Telkom Indonesia Annual Report 2018

Plain-text annual report

2018 Annual Report e c n ri e e p x r, e a l E r D i g it g u n o r Y t r o f o S I PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789II II PT Telekomunikasi Indonesia (Persero) Tbk | Laporan Tahunan 2018 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTHEME e c n ri e e p x r, e a l E r D i g it g u n o r Y t r o f o S 2018 Annual Report Stronger, for Your Digital Experience The digital era has given rise to various innovations aimed at producing quality digital solutions, accompanied by best customer experience for customers. The increasing dependence of customers on digital services to support their activities has driven digital adoption across all customer segments to rise as well. As a result of this phenomenon, customers are increasingly abandoning the legacy business, which has traditionally been the main focus for telecommunication operators. Telecommunication operators who still depend on the legacy business are becoming increasingly irrelevant to the activities and businesses of their customers. We realize that the only way to stay strong and still relevant to customers is by delivering quality digital solutions and best customer experience. We are certain that only with strong digital capabilities we can become good partners for our customers in supporting their activities and business operations. To do so, during 2018 we demonstrated our commitment by consistently improving our digital capabilities in terms of services, infrastructure as well as customer experience. We continued to strengthen and develop digital services that deliver increased convenience, and also assisted customers with digitizing their business processes in order to increase the quality and competitiveness of their businesses. This was shown by the significant growth of our digital business, which has successfully compensated the decline of legacy business. We also strengthened our digital backbone network infrastructure, our fiber optic-based access and high speed cellular, and improved our IT capabilities and capacity from front-end to back-end as well as developing various platforms and applications as enablers. In addition, we have developed digital touch points and leveraged big data analytics and customer insights to ensure that customers are able to enjoy a digital experience. We believe that our actions and achievements throughout 2018, have strengthened our capabilities as a digital telecommunication operator. We dedicate all of this to our customers by delivering high quality services with best customer experience. DISCLAIMER While preparing this Report, Telkom selected and presented material information and data for the investors, the goverment and other stakeholders. The materials that are used to prepare this Report are derived from reliable documents and sources. Other than historical information and data, this Report also contains Telkom’s forward- looking statement such as targets, expectations, estimations, prospects and projections of Telkom’s operating performance and business condition in the future. Even after careful consideration and and a reasonable presentation of the facts in this report, Telkom realizes that there are risks and uncertainties which may be affected by many factors among other things the economic, social, and political situation in. Therefore, in order to implement good corporate governance, Telkom cannot guarantee that all forward-looking statements made in this Report are entirely correct and accurate and can be fully achieved. This report is available to download at www.telkom.co.id. Furthermore, Telkom invites all readers to submit questions and suggestions regarding to this Report to: http://www.telkom.co.id Investor Relations Unit Andi Setiawan PT Telkom Indonesia (Persero) Tbk Telkom Landmark Tower 39th floor The Telkom Hub Jl. Jend. Gatot Subroto Kav.52 Jakarta 12710, Indonesia Tel. +62-21-5215 109 Fax. +62-21-5220 500 E-mail : investor@telkom.co.id Facebook : TelkomIndonesia Instagram : telkomindonesia Twitter : @telkomindonesia PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 1 22 Report of the Board of Commissioners and Directors 04 Telkom Highlights 92 Management Discussion and Analysis 42 About Telkom 218 Corporate Social Responsibility 230 Partnership and Community Development Program 148 Corporate Governance 270 Consolidated Financial Statements 238 Appendices 1 1 2 4 6 10 14 16 17 18 21 22 24 30 40 42 44 46 Theme Disclaimer Table of Contents TELKOM HIGHLIGHTS Kaleidoscope 2018 Profile of Telkom and Its Subsidiaries Infrastructure Products and Customers Financial Data Overview Stock Information Bond, Sukuk or Convertible Bonds and Medium Term Notes (MTN) Information REPORT OF BOARD OF COMMISSIONERS AND DIRECTORS Report of the Board of Commissioners Report of the Board of Directors Statement Letter of Responsibility for 2018 Annual Report ABOUT TELKOM Vision, Mission, and Strategy Telkom Milestone 1 2 3 48 50 56 58 66 74 78 80 87 89 91 92 94 114 120 134 135 136 137 Business Activities Awards and Certifications Telkom Organizational Structure Profile of the Board of Commissioners Profile of the Board of Directors Telkom Employees Shareholders Composition Subsidiaries, Associated Companies, and Joint Ventures Chronology of Stocks Registration Chronology of Other Securities Registration Name and Address of Institutions and/ or Supporting Capital Market Profession MANAGEMENT DISCUSSION AND ANALYSIS Operational Overview by Segment Marketing Overview Comprehensive Financial Performance Solvency Capital Structure Capital Expenditure Material Commitment for Capital Expenditure 4 TABLE OF CONTENTS READING THE REPORT CONTENT For the ease of stakeholders, Telkom devided this report in two main parts. The first part, from the front page of the Report to the “Management Report” and “Statement Letter”, is 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 the first part to second part, namely the “About Telkom” section and so forth until the end of this report. 6 7 8 9 218 220 222 225 228 230 232 238 240 242 243 244 248 252 255 270 CORPORATE SOCIAL RESPONSIBILITY Goods and Services Responsibility Employment, Health, and Safety Community Social Development Environmental Responsibility PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM Partnership and Community Development Program (PKBL) Report APPENDICES Appendix 1: Board of Commisioners’ Agenda and Attendance at Internal Meetings Appendix 2: Board of Commisioners’ Agenda and Attendance at Joint Meeting Appendix 3: Board of Directors’ Agenda and Attendance at Joint Meeting Appendix 4: Board of Directors’ Agenda and Attendance at Internal Meetings Appendix 5: Glossary Appendix 6: List of Abbreviations Appendix 7: Circular Letter to Financial Services Authority No.30/SEOJK.04/2016 Cross Reference CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements 2018 Audited PKBL Financial Statements 2018 FEEDBACK FORM 5 139 139 140 141 143 144 145 145 146 146 147 147 148 150 156 156 157 169 176 181 185 189 195 198 201 203 209 211 211 212 212 213 214 215 Receivables Collectability Material Information and Fact After Accountant Reporting Date Macroeconomy Indonesia Telecommunication Industry Business Prospects and Sustainability of the Company Comparison of Initial Year Target and Realization Target or Projections For the Following 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 Corporate Governance Principle and Platform Corporate Governance Structure Corporate Governance Assessment General Meeting of Shareholders (GMS) Board of Commissioners Audit Committee Committee for Nomination and Remuneration Committee for Planning and Risk Evaluation and Monitoring Board of Directors Corporate Secretary Internal Audit Unit Internal Control System Risk Management System Whistleblowing System Board of Directors’ and Commissioners’ Share Ownership Policy Implementation Employee Stock Ownership Program Significant Legal Disputes Informations Regarding Administrative Sanctions Information Access and Company’s Public Data Corporate Code of Conduct Corporate Culture Information 01 TELKOM HIGHLIGHTS 6 10 14 16 17 18 21 Kaleidoscope 2018 Profile of Telkom and Its Subsidiaries Infrastructure Products and Customers Financial Data Overview Stock Information Bond, Sukuk or Convertible Bonds and Medium Term Notes (MTN) Information 4 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report As a way to contribute to the nation, Telkom has introduced Telkom Digital eXperience (TDX), an interactive medium for the application of future digital technology. 5 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789KALEIDOSCOPE 2018 January - Inauguration of the Telkom Integrated Operation Center (TIOC), which integrated control center for network and service management for customers which operates on a 24/7 basis. is an February - Telkom in collaboration with Telstra Corporation Ltd (Telstra) formed the Global Delivery Center (GDC) in Indonesia to realize a commitment to improve global exposure to Indonesian ICT talents. April - Telkomsel has successfully registered Prepaid SIM Cards with a success rate of over 80% by the end of the registration period. This opens opportunities for Telkomsel to improve its service quality to be more in line with customer needs. April - Telin as a Telkom’s subsidiary re-held the Bali Annual Telkom International Conference (“BATIC”) 2018 with the theme of Unlocking Opportunities in the Borderless Digital World. BATIC 2018 was an event for sharing innovations, obtaining business opportunities, and collaboration by presenting delegations from various global telecommunications communities. 6 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportLICENSED IPTV BROADCASTER April - Telin Hong Kong inaugurated the neuCentrIX Data Center which is equipped with world-class facilities and is seamlessly connected to global infrastructure in order to support customers’ needs for safety and high-quality data center services. June - IndiHome as the Licensed IPTV Broadcasters of the 2018 FIFA World Cup held an event Nonton Sama-sama (Nosa) which was held in several Telecommunications Regional Offices (Witel) throughout Indonesia. This event was intended for anyone who wanted to watch World Cup matches. August - The launch of the Merah Putih Satellite important at Cape Canaveral, Florida played an role in areas in delivering service connectivity that cannot be reached by fiber optic networks or other infrastructures, especially in the foremost, outermost, and lagging regions. August - With the spirit of ‘Win Today, Nation Advance’, Telkomsel successfully presented a trial of 5G revolutionary technology at the Telkomsel 5G Experience Center in the 2018 Asian Games event. August - Telkom was successful as the Official Prestige Telco Partner Asian Games 2018 in Jakarta-Palembang through the provision of high-quality Information and Communication Technology (ICT) infrastructure. PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 7 August - Telkom successfully became a trusted partner by providing high-quality Information and Communication Technology (ICT) services at the IMF-WB Group 2018 in Bali. August - Telkom and Pertamina signed a Cooperation Agreement to work together to build a digital system for Public Fuel Filling Stations (SPBU). SPBU Digitizing is a step to increase transparency and accuracy of supply data and fuel consumption. September - In order to commemorate Hari Pelanggan Nasional (HPN), Consumer Director Siti Choiriana visits directly to the customer’s home. September - Telkom has recovered the telecommunications network quickly in a number of disaster locations such as Lombok, Palu and Banten. October - Telkom also supported the smoothness of the application of technology and information services at the Asian Para Games 2018 event 6-13 October 2018. October - Telkom held the E-sports Millennials Games Day 2018 Competition. This event is aimed at developing digital gaming innovation in order to encourage the development of the gaming industry in Indonesia. 8 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNovember - The Telkom Hub Inauguration was done by the President of Indonesia Joko Widodo. The Telkom Hub is a TelkomGroup office area and a center of excellence and a source of inspiration in order to build Digital Indonesia. Inauguration of taxation data November - integration on a host to host basis was completed between the Tax Directorate General of the Ministry of Finance and Telkom. December - Indonesia Global Gateway (IGG) Operation, which connects international gateways to the west through SEA-ME-WE 5 and east through SEA-US, was an important milestone for Telkom towards becoming a Global Digital Hub. December - Achieving more than 5 Million IndiHome Customers by the end of 2018 was a manifestation of Indonesian society’s trust in IndiHome which is now serving as the Company’s new growth engine. December - Telkomsel was getting stronger as the cellular market leader with 189,081 BTS at the end 2018, 73% of which are 3G and 4G BTS covering 90% of the population. PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 9 PROFILE OF TELKOM AND ITS SUBSIDIARIES PROFILE OF TELKOM Company’s Name PT Telkom Indonesia (Persero) Tbk Commercial Name Telkom Business Fields, Type of Products and Services Organizing information telecommunication networks and services, as well as the optimization of the usage of the resources owned by the Company. and 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 0029/IUP-UB/X/2017/DPMPTSP Date of Establishment November 19, 1991 Address and Contact of Corporate Office Graha Merah Putih Jl. Japati No. 1, Bandung Jawa Barat, Indonesia - 40133 Phone Fax Website E-mail : +62-22-4521404 : +62-22-7206757 : www.telkom.co.id : corporate_comm@telkom.co.id investor@telkom.co.id Social Media Facebook Instagram Twitter : TelkomIndonesia : telkomindonesia : @telkomindonesia Legal Basis of Establishment Pursuant to the Government Regulation No.25 of 1991, the Company’s status was changed to a state- owned limited liability company (“Company”) based on Notarial Deed of Imas Fatimah, S.H., No.128, dated September 24, 1991 which was approved by the Minister of Justice of the Republic of Indonesia through the Decree No.C2 6870.HT.01.01.Year.1991 dated November 19, 1991, and announced in the State Gazette of the Republic of Indonesia No.5 of January 17, 1992 Supplement to the State Gazette No.210. 