprise Risk Management 4. Certain Action from the Board of Directors that Requires Monitoring of the updating of the Company’s risk profile is one of the approaches taken by the KEMPR in evaluating the Approval from the Board of Commissioners In 2017, KEMPR has assisted the Board of Commissioners in the implementation of risk management of the Company. reviewing the proposal of strategic plans as submitted by the Based on CSS 2018-2022, the risk groups that need to Board of Directors, among others: gain the Company’s attention include the uncertainty a. The Release of budget of capital expenditure of 2017; of digital business development and the uncertainty of b. The implementation of external funding of the Company; and inorganic initiatives. The mitigation programs to reduce c. Strategic fit of corporate action in the digital risks related to the digital business development include the telecommunication portfolio. development of smart government and enterprise-connected 188 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsBOARD OF DIRECTORS We have a Board of Directors with collective duties and responsibilities to manage the Company in accordance with the Company’s Articles of Association. In performing its duties, members of the Board of Directors act and decide on a policy in accordance with the duties and responsibilities of each member. COMPOSITION OF THE BOARD OF DIRECTORS During 2017, there is a change in the composition of the board of directors due to the following matters: 1. On March 15, 2017, Mr. Indra Utoyo was appointed as the director of PT Bank Rakyat Indonesia (Persero) Tbk; 2. On April 20, 2017, Mr. Honesti Basyir was appointed President Director of PT Kimia Farma (Persero) Tbk. Therefore, the result of the resolution of the Annual General Meeting of Shareholders (AGMS) on April 21, 2017, regarding the changes of the Board of Directors of the Company are as follows: 1. Muhammad Awaluddin, Honesti Basyir, and Indra Utoyo were honorably dismissed from their position as Directors. 2. Mas’ud Khamid, Zulhelfi Abidin, and David Bangun were elected and appointed as Director of Consumer Service, Director of Network & IT Solution and Director of Digital & Strategic. Table of Composition of Board of Directors of PT Telkom per December 31, 2016 No Name Title Appointment Discharge Date 1 2 3 4 5 6 7 Alex J. Sinaga Harry M. Zen Indra Utoyo Honesti Basyir Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan President Director Director of KEU Director of DSP Director of WINS and EBIS Director of HCM Director of NITS Director of CONS 2014 2016 2012 2012 2014 2014 2014 AGMS 2019 AGMS 2021 AGMS 2017 AGMS 2017 AGMS 2019 AGMS 2019 AGMS 2019 Remarks: KEU (Finance), DSP (Digital & Strategic Portfolio), WINS (Wholesale and International Service), EBIS (Enterprise & Business Service), HCM (Human Capital Management), NITS (Network, IT & Solution), and CONS (Consumer Service). Table of Composition of the Board of Directors of PT Telkom per December 31, 2017 No Name Title Appointment Discharge Date 1 2 3 4 5 6 7 8 Alex J. Sinaga Harry M. Zen Mas’ud Khamid Herdy Rosadi Harman Zulhelfi Abidin David Bangun Abdus Somad Arief Dian Rachmawan President Director Director of KEU Director of CONS Director of HCM Director of NITS Director of DSP Director of WINS Director of EBIS 2014 2016 2017 2014 2017 2017 2014 2014 AGMS 2019 AGMS 2021 AGMS 2022 AGMS 2019 AGMS 2022 AGMS 2022 AGMS 2019 AGMS 2019 Remarks: KEU (Finance), CONS (Consumer Service), HCM (Human Capital Management), NITS (Network, IT & Solution), DSP (Digital & Strategic Portfolio), WINS (Wholesale and International Service), and EBIS (Enterprise & Business Service). WRITTEN POLICY ON DIVERSITY OF THE BOARD OF DIRECTORS In the selection and appointment of the Board of Directors, we guarantee that there is no discrimination. We apply this to meet the fairness principles in the application of GCG and Law No.39 of 1999 on Human Rights. We do not currently have a written policy specifically governing the diversity of the Board of Directors, but we ensure that members of the Board of Directors are selected and appointed based on their expertise, skills and integrity. Based on the results of the AGMS of 2017, we have a composition of the Directors which are all male. This happens unintentionally based on the selection of candidates for the Board of Directors and we do not intend to discriminate against women for the office of the Board of Directors. 189 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesDiversity Table of Directors, Per 31 Desember 2017 No Name Position Gender Background of Expertise & Skills Level of Education 1 2 3 4 5 6 7 8 Alex J. Sinaga President Director Male Harry M Zen Mas’ud Khamid Director of KEU Director of CONS Herdy Rosadi Harman Director of HCM Zulhelfi Abidin David Bangun Abdus Somad Arief Dian Rachmawan Director of NITS Director of DSP Director of WINS Director of EBIS Male Male Male Male Male Male Male Telecommunication and Telematics Engineering Magister Administration, Business and Finance Magister Telecommunication Network Engineering and Leadership in Retail Business Bachelor Law, Business Administration Technical Information Telecommunication and Electrical Engineering Magister Magister Magister Technology and Information Systems Magister Telecommunications Engineering Magister Remarks: KEU (Finance), CONS (Consumer Service), HCM (Human Capital Management), NITS (Network, IT & Solution), DSP (Digital & Strategic Portfolio), WINS (Wholesale and International Service), and EBIS (Enterprise & Business Service). DOUBLE POSITION BOARD OF DIRECTORS Some of our Directors have dual positions, either in Telkom as the holding company or subsidiaries. Information on the dual positions of Directors can be seen in the following table: Table of Double Title of the Board of Directors per December 31, 2017 No Name PT Telkom Title Other Title Subsidiary 1 2 3 4 5 6 7 8 Alex J. Sinaga Harry M. Zen President Director Director of KEU Mas’ud Khamid Director of CONS Herdy Rosadi Harman Director of HCM Zulhelfi Abidin David Bangun Director of NITS Director of DSP Abdus Somad Arief Dian Rachmawan Director of WINS Director of EBIS None None None None None None None None President Commissioner of Telkomsel. Commissioner of Telkomsel. President Commissioner of GSD (Telkom Property). President Commissioner of Telkom Akses. President Commissioner of Infomedia, and Commissioner of GSD (Telkom Property). Commissioner of Telkom Infra. President Commissioner of MDI, President Commissioner of Metranet, and Member of the Governing Board YPT. President Commissioner of Telin. President Commissioner of Teltranet Aplikasi Solusi (Telkom Telstra). Remarks: KEU (Finance), CONS (Consumer Service), HCM (Human Capital Management), NITS (Network, IT, & Solution),DSP (Digital & Strategic Portfolio), WINS (Wholesale and International Service), and EBIS (Enterprise & Business Service). THE BOARD CHARTER OF THE BOARD OF DIRECTORS AUTHORITIES, DUTIES, AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS In performing its duties, responsibilities, and authority, the Board of Directors shall be guided by the Charter of the Board of Directors established by Decree of the Board of Directors No.PD.604.00/r.00/HK000/C00-D0030000/2011 dated July 11 , 2011. The Charter of the Board of Directors contains the code of conduct, authority, duties, responsibilities, obligations, division of tasks, meetings, provisions on conflict of interest, shareholding, provisions on the mechanisms and division of authorities among members of the Board of Directors which are not set out by the Company’s Articles of Association and the applicable laws and regulations. The charter is intended to improve the performance of the Board of Directors and optimize the work time of the Board of Directors in managing the company. The Board of Directors has the following duties and responsibilities: 1. To conduct and be responsible for the management of the Company for the Company’s interest pursuant to the purposes and objectives of the Company as stipulated under the Articles of Association. 2. To organize the annual GMS and other GMS as stipulated under the provisions of laws and regulations and Articles of Association. 3. To conduct the duties and responsibilities in good faith, full responsibility, and prudentially. 4. To form the Committee to support the effectiveness of the implementation of duties and responsibilities of the Board of Directors. 5. To evaluate the performance of the committee that has been formed at the end of financial year. 190 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsThe duties and responsibilities of each member of the Board of Directors in accordance with their activities are as follows: President Director (CEO Telkom Group) 1. To coordinate the process, to structure or reconstruct the corporate philosophical aspects which shall include but not limited to the vision, mission, objective, corporate culture as well as leadership architecture; 2. To formulate and state the strategic direction in order to enable the Company to realize the sustainable competitive growth in all Telkom’s business portfolios, and risk control as well as interfacing with external constituent; 3. To control the function of strategic planning within Telkom as a group and direct the effort to grow by focusing to the new business portfolio; 8. To implement advisory functions in the determination of corporate level strategies, especially for the matters related to the aspect of financial and supply resources of Telkom as a group; and 9. To ensure the effectiveness of management of all risks in the business process within the scope of all units under the supervision of Directorate of KEU. Director of Digital & Strategic Portfolio (“DSP”) 1. To determine the conception and formulation of Company’s Long-Term Plan (corporate strategic scenario); 2. To determine the policies on good governance and mechanism to manage the Company’s planning and its strategy (the policy for the setting of planning level and its strategy - corporate level, business level and functional level); 3. To determine the strategy and policy of Telkom Group’s 4. To control the corporate direction in the effort for driving business portfolio; new business, entering/developing new market as well as internationalization/regionalization; 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; and 7. To periodically report the performance of the Company pursuant to the provisions prevail for public company. Director of Finance (“KEU”) 1. To determine the conception and formulation of Long-Term Plan of Company’s finance within Telkom as a group; 2. To facilitate the process for the formulation of the concept of corporate level strategy especially the financial & asset perspective for the aspect of among others, but not limited to the strategic budgeting, business and investment, parenting strategy, subsidiary performance, capital management and supply management; 3. To determine the functional strategy and policy in the financial and asset sectors, which shall cover among others, but not limited to the financial policy, asset management policy, supply management policy and financial system support policy; 4. To determine the functional strategy and policy in the sector of risk management to ensure the effectiveness of business continuity management; 5. To manage investor relations to protect the psychology of investors; 6. To determine the policy of good governance, and mechanism of management of financial accounting (accounting sector including the presentation of financial reporting), management accounting (budgeting sector) and corporate finance supply and risk as well as the control of its implementation; 7. To determine the policy, good governance and mechanism of the management of Company’s budgeting process (RKAP); 4. To determine the strategy, policy and recommendation of corporate action and strategic investment for Telkom Group’s business development; 5. To determine the innovation strategy in order to “explore” to get new source of growth for the development of Telkom Group’s business portfolio; 6. To determine the parenting strategy to harmonize and optimize the capability of Telkom Group’s business entities in improving the Value of the Company; 7. To determine the policy, good governance, and mechanism for the innovation for the development of Telkom Group’s business portfolio; 8. To determine the policy, good governance and mechanism to manage the synergy of Telkom Group; 9. To conduct the advisory function in the process to set the strategy on the corporate level strategy, especially for the matters in relation to the aspect of business portfolio development; and 10. To ensure the effectiveness of the management of all risks in the business process within all units under the supervision of the Directorate of ISP. Director of Human Capital Management (“HCM”) 1. To determine the conception and formulation of Long-Term Plan of Human Capital and Master Plan of Human Capital as a group; 2. To facilitate the formulation process of corporate level strategy concept especially for the aspect in relation to the development of center of excellence, for people aspect, human capital, organization design corporate culture and leadership architecture and industrial relation; 3. To determine the functional strategy and policy in the sector of human capital, among others but not limited to the sector of human capital development, human capital system, human capital operation, organization development, and industrial relation; 4. To prepare and execute the program of Telkom Smart Office; 191 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices5. To determine the policy, good governance, and mechanism to manage and the planning as well as the management of resources (development, empowerment and management of HR) and organization development; 6. To determine the policy, good governance, and mechanism of development and inter-relation with the entity/institution that relates to the management of HR which are among others but not limited to the institutions that manage the pension fund, the management of employees and retired people, the management to develop the skill and competence or educational institution as well as labor union institution; 7. To conduct the partnership and community development program; 8. To conduct the advisory function in the determination of 2. To determine the policy and mechanism of parenting in order to create value of the Company by optimizing and harmonizing the interrelation between “parent” and all entities that manage the 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 function in consumer segment; 4. To determine the policy, good governance and mechanism of the management of sales function and/or channel partnership in consumer segment; 5. To determine the policy, good governance and mechanism of the management of customer relationship management in consumer segment; and 6. To ensure the effectiveness of management of all risks in the business process of all units under the supervisions of the strategy on the corporate level strategy, especially those that Directorate of Consumer Service. relate to HR of Telkom as a group; and 9. To ensure the effectiveness of management of all risks in the Director of Enterprise Business Service (“EBIS”) business process within all units under supervision of the Directorate of HCM. Director of Network, IT & Solution (“NITS”) 1. To determine the planning and business strategy to leverage the capability of Company’s resources in order to grow/make bigger/“exploit” the “established” business/service through the utilization of infrastructure, IT and solution to support the business portfolio of Telkom Group in synergy; 2. To determine the policy, good governance and mechanism to utilize the infrastructure/network to support the business portfolio of Telkom Group; 3. To determine the policy, good governance and mechanism to utilize IT to support the growth of business portfolio of Telkom Group; 4. To determine the policy, good governance and mechanism to create the best performance upon the service/solution that supports the sustainable competitive growth of Telkom Group; 5. To set and control the mechanism of “parenting” which is adjusted with parenting strategy to all units under the supervision of Directorate of NITS and or other unit that is directly involved in the implementation process of utilization activities and infrastructure operation; and 6. To ensure the effectiveness of management of all risks in the business process of all units under the supervisions of the Directorate of NITS. Director of Consumer Service (“CONS”) 1. To determine the planning and business strategy to leverage the capability of Company’s resources in realizing the competitive advantage to win the competition and the long- term growth of business portfolio in the consumer segments (consumer home services and consumer personal services) within the scope of Telkom as a group; 192 1. To determine the planning and business strategy to leverage the capability of Company’s resources in the realization of competitive advantage to win the competition and long- term growth of business portfolio in the corporate segment (enterprise, government and business) within the scope of Telkom as a group; 2. To determine the policy and mechanism of parenting in order to create the value of the Company by optimizing and harmonizing the inter-relation between “parent” and all entities that manage the business of corporate segment (enterprise, government and business) within the scope of Telkom as a group; 3. To determine the policy, good governance and mechanism of the management of marketing function in the corporate segment (enterprise, government and business); 4. To determine the policy, good governance and mechanism of the management of sales function and/or account management (enterprise, government and business); the corporate segment in 5. To determine the policy, good governance and mechanism of the management of customer relationship management in the corporate segment (enterprise, government and business); and 6. To ensure the effectiveness of management of all risks in the business process of all units under the supervisions of the Directorate of EBIS. Director of Wholesale & International Business Service (“WINS”) 1. To determine the planning and business strategy to leverage the capability of Company’s resources in the realization of competitive advantage to win the competition and long-term growth of business portfolio in the wholesale & international segment within the scope of Telkom as a group; 2. To determine the policy and mechanism of parenting in order to create the value of the Company by optimizing and harmonizing the inter-relation between “parent” and all entities that manage the business of wholesale & international segment within the scope of Telkom as a group; PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights3. To determine policy, good governance and mechanism BOARD OF DIRECTORS’ MEETING of management of marketing function in the wholesale & international segment; The Board of Directors shall hold an internal meeting 4. To determine the policy, good governance and mechanism periodically at least 1 (one) time in each month and may also be of the management of sales function and/or account held at any time as necessary. In addition, the Board of Directors management in the wholesale & international segment; shall also hold a meeting with the Board of Commissioners at 5. To determine the policy, good governance and mechanism of least once in 4 (four) months and may also be held at any time the management of customer relationship management in the as necessary. The joint meetings of the Board of Directors and wholesale & international segment; and Board of Commissioners within the Company are referred to as 6. To ensure the effectiveness of management of all risks in the Joint Meeting. the business process of all units under the supervisions of Directorate of WINS. The meeting quorum shall be reached if more than half of members of Board of Directors are present or legally represented Then, in addition to the obligation to perform its duties and in such meeting. Any member of Board of Directors that present responsibilities, the Board of Directors also has the following shall have a casting vote (and one vote for any other Director powers: that is being represented). The decision making in the Board 1. Each member of the Board of Directors is authorized to act 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 2017, the Board of Directors’ meetings have been held for 57 times with the agenda and attendance level of the Board of Directors as follows. for and on behalf of the Board of Directors in representing the Company in and out of court on all matters and in any events, binding the Company with other parties, and performing any actions either in connection with the management or ownership subject to the restrictions contained in the Articles of Association and the laws and regulations on capital markets. 2. Without prejudice to its responsibilities, the Board of Directors for certain acts may appoint one or more persons as its attorney under conditions set out by the Board of Directors by virtue of a special power of attorney. 3. For certain acts, the Board of Directors must first obtain written consent of the Board of Commissioners and/or GMS as set out in the Articles of Association of the Company. 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. 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. 193 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTable of Agenda and Attendance in the Board of Directors’ Meetings No Date Agenda/Discussion of the Meeting AJS HMZ MK HRH (1) ZA (1) DB (1) ASA DR HB (2) IU (3) Board of Directors present at the meeting 1. January 3, 1. Performance Report of December 2016 2017 2. Report of FU HCM 3. Update on the Working Readiness Ceremony of 2017 4. Update on KPKU Materials 5. Limited Agenda Report 2. January 11, 1. Report on the Ytd Operation & Revenue 2017 Performance of December 2016 and Operation & Revenue Performance of January 2017 2. Report of FU HCM 3. Update on Telkom 3S Satellite Launch Event 4. Limited Agenda Report √ √ N/A √ N/A N/A √ - √ √ √ √ N/A √ N/A N/A √ √ √ √ 3. January 17, 1. Performance Report of January 2017 2017 2. Report FU HCM √ √ N/A √ N/A N/A √ √ - √ 3. Limited Agenda Report 4. January 24, 1. Report of FU HCM 2017 2. Performance Report of January 2017 3. Update on the GMS and the Proposal of Dividends √ √ N/A √ N/A N/A √ √ √ √ for Subsidiaries 4. Limited Agenda Report 5. January 31, 1. Report of FU HCM 2017 2. Performance Report of January 2017 3. Report on the 2017 BUMN Hadir untuk Negeri Program 4. Update on the T3S Launch and Post-launch Plan 5. Limited Agenda Report 6. February 7, 1. Performance Report of January 2017 2017 2. Report of FU Finance √ √ N/A √ N/A N/A √ √ √ √ 3. Update on Telkom Integrated Supply Chain √ √ N/A √ N/A N/A Management (TISCM) 4. Limited Agenda Report 7. February 14, 1. Performance Report of February 2017 2017 2. Limited Agenda Report 8. February 21, 1. Performance Report of February 2017 2017 2. Report of GRAPARI Telkom Group 3. Update on Telkom Craft Indonesia 4. Update on the Progress of TLT Readiness and Relocation Celebration Event 5. Limited Agenda Report - √ N/A √ N/A N/A - - √ √ √ √ - √ √ √ N/A √ N/A N/A √ √ √ √ 9. February 1. Performance Report of February 2017 28, 2017 2. Limited Agenda Report √ √ N/A √ N/A N/A √ - - √ 194 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsNo Date Agenda/Discussion of the Meeting AJS HMZ MK HRH (1) ZA (1) DB (1) ASA DR HB (2) IU (3) Board of Directors present at the meeting 10. March 7, 1. Performance Report of February 2017 2017 2. Report of FU HCM 3. Report of FU Finance 4. Limited Agenda Report 11. March 14, 1. Performance Report of March 2017 2017 2. Update IFRS 15 3. Limited Agenda Report 12. March 21, 1. Performance Report of March 2017 2017 2. Update on blanja.com Rebranding 3. Limited Agenda Report 13. March 29, 1. Appointment of Acting Director of DSP 2017 2. Performance Report of March 2017 √ √ N/A √ N/A N/A √ √ √ √ √ √ √ N/A √ N/A N/A √ √ N/A √ N/A N/A - √ √ √ √ √ N/A 3. Report of Grapari Telkom Group 4. Ratification of Annual Report of 2016 – √ √ N/A √ N/A N/A - - √ N/A Retirement Fund 5. Limited Agenda Report 14. March 31, 1. Report of FU HCM 2017 2. Limited Agenda Report 15. April 4, 1. Performance Report of March 2017 2017 2. Limited Agenda Report 16. April 11, 1. Performance Report of March & April 2017 2017 2. Report of FU Finance √ √ √ √ N/A N/A √ √ N/A N/A N/A N/A √ √ - √ √ √ N/A N/A 3. Report of Grapari Telkom Group √ √ N/A √ N/A N/A √ √ √ N/A 4. Report of FU HCM 5. Limited Agenda Report 17. April 20, 1. Performance Report of April 2017 2017 2. Update on the 2017 First Leadership Meeting Theme and Scenario 3. Limited Agenda Report 18. April 25, 1. Handover of Works of Dir NITS & Dir CONS 2017 2. Update on Joint Meeting Materials – The √ √ N/A √ N/A N/A √ √ √ N/A Company’s Performance in March 2016 √ √ √ √ √ √ √ √ N/A N/A 3. Update on the 2017 First Leadership Meeting Theme and Scenario 19. May 12, 1. Performance Report of April & May 2017 2017 2. Report on the CDC Program for the Declaration of Cultural Programs 3. Update on the 2017 BUMN Hadir untuk Negeri Activity, Halal Bihalal and Telkom Anniversary 4. Limited Agenda Report 20. May 16, 1. Performance Report of May 2017 √ √ √ √ √ √ √ √ N/A N/A 2017 2. Update on Telkom Anniversary Activities √ √ - √ √ √ - √ N/A N/A 3. Limited Agenda Report 195 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesBoard of Directors present at the meeting No Date Agenda/Discussion of the Meeting AJS HMZ MK HRH 21. May 23, 1. Performance Report of May 2017 2017 2. Update on Draft Rolling CSS 2018-2022 3. Limited Agenda Report 22. May 30, 1. Performance Report of May 2017 2017 2. Telkom Group SIAGA RAFI 2017 Report 3. Limited Agenda Report 23. June 6, 1. Performance Report of May 2017 2017 2. Limited Agenda Report 24. June 13, 1. Performance Report of June 2017 2017 2. Update on the Preparation for RAFI Post Visits, Halal Bi Halal and Telkom Anniversary 3. Limited Agenda Report 25. June 19, 1. Update on Joint Meeting Materials 2017 2. Update on Inorganic: Review & Progress 26. June 20, 1. Performance Report of June 2017 2017 2. Report the Preparation for RAFI Post Visits, Halal Bi Halal and Telkom Anniversary 3. Limited Agenda Report 27. July 5, 2017 1. Performance Report of June 2017 2. Limited Agenda Report 28. July 11, 2017 1. Performance Report of June & July 2017 2. Update on the Theme of Telkom Group’s 2017 Second Leadership Meeting 3. Limited Agenda Report 29. July 18, 1. Performance Report of July 2017 √ √ √ √ √ √ √ √ (1) √ √ √ √ √ √ - √ √ - √ √ √ √ √ - √ √ √ √ - √ √ √ ZA (1) DB (1) ASA DR HB (2) IU (3) √ √ - √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ N/A N/A √ √ N/A N/A N/A N/A √ N/A N/A √ N/A N/A √ N/A N/A √ N/A N/A √ N/A N/A 2017 2. Report of FU HCM √ √ √ √ √ √ √ √ N/A N/A 3. Limited Agenda Report 30. August 1, 1. Performance Report of July 2017 2017 2. Update on T2 Satellite 3. Update on the Assesment of Digital Grapari Telkom Group 4. Report on the 2017 BUMN Hadir untuk Negeri Activity and the 72nd National Independence Day in Banten Province 5. Limited Agenda Report 31. August 8, 1. Performance Report of July 2017 2017 2. Limited Agenda Report 32. August 15, 1. Performance Report of August 2017 2017 2. Report of FU Finance √ √ √ √ √ √ √ √ N/A N/A √ √ - √ √ √ √ √ N/A N/A 3. Update on the Activity of the 2017 Post and √ √ √ √ √ √ √ √ N/A N/A Telecommunications Day 4. Limited Agenda Report 33. August 22, 1. Performance Report of August 2017 2017 2. Report : Acceleration of Fiberization in Surabaya √ √ √ √ √ √ √ √ N/A N/A 3. Limited Agenda Report 196 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsNo Date Agenda/Discussion of the Meeting AJS HMZ MK HRH Board of Directors present at the meeting (1) √ √ √ √ √ √ √ √ √ - √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ ZA (1) DB (1) ASA DR HB (2) IU (3) √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ N/A N/A N/A N/A √ N/A N/A √ √ √ √ N/A N/A N/A N/A N/A N/A N/A N/A √ √ √ - √ √ √ √ N/A N/A 34. August 28, Report Agenda of Satellite Telkom-1 Status and 2017 Telkom-2 Relocation Plan 35. August 28, Service Recovery Plan of Telkom-1 Satellite 2017 36. August 29, 1. Performance Report of August 2017 2017 2. Report on the Evaluation of Jurong Business Plan Data Center 3. Limited Agenda Report 37. August 30, Follow up on Telkom-1 Satellite 2017 38. September Service Recovery Plan of Telkom-1 Satellite 1, 2017 39. September 1. Performance Report of August 2017 5, 2017 2. Limited Agenda Report 40. September Progress of Telkom 1 Satellite Handling 7, 2017 41. September 1. Performance Report of August 2017 & September 12, 2017 2017 2. Update on the Preparation of RI President Visit to Balkondes Tuksongo and Breksi Balkondes Groundbreaking 3. Limited Agenda Report 42. September 1. Performance Report of September 2017 19, 2017 2. Report on Telkom-1 Satellite Post-recovery √ √ √ √ √ √ √ √ N/A N/A 3. Limited Agenda Report 43. September 1. Performance Report of September 2017 26, 2017 2. Report on Telkom-1 Satellite Handling 3. Report of FU HCM √ √ √ √ - √ √ - N/A N/A 4. Update on the Preparation of CGPI 5. Limited Agenda Report 44. October 4, 1. Performance Report of September 2017 2017 2. Report on Telkom-1 Satellite Post-recovery √ √ √ √ √ √ √ √ N/A N/A 3. Limited Agenda Report 45. October 10, 1. Performance Report of September & October 2017 2017 2. Report on Telkom-1 Satellite Post-Recovery (additional report on the Designation of Name & √ √ - √ √ √ √ √ N/A N/A Logo of Telkom-4 Satellite) 3. Limited Agenda Report 46. October 16, Limited Agenda Report 2017 47. October 17, 1. Performance Report of October 2017 2017 2. Update on the Preparation of Event 2017 Communic Indonesia 2017 Exhibition, and Funwalk on Post and Telecommunications Day 3. Update on the Theme of Telkom Group’s 2017 Third Leadership Meeting 4. Report on Telkom-1 Satellite Post-recovery (additional Appointment of Nama & Logo Satelit Telkom-4) 5. Limited Agenda Report √ √ √ √ √ √ √ √ N/A N/A √ √ √ √ √ √ √ √ N/A N/A 197 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesNo Date Agenda/Discussion of the Meeting AJS HMZ MK HRH Board of Directors present at the meeting ZA (1) DB (1) ASA DR HB (2) IU (3) 48. October 23, 1. Update on Joint Meeting Materials: the 2017 Company’s Performance in September 2017 2. Update on the Results of Telkom Group’s 2017 Third Pre-Leadership Meeting 49. October 31, 1. Performance Report of October 2017 2017 2. Limited Agenda Report 50. November 1. Performance Report of November 2017 7, 2017 2. Limited Agenda Report 51. November 1. Performance Report of October 2017 14, 2017 2. Report on Telkom-1 Satellite Recovery 3. Update on the Preparation of 2017 KPKU 4. Limited Agenda Report 52. November 1. Performance Report of November 2017 21, 2017 2. Limited Agenda Report 53. November 1. Performance Report of November 2017 28, 2017 2. Report of FU HCM (1) √ - √ √ √ √ - √ √ √ √ - √ - √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ - √ √ √ √ N/A N/A √ √ N/A N/A N/A N/A √ N/A N/A √ N/A N/A 3. Update on the Progress of Implementation of √ √ √ √ √ √ √ √ N/A N/A Digital Touch Point (DTP) 4. Limited Agenda Report 54. December 1. Performance Report of November 2017 5, 2017 2. Report on the Readiness of 2017 KPKU √ √ √ √ √ √ √ √ N/A N/A 3. Limited Agenda Report 55. December 1. Limited Agenda Report 12, 2017 2. Performance Report of December 2017 3. Update on the Implementation of 2018 TelkomCraft 4. Limited Agenda Report 56. December 1. Performance Report of December 2017 19, 2017 2. Report on the Preparation of 2018 Work Readiness Ceremony 3. Limited Agenda Report 57. December 1. Performance Report of December 2017 28, 2017 2. Limited Agenda Report Total Attendances Total Meetings Attendance Level of the Board of Commissioners (%) √ √ √ √ √ √ - √ N/A N/A √ - 54 57 95 √ √ 53 57 93 √ √ 35 40 88 - √ 52 57 91 √ √ 36 40 90 √ √ 40 40 100 √ √ 50 57 88 √ N/A N/A √ N/A N/A 52 57 91 14 17 11 11 82 100 Remarks: AJS (Alex J Sinaga), HMZ (Harry M Zen), MK (Mas’ud Khamid), HRH (Herdy Rosadi Harman), ZA (Zulhelfi Abidin), DB (David Bangun), ASA (Abdus Somad Arief), DR (Dian Rachmawan), HB (Honesti Basyir), IU (Indra Utoyo). (1)Start from April 21, 2017 (2)HB until April 20, 2017 (3)IU until 15 March 2017 198 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsDIRECTORS REMUNERATION POLICY KNR by the instruction from Board of Commissioners create remuneration draft The Result will be decide in AGMS 1 3 5 4 AGMS KNR ask independent Party for Suggestion 2 Independent Party give its suggestion to KNR Board of Directors Remuneration Mechanism and Procedure *KNR : Committee for Nomination and Remuneration The procedure for determining the remuneration of members of the Directors of Telkom are as follows: 1. The Board of Commissioners requests the KNR to draft a remuneration proposal for the Directors. 2. The Committee for Nomination and Remuneration requests an independent party to draw up a framework on the remuneration of the Directors. 3. The Committee for Nomination and Remuneration proposes the remuneration to the Board of Commissioners. 4. The Board of Commissioner proposes remuneration for the Directors the GMS. 5. The GMS 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 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 SOE’s. Based on the GMS regulation, the income component for members of the Directors consists of: 1. Salaries; 2. Allowances; 3. Facilities; and 4. Bonus/Incentive. The determination of income in the form of salary / honorarium, allowances and facilities that are fixed in accordance with the conditions of the Company. While bonus/work incentive is an annual employment benefit based on the performance of the Company, the amount determined by the General Meeting of Shareholders. 199 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesFor 2017, the total remuneration of the entire Board of Directors was Rp159.2 billion. Taxes from remuneration borne by our Company amounted to Rp10.5 billion. The table below sets forth the remunerations that our Directors received in 2017: Table on the Recapitulation of Remuneration for Telkom’s Board of Directors Board of Directors Alex J. Sinaga Harry Mozarta Zen David Bangun (2) Indra Utoyo (3) Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Honesti Basyir (4) Heri Sunaryadi (6) Muhammad Awaluddin (5) Mas'ud Khamid (2) Zulhelfi Abidin (2) Value (Rp million) Salary Bonuses and THR Other Allowances Total 2,880 2,592 1,765 648 2,592 2,592 2,592 864 - - 1,791 1,800 19,475 12,183 216 17,311 17,527 17,527 17,527 17,311 5,345 11,919 216 216 300 300 208 75 300 300 300 100 - - 208 208 22,655 15,075 2,189 18,034 20,419 20,419 20,419 18,275 5,345 11,919 2,215 2,224 Remarks: (1) “THR” refers to tunjangan hari raya or religious holiday allowance (2) Since the AGMS on April 21, 2017 (3) Up to March 15, 2017 (4) Up to April 20, 2017 (5) Up to September 9, 2016 (6) Up to the AGMS on April 22, 2016 THE BOARD OF DIRECTORS PARTICIPATION IN THE BPJS KESEHATAN PROGRAM We fully support Government programs aimed at improving the welfare of the people. One of them is the National Health Insurance Program. On January 2, 2018 we held a discussion on the follow up of SOE’s Minister’s Letter Number 06/MBU/10/2017 regarding SOE Participation in the National Implementation Guarantee Agency Program and decided that all Directors and members of the Board of Commissioners and their families will be participants of BPJS Kesehatan. 200 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCORPORATE SECRETARY PROFILE OF CORPORATE SECRETARY The Corporate Secretary is an organ of the company which has a significant role in facilitating the company’s internal communication, connect the company and its shareholders, the Financial Services Authority, and other stakeholders as well as ensure the Company’s compliance with the applicable rules and regulations in the field of capital market regulations. Telkom has appointed Vice President (“VP”) of Investor Relations to also perform tasks and duties of a Corporate Secretary in accordance with the Financial Services Regulation No.35/ POJK.04/2014 regarding Corporate Secretary of the Issuer Companies or Public Companies. Investor Relations is responsible to prepare and provide information needed by the company’s shareholders as required by capital market regulations, and manage a systematic feedback mechanism so that management could anticipate and respond to dynamics of shareholders and capital market in effective and efficient manner. 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. Andi Setiawan Born : June 6, 1978 Age : 39 Nationality and Domicile Indonesian, domiciled in Indonesia. Position and Appointment Basis Corporate Secretary of the Company based on the Directors 3. To assist the Board of Directors in various activities, Decision Letter. 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. TASKS AND DUTIES OF CORPORATE SECRETARY 1. Preparing and organizing GMS, particularly the Annual Report; including the material, 2. Attending the Board of Directors’ meetings and joint meetings between the Board of Directors and the Board of Directors; 3. Managing and maintaining documents related to the 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 important documents of the Company; and 4. Determining criteria regarding types and contents of information that can be presented to the stakeholders, including information that can be published as public documents. Term of Office March 4, 2015 up to present. Education He holds a Bachelor’s degree on Financial Management (S1) from University of Indonesia. Career History 2014 PT Telekomunikasi Seluler as GM of Investor Relations. 2010 PT Summarecon Agung Tbk as a Manager of Investor Relations. 2007 PT Bakrieland Development Tbk as a Manager of Corporate Secretary. 2004 PT Pemeringkat Efek Indonesia as a Corporate Rating Analyst. 201 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTRAINING AND EDUCATION OF CORPORATE SECRETARY In order to improve the competence of Corporate Secretary/Investor Relations, the Company has held trainings designated to the Investor Relations unit as follows: Date Training Program March 8, 2017 Workshop Merger & Acquisition POJK 74/POJK.14/2016 and Regulation Bapepam-LK IX.H.1 Organizer Indonesian Corporate Secretary Association (ICSA) and Indone- sian Stock Exchange (IDX) Location Jakarta April 4, 2017 Indonesia Investment Forum 2017 Euromoney April 18, 2017 Workshop POJK No. 10/POJK.04/2017 and No. 11/POJK.04/2017 May 15, 2017 Workshop POJK No. 07/POJK.04/2017 concerning Document of Registration Statement in the Framework of Public Offering of Equity Securities, Debt Securities and / or Sukuk May 18-19, and 22- 23, 2017 Certified Risk Professional Indonesian Financial Service Authority (OJK) ICSA and BEI Rajawali Training June 5, 2017 Sharing Session Internet of Things Telkom Corporate University June 12, 2017 Governance, Risk and Compliance (GRC) Forum 2017 OJK Jakarta Jakarta Jakarta Jakarta Jakarta Jakarta August 1–2,2017 Finance Refreshment Telkom Corporate University Bandung August 7-9, 2017 Financial Management for Holding Company Telkom Corporate University Bandung August 9-10, 2017 GCG Workshop Telkom Corporate University Bandung August 16, 2017 POJK 21/POJK.04/2015 on Implementing Open Corporate Governance Guidelines through Apply Comply or Explain Seminar ICSA and BEI September 27, 2017 POJK No. 51/POJK.03/2017 on Sustainable Finance Seminar ICSA October 4, 2017 Indonesia Annual Report Forum 2017 Seminar Indonesia Annual Report Forum (IARF) Jakarta Jakarta Jakarta October 16-18, 2017 October 31, and November 15, 2017 Strategy and Valuation - Merger and Acquisition Telkom Corporate University Jakarta Shared Service Operation Organisation Telkom Corporate University Jakarta November 6, 2017 Preparation of Annual Report Workshop Telkom Corporate University Bogor November 8-10, 2017 Mutual Fund Week: Future Investment, Easy and Affordable Investor Relations Telkom and OJK Surabaya November 22-23, 2017 Digi Summit 2017: 2018 Challenges, Opportunities, and the Importance of Digital Synergy Orchestration Telkom Digital Strategic Port- folio December 8, 2017 Sustainable Finance and Investment: Green Index Reference and Sustainability Report BEI Jakarta Jakarta December 21, 2017 Forum Investor Relations BUMN Investor Relations Telkom Jakarta 202 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsIMPLEMENTATION OF CORPORATE SECRETARY’S TASKS Throughout the 2017 financial year, the Corporate Secretary has performed its tasks in accordant 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 18, 2017 Nomura Indonesia All Access March 9 and 15, 2017 Non Deal Roadshow March 16-17, 2017 Non Deal Roadshow Nomura Mandiri Sekuritas Morgan Stanley March 28-30, 2017 Credit Suisse 20th Annual Asian Investment Conference Credit Suisse April 17, 2017 Macquarie Corporate Day May 4-5, 2017 CIMB 11th Annual Indonesia Conference May 8-9, 2017 Indonesia Investor Conference 2017 Macquarie CIMB Securities Citigroup Jakarta Jakarta Singapore Hong Kong Jakarta Bali Jakarta May 16-17, 2017 8th Annual DB Access Asia Conference Deutsche Bank Singapore May 29, -June 2, 2017 Non Deal Roadshow June 8-9, 2017 Nomura Investment Forum Asia 2017 June 13, 2017 2017 Yuanta FHC Forum for Asia Investment and Fortune June 15-16, 2017 Asia Telco and Internet Conference 2017 August 15-16, 2017 Non Deal Roadshow August 30-31, 2017 Non Deal Roadshow September 13-15, 2017 24th CLSA Investors’ Forum October 30-31, 2017 Non Deal Roadshow November 1-2, 2017 Non Deal Roadshow November 3, 2017 Non Deal Roadshow November 7-8, 2017 10th Annual DB Access Indonesia Conference November 13-15 and 17, 2017 November 30 – De- cember 1, 2017 Non Deal Roadshow Non Deal Roadshow December 5-6, 2017 Non Deal Roadshow Credit Suisse Nomura Yuanta UBS Goldman Sachs Danareksa CLSA Telkom Credit Suisse JP Morgan Deutsche Bank Deutsche Bank London, Frankfurt, and Amsterdam Singapore Taiwan Hong Kong Singapore Jakarta Hong Kong Jakarta and Singapore Hong Kong Singapore Jakarta New York, Boston, and San Fransisco Morgan Stanley London CIMB Kuala Lumpur 203 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesINFORMATION ACCESS AND COMPANY’S PUBLIC DATA 3. Media During the year 2017, we conducted news releases through print and electronic media in order to disseminate information To meet the principles of transparency and accountability to the stakeholders. in the application of Good Corporate Governance (GCG), we provide access to corporate information and data to the public 4. Meeting with Analysts and Investors on a regular basis through various approaches and channels of communication. We also do this to establish communication with stakeholders and in order to fulfill the disclosure requirement of We conduct meetings with analysts and investors to provide information on the Company’s performance and prospects as well as updates on the telecommunications industry in capital market information contained in the Financial Services general. Authority Regulation (POJK) No.31/POJK.04/2015 regarding Disclosure of Material Information and Facts by Issuers or 5. Contact Via E-Mail Companies Public. We are open to communicating with stakeholders via e-mail. For stakeholders who are our customers, can communicate via The approaches and channels of communication we do and e-mail customercare@telkom.co.id, while e-mail investor@ provide can be explained below: 1. General Meeting Of Shareholders (GMS) Through the GMS, we convey the company’s performance information to shareholders and involving shareholders to participate in decision-making on strategic matters, especially those requiring shareholder approval. 2. Website www.telkom.co.id telkom.co.id. intended for investors. 6. Internal Media Intra Telkom is a medium that we use for our information, education and socialization facilities to all internal employees of the Company. 