10 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Stock Listing The Company was listed at the 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 series A Dwiwarna share 399,999,999,999 series B shares Issued and Fully Paid Capital 1 series A Dwiwarna share 99,062,216,599 series B shares Rating International : Baa1 (stable) from Moody’s BBB (stable) from Fitch Domestic : idAAA from Pefindo Telkom is the largest telecommunications company in Indonesia with: 7 61 422 11 Regional Telkom Offices Telecommunications areas Plasa Telkom Outlets Mobile GraPARI units 761 1,142 Mobile IndiHome units 11 Direct subsidiaries, Global offices in overseas (Singapore, Hong Kong, Timor Leste, Australia, Malaysia, Macau, Taiwan, USA, Myanmar, Saudi Arabia and New Zealand) 1 21 actively operate Direct subsidiary, not actively operate Indirect subsidiaries 11 GraPARI International in Saudi Arabia, 429 Singapore, Hong Kong, Macau, Taiwan and Malaysia GraPARI in Indonesia, including 7 GraPARI TelkomGroup in Bandung, Surabaya, Tangerang, Medan and those which are managed by third parties 11 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 PROFILE OF SUBSIDIARIES www.telkomsel.com www.metra.co.id www.telkomsat.co.id Telekomunikasi Seluler PT (Telkomsel) is a cellular operator with the widest network that can reach around 99% of Indonesia’s population, with the core business telecommunications of services and the operation of cellular telecommunications networks. cellular PT Multimedia Nusantara (Telkom Metra) is an investment company and sub-holding and has expanded to various basic digital services and ICT industries through acquisition, partnership and building a strong business ecosystem. Satelit Indonesia PT Telkom (Telkomsat) is a company engaged in the satellite telecommunications network infrastructure which has a core business of providing satellite network services for date and the internet. www.pins.co.id www.telkomakses.co.id PT PINS Indonesia (PINS) is involved integrating the business of in devices, systems, networks, processes and the Internet of Things (IoT). Its core business is providing various technological, information and communication equipment and IoT facilities. PT Jalin Pembayaran Nusantara (Jalin) is a company which provides switching and system management for ATM, EDC and Electronic Money services for National Payment Gateways. network PT Telkom Akses (Telkom Akses) is engaged in the deployment and of fixed-broadband management infrastructure access services, with the core business of fixed broadband access network deployment construction services, managed service & operation maintenance, and fixed broadband access networks. www.telin.co.id www.mitratel.co.id www.telkominfra.co.id (Telin) Telekomunikasi PT Indonesia International a global that telecommunications provides telecommunication & IT service solutions overseas. Currently, Telin has 7 subsidiaries which are all overseas. operator is is for Dayamitra PT Telekomunikasi (Mitratel) an infrastructure telecommunication provider towers (tower provider) and its core business includes tower construction and tower management services (collocation & resellers). Infra) (Telkom Infrastruktur Telekomunikasi PT Indonesia is a company that provides management services in telecommunication and infrastructure solutions both for the domestic and international market. The core business of Telkom Infra is telecommunication infrastructure and submarine cable management. services www.metranet.co.id (Metranet) is an PT Metranet integrated media and digital content provider whose core business is online media, digital content and digital billing. (Telkom PT Graha Sarana Duta Property) is a property service company that focuses on leverage Telkom’s idle assets. Its core business is property management, property lease and development, property property facilities. 12 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Reportr a s i t h k I n a D n a g n a u e K i l a n o s a r e p O 13 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 Merah Putih (1080BT) Telkom-3S (1180BT) Telkom-2 (1570BT) SHM EIG DUB MAN LON LUX AMS PRS MRS FRA SWI MDR LSB MLN PAL MOS WRS KIV VNA SOF ALG CAI IST RYD DUB ND DJI IMEWE BBG SEA-ME-WE 5 SHA MAC HKG RGN BKK HAN SHI TWN SG BSW DUM BTM SEO TYO APCN-2 SJC DVO MDO C2C SMPCS SEA-ME-WE 4 JHB JKT IGG SBY DPS DIL Digital Platform id-Ring Indonesia Digital Ring Fiber Optic Backbone Network Point of Presence (PoP) Satellite Big Data & Analytics, API Factory & Internet of Things 161,652 km including: • 96,952 km of Domestic fiber optic • 64,700 km of International fiber optic • 46 PoP in domestic network • 72 PoP in International network 3 satellites with total capacity 133 TPE which consist of: • Merah Putih Satellite (60 TPE) • Telkom 3S (49 TPE) • Telkom-2 (24 TPE) id-Con Indonesia Digital Convergence Data Center 22 data centers which consist: • 5 data centers (overseas) • 14 data centers neuCentrIX (domestic) • 3 data centers tier 3 and 4 (domestic) 14 SJ CHG TOR NYX ASH FASTER TNG-IA AAG HWI SLO LAX JUS UNITY GUA SEA-US SP PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportMOS SHM MAN LON LUX AMS DUB EIG PRS MRS MDR LSB MLN PAL WRS KIV FRA SWI VNA SOF IST RYD ALG CAI SHA MAC HKG SHI TWN RGN BKK HAN SG BSW DUM BTM SEO TYO APCN-2 SJC DVO MDO C2C SMPCS JKT IGG SBY DPS DIL DUB ND DJI IMEWE BBG SEA-ME-WE 5 SEA-ME-WE 4 JHB INFRASTRUCTURE The mission of the Telkom network infrastructure and development program is to develop and maintain an agile and resilient network and IT infrastructure to support the innovation of its digital services. TOR SJ CHG NYX ASH SLO LAX AAG HWI FASTER TNG-IA JUS UNITY GUA SEA-US Point of Presence (POP) Sambungan Langsung Internasional (SLI) Submarine Fiber Optic (SEA-ME-WE 4) Submarine Fiber Optic (SEA-ME-WE 5) Submarine Fiber Optic APCN-2 Submarine Fiber Optic EIG Submarine Fiber Optic SEA - US Submarine Fiber Optic IGG Submarine Fiber Optic SMPCS Telekomunikasi Indonesia Internasional (TELIN) SP id-Access Indonesia Digital Access Mobile Network Fiber Optic Access Network Wi-Fi • 268 Telkom Cloud • 30 million Homes Passed • 9.1 million Optical Port 382,361 Access Points: • 136,110 Managed Access Point • 246,251 Homespot 189,081 BTS: • 50,310 BTS 2G • 82,118 BTS 3G • 56,653 BTS 4G 30,485 towers: • 18,000 Telkomsel towers • 12,485 Mitratel towers PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 15 PRODUCTS AND CUSTOMERS Telkom has four main operating segments that are aligned with its parenting strategy and financial reports which are based on dividing customers into segments. MOBILE Providing mobile voice, SMS, mobile broadband, and digital services for cellular customers. Cellular Subscribers 163 million Postpaid Subscribers 5.4 million Prepaid Subscribers 157.6 million Mobile Broadband Customers 107 million ENTERPRISE Providing end to end ICT solutions for corporate customers, small to medium sized businesses, and the government. Corporate Customers Small and Medium Scaled Business Customers Government Institution Customers 1,900 300,416 979 CONSUMER Providing fixed phone, pay TV and internet services for retail customers (homes, apartments and premium clusters). Fixed Wireline Subscribers Fixed Broadband Subscribers IndiHome Subscribers 11.1 million 7.3 million 5.1 million WHOLESALE & INTERNATIONAL BUSINESS Providing interconnection services, a leased line, satellites, tower & infrastructure services and international business for other licensed operators and international customers (organic or aggregator). Other Licensed Operator (OLO) Customers 8 Transponder & Closed User Group Customers 26 Internet Service Provider Customers Global Partner Customers 132 186 OTHERS Providing digital services for various customers. BLANJA.com 3.2 million subscribers MelOn 34.7 million active users Note: The data presented on this page is data up to December 31, 2018. 16 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportFINANCIAL DATA OVERVIEW Consolidated Statements of Comprehensive Income (in billions of Rupiah except for net income per share and per ADS which are represented in Rupiah) Years ended on December 31, 2018 2017 2016 2015 2014 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 for the year 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 billions 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 billions of Rupiah) Telkom Telkomsel Others Subsidiaries Total 130,784 128,256 116,333 102,470 93,691 59,181 38,845 26,979 18,032 8,947 31,921 22,844 9,077 182.03 18,203 85,362 64,609 43,933 32,701 22,145 10,556 30,369 19,952 10,417 223.55 22,355 77,888 59,498 39,195 29,172 19,352 9,820 27,073 17,331 9,742 196.19 19,619 71,552 51,415 32,418 23,317 15,489 7,828 23,948 16,130 7,818 157.77 15,777 89,696 61,564 45,673 29,206 21,274 14,471 6,803 22,041 15,296 6,745 148.13 14,813 Years ended on December 31, 2018 2017 2016 2015 2014 206,196 198,484 88,893 98,910 (2,993) 2,472 86,354 92,713 2,185 2,148 179,611 74,067 84,384 7,939 1,847 166,173 141,822 72,745 75,136 12,499 1,807 55,830 67,721 1,976 1,767 Years ended on December 31, 2018 2017 2016 2015 2014 13,186 13,885 6,549 33,620 11,572 15,080 6,504 33,156 10,309 12,564 6,326 29,199 9,641 11,321 5,439 8,099 13,002 3,560 26,401 24,661 Consolidated Financial and Operation Ratios Years ended on December 31, 2018 2017 2016 2015 2014 Return on Assets (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(x)(7) Debt to EBITDA Ratio(x)(8) EBITDA to Interest Expense (x)(9) 13.1 23.0 29.7 93.5 75.8 43.1 0.38 0.74 16.9 16.5 29.2 34.3 16.2 27.6 33.7 14.0 25.0 31.6 104.8 120.0 135.3 77.0 43.5 0.32 0.55 23.3 70.2 41.2 0.30 0.53 21.2 77.9 43.8 0.37 0.67 20.7 Remarks: (1) ROA is calculated as profit for the year divided by total assets at year end December 31. (2) ROE is calculated as profit for the year divided by total equity 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 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 debt (included finance lease) divided by total equity. (8) Debt to EBITDA ratio is calculated as debt (included finance lease) divided by EBITDA. (9) EBITDA to interest ratio is calculated as EBITDA divided by cost of fund. 15.0 24.7 32.6 106.1 64.9 39.4 0.27 0.51 25.2 17 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 STOCK INFORMATION TELKOM’S STOCK INFORMATION AT THE IDX The following is the report of the highest, lowest and closing share prices, trading volumes, number of shares outstanding and market capitalization of the stock which were recorded at the Indonesia Stock Exchange (IDX) for the periods indicated: Calendar Year Highest Lowest Closing Price Per Share (in rupiah) Volume (shares) Outstanding Shares Excluding Treasury Stock Market Capitalization (Rp billion) 2014 2015 2016 2017 2018 First quarter Second quarter Third quarter Fourth quarter First quarter Second quarter Third quarter Fourth quarter First quarter Second quarter Third quarter Fourth quarter September October November December 3,010 3,170 4,570 3,510 4,010 4,570 4,400 4,840 4,190 4,670 4,840 4,710 4,460 4,460 3,890 4,110 4,110 3,670 3,910 4,110 3,840 2,060 2,485 3,045 3,045 3,305 3,950 3,640 3,780 3,780 4,010 4,500 3,910 3,250 3,520 3,250 3,250 3,460 3,250 3,460 3,680 3,610 2,865 24,035,761,600 98,175,853,600 3,105 18,742,850,400 98,198,216,600 3,980 23,017,915,300 99,062,216,600 3,325 5,852,647,000 98,198,216,600 3,980 5,808,895,400 99,062,216,600 288,792 312,984 401,184 335,160 401,184 4,310 5,821,745,500 99,062,216,600 434,448 3,980 5,534,627,400 99,062,216,600 4,440 21,225,443,500 99,062,216,600 4,130 4,560,626,200 99,062,216,600 4,520 4,954,694,500 99,062,216,600 4,680 4,320,051,800 99,062,216,600 4,440 7,390,071,000 99,062,216,600 3,750 24,436,003,500 99,062,216,600 3,600 3,750 3,640 3,750 3,640 3,850 3,680 3,750 6,414,771,900 99,062,216,600 6,052,816,300 99,062,216,600 6,605,907,500 99,062,216,600 5,362,507,800 99,062,216,600 1,766,607,400 99,062,216,600 1,995,151,900 99,062,216,600 1,810,267,200 99,062,216,600 1,557,088,700 99,062,216,600 401,184 447,552 416,304 455,616 471,744 447,552 371,483 362,880 378,000 360,586 371,483 360,586 381,390 364,549 371,483 Telkom’s stock price on the last trading day which was December 28, 2018 for the IDX closed at Rp3,750. At that price, Telkom’s market capitalization reached IDR371.5 trillion or 5.3% of the total capitalization of the Indonesia Stock Exchange (IDX). TELKOM’S STOCK INFORMATION AT THE IDX (Indonesia Stock Exchange) Volume (in Billion Share) Price (Rp) 8 7 6 5 4 3 2 1 0 18 5,000 4,000 3,000 2,000 1,000 0 1st Quarter 2017 2nd Quarter 2017 3rd Quarter 2017 4th Quarter 2017 1st Quarter 2018 2nd Quarter 2018 3rd Quarter 2018 4th Quarter 2018 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTELKOM’S AMERICAN DEPOSITORY SHARES (ADS) INFORMATION AT THE NYSE On the last trading day of the NYSE for 2018, which was December 31, the closing for 1 Telkom ADS was US$26.21. The following is the report on the highest, lowest, closing and trading volume of Telkom’s ADS which were listed on the New York Stock Exchange (NYSE ) for the period stated: Calendar Year Price Per ADS Highest Lowest Closing (in US$) Volume (ADS) 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 24.38 23.54 34.65 36.19 31.34 34.45 36.19 34.55 32.51 32.51 28.31 28.41 27.70 24.65 25.71 27.70 27.11 16.95 17.05 21.22 28.10 28.10 30.26 33.50 29.15 21.75 25.96 23.66 21.75 23.11 21.75 23.11 25.43 24.74 22.62 22.20 29.16 32.22 31.17 33.67 34.30 32.22 26.21 26.42 26.01 24.48 26.21 24.48 25.20 25.90 26.21 104,501,896 87,438,232 110,532,172 76,122,383 23,813,869 16,694,062 14,436,754 21,177,698 98,313,215 23,643,043 33,909,842 22,674,248 18,086,082 5,432,992 5,616,490 4,416,682 8,052,910 Effective October 26, 2016, Telkom changed the Depositary Receipt (DR) from 1 Depositary Shares (DS) representing 200 shares to 1 DS represents 100 shares. The presentation on the table above has accommodated the ratio change. TELKOM’S STOCK INFORMATION AT THE NYSE (New York Stock Exchange) Volume (in Billion Share) Price (US$) 3.5 3 2.5 2 1.5 1 0.5 0 1st Quarter 2017 2nd Quarter 2017 3rd Quarter 2017 4th Quarter 2017 1st Quarter 2018 2nd Quarter 2018 3rd Quarter 2018 4th Quarter 2018 40 35 30 25 20 15 10 5 0 19 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789CORPORATE ACTION INFORMATION REGARDING STOCKS Based on the resolution of the AGMS dated April 27, 2018, Telkom’s shareholders approved the transfer of the treasury shares totaling 1,737,779,800 shares at a cost of Rp2,541 billion which was provided by reducing the issued and fully paid capital from 100,799,966,400 shares to 99,062,216,600 shares. Annual General Meeting of Shareholders, April 27, 2018 20 Telkom 2018 Public Expose PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBONDS, SUKUK OR CONVERTIBLE BONDS AND MEDIUM TERM NOTES (MTN) INFORMATION Rating (Pefindo) idAAA idAAA Bond Outstanding (Rp million) Date of Issue Maturity Date Term (Year) Interest Rate per Annum (%) Underwriter Trustee PT Bank Tabungan Negara (Persero) Tbk PT Bank Permata Tbk PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas Tbk Telkom Bond II 2010 serie B Telkom Shelf Registered Bond I 2015 serie A Telkom Shelf Registered Bond I 2015 serie B Telkom Shelf Registered Bond I 2015 serie C Telkom Shelf Registered Bond I 2015 serie D 1,995,000 June 25, 2010 July 6, 2020 10 10.20 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 Medium Term Notes Currency Principal (Rp million) Issuance Date Maturity Date Term (Year) Interest Rate per Annum (%) / Annual Return Payment (Rp million) Arranger Monitoring Agent Rating (Pefindo) MTN I Telkom Year 2018 seri A MTN I Telkom Year 2018 Series B MTN I Telkom Year 2018 Series C MTN Syariah Ijarah I Telkom Year 2018 Series A MTN Syariah Ijarah I Telkom Year 2018 Series B MTN Syariah Ijarah I Telkom Year 2018 Series C 262,000 September 4, 2018 September 14, 2019 200,000 September 4, 2018 September 4, 2020 296,000 September 4, 2018 September 4, 2021 1 2 3 8.00% 7.25% PT Bahana Sekuritas, PT BNI Sekuritas, PT CGS- CIMB Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas 8.35% 264,000 September 4, 2018 September 14, 2019 1 Rp19,000 296,000 September 4, 2018 September 4, 2020 2 Rp24,000 182,000 September 4, 2018 September 4, 2021 3 Rp15,000 PT Bahana Sekuritas, PT BNI Sekuritas, PT CGS- CIMB Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas idAAA PT Bank Tabungan Negara (Persero) Tbk idAAA Sy PT Bank Tabungan Negara (Persero) Tbk 21 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceManagement Discussion and AnalysisAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights12345678902 REPORT OF THE BOARD OF COMMISSIONERS AND DIRECTORS 24 30 40 Report of the Board of Commissioners Report of the Board of Directors Statement Letter of Responsibility for 2018 Annual Report 22 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportMerah Putih Satellite Launching Photo: courtesy by Space-X 23 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789REPORT OF THE BOARD OF COMMISSIONERS Hendri Saparini | President Commissioner 24 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report“Overall, we assess that throughout 2018, the Board of Directors carried out its duties, functions and roles well in the midst of a challenging industry situation, especially with regard to cellular.” GENERAL OVERVIEW OF THE MACROECONOMY AND INDUSTRY Overall, we assess that throughout 2018, the Board of Directors carried out its duties, functions and roles well, in the midst of a challenging industry situation, especially with regard to Amidst the many challenges of the global economy stemming cellular. The Board of Directors demonstrated good ability and from the trade war between the United States and China capability in establishing and executing strategies with regard as well as the economic slowdown of several regions, to both operational and financial aspects, setting priorities and the Indonesian economy was still able record fairly good adjusting strategies in accordance with the characteristics of growth of 5.17%, better than 5.07% in the previous year. The the highly dynamic telecommunications industry. government also managed to keep inflation under control at 3.13%, which relatively maintaining consumer purchasing The success of the operational aspect was demonstrated power. This relatively good economic growth rate was driven by the excellent results achieved by the prepaid SIM card by strong household, corporate and government spending, registration program that our subsidiary company, Telkomsel, which was catalyzed among others by massive infrastructure carried out. The number of IndiHome fixed broadband development in various fields. The right balance of fiscal subscribers increased by 72.2% to 5.1 million by the end and monetary policies, as well as various economic stimulus of 2018. In addition, the infrastructure network within the packages over the past few years, also supported the Company’s framework was continuously improved to provide achievement of decent economic growth. the best digital experience for customers. During 2018, more than 28,000 new 4G LTE BTS were built, the Indonesia Global The telecommunications industry in Indonesia, in particular Gateway (IGG) submarine cable system was completed, and cellular, also faced heavy pressure from the continuous decline the Merah Putih Satellite was launched. These achievements in the legacy business, namely voice and SMS services, which is were critical in maintaining the momentum of new growth happening all over the world as smartphone adoption continues sources that have great future potential. to change people’s communication patterns. In addition, the Government also enacted a prepaid SIM card registration With regards to the financial aspect, the Board of Directors program from October 2017 to April 2018 which had a short successfully encouraged our subsidiaries, Telkomsel, to execute term impact on the increasingly fierce industrial competition, their strategies well, and so revenue from Telkomsel decreased though in the long term it will deliver large benefits, not only for by only 4.3%, better than the 7.4% decline experienced by the operators and the cellular industry, but also for the country and industry as reflected in the revenue of the 3 main cellular society as a whole. SUPERVISION AND ASSESSMENT OF THE PERFORMANCE OF THE BOARD OF DIRECTORS DURING 2018 operators in Indonesia. On the other hand, the Board of Directors was able to maintain excellent growth performance in the fixed line business, thus ensuring that the Company’s consolidated revenue continued to record positive growth amounting to 2%. Although EBITDA and Net Profit, which amounted to Rp59.2 trillion and Rp18.0 trillion respectively, decreased compared to The Board of Commissioners supervised the performance of last year’s achievement, the Company performed better than the Board of Directors, to ensure that the steps and strategies other telecommunications operators. This demonstrates that taken were aligned with the vision, mission, strategic objectives the Board of Directors was able to change its strategy and take and pre-determined work programs. the necessary initiatives in response to unfavorable situations. 25 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Apart from these operational and financial achievements, the In the Consumer segment, IndiHome is expected to be the main Board of Commissioners assesses that the Board of Directors driver of growth as demand for high-quality fixed broadband has systematically carried out various initiatives in order to services is still very high and growth opportunities are still wide improve the Company’s digital capabilities, towards achieve open, given the relatively low penetration of fixed broadband the Company’s strategic objective to become a digital telco services in Indonesia at around 12%. company. These initiatives include strengthening the fiber optic network infrastructure with regard to both backbone In the Enterprise segment, there is a rising trend among and access, strengthening the organization which was corporations, government institutions, and Small and Medium transformed based on customer segments into Customer Business (SMB) of adopting integrated ICT solution services in Facing Units (CFU) so as to be more agile and responsive in order to increase efficiency, which will provide opportunities serving customers, as well as fostering a culture of innovation for the Company to keep growing this segment. and conducting inorganic activities to further strengthen the Company’s digital capabilities. Meanwhile in the Wholesale & International Business segment, the Company’s success in completing the Indonesia The Board of Commissioners appreciates the strong Global Gateway (IGG) marine cable strategic project that performance of the Board of Directors throughout 2018. We connects the SEA-ME-WE5 submarine cable with the SEA- continuously support efforts to support Telkom’s continued US submarine cable system, as well as the successful launch growth in the midst of challenging conditions towards of the Merah Putih satellite, will create larger business becoming more resilient and providing the best experience opportunities for the Company. for customers. In 2018, the Board of Commissioners established several new supported the Board of Directors in actively exploring inorganic policies to strengthen its oversight role in order to ensure that initiatives that can deliver added value and create synergies for the Company is able to continue expanding, but in a prudent the Company. Besides organic growth, the Board of Commissioners also manner based on the principle of prudence to protect and safeguard the interests of Shareholders. OPINION ON BUSINESS PROSPECTS ASSESSMENT PERFORMANCE OF COMMITTEES UNDER THE BOARD OF COMMISSIONERS THE OF In general, the Board of Commissioners is of the view that In carrying out its supervisory function, the Board of the Company still has good business prospects, with many Commissioners is assisted by 3 (three) committees, namely opportunities that will enable the Company to continue to grow the Audit Committee, Nomination and Remuneration in the future. Equipped with the largest fiber optic infrastructure Committee (KNR) and the Planning and Risk Evaluation and network and a variety of supporting facilities, the Company is Monitoring Committee (KEMPR). Throughout 2018, the Board in a leading position to provide the data connectivity services of Commissioners assessed that these three Committees had and content that have become an essential need in society, for worked well in providing recommendations to the Board of which demand continues to increase. In addition, we are also Commissioners, so that the oversight mechanisms for the strongly positioned to service the trend of business processes Board of Directors could run well. digitalization among both large and small enterprises as they strive to increase efficiency or grow their businesses. During 2018, the Nomination and Remuneration Committee (KNR) held 44 meetings and produced various important In the Mobile segment, digital business services, including recommendations regarding changes and remuneration of the digital service & solutions, will be the main drivers of growth Telkom Board of Directors. Meanwhile, the Audit Committee in line with expanding smartphone usage. In addition, we hope (KA) conducted 26 meetings in 2018, with its main activities that the cellular industry will fare better in 2019, with the consisting among