7. Social Media Through our website www.telkom.co.id, our stakeholders can access up-to-date information on Telkom, including Profiles, Corporate Governance, CSR Programs, Careers, Reports including annual reports and financial reports, as well as Telkom Group products. We use a variety of social media to communicate with stakeholders, including the millennial youth, who are very familiar with digital media and social media. We have a social media account on twitter (@Telkomcare), facebook (www.facebook. com/Telkomcare), and Instagram (@Telkomindonesia). Social Media Ecosystem Twitter-Why three accounts ? @TelkomIndonesia Campaign & Brand @TelkomCare Customer Service @TelkomPromo Promo & Deals 210,690 Fans 118,877 Followers 84,809 Fans 243,304 Followers 551,519 Fans 142,174 Followers The nature of Twitter is different from Facebook where all content that is posted will be seen-it is not a pay to play model. With three accounts, we have the ability to provide consumers with an expectation of the content that they will see in their feeds. 204 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsINTERNAL AUDIT UNIT We have an Internal Audit or Internal Audit Unit (IA) that provides independent and objective views on the conditions of our internal controls, risk management and corporate governance processes in our business activities. The purpose of this function is to become catalyst by giving recommendations for Telkom in improving its business operations. VISION, MISSION, AND STRUCTURE OF INTERNAL AUDIT UNIT Vision The Internal Audit (IA) becomes a “Smart Partner” for management, work units/business units and subsidiaries, in particular to create a culture of discipline in implementing all applicable policies, business processes, and statutory provisions. Mission 1. Provide services and internal audit consulting in a professional, objective and independent manner for the Management, Business Units/Work Units, and subsidiaries. 2. Provide assurance on the feasibility of financial reports. 3. Actively monitor the implementation of internal control, provide support in improving the implementation of GCG, and evaluate the implementation of risk managament. STRUCTURE AND POSITION OF THE INTERNAL AUDIT UNIT IA is a unit directly responsible to the President Director and an independent unit of other work units. This is in line with the prevailing capital market regulations. Here is the organizational chart of IA Telkom. President Director Board of Commissioner SVP Internal Audit Harry Suseno Hadisoebroto VP Infrastructure & Operations Audit Rahardian Krishna S. VP Integrated & Financial Audit Agus Widjajanto VP Planning & Development Audit Imam Santoso VP IT Audit Setia Dwi Kusumawardani Main Auditor Achmad Aliyadin INTERNAL AUDIT CHARTER, DUTIES, AND RESPONSIBILITIES OF INTERNAL AUDIT Internal Audit Charter Telkom’s Internal Audit Unit is equipped with an Internal 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 personnel as an auditor. The drafting of Internal Audit Charter guided by the international standards for IA profession practices, issued by the Institute of Internal Auditor (“IIA”), and has been approved by the President Director as well as the Audit Committee based on the Board of Directors’ Resolution No.Tel.09/PW000/UTA/COP-C0000000/2015 regarding Internal Audit Charter. 205 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesDuties and Responsibilities INTERNAL AUDIT UNIT COMPOSITION Based on Internal Audit Charter, duties and responsibilities of the Our Internal Audit is led by a Senior Vice President of Internal Internal Audit are: 1. To compose Annual Internal Audit plan; Audit who is appointed and dismissed by the President Director upon the approval of the Board of Commissioners. Until the end 2. To execute the Annual Internal Audit Plan that has been of 2017, Senior Vice President of Internal Audit is assisted by consulted by the Audit Committee or has been reviewed by members of 78 people. Audit Committee; 3. To examine and evaluate the adequacy of internal control and PROFILE OF SVP OF INTERNAL AUDIT risk management system based on the Company’s Policy; 4. To examine and assess the efficiency and effectivity in the field of finance, accounting, operational, human capital, marketing, IT, and other activity; 5. To review and/or audit the Company’s financial statement periodically; 6. To inspect the compliance to the related regulation ; 7. To identify the alternative improvement and efficiency and to increase efficiency and effectivity of the utility of sources and fund; 8. To create audit report and to deliver that report to the President Director and the Board of Commissioner c.q. Head of Audit Committee; 9. To monitor, analize and report the implementation of the improvement that has been recommended; 10. Give objective improvement recommendation and information about the activity that has been inspected to all management level of the Company and the afiliation of the Company; Harry Suseno Hadisoebroto Born : Bandung, June 24, 1966 11. To provide consultation needed by the Company’s management and its affilation company which the coverage Age : 51 of the assignment has been agreed before; 12. To carry out task number 2 - 10 for the Company’s afiliation upon request by the President Director of the Company Nationality and Domicile Indonesian, domiciled in Indonesia. (management instruction); Position and Appointment Basis 13. To collaborate with the Audit Committee, including monitor 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. To compose the evaluation methodology and progam to increase the quality of internal audit activity cooperating/ coordinating with Audit Committee; 15. To review and/or depth inspection of the audit committee request in order to follow up whistleblower and/or allegations of fraud (fraud) on the Company or its affiliated company, and deliver the results of the investigation to the President Director and the Audit Committee; and 16. To conduct the preliminary inspection with a particular purposes. 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 up to present. Education 1999 Postgraduate Study: Engineering – Project Management (MSc.), University of Manchester, Institute of Science and Technology, Manchester, United Kingdom. 1990 Graduate Study: Civil Engineering (Ir.), Bandung Institute of Technology, Indonesia. 206 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Carreer History TRAINING AND EDUCATION OF INTERNAL AUDIT May 1, 2014 – June 30, 2015 PT Telekomunikasi Seluler as SVP Internal Audit. During 2017, to improve quality, we involve our internal auditors in various trainings. The training followed by Internal Audit in April 1, 2011 - April 30, 2014 PT Telekomunikasi Indonesia (Persero) Tbk. as VP Infrastructure & Supply Management Audit. January 1, 2010 - March 31, 2011 PT Telekomunikasi Indonesia (Persero) Tbk. as AVP Infrastructure Audit. 2017 is as follows: Programs Certification Training Operational Training Competency Enhancement Training Number of Participants Number of Days 14 23 12 148 66 35 November 1, 2007 - December 31, 2009 INTERNAL CONTROL SYSTEM PT Telekomunikasi Indonesia (Persero) Tbk. as Deputy General Manager Kandatel Malang. TASK IMPLEMENTATION OF INTERNAL AUDIT UNIT As one of the listed listed companies in the USA capital market, we have an obligation to comply with the provisions of SOX Section 404 which includes building, maintaining, testing and disclosing the effectiveness of internal control over financial reporting. In accordance with the Annual Internal Audit Work Plan, in the Internal control is a process designed by/or under the supervision year 2017, Unit IA implemented 78 assignments consisting of of the President Director and the Director of Finance and run audit, consultation, evaluation and review activities, as follows: by the Board of Directors, management and other personnel. Sub Departement Audit IOA IFA ITA Total 11 14 12 37 IC 10 1 8 19 Review Evaluation Total 0 15 0 15 0 7 0 7 21 37 20 78 QUALIFICATION AND PROFESSIONAL CERTIFICATION OF INTERNAL AUDIT To ensure the quality of internal controls is well under way, our internal audit unit members possess the various certifications that are relevant and necessary in carrying out their work. Here are the details of certification held by Internal Audit members. Certification Type Certified Internal Audit (CIA) Qualified Internal Auditor (QIA) Certified Fraud Examiner (CFE) Certified Information System Audit (CISA) ISO 27001:2013 BCMS (ISO 22301) ITSMS (ISO 20000-1) Certified Ethical Hacker (CEH) QMS (ISO 9000) Certified Accountant (CA) Number of Certification 1 4 1 2 3 1 2 1 1 3 The goal is to obtain public confidence in the effectiveness of financial reporting and the preparation of consolidated financial statements in accordance with the Financial Accounting Standards of the Indonesian Institute of Accountants. In practice, we use the Internal Control-Integrated Framework 2013 reference from The Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO’s internal controls contain five mutually tied components that we have applied at all levels and business units of the company, including: 1. Control Environment a. Demonstrates commitment to integrity and ethical values (CE.01) b. Exercises oversight responsibility (CE.02) c. Establishes structure, authority and responsibility (CE.03) d. Demonstrates commitment to competence (CE.04) e. Enforces accountability (CE.05) 2. Risk Assessment a. Specifies relevant objectives (RA.01) b. Identifies and analyzes risk (RA.02) c. Assesses fraud risk (RA.03) d. Identifies and analyzes significant change (RA.04) 3. Control Activities a. Selects and develops control activities (CA.01) b. Selects and develops general controls over technology (CA.02) c. Deploys through policies and procedures (CA.03) 207 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices4. Information and Communication 5. Monitoring Activity a. Uses relevant information (IC.01) b. Communicates internally (IC.02) c. Communicates externally (IC.03) a. Conducts ongoing and/or separate evaluations (MA.01) b. Evaluates and communicates deficiencies (MA.02) These five components have been applied and applied to Telkom’s policies, among them as follows: APPLICATION IN TELKOM Control Environment • We build corporate culture as a guide for key role holders in building leadership patterns and strengthening organizational synergies and enhancing sustainability competitive growth based on the values that have been formulated in The Telkom Way. It is continuously reinforced and sustained which includes four dimensions, namely the spiritual dimension, the emotional dimension, the intellectual dimension and the physical dimension as well as the great spirit of core values ie 3S: Solid, Speed, Smart. • We ensure the effectiveness of conducting Internal Audit activities implemented by implementing the SOA 302/404 prerequisites and managed with a risk based audit approach. We also ensure that effective coordination and co-operation with internal and external parties and business risks to all business activities are adequately managed with internal control systems. • We have a Competency Directory that defines the company’s competency needs. One of them is Stream Finance which includes the competence of Corporate Finance with the sub area of Capital Structure competency and Working Capital Management (Treasury Management). Then, Accounting with sub area competence of Financial Accounting, Management Accounting and Corporate Tax. The competency development policy is aimed at creating superior, global quality and highly competitive employees. Risk Assessment • We have several considerations in developing accounting policies such as Statements of Financial Accounting Standards (PSAK), Interpretation of Statements of Financial Accounting Standards (ISAK), International Accounting Standards (IAS), Related Laws, and changes in impacted internal environments. • We have a principle of financial assertion in ICOFR planning that is well respected by all relevant employees. • We manage internal and external corporate risk with established mechanisms. We also implement a fraud-controlled policy control system and have potential fraud prevention. Control Activities • We set up a Business Process Owner (BPO) and AO (Application Owner) with ICOFR responsibilities and responsibilities. • Risk determination rules and internal controls refer to the ICOFR policy consisting of segregation of duties, risk determination, determination of internal controls. • We have guidelines for the implementation of information systems security that are aligned with company needs and can be implemented on an ongoing basis. Information and Communication • We have accounting policies implemented under IFRS, outlined in accordance with accounting principles and implementation, including information or data related to the process and disclosure of financial reporting, and regulates the components of the consolidated financial statements. • We have an information technology policy that provides a frame of reference for each process or unit associated with the organization’s IT operations in the preparation and implementation of guidelines and procedures. The scope of IT regulations in our company covers aspects of governance of IT governance and IT management. Monitoring Activity • We have an Internal Audit Charter that includes the auditor’s requirements in the Internal Audit unit, which has professional integrity and behavior, knowledge of risks and important controls in the field of information technology, knowledge of capital market laws and regulations. • We have a policy on Reporting and Waiver Mechanisms, which is to issue reports and resolve waivers by business units, anticipate and mitigate the impact of hidden risks, in an effort to enforce discipline. 208 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsThe implementation of the five components is also in line with the Regulation of the Minister of State-Owned Enterprises Article 26 paragraph 2 of 2011 on Internal Control System. As of December 31, 2017, we have assessed the effectiveness of our internal control over the company’s financial reporting with the report’s results being effective. The effectiveness assessment has also been audited by KAP Purwantono, Sungkoro & Surja, an independent and registered public accounting firm. In addition to referring to the COSO framework, we are committed to ensuring that our policies, compliance and all business activities are conducted in accordance with applicable internal and external laws and regulations such as legal advisory, legal opinion, legal review and litigation. The unit responsible for compliance with legislation is the Legal & Compliance Unit under the Corporate Secretary Department. RISK MANAGEMENT SYSTEM Telkom implements risk management to protect its assets and business activities as well as to create values for its stakeholders. The risk management also constitutes compliance 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 area, 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 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 article 302 and 404. The implementation of risk management of Telkom in 2006 began 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 Directorate of CRM was changed into the Directorate of Wholesale & International, meanwhile, to implement the management of Governance, Risk & Compliance the Department of Compliance, 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 2017 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). 2006 Risk Management & Legal Complience Unit (RMLC) 2007 2013 Complience, Risk Management & General Affair Departement (“CRMGA”) 2017 Complience & Risk Management Directorate (CRM) Sub Directorate of Risk & Process Management, Dit KEU Chart of Development of Telkom Risk Management Function 2006-2017 209 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesIn 2017, Telkom kept trying to improve the implementation of risk The objectives of the implementation of risk managements are: management by emphasizing the Revenue Assurance & Fraud 1. Ensure that all risks that may disturb the action to achieve Management System. Further, in the next year of 2018, Telkom company’s objectives can be anticipated in advance and will strengthen the Enterprise Risk Profile Group & Advisory responded properly as well as to get new opportunities that through Business Continuity Management (BCM), Revenue support the action to achieve Company’s objective. Assurance & Fraud, Insurance Management and Enterprise Risk 2. Prepare the Framework Standard to implement the Company’s Management (ERM) of Telkom Group. Risk Management so that the risk management can be more coordinated and integrated. Risk Management Policies of Telkom refers to the Regulation of Board of Directors No.PD.614.00/r.00/HK.200/ The main framework of Telkom’s Risk Management shall refer to COP-D0030000/2015 dated September 30, 2015 regarding the framework from COSO (COSO ERM Framework), which shall Telkom Enterprise Risk Management and Regulation of Finance cover three main components namely: Director No.PR.614.01/r.00/HK200/COP-D0030000/2016 1. The implementation of company’s risk management must be regarding the implementing guideline for Telkom Enterprise Risk able to support the company’s objective from the aspects of Management. strategic, operational, reporting and compliance. GIC E T A R T S S N TIO A R E P O G TIN R O P E R E C N LIA P M O C Internal Environment Objective Setting Event Indentification Risk Assessment Risk Response Control Activities B S U U S B I N S I E D S S I A R U Y E N T I T Y - D I V I S I L O E N N I T V E L Information & Communication Monitoring COSO ERM Framework Diagram 210 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Strategic Aspect: Operational 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 Stra- tegic Scenario), Annual Budgeting (RKAP) or the process of strategic de- cision making. 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, in- tegrity and availability. 3. Management of Occupational Health and Safety (OHS) System. 4. The Development of Business Continuity Management, Disaster Re- covery Plan and Crisis Management Team. 5. The Management of Revenue Assurance and Anti-Fraud Program. Compliance Aspect: Reporting Aspect: Risk management shall be made in order to give added values through: 1. Compliance management upon the External or Internal Regulation. 2. Compliance management upon the provisions of SOX through the de- 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”). sign 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 Company’s Risk Management Unit 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 management 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. To coordinate the implementation of company’s risk management policies. Internal Audit Unit To give an independent opinion to the Board of Directors, Risk Committee, and Company’s Risk Management unit. Unit Manager All Employees Subsidiary 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 implementation 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/ communication. h. Monitoring. 211 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTo be able to conduct 8 components of process in the framework of COSO nicely, Telkom develops and maintain company’s risk management through the structural and operational aspects. 1. Structural aspect 2. Operational Aspect Develop the supportive internal environment, namely: a. To build the commitment and Tone at the Top. b. To put the foundation of risk management in framework of GCG. c. To form a Risk Management Organization Unit. d. The development of Policy, Guideline for Risk Acceptance Criteria (RAC), Guideline for Risk Assessment (Risk & Control Self- Assessment/RCSA) and Good Governance. e. The development of competence in the field of risk management. f. The provision of adequate tools and system. Focus on: a. The implementation of risk assessment in the level of corporate, business unit and subsidiary as well as the preparation of adequate mitigation plan. b. The development of risk assessment methodology for specific function that combines the implementation of COSO ERM Framework with standard reference or other guideline. c. The maintenance aspect that is focused on the process of information, communication, review and continuous improvement. In 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 ISO 31000 ISO 27001 ISO 22301 ISO 20000 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 service 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 Human Capital Management in 2017, Telkom’s risk management function is implemented by Sub-Directorate of Risk & Process Management in the Directorate of Finance: VP RISK & PROCCESS MANAGEMENT AVP Accounting & Treasury Policy AVP Process Management AVP Risk Managament Governance & Quality Management Project Leader 212 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsTYPES OF RISK AND MANAGEMENT METHOD Risk management system helps Telkom to identify significant risks for the business sustainability. Telkom has identified the risks in Indonesia specifically, namely the risk of social and politic, macro economy, disaster and other risks. Further for the business risks, Telkom has identified 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. Type of risk Risks The impact to Telkom Mitigation/risk management a. Risks related to Indonesia Political and social disruption The of political stability and social instability to specific issues. Have negative impact to the business, condition, financial operation, business proceeds and prospect as well as market price for securities. The change of global, regional, or Indonesian economic activities. fluctuation The exchange rate. of rupiah The increase of loan interest rate. The decrease of government or company’s credit rating. condition, 1. Have the impact on the business, business financial proceeds or business prospect. 2. Have a material adverse effect to the business, financial condition, business proceeds or business prospect. thunder, storm, Flood, earthquake, tsunami, volcano eruption, epidemic, fire, drought, power shut down and other event beyond our control. its business operations Disrupting and give negative impact to the financial performance and profit, business prospect as well as market price of securities. 1. Monitoring of the influence of social political instability to the disruption of operational/service 2. The maintenance awareness through the improvement of safety & security functions. of 1. Monitoring of the influence of macro economy to the change to increase the expense through cost leadership program. 2. To look for the opportunity to increase the spending of apbn pursuant to the government focus (maritime, tourism, energy, transportation, etc). 1. Transfer of risk by using the insurance of assets to anticipate the natural disaster and fire. 2. Coordination ASKALSI (Indonesian sea cable association) to secure SKKL. with Disrupting its business operation and giving the negative impact to the financial performance and profit, business prospect as well as market price of securities. 3. Preventive & corrective action by preparing the disaster recovery plan and crisis management team. The use of a competent legal consultant that has experience with the issues on corporate in other countries law particularly the United States of America. Indonesian corporate information disclosure standard is significantly different than what is implemented in other countries including 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 the implementation of law. including The possibility on the difference in the interest of controlling shareholders with the interest from other shareholders. Macro economy Risk of disaster Other risks b. Business related risks Operational risk The failure in the sustainability of network operation, main system, gateway on our network or other operator’s network. impact to the Has the negative business, condition, financial proceeds from the operation and business prospect. Threat of physical and cyber security, theft, such destruction, or other action. as Has the negative business, proceeds materially. from financial impact to the condition, operation the Implementation of BCM, BCP, and DRP. integrated for (IMS) 1. 2. Certification management infrastructure management. of system 1. The upgrade of preventive action in 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. Intensive coordination with relevant parties to handle the cyber attack. 4. in Risk service. relation to internet May face a lawsuit and damage the reputation. To be more prudent in the preparation of contract with content provider partner. 213 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesType of risk Risks The impact to Telkom Mitigation/risk management Leak of revenue due to the internal capability weakness or external factor. Has a negative impact to our business proceeds. 1. Acceleration of leak detection time 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. The limit of operation period, damage or ruin, delay or failure to launch, or the revocation of satellite license. Can create loss to financial condition, proceeds and capability to give services. operation from 1. The of preparation technology roadmap by into account taking future technologies and the possible implementation competitor’s technologies. of 2. Acceleration of IDN (Indonesia Digital Network) program to support future services. 1. The planning to change the satellite of which operation period will be immediately expired. 2. The insurance of satellite operation 3. during the active period. Insurance launching of new satellite. for manufacturing and 4. Developing the understanding with regulator in relation to the satellite operation by telkom. Financial risk Interest rate risk. Foreign exchange rate risk. The limit expenditure. to fund capital Has an adverse effect to the business, financial condition and proceeds from the operation. Interest rate swap contract from the float interest rate to become the fix interest rate upon certain loan term. Has negative impact on the financial condition or proceeds from the operation. Placement of time deposit and hedging to cover the fluctuation risk of foreign exchange. Has a material adverse effect to the business, financial condition, operational and business prospect. performance Maintaining and improving the company’s performance to obtain the trust from national or global fund institution/source. Legal and compliance risk Regulation risk Penalty/fine by KPPU in relation to the price fixing and the occurrence of class action. Reducing our negative reputation and profit. revenue and has impact to the business, The change of Indonesian or international regulation. Has the condition, financial performance and business prospect. impact to the business, operational Strengthening legal corporate action plan or certain contract. review towards 1. Analysis on the regulation plan towards the industry in general and telkom in particular. impact of the the phone Losing customers and revenue from the service of cable phone voice call. cable The competition on the internet service (fixed broadband). 2. Giving inputs so that the regulation that will be stipulated will give positive impact to the company and industry. Has a material adverse effect on the proceeds from operation, financial condition and our business prospect. 1. Improving QoS – quality of service for cable phone customers. 2. Giving value added service. Has a negative impact on the business, operational financial condition performance and business prospect. 1. Strengthening the perception and quality of indihome as new digital life style. 2. Acceleration on the launching of the for fixed broadband infrastructure service. The competition on mobile service. Has a negative impact on the business, financial operational condition performance and business prospect. 1. Acceleration of the launch of the infrastructure for 4G service. 2. Improving QoS – quality of service. Risk in relation to fix and mobile telecommunication business 214 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsREVIEW ON THE EFFECTIVENESS OF RISK MANAGEMENT SYSTEM In 2017, Telkom’s risk management system has been implemented effectively in supporting every policy and business process of Telkom and its subsidiaries. The assessment on the effectiveness of Risk management implementation was conducted through the evaluation process, namely: 1. One-on-one Evaluation/discussion with business unit as necessary. 2. Workshop for the sharing in the implementation and development of ERM with the subsidiaries as necessary. 3. Audit Program on Risk Management Implementation as necessary. 4. Evaluation with the Risk Committee, Compliance and Revenue Assurance in BoD level as necessary. 5. Evaluation with Planning and Risk Monitoring Evaluation Committee (KEMPR) as necessary. The effectiveness of Telkom’s risk management system is integrated with the use of supporting 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 to manage Risk Assessment. 2. Specific Tools for the purpose of certain risk management such as: a. Fraud Management System (FRAMES) application is used as an early detection system for the possibility of Customer Fraud. b. i-Library application managed by the Service Operation Division and to be used for the management of documentation system of Integrated Management System. c. SMK 3 Online application managed by Security & Safety Unit for Health and Safety documentation management. d. Security & Safety application managed by Security & Safety Unit for the monitoring of Physical Security management. e. Telkomcare application for the coordination with Crisis Management Team. To maintain the quality of risk management, Telkom has also implemented the risk management competence development through trainings. Moreover, Telkom has also conducted socializations as well as workshop in relation to risk management in the office of the division and subsidiaries so that every person in Telkom is able to understand risks with the same point of view. Table of Training of Telkom’s Risk Management in 2017 No. Type of Training 1 2 3 4 5 6 7 8 ISO 31000 Risk Assesment ICOFR Fraud & Reveue Assurance ISMS & Internal Auditor ISMS Risk Management Enterprise Risk Governance Internal Auditor BCMS Hedging Time February 2017 March 2017 April 2017 May 2017 May 2017 May 2017 September 2017 October 2017 During 2017 Telkom received the visits or was asked by external parties to conduct sharing sessions for the implementation of Risk Management, Internal Control, Process Management, Good Corporate Governance and Insurance Management among others from: • PT Inalum • Ministry of Finance • PT Kimia Farma • PT Sucofindo • PT Astra (Astra Risk Management Forum 2017) • SKK Migas • PT Elnusa : February 17, 2017 : March 24, 2017 : June 9, 2017 : July 13, 2017 : August 16, 2017 : August 29, 2017 : November 8, 2017 In 2017, Telkom received awards or certifications for its implementation of Telkom’s risk management system from external parties namely: External Institution PT. SGS Indonesia Type of Award Integrated Management System for the Infrastructure Management which covers: The Certificate of IS0 20000:2011 – IT Service Management System 215 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesWHISTLEBLOWING SYSTEM Since 2006, we have established a violation reporting system known as the Whistleblowing System (WBS). Through the WBS, all individuals inside and outside Telkom may report violations, fraud, or any other ethical violations that occur in Telkom’s environment. The WBS is administered by the audit committee through a decree of the board of commissioners and ratified by a decision of the board of directors. In order for WBS to be of maximum benefit, we have promoted the WBS to our employees. It is part of our effort to uphold business ethics and work ethics. In addition, we have also established a working mechanism between the audit committee and the Internal Audit and a protocol with Telkomsel to follow up on the complaints received. MECHANISM FOR THE VIOLATION REPORT All individuals at all levels of our internal staffs, including directors, commissioners and committee members under commissioners, are entitled to use the WBS. Reports can be submitted by email, fax or mail to the following addresses: Komite Audit PT Telkom Indonesia (Persero) Tbk Telkom Landmark Tower, 2nd Tower, 40th Floor Jl. Jend. Gatot Subroto Kav 52, Jakarta, 12710 Email: whistleblower@telkom.co.id; ka301@telkom.co.id Fax: +62 021 5271800 Website: www.telkom.co.id The Complaint must fulfil the following requirements: 1. It is submitted through the website, email, fax or letter. 2. Complaints submitted related to the issue on internal control, accounting, auditing, breach of regulation, allegation on the fraud and/or allegation of corruption, and the breach of code of ethics. 3. The information that is reported must be supported with sufficient evidence and those are reliable to be used as the initial data to conduct further investigation. PROTECTION TO THE COMPLAINANT In the implementation of the WBS, we guarantee the protection of the complainent’s identity. This protection of confidentiality is set out in Decision of the Board of Commissioners No.08/KEP/DK/2016 dated June 8, 2016 regarding Policy and Procedures on Handling Whistleblowers of PT Telkom Indonesia Tbk and Consolidated Subsidiaries which was then ratified by Regulation of the Board of Directors No. PD.618.00/r.00/HK200/COP-C0000000/2016 dated December 21, 2016. Moreover, the implementation of WBS always puts forward confidentiality and principle of presumption of innocence in following up every complaint or report submitted. This is stated in the WBS standard handling procedure for the purpose of encouraging employees to report violations safely without fear or worrying about safety. 216 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsTHE COMPLAINT HANDLING The WBS is handled by the audit committee in accordance with OJK regulation No.55/POJK.04/2015 and the Sarbanes-Oxley Act 2002 Section 301 on the Public Company Audit Committee. On the other hand, requirements of complaint are also necessary to ensure that the complainant submits the complaint in a responsible and non-defamatory manner against a person. In general, complaint reports submitted by internal or third parties handled by the audit committee covers the following topics: 1. Accounting and Auditing The accounting and auditing topic covers issues of accounting and internal control over financial reporting that could potentially lead to material misstatement in the financial statements. In addition, this topic also covers audit issues, especially the application of accounting standards, and the independence of the public accounting firm. 2. Violation of Regulation This topic includes violations of capital market regulations and laws and regulations concerning the Company’s operations. Breaches of the Company’s internal regulations that could potentially result in losses are also reported under this topic. 3. Fraud and/or The Allegation of Corruption This topic includes fraud and/or alleged corruption committed by Company’s officers and/or employees. 4. Code of Ethics This topic includes complaints about any improper behaviors of the management and employees that are likely to defame Company’s reputation or even result in corporate losses. Such improper behaviors include dishonesty, conflict of interest with Telkom, and misleading information disclosure to the public. 217 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTHE COMPLAINT HANDLING MECHANISM For complaints to be addressed promptly, we encourage complainants to ensure correctness and accuracy of the information and provide sufficient supporting data. In practice, some WBS cases can not be processed due to inaccurate and unreliable data and information. INVESTIGATION PROCESS Appointment of Expert Expert Yes No Need Experts ? The Investigation Case Review Subsidiaries ? No Forming an Investigation Team Yes Letter of the President Director to Subsidiary Cc. 1. Related President Director of Telkom 2. Audit Committee 3. Internal Audit of Subsidiary Subsidiary Discussion FU ? Yes Yes Combined FU ? No No Response Letter t i d u A e e t t i m m o C T N E D S E R P I R O T C E R D I Approval to Follow-up I N O T A G T S E V N I I E E T T M M O C I i y r a d i s b u S R H I S B U Remark: TPTA (Tim Pertimbangan Tindakan Administrasi (Administrative Measures Consideration Team)) 218 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights THE COMPLAINT HANDLING MECHANISM For complaints to be addressed promptly, we encourage complainants to ensure correctness and accuracy of the information and provide sufficient supporting data. In practice, some WBS cases can not be processed due to inaccurate and unreliable data and information. REPORTING AND FOLLOW-UP Material Evaluation Archives CC Report on The Result of Investigation The Audit Report Investigation by Subsidiary FU ? No Yes No TPTA ? Yes FU Notes FU Notes FU Report Documentation End TPTA Report TPTA Subsidiary No Joint Team ? Yes TPTA - Joint TPTA Report FU UBIS FU Report 219 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesTHE 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. IMPLEMENTATION OF SHARE OWNERSHIP POLICY OF BOARD OF DIRECTORS AND BOARD OF COMMISSIONERS The Regulation of the Financial Services Authority No.11/ POJK.04/2017 regarding Ownership Report or Any Changes in the Share Ownership of the Public Company requires every 3. Conducting the initial verification whether the complaint is in member of our Board of Directors and Board of Commissioners to line with the criteria. report on the change of direct and indirect ownership of shares. 4. Monitoring the follow up of the complaint. The Audit Committee through the meeting shall determine: ownership by members of the Board of Directors and Board 1. To give approvals to follow up of complaints received. of Commissioners and their amendments throughout 2017. 2. To give approvals on whether a complaint is to be followed up We provide that particular information on the beginning if this In line with the above regulation, we provide information on share by an internal or external party. Annual Report. 3. 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. 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. THE RESULT OF COMPLAINT HANDLING In 2017, there were 28 whistleblowing complaints submitted but after the Audit Committee reviewed the complaints, there were only 2 (two) complaints that qualified as whistleblower while the remaining 26 qualified as service/product complaints. Description Total Complaint Fulfil the requirements Total 28 2 Remarks Received complaints Complaint that is proper to be followed up 220 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsSIGNIFICANT LEGAL DISPUTES Throughout 2017, none of the members of our board of commissioners and directors, both those who remain in office and whose terms of office have expired, had any legal disputes or faced any civil or criminal cases. As a business entity, we are facing 88 legal cases consisting of 23 criminal law cases and 65 civil law cases. Table of Recapitulation of 2015-2017 Lawsuits against Telkom Status In process Final and binding (inkracht) Sub Total Total Telkom’s Legal Issues 2017 2016 2015 Criminal 4 19 23 Civil 36 29 65 Criminal 9 0 9 Civil 36 24 60 Criminal Civil 2 1 3 6 4 10 88 69 13 Significant legal issues faced by the company during the period of January to December 2017 can be seen in the table as follows. Key Case Charts Faced by Telkom and Subsidiaries Year 2017 Object of Dispute Type of Court Status of Dispute Financial Implications (Rp miliar) Telkom* Telkom became Defendant at the South Jakarta District Court with the allegation of bad faith in terminating transponder service to PT Citra Sari Makmur (PT CSM). District Court Note: * the case shown is the most relevant case during 2017 The South Jakarta District Court issued a summons to Telkom on August 24, 2017. Telkom follows the entire trial process - INFORMATIONS REGARDING ADMINISTRATIVE SANCTIONS In 2017 Financial Year, there was no Administrative Sanctions issued by the Capital Market Authority and other Authority against 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 section. 221 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCORPORATE CULTURE “The Telkom Way” has become Telkom’s corporate culture or corporate values since June 10, 2013 as stipulated by the Board of Directors under Decree of the Board of Directors of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, No.PD.201.00/r.00/ HK250/COP-B0020000/2013 regarding 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 regarding 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 • Continuous Inprovement • Sinergy • Common Vision • Trust • Iniciative • Fast Service • Decision Speed • Target Understanding • Set The Priority • Integrity ALWAYS THE BEST Integrity Integrity • • Positive Behavior • Honesty Enthusiasm Totaly • Enthusiasm • Sincerity • Will To Be The best • Totality • Self Improvement • Commitment to Work 1. 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. 2. Philosophy to be the Best: Integrity, Enthusiasm, Totality Always the Best urges every individual of the Telkom Group to have integrity, enthusiasm, and totality. 222 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights3. Principles to be the Star: Solid, Speed, Smart Principles to be the Star of The Telkom Way means 3S which stands for Solid, Speed, Smart which also becomes the core values or great spirit. a. Solid All individuals of the Telkom Group must provide the best (Always The Best) and increase solidarity among all individuals of the Telkom Group as one Great Team. b. 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. c. Smart All individuals of the Telkom Group are required to work smartly, that is to understand the goals to be achieved, to determine priorities and to always look for new better ways to achieve the goals. 4. Practices to be the Winner: Imagine - Focus – Action Practices to be the Winner of The Telkom Way means IFA which stands for Imagine, Focus, Action which is also the Key Behaviors. 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 223 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCORPORATE CULTURAL ACTIVATION PROGRAMS OF 2017 COMPELLING STORY ROLE MODEL UPGRADE SKILL TO CHANGE ROLE MODEL • Setting Customer Experience Vision Increasing Number of Culture Agent • • Set Up CA as A CX Champion • Set Up Leader as A Digital Leader • Set Up Leader as “Fun Working” Builder COMPELLING STORY • Set Up & Communicating Program and COE 2017 • Design New Scheme & Artefact of KIPAS Budaya for Promoting Service Culture & Digital Engagement • Designing WOW Culture Activation Comm: TTW BOOM Quiz, Culture Reality Story • Running Monthly Thematic Culture Activation • Embrace Culture to Employee Volunteer Program & Community Program • Culture Award: “Finding Telkom Group Culture Heroes 2017” • Finalizing Web Culture • Culture Agent On Boarding • Culture Agent Meet and Greet • Training “From Culture to Customer Experience” (TA, CSR, 14, Satpam) • Design Evaluation & Rewarding Criteria • Designing Digital Workstyle Guideline • Entropy Clinic • Do’s & Don’t Artefact Policy • Designing Culture Fit Gamification FORMAL PROCESS & SYSTEM UPGRADE SKILL TO CHANGE FORMAL PROCESS & SYSTEM Culture Activation Framework Our corporate culture is internalized top down. The CEO To accelerate the implementation of corporate cultural activities of Telkom Group is a role model of Corporate Culture and at the unit level, all Unit Leaders are instructed to establish a assigns all Unit Leaders to be Role Models. Role Models are Cultural Activation Provocation Community (Komunitas Provokasi also obliged to select and assign Culture Agents in charge of Aktivasi Budaya/KIPAS Budaya) in their respective units. A total of organizing cultural activation initiatives in the relevant units 123 units of KIPAS Budaya were recorded until December 2017. and motivating all employees to participate in the initiatives to allow smooth internalization process of The Telkom Way. Each unit has discretion to name their KIPAS Budaya according To date the Telkom Group has assigned 1,677 Culture Agents to their respective goals. The theme of KIPAS Budaya activities is (consisting of 1,165 Culture Agents of Telkom and 512 Culture tailored to the Company’s business strategy. In 2017, the theme Agents of Subsidiaries) who prior to carrying out their duties as was set nationally, namely “Organizing On Living In Digital Work- Culture Agents were engaged in the Culture Agent on Boarding Style to Deliver Customer Experiences”. As a reference for unit program to provide skills and knowledge as well as common cultural activation activities, a Calendar of Event was published perception to be Culture Agents. with an approach of National Days. 224 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCALENDAR OF EVENT Calendar of Event (COE) is a media to communicate cultural activation programs every month as a reference or guidance for Telkom Group units to arrange and implement cultural activation programs in each unit to instill The Telkom Way corporate cultural values to employees’ daily work behaviors. CALENDAR OF EVENT CULTURE ACTIVATION 2017 Cultural activation is organized with the aim of internalizing corporate cultural values into the behaviors of all employees so they will express such values in all of the Company’s business activities. In 2017, the Cultural Program Calendar of Event was prepared with an approach of national days to strengthen the implementation of The Telkom Way values. The activities as set out in the Calendar of Event, among others, were: 1. Kartini’s Day Event Held in April with the aim to signify and imitate the values of Kartini’s struggle in advancing education for women. 225 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices2. Telkomer’s Back to School Held in May in commemoration of National Education Day. In this activity, Telkomers conducted teaching or knowledge sharing activities in some schools or communities on how to use the internet in a healthy way and use gadgets wisely. The profession of Telkomers was also expected to inspire Indonesian students to advance the country. Telkomer’s Back to School 3. Kids Go to Office Held in June during the holidays of school year turn. In the activity themed “Mom & Dad My Inspirations (Ayah-Ibuku Inspirasiku)”, employees were allowed to invite their children to participate directly in playing the role of the parents in the office. This activity aimed to provide experience and inspiration of Telkomers’ profession in working and at the same time introducing the existing work culture. Kids Go to Office 226 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights4. Independence Day Held in August with the theme “FOLK FESTIVAL: Working Together, Together Working (PESTA RAKYAT: Kerja Bersama, Bersama Kerja)”, referring to the slogan of the 2017 Indonesian Independence Day “Indonesia Works Together (Indonesia Kerja Bersama)”. The activity was held simultaneously on 17 August. 5. Customer’s Day Event Held in September with the theme “We Care U More” referring to the theme of National Customer Day “Authentic Services and Experience (Pelayanan dan Pengalaman yang Otentik)”, with the aim to provide services and experience to customers by prioritizing the corporate character, culture, and vision. 6. Raise Youth Spirit Event Held in October in commemoration of the Youth Pledge Day. 7. Mother’s Day Event Held in December with various activities including Parenting Seminar and a visit to Senior Housing (Panti Werdha) managed by women. Mother’s Day Event The efforts to internalize and strengthen the Corporate Culture were also implemented in various innovative ways, including through: 1. TTW BOOM Quiz Aiming to measure the understanding and concern of Telkomers Group about corporate culture. Quizzes were conducted periodically and on line. 2. Culture Reality Story Is a digital media which contains a collection of articles about Telkom Group employees for their service to the Company that has The Telkom Way cultural values and manages to give positive impacts on the surrounding work environment and the Telkom Group’s environment. 227 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices3. Leaders Talk Values Is an activity held by Role Models in delivering values contained in The Telkom Way to employees to instill the values of The Telkom Way. FROM CULTURE TO CUSTOMER EXPERIENCE Leaders Talk Values In an effort to implement the corporate culture that can be perceived directly by the Telkom Group’s customers, the Culture to Customer Experience training was provided to frontliner supervisors such as Frontline Supervisors of PT Telkom Akses, CSR, Call Center 147 & Socio Media Agent. Training Culture to Customer Experience 228 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsFINDING TELKOM GROUP CULTURE HEROES As part of appreciation to the units and employees who have actively activated The Telkom Way’s corporate culture, the “Finding the Telkom Group Culture Heroes” activity was held in 2017. In this activity, awards were given to The Most Admired Culture Activation Unit, The Most Inspiring Role Model and The Most Inspiring Culture Agent by the CEO of the Telkom Group at the Telkom Award 2017.. IMPLEMENTATION EFFECTIVENESS EVALUATION OF CORPORATE CULTURE The effectiveness of the implementation of corporate culture is evaluated by measuring the Cultural Health Index using a Corporate Cultural Entropy Survey. To date the Telkom Group has maintained the Corporate Cultural Health Index at the PRIME or HEALTHY level. TELKOM BECOME CORPORATE CULTURE BENCHMARKING Telkom’s efforts to activate its corporate culture The Telkom Way have attracted other companies to pay benchmarking visits. Among the companies are ABMA LAND, AUTO 2000, KIMIA FARMA, LPS, MNC Group, PJB, PLN, RSUD Bantul, Taspen, Bio Farma. Benchmark Telkom Smart Office To support the creation of digital work environment digital life style work station has been developed under the Project Telkom Smart Office and the existing rooms have been designed with the theme “Working at Telkom Group has to be fun”. Furthermore, to maintain the existing work stations, Culture Guardian has been established. Culture Guardian consists of representatives of each unit and floor in the Telkom Landmark Tower Building who are responsible for keeping the rooms comfortable with the concept of Digital Life Style. Each Culture Guardian will make a report on the existing conditions and problems to be addressed. In addition to the Work Station, Telkom Employee Shuttle Buses are also provided for employees living in Bekasi, Depok, Bogor, and Tangerang. Equipped with wifi, a mini bar, and a toilet, an Employee Shuttle Bus is a convenient transportation mode for employees. 229 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)Appendices CORPORATE CODE OF CONDUCT IMPLEMENTATION OF CODE OF CONDUCT FOR DIRECTORS, BOARD OF COMMISSIONERS, AND EMPLOYEES In accordance with OJK Circular No.32/SEOJK.04/2015 regarding Corporate Governance Guidelines and Sarbanes-Oxley Act (“SOA”) 2002 section 406, we own and run a code of ethics that applies to all levels of the organization. Telkom code of conduct specified by the decision of the Board of Directors no. PD. 201.01/2014 regarding Business Ethics in Telkom Group and the decision of the Director of the Human Capital Management No. PR.209.05/r.00/PS800/COP-A4000000/2017 regarding Ethics and Compliance employee. That particular decision explained about the business ethics devoted to the external environment and the work ethic of employees devoted to internal Telkom. Telkom’s business ethics applies to members of the Board of Directors, Member of the Board of Commissioners and employees of a large family of Telkom in dealing with customers, suppliers, contractors and other external parties who have a relationship with the company. Employee work ethic applies to fellow employees during work in Telkom Group.. 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: • Capacity and Capability of Employees. • Duties and Prohibitions. • Confidentiality of Information. • Infrastructure. • Work environment. b. Main Behavior of Leaders: • Behavior of Leaders. • Behavior of Directors. • 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. SOCIALIZATION OF CODE OF CONDUCT AND EFFORTS TO ENFORCE THEM We send out the socialization materials to employees about GCG understanding, business ethics, integrity pacts, fraud, risk management, internal control (“SOA”), whistleblowing, banning gratuities, IT governance, safeguarding information security and other matters. integrated with respect to Corporate Governance Practices, every year. It is intended that employees can always maintain and apply the code of conduct as part of the Telkom Group’s big family. We also organise e-learning business ethics and ethics and employee compliance with the entire population of employees through the media portal/intranet which aims to deepen understanding karayawan up a code of conduct in carrying out daily activities. In addition each employee also required to make a statement in the form of integrity pact signed and observed by all employees for being employees of the Telkom. 230 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsEMPLOYEE STOCK OWNERSHIP PROGRAM 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 November 14,1995, as many as 116,666,475 shares are owned by 43,218 employees. Further, on June 14, 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 Rp661 billion. Telkom did not hold the ESOP program in 2017, 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. 231 Corporate GovernancePT Telkom Indonesia (Persero) TbkCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCORPORATE SOCIAL RESPONSIBILITY (CSR) 235 235 Corporate Social Responsibility Strategy Social Responsibilities Towards Customers: Prioritizing Customer Satisfaction 237 Social Responsibilities Towards Employees: Building Human Capital 239 Social Responsibilities Towards Socioeconomic Society 242 Social Responsibilities Towards Environment: Environment Conservation and Preservation “Not only through products and services, but our passion to play a role in Indonesia development is also done through social and environmental responsibility. In line with this, we undertake various initiatives that emphasize responsibility for employees, consumers, communities and the environment.” • Carbon Decreases 363,937 Ton Eqv CO2 T N E M N • Planting Trees Program VIR O N E • Saving : Electric 408,460 Mwh Paper 10,262 rim Water 1,724 dam3 TELKOM CSR P E O P L E • Digital Application C U S T O M E R • Customers Satisfaction Index 86.7% • Digital Application: e-ofﬁce, e-budgeting, ﬁle sharing collaboration, carreer management, traning, etc S E L O Y E P M E • Zero Accident Program • Customer Loyality Index 81.2% • 24.2% Female Employees In conducting every business activity, we understand industry are, among others, customers’ health and safety, the importance of carrying out the corporate social use of materials, and environmental considerations in responsibilities or CSR. Therefore, in this section, we granting credits to customers. present information and data about the corporate social responsibilities emphasizing on the manpower, customer, Furthermore, we also present detailed information and data socioeconomic society, and environmental aspects. related to various social responsibility topics in the Sustainability The presentation of the information about corporate social The stakeholders are highly recommended to download the responsibilities in this Annual Report mainly refers to the Sustainability Report 2017 from the following webpage https:// provisions of the Indonesian Financial Services Authority www.telkom.co.id/servlet/tk/about/id_ID/stockdetail/laporan- (Otoritas Jasa Keuangan / OJK). Certain topics of social berkelanjutan.html and thoroughly read it to complete the data responsibilities required by the OJK are not entirely relevant and information presented in this Annual Report. Report of Telkom prepared in accordance with the GRI Standards. to our business characteristics. The topics irrelevant to our operational activities in the telecommunication and digital 234 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights CORPORATE SOCIAL RESPONSIBILITY STRATEGY Conducted Activities In order to fulfil our social responsibilities towards our The implementation of our social responsibilities has the theme customers, we conducted a series of activities, among others of “Telkom Indonesia Untuk Indonesia” by emphasizing three the implementation of Telkom Integrated Quality Assurance pillars, namely: (TIQA) program, granting of after-sales warranty, and 1. Digital environment, means the development, provision and implementation of customer service policies. Specifically management of telecommunication infrastructure and various for customer service, our policies emphasize on the service facilities of information and communication technology (ICT) delivery, service assurance, and measurement of service quality. to support and connect all people activities, including the environment conservation activities. Product Information 2. Digital Community, means to support community We always ensure that our customers obtain the most accurate empowerment through education on optimization of the and updated product information which may help them in utilization of ICT to assist in the activities of the people making decisions. We, therefore, provide product information daily life. through various approaches. For mobile starter pack, the product information may be found on the packaging. Furthermore, we 3. Digital Economy, means the development of ICT facilities also provide product information on our website and promotional in various public services used by the people, as well as the activities as well as marketing communication conducted support on micro and medium enterprises, especially in the intensively. creative industry sector, in relation to the optimization of ICT utilization. Customer Satisfaction SOCIAL RESPONSIBILITIES TOWARDS CUSTOMERS: PRIORITIZING CUSTOMER SATISFACTION TARGETS AND PLANS IN 2017 The performance measurement of the implementation of our social responsibilities towards our customers was conducted through the survey of customer satisfaction, dissatisfaction and Every year, we evaluate customer satisfaction through the survey mechanisms of Customer Satisfaction Index/CSI, Customer Dissatisfaction Index/CDI and Customer Loyalty Index/CLI. In general, we conclude that the customer satisfaction and customer loyalty in 2017 for the Indihome products and wifi.id are better than those of the previous year. However, in conjunction with the CDI survey results, we ought to pay more attention to the development of Indihome products and services in order to reduce the customer dissatisfaction over the products and loyalty. In 2017, we achieved customer satisfaction and loyalty services. of 86.7 and 81.2, higher than previous year. The achievement indicates the success of our customer relationship maintenance efforts. The following graph and table show the survey results of CSI, CDI and CLI from 2015 to 2017. The following table shows the achievement of our social responsibilities towards the customers in 2017. Specific CSI, CDI and CLI Graph for IndiHome and wifi.id for 2015-2017 Table of Achievement of Social Responsibilities Towards the Customers for 2015-2017 No. Explaination Measurement Unit 2017 2016 2015 1 2 3 Customer Satisfaction Index Customer Dissatisfaction Index Customer Loyalty Index Percent 86.7 85.3 83.1 Percent 2.6 2.5 3.2 Percent 81.2 78.3 78.6 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0 . 7 6 8 2 . 1 8 . 3 5 8 . 3 8 7 1 . 3 8 . 6 8 7 . 6 2 5 2 . 2 3 . 2017 2016 2015 Customer Satisfaction Index (IndiHome & Wifi.id) Customer Loyal Index (IndiHome & Wifi.id) Customer Dissatisfaction Index (IndiHome & Wifi.id) 235 Corporate Social ResponsibilityPT Telkom Indonesia (Persero) TbkCorporate GovernancePartnership and Comunity Development Program (PKBL)Appendices Specific CSI Table for IndiHome and wifi.id Based on the Specifically for the celular’s customers, we provide “Caroline” Measurement Indicators for 2017 call center, which is an abbreviation for customer care online. The CSI Product & Service Delivery System Service Mindset Relationship Corporate Image IndiHome 86.1% 84.0% 86.8% 86.2% 87.8% 85.7% Wifi.id 87.4% 88.8% 86.2% 87.0% 86.5% 88.4% contact numbers of Caroline are as follows: 1. 133 for Halo Card. 2. 188 (24 hours, paid) for simPATI and AS Card. 3. 0807-1811811 (PSTN local rate) for national scale. Moreover, the corporate customer complaints may be submitted through: 1. 1500250 and e-mail tele-am@telkom.co.id and social media @Smart_Bisnis (Twitter) and Smartbisnis (Facebook) for Specific CDI Table for IndiHome and wifi.id Based on the MSME customers. Measurement Indicators for 2017 CDI Product & Service Delivery System Service Mindset Relationship Corporate Image IndiHome Wifi.id 2.5% 3.7% 1.2% 2.9% 1.9% 2.8% 2.7% 2.0% 4.5% 2.0% 2.4% 2.4% 2. 08001 Telkom or 08001035566 and e-mail: c4@telkom. co.id, and social media @TelkomSolution (Twitter) and TelkomSolutionID (Facebook) for corporate customers and Government institutions. In 2017, there was a percentage increase of direct settlement of complaints compared to that of the previous year. The following table shows the duration of customer complaint settlement for the past three years: Table of Settlement of Customer Complaint Percentage for 2015-2017 No. Customer Complaints 2017 2016 2015 1 Internet Directly settled Settled in 1 – 3 days Settled in more than 3 days 2 Telephone Directly settled Settled in 1 – 3 days Settled in more than 3 days 37.0 59.8 3.2 30.0 65.6 4.4 22.1 60.5 17.4 23.7 60.9 15.4 19.9 65.2 14.9 35.7 66.2 14.0 Specific CLI Table for IndiHome and wifi.id Based on the Measurement Indicators for 2017 CLI Switching Barrier Attitude Behaviour Emotional Customer Complaints IndiHome 79.9% 77.4% 80.8% 76.3% 85.0% Wifi.id 82.5% 86.2% 84.8% 71.2% 87.9% In response to customer complaints, we provide different approaches for individual and corporate customers. For individual customers, the complaints may be submitted to the customer service center called Plasa Telkom. In addition, individual customer complaints can also be submitted through complaint media: 1. Plasa Telkom. 2. Call Center: 147. 3. Social Media: @telkomcare (twitter), telkomcare (fb). 4. Apps: my IndiHome. 5. Complaint via web chat at www.indihome.co.id. 236 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights SOCIAL RESPONSIBILITIES TOWARDS EMPLOYEES: BUILDING HUMAN CAPITAL TARGETS AND PLANS IN 2017 reputation in the past few years and have been implementing employees’ health and safety management system. The implementation of employees’ health and safety management system was conducted online through Safety Care Online and the SAS Portal application in accordance with the Government We had a zero-accident program with respect to the Occupational Regulation No.50 of 2012. Health and Safety (OH&S) in 2017. In line with previous year’s performance, no employee died due to occupational accidents Labor Practices in our operational area. In relation to the turnover rate, it was lower in 2017 than that of the previous year. We shall We have labor practices in place in accordance with the indeed maintain our excellent performance for the upcoming internationally applicable statutory provisions and business ethics. years. In the coming year, we will continue implementing We tend to pay much attention to the aspects of gender equality the zero-accident program and reducing the turnover rate. and work opportunity. Our female President Commissioner shows Table of Employee Turnover for 2015-2017 No. Description Unit of Measurement 2017 2016 2015 1 Turnover Rate people 27 11 8 Conducted Activities Our social responsibilities towards the employees were conducted through several approaches and activities. For instance, in case of employees’ health and safety (OH&S), we gave a socialization about responses to disasters and first aid. In addition, we have also been maintaining safe business hours and zero fatality that every single person, without discriminating genders, may hold the highest office in our company. Meanwhile, we also appreciate employee’s rights to gather and unite which regulated by the regulation. We have Telkom’s SEKAR, which is Telkom’s Employee Union. SEKAR is Telkom employee union which represent all of PT Telkom Indonesia (Persero) Tbk. Employee. SEKAR also acting as employee’s representative in drafting collective labor agreement (PKB) with the Company. The following table shows the managerial recruitment, training and positions in our company based on gender from 2015 to 2017. Table of Employee Recruitment of Telkom Based on Gender for 2015-2017 No. 1 a b Description 2017 2016 2015 Male Female Male Female Male Female New Employees Age group 18-25 Age group 26-30 Total 232 21 253 147 13 160 200 20 220 202 24 226 170 66 236 200 30 230 Table of Number of Employees and Hours of Training of Telkom Based on Gender as of 31 December for 2015-2017 No. Types of Training 1 2 3 a Certification training SUSPIM Training Regular Training Operational technical field b Management field Total 2017 2016 2015 Male Female 850 822 321 262 Hours of Training 43,440 38,136 Male Female 308 446 118 62 Hours of Training 14,168 38,880 Male Female 471 243 168 28 Hours of Training 21,712 21,680 14,719 6,060 639,408 19,849 5,598 498,885 13,335 3,179 379,389 9,367 5,352 4,299 416,240 12,385 1,761 223,168 7,464 16,391 6,643 720,984 20,603 3,493 2,105 5,778 177,191 321,694 3,883 9,452 551,933 14,049 488 2,691 3,375 111,913 267,476 422,781 23,034 26,381 17,424 237 Corporate Social ResponsibilityPT Telkom Indonesia (Persero) TbkCorporate GovernancePartnership and Comunity Development Program (PKBL)Appendices Table of Number of Employees of Telkom Based on Rate of Occupational Accidents Managerial Positions and Gender as of 31 December for 2015- 2017 2016 2015 accident in 2017. This is considered an excellent achievement of Male Female Male Female Male Female our efforts in taking care of the employees’ health and safety. In line with our achievement in 2016 and 2015, we recorded zero 2017 No. Managerial Position 1 2 3 Band Position I Band Position II Band Position III Total 111 498 8 44 110 420 8 40 92 402 6 28 2,027 319 1,661 212 1,686 205 2,636 371 2,191 260 226 239 3,007 2,451 2,419 In the case of remuneration, we comply with the provisions of the provincial minimum wage (upah minimum provinsi / UMP) regulation. We set the lowest salary in our Company to be above the UMP level. Our employee turnover rate in 2017 reached 0.2% increased from 0.1% in 2016. Most of the employees were not working with the Company anymore due to employees’ own request. The following table presents the comparison between the remuneration and UMP level and our employee turnover rate from 2015 to 2017. Table of Comparison between the Employee Remuneration of Telkom and UMP Level for 2015-2017*) Complaints of Labor Issues We understand the importance of manpower as one of the most crucial components in conducting business activities and achieving performance targets as effectively and efficiently as possible. Therefore, we make our best efforts to minimize the negative impacts of existing labor issues. One of the efforts we make is to provide a number of employee complaint mechanisms for the early detection and settlement of problems. Complaints of labor issues may be submitted through: 1. HR helpdesk, is a complaint mechanism through the web-in service, email-in service HR_helpdesk@telkom.co.id, and phone-in service number 1500305. 2. HR Wiki, is a search engine service used by the employees to obtain information about the manpower of Telkom. 3. Employee aspiration, is an adaptation of the employee suggestion system (ESS) which may be utilized by the employees to convey their suggestions and aspirations. 4. Employee reference, is a catalogue of human capital or No. Description 2017 2016 2015 employment policy of Telkom available to the employees, Male Female Male Female Male Female including regulations and explanations. 1 2 3 4 Senior Management Middle Management 100% 100% 100% 100% 100% 100% Digital Working Style 100% 100% 100% 100% 100% 100% Supervisor 100% 100% 100% 100% 100% 100% Others 100% 100% 100% 100% 100% 100% *) The smallest wage for new employees at entry-level positions Table of Telkom Employee’s Turnover for 2015-2017 No. Description 2017 2016 2015 The development of digital technology affects the culture and way of working becomes faster, easier and more open. We utilize various digital applications for employees to support daily operations such as corporate portal applications including e-office, e-budgeting, file sharing collaboration, career management, training and others 1 2 Number of employees of Telkom (people) Rate of employee turnover -On employees’ own request -Due to becoming administrators of political parties -Due to becoming board of direc tors of State-Owned Enterprises / government officials -Disciplinary violation -Marriage with any employees of Telkom -Pension -Death 13,956 14,933 16,097 In addition, we also create a flexible and open work culture, to attract employees in doing various innovations, one of the programs is Digital Amoeba. This program is specifically intended to find the internal talents of Telkom that facilitate employees who want to develop digital startup. 27 15 0 4 0 8 0 0 11 11 0 0 0 0 0 0 11 8 0 1 2 0 0 0 3 Percentage of Turnover (%) 0.2 0.1 0.1 238 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights SOCIAL RESPONSIBILITIES TOWARDS SOCIOECONOMIC SOCIETY Indonesia for Indonesia, and with the main program of: Planet – Digital Environment, People – Digital Society, and Profit – Digital Economy. TARGETS AND PLANS IN 2017 Some of the activities we conducted were, among others, We had a number of targets and plans in 2017 in carrying out our renovations of veteran houses, Telkom CSR Day, and Gantari social responsibilities towards socioeconomic society. The CSR Award for disabled people. In addition, we also conducted the and Partnership and Environment Development Program (PKBL) Telkom Berbagi 2017 program which was carried out in the month schemes were our bases in preparing budgets and funding of Ramadhan and to celebrate the Eid al-Fitr. Other activities we targets for our programs. We present more detailed information conducted were Telkom Peduli Budaya Nusantara and Telkom about our social responsibility plans in the Sustainability Report. Craft Indonesia. In the educational aspect, we conducted the Conducted Activities programs of Digital Library (Pustaka Digital), Indonesia Digital Learning, and SOE Goes to Campus (BUMN Hadir di Kampus). In addition, as a clear manifestation in encouraging the growth of The implementation of our social responsibilities towards the digital industry through community development programs, socioeconomic society was conducted through the schemes of we are organizing Indigo program of the nation which is the CSR programs and PKBL activities. Our CSR program was called incubator program and accelerator of Indonesian digital startup, SOE for Nation (BUMN Hadir untuk Negeri) with the theme of starting from pre-incubation stage to funding. We present more detailed information about CSR and PKBL activities of Telkom in the Sustainability Report 2017 of Telkom. Theme: Telkom Indonesia Untuk Indonesia Planet People Profit DIGITAL ENVIRONMENT DIGITAL SOCIETY DIGITAL ECONOMY Wifi Corner SocioDigi Leader TelkomCraft Indonesia Broadband Learning Center & Digital Library BLC Disability Care UKM Go Digital SOE Creative House and Digital UKM Village Space Exploration by Children of the Nation Training for Online Marketing Digital Lounge Creative Camp SOE Goes to Campus Village Economic Center Telkom Cares About Cutures Renovation of Veteran Houses Indonesia Digital Learning Donation for the victims of Natural Disasters 239 Corporate Social ResponsibilityPT Telkom Indonesia (Persero) TbkCorporate GovernancePartnership and Comunity Development Program (PKBL)AppendicesIn 2017, the costs incurred for the implementation of our social responsibility activities reached Rp418.08 billion. The largest proportion of the costs incurred was for the partnership programs in the amount of Rp307.61 billion, followed by Rp81.97 billion for environment development programs and Rp28.50 billion for CSR programs. Table of Costs Incurred for Social Responsibilities towards Socioeconomic Society for 2015-2017 No. 1. 2. 3. Description of Programs CSR Programs Partnership Programs Environment Development Programs Total Costs 2017 (Rp billion) 2016 (Rp billion) 2015 (Rp billion) 28.5 307.6 82.0 418.1 19.3 360.9 82.0 462.2 18.3 347.0 72.4 437.7 We used such funds to carry out various community social development programs as stated in the following table: Table of Realization of Fund Distribution for Partnership Programs and Increase of Number of Partners Number of Partners Fund Distribution (Rp billion) No. Business Sector 1 2 3 4 5 6 7 8 Industry Trade Agriculture Animal Husbandry Plantation Fisheries Service industry Others Sub Total 2017 1,683 4,592 120 237 121 199 1,404 11 8,367 2016 1,784 6,371 200 351 201 276 1,751 22 10,956 2015 1,895 6,972 229 429 207 333 1,896 20 11,981 Partnership Program Fund Total CAGR (%) (23.6) (8.6) Table of The Distribution of Funds for Community Program No. Donation Type 1 2 3 4 5 6 7 8 Natural Disaster Victims Donation Education Donation Healthcare Improvement Donation Improvement of Infrastructure and Public Facilities Donation Place of Worship Donation Nature Conservation Donation Civil Society in Order for Poverty Alleviation Donation Capacity Improvement Donation to Foster Partners Total CAGR (%) 2017 20 392 113 311 395 18 86 0 1.335 (7.0) Total Donation Objects 2016 2015 20 492 154 221 382 30 22 115 1.436 64.1 17 336 62 170 219 27 2 42 875 240 2017 53.9 144.6 4.4 8.6 3.4 6.5 47.8 0.4 269.6 38.0 307.6 (14.8) 2017 0.7 25.1 4.8 11.8 10.2 1.1 28.3 - 82.0 - 2016 60.9 203.5 7.2 13.3 5.4 8.0 61.5 1.2 360.9 0 360.9 4.0 Total Disbursement (Rp billion) 2016 0.9 35.7 10.4 13.4 10.6 0.9 1.6 8.4 82.0 13.2 2015 56.4 194.0 6.8 12.8 5.6 9.2 55.3 0.9 341.0 6.0 347.0 2015 1.3 41.2 1.5 15.7 8.5 0.8 0.0 3.5 72.4 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Local Workers We pay attention to the socioeconomic impacts of our business activities, one of which was the impacts of recruitment of local workers. The recruitment was conducted both directly, which was carried out by Telkom, or indirectly, by our contractors. Anti-Corruption We have been making any efforts possible to prevent corruption. We undertook prevention, supervision and enforcement involving active participation of every function in the company. One of our efforts was selecting suppliers in several stages, such as registration through the Supply Management and Logistic Enhancement (SMILE) application, selection of suppliers, and determination of suppliers entitled to participate in the tender. Our anti-corruption policies require every person in our company to sign an Integrity Pact. We also have a specific portal with respect to corruption called myintegrity.tellkom.co.id. In order for our employees to have an adequate capacity to prevent corruption, we conducted an anti-corruption training for our employees. 241 Corporate Social ResponsibilityPT Telkom Indonesia (Persero) TbkCorporate GovernancePartnership and Comunity Development Program (PKBL)AppendicesSOCIAL RESPONSIBILITIES TOWARDS ENVIRONMENT: ENVIRONMENT CONSERVATION AND PRESERVATION TARGETS AND PLANS IN 2017 In 2017, we had a number of targets and plans to cope with the environmental aspect. Those targets and plans were, among others, related to the water consumption, liquid waste management, electricity consumption and saving, and solid waste management. The following table presents data of our achievement for the targets we set in 2017. Table of Realization for Social Responsibility Efforts of Telkom towards the Environment 2015-2017 No. Description Units of Measurement 2017 2016 2015 Electricity Consumption MWh 408,460 415,428 478,924 CO2 emissions Ton Eqv CO2 363,937 370,147 426,714 1. 2. 3. Water Usage and Liquid Waste Management We conserve water by using automatic water taps in office buildings. Our primary water source is from the drinking water company in Jakarta used for the domestic needs of the company. Specifically for the needs of vehicle washing and plant watering, we utilize the recycled water through simple filtration processes with charcoal. In addition, we also conserve water by making biopores and water reservoirs around the office buildings. In 2017, our water usage is 1,724 1000M3. Graph of Office Clean Water Consumption and Emissions of Telkom 2015-2017 1000M3 1,724 873 1,297 2,000 1,500 1,000 500 0 Water Consumption 1.000 M3 1,724 873 1,297 2017 2016 2015 4. Paper Saving Reams of paper 10,262 10,124 10,604 Conducted Activities Energy Efficiency and Eco-Friendly Energy Utilization We have an energy management initiative with active and passive design approach, which was carried out in three main programs: Managed Service Program, Managed Service Asset Protection Program, and Managed Service Program for electricity. Based on the computation in 2012, we calculate the CO2 emissions from the utilization of electricity and petroleum. We have implemented various initiatives in relation to energy through energy conservation approaches and utilization of eco- friendly energy. For instance, since 2010, we have utilized inverter- equipped AC’s. Our data centre also prioritize the usage of LED lights and cooling system management to conserve more energy. To reduce the energy usage of office buildings, we utilize reflective glass with 6mm of thickness to reduce the incoming heat. We also combined the energy reduction program with health benefits through the bicycle utilization initiative every Friday. In 2017, we participated in the Earth Hour activities to reduce energy consumption and give positive contributions towards emission reduction and enhancement of environment and air quality. In order to decrease the use of paper materials, we have utilized online official memo. We have also provided digital platforms for customers to make digital transactions, such as the utilization of electronic bills and e-banking digital transaction application, to help reduce paper usage. In 2017, we succeeded in saving 10,262 reams of paper, compared to the usage of 10,124 reams of paper in 2016. assuming an average 1 official memo consists of 2 pieces and shown to the 3 peoples recipient each forwarded to 3 peoples. 242 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights Table of Electricity Consumption Savings through the LED Lights Usage Initiative for 2015-2017 No Year Number of Locations Number Installed Savings (Kwh) Savings (Rp) Reduction (Kg CO2) 1. 2. 3. 2015 2016* 2017* 191 0 0 Remarks:* there was no addition of LED lights 34,783 12,733,125 13,048,932,710 11,345,214.59 0 0 13,498,201 14,158,633,463 12,026,897.74 4,499,401 4,719,544,488 4,008,965.91 Table of Electricity Consumption Savings of Telkom through the Eco-Friendly AC’s Utilization Initiative for 2015-2017 No Year Number of Locations Number Installed 1. 2. 3. 2015 2016 2017 460 0 0 6,642 980 0 Savings (Kwh) Savings (Rp) Reduction (Kg CO2) 2,222,807 2,889,649,620 1,980,521.39 7,945,273 10,328,854,536 7,079,238.49 2,850,440 3,705,571,584 2,539,741.93 In the past three years, energy usage decreased from 478,924 MWh in 2015 to 408,460 MWh in 2017. In conjunction with the decrease of energy usage, emissions also decreased to 363,937 Ton Eqv CO2. The decrease of energy lights and eco-friendly AC’s. We present consumption was due to electricity savings through the utilization of LED in the Sustainability Report 2017. more detailed information about our achievement of energy savings in 2017 Graph of Electricity Consumption of Telkom for 2015-2017 (MWh) Graph of Emission of Telkom for 2015-2017 (Ton Eqv CO2) 408,460 415,428 478,924 363,937 370,147 426,714 500,000 450,000 400,000 350,000 450,000 400,000 350,000 300,000 2017 2016 2015 2017 2016 2015 Further, the utilization of eco-friendly energy is implemented on the Base Transceiver Station or BTS by using solar panels and micro hydro. In certain areas where the electricity supply for the BTS resource is hardly obtainable, we utilize the combination of generators, solar panels, and wind energy to generate electricity in order to decrease the petroleum usage. Management System of Solid Waste of Hazardous Toxic Materials and Non-Hazardous and Non-Toxic Materials (Limbah Padat B3 dan Non-B3) In the case of waste management, we submit both the solid waste of hazardous and toxic materials or the so-called B3 waste, and non-B3 waste, to the Government official mechanism through the local Sanitary Agency. Specifically for the management of mercury lamps B3 waste, we cooperate with the manufacturers of Phillips and Osram lamps. Environmental Complaint Mechanisms Our business characteristics in the telecommunication and digital industry cause relatively low impacts on the environment. Therefore, there was no complaint from the citizens or other stakeholders about environmental issues so far. Should there be any violation of environmental regulations, we welcome any complaints to the mechanism of Whistle Blowing System (WBS) or complaints may be submitted directly to the Corporate Secretary. Certification in Field of Environment In conformity with our concern for the environment, our data centre that is managed by Telkom Sigma has obtained a certification in the field of environment, namely the ISO 14001, by the British Standards Institution. Table of Certification in the Field of Environment Obtained by Telkom for 2017 No. Year Certification Recipient Certifying Institution Validity Period 1 2014 EMS ISO 14001 Telkom Sigma The British Standards Institution (BSI) 2017 243 Corporate Social ResponsibilityPT Telkom Indonesia (Persero) TbkCorporate GovernancePartnership and Comunity Development Program (PKBL)Appendices PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM (PKBL) 246 PKBL Summary 247 PKBL Report “Being part of Indonesia, means to help build and prosper the community. This is done not only through our products and services and operational activities which have positive economic impact. Moreover, through the Partnership and Community Development Program we are also giving more value to life in Indonesia.” Highlights Management Report About Telkom Indonesia Analysis and Discussion PARTNERSHIP & COMMUNITY DEVELOPMENT PROGRAM (PKBL) PARTNERSHIP PROGRAM Rp307.61 billion* 2017 PARTNERSHIP PROGRAM REALIZATION 8,367 Partners COMMUNITY DEVELOPMENT PROGRAM Rp81.97 billion Trading Industry Farms Services Fishery Plantation Agriculture Others Rp144.56 billion 4,592 Partners Rp53.92 billion 1,683 Partners Rp8.56 billion 237 Partners Rp47.8 billion 1,404 Partners Rp6.48 billion 199 Partners Rp3.46 billion 121 Partners Rp4.37 billion 120 Partners Rp430 million 11 Partners 2017 COMMUNITY DEVELOPMENT PROGRAM REALIZATION Natural Disaster Victim Donation Rp690 million Education Donation Healthcare Improvement Donation Rp25.08 billion Rp4,78 billion Improvement of Infrastructure and/or Public Facilities Donation Rp11.85 billion Places of Worship Donation Rp10.21 billion Nature Conservation Donation Rp1,1 billion Civil Society in Order for Poverty Alleviation Donation Rp28.26 billion *Including Fostering Partnership Fund 246 PT Telkom Indonesia (Persero) Tbk Corporate Governance Corporate Governance Corporate Social Responsibility Corporate Social Responsibility Partnership and Comunity Development Program (PKBL) Partnership and Comunity Development Program (PKBL) Appendices Appendices PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM (PKBL) REPORT PKBL OBJECTIVES The Partnership and Community Development Program (PKBL) is a community empowerment focused on the economic and social aspects that directly or indirectly relates to Telkom’s main business. The PKBL is not only an obligation for Telkom as an SOE, but also an effort to manage the impacts of the Company’s policies and operational activities on the community and natural environment on an ongoing basis. The program consists of the Partnership Program which includes distribution of loan funds to Small Medium Enterprise (SME) and Foster Partner Capacity Enhancement, and the Community Development Program which includes seven Objects of Donation, namely: Natural Disaster Victim Donation Education Donation Healthcare Improvement Donation Improvement of Infrastructure and/ or Public Facilities Donation Places of Worship Donation Nature Conservation Donation Civil Society in Order for Poverty Alleviation Donation LEGAL BASIS AND GENERAL POLICY The implementation of PKBL activities is regulated through Law To perform this obligation, the Company has formulated policy No.19 dated June 19, 2003 on SOE and a Decree of the Minister and operational guidelines under Regulation of the Board of of State-Owned Enterprises which has been amended from Directors PR.202.60/r.00/HK200/COP-A2000000/2017 dated time to time, the last one was by Regulation of the Minister of August 8, 2017 about the Community Development Center State-Owned Enterprises No.PER-02/MBU/7/2017 dated July Organization. 5, 2017 regarding the Second Amendment to Regulation of the Minister of State-Owned Enterprises No.PER-09/MBU/07/2015 on the Partnership Program and Community Development Program of State-Owned Enterprises, and Letter of the Minister of State-Owned Enterprises No.S-513/MBU/08/2016 dated August 30, 2016 concerning the Delivery of Aspirations of Public Shareholders for the Preparation of the 2017 Corporate Work Plans and Budgets. PT Telkom Indonesia (Persero) Tbk 247 SUCCESS PARAMETER CSR (PKBL) Index In 2017, the Company conducted a measurement of CSR (PKBL) Index with the achievement of 73.07%. The achievement shows that the Company’s CSR activities brought an impact at the rate of >70% on customer loyalty and corporate reputation. Net Promoter Score - NPS In addition to measuring the CSR (PKBL) Index, the Company also measured the rate of public recommendation and promotion to use Telkom products in the Net Promoter Score (NPS). The survey resulted in the following NPS. The results of NPS measurement in 2017 showed positive value from the perspective of the community in recommending the use of Telkom products. The Effectiveness of Partnership Program Fund Disbursement In 2017, the target of fund disbursement of the Partnership Program was 80% of available funds with the realization rate of 93.72% and score of 3. Table of Effectiveness of Partnership Program Fund Disbursement 2015-2017 Partnership Program Year 2017 2016 2015 Total Funds Disbursed 307.61 360.92 346.97 Net Promoter Score Partnership Program Total Funds Allocated 328.21 366.54 384.34 42.88% PROMOTERS 35.32% PASSIVES 21.80% DETRACTOR NPS = PROMOTERS-DETRACTOR NPS PARTNERSHIP PROGRAM = 21.08% Net Promoter Score Community Development Program 41.74% PROMOTERS 38.53% PASSIVES 19.72% DETRACTOR Fund Disbursement Effectiveness Rate (%) Fund Disbursement Effectiveness Score 93.72 98.47 90.28 3 3 3 The Collectability of Partnership Program Funds The target of collectability rate in 2017 was 80% while the realization was 85.17% with the score of 3. Table of Collectability of Partnership Program Funds Percentage 2015-2017 Collectibillity Year 2017 2016 2015 Collectability Rate (%) 85.17 88.54 71.37 Score 3 3 3 The Effectiveness of Community Development Program Fund Disbursement The 2017 target of 80% was channelled from the allocation of Rp82 billion with the realization of Rp81.97 billion or 99.97% of the 2017 fund allocation. Table of Effectiveness of Community Development Program Fund Disbursement Community Development Program 2017 2016 2015 Year NPS = PROMOTERS-DETRACTOR Total Funds Disbursed 81.97 81.97 72.41 NPS COMMUNITY DEVELOPMENT PROGRAM = 22.02% Total Funds Allocated 82.00 82.00 82.00 Fund Disbursement Effectiveness Rate 99.97 99.97 88.30 248 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights PKBL BUDGET ALLOCATION Table of realization of total Foster Partners and Fund Disbursements per Business Sector from 2015-2017 The allocation of funds for PKBL activities, as stipulated by the Ministry of SOE, stemmed from the Company’s profit allowance for the Partnership Program funds and the Company’s budget Business Sector Number of Foster Partners Total Disbursements (billion Rp) 2017 2016 2015 2017 2016 2015 allocation for the Community Development Program funds. The Industry 1,683 1,784 1,895 53.92 60.92 56.37 realization of PKBL fund disbursement in 2015 2017 was as Trade 4,592 6,371 6,972 144.56 203.48 193.97 follows Table of Budget Allocation of Partnership Programs and Community Development 2016-2017 Type of Program 2017 2016 % of Change Partnership Program 328.21 366.54 (10.46) Agriculture Livestock Plantation Fisheries Service Others 120 237 121 199 200 351 201 276 229 429 207 333 4.37 7.18 6.77 8.56 13.29 12.81 3.46 6.48 5.4 5.56 7.97 9.21 1,404 1,751 1,896 47.80 61.52 55.32 11 22 20 0.43 1.16 0.95 Sub Total 8,367 10,956 11,981 269.58 360.92 340.96 82.00 410.21 82.00 448.54 0.00 (8.55) Fostering Partnership Fund Total 38.03 0 6.01 269.58 360.92 340.96 Community Development Program Total PKBL REALIZATION CAGR (%) (23.63) (8.56) (14.77) 4.02 The number of recipients of the Partnership Program funds in 2017 decreased by 23.63% compared to 2016, while the amount of funds disbursed in 2017 decreased by 14.77%. PKBL Program in 2017 consists of The Partnership Program and The Community Development Program. Partnership Program The Partnership Program is a program of empowering economic competence to increase revenues through small medium enterprise activities by providing low interest loan funds that are set aside from a portion of SOEs’ operating profits with a focus on digitizing partnership management, providing digitalization training for foster partners and involving foster partners in national and international exhibitions. In 2017, the Partnership Program fund disbursement amounted to Rp269.58 billion to 8,367 Foster Partners which consisted Photos of Disbursement in Palembang of industry, trade, agriculture, livestock, plantation, fisheries, service and other business sectors. The realization of total To enhance the capacity of the Foster Partners, we focused on Foster Partners and Fund Disbursements per Business Sector three main activities, namely Digitizing the Partnership Program from 2015 to 2017 is shown below. Management, Providing Digitalization Training for the Foster Partners and Involving the Foster Partners in National and International Exhibitions. 