others of supervising Integrated Audits for successful prepaid SIM card registration program encouraging healthier competition. the 2018 fiscal year, as well as the plans and implementation 26 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report of the Internal Audit Unit work programs. The Audit Committee It is also our assessment that the implementation and also monitored the audit process of the Partnership and management of Whistleblowing Systems (WBS) in Telkom are Community Development Program (PKBL) carried out by running well. The WBS plays a role in helping us supervise the Community Development Center (CDC) unit for the 2018 potential fraud and policy irregularities as well as violations fiscal year. In addition, the Audit Committee carried out its of internal regulations, including in subsidiaries. The Board of responsibilities to review complaints received through the Commissioners actively monitors and makes policy decisions in Whistleblowing System (WBS). the cases reported through the WBS. The Planning and Risk Evaluation and Monitoring Committee During 2018, we received 24 complaints of which 5 complaints (KEMPR) held 10 committee meetings, 15 technical meetings to were assessed as being worthy of further investigation. evaluate the Company’s 2018-2022 Long Term Plan (RJPP) and compile the 2019-2023 RJPP as well as evaluate any actions of the Board of Directors that require approval from the Board of Commissioners. In addition, the KEMPR assisted the Board of CHANGES IN THE COMPOSITION OF THE BOARD OF COMMISSIONERS Commissioners in reviewing the Board of Directors’ strategic In 2018, there was a change in the composition of the Company’s plans throughout 2018. KEMPR also monitored the Company’s Board of Commissioners. The 2017 Annual GMS resolved Work Plan and Budget (RAKP) and capital expenditure in 2018 to honourably discharge Mr. Hadiyanto, and confirmed the and prepared the RAKP for 2019. In terms of risk management, dismissal of Mrs. Devi W Suradji who, since December 22, 2017, KEMPR has supervised Telkom’s risk management activities is no longer serving as a Commissioner of the Company after including the aspects of risk mitigation, risk control being appointed to the PT Angkasa Pura 1 Board of Directors. effectiveness, and risk management monitoring. Besides that, Mr. Dolfie Othniel Fredric Palit is no longer serving We encourage all members of the Committees to continuously legislative candidate on September 20, 2018. improve their abilities and broaden their horizons in the telecommunications industry and finance, so that they can The following is the composition of the Company’s Board of better assist the Board of Commissioners in carrying out its Commissioners as of December 31, 2018: as a Commissioner after being appointed as a permanent supervisory function of the Board of Directors. APPLICATION GOVERNANCE IN TELKOM OF SUPERIOR CORPORATE We uphold the values of good corporate governance (GCG), and view the application of best practices as critical to supporting the achievement of long-term, sustainable performance for the Company. Therefore, this aspect is one of the areas that the Board of Commissioners focuses on supervising. Best practices in risk management are greatly needed in order to be able to identify potential risks that may arise. The Board of Commissioners always plays an active role in monitoring and giving suggestions on the risks faced by the Company. The Board of Commissioners judges that throughout 2018 the Board of Directors has implemented GCG practices effectively and consistently with high standards, by upholding the values of transparency, accountability, responsibility, independence and fairness. Hendri Saparini : President Commissioner Rinaldi Firmansyah : Commissioner Edwin Hidayat Abdullah : Commissioner Isa Rachmatarwata : Commissioner Margiyono Darsasumarja : Independent Commissioner Pamijati Pamela Johanna Waluyo : Independent Commissioner Cahyana Ahmadjayadi : Independent Commissioner 27 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789From Left to Right Isa Rachmatarwata (Commissioner), Edwin Hidayat Abdullah (Commissioner), Hendri Saparini (President Commissioner), Cahyana Ahmadjayadi (Independent Commissioner), Pamijati Pamela Johanna Waluyo (Independent Commissioner), Margiyono Darsasumarja (Independent Commissioner), Rinaldi Firmansyah (Commissioner). 28 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAPPRECIATION TO STAKEHOLDERS AND CLOSING In closing, the Board of Commissioners conveys its highest gratitude and appreciation to the Board of Directors, management and all employees for their support and cooperation during 2018. Hopefully the cooperation and synergy that has been established can be continuously improved so as to achieve better performance in future. We also express the same gratitude and appreciation to all shareholders, customers, business partners, and other stakeholders for the support given to Telkom throughout 2018. We hope that the collaboration and synergy with all stakeholders can be sustained in the future, so that Telkom can continuously improve its performance in the future. Jakarta, April 30, 2019 Hendri Saparini President Commissioner 29 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789REPORT OF THE BOARD OF DIRECTORS Alex Janangkih Sinaga | President Director 30 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report“Stronger, for Your Digital Experience” The increasingly concrete influence of the digital era has We believe that our actions and achievements been marked by the emergence of many innovations that are throughout 2018, which we will described in further aimed at producing a variety of quality digital solutions for detail, have strengthened Telkom’s capability as a Digital society, accompanied by best customer experience for users. Telecommunication Company to meet customer demand and These conditions have driven rising digital adoption across all provide the best digital experience. customer segments when carrying out their activities, resulting in the irrelevance and abandonment of the legacy services that COMPANY PERFORMANCE IN 2018 are the main source of income for telecommunication operators. This is a serious threat but at the same time, also poses an In 2018, the Company recorded consolidated revenue for 2018 opportunity for telecommunication operators to accelerate amounting to Rp130.8 trillion with positive growth of 2.0%, their transformation into becoming Digital Telecommunication lower than revenue growth in 2017. This was mainly due to a Companies by focusing on providing high-speed connectivity 21.1% decline in the legacy business. However, the Company’s and digital services. digital business revenues, which include broadband connectivity and digital services, grew significantly by 23.1%. In response, Telkom has continued to strengthen its digital With these results, the contribution of digital business in capabilities with regard toits services, infrastructure and 2018 increased to 63.0% from 52.1% in 2017. This encouraging digital customer experience. In terms of services, Telkom is digital business revenue growth enabled the Company to strengthening and developing digital services in accordance compensate on a consolidated basis for the decline in legacy with customer demand, while also increasing business business revenue during 2018. These achievements also show competitiveness. Telkom fully understands that customers, that the Company is on the right track to become a Digital especially in the Mobile and Consumer segments, need a Telecommunication Company, one that is strongly committed variety of quality digital services so that they can carry out to continuously strengthening its digital business capabilities various activities easily, comfortably and pleasantly. As for to serve customers’ various digital service needs. the Enterprise segment, Telkom provides various services to digitize their business processes so that they can be more In 2018, the Company’s Earnings before Interest, Tax, efficient, more competitive and create high value. To support Depreciation and Amortization (EBITDA) decreased by 8.4% these services, Telkom continues to strengthen its digital to Rp59.2 trillion, which was due among others to a 12.5% infrastructure which includes broadband backbone networks, increase in operating expenses to Rp71.6 trillion, in line fiberoptic-based access networks, launching the Merah Putih with investment in both mobile and fixed line broadband satellite, expanding 4G LTE cellular networks in urban and rural infrastructure development. Infrastructure development, areas, increasing IT capability and capacity from front-end to especially broadband infrastructure, is very important in order back-end, and developing various platforms and applications for the Company to effectively anticipate the decline of the as enablers of digital solutions and services. As for customers’ legacy business while accelerating higher contribution from the digital experience, Telkom continues to develop digital touch digital business and ensuring best digital customer experience. points, personalize services through the utilization of customer insights and analytical data, and simplify processes to provide the best digital experience for all customers. 31 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789In line with the decline in EBITDA, the Company’s Net Profit for To improve its digital capabilities, besides developing digital 2018 fell by 18.6% to Rp. 18.0 trillion, or by 13.7% if excluding the services such as music, games, video and financial technology, positive impact of asset revaluation on Net Profit in 2017. Telkomsel also continueds to strengthen its broadband infrastructure by building 28,376 new BTS all of which were In the Mobile segment, the 3 (three) main operators experienced based on 4G LTE technology, so that by the end of 2018 4G an increasingly drastic decline in the legacy business of around LTE coveraged reached more than 90% of the population. As 21%. On the other hand, mobile data services saw fierce a result, data traffic grew sharply by 101.7% to 4.3PetaBytes competition which was triggered by intense price wars during and Average Revenue Per User (ARPU) for mobile data services the prepaid SIM card registration period. Both these factors increased by 15.9%. caused the total revenue of the 3 (three) major operators to decrease by 7.4%. Telkomsel has taken the initiative to prevent The Enterprise segment which includes large corporate industrial conditions from becoming increasingly unhealthy customers, Small and Medium Businesses (SMBs) and by encouraging reasonable and affordable pricing of mobile government institutions, provides end-to-end ICT solutions broadband data packages, in order to provide optimal value that include connectivity, IT services, data centers & cloud, for both operators and customers. In addition, Telkomsel also business process outsourcing, digital solutions and other made efforts to push back against the decline of the legacy support services. In 2018, the Enterprise segment recorded business caused by OTT services, including by offering voice revenue growth of 10.1% to Rp21.1 trillion. The main driver of packages and SMS package programs. As a result of these revenue growth was IT Services, which grew by 48.2%, in line efforts, Telkomsel managed to hold its revenue decline to only with growing customer demand in the Enterprise segment to 4.3%, better than the 7.4% decline in the total income of the 3 digitize their business processes so that corporate customers (three) main operators. become more competitive and SMBs can develop furthur, while government institutions at both central and regional can The prepaid SIM card registration program limits the number improve their public services. of prepaid SIM cards for each customer and so that by the end of 2018, the number of Telkomsel customers had decreased In the Consumer segment, IndiHome, which is an integrated by 17% to 163.0 million customers. In the short term this fiber-optic network service package that includes home prepaid SIM card registration program has had a negative telephone services, high-speed internet, and interactive impact on the cellular industry, but we believe that in the television services with IPTV technology, recorded excellent long term this program will greatly benefit the country, the performance. The number of IndiHome customers grew by telecommunications industry and customers. This program 72.2% to 5.1 million customers at the end of 2018 from 2.96 will assist the government in supporting national security by million customers at the end of 2017. This achievement further providing more complete and better validated citizen identity strengthened IndiHome as the market leader in fixed broadband data. As for the telecommunications industry, in particular business in Indonesia, with a market share of around 80%. cellular, it is hoped that this will encourage healthier and more As a result, IndiHome recorded revenue growth of 66.9% and efficient competition as it focuses on sales of refill packages contributed 82.9% to the Consumer segment, up from 62.2% rather than the sale of starter cards. In addition, by knowing in the previous year, which in turn drove Consumer segment its customer profiles more accurately, operators can more revenue to increase by 25.1% to Rp13.9 trillion. creatively offer the right service packages in accordance with customer profiles and needs. 