249 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesPartnership Program Management Digitalization Since the implementation of PKBL Management Information System (SIM) in 2007, Telkom has used digital technology to manage the data of Foster Partners in the Partnership Program. In 2016, Telkom implemented loan application for the Partnership Program through SmartBisnis website and instalment payment through virtual bank accounts with Bank Mandiri and Bank BNI. In 2017, the instalment payment service through virtual accounts was expanded in collaboration with subsidiaries of PT Finnet Indonesia as a non- bank payment point aggregator, including PT Pos Indonesia, PT Pegadaian, Alfamart and Indomart. It is aimed to facilitate the Foster Partners in making instalment payments. PROPOSAL OBJECTIVES AND RECEIVABLES SME COMMUNITIES FOSTER PARTNERS VIRTUAL ACCOUNT SIM PKBL STARBOX DIGITALIZED MANAGEMENT OF THE PARTNERSHIP PROGRAM SME Digitalization Training We have been providing the training since 2015 in order to help the Foster Partners, promote and market their products to enter the global market by utilizing the facilities of blanja.com website. In 2017, training was provided for 1,094 SME. In addition to digitalization training, we also conducted digitalization seminars to broaden the Foster Partners’ insight. SME Go Digital Workshop in Surabaya 250 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsNational and International Exhibitions Table of Distribution of Community Development Program Funds per Type of Donation 2015-2017 Telkom has consistently encouraged its Foster Partners to participate in national and international exhibitions. In 2017, 150 Foster Partners took part in Telkom Craft Indonesia which No Donation Type is a part of Rumah Kreatif BUMN and Telkom’s improvement in enhancing the capacity of its Foster Partners. Other exhibitions included Adiwastra Exhibition, Kriyanusa Exhibition and international exhibition Sail Sabang 2017. Previously, Telkom had participated in similar exhibitions such as Sail Komodo - Labuan Bajo, Sail Raja Ampat, Sail Tomini and Sail Karimata For overseas exhibitions, Telkom engaged Foster Partners in an exhibition in Algeria in 2016 and the Foire Internationale De Marseille-France Exhibition in 2017. 1 2 3 4 5 6 7 8 Nature Disaster Victims Donation Education and/or Training Donation Healthcare Improvement Donation Development of Public Infrastructure and Utilities Donation Religion Facility Donation Natural Preservation Donation Poverty Alleviation Donation Capacity Improvement Donation to Foster Partners Total Donation Objects Total Disbursement (Rp billion) 2017 2016 2015 2017 2016 2015 20 20 17 0.69 0.94 1.30 392 492 336 25.08 35.68 41.15 113 154 62 4.78 10.42 1.47 311 221 170 11.85 13.37 15.73 395 382 219 10.21 10.62 8.47 18 30 27 1.1 0.91 0.75 86 22 2 28.26 1.64 0.01 - 115 42 - 8.39 3.52 Telkom Craft Indonesia Exhibition Nature Disaster Victims Donation Total 1,335 1,436 875 81.97 81.97 72.41 CAGR (%) (7.03) 64.11 - 13,20 Natural disaster donation is aimed at relieving the burden of the people affected by natural disasters. In 2017, Telkom distributed aid affected by disasters, such as floods in Bandung and Bima Regencies, eruptions of Mount Agung and Mount Sinabung, landslide in Pacitan and earthquake disaster in Pidie Jaya. Sail Sabang Exhibition The Community Development Program The Community Development Program is a community empowerment program in the Company’s business areas which covered Natural Disaster Donation, Education and Training Donation, Public Health Donation, Public Facility Donation, Religious Facility Donation, Environmental Preservation Donation, and Poverty Alleviation Donation. The donation is Donation of SOE Care for Mount Agung Disaster part of the SOE’s Hadir untuk Negeri Program. The actual distribution of funds for the Community Development Program amounted to Rp81.97 billion or 99.97% of fund disbursement commitment of Rp82 billion. The following table shows the distribution of funds for the Community Development Program per type of donation from 2015 until 2017. 251 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesEducation Donation As the implementation of the commitment to development of the country’s digital technology competence, Telkom is active in improving the quality of education under the Indonesia Digital Learning program by providing Digital Library (Pustaka Digital/PaDi) facilities and My Teacher My Hero Program. Up to 2017, Telkom has provided 3,991 units of PaDi, and digital training for 1,099 teachers under My Teacher My Hero program. The IDL Program was also appreciated by Prosthetic Leg Aid the President of the Republic of Indonesia in his speech at the opening of the 2017 PGRI Congress. Other forms of Public Health Donation included blood donation and cheap market in Makassar under the Safari Ramadhan In addition to improving the community’s ability to use program. digital technology, Telkom also participated in maintaining the local wisdom and cultural values in the young generation through Telkom Peduli Budaya program which was held in 5 cities, namely Bandung, Yogyakarta, Balikpapan, Makassar and Pekanbaru, and organized the Siswa Mengenal Nusantara program which was joined by 20 students as of 2017. Cheap Market in order of Safari Ramadhan Improvement of Infrastructure and/or Public Facilities Donation The purpose of this program is to improve services to the public in terms of facilities and infrastructure. The program is expected to increase the community’s accessibility to their activities, facilitate activities with the support of the improvement of bridges and clean water supply for the Badui communities, and provide the infrastructure of Mama-Mama Market in Papua. Appreciation of Indonesia Digital Learning Program held by Telkom Indonesia Healthcare Improvement Donation Donation for public health is also a concern of Telkom, among others through the Disability Care program which has been running since 2016. The implementation of the 2017 Disability Care program included the Gantari Award which was held in collaboration with the Kick Andy Foundation for people with disabilities who were selected as inspirators for persons with disabilities to live independently. Overall in 2017, Telkom has distributed aid to 590 difable people (deaf, blind, and disabled people) as well as providing Broandband Learning Center Difable (BLC-D) donation and as well as the development of Mata Hati disability community. BLC Mama Mama Market 252 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsPlaces of Worship Donation Civil Society in Order for Poverty Alleviation Donation In addition to the construction of Public Facilities, Telkom Through Civil Society in Order for Poverty Alleviation Donation, gives attention to the construction and improvement of Telkom hopes to improve the lives of the poor both in urban and religious facilities in order to improve the implementation of rural areas. The Civil Society in Order for Poverty Alleviation religious activities of the community. The donation includes the Donation provided in 2017 included 150 Housse of the Bedah construction and renovation of mosques and churches. Rumah Veteran program in West Java, 52 Houses of Bedah Rumah Pensiunan Telkom, Balai Ekonomi Desa (Balkondes) in Magelang, the groundbreaking of which was done in 2016 by SOE’s Minister. Mosque Donation Delivery Nature Conservation Donation The donation program for Nature Conservation is part of the Company’s commitment to the environment. The Environmental Preservation Program includes reforestation around Merapi Mount area, Wali Pohon in Lembang, and preservation of 50,000 trees around Lake Toba which were planted in 2016. The Visit of the President of Indoneisa in Balkondes Employee Volunteer Program (EVP) The Employee Volunteer Program (EVP) is part of the main program Work Life Integration which serves as a forum to facilitate social activities initiated by Insan Telkom Group (Telkomers) in the scope of individuals, business units, and employee communities within the Telkom Group. In 2017, the EVP was run as a strengthening of corporate culture by 87 Kipas Budaya. Tree-Planting EVP CDC EVP CDC 253 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesAPPENDICES 256 Glossary 260 List of Abbreviations 264 Cross Reference to OJK Circulation Letter No.30/SEOJK.04/2016 GLOSSARY 2G The abbreviation for second generation: relating to or using a Bandwidth The capacity of a communication link. technology that gave mobile phone users improved features and allowed people to send text messages (SMS). 3G The generic term for third generation mobile telecommunications technology. 3G offers high speed connections to cellular phones and other mobile devices, enabling video conference and other applications requiring broadband connectivity to the internet. 4G/LTE A fourth generation super fast internet network 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, tax, Bapepam-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan, or the Indonesian Capital Market and Financial Institution Supervisory Agency, the predecessor to the OJK. Broadband A signaling method that includes or handles a relatively wide range (or band) of frequencies. BSS Base Station Subsystem, the section of a cellular telephone network responsible for handling traffic and signaling between a mobile phone and the network switching subsystem. A BSS is composed of two parts: the BTS and the BSC. depreciation and amortization. Adjusted EBITDA and other related ratios in this Annual Report serve as additional indicators on our BTS Base Transceiver Station, equipment that transmits and receives performance and liquidity, which is a non-GAAP financial measure. radio telephony signals to and from other telecommunication systems. ADS American Depositary Share (also known as an American Depositary Receipt, or an “ADR”), a certificate traded on a U.S. securities C-Band C-Band is a frequency allocation for communications satellites. market (such as New York Stock Exchange) representing a number C-Band uses 3.7-4.2GHz for downlink and 5.925-6.425Ghz for of foreign shares. Each of our ADS represents 100 of our Series B uplink. The lower frequencies that C Band uses perform better shares having a par value of Rp50 per share (“common stock”). under adverse weather conditions than the Ku band or Ka band frequencies. ARPU Average Revenue per User, a measure used primarily by telecommunications and networking companies which states how Consortium Co-financing a project or enterprise undertaken by two or more much money we make from the average user. It is defined as the banks or financial institutions. total revenue from specified services divided by the number of consumers for those services. Backbone The main telecommunications network consists of transmission 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 the property of the network and switching facilities that connect multiple network access operator and located on the customer premises. nodes. The transmission network between node and switching facilities includes microwaves, submarine cables, satellites, optical fibers, and other transmission technologies. 256 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCybersecurity Cyber security is an effort to protect information from cyber- Gbps Gigabyte per second, the average number of bits, characters, attack. Cyber-attack in information operations is any kind of or blocks per unit time passing between equipment in a data deliberate action to disrupt the confidentiality, integrity, and transmission system. This is typically measured in multiples of availability of information. the unit bit per second or byte per second. DWIWARNA SHAREHOLDERS Shares owned by The Indonesian Government. 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. 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. GMS General Meeting of Shareholders, which may be an Annual General Meeting of Shareholders (“AGMS”) or an Extraordinary General Meeting of Shareholders (“EGMS”). GraPARI Telkomsel’s customer service network. Edutainment Education and Entertainment. GSM Global System for Mobile Telecommunication, a European standard for digital cellular telephone. Fiber Optic Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted Homes passed A connection with access to fixed line voice, IPTV and broadband through thin filaments of glass. services. Fixed Line Fixed wireline and fixed wireless. Fixed Wireline A fixed wire or cable path linking a subscriber at a fixed location to a local exchange, usually with an individual phone number. FTTH Fiber To The Home are the implementation of fiber optic network that reaches up to customer point or known as customer premise. ICT Platform an abbreviation of information and communications technology platform. ICT platform services consist of enterprise connectivity, IT services, data center and cloud services, business process outsourcing, device & hardware sales and services. Interconnection The physical linking of a carrier’s network with equipment or facilities not belonging to that network. Gateway A peripheral that bridges a packet based network (IP) and a circuit based network (PSTN). Intranet a computer network based on TCP / IP protocols such as the internet, however the usage is restricted or closed and only certain people or users who can log on and use the intranet network. 257 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesIP Internet Protocol, the method or protocol by which data is sent MHz Megahertz, a unit of measure of frequency equal to one million from one computer to another on the internet. cycles per second. IP Backhaul A term used to define a communication path, particularly Mobile Broadband The marketing term for wireless internet access through a a microwave or optical fiber, between a base station with a portable modem, mobile phone, USB Wireless Modem or other communication or network communication switch. mobile devices. IPO Initial Public Offering, the first sale of stock by a Company to the Monetization convert an asset or any object into money or legal tender. public. 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 traditional terrestrial, satellite signal, and cable television formats. ISP Internet Services Provider, an organization that provides access to the internet. 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. Ku-Band The Kurtz-under band (Ku band) is a frequency range or segment PSTN Public Switched Telephone Network, a telephone network operated and maintained by us and the KSO Units for us and on of the radio spectrum 11-17GHz. This range is often used for our behalf. satellite communications, including VSAT, and some types of satellite antennas. Pulse The unit in the calculation of telephone charge. Mbps Megabyte per second, a measure of speed for digital signal transmission expressed in millions of bits per second. Reverse Stock The compression of shares to become smaller amount of shares using higher value per share. Metro Ethernet Bridge or relationship between locations that are apart geographically, this network connects LAN customers at several RMJ Regional Metro Junction, an inter-city cable network installation different locations. service in one regional (region/province). 258 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsSatellite Transponder Radio relay equipment embedded in a satellite that receives TIMES signals from earth and amplifies and transmits the signal back Telecommunication, Information, Media, Edutainment and 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. Service. TPE A normalized way to refer to transponder bandwidth it simply means number of transpounders used if the same total bandwidths used is 36 Mt transponder (1 TPE = 36 MHz). SIM cards is a stamp-sized smart Subscriber card placed on a mobile phone that holds the key to the Identity Module card telecommunication service. Treasury Stock SMS Company’s share temporarily repurchased or bought back from the outstanding share. Short Messaging Service, a technology allowing the exchange UMTS of text messages between mobile phones and between fixed Universal Mobile Telephone System, one of the 3G mobile systems being developed within the ITU’s IMT 2000 framework. 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. wireless phones. 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. Stock Split Splitting the number of shares becoming more shares using lower value per share. Switching A mechanical, electrical or electronic device that opens or closes circuits, completes or breaks an electrical path, or selected paths or circuits, used to route traffic in a telecommunications network. 259 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesLIST OF ABBREVIATIONS Keyword Descripstions Keyword Descripstions CFO CGPI CISA CLI COE CONS CORE COSO CRM CRMGA CSI CSR CSS DER DiLo DMCS DS DSAK DSP DWDM EBIS EBITDA Chief Financial Officer Corporate Governance Perception Index Certified Information System Audit Customer Loyalty Index Calendar of Event Consumer Service Center of Reformation Committee of Sponsoring Organizations of the Treadway Commission Compliance Risk Management Compliance, Risk Management, & General Affair Customer Satisfaction Index Corporate Social Responsibility Corporate Strategic Scenario Debt Equity Ratio Digital Lounge Dumai Malacca Cable System Depository Shares Dewan Standar Akuntansi Keuangan (Board of Financial Accounting Standard) Digital & Strategic Portfolio Dense Wavelength Division Multiplexing Enterprise & Business Service Earning Before Interest Tax Depreciation and Amortization Edutainment Education and Entertainment EGMS Extraordinary General Meeting of EPS ERM ESS Shareholders Earning per Share Enterprise Risk Management Employee Suggestion System AAG AC AGMS AO ARPU ASBL ATL BCM B3 BEI BLC BLC-D BOC BOD BPJS BPO BSCS BTL BTS Asia America Gateway Air Conditioner Annual General Meeting of Shareholders Application Owner Average Revenue per User Aceh-Sibolga-Batam-Larantuka Above The Line Business Continuity Management Bahan Berbahaya dan Beracun (Hazardeus and Toxic Materials) Bursa Efek Indonesia (Indonesia Stock Exchange) Broadband Learning Center Broadband Learning Center Difable Board of Commisioner Board of Director Badan Penyelenggara Jaminan Sosial (Social Security Administrator) Business Process Outsourcing Batam Singapore Cable System Below The Line Base Transceiver Station BUMN (SOE) Badan Usaha Milik Negara (State- Owned Enterprises) Certified Accountant Compound Annual Growth Rate Capital Expenditure Community Development Center Customer Dissatisfaction Index Certified Ethical Hacker Chief Executive Officer Certified Fraud Examiner Customer Facing Unit Certified Internal Audit CA CAGR CAPEX CDC CDI CEH CEO CFE CFU CIA 260 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsKeyword Descripstions Keyword Descripstions Employee Stock Ownership Program IFRS International Financial Reporting ESOP EVP EY FMCG FRAMES FTTH FU GraPARI Gbps GCG GGSN GHz GMS GNNT GPRS GRC GSD GSM HCM HSDPA IA IAS ICT Employee Volunteer Program Ernst & Young Fast Moving Consumers Good Fraud Management System Fiber To The Home Functional Unit Graha Pari Sraya Gigabyte per second Good Corporate Governance Gateway GPRS Support Node Gigahertz General Meeting of Shareholder Gerakan Nasional Non-Tunai (National Non-Cash Movement) General Packet Radio Service Governance, Risk, and Compliance Graha Sarana Duta Global System for Mobile Telecommunication Human Capital Management High Speed Downlink Packet Access Internal Audit International Accounting Standards Infomation and Communication Technology ICOFR Internal Control Over Financial IDL IDN IDN IDX IFAS Reporting Indonesia Digital Learning Indonesian Digital Network International Domain Name Indonesia Stock Exchange Indonesian Financial Accounting Standards IGG IICG InEx IoT IP IPO IPTV ISAK ISO ISP ITX KAP Standard Indonesia Global Gateway Indonesia Institute for Corporate Governance International Expansion Internet of Things Internet Protocol Initial Public Offering Internet Protocol Television Interpretasi Standar Akuntansi Keuangan (Interpretation of Statements of Financial Accounting Standards) International Organization for Standardization Internet Services Provider Indonesia Tourism Exchange Kantor Akuntan Publik (Public Accountant Firm) KEMPR Komite Evaluasi dan Monitoring KEU KM KNR KPI KPKU Perencanaan dan Risiko (Committee for Planning and Risk Evaluation and Monitoring) Keuangan (Finance) Kontrak Manajemen (Contract Management) Komite Nominasi dan Remunerasi (Committee for Nomination and Remuneration) Key Performance Indicator Kriteria Penilaian Kinerja Unggul (Criteria for Superior Performance Appraisal) 261 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesKeyword KPPU Descripstions Keyword Descripstions Komisi Pengawasan Persaingan Usaha OSP-FO Outside Plan Fiber Optic Kwh LED LSA LSE M&A M2M Mbps MDI MHz MNO MVNO MSS NAP NITS NPS NPWP NYSE OCS OECD (Commission for the Supervision of Business Competition) Kilo Watt Hour Light Emitting Diode Long Service Award London Stock Exchange Merger & Acquisition Machine to Machine Megabyte per second Metra Digital Investama Megahertz Mobile Network Operator Mobile Virtual Network Operator Mobile Satellite Service Network Access Point Network, IT, & Solution Net Promotor Score Nomor Pokok Wajib Pajak (Tax Identification Number) New York Stock Exchange Online Charging System Organization for Economic Co- operation and Development OHSAS Occupational Health and Safety OJK OLO ONT Assessment System Otoritas Jasa Keuangan (Indonesia Financial Service Authority) Other Licensed Operator Optical Network Termination OTT PaDi PAYU PKBL PE-VPN PMK PN POJK PoP POTS PSAK PSTN QIA QMS QoS RAC RAN RCSA RJPP RKAP Over The Top Pustaka Digital (Digital Library) Pay As You Use Program Kemitraan Bina Lingkungan (Partnership and Community Development) Provider Edge-Virtual Private Network Peraturan Menteri Keuangan (Minister of Finance Regulation) Perusahaan Negara (State Company) Peraturan Otoritas Jasa Keuangan (Regulation of Indonesia Financial Services Authority) Point of Presence Plain Old Telephone Service Pernyataan Standar Akuntansi Keuangan (Statements of Financial Accounting Standards) Public Switched Telephone Network Qualified Internal Auditor Quality Management System Quality of Service Risk Acceptance Criteria Radio Access Network Risk & Control Self Assessment Rencana Jangka Panjang Perusahaan (Company’s Long Term Plan) Rencana Kerja Anggaran dan Pendapatan (Budgeting and Revenue Work Plan) OSDSS Operational and Strategic Decision Support Systems RMJ Regional Metro Junction 262 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsKeyword Descripstions ROA ROE SAK SCP SCPC SDM Return on Asset Return on Equity Standar Akuntansi Keuangan (Financial Accounting Standard) Service Control Points Single Carrier per Channel Sumber Daya Manusia (Human Capital) SEA-ME-WE-5 South East Asia – Middle East – SEA-US SEC SEOJK SHA SIM SIUP SJC SLI MSME SMILE Western Europe 5 South East Asia-United States Securities and Exchange Commission Surat Edaran Otoritas Jasa Keuangan (Circular Letter of Indonesia Financial Service Authority) Shareholders Agreement Sistem Informasi Manajemen (Management Information System) Surat Izin Usaha Perdagangan (Business Trade License) South East Asia Japan Sambungan Langsung Internasional (Direct International Line) Micro Small and Medium Enterprise Supply Management and Logistic Enhancement SMPCS Sulawesi Maluku Papua Cable System SMS SOP SOX Short Messaging Service Standard Operating Procedures Sarbanes Oxley Act Keyword SPH Descripstions Surat Pernyataan Harta (Aset STB TIMES TIQA TISCM TLT TSA TSO UC&C UMTS USO UTRAN VAS VOD VoIP VSAT VP VTMS WBS WIB WINS Witel WPO Declaration Letter) Set Top Box Telekomunikasi, Informasi, Media, Edutainment, and Services Telkom Integrated Quality Assurance Telkom Integrated Supply Chain Management Telkom Landmark Tower Technical Support Agreement Telkomsel Smart Office Unified Communication & Collaboration Universal Mobile Telephone System Universal Service Obligation UMTS Terrestrial Radio Access Network Value Added Service Voice Over Data Voice over Internet Protocol Very Small Aperture Terminal Vice President Vessel Tracking Management System Whistleblowing System Wholesale and International Business Wholesale and International Service Wilayah Telekomunikasi Whistleblower Protection Officer 263 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCROSS REFERENCE TO OJK CIRCULATION LETTER NO.30/SEOJK.04/2016 CRITERIA Form of annual report EXPLANATION PAGES Annual Report should be able to be reproduced in printed document copy and electronic document copy I 1 √ √ √ √ √ √ 20 2 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 3 Annual Report presented as electronic document copy is the Annual Report converted to pdf format II Content of annual report 1 General requirements a. Annual Report should at least contain 1) Key financial data highlight; information about: 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. b. 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. 2. Description of the Contents of Annual Report a. 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: 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. 264 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlights CRITERIA EXPLANATION b. Share Information Information of share (if any) at least contains: PAGES 22-24 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; and 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 contain: 34-41 1) Brief description about the performance of issuer or public company, that at least include: 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: 28-33 1) Assessment on the performance of the directors in managing the 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 Board of Directors; 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 Company’s Profile at least contains: 1) Name of issuer or public company, including, if any, changes in names, rea- sons 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 the information of: 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) Vision and mission of issuer or public company; 4-7 4-5 50-51 48-49 265 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCRITERIA EXPLANATION 5) Business activities under the latest articles of association, business activities conducted during the financial year, and type of goods and/or services offered; PAGES 52-53 6) Organizational structure of issuer or piblic company in a form of chart, of at 62-63 least to 1 (one) structural level under the directors, with name and position included; 7) Profile of the directors, consisting of at least: 76-87 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 Board of Directors members appointment 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: 64-75 a) Name; b) Latest photograph; c) Age; d) Nationality; e) Educational background; f) Employment record, consisting of: 1. Legal basis of non-Independent Board of Commissioners members appointment at the related Issuer or Public Company; 2. Legal basis of Independent Board of Commissioners members appointment at the related Issuer or Public Company; 3. Double position, either as member of Board 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 71-72, 84-85 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 88-90 background and ages in a financial year; 266 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCRITERIA EXPLANATION 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 at the end of financial year presented in the following classifications: a) Local institution ownership; b) Foreign institution ownership; c) Local individual ownership; and d) Foreign individual ownership; 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; PAGES 91 91 91 14) Names of subsidiaries, associated companies, joint ventures in which 92-96 Issuer or Public Company (if any); For subsidiaries, information of Company’s address should be added; 15) Chronology of shares listing, number of shares, share value, and 97-98 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 99-100 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 provides services periodically to the Issuer or Public Company, there should be information on services provided, fees and period of assignment; and 101 101 19) Award and certification received by the Issuer or Public Company, both 54-61 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 f. Management Discussion and Analysis Annual Report must contain discussion and analysis of Financial Report and c) Validity period of the award and/or certification (if any). 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 105-119 industry of Issuer or Public Company, consisting of at least: a) Production, which includes process, capacity and its development; b) Revenue; and c) Profitability. 267 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCRITERIA EXPLANATION 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; PAGES 124-138 d) Revenue, expenses and profit (loss), other comprehensive revenue and comprehensive income (loss); and e) Cash flow; Capability to pay debts by presenting relevant ratio; Collectable accounts of Issuer or Public Company receivable by presenting relevant ratio; 3) 4) 5) Capital structure and Management’s policies on the capital structure, as well as basis of the policy making; 139 139 140 6) Discussion on material commitment for the investment of capital goods 142-143 with explanation concerning: a) Purpose of such commitment; b) Sources of funds expected to fulfill to the 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 140-141t 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 144 report (if any); 9) Business prospects of Issuer or Public Company in relation to the industry, 147-148 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 148 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, 149 that includes: a) Revenue; b) Profit (loss); c) Capital structure; d) Dividend policy; or e) Other information deemed necessary by the Issuer or Public Company. 12) Marketing aspects of the goods and/or services of Issuer or Public 120-122 Company, including among others marketing strategies and market Share; 13) Description of dividend during the past 2 (two) financial years (if any), 149 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; 268 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCRITERIA EXPLANATION 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; PAGES 150 15) Material information (if any) concerning, among others investment, 150 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. 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 17) Changes in the accounting policy, rationale and impacts on the financial statement (if any); 151 151 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: 189-200 a) Scope of work and responsibility of each member of the Directors; b) Disclosure that the Directors have Directors’ Charter; 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; 269 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCRITERIA EXPLANATION 2) Board of Commissioners, consisting of among others: PAGES 168-177 a) Description of responsibility of the Board of Commissioners; b) Disclosure that the Board of Commissioners has Board of Commis- sioners’ Charter; c) Disclosure of procedures, basis of decision, and amount of remu- neration for members of Board of Commissioners; d) Disclosure of company policies and the implementation on fre- quency of Board of Commissioners meetings, including joint meet- ings 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 informa- tion to disclose includes: 1. 2. Reasons for not establishing a committee; and Procedure of nomination and remuneration implemented during financial year; 3) Syariah Supervisory Board, for Issuer or Public Company running busi- ness under the principles of syariah as expressed in the Articles of As- Not applicable sociation, contains at least: a) Name; b) Tasks and responsibilities of Syariah Supervisory Board; and c) Frequency and method of advising and supervisory on the compli- ance of Syariah Principles in Capital Market toward the Issuer or Public Company; 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: 178-182 1. Legal basis of appointment as member of committee; 2. Double position, either as member of Board of Commission- ers, 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 fre- quency 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; 270 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCRITERIA EXPLANATION 5) Other committees the Issuer or Public Company has in order to sup- port the function and tasks of Directors and/or Board of Commission- ers, such as Nomination and Remuneration Committee, consisting of PAGES 182-188 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 Commission- ers, 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 fre- quency 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: 201-203 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; 7) Internal Auditing Unit, consisting among others: 205-207 a) Name of Internal Auditing Unit’s chief; b) Employment record, consisting of: 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 financial year; 8) Description of internal control system implemented by Issuer or Public Company, consisting of at least: 207-209 a) Operational and financial control, along with compliance with other prevailing rules and regulations; and b) Review on effectiveness of internal control system; 9) Risk management system implemented by Issuer or Public Company, consisting of at least: 209-215 a) General description of risk management system of Issuer or Public 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; 271 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCRITERIA EXPLANATION 10) Material litigation faced by the Issuer or Public Company, subsidiaries, present members of the Board of Commissioners and Directors (if any), PAGES 221 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 221 230 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) 14) Information on corporate culture or corporate values (if any); 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): 222-229 231 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 216-220 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; 16) Implementation of Public Company Governance Guidelines for Issuer 156-159 that issues Equity Securities or Public Company, consisting of: a. Disclosure of implemented recommendations; and/or b. Explanation concerning unimplemented recommendation, including reasons for such conditions and alternatives (if any); 272 PT Telkom Indonesia (Persero) TbkAnalysis and DiscussionAbout Telkom IndonesiaManagement ReportHighlightsCRITERIA EXPLANATION PAGES h. Social and Environmental Responsibility of 1) Information on Issuer or Public Company’s social and environmental Issuer or Public Company responsibility consisting of policies, types of programs, and cost, in relation of the aspects of among others: a. Environment, among others: 242-243 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: 237-238 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; 239-241 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 curruption 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 235-236 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 Annual Report; and 3) The report referred to in point 2) is submitted to Financial Services Authority at the same time as the Annual Report submission. i. Audited Financial Report The Financial Report contained in the Annual Report should be presented 276 in accordance with Financial Accounting Standard in Indonesia and has been audited by Accountant. The 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; and j. Statement of members of Directors and Board Statement of members of Directors and Board of Commissioners on the 42-43 of Commissioners on the Responsibility for Responsibility for the Annual Report is composed in accordance to the the Annual Report 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. 273 PT Telkom Indonesia (Persero) TbkCorporate GovernanceCorporate Social ResponsibilityPartnership and Comunity Development Program (PKBL)AppendicesCONSOLIDATED FINANCIAL STATEMENT 2017 Audited Consolidated Financial Statement 2017 Audited PKBL Financial Statement Feedback form of PT Telkom Indonesia (Persero) Tbk 2017 Annual Report PERUSAHAAN PESEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 AND FOR THE YEAR THEN ENDED WITH INDEPENDENT AUDITOR’S REPORT TABLE OF CONTENTS Independent Auditor’s Report Consolidated Statements of Financial Position Consolidated Statements of Profit or Loss and Other Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Page 1 2 3-4 5 6-126 These consolidated financial statements are originally issued in Indonesian language PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2017 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Notes 2017 2016 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 Assets held for sale Prepaid taxes Claim for tax refund Other current assets Total Current Assets 2c,2e,2u,3,31,37 2c,2e,2u,4,31,37 2g,2u,2ab,5,37 2c,31 2g,2u,37 2h,6 2j,9 2t,26 2t,26 2c,2i,2m,7,31 NON-CURRENT ASSETS Long-term investments Property and equipment - net of accumulated depreciation Prepaid pension benefit cost Intangible assets - net of accumulated amortization Deferred tax assets - net Other non-current assets 2f,2u,8 2l,2m,2aa,9,34 2s,29 2d,2k,2n,2aa,11 2t,26 2c,2g,2i,2n,2t,2u,10,26,31,37 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 Short-term bank loans Current maturities of long-term borrowings Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities - net Unearned income Long service award provisions Pension benefits and other post-employment benefits obligations Long-term borrowings - net of current maturities Other liabilities 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 2o,2u,12,37 2c,31 2u,37 2t,26 2c,2u,13,31,37 2r,14 2c,31 2c,2p,2u,15a,31,37 2c,2m,2p,2u,15b,31,37 2t,26 2r,14 2s,30 2s,29 2c,2m,2p,2u,16,31,37 2u,2o 1c,18 2v,19 2v,20 2f,2u,21 28 2b,17 25,145 2,173 29,767 1,471 1,545 7,677 342 631 10 1,947 908 7,183 894 6,469 537 584 3 2,138 592 5,246 47,561 47,701 2,148 130,171 - 3,530 2,804 12,270 150,923 198,484 896 14,678 217 2,790 12,630 5,427 1,240 2,289 5,209 45,376 933 524 758 10,195 27,974 594 40,978 86,354 5,040 4,931 (2,541 ) 387 15,337 69,559 92,713 19,417 112,130 198,484 1,847 114,498 199 3,089 769 11,508 131,910 179,611 1,547 11,971 172 2,954 11,283 5,563 840 911 4,521 39,762 745 425 613 6,126 26,367 29 34,305 74,067 5,040 4,931 (2,541 ) 339 15,337 61,278 84,384 21,160 105,544 179,611 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 1 These consolidated financial statements are originally issued in Indonesian language PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the Year Ended December 31, 2017 (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 Gain/ (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) BENEFIT Current Deferred PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME 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 2c,2r,31 2q 2l,2r,9c 2r,9c 2c,31 2c,2p,2r,31 2f,8 2t,26 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 Other comprehensive income - net 2f,2q,21 2u,21 2f,8 2s,29 2017 2016 128,256 116,333 (36,603 ) (20,446 ) (13,529 ) (2,987 ) (5,260 ) (5,268 ) 51 1,039 (1,320 ) 43,933 1,434 (2,769 ) 61 42,659 (11,357 ) 1,399 (9,958 ) (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 ) 32,701 29,172 24 20 (1 ) (2,375 ) (2,332 ) (40 ) 0 (1 ) (2,058 ) )))))) ) (2,099 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 30,369 27,073 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) 2b,17 2b 2x,27 22,145 10,556 32,701 19,952 10,417 30,369 19,352 9,820 29,172 17,331 9,742 27,073 223.55 22,354.64 196.19 19,619.11 The accompanying notes to the consolidated financial statements form an integral part of these consolidated financial statements taken as a whole. 2 4 0 5 5 4 1 4 4 5 , 5 0 1 ) 2 8 9 , 3 2 ( ) 2 3 3 , 2 ( 1 0 7 , 2 3 0 3 1 , 2 1 1 0 5 0 6 1 , 1 2 5 4 1 ) 9 3 1 ( ) 5 5 3 , 2 1 ( 6 5 5 , 0 1 7 1 4 , 9 1 y t i u q e l a t o T g n i l l o r t n o c - n o N s t s e r e t n i ) O R E S R E P ( N A O R E S R E P N A A H A S U R E P I I I S E R A D S B U S S T I D N A k b T A S E N O D N I I I I S A K N U M O K E L E T T P I Y T U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D L O S N O C I 7 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o F ) d e t a t s e s i w r e h t o s s e n u l , i h a p u R f o s n o i l l i b n i d e s s e r p x e e r a s e b a t n l i s e r u g F ( i i s g n n r a e d e n i a t e R y n a p m o c t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A - d i a p l a n o i t i d d A 4 8 3 , 4 8 8 7 2 , 1 6 7 3 3 5 1 , 9 3 3 ) 1 4 5 , 2 ( 1 3 9 , 4 0 4 0 , 5 t e N d e t a i r p o r p p a n U d e t a i r p o r p p A y t i u q e r e h t O k c o t s y r u s a e r T l a t i p a c n i k c o t s l a t i p a C s e t o N - 4 - ) 7 2 6 , 1 1 ( ) 3 9 1 , 2 ( 5 4 1 , 2 2 3 1 7 , 2 9 - - - ) 7 2 6 , 1 1 ( ) 7 3 2 , 2 ( 5 4 1 , 2 2 9 5 5 , 9 6 - - - - - - 7 3 3 5 1 , - 4 - - - 4 4 7 8 3 - - - - - - - - - - - - - - - - - - ) 1 4 5 , 2 ( 1 3 9 , 4 0 4 0 , 5 7 1 d 2 , 8 2 w 2 7 1 b 2 , , u 2 , s 2 q 2 , , f 2 t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i s u q c A i s n o i t p i r c s e D 7 1 0 2 , 1 y r a u n a J , e c n a l a B s s e n s u b i f o n o i t i s u q c A i n o i t u b i r t n o c l a t i p a C e m o c n i i e v s n e h e r p m o c r e h t O 7 1 0 2 , 1 3 r e b m e c e D , e c n a l a B r a e y e h t r o f t i f o r P i s d n e d v d h s a C i . e g a u g n a l i n a s e n o d n I n i d e u s s i y l l i a n g i r o e r a s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h T l . e o h w a s a n e k a t s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a m r o f s t n e m e a t t s 3 l i a c n a n i f d e t a d i l o s n o c e h t o t i s e t o n g n y n a p m o c c a e h T g n i l l o r t n o c - n o N - d i a p l a n o i t i d d A y t i u q e l a t o T s t s e r e t n i t e N d e t a i r p o r p p a n U d e t a i r p o r p p A y t i u q e r e h t O k c o t s y r u s a e r T l a t i p a c n i k c o t s l a t i p a C s e t o N i s g n n r a e d e n i a t e R y n a p m o c t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A ) d e u n i t n o c ( I Y T U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D L O S N O C I 6 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o F ) d e t a t s e s i w r e h t o s s e n u l , i h a p u R f o s n o i l l i b n i d e s s e r p x e e r a s e b a t n l i s e r u g F ( i I I I S E R A D S B U S S T I D N A k b T A S E N O D N I I I I S A K N U M O K E L E T T P ) O R E S R E P ( N A O R E S R E P N A A H A S U R E P 0 1 3 8 1 ) 8 3 1 ( 8 2 4 , 3 9 ) 1 7 2 , 8 1 ( 9 5 2 , 3 2 7 1 , 9 2 ) 9 9 0 , 2 ( 4 4 5 , 5 0 1 3 8 1 2 9 2 , 8 1 ) 9 ( 0 1 - ) 8 5 0 , 7 ( ) 8 7 ( 0 2 8 , 9 0 6 1 , 1 2 6 3 1 , 5 7 0 2 1 , 5 5 7 3 3 , 5 1 - - ) 9 2 1 ( ) 3 1 2 , 1 1 ( 9 5 2 , 3 ) 1 2 0 , 2 ( 2 5 3 , 9 1 4 8 3 , 4 8 - - - ) 3 1 2 , 1 1 ( - ) 1 8 9 , 1 ( 2 5 3 , 9 1 8 7 2 , 1 6 - - - - - - - 7 3 3 , 5 1 - - 8 0 5 ) 9 2 1 ( - - - ) 0 4 ( 9 3 3 ) 4 0 8 , 3 ( 5 3 9 , 2 0 4 0 , 5 - - - - - - 3 6 2 , 1 ) 1 4 5 , 2 ( - - - - - - 6 9 9 , 1 1 3 9 , 4 - - - - - - - 0 4 0 , 5 7 1 d 2 d 1 , 8 2 w 2 0 2 7 1 b 2 , , u 2 , s 2 q 2 , , f 2 t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i s u q c A i s n o i t p i r c s e D 6 1 0 2 , 1 y r a u n a J , e c n a l a B s s e n s u b i f o n o i t i s u q c A i n o i t u b i r t n o c l a t i p a C e m o c n i i e v s n e h e r p m o c r e h t O 6 1 0 2 , 1 3 r e b m e c e D , e c n a l a B k c o t s y r u s a e r t f o l e a S r a e y e h t r o f t i f o r P i s d n e d v d h s a C i . e g a u g n a l i n a s e n o d n I n i d e u s s i y l l i a n g i r o e r a s t n e m e t a t s l i a c n a n i f d e a d t i l o s n o c e s e h T l . e o h w a s a n e k a t s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a m r o f s t n e m e a t t s 4 l i a c n a n i f d e t a d i l o s n o c e h t o t i s e t o n g n y n a p m o c c a e h T 0 1 3 8 1 ) 8 3 1 ( 8 2 4 , 3 9 ) 1 7 2 , 8 1 ( 9 5 2 , 3 2 7 1 , 9 2 ) 9 9 0 , 2 ( 4 4 5 , 5 0 1 3 8 1 2 9 2 , 8 1 ) 9 ( 0 1 - ) 8 5 0 , 7 ( ) 8 7 ( 0 2 8 , 9 0 6 1 , 1 2 - - ) 9 2 1 ( ) 3 1 2 , 1 1 ( 9 5 2 , 3 ) 1 2 0 , 2 ( 2 5 3 , 9 1 4 8 3 , 4 8 - - - - ) 3 1 2 , 1 1 ( ) 1 8 9 , 1 ( 2 5 3 , 9 1 8 7 2 , 1 6 - - - - - - - 7 3 3 , 5 1 - - - - - ) 9 2 1 ( ) 0 4 ( 9 3 3 - - - - - - 3 6 2 , 1 ) 1 4 5 , 2 ( - - - - - - 6 9 9 , 1 1 3 9 , 4 - - - - - - - 0 4 0 , 5 g n i l l o r t n o c - n o N - d i a p l a n o i t i d d A y t i u q e l a t o T s t s e r e t n i t e N d e t a i r p o r p p a n U d e t a i r p o r p p A y t i u q e r e h t O k c o t s y r u s a e r T l a t i p a c n i k c o t s l a t i p a C s e t o N 6 3 1 , 5 7 0 2 1 , 5 5 7 3 3 , 5 1 8 0 5 ) 4 0 8 , 3 ( 5 3 9 , 2 0 4 0 , 5 d 2 d 1 0 2 8 2 , w 2 7 1 , b 2 7 1 , u 2 , s 2 , q 2 , f 2 t s e r e t n i g n i l l o r t n o c - n o n s n o i t p i r c s e D 6 1 0 2 , 1 y r a u n a J , e c n a l a B n o i t u b i r t n o c l a t i p a C s s e n i s u b s d n e d i v i d h s a C f o f o n o i t i s i u q c A n o i t i s i u q c A k c o t s y r u s a e r t f o e l a S r a e y e h t r o f t i f o r P e m o c n i e v i s n e h e r p m o c r e h t O 6 1 0 2 , 1 3 r e b m e c e D , e c n a l a B s g n i n r a e d e n i a t e R y n a p m o c t n e r a p e h t f o s r e n w o o t e l b a t u b i r t t A S E I R A I D I S B U S S T I D N A k b T A I S E N O D N I I S A K I N U M O K E L E T T P ) d e u n i t n o c ( Y T I U Q E N I S E G N A H C F O S T N E M E T A T S D E T A D I L O S N O C ) O R E S R E P ( N A O R E S R E P N A A H A S U R E P 6 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o F ) d e t a t s e s i w r e h t o s s e l n u , h a i p u R f o s n o i l l i b n i d e s s e r p x e e r a s e l b a t n i s e r u g i F ( . e g a u g n a l n a i s e n o d n I n i d e u s s i y l l a n i g i r o e r a s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h T . e l o h w a s a n e k a t s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e s e h t f o t r a p l a r g e t n i n a m r o f s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c e h t o t s e t o n g n i y n a p m o c c a e h T 4 These consolidated financial statements are originally issued in Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended December 31, 2017 (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) Notes 2017 2016 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 Cash payments to employees Payments for corporate and final income taxes Payments for interest costs Payments for value added taxes - net Receipts for tax refund 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 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 interest in subsidiaries Business acquisition - net of acquired cash Additional contribution on long-term investments Purchase of 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 9 9 8 9,39 11,39 1d 1d 8 15,16 20 28 15,16 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR 3 3 117,719 7,392 125,111 1,431 (49,604 ) (11,739 ) (11,846 ) (3,133 ) (1,942 ) 585 542 49,405 - 1,367 155 28 (32,294 ) (490 ) (508 ) (676 ) - (243 ) (269 ) (77 ) 113,288 2,828 116,116 1,736 (42,433 ) (11,207 ) (11,304 ) (3,455 ) (2,696 ) - 474 47,231 2,159 765 60 23 (26,787 ) (1,338 ) (1,098 ) (983 ) (138 ) (137 ) (43 ) (40 ) (33,007 ) (27,557 ) 12,169 - 50 (11,627 ) (9,289 ) (12,355 ) (21,052 ) (4,654 ) 32 29,767 25,145 7,479 3,259 183 (11,213 ) (10,555 ) (7,058 ) (17,905 ) 1,769 (119 ) 28,117 29,767 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, 2017 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 amendments of which were 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 stockholder, 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. 16 dated May 16, 2017 of Ashoya Ratam, S.H., MKn. The latest amendments were accepted and approved by the Ministry of Law and Human Rights of its Letter No. AHU-AH.01.03-0146625 dated June 15, 2017 and MoLHR decision’s No. AHU-0013024.AH.01.02 dated June 15, 2017. the Republic of (“MoLHR”) Indonesia 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 achieving its objectives, 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 information services in a broad sense in accordance with prevailing regulations. iii. 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, 2017 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 is additional information 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 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/8 331/KEP/DJPPI/ KOMINFO/09/2013 127/KEP/DJPPI/ KOMINFO/3/2016 839/KEP/ M.KOMINFO/05/2016 License to operate fixed closed network License to operate fixed international network 844/KEP/ M.KOMINFO/05/2016 846/KEP/ M.KOMINFO/05/2016 License to operate circuit switched based local fixed line network License to operate data communication system services License to operate internet service provider License to operate content service provider 948/KEP/ M.KOMINFO/05/2016 191/KEP/DJPPI/ KOMINFO/10/2016 2176/KEP/ M.KOMINFO/12/2016 1040/KEP/ M.KOMINFO/16/2017 7 Type of services Electronic money Grant date/latest renewal date July 3, 2009 Money remittance service August 5, 2009 Network access September 24, 2013 point Internet telephone services for public purpose Fixed domestic long distance and basic telephone services network Fixed closed network Fixed international and basic telephone services network Circuit switched based local fixed line network Data communication system services March 30, 2016 May 16, 2016 May 16, 2016 May 16, 2016 May 31, 2016 October 31, 2016 Internet service provider December 30, 2016 Content service May 16, 2017 provider 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, 2017 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 the Annual General Meeting (“AGM”) of Stockholders of the Company as covered by notarial deed No. 28 of Ashoya Ratam., S.H., Mkn., dated April 21, 2017 and notarial deed No. 50 of Ashoya Ratam., S.H., Mkn., dated April 22, 2016, the composition of the Company’s Boards of Commissioners and Directors as of December 31, 2017 and 2016, respectively, was as follows: 2017 Rinaldi Firmansyah Hadiyanto - President Commissioner Hendri Saparini Commissioner Commissioner Commissioner* Independent Commissioner Margiyono Darsasumarja Independent Commissioner Dolfie Othniel Fredric Palit Independent Commissioner Pamiyati Pamela Johanna Independent Commissioner Cahyana Ahmadjayadi President Director Alex Janangkih Sinaga Director of Finance Harry Mozarta Zen Director of Digital and Strategic Portfolio David Bangun 2016 Hendri Saparini Dolfie Othniel Fredric Palit Hadiyanto Pontas Tambunan Rinaldi Firmansyah Margiyono Darsasumarja Pamiyati Pamela Johanna - Alex Janangkih Sinaga Harry Mozarta Zen Indra Utoyo Director of Enterprise and Business Service Director of Wholesale and International Services Director of Human Capital Management Director of Network, Information Technology and Solution Director of Consumer Dian Rachmawan - Abdus Somad Arief Honesti Basyir Herdy Rosadi Harman Herdy Rosadi Harman Zulhelfi Abidin Abdus Somad Arief Service Mas’ud Khamid Dian Rachmawan * Based on the Board of Directors’ decision dated April 21, 2017, Devy Wildasari Suradji as Commissioner was appointed to replaces Pontas Tambunan. On December 22, 2017, Devy Wildasari Suradji was appointed as Marketing Director of PT Angkasa Pura I based on SK-289/MBU/12/2017 hence her position as Commissioner of the Company was ended by law. 2. Audit Committee and Corporate Secretary The composition of the Company’s Audit Committee and the Corporate Secretary as of December 31, 2017 and 2016, were as follows: Chairman Secretary Member Member Member Member Corporate Secretary 2017* Margiyono Darsasumarja Tjatur Purwadi Rinaldi Firmansyah Dolfie Othniel Fredric Palit Sarimin Mietra Sardi Cahyana Ahmadjayadi Andi Setiawan 2016 Rinaldi Firmansyah Tjatur Purwadi Margiyono Darsasumarja Dolfie Othniel Fredric Palit Sarimin Mietra Sardi Pontas Tambunan Andi Setiawan *The changes of Audit Committee are based on Board of Commissioner’s Regulation No.05/KEP/DK/2017 dated April 28, 2017 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, 2017 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, 2017 and 2016, the Company and subsidiaries (“Group”) had 24,065 employees and 23,876 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 was 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 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. to 1 Series A Dwiwarna shares During the Extraodinary General Meeting (“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, 2017 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 of 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 change the ratio of Depositary Receipt from 1 ADS representing 200 series B shares to become 1 ADS representing 100 series B shares (Note 18). Profit per ADS information have been retrospectively adjusted to reflect the changes in the ratio of ADS. 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, 2017, all of the Company’s Series B shares are listed on the IDX and 60,783,743 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 sold the remaining shares of treasury shares phase III (Note 20). On June 29, 2016, the Company sold the treasury shares 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, 2017 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, 2017 and 2016, the Company has consolidated the following directly or indirectly owned subsidiaries (Notes 2b and 2d): (i) Direct subsidiaries: 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 Telecommunication/ May 17, 2001 Year of start of commercial operations 1995 Percentage of ownership interest Total assets before elimination 2017 2016 2017 2016 65 65 85,748 89,781 1995 100 100 13,606 10,689 Network telecommunication services and multimedia/ May 9, 2003 Telecommunication/ July 31, 2003 1998 100 100 13,275 10,020 1995 100 100 9,125 7,147 Subsidiary/place of incorporation PT Telekomunikasi Selular (“Telkomsel”), Jakarta, Indonesia PT Dayamitra Telekomunikasi (“Dayamitra”), Jakarta, Indonesia PT Multimedia Nusantara (“Metra”), Jakarta, Indonesia PT Telekomunikasi Indonesia International (“TII”), Jakarta, Indonesia PT Telkom Akses (“Telkom Akses”), Jakarta, Indonesia Construction, service and trade in the field of Telecommunication/ November 26, 2012 PT Graha Sarana Duta (“GSD”), Jakarta, Indonesia Leasing of offices and providing building management and maintenance services, civil consultant and developer/ April 25, 2001 2013 100 100 5,716 5,098 1982 99,99 99.99 5,641 4,333 PT PINS Indonesia Telecommunication 1995 100 100 3,473 3,146 (“PINS”), Jakarta, Indonesia construction 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 PT Patra Telekomunikasi Indonesia (“Patrakom”), Jakarta,Indonesia Telecomunication - provides satellite communication system, services and facilities/ September 28, 1995 2014 100 100 1,871 1,015 1996 100 100 576 472 PT Metranet Multimedia portal service/ 2009 100 100 524 370 (“Metranet”), Jakarta, Indonesia April 17, 2009 PT Jalin Pembayaran Nusantara (“Jalin”), Jakarta, Indonesia Payment services - principal, switching, clearing and settlement activities/ November 3, 2016 2016 100 100 225 15 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, 2017 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) Direct subsidiaries (continued): Subsidiary/place of incorporation PT Napsindo Primatel Internasional (“Napsindo”), Jakarta, Indonesia Nature of business/date of incorporation or acquisition by the Company Telecommunication - provides Network Access Point (NAP), Voice Over Data (VOD) and other related services/ December 29, 1998 (ii) 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 - 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 PT Telkom Landmark Tower (“TLT”), Jakarta, Indonesia Service for property development and management/ February 1, 2012 Percentage of ownership interest Total assets before elimination 2017 2016 2017 2016 60 60 5 5 Year of start of commercial operations 1999; ceased operations on January 13, 2006 Year of start of commercial operations 1988 Percentage of ownership interest Total assets before elimination 2017 2016 2017 2016 100 100 6,064 4,289 2008 100 100 3,048 2,566 1984 100 100 2,122 1,860 2012 55 55 2,009 1,683 PT Metra Digital Media Directory information 2013 99,99 99.99 1,106 684 (“MD Media”), Jakarta, Indonesia services/ January 22, 2013 PT Finnet Indonesia Information technology 2006 60 60 907 629 (“Finnet”), Jakarta, Indonesia services/ October 31, 2005 PT TS Global Network Sdn. Bhd (“TSGN”), Petaling Jaya, Malaysia Satellite services/ December 14, 2017 Telekomunikasi Indonesia International Ltd, Hong Kong PT Metra Digital Investama (“MDI”), Jakarta, Indonesia Telecommunication/ December 8, 2010 Trading and/or providing service related to information and tehnology multimedia, entertainment and investment/ January 8, 2013 1996 49 - 818 - 2010 100 100 710 441 2013 99,99 99.99 658 331 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, 2017 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): Nature of business/date of incorporation or acquisition by the Company Telecommunication/ September 11, 2012 Year of start of commercial operations 2012 Percentage of ownership interest Total assets before elimination 2017 2016 2017 2016 100 100 639 755 Service and trading/ September 1, 2014 2014 99,99 99.99 303 227 Subsidiary/place of incorporation Telekomunikasi Indonesia International (“TL”) S.A., Dili, Timor Leste PT Nusantara Sukses Investasi (“NSI”), Jakarta, Indonesia PT Administrasi Health insurance 2002 100 100 273 204 Medika (“Ad Medika”), Jakarta, Indonesia PT Melon (“Melon”) Jakarta, Indonesia administration services/ February 25, 2010 Digital content exchange 2010 100 100 231 178 hub services/ November 14, 2016 PT Metraplasa Network & e-commerce 2012 60 60 203 325 (“Metraplasa”), Jakarta, Indonesia services/ April 9, 2012 PT Graha Yasa Selaras (”GYS”), Jakarta, Indonesia Tourism service/ April 27, 2012 Telecommunication/ January 9, 2013 Telekomunikasi Indonesia International Pty Ltd, (“Telkom Australia”), Sydney, Australia 2012 51 51 178 174 2013 100 100 123 161 PT Nutech Integrasi System Integrator/ 2001 60 - December 13, 2017 Telecommunication/ December 11, 2013 2014 100 100 60 36 - 9 (“Nutech”), Jakarta, Indonesia Telekomunikasi Indonesia International (“Telkom USA”), Inc., Los Angeles, USA PT Satelit Multimedia Indonesia (“SMI”), Jakarta, Indonesia Satellite services/ March 25, 2013 2013 99,99 99.99 18 18 PT Nusantara Sukses Sarana (“NSS”), Jakarta, Indonesia Building and hotel management service and other services/ September 1, 2014 PT Nusantara Sukses Realti (”NSR”), Jakarta, Indonesia Service and trading/ September 1, 2014 - - 99,99 99.99 99,99 99.99 PT Metra TV Subscription-broadcasting 2013 99,83 99.83 (“Metra TV”), Jakarta, Indonesia services/ January 8, 2013 - - - - - - 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (a) Metra Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 10, 11, 12, 13 and 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. Based on notarial deed of Utiek Rochmuljati Abdurachman, S.H., M.LI, M.Kn., No. 10 and 11 dated December 13, 2017, Metra purchased 36,000 shares of PT Nutech Integrasi (“Nutech”) (equivalent to 60% ownership) amounting to Rp24 billion. This is larger than the ownership portion of net book value amounting to Rp13 billion. As of December 31, 2017, the difference, amounting to Rp11 billion, is recorded as Goodwill (Note 11). As of the date of approval and authorization fair value the measurement is still in completion process. financial statement, these consolidated issuance of for (b) Telin On December 14, 2017, Telin purchased TSGN equivalent to 49% ownership amounting to MYR66,150,000 (equivalent to Rp220 billion). TSGN is engaged in providing ICT (information and communication technologies) systems for satellite communication services, satellite bandwith services and VSAT services. Non-controlling interests of the acquiree are measured at fair value. Based on Sale and Subscription Agreement, Telin owns the control over TSGN through placing and replacing of 3 out of 5 key managements that controls the overall business of TSGN. This acquisition will enhance synergy and utilization of assets and resources between companies in order to provide more innovative services to customers. The fair values of the identifiable assets and liabilities acquired at acquisition date were: Assets Cash and cash equivalents Trade receivables Other current assets Fixed assets (Note 9) Other non-current assets Liabilities Current liabilities Non-current liabilities Fair value of identifiable net assets acquired Fair value of non controlling interest Goodwill (Note 11) Fair value of consideration transferred Total 21 18 57 711 14 (422 ) (140 ) 259 (132 ) 93 220 Net assets recognized in the consolidated financial statements of December 31, 2017 are based on a provisional assessment of fair value of net assets. As of the issuance date of the consolidated financial statements, fair value measurement is still in completion process. From the date of acquisition until December 31, 2017, the total income and profit before tax of TSGN included in the statements of profit or loss income and other comprehensive income amounted to Rp13.5 billion and Rp12.1 billion, respectively. 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, 2017 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) 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. (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 and Communication Technology) business focusing on non cash payment to support national payment gateway. (e) Sigma 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. 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 12, 2018. 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, 2017 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 Institute of Indonesian Chartered Accountants 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, 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 13: Transfer of Investment Property These amendments clarify that an entity shall transfer a property to, or from, investment property when, and only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use. • 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. 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, 2017 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) a. Basis of preparation of financial statements (continued) • Amendments to PSAK 46: Income Taxes on Recognition of Deferred Tax Assets for Unrealised Losses These amendments (continued): - 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. • Amendments to PSAK 53: Classification and Measurement of Shared-based Payment Transactions These amendments provide some additional accounting requirement for cash-settled share- based payment transactions regarding treatment of vesting and non-vesting conditions, share- based payment transactions with a net settlement feature for withholding tax obligations, and modification of a share-based payment transaction that changes its classification from cash- settled to equity-settled. • PSAK 15 (Adjustment 2017): Investment in Associates and Joint Ventures The standard clarifies that upon initial recognition, an entity may choose to measure its investee at fair value on an investment-per-investment basis. • PSAK 67 (Adjustment 2017): Disclosure of Interests in Other Entities The standard clarifies that the disclosure requirements in PSAK 67, other than those described in paragraph PP10-PP16, are also applied to any interest in an entity classified in accordance with PSAK 58: Non-Current Assets Held for Sale and Discontinued Operations. 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. Effective January 1, 2019 • ISAK 33: Foreign Currency Transactions and Advance Consideration ISAK 33 defines that the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration is the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. 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, 2017 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) a. Basis of preparation of financial statements (continued) Effective January 1, 2020 (continued) • PSAK 71: Financial Instruments PSAK 71 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from PSAK 55: Financial Instruments: Recognition and Measurement. PSAK 71 replaces the existing guidance in PSAK 55: Financial Instruments: Recognition and Measurement. • PSAK 72: Revenue from Contracts with Customers PSAK 72 establishes a comprehensive framework to determine how, when and how much revenue is to be recognized. The standard provides a single, principles-based five-step model for the determination and recognition of revenue to be applied to all contracts with customers. The standard also provides specific guidance requiring certain types of costs to obtain and/or fulfil a contract to be capitalized and amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the capitalized cost relates. PSAK 72 replaces a number of existing revenue standards, including PSAK 23: Revenue, PSAK 34: Construction Contracts and ISAK 10: Customer Loyalty Programmes. • PSAK 73: Leases PSAK 73 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under PSAK 30. PSAK 73 includes two recognition exemptions for lessees – leases of ’low-value’ assets and leases with a lease term of 12 months or less. At the commencement date of a lease, a lessee will recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the lease asset. Lessor accounting under PSAK 73 is substantially unchanged from today’s accounting under PSAK 30. Lessors will continue to classify all leases using the same classification principle as in PSAK 30. PSAK 73 replaces PSAK 30: Leases and ISAK 8: Determining whether an Arrangement contains a Lease. • Amendments to PSAK 15: Long-term Interests in Associates and Joint Ventures These amendments require the entity to apply PSAK 71 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. • Amendments to PSAK 71: Prepayment Features with Negative Compensation These amendments provides that financial assets with prepayment features that may result in negative compensation qualify as contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. 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, 2017 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) a. Basis of preparation of financial statements (continued) Effective January 1, 2020 (continued) • Amendment to PSAK 62: Insurance Contract - Implementing PSAK 71: Financial Instruments with PSAK 62: Insurance Contract will be effective January 1, 2022, but such amendments have no impact on Group’s consolidated financial statements. 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. 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. 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, 2017 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) c. Transactions with related parties (continued) 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. 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. 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 the measurement period, which cannot exceed one year from the acquisition date, about facts and circumstances that existed at the acquisition date. information obtained during from additional that arise If the intial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group shall report in its consolidated financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. 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, 2017 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) 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 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. 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. 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, 2017 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 (continued) 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. 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, 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. 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, 2017 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) 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. Intangible assets except goodwill 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. 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, 2017 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) 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 Satellite, 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 measured. 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 are charged to the consolidated statements of profit or loss and other comprehensive income as incurred. Significant renewals and betterments are capitalized. 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, 2017 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) 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. 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. 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, 2017 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) 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 functional currency is maintained in U.S. dollars and Telekomunikasi Indonesia International, Pty. Ltd., Australia whose functional currency is 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): 2017 Buy Sell U.S. dollar (“US$”) 1 Australian dollar (“AU$”) 1 Euro 1 Yen 1 Malaysian Ringgit (“MYR”) 1 13,565 10,592 16,231 120.48 3,520.35 13,570 10,598 16,242 120.55 3,525.97 2016 Buy 13,470 9,721 14,170 115.01 3,003.79 Sell 13,475 9,726 14,181 115.10 3,007.59 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 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. 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, 2017 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) i. Cellular revenues (continued) 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 23 years. iii. Interconnection revenues from network 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). interconnection with other domestic and 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. vi. Other revenues Revenues from sales of peripherals 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. 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, 2017 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) 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. 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. 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, 2017 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) 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 plan and post-retirement health care benefits plan 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. 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. 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, 2017 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) 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 regulations impose final tax on several types of transactions based on the gross value of the transaction. Therefore, final tax which is charged based on the such transaction remains subject to tax even though the tax payer incurred a loss on the transaction. 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”. 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, 2017 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 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 marketplace (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. No financial assets were classified as financial assets at fair value through profit or loss as of December 31, 2017 and 2016. 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, 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. 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, 2017 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) 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, 2017 and 2016. investments as of 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 primarily 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 statements 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. 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 and other borrowings. 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, 2017 and 2016. 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, 2017 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) ii. Financial liabilities (continued) 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. 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 and other borrowings. iii. Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the consolidated statements 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. the normal course of business; b. the event of default; and c. 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 arm’s 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 can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognized. 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, 2017 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 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. 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 in equity. The cost of treasury stock sold/transferred is accounted for using the weighted average method. The portion of treasury stock transferred for employee stock ownership program is accounted for at its fair value at grant date. The difference between the cost and the proceeds from the sale/transfer 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 is recognized as a liability based on the Board of Directors’ decision supported by the approval from the Board of Commissioners. 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, 2017 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) 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. 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 (“VIU”). 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. 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, 2017 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) aa. Impairment of non-financial assets (continued) 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 can not be reversed in future periods. ab. Critical accounting judgements estimates and assumptions Estimates and judgments 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. Judgements In the process of applying the Group's accounting policies, management has made the certain judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements. Segment information For management purposes, the Group is organized into business units based on its group of customers (namely called Customer Facing Units) and has five reportable segments as follows: mobile, consumer, enterprise, wholesale and international business, and other segments. The Group has determined the reportable segment reported based on, among others, the structure of the organization as well as the components of the Group whose operating results are regularly reviewed by the Group's Chief Operating Decision Maker (PKO). The Group has also determined the Board of Directors as CODM since the Board monitors the operating results of the CFU separately for the purpose of making decisions about resource allocations and performance assessment of the CFU. Estimates dan assumptions The Group makes 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. 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 and return on investment (ROI). Any changes in these assumptions will impact the carrying amount of the retirement benefit obligations. 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, 2017 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 (continued) 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 benefit 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 expectation of physical wear and tear, technical or commercial obsolescence and legal or other limitations on the continuing 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 judgment 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 amounts of income tax are disclosed in Note 26. 37 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 3. CASH AND CASH EQUIVALENTS 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 PT Bank Permata Tbk (“Bank Permata”) The Hongkong and Shanghai Banking Corporation Ltd. (“HSBC”) Standard Chartered Bank (“SCB”) Development Bank of Singapore (“DBS”) Others (each below Rp75 billion) Sub-total Total cash in banks Time deposits Related parties BNI BRI PT Bank Tabungan Negara (Persero) Tbk (“Bank BTN”) Bank Mandiri Sub-total 2017 Balance 2016 Balance Original currency (in millions) Rupiah equivalent - 12 Original currency (in millions) Rupiah equivalent - 10 Currency Rp - 27 7 1 1 0 - 1 0 0 - 6 - 0 - 0 14 4 - 11 0 - 0 - 4 0 1 0 8 2 0 0 - 9 - 15 - - - 1,481 367 1 17 2 0 968 13 6 0 466 82 21 1 3,425 278 2 184 6 0 154 1 24 0 360 61 2 20 1 4 8 0 0 1,105 4,530 5,315 116 4,954 203 2,958 446 - 13,992 - 41 6 1 1 0 - 6 5 0 - 8 - 0 - 7 13 2 - 6 5 - 0 - 5 0 0 1 3 0 0 0 - 25 - 47 - - 5 1,897 548 1 11 1 0 581 84 68 0 95 107 22 0 3,415 14 96 176 4 0 74 43 101 0 157 69 0 1 12 1 0 0 1 749 4,164 4,043 336 4,076 632 3,356 1,552 67 14,062 Rp US$ JPY EUR HKD AUD Rp US$ EUR SGD Rp US$ Rp US$ Rp US$ US$ HKD Rp US$ SGD Rp US$ Rp US$ SGD EUR AUD TWD MYR HKD MOP Rp US$ Rp US$ Rp Rp US$ 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 3. CASH AND CASH EQUIVALENTS (continued) 2017 Balance 2016 Balance Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Currency Time deposits (continued) Third parties PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk (“BJB”) PT Bank Mega Tbk (“Bank Mega”) PT Bank OCBC NISP Tbk (“OCBC NISP”) PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”) PT Bank CIMB Niaga Tbk (“Bank CIMB Niaga”) PT Bank UOB Indonesia (“UOB”) SCB PT Bank Muamalat Indonesia Tbk PT Bank Bukopin Tbk (“Bank Bukopin”) Bank Permata PT Bank ANZ Indonesia (”ANZ”) Others Sub-total Total time deposits Grand Total Rp Rp US$ Rp US$ Rp US$ Rp US$ Rp US$ US$ SGD Rp Rp Rp Rp US$ Rp MYR - - - - - - 30 - 2 - 20 10 - - - - - 5 - 14 1,726 1,243 - 1,200 - 676 401 600 31 - 263 136 - 91 22 - 5 73 97 47 6,611 20,603 25,145 - - 14 - 10 - - - - - - - 18 15 - - - - - - - 2,020 1,226 185 1,550 134 461 - 2,025 - 1,345 - 242 139 305 148 1,492 200 - 59 - 11,531 25,593 29,767 Interest rates per annum on time deposits are as follows: Rupiah Foreign currencies 2017 2.85%-8.50% 0.40%-1.75% 2016 3.20%-10.00% 0.10%-2.00% 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 parties transactions. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 4. OTHER CURRENT FINANCIAL ASSETS 2017 Balance 2016 Balance Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Time deposits Related parties BRI BNI Third parties UOB SCB Others Total time deposits Available-for-sale financial assets Related parties PT Bahana TCW Investment Management (“Bahana TCW”) PT Mandiri Manajemen Investasi State-owned enterprises Government Others Sub-total Third parties Total available-for-sale financial assets Escrow accounts Others Total Rp Rp US$ US$ Rp Rp Rp US$ US$ Rp Rp Rp US$ MYR Rp US$ MYR AUD - - 14 8 - - - - - - - - 6 5 - 0 0 0 2 - 191 109 23 325 360 711 - - 80 1,151 17 1,168 318 78 15 263 6 0 0 2,173 - - 1 - - - - 4 2 - - - 2 - - - - 0 - 63 13 - - 76 559 500 55 27 - 1,141 17 1,158 112 22 - 98 - - 5 1,471 The time deposits have maturities of more than three months but not more than one year, with interest rates as follows: Rupiah Foreign currency Refer to Note 31 for details of related parties transactions. 2017 6.00%-7.00% 1.38%-1.64% 2016 5.75%-6.00% 0.58%-1.64% 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, 2017 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 State-owned enterprises Indonusa PT Indosat Tbk (“Indosat”) 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 41 2017 2016 721 465 372 670 2,228 (683 ) 1,545 2017 2016 9,808 1,517 11,325 (3,648 ) 7,677 2017 2016 1,405 100 723 2,228 (683 ) 1,545 2017 2016 6,809 688 3,828 11,325 (3,648 ) 7,677 151 431 370 348 1,300 (406 ) 894 7,801 1,252 9,053 (2,584 ) 6,469 690 39 571 1,300 (406 ) 894 5,566 658 2,829 9,053 (2,584 ) 6,469 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, 2017 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 Not past due Past due up to 3 months Past due more than 3 to 6 months Past due more than 6 months Total 6,788 1,426 788 4,551 13,553 920 281 258 2,872 4,331 2017 Provision for impairment of receivables Gross Gross 2016 Provision for impairment of receivables 177 401 495 1,917 2,990 4,535 1,721 697 3,400 10,353 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, 2017 and 2016, the carrying amounts of trade receivables of the Group considered past due but not impaired amounted to Rp3,354 billion and Rp3,005 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 2017 2016 2,187 41 0 2,228 (683 ) 1,545 2017 2016 10,300 968 19 38 11,325 (3,648 ) 7,677 1,300 0 0 1,300 (406 ) 894 7,565 1,437 40 11 9,053 (2,584 ) 6,469 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, 2017 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 2017 2016 2,990 1,494 (153 ) 4,331 3,048 743 (801 ) 2,990 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, 2017, certain Rp6,888 billion have been pledged as collateral under lending agreements (Notes 15 and 16c). the subsidiaries amounting receivables of trade to Refer to Note 31 for details of related parties transactions. 6. INVENTORIES Components SIM cards and blank prepaid vouchers Others Total Provision for obsolescence Components SIM cards and blank prepaid vouchers Others Total Net 2017 2016 447 168 69 684 (24 ) (29 ) 0 (53 ) 631 Movements in the provision for obsolescence are as follows: Beginning balance Provision recognized during the period Inventory written off Ending balance 2017 2016 47 6 - 53 299 168 164 631 (18 ) (29 ) 0 (47 ) 584 41 11 (5 ) 47 inventories The in operations, maintenance, and telecommunication service expenses as of December 31, 2017 and 2016 amounted to Rp2,458 billion and Rp2,105 billion, respectively (Note 24). recognized as expense and included 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 6. INVENTORIES (continued) Management believes that the provision is adequate to cover losses from decline in inventory value due to obsolescence. Certain inventories of the subsidiaries amounting to Rp231 billion have been pledged as collateral under lending agreements (Notes 15, 16b and 16c). As of December 31, 2017 and 2016, modules and components held by the Group with book value amounting to Rp143 billion and Rp199 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, 2017 and 2016 amounted to Rp256 billion and Rp220 billion, respectively. Management believes that the insurance coverage is adequate to cover potential losses of inventories arising from the insured risks. 7. OTHER CURRENT ASSETS Frequency license (Note 34c.i) Prepaid rental Advances Prepaid salaries Advance to employee Others Total 2017 2016 3,760 1,349 1,156 227 35 656 7,183 3,056 1,234 389 229 32 306 5,246 Refer to Note 31 for details of related parties transactions. 8. LONG-TERM INVESTMENTS The Group has investments in several entities as follows: 2017 Percentage of ownership Beginning balance Additions (deductions) Share of net profit (loss) Dividend Share of other comprehensive income Ending balance Long-term investments in associated companies: Tiphonea Indonusab Teltranetc PT Integrasi Logistik 24.00 20.00 51.00 Cipta Solusi (“ILCS”)e 49.00 45.00 25.00-49.00 PT Graha Sakura Nusantara (“GSN”)g Others f Sub-total Other long-term investments Total long-term investments 1,488 221 38 42 - - 1,789 58 1,847 80 - (20 ) 1 0 (0 ) 61 - 61 (28 ) - - - - - (28 ) - (28 ) (1 ) - - - - (0 ) (1 ) - (1 ) 1,539 221 18 43 14 4 1,839 309 2,148 - - - - 14 4 18 251 269 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 8. LONG-TERM INVESTMENTS (continued) Summarized financial information of the Group’s investments accounted under the equity method for 2017: Tiphone Indonusa Teltranet ILCS GSN Others 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 benefit (expense) Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income (loss) for the year 8,084 994 (2,107 ) (3,255 ) 3,716 27,914 (27,217 ) (246 ) 451 (116 ) 335 (3 ) 332 174 101 (149 ) (90 ) 36 145 32 (87 ) (2 ) 88 1 185 (27 ) (129 ) 30 190 606 (724 ) (1,882 ) (1,810 ) 209 (255 ) 122 (116 ) (5 ) (51 ) 13 (38 ) (0 ) (38 ) (4 ) 2 1 3 (0 ) 3 0 (0 ) (0 ) 0 - 0 - 0 106 (287 ) (19 ) (200 ) - (200 ) - (200 ) 307 415 (877 ) (177 ) (332 ) 692 (333 ) (364 ) (5 ) - (5 ) - (5 ) 2016 Percentage of ownership Beginning balance Additions (deductions) Share of net profit (loss) Dividend Share of other comprehensive income Ending balance Long-term investments in associated companies: Tiphonea Indonusab Teltranetc PT Melon Indonesia (“Melon”)d PT Integrasi Logistik Cipta Solusi (“ILCS”)e Othersf Sub-total Other long-term investments Total long-term investments 24.43 20.00 51.00 51.00 49.00 25.00-49.00 1,404 221 71 50 40 6 1,792 15 1,807 108 - (33 ) 17 2 (6 ) 88 - 88 (23 ) - - - - - (23 ) - (23 ) (1 ) - - - - - (1 ) - 1,488 221 38 - 42 - 1,789 58 (1 ) 1,847 - - - (67 ) - - (67 ) 43 (24 ) 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 8. LONG-TERM INVESTMENTS (continued) Summarized financial information of the Group’s investments accounted under the equity method for 2016: Tiphone Indonusa Teltranet ILCS Others 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 benefit (expense) Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income (loss) 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 ) 74 131 29 (73 ) (1 ) 86 66 (149 ) 116 (112 ) (3 ) (86 ) 21 (65 ) (0 ) (65 ) 0 4 0 4 (0 ) 4 170 771 (629 ) (1,212 ) (900 ) 139 (264 ) (88 ) (213 ) - (213 ) - (213 ) a Tiphone was established on June 25, 2008 as PT Tiphone Mobile Indonesia Tbk. Tiphone is engaged in the telecommunication equipment business, such as 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, 2017 and 2016, the fair value of the investment amounted to Rp1,755 billion and Rp1,500 billion, respectively. The fair value was calculated by multiplying the number of shares by the published price quotation as of December 31, 2017 and 2016 amounting to Rp1,000 and Rp855 per share, respectively. Reconciliation of information December 31, 2017 and 2016 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 (24.00% in 2017 and 24.43% in 2016) Goodwill Carrying amount of long-term investment 2017 2016 9,078 (5,362 ) 3,716 892 647 1,539 8,452 (5,010 ) 3,442 841 647 1,488 b c 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 waived its right to own the new shares issued and transferred it to Metra, as the result, Metra’s ownership in Indonusa increased to 4.33% and the Company’s ownership become 15.67%. 