32 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportThe Wholesale and International Business segment, STRATEGIC WORK PROGRAM which includes telecommunications operators, internet service providers and both domestic and global digital In 2018 the Company established 3 (three) strategic programs, players, provides a variety of services consisting of carrier namely: first, Delivering Best Customer Experience; second, services, telecommunications tower services and managed Expanding Digital Business; and third, Intensifying Smart telecommunications services. This segment recorded revenues Inorganic Initiatives. of Rp10.1 trillion with a growth of 35.6%, up from Rp7.4 trillion in 2017. The contribution of the digital business tp this segment Delivering Best Customer Experience increased to 57% in 2018 from 53% in 2017. In the midst of the intense competition in the telecommunications Total capital expenditure in 2018 amounted to Rp 33.6 trillion industry, delivering best customer experience is a non- or 25.7% of revenue. Capital expenditure is mainly used to negotiable requirement. The ability to deliver best customer expand digital capabilities by continuing to build broadband experience, such as understanding customer needs early on infrastructure including 4G LTE BTS, fiber optic access networks and providing services that exceed customer expectations, to homes, submarine and terrestrial fiber optic backbone will enhance customer engagement and open up new business networks, the Merah Putih Satellite and Data Center & Cloud. opportunities. To that end, the Company continuously strives At the end of 2018, Telkom had a total of 189,081 BTS units to deliver incredible digital experience in every customer including 138,771 3G and 4G units, and a 161,652 km-long fiber journey. The Company provides digital touch points that optic backbone network. facilitate interaction, buy products and services, and support various other facilities from submitting complaints and service In 2018, we built fiber optic backbone networks to connect upgrades to make payments. For each customer journey, the 13 district capitals and capital cities, so that as of the end Company measures the customer experience using the Net of 2018, Telkom had successfully connected a total of 458 Promoter Score (NPS) as a global standard. The NPS information district capitals with the fiber optic backbone network, which is then used to improve customer experience when using is expected to increase broadband access and stimulate ICT services and improve the quality of products and services. services in all areas of Indonesia. Meanwhile, with the launch of the Merah Putih Satellite in August 2018, Telkom operates 3 Simultaneously, the Company also intensively applies satellites with a total capacity of 133 transponder equivalent analytical data to develop unique products and services that (TPE) to meet demand for transmission from various are aligned with customer needs, and strengthen business customers in the banking, media electronics, transportation processes towards demand fulfillment and resolving customer and mining sectors, especially in areas with no fiber optic complaints. We have also developed a new Customer coverage. We have carried out this continuous investment in Relationship Management (CRM) application, which we call order to strengthen the Company’s capability in accelerating New Customer Experience (NCX), which enables Telkom to the growth of the digital business and providing the best obtain and integrate information such as historical data and digital experience for customers. customer preferences to deliver best customer experience. 33 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789On the internal side, Telkom continues to strengthen customer Intensifying Smart Inorganic Initiatives segment based organizations or Customer Facing Units (CFU) as its go-to-market strategy to ensure engagement with Inorganic activities are an important part of strengthening the customers. Agile organization and work patterns continue Company’s digital capabilities. Inorganic strategies are carried to be developed in order to increase work efficiency and out both through acquisitions and through collaborations effectiveness and accommodate the spirit of innovation and or partnership with other parties who have superior digital collaboration as part of the digital culture to ensure best digital capabilities. Inorganic initiatives aim to create added value customer experience as an important focus of the Company. by enhancing digital capabilities, strengthening the digital service ecosystem and other businesses that can deliver value Expanding Digital Business synergies in the group. In the midst of the continuously declining legacy business, the In January 2018, through its subsidiary PT Metranet, the Company Company’s strategy is to strengthen and enhance its digital acquired 30.4% of Cellum Global Zrt’s shares, in order to improve business, including the digital connectivity and services that digital capabilities, especially in the digital payment field. The are increasingly needed by customers. Therefore, the Company presence of Cellum Global Zrt is expected to strengthen the continues to expand and accelerate its digital business by back-end of the Company’s digital payment platform. strengthening its digital capabilities. Various initiatives have been carried out to accelerate the growth of digital business, In April 2018, through its subsidiary PT Multimedia Nusantara, in line with the expansion of backbone network infrastructure the Company acquired a 51% stake in PT Swadharma Sarana and broadband network access throughout Indonesia. Informatika, which engages in the business of managed service for ATMs. Subsequently in December 2018, through In the Mobile segment, Telkom has developed digital its subsidiary PT Sigma Cipta Caraka, the Company acquired advertising, mobile banking, internet of things (IoT) and mobile 70% of the shares of PT Collega Inti Pratama which provides financial services, in addition to digital lifestyle services that ICT solutions for banks and financial institutions. These focus on providing cellular technology-based entertainment two acquisitions are expected to strengthen the Company’s experiences such as music, video streaming, games, and other digital payment businesses ecosystem and improve its ICT value added services (VAS) mobile service platforms. In the competencies in the banking and insurance financial sector. Enterprise segment, we provide end to end digital solutions for corporate customers, Small and Medium Business (SMB) and In September 2018, the Company through its subsidiary PT government institutions including connectivity, IT Service, data Metranet collaborated with Oona, a digital company based center & cloud, business process outsourcing, digital solutions in Hong Kong, to launch a advertising-based mobile video and other support services. In the Consumer segment, streaming service which is expected to strengthen the IndiHome has been further enriched through more high-speed Company’s video service capabilities. package package choices, more of TV / Video channels, games, a variety of attractive minipack choices, and the monetization BUILDING A DIGITAL CULTURE of digital inventory for digital advertising. Subsequently in the Wholesale and International Business segment, we provide As part of the company’s transformation, the Company has digital connectivity including data centers for service providers developed its human resources with a digital culture that and digital players, both domestically and globally. In addition, refers to The Telkom Way as belief system which contains we have also developed a variety of other digital services such the Philosophy to Be the Best, Principles To Be the Star and as e-commerce and digital lifestyle that can be used by all other Practices To Be The Winner. customer segments. 34 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportSit Alex Janangkih Sinaga (President Director) From Left to Right Zulhelfi Abidin (Director of Network & IT Solution), David Bangun (Director of Digital & Strategic Portfolio), Harry Mozarta Zen (Director of Finance), Abdus Somad Arief (Director of Wholesale & International Service), Dian Rachmawan (Director of Enterprise & Business Service), Siti Choiriana (Director of Consumer Service), Herdy Rosadi Harman (Director of Human Capital Management) PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 35 In order to build a digital culture, Telkom has made fundamental Telkom has implemented a digital culture through the Digital changes regarding its organization and work culture. The Workstyle and Open Space concepts. Digital Workstyle functional, hierarchical organization was transformed to refers to new working methods that are paperless, wireless, become flat and flexible. In this organization, new working seamless and riskless while Open Spaces stand are associated models and methods have been implemented that differ from with unassigned desks, collaborative spaces and warm the previous work methods, which resembled a supply chain ambience so as to increase work effectiveness and efficiency and was therefore less responsive to rapid change. The new while maintaining worklife integration. The digital work work model and method has been implemented in the form of environment is also equipped with tools to support more “tribe” and “squad” organizations, which are cross-functional agile work methods, among them Diarium which is a human and cross-expertise teams that work together using agile capital administrative process platform, Esperantum as a work methods to develop products by involving users in every collaboration platform, and Cognitium which supports the product development decision. With this new model and way employee competency development. of working, every innovation and change needed to meet users’ needs can be quickly carried out. This startup model and work ASSET LEVERAGE PROGRAM method is relevant to building digital products, which are highly uncertain. However, this change also requires the Company to Telkom’s digital transformation, among others through the provide digital talents with superb abilities in developing digital modernization of production device technology, has reduced digital product innovations. the need for space, and therefore Telkom has implemented the Asset Leverage Program to optimalize the unused space. The The Company provides the Digital Amoeba Program and the Asset Leverage program focuses on increasing cost efficiency Indigo Program to accommodate digital product innovation and increasing additional contributions to the Company’s activities as well as talent development. Digital Amoeba is an revenue. These assets were utilized among others for “Carrier- employee innovation program, while the Indigo Program is an Neutral Data Center”, as office space for subsidiaries that were innovation development program that involves innovators renting from third parties, and commercial collaborations, from outside the company and also comprises Telkom’s whether with subsidiaries or other entities. The increase in contribution to developing Indonesian digital startups and talents. In the Digital Amoeba Program, every employee is encouraged to contribute his or her best ideas for digitalization efficiency is evident in the utilization from 2016 until the end of 2018 of 113,885m2 in property assets by various Telkom Group entities which had previously leased from third parties. In 2018, and digital product development. Every employee whose Company succeeded in recording revenues of Rp324 billion idea is chosen is given the opportunity to realize it using the from commercial utilization of these assets with other parties. best innovation methods, namely design sprint, lean and agile methodology and growth hack cability to accelerate the IMPLEMENTATION OF IFRS 9 AND IFRS 15 innovation process. Equipped as such, employees are selected to work collaboratively in squads and tribes. To support the Telkom, as the only company in Indonesia listed on the New development of digital talent or digital startup outside the York Stock Exchange, has fully applied International Financial Company, Telkom holds Indigo Programs twice a year in order Reporting Standards (IFRS) accounting standards since to give opportunities for talent to convey their best digital 2011. In line with developments in accounting standards, the ideas. The Company provides opportunities to selected talents Company has fully implemented IFRS 9 and IFRS 15 IFRS to its and startups, and supports them in realizing their ideas. The financial statements for the 2018 Fiscal Year by developing startups will also be directed to collaborate with the related and strengthening its IT Systems and improvingits business Digital Amoeba tribes to accelerating innovation. processes in accordance with the Sarbane Oxley Act. At present the Company is also preparing for the application of IFRS 16 which goes into effect starting in the 2019 Fiscal Year. 36 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportSOCIAL AND ENVIRONMENTAL RESPONSIBILITIES AS WELL ASPARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAMS In 2018, the Indonesian Institute for Corporate Directorship (IICD) assessed 200 issuers with the largest market capitalization on the Indonesia Stock Exchange, using the Corporate Governance Scorecard from the Organization for As an entity that is inseparable from society, we always Economic Co-operation and Development Principle. In this strive to realize social responsibility towards society and the assessment, Telkom successfully won “The Best State Owned environment. “Telkom Indonesia for Indonesia” as the theme of Enterprise” in the Big Capitalization category. This shows implementing social responsibility The Company has 3 (three) that Telkom has carried out good corporate governance pillars covering the Digital Environment, namely the provision transparently, with adequate accountability. of digital facilities to support and connect various community activities, Digital Society to empower communities through DESCRIPTION OF BUSINESS PROSPECTS education on using digital services to facilitate everyday activities, and the Digital Economy, which offers support for The Company believes that there are still highly promising micro, small and medium enterprises. especially in the creative opportunies for growth in the future . Connectivity and digital industry, in the form of training to “go digital”, “ go online”, “go services have now become basic needs, both in small towns global” and organize exhibitions of SME products. and rural areas. Whereas for businesses and government institutions, digital services have become an important As a State-Owned Enterprise (BUMN), the Company also requirement in maintaining and developing their businesses, as conducts the Partnership and Community Development well as improving service to the public. With all its infrastructure Program (PKBL) in the form of programs to improve the welfare and facilities, the Company is in a leading position to realize and social life of the community and is guided by the Regulation these opportunities towards ensuring sustainable growth in of the Minister of SOEs of the Republic of Indonesia. Since 2018, the future. the Partnership Program has channeled funds amounting to Rp279.98 billion to 7,498 Development Partners in the In the Mobile segment, there are 3 (three) focused areas industrial, trade, agriculture, livestock, plantation, fisheries on business opportunies,they are increasingthe growth and services sectors as well as other sector. Meanwhile, potential of High Value Customers, mobile solution services the Community Development Program realized IDR 105.88 for enterprise, and developing various digital services such billion covering 7 fields, namely natural disaster assistance as mobile financial services, games and videos. At present, to victims, educational assistance, health improvement High Value Customers contribute significantly to Telkomsel’s assistance, infrastructure development facilities, assistance revenues. To provide the best experience towards maintaining for religious facilities, assistance for nature conservation, and loyalty and simultaneously increase the number of High Value communitysocial assistance to eradicate poverty. DEVELOPMENT OF CORPORATE GOVERNANCE IMPLEMENTATION The implementation of good corporate governance (GCG) is the foundation for Telkom’s efforts to maintain stakeholder trust and develop its business. Telkom has therefore implemented sustainable risk management by carrying out the five main principles of governanceand the eight principles of corporate management in accordance with Publically Listed Companies Governance Implementation Guidance from the Financial Service Authority (FSA). Customers, we use big data analytics to conduct profiling in order to provide a variety of quality services in line with High Value Customer needs. We also continued to develop services- as-a-solutionfor the Enterprise segment including Mobile Security, NB-IoT and other digital cellular solutions that utilize the Telkomsel myBusiness product portfolio. Meanwhile in terms ofdigitallifestyle services, we are focused on providing lifestyle experiences such as digital music, video, and games. In May 2018, we launched the MAXstream platform and became a one-stop video portal by combining OTT Video apps, linear channels and VOD content. We also offer a complete digital game ecosystem and released our first game, “Shellfire”, in October 2018 under the Dunia Games brand. 37 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789The rising use of smartphones, which at the end of 2018 has reached 66% of Telkomsel customers, will drive data consumption for digital services and solutions. The average data consumption of Telkomsel’s customer is around 4 East Asia – United States (SEA-US) submarine cable system and the South East Asia – Middle East – Western Europe5 (SEA-ME- WE5) submarine cable system, and simultaneously integrating SEA-US and SEA-ME-WE5 with a fiber optic domestic backbone Gigabytes per month, still lower than the data consumption of that covers almost all of the district capitals in Indonesia, thus various operators in other countries such as Malaysia, Thailand positioning Telkom as a Global Digital Hub offering alternate and India where data consumption has reached more than 10 direct broadband connectivity between Europe, Asia and the Gigabytes per month. Americas quickly and efficiently. As a Global Digital Hub, the Company will also develop data centers, cloud, content and In the Enterprise segment, opportunities to increase business platforms that target the Carrier, Internet Service Provider, growth are still wide open. We believe that the trend of Digital Players and Enterprise segments in both the domestic business process digitization will continue to strengthen in and international markets. the corporate segment, as well for government institutions at both central and regional level. In addition, the penetration PERFORMANCE TARGETS IN 2019 of ICT services in Small and Medium Businesses (SMBs) is still relatively low. We believe that as a provider of ICT services, In 2019, the Company is committed to continue striving to our presence can support business development in the SME achieve healthy growth and good profitability. Therefore, the segment and simultaneous create market opportunities for us to grow together. We are also actively exploring opportunities to enhance our digital capabilities through inorganic activities so as to strengthen our integrated digital services. Company has formulated 3 main programs in 2019, namely: 1. First, Embracing Best in Class Digital Customer Experience,which is transforming best customer experience by optimizing business processes through strengthening the systems, process and people. In the Consumer segment, the opportunity to continue to grow is still wide open. At the end of 2018, the penetration of fixed 2. Second, Intensifying Digital Business, namely expanding broadband connectivity and encouraging digital services broadband services in Indonesia is still relatively low at around and solutions to maintain market dominance, and 12%, whereas the number of middle class households is still growing. In addition, the level of competition is also relatively 3. Third, Driving Smart Initiatives on Cost Effectiveness, which is to optimize costs by emphasizing organizations, systems low because fixed broadband service providers require and business processes that are more streamlined and draw relatively high capital expenditure. on the capabilities of the group to improve profitability. In the Wholesale & International Business segment, the With good execution of these programs, we believe that in 2019 Company has successfully completed the construction of the the Company will be able to grow above the industry average. Indonesia Global Gateway (IGG) submarine cable project which stretches for approximately 5,400 km, connecting the South 38 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCHANGES IN THE BOARD OF DIRECTORS DURING 2018 We also express our highest appreciation to the management and all employees for their dedication and hard work in these challenging times. Going forward, we invite all management In 2018, the composition of the Board of Directors and Board of and employees to work harder and smarter to achieve better Commissioners changed. On April 20, 2018 Mr. Mas’ud Khamid, performance in the future. Director of Consumer Service, was appointed as Director at Pertamina. At the Annual General Meeting of Shareholders Our Company performance and achievements throughout (AGMS) for 2017 Financial Year dated April 27, 2018, Ms. Siti 2018 are comprehensively conveyed in this Annual Report Choiriana was appointed as Director of Consumer Service book including the Consolidated Financial Statements and replacing Mr. Mas’ud Khamid. the Financial Statements for the Partnership Program and Community Development Management Center for 2018 Fiscal With the abovementioned changes, the composition of the Year which have been audited by the Public Accounting Firm Board of Directors of the Company as of December 31, 2018 is Purwantono, Sungkoro & Surja (member firm of Ernst & Young therefore as follows: Global Limited) with an unqualified opinion for the Consolidated Financial Statements in all material respects. Jakarta, April 30, 2019 Alex Janangkih Sinaga President Director Alex Janangkih Sinaga : President Director Harry Mozarta Zen : Director of Finance David Bangun : Director of Digital and Strategic Portfolio Dian Rachmawan : Director of Enterprise and Business Service Abdus Somad Arief : Director of Wholesale and International Service Herdy Rosadi Harman : Director of Human Capital Management Zulhelfi Abidin : Director of Network and IT Solution Siti Choiriana : Director of Consumer Service We express our deepest gratitude and highest appreciation to the members of the Board of Directors who have ended their term of service in the Company for all their contributions. May they be able to carry out their best mandates in their new positions. At this opportunity, on behalf of the Board of Directors, we also express our highest gratitude and appreciation to shareholders, the Board of Commissioners, loyal customers, business partners and other stakeholders, for the support provided to the Company throughout 2018. 39 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789STATEMENT OF THE MEMBER OF BOARD OF COMMISSIONERS REGARDING WITH RESPONSIBILITY FOR PT TELKOM INDONESIA (PERSERO) TBK 2018 ANNUAL REPORT We the undersigned hereby declare that all the information in the PT Telkom Indonesia (Persero) Tbk 2018 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 30, 2019 Board of Commissioners Hendri Saparini President Commissioner Edwin Hidayat Abdullah Commissioner Rinaldi Firmansyah Commissioner Isa Rachmatarwata Commissioner Margiyono Darsasumarja Independent Commissioner Pamijati Pamela Johanna Waluyo Independent Commissioner Cahyana Ahmadjayadi Independent Commissioner Hadiyanto Commissioner (served until April 27, 2018) Dolfie Othniel Fredric Palit Independent Commissioner (served until September 20, 2018) STATEMENT OF THE MEMBER OF BOARD OF DIRECTORS REGARDING WITH RESPONSIBILITY FOR PT TELKOM INDONESIA (PERSERO) TBK 2018 ANNUAL REPORT We the undersigned hereby declare that all the information in the PT Telkom Indonesia (Persero) Tbk 2018 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 30, 2019 Board of Directors Alex Janangkih Sinaga President Director Harry Mozarta Zen Director of Finance David Bangun Director of Digital & Strategic Portfolio Dian Rachmawan Director of Enterprise and Business Service Abdus Somad Arief Director of Wholesale & International Service Zulhelfi Abidin Director of Network & IT Solution Herdy Rosadi Harman Director of Human Capital Management Siti Choiriana Director of Consumer Service Mas’ud Khamid Director of Consumer Service (served until April 20, 2018) 03 ABOUT TELKOM 44 46 48 50 56 58 66 74 78 80 87 89 91 Vision, Mission, and Strategy Telkom Milestone Business Activities Awards and Certifications Telkom Organizational Structure Profile of the Board of Commissioners Profile of the Board of Directors Telkom Employees Shareholders Composition Subsidiaries, Associated Companies, and Joint Ventures Chronology of Stocks Registration Chronology of Other Securities Registration Name and Address of Institutions and/or Supporting Capital Market Profession 42 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report The Telkom Hub, is a TelkomGroup office area as a Center of Excellence and Source of Inspiration to Build Digital Indonesia. 