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 to determine the financial and operating policies of Teltranet. Isbandi, S.H., which was approved by the MoLHR in d Melon previously was an associated company. In 2016, the Group purchased 49% shares in Melon through Metranet, therefore Melon became a consolidated subsidiary (Note 1d). e ILCS is engaged in providing E-trade logistic services and other related services. f The unrecognized share of losses in other investments for the year ended December 31, 2017 is Rp435 billion. g On August 31, 2017, NSI and third party established PT Graha Sakura Nusantara (“GSN”) which engaged in real estate and residential and apartment marketing business. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT January 1, 2017 Acquisitions Additions Deductions Reclassifications/ Translations December 31, 2017 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 telecommunication 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 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 40 39 - 69 - - 573 - - - - 11 - - - - - - - - - - 732 62 211 34 556 - 2,420 1,233 5,715 222 715 966 327 65 - 20,110 228 - 290 - - - - 33,154 - (3 ) (25 ) (977 ) - (4,489 ) (2,202 ) (694 ) (456 ) (602 ) (7 ) - (13 ) - (96 ) - (1 ) (24 ) (84 ) - - - (9,673 ) - 1,718 132 (1,675 ) (3 ) 14,314 1,251 (2,657 ) 1,491 666 - (234 ) - (3 ) (20,149 ) - - - 88 - - - (5,061 ) 1,519 9,802 1,257 18,463 1,583 133,797 9,300 47,155 16,279 13,294 1,659 1,557 439 97 4,415 5,582 83 401 80 22 215 252 267,251 January 1, 2017 Acquisitions Additions Deductions Reclassifications/ Translations December 31, 2017 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 telecommunication 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 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 98 243 133,601 114,498 407 149 1,391 416 10,629 595 1,992 1,274 1,372 149 189 66 1 584 29 47 26 1 22 13 19,352 - (23 ) (977 ) - (3,642 ) (2,202 ) (693 ) (286 ) (581 ) (7 ) (9 ) (8 ) - - (1 ) (13 ) (56 ) - - - (8,498 ) 38 5 (2,511 ) 53 (49 ) (1,157 ) (3,736 ) 2 (23 ) (1 ) 10 - (4 ) - 4 - 16 - - (22 ) (7,375 ) 2,880 823 14,553 802 69,240 4,334 17,864 11,154 10,236 602 1,036 226 96 2,638 76 66 80 20 120 234 137,080 130,171 - - - - - - - - - - - - - - - - - - - - - 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, 2017 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 telecommunication 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 January 1, 2016 Acquisitions 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 Acquisitions Additions Deductions Reclassifications/ Translations December 31, 2016 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 telecommunication 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 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 - - - - - - - - - - - - - - - - - - - - - 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 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 2017 2016 1,367 (1,009 ) 358 765 (152 ) 613 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) 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 VIU 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 VIU 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.i), the Company accelerated the depreciation of its fixed wireless assets. As of December 31, 2015, all of the Company’s fixed wireless assets have been fully depreciated. In 2017 and 2016, the Company derecognized the fixed wireless asset which fully depreciated with acquisition cost of Rp3,193 billion and Rp5,203 billion, respectively. Management believes that there is no indication of impairment in the assets of other CGUs as of December 31, 2017. c. Others (i) to property under construction amounted Interest capitalized to Rp328 billion and Rp444 billion for the years ended December 31, 2017 and 2016, respectively. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization ranged from 8.15% to 11.00% and 10.20% to 11.00% for the years ended December 31, 2017 and 2016, respectively. (ii) No foreign exchange loss was capitalized as part of property under construction for the years ended December 31, 2017 and 2016. (iii) In 2017 and 2016, the Group obtained proceeds from the insurance claim on lost and broken property and equipment, with a total value of Rp155 billion and Rp77 billion, respectively, and were recorded as part of “Other Income” in the consolidated statements of profit or loss and other comprehensive income. In 2017 and 2016, the net carrying amount of those assets of Rp7 billion and Rp19 billion, respectively, were charged to the consolidated statements of profit or loss and other comprehensive income. 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, 2017 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) (iv) Since 2015 until 2017, Telkomsel decided to replace certain equipment units with net carrying amount of Rp3,115 billion, as part of its modernization program. Accordingly, Telkomsel accelerated the depreciation of such equipment units. The impact of accelerated depreciation was an increase in the depreciation expense for the year ended December 31, 2017 amounting to Rp459 billion. This modernization program will decrease profit before income tax in 2018 amounting to Rp47 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, 2017 amounting to Rp198 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 amounting to Rp135 billion. In 2012, the useful lives of Telkomsel's towers changed from 10 years to 20 years, to reflect their current economic lives of towers. The impact of reduction in depreciation expense for the year ended December 31, 2017 amounting to Rp92 billion. (v) Exchange of property and equipment 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 2017 and 2016, the Company derecognized the copper cable network asset with net carrying amount of Rp1 billion and Rp3 billion, respectively, and recorded the fiber optic network asset from the exchange transaction of Rp506 billion and Rp801 billion, respectively. In 2017 and 2016, Telkomsel’s certain equipment units with net carrying amount of Rp816 billion and Rp636 billion, respectively, were exchanged with equipment from Ericsson AB, PT Huawei Tech Investment (“Huawei”) and PT Nokia Solutions and Network Indonesia (“PT NSN”). As of December 31, 2017, Telkomsel’s equipment units with net carrying amount of Rp10 billion are going to be exchanged with equipment from Nokia Siemens Network Oy (“NSN Oy”) and Huawei and, therefore, these equipment units were reclassified as “Non- current assets held for sale”” in the consolidated statements of financial position. (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 2018 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, 2017, the Group’s property and equipment excluding land rights, with net carrying amount of Rp118,198 billion were insured against fire, theft, earthquake and other totalling specified Rp11,449 billion, US$64 million, HKD3 million, SGD211 million and MYR37 million and first loss basis amounted to Rp2,760 billion. Management believes that the insurance coverage is adequate to cover potential losses from the insured risks. interruption, under blanket policies including business risks, 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, 2017 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) (viii) As of December 31, 2017, the percentage of completion of property under construction was around 67.24% of the total contract value, with estimated dates of completion until 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). Certain property and equipment of the Company’s subsidiaries with cost amounting to Rp9,721 billion have been pledged as collateral under lending agreements (Notes 15 and 16). (x) As of December 31, 2017, the cost of fully depreciated property and equipment of the Group that are still used in operations amounted to Rp53,407 billion. The Group is currently performing modernization of network assets to replace the fully depreciated property and equipment. (xi) In 2017, 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 Rp30,344 billion. (xii) On August 25, 2017 Telkom-1 Satellite experienced technical problems which impacted to customer service disruptions. Therefore, the Company was migrating customers services to the Company’s other satellites (Telkom-3S and Telkom-2), as well as to several third party satellites. This customers services migration process has been completed on September 10, 2017, and the costs incurred on this migration process are recognized in these consolidated statements of profit or loss and other comprehensive income. As of December 31, 2017, the acquisition cost and accumulated depreciation of Telkom-1 Satellite amounting to Rp1,165 billion is presented as part of disposal assets group and classified as “Other non- current assets” in the consolidated statements of financial position. (xiii) 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. 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 assets with the option to purchase certain leased assets at the end of the lease terms. and CPE equipment, equipment, vehicles office 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, 2017 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 2017 2018 2019 2020 2021 2022 Thereafter Total minimum lease payments Interest Net present value of minimum lease payments Current maturities (Note 15b) Long-term portion (Note 16) 2017 2016 - 1,083 969 866 778 605 384 4,685 (881 ) 3,804 (794 ) 3,010 987 892 816 771 740 590 364 5,160 (1,150 ) 4,010 (658 ) 3,352 The details of obligations under finance leases as of December 31, 2017 and 2016 are as follows: 2017 2016 PT Tower Bersama Infrastructure Tbk PT Profesional Telekomunikasi Indonesia PT Solusi Tunas Pratama PT Mandiri Utama Finance PT Putra Arga Binangun PT Mitsubishi UFJ Lease and Finance Indonesia PT Bali Towerindo Sentra Others (each below Rp75 billion) Total 10. OTHER NON-CURRENT ASSETS 1,293 1,120 212 198 189 135 100 557 3,804 The breakdown of other non-current assets as of December 31, 2017 and 2016 are as follows: 2017 2016 Claim for tax refund - net of current portion (Note 26) Advances for purchases of property and equipment Prepaid rental - net of current portion (Note 7) Frequency license - net of current portion (Note 7) Prepaid taxes - net of current portion (Note 26) Deferred charges Security deposit Others Total 3,085 2,869 2,688 2,019 753 413 116 327 12,270 1,465 1,295 241 - 217 21 112 659 4,010 1,428 5,276 2,280 320 1,228 387 144 445 11,508 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 10. OTHER NON-CURRENT ASSETS (continued) Prepaid rental covers rent of leased line, telecommunication equipment, land and building under lease agreements of the Group with remaining rental periods ranging from 1 to 40 years. As of December 31, 2017 and 2016, deferred charges represent deferred Indefeasible Right of Use (“IRU”) Agreement charges. Total amortization of deferred charges for the years ended December 31, 2017 and 2016 amounted to Rp46 billion and Rp40 billion, respectively. Refer to Note 31 for details of related parties transactions. 11. INTANGIBLE ASSETS The details of intangible assets are as follows: Gross carrying amount: Balance, January 1, 2017 Additions Acquisition Deductions Reclassifications/translations Balance, December 31, 2017 Accumulated amortization and impairment losses: Balance, January 1, 2017 Amortization Deductions Reclassifications/translations Balance, December 31, 2017 Net book value 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 Goodwill Software License Other intangible assets Total 449 - 232 (3 ) 2 680 (29 ) - - - (29 ) 651 7,222 1,289 4 (122 ) (6 ) 8,387 (4,776 ) (1,037 ) 95 4 (5,714 ) 2,673 75 3 - - 6 84 (56 ) (9 ) - (6 ) (71 ) 13 607 21 - (11 )))) 18 635 (403 ) (48 ) 11 (2 ) (442 ) 193 8,353 1,313 236 (136 ) 20 9,786 (5,264 ) (1,094 ) 106 (4 ) (6,256 ) 3,530 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 (i) Goodwill resulted from the acquisition of Sigma (2008), Admedika (2010), data center BDM (2012), Contact Centres Australia Pty. Ltd. (2014), MNDG (2015), Melon (2016), GSDm (2016), TSGN (2017) and Nutech (2017) (Note 1d). (ii) The amortization is presented as part of “Depreciation and Amortization” in the consolidated statements of profit or loss and other comprehensive income. The remaining amortization periods of software range from 1-5 years. (iii) As of December 31, 2017, the cost of fully amortized intangible assets that are still used in operations amounted to Rp3,847 billion. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 12. TRADE PAYABLES 2017 2016 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: 574 322 896 11,662 1,561 1,455 14,678 15,574 Rupiah U.S. dollar Others Total Refer to Note 31 for details of related parties transactions. 13. ACCRUED EXPENSES Operation, maintenance and telecommunication services General, administrative and marketing expenses Salaries and benefits Interest and bank charges Total Refer to Note 31 for details of related parties 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 Indefeasible Right of Use Other telecommunications services Total 54 2017 2016 13,344 2,167 63 15,574 2017 2016 7,093 2,684 2,664 189 12,630 2017 2016 4,800 300 148 179 5,427 2017 2016 205 319 524 1,223 324 1,547 9,434 1,256 1,281 11,971 13,518 11,270 2,196 52 13,518 6,165 1,914 2,993 211 11,283 4,959 199 189 216 5,563 169 256 425 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, 2017 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 Bank Mandiri Sub-total Third parties UOB PT Bank DBS Indonesia Bank CIMB Niaga SCB PT Bank Sumitomo Mitsui Indonesia (“Sumitomo”) Others Sub-total Total 2017 Outstanding 2016 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp Rp Rp Rp Rp - - - - - - - - - 1,252 45 1,297 400 408 83 - 80 21 992 2,289 - - - - - - - - - 143 - 143 269 95 143 90 - 171 768 911 Other significant information relating to short-term bank loans as of December 31, 2017 is as follows: Borrower Currency Total facility (in billions) Maturity date Interest payment period Interest rate per annum Security BNI November 28, 2012h,c Metra Rp 150 November 28, 2018 Monthly March 13, 2013g Sigma Rp 2,100 January 9, 2018 Monthly January 10, 2014f Sigma Rp 125 January 9, 2018 Monthly May 15, 2017 Infomedia Rp June 7, 2017 ISH Rp 250 150 May 14, 2018 Monthly June 6, 2018 Monthly June 19, 2017 Telkom Infra Rp 161 August 31, 2018 Monthly September 28, 2017 Telkom Infra Rp 70 June 30, 2018 Monthly November 8, 2017 GSD Rp 50 November 8, 2018 Monthly December 19, 2017 Telkom Infra Rp 80 December 31, 2018 Monthly None 1 month JIBOR+2.95% 1 month JIBOR+3.00% 1 month JIBOR+3.00% Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) Trade receivables (Note 5) Trade receivables (Note 5) Trade receivables (Note 5) 9.00% Trade receivables (Note 5) Trade receivables (Note 5) 1 month JIBOR+3.00% 1 month JIBOR+3.00% 1 month JIBOR+3.35% 1 month JIBOR+3.35% 1 month JIBOR+3.35% GSD Rp 55 September 11, 2018 Monthly Finnet Rp 400 December 19, 2018 Monthly 9.00% Trade receivables (Note 5) 1 month JIBOR+2.25% None Bank Mandiri October 11, 2017 UOB December 20, 2016d PT Bank DBS Indonesia April 12, 2016e,b Sigma US$ March 27, 2017 Metra Rp 0.02 250 July 31, 2018 Semi- annually July 31, 2018 Monthly 3.25% (US$) / 10.75% (Rp) 1 month JIBOR+2.15% Trade receivables (Note 5) None Bank CIMB Niaga April 28, 2013a,c GSD Rp 85 January 1, 2018 Monthly Sumitomo December 21, 2017 Metra Rp 300 January 27, 2018 Monthly 10.90%- 11.50% Trade receivables (Note 5) and property and equipment (Note 9) 1 month JIBOR+1.50% None 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, 2017 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 (continued) 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 Facility in USD. Withdrawal can be executed in USD and IDR. c Unsettled loan will be automatically extended. d Based on the latest amendment dated June 2, 2017. e Based on the latest amendment dated October 25, 2017. f Based on the latest amendment dated November 29, 2017. g Based on the latest amendment dated December 21, 2017. h Based on the latest amendment dated March 21, 2017. b. Current maturities of long-term borrowings Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Total Notes 16a 16b 16c 16d 9c.xiii 2017 2016 206 - 4,110 99 794 5,209 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 16d 9c.xiii 2017 2016 892 8,982 13,894 1,196 3,010 27,974 Scheduled principal payments as of December 31, 2017 are as follows: 225 1 3,637 - 658 4,521 1,067 9,322 11,929 697 3,352 26,367 Notes 16a 16b 16c 16d 9c.xiii Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Total a. Two-step loans Total 2019 2020 Year 2021 2022 892 8,982 13,894 1,196 3,010 27,974 187 - 4,138 199 744 5,268 187 1,995 3,350 199 699 6,430 171 - 2,222 199 668 3,260 Thereafter 212 4,791 2,441 400 135 2,196 1,743 199 548 4,821 351 8,195 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. 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, 2017 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 Total Current maturities (Note 15b) Long-term portion Lenders Overseas banks 2017 Outstanding 2016 Outstanding Currency Original currency (in millions) Yen US$ Rp 5,375 17 - Rupiah equivalent 648 237 213 1,098 (206 ) 892 Original currency (in millions) Rupiah equivalent 6,143 22 - 707 295 290 1,292 (225 )))) 1,067 Principal payment Currency Yen US$ Rp 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% 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 originating from Asian Development Bank (“ADB”). b. 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, 2017, the Company has complied with the above-mentioned ratios. b. Bonds and notes Bonds and notes Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent 2017 Outstanding 2016 Outstanding Bonds 2010 Series B 2015 Series A Series B Series C Series D Medium Term Notes (“MTN”) GSD Series A Series B Promissory notes PT ZTE Indonesia (“ZTE”) Total Unamortized debt issuance cost Total Current maturities (Note 15b) Long-term portion Rp Rp Rp Rp Rp Rp Rp US$ 57 - - - - - - - - 1,995 2,200 2,100 1,200 1,500 - - - 8,995 (13 ) 8,982 - 8,982 - - - - - - - 0 1,995 2,200 2,100 1,200 1,500 220 120 1 9,336 (13 ) 9,323 (1 ) 9,322 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, 2017 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 Issuance date Maturity date June 25, 2010 July 6, 2020 Interest payment period Quarterly Interest rate per annum 10.20% The bonds are not secured by specific security but 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, 2017, 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, 2017 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. 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. 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, 2017 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) As of December 31, 2017, the rating of the bonds issued 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, 2017, the Company has complied with the above-mentioned ratios. ii. MTN GSD Notes Currency Principal Series A Series B Total Rp Rp 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. On June 12, 2017, GSD has been fully paid for MTN series A amounted to Rp220 billion and series B amounted to Rp120 billion to PT Mandiri Sekuritas as an Arranger. iii. Promissory Notes Supplier Currency PT Huaweia ZTEb,c US$ US$ Principal* (in billions) Issuance date April 30, 2013 0.2 Principal payment schedule - Interest payment period Semi-annually 0.1 August 20, 2009 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 bHas been fully paid on February 4, 2017 cBased 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. 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, 2017 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 Central Asia Tbk Sumitomo United Overseas Bank Limited (“UOB Singapore”) UOB ANZ PT Bank ICBC Indonesia (“ICBC”) PT Bank DBS Indonesia Japan Bank for International Cooperation (“JBIC”) Exim Bank of Malaysia Berhad Others Sub-total Total Unamortized debt issuance cost Current maturities (Note 15b) Long-term portion 2017 Outstanding 2016 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp Rp Rp Rp Rp US$ Rp Rp Rp Rp US$ MYR Rp MYR - - - - - - - - 49 - - - - 9 37 - 15 4,603 2,166 1,126 7,895 2,250 1,944 1,726 1,100 804 664 500 440 249 144 128 124 26 50 10,149 18,044 )))) (40 18,004 )))) (4,110 13,894 - - - - - - - - 36 - - - - 16 - - - 3,222 1,871 1,232 fg 6,325 3,650 2,361 1,162 - 647 484 500 240 - - 211 - 37 - 9,292 15,617 (51 ) 15,566 (3,637 ) 11,929 Other significant information relating to bank loans as of December 31, 2017 is as follows: Borrower Currency Total facility* (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security BNI March 13, 2013h Sigma Rp 2,100 116 Monthly (2016-2022) Monthly 1 month JIBOR+3.00% 375 Semi-annually (2015-2018) Monthly (2016-2022) 41 Quarterly Monthly 3 months JIBOR+2.0% 1 month JIBOR+3.00% 186 Quarterly (2015-2019) 15 Semi-annually (2015-2018) Monthly Monthly 1 month JIBOR+3.35% 1 month JIBOR+2.95% Trade receivables (Note 5) and property and equipment (Note 9) None Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) Trade receivables (Note 5) and property and equipment (Note 9) November 20, 2013j The Company Rp January 10, 2014h Sigma Rp November 3, 2014c June 10, 2015 Telkom Infratel Metra Rp Rp 1,500 247 1,050 44 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, 2017 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) Other significant information relating to bank loans as of December 31, 2017 is as follows: Borrower Currency Total facility* (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security BNI (continued) October 12, 2015 Telkom Akses Rp 1,400 350 Semi-annually (2016-2019) Quarterly March 24, 2017e&g Dayamitra Rp 1,005 March 24, 2017e GSD Rp March 24, 2017e The Company Rp November 13, 2017 Telkom Akses Rp 150 650 400 - - Semi-annually (2019-2024) Quarterly (2019-2024) - Semi-annually (2019-2024) Monthly (2018-2021) - Quarterly Quarterly Quarterly Monthly BRI October 30, 2013 GSD Rp 70 10 Monthly (2014-2021) Monthly October 30, 2013 GSD Rp 34 5 Monthly (2014-2021) Monthly 3 months JIBOR+2.90% 3 months JIBOR+1.85% 3 months JIBOR+1.85% 3 months JIBOR+1.85% 3 months JIBOR+2.50% Trade receivables (Note 5), inventories (Note 6), and property and equipment (Note 9) None None None Trade receivables (Note 5), inventories (Note 6), and property and equipment (Note 9) 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 375 Semi-annually (2015-2018) 75 Semi-annualy (2017-2020) - Semi-annualy (2019-2024) - Semi-annualy (2019-2024) 375 Semi-annually (2015-2018) 375 Semi-annually (2015-2018) Quarterly (2017-2019) 9 - Semi-annually (2019-2024) - Semi-annualy (2019-2024) Quarterly Quarterly 3 months JIBOR+2.65% 3 months JIBOR+2.70% Quarterly Quarterly Quarterly 3 months JIBOR+1.85% 3 months JIBOR+1.85% 3 months JIBOR+2.65% Quarterly 3 months JIBOR+2.65% Monthly Quarterly Quarterly 3 months JIBOR+1.85% 3 months JIBOR+1.85% 483 Semi-annually (2016-2022) 17 Semi-annually (2016-2022) Quarterly Quarterly 3 months JIBOR+2.00% 3 months JIBOR+2.00% Property and equipment (Note 9) None None None None None All assets All assets 9.50% Trade receivables (Note 5) and property and equipment (Note 9) None November 20, 2013 The Company Rp December 18, 2015 Dayamitra Rp March 24, 2017e The Company Rp March 24, 2017e Dayamitra Rp 1,500 800 500 500 November 20, 2013 The Company Rp 1,500 Bank Mandiri November 20, 2013 The Company Rp 1,500 September 27, 2016 Patrakom Rp 70 March 24, 2017e Dayamitra Rp March 24, 2017e TII Rp 500 195 Syndication of banks March 13, 2015 The Company Rp 2,900 (BNI dan BCA)d,k March 13, 2015 (BNI dan BCA)d,k GSD Rp 100 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, 2017 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* (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security The Bank of Tokyo - Mitsubishi UFJ, Ltd. (continued) October 9, 2014 Dayamitra Rp 600 160 Quarterly (2016-2019) Quarterly March 13, 2015d Metra Rp March 13, 2015d Infomedia Rp March 13, 2015d Dayamitra Rp November 2, 2015 Dayamitra Rp 400 250 100 400 68 28 17 80 Quartely (2016-2020) Quartely (2016-2020) Quarterly (2016-2020) Quarterly (2017-2020) Quartely Quartely Quarterly Quarterly 3 months JIBOR+2.40% 3 months JIBOR+1.50% 3 months JIBOR+1.50% 3 months JIBOR+2.15% 3 months JIBOR+2.60% October 3, 2016 Dayamitra Rp 500 March 30, 2017f Dayamitra Rp 97.5 March 30, 2017f GSD Rp 202.5 March 30, 2017f Metra Rp 100 - Semi- annually (2019-2024) Quarterly 3 months JIBOR+2.25% - Quarterly (2018-2024) - Quarterly (2018-2022) - Quarterly (2018-2022) Quarterly Quarterly Quarterly 3 months JIBOR+1.50% 3 months JIBOR+1.50% 3 months JIBOR+1.50% Bank CIMB Niaga March 31, 2011 GSD Rp 24 3 Monthly (2011-2020) Monthly March 31, 2011 GSD Rp 13 September 9, 2011 GSD Rp 41 2 Monthly (2011-2019) Monthly 4 Monthly (2011-2021) Monthly September 20, 2012 i TLT Rp 1,200 13 Monthly (2015-2030) Quarterly 3 months JIBOR+3.45% September 20, 2012 TLT Rp 118 1 Monthly (2015-2030) Monthly 9.00% September 20, 2012 i TLT Rp March 30, 2017 GSD Rp March 30, 2017f Metra Rp 100 200 295 BCA March 30, 2017f Metra Rp 170 May 5, 2017a Telkomsel Rp 3,000 Sumitomo March 13, 2015 d Metra Rp March 13, 2015 d Infomedia Rp March 13, 2015d Dayamitra Rp 400 250 100 62 1 - - Monthly (2017-2030) Monthly (2018-2024) Monthly (2018-2022) - - Quartely (2018-2022) Monthly (2017-2019) 68 28 17 Quartely (2016-2020) Quartely (2016-2020) Quartely (2016-2020) Monthly Quartely Quartely 3 months JIBOR+3.45% 3 months JIBOR+1.50% 3 months JIBOR+1.50% Quartely Quartely 3 months JIBOR+1.50% 3 months JIBOR+1.00% Quarterly Quarterly Quarterly 3 months JIBOR+2.15% 3 months JIBOR+2.15% 3 months JIBOR+2.15% Trade receivables (Note 5) and property and equipment (Note 9) None None None Trade receivables (Note 5) and property and equipment (Note 9) Property and equipment (Note 9) and lease agreement None None None 9.75% 9.75% 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 Property and equipment (Note 9) Property and equipment (Note9) Property and equipment (Note9) None None None 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, 2017 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) d. Bank loans (continued) Borrower Currency Total facility* (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security Sumitomo (continued) March 30, 2017f Dayamitra Rp 97.5 March 30, 2017f GSD Rp 202.5 March 30, 2017f Metra Rp 100 UOB Singapore September 9, 2016 TII US$ 0.06 UOB September 22, 2016 Dayamitra Rp 500 ANZ March 13, 2015d GSD Rp 249.5 March 13, 2017d PINS Rp 500 - - - Quartely (2018-2022) Quartely (2018-2022) Quartely (2018-2022) - Semi- annually (2019-2022) - Semi- annually (2018-2024) Quarterly Quarterly Quarterly 3 months JIBOR+1.50% 3 months JIBOR+1.50% 3 months JIBOR+1.50% Quarterly 3 months LIBOR+1.50% Quarterly 3 months JIBOR+2.20% - - June 13, 2020 May 31, 2022 Quarterly Quarterly 3 months JIBOR+2.00% 3 months JIBOR+2.00% ICBC April 5, 2017 GSD Rp 272 23 Quartely (2019-2024) Quarterly 3 months JIBOR+2.36% None None None None Property and equipment (Note 9) None None Trade receivables (Note 5) and property and equipment (Note 9) DBS December 23, 2016 Nutech Rp 6 1 Monthly (2017-2021) Monthly 13.00% Trade receivables (Note 5) and property and equipment (Note 9) None 3 months JIBOR+1.50% Quarterly 7.50% None March 30, 2017f Dayamitra Rp March 30, 2017f Patrakom Rp 100 130 - - Quartely (2018-2022) Quartely (2018-2022) Quarterly JBIC March 28, 2013b Exim Bank of Malaysia Berhad March 23, 2016 The Company US$ 0.03 0.006 Semi- annually (2014-2019) Semi- annually 2.18% and 6 months LIBOR+1.20% None TSGN MYR 0.06 0.01 Monthly (2016-2020) Monthly ECOF+1.89% Trade receivables (Note 5) As stated in the agreements, the Group is required to comply with all covenants or restrictions such as dividend distribution, obtaining new ratios. As of December 31, 2017, the Group has complied with all covenants or restrictions, except for certain loans. As of December 31, 2017, the Group obtained waiver from lenders to not demand the loan payment as consequence of the breach of covenants. loans, and maintaining financial The credit facilities were obtained by the Group for working capital purposes. * In original currency a 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, 2017 Telkomsel has complied with the above covenants. 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, 2017 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) b 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. c Based on the latest amendment on May 30, 2017. d 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., ANZ and syndication of banks (BCA and BNI) amounting to Rp750 billion, Rp750 billion, Rp500 billion, and Rp3,000 billion, respectively. As of December 31, 2017 the unused facilities for PT Bank Sumitomo Mitsui Indonesia, The Bank of Tokyo - Mitsubishi UFJ, Ltd. and ANZ amounted to Rp82.5 billion, Rp82.5 billion dan Rp60 billion, respectively. e On March, 24, 2017, the Company, Dayamitra, Sigma, GSD and Telin entered several credit agreements with BRI, BNI, and Bank Mandiri amounting to Rp1,000 billion, Rp1,500 billion and Rp1,500 billion, respectively. As of December 31,2017, the unused facilities for BNI and Bank Mandiri amounted to Rp200 billion and Rp805 billion, respectively. f On March 30, 2017, The Company, GSD, Metra, Dayamitra, PINS, and Patrakom entered into several credit agreements with The Bank of Tokyo - Mitsubishi UFJ Ltd, PT Bank Sumitomo Mitsui Indonesia, PT Bank DBS Indonesia, Bank CIMB Niaga, and BCA amounting to Rp800 billion, Rp800 billion, Rp900 billion, Rp495 billion and Rp850 billion, respectively. As of December 31, 2017, the unused facilities for The Bank of Tokyo - Mitsubishi UFJ Ltd, PT Bank Sumitomo Mitsui Indonesia, PT Bank DBS Indonesia, Bank CIMB Niaga, and BCA amounted to Rp529 billion, Rp529 billion, Rp759 billion, Rp195 billion and Rp750 billion, respectively. g Based on the latest amendment on September 26, 2017. h Based on the latest amendment on December 21, 2017. i Based on the latest amendment on October 20, 2016. j Based on the latest amendment on April 10, 2017 k Based on the latest amendment on May 9, 2017. d. Other borrowing Borrower Currency PT Sarana Multi Infrastruktur October 12, 2016 Dayamitra Rp March 29, 2017 Dayamitra Rp Total facility (in billions) Current period payment (in billions) Principal payment schedule Interest payment period Interest rate per annum Security 700 600 - Semi-annually (2018-2024) Quarterly 3 months JIBOR+2.20% - Semi-annually (2018-2024) Quarterly 3 months JIBOR+2.20% Property and equipment (Note 9) Property and equipment (Note 9) Under the agreement, Dayamitra 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 at least 100%. As of December 31, 2017, Dayamitra has complied with the above-mentioned ratios. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 17. NON-CONTROLLING INTERESTS The details of non-controlling interests are as follows: Non-controlling interests in net assets of subsidiaries: Telkomsel GSD Metra TII Total 2017 2016 18,944 186 115 172 19,417 Non-controlling interests in net income (loss) 2017 2016 of subsidiaries: Telkomsel Metra TII GSD Total Material partly-owned subsidiary 10,637 (82 ) 6 (5 ) 10,556 20,778 141 208 33 21,160 9,867 (39 ) (3 ) (5 ) 9,820 As of December 31, 2017 and 2016, the non-controlling interest holds 35% ownership interest in Telkomsel 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 2017 2016 Current assets Non-current assets Current liabilities Non-current liabilities Total equity Attributable to: Equity holders of parent company Non-controlling interest 21,098 64,650 (23,031 ) (8,587 ) 54,130 35,186 18,944 Summarized statements of profit or loss and other comprehensive income 2017 2016 Revenues Operating expenses Other income - net Profit before income tax Income tax expense - net Profit for the year from continuing operations Other comprehensive income - net Net comprehensive income for the year Profit for the year attributable to non-controlling interest Dividend paid to non-controlling interest 93,217 (53,183 ) 380 40,414 (10,018 ) 30,396 (392 ) 30,004 10,637 12,334 65 28,818 60,963 (21,891 ) (8,520 ) 59,370 38,592 20,778 86,725 (49,751 ) 483 37,457 (9,263 ) 28,194 (222 ) 27,972 9,867 7,036 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 17. NON-CONTROLLING INTERESTS (continued) Summarized statements of cash flows Operating activities Investing activities Financing activities Net increase (decrease) in cash and cash equivalents 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 Hadiyanto Rinaldi Firmansyah Directors (Note 1b): Alex Janangkih Sinaga 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 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 2017 2016 39,564 (13,984 ) (34,720 ) (9,140 ) 42,827 (12,794 ) (24,132 ) 5,901 Number of shares 2017 Percentage of ownership Total paid-in capital 1 51,602,353,560 6,078,374,280 414,157 875,297 147,100 920,349 828,012 828,314 888,854 41,376,586,676 99,062,216,600 1,737,779,800 100,799,996,400 0 52.09 6.14 0 0 0 0 0 0 0 41.77 100.00 0 100.00 0 2,580 304 0 0 0 0 0 0 0 2,069 4,953 87 5,040 Number of shares 2016 Percentage of ownership Total paid-in 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 * The Bank of New York Mellon Corporation serves as the Depositary of the registered ADS holders for the Company’s ADSs. 66 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 18. CAPITAL STOCK (continued) 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 of the Boards of Commissioners and Directors, issuance of new shares, and amendments of the Company’s Articles of Association. 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 (Note 20) 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 2017 2016 1,446 1,446 576 544 478 228 36 1,996 (373 ) 4,931 576 544 478 228 36 1,996 (373 ) 4,931 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, 2017 and 2016, 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: 2017 2016 Beginning balance Sale of treasury stock Ending balance Number of shares 1,737,779,800 - 1,737,779,800 % Rp Number of shares % Rp 1.72 - 1.72 2,541 2,601,779,800 (864,000,000 ) 2,541 1,737,779,800 - 2.58 (0.86 ) 1.72 3,804 (1,263 ) 2,541 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, 2017 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 Translation adjustment Difference due to acquisition of non controlling interests in subsidiaries Other equity components Total 386 58 527 (637 ) 53 387 386 38 503 (637 ) 49 339 2017 2016 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, 2017 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 Monthly subscription charges Usage charges Call center Others Total telephone revenues Interconnection revenues Data, internet, and information technology service revenues Celullar internet and data Internet, data communication and information technology services Short Messaging Services (“SMS”) Pay TV Others Total data, internet, and information technology service revenues Network revenues Other revenues Sales of peripherals Call center service Telecommunication tower leases Power supply CPE and terminal E-payment E-health Others Total other revenues Total revenues 2017 2016 37,176 70 37,246 3,260 3,032 290 83 6,665 43,911 5,175 37,961 15,085 13,192 1,944 353 68,535 1,873 2,292 970 796 560 536 505 470 2,633 8,762 38,238 259 38,497 3,311 3,847 290 94 7,542 46,039 4,151 28,308 13,073 15,980 1,546 64 58,971 1,444 1,490 678 733 29 192 424 415 1,767 5,728 128,256 116,333 The detail of net revenues received by the Group from agency relationships for the years ended December 31, 2017 and 2016 are as follows: Gross revenues Compensation to value added service providers Net revenues Refer to Note 31 for details of related parties transactions. 69 2017 2016 39,111 (1,150 ) 37,961 29,319 (1,011 ) 28,308 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, 2017 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) Net periodic post-employment health care benefit cost (Note 29) Long Service Awards (“LSA”) expense (Note 30) Other employee benefit cost (Note 29) Other post-employment benefit cost (Note 29) Early retirement program Others Total 2017 2016 7,821 3,339 1,700 276 255 62 42 - 34 13,529 7,476 3,865 1,068 163 237 82 48 628 45 13,612 Refer to Note 31 for details of related parties transactions. 24. OPERATION, MAINTENANCE AND TELECOMMUNICATION SERVICE EXPENSES The breakdown of operation, maintenance and telecommunication service expenses is as follows: 2017 2016 Operation and maintenance Radio frequency usage charges (Note 34c.i) Cost of IT services Leased lines and CPE Concession fees and USO charges Cost of sales of handset (Note 6) Electricity, gas and water Cost of SIM cards and vouchers (Note 6) Tower leases Vehicles rental and supporting facilities Insurance Others Total 19,929 4,276 2,648 2,607 2,249 1,544 1,037 914 472 301 294 332 36,603 Refer to Note 31 for details of related parties transactions. 25. GENERAL AND ADMINISTRATIVE EXPENSES The breakdown of general and administrative expenses is as follows: 2017 2016 Provision for impairment of receivables (Note 5d) General expenses Training, education and recruitment Professional fees Travelling Meeting Social contribution Collection expenses Others Total Refer to Note 31 for details of related parties transactions. 70 1,494 1,449 531 498 475 241 197 135 240 5,260 17,047 3,687 1,563 2,578 2,217 1,481 960 624 322 367 256 161 31,263 743 1,626 399 594 436 207 134 152 319 4,610 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, 2017 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 Corporate income tax Value Added Tax (“VAT”) Subsidiaries Corporate income tax VAT Total claims for tax refund Current portion Non-current portion (Note 10) b. Prepaid taxes The Company Income tax 2017 2016 610 1,338 174 1,871 3,993 (908 ) 3,085 2017 2016 Article 19 - Revaluation of fixed assets (Note 26f) Article 22 - Withholding tax on goods delivery and imports Article 23 - Withholding tax on services VAT Subsidiaries Corporate income tax Income tax Article 23 - Withholding tax on services VAT Total prepaid taxes Current portion Non-current portion (Note 10) - 1 44 629 1 17 2,008 2,700 (1,947 ) 753 c. Taxes payable The Company 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 VAT VAT - Tax collector 2017 2016 26 81 3 29 1 1 372 513 71 473 335 66 1,146 2,020 (592 ) 1,428 538 - - 1,075 62 52 1,639 3,366 (2,138 ) 1,228 29 141 2 42 - 136 297 647 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION c. Taxes payable (continued) Subsidiaries Income taxes 2017 2016 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 85 129 3 115 37 303 763 842 2,277 2,790 d. The components of income tax expense (benefit) are as follows: Current The Company Subsidiaries Deferred The Company Subsidiaries Net income tax expense 2017 2016 586 10,771 11,357 (1,603 ) 204 (1,399 ) 9,958 63 121 2 93 136 16 1,100 776 2,307 2,954 671 10,067 10,738 (844 ) (877 ) (1,721 ) 9,017 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: 2017 2016 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 72 42,659 (1,491 ) 41,168 8,234 2,046 761 591 (6 ) (1,796 ) 128 9,958 38,189 (1,684 ) 36,505 7,301 1,904 491 345 56 (1,415 ) 335 9,017 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, 2017 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 years ended December 31, 2017 and 2016 is as follows: 2017 2016 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 impairment and trade receivables written-off Net periodic pension and other post-retirement benefits costs Provision for personnel expenses Valuation of fair value of put option and long-term investment Provision for onerous contracts Depreciation and gain on sale of property and equipment Provision for impairment of assets Deferred installation fee Finance leases Other provisions Net temporary differences Permanent differences: Net periodic post-retirement health care benefit costs Employee benefits Donations Gain on transfer business to under common control entities Trade receivables written-off 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 73 42,659 21,445 64,104 (43,702 ) 20,402 (462 ) 19,940 1,030 985 188 - - (3,120 ) (1,012 ) (4 ) (3 ) (76 ) (2,012 ) 276 264 194 86 - (20,635 ) 1,026 (18,789 ) (861 ) - 586 586 10,771 11,357 38,189 24,613 62,802 (40,166 ) 22,636 (670 ) 21,966 (43 ) 513 560 172 (547 ) (1,880 ) (1,186 ) 50 (337 ) (106 ) (2,804 ) 163 302 162 - 590 (19,445 ) 769 (17,459 ) 1,703 340 331 671 10,067 10,738 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, 2017 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 years ended December 31, 2017 and 2016, the Company has reduced the applicable tax rate by 5%. The Company applied the tax rate of 20% for the years ended December 31, 2017 and 2016. The subsidiaries applied the tax rate of 25% for the years ended December 31, 2017 and 2016. 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 2017 that will be reported to the tax office based on prevailing regulations. The amount of corporate income tax for the year ended December 31, 2016 agreed with what was reported in the annual tax return. e. Tax assessment (i) The Company On November 15, 2013, the Company received Tax Underpayment Assessment Letters (“SKPKBs”) for 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, and in December 2014, Tax Authorities issued a decision which rejected the objections. 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 statement of profit or loss and other comprehensive income. The portion of Interconnection VAT amounting to Rp120 billion (including penalty of Rp39 billion) is recognized as claim for tax refund. On March 12, 2015, the Company has filed an appeal to the Tax Court. On August 1 and 2, 2017, the Tax Court issued a verdict regarding to VAT international incoming call interconnection appeal process. The verdict stated that the international incoming call interconnection is the taxable services and categorized as export service that subject to 0% tariff rate and granted all the Company’s appeal. In September 2017, the Company received tax refund amounting to Rp115 billion and for remaining balance amounting to Rp5 billion has been compensated to withholding tax article 21 tax collection letters. On October 26 and November 23, 2017, the Company received a notification from Tax Court that Tax Authorities filed a request for judicial review. On November 23 and December 21, 2017, the Company has sent an answer regarding contra memorandum for judicial review of VAT international incoming call interconnection and as of the date approval and authorization for the of issuance of these financial statements, the judicial review is still in process. 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, 2017 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 from the Tax Authorities for fiscal year 2011. 