43 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789VISION, MISSION, AND STRATEGY Transform and Digitize VISION “Be the King of Digital in the Region” “Be the King of Digital in the Region” is Telkom’s vision with the aim of becoming one of the 10 (ten) Asia Pacific companies with the largest market capitalization in the telecommunications industry in 2020. To realize this vision, there are 3 main programs implemented during 2018, namely Delivering Best Customer Experience, Expanding Digital Business and Intensifying Smart Inorganic. Telkom transformed towards a digital telecommunication company with a paradigm of increasing customer experience, strengthening broadband and digital businesses and implementing lean operations. Increased customer experience is done by formulating experience in each customer journey to understand customer needs earlier and deliver services beyond their expectations. The increase in broadband and digital business is done by presenting reliable and high-quality broadband services, supported by innovative digital services in accordance with lifestyle developments and customer expectations. While lean operations are implemented to streamline digital processes supported by organizations and leadership that have an effective, agile and collaborative digital culture. MISSION “Lead Indonesian Digital Innovation and Globalization” Telkom’s mission is “Lead Indonesian Digital Innovation and Globalization”, where Telkom is a pioneer of innovation in Indonesia to become a leading global player. Telkom was active in developing digital ecosystems that encourage various innovations and enhance the competitiveness of the digital industry in Indonesia. STRATEGIC OBJECTIVE Top 10 Market Capitalization Telco in Asia Pacific by 2020 and maintain its stronghold position 44 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportIn realizing this vision and mission, Telkom carries out a competitive growth strategy through innovation in business models, value chains and digital technology. Telkom is engaged in a TIMES portfolio focusing on the customer value of all customer segments. To realize this strategy, 10 strategic initiatives have been formulated with the acronym “Digital Now”. Defend legacy and lay digital foundation Grow adjacent digital portfolio Expand Internationally Transform operating model and realize synergies 1 2 3 4 5 6 7 8 9 D I G I T A L N O Defend and sustain the leading mobile position Ignite Indonesia into a broadband nation Grow Enterprise business through digital ecosystem Invest in smart platform & intensify digital services expansion Transform into a global ‘hub’ for world wide digital ecosystem Acquire capabilities and maximize value through digital and telecom A&A Localize technology businesses through innovation and investment Navigate major operating and organizational model transformation Optimize synergies across the TelkomGroup and SOE 10 W World-class people and culture 45 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789TELKOM MILESTONE Telkom was established in 1965 when the Government separated postal and telecommunications services by dividing the Postel PN into the State Pos Giro Company (PN Pos & Giro) and the State Telecommunications Company (PN Telekomunikasi). In its journey, the company underwent several changes until in 1995, Telkom became a public company listed on Indonesia Stock Exchange (IDX) and New York Stock Exchange (NYSE). Throughout the 2000s, along with the development of Over the Top Application (OTT) or internet-based digital applications, Telkom started its transformation journey to face digital disruption through various approaches, including changing product portfolios to build customer centric organizations and developing infrastructure networks that support digital businesses. Furthermore, Telkom expanded its business to find new sources of growth. The current transformation and expansion shows Telkom’s commitment in facing disruptive competitive growth and becoming one of the largest digital telecommunication companies in the Asia Pacific. 2018 On August 7, 2018, Merah Putih Satellite was launched from Cape Canaveral Air Force Station, Orlando, Florida, United States. The Merah Putih Satellite carries 60 transponders that reach Southeast Asia and South Asia. Inauguration of The Telkom Hub in November 2018, as the Center of Excellent and Source of Inspiration to Build Digital Indonesia. completed the In December 2018, Telkom Indonesia Global Gateway construction of the (IGG) submarine cable, which connects two major submarine cable systems, namely South East Asia- Middle East-Western Europe 5 (SEA-ME-WE 5) and Southeast Asia-United States (SEA-US) Submarine Cable Systems. IGG is also planned to connect 12 major cities in Indonesia among others between Batam, Jakarta, Surabaya and Manado. The number of IndiHome customers has reached 5.1 million subscribers as of December 31, 2018. 2017 2016 2015 • The Telkom 3S satellite was launched. Completed the contruction of the Telkom launched IndiHome packages • Completed the submarine fiber optic cable of Southeast Asia-United States submarine cable systems Southeast consisting of broadband internet, fixed Asia-Middle East-Western Europe 5 wireline phone and interactive TV (SEA-US). • Telkomsel obtained additional 30 MHz spectrum at 2.3 GHz frequency. (SEA-ME-WE-5). services. 46 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 2014 2011 2010 Telkom became the first operator in The reformation of our Telkom completed the JaKaLaDeMa Indonesia to commercially launch 4G/ telecommunications infrastructure submarine fiber optic cable project. LTE services. through the completion of the Telkom Nusantara Super Highway project, as well as the True Broadband Access project to provide internet access with a capacity of 20 Mbps to 100 Mbps to customers throughout Indonesia. 1991-1995 1999 2005 Government Regulation No. 25 of Telkom launched the Telkom-1 satellite. Telkom launched the Telkom-2 satellite. 1991 stipulates that as a state-owned enterprise (SOE) became Persero. On May 26, 2018, Telkom build subsidiaries, Telkomsel, as a cellular operator. Telkom made its initial public offering on November 14, 1995, on the Jakarta Stock Exchange and the Surabaya Stock Exchange (which has since become an Indonesia Stock Exchange). Telkom also registered shares on the NYSE and LSE, and openly offered shares without listing on the Tokyo Stock Exchange. 1974 1965 PN Telekomunikasi was turned into Perusahaan Umum The Government separated postal and Telekomunikasi Indonesia (Perumtel), which provided telecommunications services by dividing PN Postel into domestic and international telecommunications services, and Perusahaan Negara Pos dan Giro and Perusahaan Negara subsequently spun-off PT Industri Telekomunikasi Indonesia, Telekomunikasi (PN Telekomunikasi). which manufactured telecommunications equipment, into an independent company. 47 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 BUSINESS ACTIVITIES BUSINESS ACTIVITIES BASED ON TELKOM’S ARTICLES OF ASSOCIATION The last version of the Articles of Association of PT Telkom Indonesia (Persero) Tbk No.35 dated May 15, 2018, stipulates the purpose and objective of Telkom, which is to conduct business in the telecommunication network and service, informatics and optimization the utilization of Company’s resources to produce high quality goods and/or services with strong competitiveness to gain/pursue profits to increase value The Company applies the principle of Limited Company. In correlation with the purpose and objective, Telkom’s business activities include: Main Businesses Supporting Businesses 1. Planning, building, providing, developing, operating, marketing/ 1. Providing payment transaction and money transfering selling/leasing and maintaining telecommunication and services through telecommunication and informatics networks. informatics networks to the widest extent in accordance with prevailing laws and regulations. 2. Performing and other activities and undertaking inconnection with the optimization of resources owned which, among 2. Planning, developing, providing, marketing/selling and other things, the utilization of properties and equipments and improving telecommunication and informatics services moveable assets, information system facilities, education to the widest extent in accordance with prevailing laws and training facilities, maintenance and repair facilities. and regulations. 3. Investing, including equity capital, in other companies whose communication or technology resources owned by businesses align with, and in order to achieve, our purposes other parties as a service provider in the information, and objectives. communication and technology industry, in order to realize 3. Collaborating with other parties to optimize the information, purposes and objectives. 48 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportPORTFOLIO, PRODUCT AND/OR SERVICE In general, Telkom’s business activities are in line with the articles of association, that is the provision of telecommunications, informatics and network services. Telkom has divided these activities into various business segments in accordance with the strategy of digital transformation and the development of the telecommunications industry. Currently, Telkom has portfolio products as follows: Portfolio Products and Services Fixed Mobile • Fixed Voice • Fixed Broadband • Mobile Legacy (voice & SMS) • Mobile Broadband • Digital Service Network Infrastructure • Satellite • Tower • Infrastructure and Network Management Wholesale and International • Wholesale Telecommunications Services • International Services Enterprise Digital Digital Life and Smart Platform • Enterprise Connectivity • Device and Hardware • Data Center and Cloud • IT Service • Business Process Outsourcing (BPO) Service • Professional and Advanced Service • Digital Advertising • Financial Services • Video/TV • E-Commerce • Digital Life & Life Content • Big Data & Smart Platform Technological developments have caused Telkom’s production equipment to no longer require large space. The smaller space of these devices results in idle assets and space that can be utilized to provide maximum benefits for the TelkomGroup. In 2018 Telkom focused and intensively initiated the leverage asset program. Telkom divides leverage asset into two categories based on cooperation partners, namely Synergy Group (Internal group customer) where this utilization is to produce cost efficiency and the Strategic & Retail Partnership (external group customer) aims to obtain revenue from idle assets, Telkom offers services such as property development, property rental, property facilities, and property management managed by a subsidiary, PT Graha Sarana Duta (Telkom Property). 49 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789AWARDS AND/OR CERTIFICATIONS AWARDS FEBRUARY 20 February 20 Top Brand Award IndiHome received Top Brand in category of Internet Service Provider Fixed in the Top Brand Award By: Frontier & “Marketing” Magazine February 23 Indonesia CSR Award II Telkom received award in Platinum category with a score of 99.25 as a Public Company Implementing the Principles of CSR By: Economic Review, Indonesia Asia Institute February 24 The 13th SRA 2017 Telkom won 1st place in the Infrastructure category By: NCSR+ SWA MARCH March 02 Indonesia Corporate Secretary & Corcomm Award 2018 With a score of 95.00, Telkom won 1st place in category of Public Listed Company and received a Platinum Award By: Economic Review March 22 Best CEO Obsession Award Alex Janangkih Sinaga as a President Director of Telkom received award as Best Achiever in CEO SOE dan Telkom as Best Achiever By: Obsession Media Group March 23 Most Innovative Business Award Telkom received award as the best company for Product Innovation and Marketing in the Telecommunications Sector By: “Warta Ekonomi” Magazine March 29 PR Indonesia Award Telkom received award in category of most popular in Media, Corporate and Marketing PR By: PR Indonesia Magazine 02 22 23 50 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report12 April 25 Info Bank 7th Digital Brand Awards Telkom received 3rd place in SOE Category By: Info Bank Magazine 04 APRIL April 12 Asia’s Best Companies 2018 - Indonesia Telkom received award in 6 categories that is Best Managed Companies (2nd place), Best CEO (2nd place), Best CFO (2nd place), Best Investor Relation (2nd place), Best Corporate Social Responsibility (2nd place) and Best Commitment to Corporate Governance (3rd place) By: Finance Asia April 25 Revolusi Mental BUMN Track Award Telkom received several awards including Best of the Best SOE, receive Gold in category “Indonesia Melayani Terbaik” and received Silver in category “Indonesia Bersih Terbaik” By: BUMN Track Magazine MAY May 04 HR Asia Telkom received the predicate of Best Company to Work for in Asia 2018 in Business Media Internasional By: HR Asia Magazine May 31 Indonesia Top 100 Most Valuable Award Telkom received the 1st place on the Most Valuable Indonesian Brands 2018 with US$5,168 Million Brand Value & AAA Brand Rating By: Brand Finance & SWA Magazine May 03 Selular Award 2018 Telkom received award as the Best Social Contribution Program and Best Home Internet By: selular.id 01 JUNE June 01 Asia Pacific Stevie Award 2018 Telkom was crowned as the Organization of the Year by winning 56 Awards including 14 Gold, 30 Silver and 12 Bronze By: Stevie International June 08 Asia Excellence Award Telkom received award as Asia’s Best CEO, Asia’s Best CFO and Best Investor Relation Company (Indonesia) By: Corporate Governance Asia 51 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights12345678911 JULY July 11 Sri Kehati Appreciation 2018 Telkom received appreciation as #20 Kehati Appreciation By: SWA & Kehati July 11 The Special Achievement in GIS (SAG) Award Ceremony Telkom received award as Special Achievement