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 amounting to Rp2.8 billion (including penalty of Rp929 million). The accepted portion amounting to Rp4.7 billion (including penalty of Rp2 billion) was charged to the 2014 consolidated financial statement of profit or loss and other comprehensive income and the portion of VAT international incoming call interconnection amounting to Rp178 billion (including penalty of Rp58 billion) is recognized as claim for tax refund. On January 7, 2015, the Company filed an objection and on October 20, 2015, Tax Authorities issued a rejection regarding this objection. On January 20, 2016, the Company filed an appeal on the decision of its objection. the Company’s appeal On 4 and 5 April, 2017, the Tax Court issued verdict regarding this appeal. The verdict stated that the international incoming call interconnection is the taxable services from outside the Indonesia customs teritory and categorized as export service that subject to 0% tariff rate and to the granted all December 2007. Tax Court rejected the Company’s appeal for the tax period February to August 2011 since the Company did not meet the administrative requirement. Regarding this rejection, on June 19 and 21, 2017, the Company filed the request for judicial review. As of the date of approval and authorization for the issuance of these consolidated financial statements, the judicial review is still in process. tax period January and September for On May 3, 2016, the Tax Authorities issued Field Tax Audit Notification Letter for tax period January to December 2012. Based on the letters, the Company received underpayment assessment of corporate income tax amounting to Rp991.6 billion (including penalty of Rp321.6 billion), VAT underpayment amounting to Rp467 billion (including penalty of Rp153.5 billion), self-assessed offshore VAT underpayment amounting to Rp1.2 billion (including penalty of Rp392 million), VAT underpayment 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 amounting to Rp16.2 billion (including penalty of Rp5.3 billion), final withholding tax article 21 underpayment amounting to Rp1.2 billion (including penalty of Rp407 million), withholding tax article 23 underpayment amounting to Rp63.5 billion (including penalty of Rp20.6 billion), withholding tax article 4(2) underpayment amounting to Rp25 billion (including penalty of Rp8.1 billion) and withholding tax article 26 underpayment amounting to Rp197.6 billion (including penalty of Rp64 billion). The Company has agreed to the recalculation of input tax credit on international incoming call interconnection services amounting to Rp35 billion, corporate income tax amounting to Rp613 million and withholding tax article 26 amounting to Rp311.5 million that have been charged in the consolidated statement of profit or loss and other comprehensive income for fiscal year 2016. The Company filed an objection regarding to the remaining assessments on November 16, 2016. On March 1, 2017 and May 9, 2017, the Company received the Decision Letter of the Director General of Taxes for the underpayment of self-assessed offshore VAT amounting to Rp1.8 million (including penalty of Rp0.6 million) and the underpayment of VAT on tax collected amounting to Rp4.4 billion (including penalty of Rp1.4 billion). The Company decided to accept the decision. 75 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, 2017 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) On October 19, 2017, the Tax Authorities issued Objection Decision Letter regarding to underpayment of withholding tax article 21 Rp20.7 billion (including penalty of Rp6.7 billion), underpayment of final withholding tax article 21 amounting to Rp23.8 billion (including penalty of Rp7.7 billion), underpayment of withholding tax article 23 amounting to Rp115.7 billion (including penalty of Rp37.5 billion), underpayment of withholding tax article 4(2) amounting to Rp25 billion (including penalty of Rp8.1 billion), underpayment of wihtholding tax article 26 amounting to Rp197.6 billion (including penalty of Rp64.1 billion) and underpayment of corporate income tax amounting to Rp496.4 billion (including penalty of Rp161 billion). On October 30 dan 31, 2017, the Tax Authorities issued Objection Decision Letter for VAT from the tax period January to December 2012 with total of Rp429.3 billion (including penalty of Rp141.2 billion). On January 17 and 26, 2018, the Company filed an appeal on the rejection of its objection. As of the date of approval and authorization for the issuance of these consolidated financial statements, the appeal is still in process. On August 23, 2016, the Tax Authority issued Field Tax Audit Notification Letter for tax period January to December 2015 regarding overpayment of corporate income tax amounting to Rp414 billion. Based on audit result, on April 25, 2017, the Tax Authorities issued Tax Overpayment Assessment Letter (“SKPLB”) for overpayment of corporate income tax amounting to Rp147 billion, underpayment of VAT amounting to Rp13 billion (including penalty of Rp4 billion), underpayment of VAT on tax collected amounting to Rp6 billion (including penalty of Rp1.5 billion), underpayment of self-assessed offshore VAT amounting to Rp55 billion (including penalty of Rp17 billion), including tax collection of VAT amounting to Rp34 billion, VAT on tax collected amounting to Rp7 billion and self-assessed offshore VAT amounting to Rp8 billion. The Company accepted tax audit decision amounting to Rp17 billion for corporate income tax, to transfer tax calculation on realisation compensation of Flexi migration amounting to Rp42 billion in Annual Tax Return of Corporate Income Tax Fiscal Year 2016, SKPKBs and Tax Collection Letter of VAT amounting to Rp26 billion. The accepted portion was charged to the consolidated financial statement of profit or loss and other comprehensive income. On 24 July, 2017, the Company filed Objection Letter to the Tax Authorities for corporate income tax amounting to Rp210.5 billion and self-assessed offshore VAT amounting to Rp55 billion. As of the date of approval and authorization for the issuance of these consolidated financial statements, the objection is still in process. On August 25, 2017, the Tax Authority issued Field Tax Audit Notification Letter for tax periods January to December 2016 for all taxes. This audit is related to claim for tax refund of overpayment corporate income tax fiscal year 2016. As of the date of approval and authorization for the issuance of these consolidated financial statements, the audit is still in process. On September 11, 2017 and January 9, 2018, the Tax Authorities issued Field Tax Audit Notification Letter for tax period December 2014 regarding claim for tax refund overpayment of VAT correction for tax period November and December 2014 amounting to Rp129 billion and Rp86.7 billion, respectively. As of the date of approval and authorization for the issuance of these consolidated financial statements, the audit is still in process. 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, 2017 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 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 the Tax Court that the Tax Authorities filed a request for judicial review to SC for the VAT case amounting to Rp108 billion. Telkomsel filed a contra memorandum for judicial review to the SC on September 14, 2016. In April 2017, Tax Authority has granted Telkomsel’s claim on interest income will be compensate against corporate income tax installment for the period of April 2017. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still in process. In April 21, 2010, the Tax Authorities filed a judicial review request to the 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 memorandum for judicial review to the SC. On March 2, 2017, the Company received the official verdict from the SC which accept the Tax Authorities request. The penalty was paid in June 2017. In May and June 2012, Telkomsel received the refund of the penalty on the 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 request for judicial review to the SC on the Tax Court’s Verdict. On September 14, 2012, Telkomsel filed a contra memorandum for judicial review to the SC. In July 2016, conservatively, Telkomsel recognized the tax penalty of Rp15.7 billion. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still on process. On May 24, 2012, Telkomsel filed an objection to the Tax Authorities for the 2010 underpayment of VAT of Rp290.6 billion (including penalty of Rp67 billion) and recorded it as a claim for tax refund. On May 9, 2017, Telkomsel received the official verdict from the SC which rejected Telkomsel’s request, the underpayment on July 10, 2017. On July 19, 2017, Telkomsel filed the second judicial review to contest against the SC’s verdict. As of the date of approval and authorization for issuance of these financial statements, the second judicial review is still in process. therein Telkomsel paid 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, Telkomsel also filed an appeal to the Tax Court for the underpayment of VAT amounting to Rp1.2 billion (including penalty of Rp392 million). On February 6, 2017, Telkomsel received the Tax Court’s verdict for VAT cases of Rp1.2 billion in favor of Telkomsel. In March and June 2017 Telkomsel received the tax refund. On March 2, 2017 Telkomsel received the Tax Court’s Verdict for the 2011 underpayment of corporate income tax which partially accepted Telkomsel’s appeal amounting to Rp247.6 billion and on August 31, 2017, Telkomsel received the tax refund. 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, 2017 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) In July and October 2017, Telkomsel received notifications that the Tax Authorities had filed judicial reviews to the SC for cases relating to corporate income tax and VAT amounting to Rp62 billion and Rp1.2 billion respectively. Telkomsel submitted its contra memorandums for judicial review in August and November 2017. As of the date of approval and authorization for issuance of these consolidated financial statements, the judicial review is still in process. On July 28, 2016 and in April 2017, Telkomsel received the tax audit instruction letter for compliance of fiscal year 2014 and 2015, respectively. As of the date of approval and authorization for issuance of these consolidated financial statements, the tax audit is still in progress. 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 juncto PMK No. (“PMK”) No. 191/PMK.010/2015 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. juncto PMK No. 233/PMK.03/2015 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 a KJPP to perform fixed assets revaluation of the Company. The Company submitted the fixed asset 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 submitted its fixed assets revaluation application for Phase 2 to DGT and expects to be eligible for 6% tax rate. In its application, the Company estimated a revaluation increment of Rp8,960 billion with estimated final income tax of Rp538 billion. The Company received fixed asset revaluation report from KJPP. Based on the report, the value of fixed asset increased amounting to Rp8,982 billion with related final income tax amounting to Rp540 billion. The Company has paid final income tax amounting to Rp 2 billion as addition on September 22, 2017 and November 15, 2017. On November 21, 2017, DGT issued approval regarding fixed assets revaluation amounting to Rp8,982 billion with related final income tax amounting to Rp540 billion. 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, 2017 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) The fixed assets revaluation for tax purpose resulting a deductible temporary difference that originated from higher tax base of fixed assets’s accounting book value. The temporary difference creates deffered tax assets because there will be future economics benefits that flow to the Company when the carrying amount of assets has been recovered. In 2016, the Company recognized deferred tax assets amounting to Rp1,415 billion on the revaluation increment on fixed assets, as approved by the DGT. In 2017, based on DGT’s approval, The Company recognized deferred tax asset amounting to Rp1,796 billion on the revaluation increment on fixed assets. g. Deferred tax assets and liabilities The details of the Group's deferred tax assets and liabilities are as follows: December 31, 2016 (Charged) credited to profit or loss (Charged) credited to other comprehensive income (Charged) credited to equity and reclassification December 31, 2017 The Company Deferred tax assets: Net periodic pension and other post- employment benefit costs Provision for impairment of receivables Provision for employee benefits Difference between accounting and tax bases of property and equipment Fiscal loss Deferred installation fee Accrued expenses and provision for inventory obsolescence Finance leases Total deferred tax assets Deferred tax liabilities: Valuation of long-term investment Land rights, intangible assets and others Total deferred tax liabilities Deferred tax assets (liabilities) of the Company - net Deferred tax assets of the other Subsidiaries - net Telkomsel Deferred tax assets: Provision for employee benefits Provision for impairment of receivables Total deferred tax assets Deferred tax liabilities: Finance leases Difference between accounting and tax bases of property and equipment Intangible assets Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of the other subsidiaries - net Deferred tax liabilities - net Deferred tax assets - net 342 - - - - - - - 342 - - - 342 9 131 - 131 - - - - 131 12 143 351 - - - - - - - - - - - - - 96 - - - - (125 ) - (125 ) (125 ) (17 ) (142 ) 96 1,102 594 247 240 172 74 43 1 2,473 (11 ) (1 ) (12 ) 2,461 343 677 184 861 (561 ) (552 ) (225 ) (1,338 ) (477 ) (456 ) (933 ) 2,804 197 206 38 1,012 172 (1 ) (26 ) (0 ) 1,598 - 10 10 1,608 (20 ) 68 41 109 (12 ) 55 (177 ) (134 ) (25 ) (164 ) (189 ) 1,588 563 388 209 (772 ) - 75 69 1 533 (11 ) (11 ) (22 ) 511 258 478 143 621 (549 ) (482 ) (48 ) (1,079 ) (458 ) (287 ) (745 ) 769 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, 2017 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): December 31, 2015 (Charged) credited to profit or loss (Charged) credited to other comprehensive income (Charged) credited and reclassification December 31, 2016 The Company Deferred tax assets: Net periodic pension and other post- employment benefit costs Provision for impairment of receivables Provision for employee benefits 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 assets Deferred tax assets (liabilities) of the Company - net Deferred tax assets of the other Subsidiaries - net Telkomsel Deferred tax assets: Provision for employee benefits Provision for impairment of receivables Total deferred tax assets Deferred tax liabilities: Finance leases Difference between accounting and tax bases of property and equipment Intangible Assets Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of the other subsidiaries - net Deferred tax liabilities - net Deferred tax assets - net 335 429 97 65 211 69 1,206 (1,597 ) (45 ) (23 ) (1,665 ) (459 ) 201 349 138 487 (385 ) (1,395 ) (52 ) (1,832 ) (1,345 ) (306 ) (2,110 ) 201 102 (41 ) 112 10 (142 ) (68 ) (27 ) 825 34 12 871 844 50 55 5 60 (164 ) 913 4 753 813 14 1,286 435 126 - - - - - 126 - - - - 126 3 74 - 74 - - - - 74 5 79 129 - - - - - - - - - - - - 4 - - - - - - - - - - 4 563 388 209 75 69 1 1,305 (772 ) (11 ) (11 ) (794 ) 511 258 478 143 621 (549 ) (482 ) (48 ) (1,079 ) (458 ) (287 ) (745 ) 769 As of December 31, 2017 and 2016, the aggregate amounts of temporary differences associated with investments in subsidiaries and associated companies, for which deferred tax liabilities have not been recognized were Rp31,928 billion and Rp34,568 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 reduced if actual future taxable income is lower than estimates. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 26. TAXATION (continued) 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 Government Regulation No. 77/2013 and the latest by Government Regulation No. 56/2015 in conjunction with PMK No. 238/PMK.03/2008. On the basis of historical data, for the year ended December 31, 2017, 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 submit to 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 from the time the tax became due, but not later than 2013, while for fiscal years 2008 and onwards, the period is within five years from 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 of 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 the VAT, PPnBM and also income tax article 22 in accordance with the Regulations. 27. BASIC EARNINGS PER SHARE Basic earnings per share is computed by dividing profit for the year attributable to owners of the parent company amounting to Rp22,145 billion and Rp19,352 billion by the weighted average number of shares outstanding during the period totaling 99,062,216,600 shares and 98,638,501,532 shares after stock split for the years ended December 31, 2017 and 2016, 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 Rp223.55 and Rp196.19 (in full amount) for the years ended December 31, 2017 and 2016, respectively. The Company does not have potentially dilutive financial investments for the years ended December 31, 2017 and 2016. 28. CASH DIVIDENDS AND GENERAL RESERVE 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. Pursuant to the AGM of Stockholders of the Company as stated in notarial deed No. 28 dated April 21, 2017 of Ashoya Ratam, S.H., MKn., the Company’s stockholders approved the distribution of cash dividend and special cash dividend for 2016 amounting to Rp11,611 billion (Rp117.21 per share) and Rp1,935 billion (Rp19.54 per share), respectively. On December 27, 2016, the Company had paid an interim dividend amounting to Rp1,920 billion or totalling Rp19.38 per share. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 28. CASH DIVIDENDS AND GENERAL RESERVE (continued) 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, 2017 and 2016 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: Notes 2017 2016 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 - funded Defined pension benefit obligation Additional pension benefit obligation The Company - unfunded Telkomsel Patrakom MDM Infomedia 29a.i.a 29a.i.a.i 29a.i.a.ii 29a.i.b 29a.ii Total pension benefit Net periodic post-employment health care benefit Other post-employment benefit Obligation under the Labor Law 29b 29c 29d Total - - - - 1,540 1,076 2,384 1,839 0 0 0 6,839 2,419 510 427 10,195 197 1 1 199 - - 2,507 1,193 0 0 0 3,700 1,592 502 332 6,126 The details of net benefit expense recognized in the consolidated statements of profit or loss and other comprehensive income is as follows: Notes 2017 2016 Pension benefit cost The Company - funded Defined pension benefit obligation Additional pension benefit obligation 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 29a.i.a 29a.i.a.i 29a.i.a.ii 29a.i.b 29a.ii 23 23,29b 23,29c 23,29d 82 557 657 239 247 0 0 0 1,700 276 42 62 2,080 608 - 279 181 0 0 0 1,068 163 48 82 1,361 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, 2017 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 details of the net benefit expense recognized in the consolidated statements of profit or loss and other comprehensive income is as follows (continued): Notes 2017 2016 Defined benefit plan actuarial gain (losses) The Company - funded Defined pension benefit obligation Additional pension benefit obligation 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 losses - net 29a.i.a 29a.i.a.i 29a.i.a.ii 29a.i.b 29a.ii 29b 29c 29d 26g a. Pension benefit costs i. The Company a. Funded pension plan i. Defined pension benefit obligation (1,154 ) (419 ) (100 ) (530 ) (1 ) 0 (2 ) (551 ) (40 ) (72 ) (2,869 ) 494 (2,375 ) (492 ) - (119 ) (292 ) 0 0 (1 ) (1,309 ) (20 ) (33 ) (2,266 ) 208 (2,058 ) 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 did not make contributions to the pension fund for the years ended December 31, 2017 and 2016. 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, 2017 and 2016, under 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 losses recognized in OCI Pension benefits paid Projected pension benefit obligations at end of year 2017 2016 18,849 16,505 366 94 1,454 41 2,862 (1,312 ) 22,354 363 245 1,444 44 1,680 (1,432 ) 18,849 83 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, 2017 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) i. Defined pension benefit obligation (continued) 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 year Funded status Effect of asset ceiling (Projected pension benefit obligations) prepaid pension benefit cost at end of year As of December 31, 2017 and 2016, plan assets consist of: 2017 2016 19,046 1,387 1,709 41 (1,312 ) (57 ) 20,814 (1,540 ) - (1,540 ) 17,834 1,458 1,188 44 (1,432 ) (46 ) 19,046 197 - 197 2017 2016 Quoted in active market Unquoted Quoted in active market Unquoted - - - - - - - - - - - 5,428 - - 237 188 314 6,167 1,064 1,039 1,206 536 577 130 216 62 71 361 1,296 - 7,978 30 - - - 14,566 - - - - - - - - - - - 3,817 - - 174 188 301 4,480 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 Total 1,481 1,463 1,411 656 363 115 388 92 46 377 1,233 - 6,968 54 - - - 14,647 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, 2017 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) i. Defined pension benefit obligation (continued) Pension plan assets include Series B shares issued by the Company with fair values totalling to Rp469 billion and Rp395 billion, representing 2.25% and 2.07% of total plan assets as of December 31, 2017 and 2016, respectively, and bonds issued by the Company with fair value totalling to Rp340 billion and Rp311 billion representing 1.64% and 1.63% of total plan assets as of December 31, 2017 and 2016, respectively. 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 Rp3,039 billion and Rp2,600 billion for the years ended December 31, 2017 and 2016, 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, 2017, Dapen’s FSR is above 105%. Therefore, the Company did not contributed to the defined benefit pension plan in 2017. 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 with effective date since January 1, 2016. In addition, the Company provided other benefits to enhance the pensioners’ welfare which were provided only in 2016. Such other benefits consist 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. Based on the company's policy issued on June 7, 2017 regarding Pension Regulation by Dana Pensiun Telkom, the Company provided other benefits amounted to Rp4.5 million to monthly pension beneficiaries who retired before end of June 2002 and Rp2.25 million to monthly pension beneficiaries who retired starting from the end of June 2002 until the end of April 2017. The movement at the projected pension benefit obligations for the years ended December 31, 2017 and 2016 are as follows: 2017 2016 Prepaid pension benefit cost at beginning of year Net periodic pension benefit cost Actuarial losses recognized in OCI Return on plan assets (excluding amount included in net interest expense) (Projected pension benefit obligations) prepaid pension benefit cost at end of year 197 (583 ) (2,862 ) 1,708 (1,540 ) 1,329 (640 ) (1,680 ) 1,188 197 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, 2017 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) i. Defined pension benefit obligation (continued) The components of net periodic pension benefit cost for the years ended December 31, 2017 and 2016 are as follows: 2017 2016 Service costs Past service cost - plan amendments Plan administration cost Net interest cost Net periodic pension benefit cost Amount charged to subsidiaries under contractual agreements Net periodic pension benefit cost less amount charged to subsidiaries Amounts recognized in OCI are as follows: Actuarial 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 366 94 57 66 583 (26 ) 557 2017 2016 163 - 2,699 (1,708 ) 1,154 363 245 46 (14 ) 640 (32 ) 608 70 140 1,470 (1,188 ) 492 The actuarial valuation for the defined benefit pension plan was performed based on the measurement date as of December 31, 2017 and 2016, with reports dated February 27, 2018 and February 22, 2017, 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, 2017 and 2016 are as follows: Discount rate Rate of compensation increases Indonesian mortality table 2017 2016 6.75% 8.00% 2011 8.00% 8.00% 2011 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, 2017 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) ii. Additional pension benefit obligation Based on the Company’s policy issued on June 7, 2017 regarding Pension Regulation by Dana Pensiun Telkom, the Company established additional benefit fund at maximum 10% of surplus of defined benefit plan, when FSR is above 105% and return on investment is above actuarial discount rate of pension fund. Changes in pension benefit obligations Pension benefit obligations at beginning of year Charged to profit or loss: Service cost Past service cost Interest cost Actuarial loss recognized in OCI Pension benefit obligation at end of year 2017 - - 657 - 419 1,076 Changes in additional pension benefit obligation for the year ended December 31, 2017 is as follow: Additional pension benefit obligation at beginning of year Past service cost Actuarial loss recognized in OCI Projected additional pension benefit obligation at end of year 2017 - 657 419 1,076 The components of additional pension benefit cost for the years ended December 31, 2017 is as follows: Service cost Past service cost Plan administration cost Interest cost Pension benefit cost Amounts recognized in OCI are as follows: Actuarial losses recognized during the year due to: Experience adjustment Changes in demographic assumption Changes in financial assumption Total 87 2017 2017 - 657 - - 657 - - 419 419 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, 2017 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) ii. Additional pension benefits obligation (continued) The actuarial valuation for the additional pension benefit plan was performed based on the measurement date as of December 31, 2017, with report dated February 27, 2018, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary for the year ended December 31, 2017 is as follows: Rate of return on investment Discount rate Actuarial discount rate of pension fund Rate of compensation increases Indonesian mortality table b. Unfunded pension plan 2017 9.50% - 10.25% 6.75% 9.25% - 9.50% 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 with permanent status hired 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 Rp10 billion and Rp9 billion for the years ended December 31, 2017 and 2016, respectively. Since 2007, the Company has provided pension benefit based on uniformization for both participants prior to and from April 20, 1992 effective for employees retiring beginning February 1, 2009. In 2010, the Company replaced the uniformization 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. 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, 2017 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 following table presents the changes in the unfunded projected pension benefit obligations for MPS and MPP for the years ended December 31, 2017 and 2016: Unfunded projected pension benefit obligations at beginning of year Service costs Net Interest costs Actuarial losses recognized in OCI Benefits paid by employer Unfunded projected pension benefit obligations at end of year 2017 2016 2,507 51 188 100 (462 ) 2,384 2,500 64 215 119 (391 ) 2,507 The components of total periodic pension benefit cost for the years ended December 31, 2017 and 2016 are as follows: 2017 2016 Service costs Net interest costs 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 51 188 239 2017 2016 19 - 81 100 64 215 279 (9 ) 30 98 119 The actuarial valuation for the defined benefit pension plan was performed, based on the measurement date as of December 31, 2017 and 2016, with reports dated February 27, 2018 and February 22, 2017, respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary for the years ended December 31, 2017 and 2016 are as follows: Discount rate Rate of compensation increases Indonesian mortality table 2017 6.00% - 6.75% 6.10% - 8.00% 2011 2016 7.75% - 8.00% 6.10% - 8.00% 2011 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, 2017 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 Telkomsel sponsors 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 Rp131 billion and Rp83 billion for the years ended December 31, 2017 and 2016, 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, 2017 and 2016, under Telkomsel’s defined benefit pension plan: Changes in projected pension benefit obligation Projected pension benefit obligation at beginning of year Charged to profit or loss: Service costs Interest costs Actuarial 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 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 Pension benefit obligation at end of year 2017 2016 2,034 1,415 149 167 584 (6 ) 2,928 841 69 54 131 (6 ) 1,089 (1,839 ) (1,839 ) 107 130 392 (10 ) 2,034 612 56 100 83 (10 ) 841 (1,193 ) (1,193 ) 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, 2017 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) Movements of the pension benefit obligation for the years ended December 31, 2017 and 2016: Pension benefit obligation at beginning of year Periodic pension benefit cost Actuarial losses recognized in OCI Return on plan assets (excluding amount included in net interest expense) Employer contributions Pension benefit obligation at end of year 2017 2016 1,193 247 584 (54 ) (131 ) 1,839 803 181 392 (100 ) (83 ) 1,193 The components of the periodic pension benefit cost for the years ended December 31, 2017 and 2016 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 financial assumptions Return on plan assets (excluding amount included in net interest expense) Net 2017 2016 149 98 247 2017 2016 (77 ) 661 (54 ) 530 107 74 181 32 360 (100 ) 292 The actuarial valuation for the defined benefit pension plan was performed based on the measurement date as of December 31, 2017 and 2016, with reports dated February 8, 2018 and February 7, 2017 respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2017 and 2016, are as follows: Discount rate Rate of compensation increases Indonesian mortality table 2017 2016 7.00% 8.00% 2011 8.25% 8.00% 2011 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, 2017 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 benefit cost 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 Yayasan Kesehatan Telkom (“Yakes”). The defined contribution post-employment health care benefit plan is provided to employees with permanent status hired on or after November 1, 1995 or employees with terms of service less than 20 years at the time of retirement. The Company did not make contributions to Yakes for the years ended December 31, 2017 and 2016. The following table presents the changes in projected post-employment health care benefit provision, changes 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, 2017 and 2016: 2017 2016 Changes in projected post-employment health care benefit obligation Projected post-employment health care benefit obligation at beginning of year Charged to profit or loss: Service costs Interest costs Actuarial losses recognized in OCI Post-employment health care benefits paid Projected post-employment health care benefit obligation at end of period 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 Plan administration cost Fair value of plan assets at end of year Funded status Provision for post-employment health care benefit 13,357 10,942 - 1,115 1,460 (484 ) 9 994 1,828 (416 ) 15,448 13,357 11,765 979 909 (484 ) (140 ) 13,029 (2,419 ) (2,419 ) 10,824 982 519 (416 ) (144 ) 11,765 (1,592 ) (1,592 ) 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, 2017 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 benefit cost (continued) As of December 31, 2017 and 2016, plan assets consists of: 2017 Quoted in active market 1,354 Unquoted 2016 Quoted in active market 894 Unquoted Cash and cash equivalents Equity instruments: Manufacturing and 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 Total 835 840 254 350 137 65 38 35 68 1 1,113 7,642 - 12,732 - - - - - - - - - - - - - 297 297 754 540 351 245 101 27 17 44 6 2 1,311 7,241 - 11,533 - - - - - - - - - - - - - 232 232 Yakes plan assets also include Series B shares issued by the Company with fair value totalling Rp265 billion and Rp217 billion, representing 2.04% and 1.84% of total plan assets as of December 31, 2017 and 2016, 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 Rp1,748 billion and Rp1,357 billion for the years ended December 31, 2017 and 2016, respectively. The movements of the projected post-employment health care benefit obligation for the years ended December 31, 2017 and 2016 are as follows: Projected post-employment health care benefit obligations at beginning of year Net periodic post-employment health care benefit Actuarial losses recognized in OCI Return on plan assets (excluding amount included in net interest expense) Projected post-employment health care benefit obligation at end of year 2017 2016 1,592 276 1,460 (909 ) 2,419 118 165 1,828 (519 ) 1,592 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, 2017 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 benefit cost (continued) The components of net periodic post-employment health care benefit cost for the years ended December 31, 2017 and 2016 are as follows: Service costs Plan administration costs Net interest costs Periodic post-employment health care benefit cost Amount charged to subsidiaries under contractual agreement Net periodic post-employment health care benefit cost less amount charged to subsidiaries 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 2017 2016 - 141 135 276 - 276 9 144 12 165 (2 ) 163 2017 2016 (1,198) - 2,658 (909) 551 26 66 1,736 (519 ) 1,309 The actuarial valuation for the post-employment health care benefits plan was performed based on the measurement date as of December 31, 2017 and 2016, with reports dated February 27, 2018 and February 22, 2017 respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2017 and 2016 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 2017 2016 7.25% 7.00% 7.00% 2018 2011 8.50% 7.00% 7.00% 2017 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”). 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, 2017 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 of the unfunded projected other post-employment benefit obligations for the years ended December 31, 2017 and 2016 are as follows: Projected other post-employment benefit obligations at beginning of year Charged to profit or loss: Service costs Net interest costs Actuarial losses recognized in OCI Benefits paid by employer Projected other post-employment benefits obligations at end of year 2017 2016 502 6 36 40 (74 ) 510 497 7 41 20 (63 ) 502 The components of the projected other post-employment benefit cost for the years ended December 31, 2017 and 2016 are as follows: Service costs Net interest costs Total Amounts recognized in OCI are as follows: Actuarial losses recognized during the year due to: Experience adjustments Changes in demographic assumptions Changes in financial assumptions Total 2017 2016 6 36 42 2017 2016 10 - 30 40 7 41 48 2 0 18 20 The actuarial valuation for the other post-employment benefits plan was performed based on measurement date as of December 31, 2017 and 2016, with reports dated February 27, 2018 and February 22, 2017 respectively, by TWP, an independent actuary in association with WTW. independent actuary as of The principal actuarial assumptions used by December 31, 2017 and 2016, are as follows: the Discount rate Indonesian mortality table d. Obligation under the Labor Law 2017 5.75% 2011 2016 7.75% 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. Total obligation recognized as of to Rp427 billion and Rp332 billion, respectively. The related pension benefits cost charged to expense amounted to Rp62 billion and Rp82 billion for the years ended December 31, 2017 and 2016, respectively (Note 23). The actuarial losses recognized in OCI amounted to Rp72 billion and Rp33 billion for the years ended December 31, 2017 and 2016, respectively. December 31, 2017 and 2016 amounted 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, 2017 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 2017 are as follows: Expected Benefits Payment The Company Funded Defined pension benefit obligation Additional pension benefit obligation Unfunded Telkomsel Post-employment health care benefits Other post- employment benefits 17,864 21,667 18,911 12,971 2,917 182 6 0 602 937 628 72 22 17 - - 2,614 261 42 10 - - - - 2,450 7,997 6,763 1,509 - - - - 6,579 9,995 9,692 3,710 343 440 7 - 539 124 45 2 - - - - 9.52 years 4.4 years 11.77 years 17.64 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 compensation would have effect on DBO, as follows : Sensitivity Funded Defined pension benefit obligation Additional pension benefit obligation Unfunded Telkomsel Post-employment health care benefits Other post-employment benefits Discount Rate Rate of Compensation 1% Decrease 1% Increase Increase (decrease) in amounts 1% Increase Increase (decrease) in amounts 1% Decrease (2,028 ) (72 ) (60 ) (290 ) (2,197 ) (17 ) 2,409 83 64 331 2,965 18 397 N/A 63 170 1,356 - (413 ) N/A (63 ) (159 ) (1,150 ) - The sensitivity analysis has 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 DBO at the end of the year. 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 preparing the sensitivity analysis from the previous period. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 30. LSA PROVISIONS Telkomsel and Patrakom provide certain cash awards or certain number of days leave benefits to their employees based on the employees’ length of service requirements, including LSA and LSL. LSA are either paid at the time the employees reach certain years of 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 reach 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 Rp758 billion and Rp613 billion as of December 31, 2017 and 2016, respectively. The related benefit costs charged to expense amounted to Rp255 billion and Rp237 billion for the years ended December 31, 2017 and 2016, respectively (Note 23). 31. RELATED PARTIES 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”) satellite transponder usage revenues, interconnection expenses, telecommunication facilities usage expenses, operating and maintenance expenses, usage of data communication network system expenses Network service revenues, leased lines expenses, and usage of communication network system expenses PT Perusahaan Listrik Negara Entity under common control Electricity expenses, finance income, finance costs, and (“PLN”) investment in financial instrument PT Pertamina (Persero) Entity under common control Internet and data service revenues and other (“Pertamina”) telecommunication service revenues PT Kereta Api Indonesia Entity under common control Internet and data service revenues and other (“KAI”) PT Pegadaian Entity under common control Internet and data service revenues and other telecommunication service revenues telecommunication service revenues PT Garuda Indonesia 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”) INTI LEN Entity under common control Purchase of materials and construction services expenses Entity under common control Purchase of property and equipment and construction Entity under common control Purchase of property and equipment and construction services services State-owned banks BNI Entity under common control Entity under common control Finance income and finance costs Internet and data service revenues, other telecommunication service revenues, finance income, and finance costs 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES 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 Bank Mandiri BRI BTN Nature of relationships parties Entity under common control Nature of accounts/transactions 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 Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income, and finance costs PT Bank Syariah Mandiri Entity under common control Internet and data service revenues, other (“BSM”) telecommunication service revenues, and finance costs PT Mandiri Manajemen Entity under common control Available-for-sale financial assets Investasi Bahana TCW PT Sarana Multi Infrastruktur PT Pembangunan Perumahan (“Pembangunan Perumahan”) PT Pos Indonesia (“Pos Indonesia”) PT Semen Indonesia (“Semen Indonesia”) PT Pelabuhan Indonesia (“Pelindo”) PT Kimia Farma (“Kimia Farma”) Entity under common control Entity under common control Entity under common control Available-for-sale financial assets, bonds and notes Finance costs Internet and data service revenues, and other telecommunication service revenues Entity under common control Internet and data service revenues and other Entity under common control Internet and data service revenues and other telecommunication service revenues Entity under common control Internet and data service revenues and other telecommunication service revenues telecommunication service revenues Entity under common control Internet and data service revenues and other telecommunication service revenues PT Asuransi Jiwasraya Entity under common control Internet and data service revenues and other (“Jiwasraya”) CSM Associated company Satelite transponder usage revenues, network service revenues, and transmission lease expenses telecommunication service revenues Indonusa Associated company Network service revenues and data communication ILCS Teltranet Tiphone PT Poin Multi Media Nusantara Associated company Associated company Associated company Other related entities (“POIN”) expenses CPE Expenses CPE Expenses Distribution of SIM cards and pulse reload voucher Purchase of handset PT Perdana Mulia Makmur Other related entities Purchase of handset (“PMM”) Yakes Koperasi Pegawai Telkom Other related entities Other related entities (“Kopegtel”) 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 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) a. Nature of relationships and accounts/transactions with related parties (continued) Related parties PT Sandhy Putra Makmur (“SPM”) Nature of relationships parties Other related entities Nature of accounts/transactions 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”) 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 PT Graha Informatika Nusantara (“Gratika”) Other related entities Network service revenues, installation expenses, maintenance expenses, and purchase of property and equipment PT Pembangunan Other related entities Purchase of property and equipment Telekomunikasi Indonesia (“Bangtelindo”) Directors Commissioners Key management personnel Supervisory Personnel Honorarium and facilities 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. As of December 31, 2017, the Group recorded impairment of receivables from related parties of Rp276 billion. Impairment assessment is undertaken each financial year through examining the current status of existing receivables and historical collection experience. b. Transactions with related parties The following are significant transactions with related parties: 2017 Amount % of total revenues Amount 2016 % of total revenues REVENUES Majority Stockholder Government Entities under common control Indosat BRI Bank Mandiri BTN Pegadaian BNI Lintasarta Pertamina Garuda Indonesia ICON Plus KAI Others Sub-total Other related entities Associated companies Teltranet Others Sub-total Total 0.22 1.39 0.18 0.12 0.10 0.09 0.08 0.08 0.07 0.04 0.05 0.01 0.41 1.89 0,02 0.04 0.01 0.05 3.17 207 2,167 181 161 107 93 136 99 64 75 56 68 451 3,658 253 23 175 198 4,316 0.18 1.86 0.16 0.14 0.09 0.08 0.12 0.09 0.06 0.06 0.05 0.06 0.38 3.15 0.22 0.02 0.15 0.17 3.72 280 1,789 237 157 129 115 105 97 94 55 62 18 523 3,818 31 46 19 65 4,084 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) The following are significant transactions with related parties (continued): EXPENSES Entities under common control PLN Indosat Jasindo Others Sub-total Other related entities Kisel Kopegtel POIN PMM Yakes Others Sub-total Associated companies Indonusa Teltranet ILCS Others Sub-total Total FINANCE INCOME Majority stockholder Government Entity under common control State-owned banks Others Total FINANCE COSTS Majority stockholder Government Entities under common control State-owned banks Sarana Multi Infrastruktur Total 2017 Amount % of total expenses Amount 2016 % of total expenses 2,269 890 168 68 3,395 813 713 405 404 139 81 2,555 264 123 34 4 425 6,375 2.69 1.06 0.20 0.08 4.03 0.96 0.85 0.48 0.48 0.16 0.10 3.03 0.31 0.15 0.04 0.00 0.50 7.56 1,037 939 267 136 2,379 771 533 1,459 - - 206 2,969 145 49 4 5 203 5.551 1.38 1.25 0.35 0.18 3.16 1.02 0.71 1.94 - - 0.26 3.93 0.19 0.07 0.01 0.01 0.28 7.37 2017 2016 Amount % of total finance income Amount % of total finance income 0.00 59.27 2.44 61.72 0 850 35 885 2017 0.12 52.16 0.29 52.57 2 895 5 902 2016 Amount % of total finance costs Amount % of total finance costs 54 819 94 967 1.95 29.58 3.39 34.92 64 1,228 - 1,292 2.28 43.72 - 46.00 100 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) The following are significant transactions with related parties (continued): PURCHASE OF PROPERTY AND EQUIPMENTS (Note 9) Entities under common control INTI LEN Others Sub-total Other related entities Kopegtel Kisel Bangtelindo SPM Others Sub-total Total DISTRIBUTION OF SIM CARD AND VOUCHER Other related entities Kisel Tiphone Gratika Total 2017 % of total purchases Amount 2016 % of total purchases Amount 203 67 26 296 130 73 64 57 59 359 655 0.79 0.23 0.10 1.02 0.41 0.23 0.20 0.18 0.23 1.25 2.27 374 114 39 527 198 66 84 73 45 466 993 1.42 0.43 0.15 2.00 0.68 0.23 0.29 0.25 0.15 1.60 3.60 2017 Amount % of total revenues Amount 2016 % of total revenues 4,181 3,888 408 8,477 3.26 3.03 0.32 6.61 4,600 3,441 408 8,449 3.95 2.96 0.35 7.26 Presented below are balances of accounts with related parties: a. Cash and cash equivalents (Note 3) b. Other current financial assets (Note 4) c. Trade receivables - net (Note 5) d. Other current assets e. Other non - current assets (Note 10) 2017 2016 Amount % of total assets Amount % of total assets 17,417 1,153 1,545 126 55 8.78 0.58 0.78 0.06 0.03 17,477 1,204 894 93 310 9.73 0.67 0.50 0.05 0.17 101 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) The following are significant transactions with related parties (continued): f. Trade payables (Note 12) Majority stockholder Ministry of Finance Entities under common control Indosat State-owned enterprises Sub-total Other related entities Kopegtel Yakes Kisel Bangtelindo SPM Others Sub-total Total g. Accrued expenses (Note 13) Majority stockholder Government Entities under common control State-owned enterprises State-owned banks Sub-total Other related entities Kisel Others Total h. Advances from customers and suppliers Majority stockholder Government Entitiy under common control PLN Total i. Short-term bank loans (Note 15) j. Two-step loans (Note 16a) k. Long-term bank loans (Note 16c) I. Other borrowing (Note 16d) 2017 2016 Amount % of total liabilities Amount % of total liabilities 29 225 102 327 209 55 51 36 36 151 538 869 0.03 0.26 0.12 0.38 0.24 0.04 0.04 0.06 0.06 0.18 0.62 1.00 - 275 903 1,178 170 47 18 26 26 80 367 314 - 0.37 1.22 1.59 0.23 0.06 0.02 0.04 0.04 0.11 0.17 0.43 2017 Amount % of total liabilities Amount 2016 % of total liabilities 0.01 0.13 0.04 0.17 0.27 0.00 0.46 0.02 0.01 0.03 1.50 1.27 9.14 1.50 12 127 52 179 118 5 314 19 12 31 143 1,292 6,325 697 0.02 0.17 0.07 0.24 0.16 0.01 0.43 0.03 0.02 0.05 0.19 1.74 8.54 0.94 9 113 36 149 235 1 394 19 11 30 1,297 1,098 7,895 1,295 102 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) 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 to 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 Regulation 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 its 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. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) c. Significant agreements with related parties (continued) iii. Others 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. Remuneration of key management and supervisory personnel Key management personnel consists of the Directors of the Company and supervisory personnel consists of Board of Commissioners. The Company provides remuneration in the form of salaries/honorarium and facilities to support the governance and oversight duties of the Board of Commissioners and the leadership and management duties of the Board of Directors. The total of such remuneration is as follows: Board of Directors Board of Commissioners Amount 2017 175 65 % of total expenses Amount 0.21% 0.08% 2016 427 121 % of total expenses 0.57% 0.16% The amounts disclosed in the table are the amounts recognized as an expense during the reporting periods. 32. OPERATING SEGMENT In 2017, management rearranged the way it manages the Group's business portfolios from a customer-centric approach to a Customer Facing Units (“CFU”) approach that allow the Group to focus on more specific customer markets. This was followed by a change in the Group’s organizational structure to accommodate decision making and assessing performance based on the CFU approach. The change in the way of managing the Company’s business portfolios and the change in the Company's organizational structure led management, as the Company's Chief Operation Decision Maker, to change the presentation of the Group’s segment information previously presented in the consolidated financial statements for the years ended December 31, 2016. Accordingly, the segment financial information in the consolidated financial statements for the years ended December 31, 2016 has been restated to conform with the presentation of segment information in the consolidated financial statements for the years ended December 31, 2017. The Group has five primary reportable segments, namely mobile, consumer, enterprise, wholesale and international business (“WIB”), and others. The mobile segment provides mobile voice, SMS, value added services and mobile broadband. The consumer segment provides fixed wireline telecommunications services, pay TV, data, internet and other telecommunication services to home customers. The enterprise segment provides end-to-end solution to corporate and institutions. The WIB segment provides interconnection services, leased lines, satellite, VSAT, broadband access, information technology services, data and internet services to Other Licensed Operator companies and institutions. Digital service segment does not meet the disclosure requirements for a reportable segment. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 32. OPERATING SEGMENT (continued) 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 managed on a group basis and not separately monitored and allocated to operating segments. Segment revenues dan expenses include transactions between operating segments and are accounted at prices that management believes represent market prices. Mobile Consumer Enterprise WIB Others Total segment Adjustment and elimination Total consolidated 2017 90,073 11,105 19,130 7,439 3,086 93,159 287 11,392 16,801 35,931 15,305 22,744 (39,452 ) (14,382 ) (53,834 ) 39,325 (10,360 ) (1,563 ) (11,923 ) (531 ) (20,653 ) (15,027 ) (35,680 ) 252 (12,333 ) (5,611 ) (17,944 ) 4,800 (15,134 ) (6,544 ) (3,637 ) (7,120 ) (13,560 ) (2,839 ) (2,136 ) (2,382 ) (291 ) (385 ) (668 ) (127 ) 126 602 728 (979 ) (70 ) (1,049 ) (321 ) (11 ) (22 ) (2 ) 127,873 383 128,256 36,081 163,954 (36,081 ) (35,698 ) - 128,256 (83,777 ) (36,653 ) (120,430 ) 43,525 (572 ) 36,653 36,081 382 (84,349 ) - (84,349 ) 43,907 (32,447) (709 ) (33,156 ) (20,940) 494 (20,446 ) (1,473) (8 ) (1,481 ) Mobile Consumer Enterprise WIB Others Total segment Adjustment and elimination Total consolidated 2016 83,998 2,724 86,722 (37,814 ) (12,547 ) (50,361 ) 36,361 10,410 1,877 12,287 (11,024 ) (2,793 ) (13,817 ) (1,530 ) 15,816 12,877 28,693 (17,813 ) (9,647 ) (27,460 ) 1,233 5,866 14,451 20,317 (10,451 ) (4,805 ) (15,256 ) 5,061 (12,568 ) (7,085 ) (3,036 ) (5,729 ) (12,808 ) (2,881 ) (1,386 ) (1,715 ) (221 ) (392 ) 119 (238 ) 19 209 228 (417 ) (12 ) (429 ) (201 ) (1 ) (19 ) (1 ) 116,109 32,138 148,247 (77,519 ) (29,804 ) (107,323 ) 40,924 (224 ) (32,138 ) (31,914 ) 381 29,804 30,185 (1,729 ) 116,333 - 116,333 (77,138 ) - (77,138 ) 39,195 (28,419 ) (778 ) (29,197 ) (18,809 ) 277 (18,532 ) (733 ) ) (10 (743 ) 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 Adjustment and elimination: Segment result Operating loss of operating business Other elimination and adjustment Consolidated operating income 2017 2016 43,525 (786 ) 1,168 43,907 40,924 (339 ) (1,390 ) 39,195 105 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 32. OPERATING SEGMENT (continued) Geographic information: External revenues Indonesia Foreign countries Total 2017 2016 125,970 2,286 128,256 114,093 2,240 116,333 The revenue information above is based on the location of the customers. Non-current operating assets Indonesia Foreign countries Total 2017 2016 126,938 3,233 130,171 115,216 2,371 117,587 Non-current operating assets for this purpose consist of property and equipment and intangible assets. 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 the MoCI issued Decree No. 09/PER/M.KOMINFO/04/2008 regarding On April 7, 2008, “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. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 33. TELECOMMUNICATIONS SERVICE TARIFFS (continued) b. Mobile cellular telephone tariffs (continued) 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. 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 On January 18, 2017, ITRB in its letters No. 20/BRTI/DPI/I/2017 and No. 21/BRTI/DPI/I/2017, decided to use the interconnection tariff based on the Company and Telkomsel’s RIO in 2014 until the new interconnection tariff is set. d. 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. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS a. Capital expenditures As of December 31, 2017, 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 - 192 0.21 6,737 2,604 3 9,344 The above balance includes the following significant agreements: (i) The Company Contracting parties Initial date of agreement Significant provisions of the agreement The Company and Consortium NEC Corporation and PT NEC Indonesia The Company and PT Industri Telekomunikasi Indonesia May 28, 2013 May 5, 2014 Procurement Agreement of Sulawesi Maluku Papua Cable System (“SMPCS”) Package-2 Procurement and installation agreement of Outside Plant Optic (“OSP-FO”) Access The Company and PT Lintas Teknologi Indonesia November 17, 2015 Procurement and installation agreement of DWDM Platform ALCATEL The Company and PT Sisindokom Lintas Buana November 23, 2015 Procurement and installation agreement of Expand PE VPN Cisco The Company and PT Datacomm Diangraha November 20, 2015 Procurement and installation agreement of Metro Ethernet Platform ALU The Company and Space System/Loral, LLC February 29, 2016 Procurement of Telkom 4 Satellite System The Company and NEC Corporation May 12, 2016 The Company and NEC Corporation July 18, 2016 The Company and PT Huawei Tech Investment October 10, 2016 Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Indonesia Global Gateway Procurement and installation agreement of Radio IP Backhaul Node-B Telkomsel Platform NEC Procurement and installation agreement of 10 Gigabyte Capable Passive Optical Network (“XGPON”) Platform Huawei The Company and PT Huawei Tech Investment November 25, 2016 Procurement and installation agreement of DWDM Platform Huawei The Company and PT Fiberhome Technologies Indonesia and PT Abhimata Citra Abadi December 6, 2016 Procurement and installation agreement of XGPON Platform Fiber-home The Company and PT ZTE Indonesia May 31, 2017 Procurement agreement for Set Top Box (STB) Platform ZTE 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, 2017 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) (i) The Company (continued) Contracting parties Initial date of agreement Significant provisions of the agreement The Company and PT Asuransi Jasa Indonesia October 31, 2017 The Company and PT ZTE Indonesia November 1, 2017 The Company and Consortium Bisnis Submarine Cable November 10, 2017 The Company and PT ZTE Indonesia December 22, 2017 The Company and PT Lancs Arche Consumma December 22, 2017 Procurement agreement for Telkom 4 Satellite Launch Insurance Services Procurement and installation agreement of STB 4K and ONT Enterprise Platform ZTE Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Sabang-Lhoksemawe-Medan Procurement for ONT Retail Platform ZTE Procurement and installation agreement of Expand Capacity of Network Capacity DWDM Platform Coriant for NARU 2017 (ii) Telkomsel Contracting parties Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy and Nokia Siemens Network GmbH & Co. KG Initial date of agreement Significant provisions of the agreement April 17, 2008 The combined 2G and 3G CS Core Network Rollout Agreement Telkomsel, PT Ericsson Indonesia and PT Nokia Siemens Networks April 17, 2008 Technical Service Agreement (“TSA”) for combined 2G and 3G CS Core Network Telkomsel, PT Ericsson Indonesia, Ericsson AB, PT Nokia Siemens Networks, NSN Oy, Huawei International Pte. Ltd., PT Huawei and PT ZTE Indonesia 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 Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions February 8, 2010 Telkomsel and PT Application Solutions February 8, 2010 Telkomsel, Amdocs Software Solutions Limited Liability Company and PT Application Solutions July 5, 2011 Telkomsel and PT Huawei March 25, 2013 Maintenance and Procurement of Equipment and Related Service Agreement for Next Generation Convergence Core Transport Rollout and Technical Support Online Charging System (“OCS”) and Service Control Points (“SCP”) System Solution Development Agreement Technical Support Agreement to provide technical support services for the OCS and SCP Development and Rollout agreement for Customer Relationship Management and Contact Center Solutions 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 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, 2017 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, 2017, 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 500 March 14, 2018 500 March 31, 2018 Bank Mandiri 500 December 23, 2019 Currency Rp Rp US$ Rp US$ Total 1,500 Facility utilized Original currency (in millions) Rupiah equivalent - - 0 - 0 306 291 1 390 1 989 (ii) Telkomsel has US$3 million bond, bank guarantee and standby letter of credit facility with SCB, Jakarta. The facilities will expire on July 31, 2018. Telkomsel has issued a bank guarantee amounting to Rp20 billion (equivalent to US$1.5 million) as a frequency performance bond valid until March 24, 2016. As the date of approval and authorization for the issuance of these financial statement the bank guarantee is not extended. Telkomsel has a Rp500 billion bank guarantee facility with BRI. The facility will expire on March 25, 2019. Under this facility, as of December 31, 2017, Telkomsel has issued a bank guarantee amounting to Rp472 billion (equivalent to US$35 million) as payment commitment guarantee for annual right of usage fee valid until April 1, 2018 and Rp20 billion (equivalent to US$1.5 million) as frequency performance bond valid until May 31, 2018 (Noteb34c.i). Telkomsel has a Rp150 billion bank guarantee facility with BCA. The facility will expire on April 15, 2018. Telkomsel also has a Rp2,100 billion bank guarantee facility with BNI. The facility will expire on December 11, 2018. Telkomsel uses this facility to replace the time deposits which were pledged as collateral for bank guarantees required for the USO program amounting to Rp52.2 billion (Note 34c.iii) and for surety bond of 2.3 Ghz radio frequency amounting to Rp1,030 billion (Note 34c.i) (iii) TII has a US$15 million bank guarantee from Bank Mandiri and has been renewed in accordance with the ammendment V (five) on December 18, 2017 with a maximum credit limit of US$10 million. The facility will expire on December 18, 2018. (iv) On December 31, 2017, Sigma has a Rp350 billion bank guarantee from BNI. c. Others (i) Radio Frequency Usage Based on Decree No. 8 dated November 2, 2015 of the Government of the Republic of Indonesia which replaced Decree No. 76 dated December 15, 2010, Telkomsel is required to pay the annual frequency usage fees for the 800 MHz, 900 MHz and 1800 MHz bandwidths using the formula set out in the decree. 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, 2017 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 (i) Radio Frequency Usage (continued) As an implementation of the above decree, the Company and Telkomsel paid annual frequency usage fees since 2010. In 2017, the Government through the MoCI established Telkomsel as the winner of the spectrum auction for a frequency of 2.3 GHz as wide as 30 MHz, at a price of Rp1.01 trillion. Based on Decision letter No. 1987 Year 2017 dated November 15, 2017, which amended Decree 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, 1800 MHz, 2.1 GHz and 2.3 GHz; and (ii) Basic telecommunication services. With reference to Decision Letters No. 268/KEP/M.KOMINFO/9/2009, No. 509 Year 2016 and No. 1896 year 2017 of the MoCI, Telkomsel is required, among other things, to: 1. Pay an annual right of usage (BHP) over the license term (10 years) as set forth in the decision letters. The BHP is payable upon receipt of Surat Pemberitahuan Pembayaran (notification letter) from the DGPI. The BHP fee is payable annually up to the expiry period of the license. 2. Issue a performance bond each year amounting to Rp20 billion for spectrum 2.1 GHz and a surety bond each year amounting Rp1.03 trillion for spectrum 2.3 GHz. 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 date 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. Based on MoCI Decision letter No. 807/KOMINFO/OJ-SOPI.4/SP.03.03/10/2016 dated October 13, 2016, the migration process of frequency spectrum of 800 MHz has been completed and Telkomsel is able to use the frequency spectrum nationwide. Accordingly, the Company and Telkomsel agreed that the CBTA has been completed on October 21, 2016. 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, 2017 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) 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 2018 and 2027. Periods may be extended based on the agreement by both parties. Future minimum agreements as of December 31, 2017 are as follows : lease payments/receivables under non-cancelable operating lease As lessee As lessor Total Less than 1 year 31,218 2,362 4,038 737 1-5 years 15,915 1,475 More than 5 years 11,265 150 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 arrangements, and has recorded provisions for early termination amounting to Rp202 billion and Rp666 billion which are presented as “Other Expense” in 2016 and 2015, respectively, outstanding liabilities balance of operating lease agreements due to early termination amounted to Rp300 billion has been fully paid in 2017. (iii) USO The MoCI issued Regulation No. 17 year 2016 dated September 26, 2016 which replaced Decree No. 45 year 2012 and other previous regulations regarding policies underlying the USO program. The regulation requires telecommunications operators in Indonesia to contribute 1.25% of their gross revenues (with due consideration for bad debts and/or interconnection charges and/or revenues which not accounted as gross revenue of telecommunication providers) for USO development. 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 Sumatra, 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. 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, 2017 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) (iii) USO (continued) a. The Company (continued) 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 September 22, 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 bandwidth. 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 packages 1, 2 and 3 with a total price of Rp261 billion. 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 in December 2015. On October 29, 2015, BPPPTI informed that operational license for USO program of “Desa Pinter” could not be issued. In January 2016, Telkomsel filed an arbitration claim to BANI for terminating the USO program. the decision and paid the overpayment On June 22, 2017, Telkomsel received decision letter of BANI No.792/1/ARB-BANI/2016 requesting BPPPTI to pay compensation to Telkomsel amounting to Rp217 billion, and as of the date of the issuance of these consolidated financial statements, Telkomsel has not received the compensation yet. As of December 31, 2017 and 2016, 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 Rp146 billion and Rp178 billion, respectively. 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, 2017 and For the Year Then Ended (Figures in tables are expressed in billions of Rupiah, unless otherwise stated) 35. CONTINGENCIES The Company, Telkomsel and seven other investigated by The Commission for the Supervision of Business Competition (Komisi Pengawasan Persaingan Usaha or “KPPU”) in case No. 26/KPPU-L/2007, the Company, Telkomsel and seven other local operators were 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 the amounts of Rp18 billion and Rp25 billion, respectively. for allegations of SMS cartel practices. On June 17, 2008, local operators are being 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 courts. In relation to the case, the KPPU requested the 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, the Central Jakarta District Court in case No. 03/KPPU/208/PN.JKT.PST decided that the Company, Telkomsel and seven other local operators won 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 the Company and Telkomsel have to pay the penalty charged by KPPU amounting to Rp18 billion and Rp25 billion, respectively. The Company and Telkomsel have paid the penalty to the treasury fund in January 2017. 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) 2017 Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Other current assets 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 borrowings Other liabilities Long-term borrowings - net of current maturities Total liabilities Assets (liabilities) - net 7.47 - - - - - - 7.47 - (19.57 ))))) - (18.28 ))))) - (767.90 ))))) - ))))) (4,607.39 (5,413.14 ) ) ) ))))) (5,405.67 8.37 1.14 - 4.24 0.01 72.33 0.06 87.09 - (7.41 ) (7.41 ) (1.05 ) - - - - (15.87 ) 71.22 2,201 399 41 1,025 2 18 59 3,745 (3 ) (2,227 ) (149 ) (584 ) (7 ) (292 ) (296 ) (1,557 ) (5,115 ) (1,370 ) 154.07 28.34 3.02 71.38 0.15 0.10 4.27 317.12 (0.22 ) (159.65 ) (4.12 ) (42.20 ) (0.48 ) (10.59 ) (21.83 ) (65.22 ) (304.31 ) )))) 12.81 114 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, 2017 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 and liabilities denominated in foreign currencies are as follows (continued): Assets Cash and cash equivalents Other current financial assets Trade receivables Related parties Third parties Other receivables Other current assets 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 borrowings Other liabilities Promissory notes Long-term borrowings - 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) 2016 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 *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, 2017 using the exchange rates on March 12, 2018 the unrealized foreign exchange loss amounted to Rp67 billion. 37. FINANCIAL RISK MANAGEMENT 1. Fair value of financial assets and financial liabilities a. Classification i. Financial Asset Loans and receivables Cash and cash equivalents Trade and other receivables, net Other current financial assets Other non-current assets Available-for-sale financial assets Available-for-sale investment Total financial asset 2017 2016 25,145 9,564 1,005 183 1,541 37,438 29,767 7,900 313 210 1,158 39,348 115 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, 2017 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 Liabilities Financial liabilities measured at amortized cost Trade and other payables Accrued expenses Interest-bearing 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 b. Fair Value 2017 2016 15,791 12,630 2,289 1,098 8,982 18,004 3,804 1,295 63,893 13,690 11,283 911 1,292 9,323 15,566 4,010 697 56,772 2017 Financial assets measured at fair value Available-for-sale investment Total Financial liabilities for which fair values are disclosed Interest-bearing loans and other borrowings: Two-step loans Bonds and notes Long-term bank loans Obligation under finance lease Other borrowings Other liabilities Total 2016 Financial assets measured at fair value Available-for-sale investment Total Financial liabilities for which fair values 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 1,541 1,541 1,541 1,541 1,151 1,151 17 17 373 373 1,098 8,982 18,004 3,804 1,295 296 33,479 1,116 10,038 18,108 3,804 1,370 296 34,732 - 10,038 - - - - 10,038 - - - - - - - 1,116 - 18,108 3,804 1,370 296 24,694 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 21,757 116 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, 2017 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) There is no gain or loss on fair value measurement recognized in consolidated statements of profit or loss and other comprehensive income in 2017. There is no movement between fair value hierarchy during 2017. 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 assets and financial liabilities (other non-current assets (long-term trade 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 stocks, mutual funds, corporate and government bonds and convertible bonds. Stocks and 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. The fair value of convertible bonds are determined using 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 price. 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, market price 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 on 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. 117 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, 2017 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) Financial risk management is carried out by the Corporate Finance and Financial Policy unit under policies approved by the Board of Directors. The Corporate Finance and Financial Policy 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. Increasing risks of foreign currency exchange rates on the obligations of the Group are expected to be partly 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: 2017 2016 U.S. dollar (in billions) Japanese yen (in billions) U.S. dollar (in billions) Japanese yen (in billions) 0.26 (0.31 ) 0.05 0.01 (5.41 ) (5.40 ) 0.32 (0.27 ) 0.05 0.01 (6.17 ) (6.16 ) 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, 2017 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, 2017 U.S. dollar (1% strengthening) Japanese yen (5% strengthening) Equity/profit (loss) (6 ) (33 ) A weakening of the U.S.dollar and Japanese yen against the rupiah at December 31, 2017 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. 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, 2017 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) b. Market price risk (continued) As of December 31, 2017, 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. 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 2017 2016 (14,204 ) (21,267 ) (16,383 ) (15,416 ) As of December 31, 2017, a decrease (increase) by 25 basis points in interest rates of variable rate borrowings would have increased (decreased) equity and profit or loss by Rp53 billion, respectively. The analysis assumes that all other variables, in particular foreign currency rates, remain constant. 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 receivable, net Advances and other non-current assets Total 2017 2016 25,145 2,173 9,564 183 37,065 29,767 1,471 7,900 210 39,348 The Group is exposed to credit risk primarily from cash and cash equivalents and trade and other receivables. The credit risk is controlled by continuous monitoring of outstanding balance and collection. Credit risk from balances with banks and financial institutions is managed by the Group’s Corporate Finance and Financial Policy Unit 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. 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, 2017 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) d. Credit risk The customer credit risk is managed by continuous monitoring of outstanding balances and collection. Trade and other receivables do not have any major concentration of risk whereas no customer receivable balance exceeds 5% of trade receivables as of December 31, 2017. Management is confident in its ability to continue to control and sustain minimal exposure to the customer 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. 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 based on contractual undiscounted payments: December 31, 2017 Trade and other payables Accrued expenses Interest bearing loans and other borrowings Bank loans Bonds and notes Obligations under finance leases Other borrowings Two-step loans Other liabilities Total 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 Total Carrying amount Contractual cash flows 2018 2019 2020 2021 2022 and thereafter 15,791 12,630 (15,791 ) (12,630 ) (15,791 ) (12,630 ) - - - - - - - - 20,293 8,982 (24,378 ) (18,278 ) (7,655 ) (929 ) 3,804 1,295 1,098 296 64,189 (4,685 ) (1,759 ) (1,243 ) (355) (79,119 ) (1,083 ) (220 ) (250 ) (17 ) (38,575 ) (5,078 ) (929 ) (969 ) (303 ) (222 ) (34 ) (7,535 ) (4,006 ) (2,873 ) (866 ) (285 ) (214 ) (34 ) (8,278 ) (2,660 ) (726 ) (778 ) (266 ) (189 ) (135 ) (4,754 ) (4,979 ) (12,821 ) (989 ) (685 ) (368 ) (135 ) (19,977 ) 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 ) 4,010 1,292 697 56,772 (5,160 ) (1,487 ) (1,007 ) (72,718 ) (987 ) (279 ) (60 ) (33,143 ) (5,635 ) (967 ) (892 ) (244 ) (118 ) (7,856 ) (2,883 ) (1,187 ) (816 ) (216 ) (164 ) (5,266 ) (2,565 ) (3,000 ) (771 ) (209 ) (153 ) (6,698 ) (3,463 ) (13,547 ) (1,694 ) (539 ) (512 ) (19,755 ) 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. 120 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, 2017 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 2017 2016 Amount Portion Amount Portion 2,289 33,183 35,472 92,713 128,185 1 1.78% 25.89% 27.67% 72.33% 100% 911 30,888 31,799 84,384 116,183 0.78% 26.59% 27.37% 72.63% 100% 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, 2017 and 2016 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 2017 2016 35,472 (25,145 ) 10,327 92,713 11.14% 31,799 (29,767 ) 2,032 84,384 2.41% 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 years ended December 31, 2017 and 2016, the Group has complied with the externally imposed capital requirements. 121 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, 2017 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, 2017 and 2016 are as follows: Acquisition of property and equipment: Credited to trade payables Non-monetary exchange Credited to obligations under finance lease Interest capitalization Acquisition of intangible assets: Credited to trade payables 40. SUBSEQUENT EVENTS 2017 2016 5,525 816 518 328 846 6,199 636 368 188 41 1. On January 30, 2018, the Company, through Metranet, entered into a conditional shares subscription agreement with Cellum Global Zrt. ("Cellum") through two stages. In the first phase, Metranet will enclose new shares amounting to USD4,000,000 (equivalent to 20.4% ownership) and second phase at USD2,000,000 so the ownership of Metranet will be equivalent to 30.4% ownership. Cellum is mobile payment and commerce services solutions provider. These new shares are expected to strengthen TIMES portfolio, particularly strengthening the Fin-Tech Telkom Group's business ecosystem. 2. Up to the date of issuance of these consolidated financial statements, the Company and its subsidiaries have drawn down and entered into a credit facility agreement: a. On January 4, 2018 and February 13, 2018, GSD withdrew loans from 2017's facility agreement with BNI and Bank Mandiri amounting to Rp68 billion and Rp150 billion, respectively. b. On February 9, 2018, Telin entered into a credit facilities agreements with Bank of Tokyo Mitsubishi UFJ amounting to USD10 billion. c. On January 10, 2018, Telkomsel amended the overdraft agreement with Deutsche Bank, dated April 8, 2015, for total facilities up to Rp750 billion for the purpose of financing Telkomsel’s working capital. d. On February 26, 2018, Telkom Infra, Infomedia and the Company entered into several Joint Borrowing credit facilities agreements with Bank DBS amounting to Rp325 billion, Rp275 billion, and Rp50 billion, respectively. e. On February 26, 2018, the Company and Telin entered into several Joint Borrowing credit facilities agreements with Bank Mandiri amounting to Rp775 billion and Rp50 billion, respectively. f. On February 26, 2018, the Company entered into a Joint Borrowing credit facilities agreements with BNI amounting to Rp825 billion. g. On February 26, 2018, Telin entered into a special credit facilities agreements with Bank Mandiri amounting to Rp50 billion. 3. On February 27, 2018, The Minister of Communications and Multimedia Malaysia (“MCM”) has issued approvals for foreign 70% ownership of TSGN, through licensing amendments. 4. On February 28, 2018, Metra signed a Conditional Sales Purchase Agreement with shareholders of PT Swadharma Sarana Informatika (“Swadharma”) for 36.5% share ownership amounting to Rp219 billion and new share purchase through an increase of share capital valued at Rp178 billion so that ownership of Metra became 51%. Swadharma is a company engaged in the management of computer technology facilities, especially in the banking sector. These new investments are expected to strengthen the Company business portfolio. 122 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, 2017 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”) The following tables set forth a reconciliation of the consolidated statement of financial position as of December 31, 2017 and consolidated statements of profit or loss and other comprehensive income for the year ended December 31, 2017, 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 Assets held for sale Prepaid taxes Claim for tax refund Other current assets Total Current Assets NON-CURRENT ASSETS Long-term investments Property and equipment - net of accumulated depreciation Intangible assets - net of accumulated amortization Deferred tax assets - net Other non-current assets Total Non-current Assets TOTAL ASSETS 25,145 2,173 1,545 7,677 342 631 10 1,947 908 7,183 47,561 2,148 130,171 3,530 2,804 12,270 150,923 198,484 - - 25,145 2,173 319 (319 ) - - - - - - - - 1,864 7,358 342 631 10 1,947 908 7,183 47,561 2,148 (299 ) - - - 129,872 3,530 2,804 12,270 (299 ) 150,624 (299 ) 198,185 123 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, 2017 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 Short-term bank loans Current maturities of long-term borrowings Total Current Liabilities NON-CURRENT LIABILITIES Deferred tax liabilities - net Unearned income Long service award provisions Pension benefits and other post-employment benefits obligations Long-term borrowings - net of current maturities Other liabilities 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 896 14,678 217 2,790 12,630 5,427 1,240 2,289 5,209 45,376 933 524 758 10,195 27,974 594 40,978 86,354 5,040 4,931 (2,541 ) 387 84,896 92,713 19,417 112,130 198,484 2,460 1,564 13,114 (1,564 ) 217 - - 2,790 - 12,630 5,427 - 1,240 - 2,289 - - 5,209 - 45,376 - - - 933 524 758 10,195 - - 27,974 - 594 - 40,978 - 86,354 - (478 ) - (157 ) 389 5,040 4,453 (2,541 ) 230 85,285 92,467 (246 ) 19,364 (53 ) (299 ) 111,831 (299 ) 198,185 124 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, 2017 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 Gain 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 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 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) 128,256 (36,603 ) (20,446 ) (13,529 ) (2,987 ) (5,260 ) (5,268 ) 51 1,039 (1,320 ) 43,933 1,434 (2,769 ) 61 42,659 (9,958 ) 32,701 24 20 (1 ) (2,375 ) (2,332 ) 30,369 22,145 10,556 32,701 19,952 10,417 30,369 - - (31 ) - - - - - - - (31 ) - - - (31 ) - (31 ) - - - - - (31 ) (25 ) (6 ) (31 ) (25 ) (6 ) (31 ) 128,256 (36,603 ) (20,477 ) (13,529 ) (2,987 ) (5,260 ) (5,268 ) 51 1,039 (1,320 ) 43,902 1,434 (2,769 ) 61 42,628 (9,958 ) 32,670 24 20 (1 ) (2,375 ) (2,332 ) 30,338 22,120 10,550 32,670 19,927 10,411 30,338 223.55 22,354.64 (0.25 ) 223.30 ) (25.24 22,329.40 125 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, 2017 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. 126 FEEDBACK FORM OF PT TELKOM INDONESIA (PERSERO) TBK 2017 ANNUAL REPORT Thank you for reading our 2017 Annual Report. To improve the quality of future Annual Report, we would like to ask your feedback by completing the following form: Question 1. In your opinion, this Annual Report provides information on various activities implemented by PT Telkom Indonesia (Persero) Tbk. SS A M D SD 2. In your opinion, the material in this Annual Report include data and information that are easily understood. SS A M D SD 3. In your opinion, the material in this Annual Report include data and information that are sufficiently complete. SS A M D SD 4. In your opinion, the material in this Annual Report include data and information that are accountable and can be validated for decision making process. SS A M D SD Remarks: SS: Strongly Agree A: Agree M: Moderate D: Disagree SD: Strongly Disagree 5. In your opinion, what was useful information presented in this Annual Report? a. …………………..……………………………………………………………………………………………………………………………………………… b. ……………….….……………………………………………………………………………………………………………………………………………… c. ………………………………………………………………………………………………………………………………………………………………… 6. In your opinion, what was unuseful information presented 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 : ............ Years Old, M/F (delete as applicable) Institution/Company : ……………………………………………………………………………… Type of Institution/Company : Government NGO Industry Public Media Other Please send back this form to: Investor Relations Telkom Landmark Tower, 2nd Tower, 39th Floor Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710 Tel : (62 21) 521 5109 Fax : (62 21) 522 0500 email : investor@telkom.co.id www.telkom.co.id ANNUAL REPORT PRODUCTION TEAM Doing a good job is not always about impressive innovation. Sometimes it is only about doing something with plain dedication. Thank you for the dedications! DATA CONTRIBUTORS A. Hartono A. Winahyo Pratomo Abbas Paul Ricardo Girsang Achmad Sulkom Adam Saksono Adhela Kurniartha Sekar Arum Adim Kusmadani Agung Kertioso Agung Nugroho Agung Prasetyo Budi Agus Kayanto Agus Priyatna Agus Wachid Agustinus Budi Wibowo Ahmad Hidayat Ahmad Zaki Fairuzzi Ahmed Yasser Akhmad Aryandi Amir Syarifuddin Andar Jan Pieter H Manurung Andri Herawan Sasoko Anggi Vidya Ristyanti Anggia Permatasari Anggoro Kurnianto Widiawan Anka Januar Annisa Arnizanthya Anton Widaryanto Ardhi Mutiarto Ardi Desento Ardya Prahasta Ari Nugroho Arief Hamdani Gunawan Arieyanto Ariwiati Ariyanto Arri Kunrat Arya Satriananta Aryandi Asbon Tanjung Asti Hapsari Audrey Adyuta Putri Aunur Rofiq Badrun Najib Bagus Wahyu Hidayat Bambang Wahyu Samudra Bayu Aji Wijaya Bayu Vidya Arta Beny Solifin Hutasuhut Brahmandi Buddy Restiady Budi Harta Rahayu Yuda Librata Budi Rahayu Chairudin Mirza Chintia Febrianti Soepardi Cholis Safrudin Dadan Gumbira Pramudia Dahrin Effendi Dani Subandrijo Dea Anandya Rahardjo Dedi Sugandi Dedy Mardhianto Dendi Feriandi Dessy Sandra Desti Virgani Dianti Mellisa Didi Haryadi Didi Muharwoko Didik Ariadi Didit Dwiantoro Donny Kertaputra Widjaja Edie Kurniawan Edy Siswanto Elysabeth Damayanti Endang Trisia Endang Susilowati Ening Susilo Era Azura Ermono Liman Prabowo Fadjrul Falah Febrina Indiastuti Fiandis Susanto Fikri Akhmadi Fitriansyah Nasution Fopo Rahmat Fauzi Friandy Parulian Frihastuti Mardijaningsih Frisda Nurafni FX. Ali Sartono Gideon Octora H. Mohamad Rahmat Yusuf Hadi Lestari Hadi Purwantoro Handrianus Eddy Sunaryo Haris Widjanarko Harjono Haryadi Hamonangan L Tobing Hatta Perdana Hendra Gunawan Hendra Marta Mulyana Hendri Purnaratman Hepta Yuniarita Hery Saepul Azis Hery Sudarmaji Hery Susanto Hindiarto Restihono I Gusti Agung Ayu Triana Dewi I Made Mariasa I Wayan Sukerata Ichwan Muttaqin Ida Widayani Imam Rijanto Indrama Yusuf Muda Purba Irwan Andriyanto Nugroho Iwan Setiawan Januar Setyo Widodo Jarot Widyatmoko Jenny Verdiana Dyah Vitriany Johansyah Benhar Putra Junainah Junitia Priandriwijayanti Karno Budiono Kenny Nazar Khoirus Soleh Kurnia Rimadani Kurniawan Widi Pramana Lady Lestari Lara Rifana Soraya Leni Triwanti Lidya Sari Lila Fitria Liza Puspitasari Maju Sinaga Malikoeswara Mamet Santosa Mario Bettega Mario Holasan Lubis Markus Ferriek Kristianto Marthen Tanga Rantesalu Melani Muchlis Moechtar Merry Arizona Moch. Ahadi Widjaya Mochamad Riza Rosadi Moh Ahmad Mohamad Abdul Muqtadir Mohamad Nurcahyono Mohammad Faried Abidin Muhamad Patria Narotama Widjaja Muhamad Wahyudi Muhammad Nur Hidayat Muhammad Nursalim Muhammad Rizal Nurjaman Muhammad Rofik Muhammad Suny Arifianto Mukhamad Arif Hidayat Mukhammad Atiqurrakhman Mustakim Wahyudi Nadia Eka Herdiana Naila Vellayati Nike Yosephine Nizar Notje Rosanti Novangga Ilmawan Novy Kartikayanti Nur Firman Yudhi Wirawan Nurcholis Feri Ahmadi Nurul Fatmawati Pra Setiawan Pradipta Wismaya Albi Pradita Puti Arstianti Prakoso Imam Santoso Prasasta Arisanti Prayudi Nugroho Prayudi Utomo Pujo Pramono Puspita Sulistyaningrum Putranto Putriana Dyah Rahmatika Raden Ayu Sherly Friska Dewi Raden Riharso Rahmadi Fajar Aji H Rama Sugiharto Rani Siesaria Rangga Suma Aji Ratri Natarini Reine Deborah Elizabeth Retno Dyah Arumsari Ristianto Rizal Ahmad fauzi Rizal Akbar Rizqi Akbar Akomiba Rockbert Marnakkok Romles Simanjuntak Ronny Rahmat Hidayat Rusman Nadeak Salamet Subarna Sang Kompiang Muliartawan Santi Indrawati Sasmito Sekar Mutaqina Shera Aulia Sigit Primasatya Silahuddin Sumantri Sinai Handayani Sisgiyanto Sri Safitri Sri Saptadi Steffi Susyati Fransiska Hutasoit Sudaryadi Suhartono Sukirno Sukma Nandini Sumarno Suroso Yulianto Susilo Budi Utomo Sutrisno Syukri T. Hercules Tantang Yudha Santoso Tia Indrawati Tia Sri Utari Toto Rudiarto Utami Saritidar Valian Kusumawardhana Wahyudi Handriyanto Wartono Purwanto Wawan Anwar Ahmad Widhiowati Winarta Winda Susliani Wintoko M Pribadi Wuryanto Yadi Ruslannurzaman Yanti Lestari Yanti Rukmayanti Yantito Simanjuntak Yoga Maharseto Iskandar Yoke Yuni Karnida Yota Yoedi Goestinnenda Yoyok Teguh Supriyono Yozar Albar Yudha Bestari Yudi Nandar Yunita Setyaningsih Yuli Purwanti Yudi Nandar Yunita Setyaningsih Yuli Purwanti MODEL/TALENT Aditya Nurahman Asno Annisa Rahmania Annisa Zaskia Putri Arief Rachman Amaluddin Asri Anggraeni Bella Lailatus Saadah Chintia Febrianti Soepardi Dimas Prasstyo Diva Terry Anona Fachrian Fajar Ramadhan Isabella Niyssa Amelia Jandika Triindra Burhan Jessica Adelaide Gusti Joviano Rinaldi Elan Pahitbang Millati Nazhifa Muhammad Afary Salsabila Risti Runisa Septiana Puspitasari PRODUCTION TEAM Andi Setiawan Dewi Erni Ambarsari Hendra Priatna Heti Triaswati Merna Mohammad Izzatullah Uwes Qorni Candri Yuniar Roisy Filda Trya Winalda Nisrinatul Jinan Nunu Fauzan Helwah Thalia Isavani Muhammad Faqih B Joko Susilo Albert Geovani DESIGN PT Desain Nindya Amarta (DNA Komunika) www.dnakomunika.com COPYWRITER Semerdanta Pusaka Zahratul Mirza Danang Purwadi PRINTING PT Metra Digital Media (MD MEDIA) PHOTOGRAPHY Mike Marcus TRANSLATOR PT Trimars Perkasa Abadi (INVESTINDO) 2017 Annual Report PT Telkom Indonesia (Persero) Tbk Investor Relations Telkom Landmark Tower, 39th Floor Jl. Jend Gatot Subroto Kav 52 Jakarta - 12710 , Indonesia Phone : +62 21 5215109 Fax : +62 21 5220500 email : investor@telkom.co.id

Continue reading text version or see original annual report in PDF format above