in GIS By: ESRI User Conference AUGUST August 15 Asia Pacific ICT Award Telkom crowned as Telecom Service Provider of the Year and Telecom CEO of the Year By: Frost and Sullivan 06 August 06 Tempo Country Contributor Award Telkom is ranked in the Top 3 in the Infrastructure, Utility and Transportation Sector By: “Tempo” Magazine August 15 Indonesia Original Brand Award 2018 Telkom received award as 007 Product Category SLI IndiHome received award in category of Product Fixed Broadband By: Bussiness Digest and SWA SEPTEMBER September 25 Social Media Award Telkom received award in category of Internet Service Provider Fixed By: Marketing Magz + Media Wave September 26 9th BUMN Awards Telkom received a Special Award as the Largest Tax Payer and a very good predicate SOE for five consecutive years By: Info Bank Magazine 04 September 04 Asia Pacific HRM Congress Awards 2018 Abdus Somad Arief as a Director of Wholesale and International Service received award as Exemplary Leader By: TIMES Ascent 52 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report24 14 23 November 13 Economic Challenges Award 2018 Telkom won Infrastructure category By: Metro TV OCTOBER October 19 IPRA Golden World Awards for Excellence 2018 Music Campaign for Indonesia received the IPRA Golden World Award in category of Inhouse Social Media By: International Public Relations Association October 24 Indonesia Best Brand Award Telkom received award as Indonesia Best Brand By: CMO Asia NOVEMBER November 14 ASEAN Engineering Award 1. Director of Digital and Strategic Portfolio received award “Honorary Member” from the ASEAN Federation of Engineering Organisations 2018 2. Director of Wholesale and International Service received award “Honorary Fellow” from the ASEAN Federation of Engineering Organisations 2018 3. Telkom received award as ASEAN Outstanding Engineering Achievement Award 2018 for its success in completing the Merah Putih satellite project to provide high-speed Broadband and Links in reaching out of internet users in regions especially East Indonesia 4. Telkom received award as ASEAN Outstanding Engineering Achievement Award 2018 in providing high-speed Broadband and Links using the Under Water FO Cable System along the island of Sulawesi, Maluku, to Papua By: Persatuan Insinyur Indonesia (PII) November 23 Apresiasi Indonesia Untuk BUMN Telkom won 4 awards including Palu and Donggala Saviors: Quick Emergency Response in Telecommunication Infrastructure Recovery, SOE Disaster Rescue, Popular SOE in the Information and Telecommunications Sector and Top 5 SOE in Innovation By: Warta Ekonomi 53 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789DECEMBER December 06 Top IT & Telco Award IndiHome received Top Fixed Internet Provider 2018 By: “itWorks” Magazine December 10 The 10th IICD Award 2018 Telkom received the Best SOE and Top 50 Big Capitalization Public Listed Company By: IICD and Kontan December 13 Digital Inclusion Award 2018 Telkom received award in category of Established Company By: Mastel December 19 Investor Award (Tokoh Finansial Indonesia) Telkom received appreciation as the best SOE 2018 in the Non- Financial of Telecommunications & Broadcasting Sector By: “Investor” Magazine 06 19 December 03 IDX Appreciation 2018 Telkom as a Public Company listed the Best Shares in the category of Market Capitalization Above Rp10 Billion By: IDX, KPEI, KSEI December 06 Mobile DNA Awards 2018 IndiHome won the Gold Winner in category of Provider Internet Broadband. By: Markplus INC 54 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCERTIFICATIONS Telkom has various certifications as a form of commitment to provide the best services for customers and implement international standards. Following is the list of Telkom’s certifications and ISO: Certificate Institution Validity Period SNI ISO/IEC 27001:2013 ISO 9001:2015 QMS ISO 27001:2013 ISMS ISO 22301:2012 BCMS TUV Rheinland TUV Rheinland TUV Rheinland TUV Rheinland ISO 20000-1:2011 ITSMS TUV Rheinland ISO 17025:2008 Komite Akreditasi Nasional 2016 ISO 17025:2008 Komite Akreditasi Nasional Year 2018 2018 2018 2018 2018 2016 2013 2014 2015 2015 2015 2015 2016 2018 2016 2017 2014 2014 2016 2016 2016 2017 2018 2016 2018 2018 2016 2016 2016 2016 No Recipient 1. Telkom 2. 3. 4. 5. 6. 7. 8. Laboratorium Penguji (Digital Service Division) Laboratorium Kalibrasi (Digital Service Division) Telkomsel Telkom Infra TelkomMetra Metrasat AdMedika 9. MD Media 10. 11. 12. Infomedia Finnet Telkomsigma 13. Telin 14. Telin Singapore 15. 16. Graha Sarana Duta Telkomsat 17. Telkom Akses 18. PINS 19. SSI Note: *) Update process every year. ISO/IEC 27001:2013 Bureau Veritas Certification ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 ISO 9001:2008 TUV-NORD URS International TUV Rheinland TUV Rheinland Guardian Independent Certification (GIC) ISO/IEC 27001:2013 British Standards Institution (BSI) IT IL Foundation Certificate in IT Service Management IT IL Foundation ISO 27001:2013 ISO/IEC 27001:2005 EMS ISO 14001 TUV NORD Indonesia TUV Rheinland British Standard Institution (BSI) Oracle Platinum Partner Oracle Health & Safety Certification British Standards Institution (BSI) Integrated Management System Certification PAS 99:2012 British Standards Institution (BSI) ISO 27001 British Standards Institution (BSI) Payment Card Industry Data Security TUV Rheinland ISO 27001:2013 ISO 20000-1:2011 ISO 27000-1:2013 ISO 20000-1:2011 Bureau Veritas Indonesia PT SGS Intertek Intertek Tier III Data Center Certification Uptime Institute Tier IV Data Center Certification Uptime Institute ISO 9001:2015 ISO 9001:2008 2017 OHSAS 18001:2007 LLOYD Register TUV Rheinland Cert GmbH Am Grauen Stein – 51105 KoIn TUV Rheinland Cert GmbH Am Grauen Stein – 51105 KoIn 2017 2017 2016 2018 2018 2017 ISO9001:2015 British Standards Institution (BSI) OHSAS 18001:2007 British Standards Institution (BSI) CIQS 2000:2009 ISO 9001:2015 TPCC URS Services Indonesia Renewal Gold Certified Partner CISCO ISO 9001 : 2015 Lioyd’s Register LRQA 2021 2021 2021 2021 2021 2019 2019 2019 *) 2018 2018 2018 2018 2019 NA 2019 2020 2019 2019 2019 2019 2019 2019 2021 2019 2019 2021 2018 2019 2019 2018 2020 2019 2019 2019 2019 *) 2020 55 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789TELKOM ORGANIZATIONAL STRUCTURE Telkom’s organizational structure as of December 31, 2018. President Director (Alex Janangkih Sinaga) Director of Enterprise & Business Service (COO) (Dian Rachmawan) Director of Consumer Service (CRO) (Siti Choiriana) Director of Wholesale & International Service (Abdus Somad Arief) Director of Network, IT & Solution (Zulhelfi Abidin) Director of Digital & Strategic Portfolio (David Bangun) AVP Secretary of Directorate EBIS AVP Secretary of Directorate CONS AVP Secretary of Directorate WINS AVP Secretary of Directorate NITS VP Enterprise Planning Strategy (Yusron Hariyadi) VP Planning & Resource Mgt (Suarjaya Alit Mandala) VP Strategy & Planing (Mohamad Ramzy) VP Infrastructure Strategy & Governance (Era Kamali Nasution) VP Enterprise Business Development (Dudy Effendi) VP Marketing Management (Aulia E. Marinto) VP Traffic Production & Solution (Tri Nugroho BW) VP IT Strategy & Governance (Rizal Akbar) VP Enterprise Parenting Operation (Bagyo Nugroho) VP Enterprise Performance Integration (Joni Heri) OVP Consumer Fulfillment (Sujito) OVP Consumer Assurance (Agus Winarno) VP Network Infastructure Production & Solution (Bastian Sembiring) VP Infrastructure & Service Performance (Admiral Dasrin) VP Infrastructure Management (Moh. Riza Sutjipto) EGM TV Video Division (Anak Agung Gede Mayun Wirayuda) EVP Wholesale Service Division (Priyono) EVP Enterprise Service Division (Judi Achmadi) EVP Business Service Division (Tri Gunadi) EVP Government Service Division (Mohammad Salsabil) EGM Service Operation Division (Revolin Simulsyah) EGM Service Solution Division (Abdi Mulyanta Ginting) EGM Planning & Deployment Division (M. Amperandus Simanjuntak) EGM Information Technology (Alip Priyono) AVP Secretary of Directorate DSP VP Corporate Strategic Planning (Torkis Ropinda Sihombing) SVP Portfolio & Synergy (Pramasaleh Hario Utomo) VP Integrated Portfolio Management (Saiful Hidajat) VP Synergy (Kukuh Pribadijanto) EVP Strategic Investment (Setyanto Hantoro) VP Strategic Investment Digital Telco (Yusuf Wibisono) VP Strategic Investment ICT & Services (Bhimo Aryanto) SVP Media & digital Business (Joddy Hernady) VP Media & Digital Strategy & Development (Ign. Wiseto Prasetyo Agung) VP Media & Digital Parenting & Performance (Asli Brahmana) EGM Digital Service Division Head of CX Transformation Project (Sri Safitri) 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) 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 56 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportDirector of Finance (Harry Mozarta Zen) Director of Human Capital Management (Herdy Rosadi Harman) SVP Corporate Secretary (Afriwandi) SVP Internal Audit (Harry Suseno Hadisoebroto) SVP Program Management Office (Ikhsan) AVP Secretary of Directorate KEU AVP Secretary of Directorate HCM VP HC Strategic Management (Dharma Syahputra) VP HC Development (Dwi Heriyanto B.) VP HC Organizational Effectiveness (Danang Baskoro Dwinugroho) VP Telkom Smart Office (Ardi Purwanto) SVP Group Financial Planning Analysis & Control (Edi Witjara) VP Financial Controller CFU Consumer, WIB & Digital Service (Irphan Wijaya) VP Financial Controller CFU Enterprise (Devindra Kamal) VP Corporate Finance (Siti Rakhmawati) VP Financial Policy & Process Management (Muchamad Noor Hidayat) VP Investor Relation (Andi Setiawan) SGM SSO Finance Center (Fajar Wibawa) SGM SSO Procurement & Sourcing (Weriza) SGM Asset Management Center (Heru Kurniawan) Project Director Proyek T-ISCM (I Ketut Dody Wirawan) Head of SSO TelkomGroup Project (Devi Alzy) Head of IFRS Project (Martinus Wisnu Adji) SGM Assesment Center Indonesia (Teuku Zilmahram) SGM Community Development Center (Sindhu Aryanto) SGM HC Business Partner (Djonet Hartono) SGM Telkom Corporate University (Rina Djunita Pasaribu) EVP Telkom Regional VI (Edwin Aristiawan) EVP Telkom Regional VII (Aris Dwi Tjahjanto) 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 (Purwadi Siswana) VP Information Technology Audit (Rahadian Krishna Sundara) VP Integrated & Financial Audit (Agus Widjajanto) PMO Controller Team AVP PMO Planning & Design AVP Monitoring & Reporting AVP Communications & Supporting PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 57 PROFILE OF THE BOARD OF COMMISSIONERS MEMBER OF THE BOARD OF COMMISSIONERS AS OF DECEMBER 31, 2018 Born Age Citizenship Domicile Educations 1988 1997 1999 : Kebumen, June 16, 1964 : 54 years old : Indonesian : Jakarta Bachelor degree in Economics from Gadjah Mada University. Master in International Development Policy from University of Tsukuba, Japan. Doctoral degree in International Political Economy from University of Tsukuba, Japan. Basis of Appointment Extraordinary General Meeting of Shareholder (EGMS) of Telkom on December 19, 2014. Career Experiences 2016 – now 2015 – now 2014 – now 2009 – now 2013 – 2016 Member of National Economic and Industry Committee (KEIN). Chair of the SOE policy committee. Member of the OJK sharia financial services development committee. Guest Lecturer at LAN, Lemhanas and various Government Institutions. Founder and Executive Director, CORE Indonesia. Born Age Citizenship Domicile Educations 1985 1988 2014 : Tanjung Pinang, June 10, 1960 : 58 years old : Indonesian : Jakarta Bachelor degree in engineering from Bandung Institute of Technology. Master of Business Administration from Indonesian Institute of Management Development (IPMI) Jakarta. Doctoral degree in Management from Padjadjaran University, Bandung. Basis of Appointment Annual General Meeting of Shareholder (AGMS) of Telkom on April 17, 2015. Career Experiences 2016 – now 2014 – now 2015 2013 – 2016 2013 – 2016 2007 – 2012 2004 – 2007 Advisory Board Member, Daestrum Capital. Commissioner, PT Elnusa Tbk. Commissioner, PT Indosat Tbk. Commissioner, PT Bluebird Tbk. President Commissioner, PT PLN Batam. CEO, Telkom. CFO, Telkom. Hendri Saparini President Commissioner Rinaldi Firmansyah Commissioner 58 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Edwin Hidayat Abdullah Commissioner Born Age Citizenship Domicile Educations 1995 2005 : Jakarta, April 28, 1971 : 47 years old : Indonesian : Jakarta Bachelor degree in Economic from Gadjah Mada University, Yogyakarta. Master of Public Management from Lee Kuan Yew School of Public Policy, NUS (in Cooperation with Kennedy School of Government), Harvard University in Singapore and United States. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 27, 2018. Career Experiences 2018 – now 2016 – now 2016 – 2018 2015 – 2016 2004 – 2015 President Commissioner, PT Icon+. Deputy for Energy, Logistics, Regions and Tourism Business. Commissioner, PT Pertamina. Commissioner, PT Telkomsel. Independent Commissioner, PT Bumi Serpong Damai Tbk. Isa Rachmatarwata Commissioner Born Age Citizenship Domicile Educations 1990 1994 : Jombang, December 30, 1966 : 52 years old : Indonesian : Jakarta Bachelor degree in Mathematics and Natural Sciences from Bandung Institute of Technology. Master of Mathematic Actuarial Science, University of Waterloo, Canada. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 27, 2018. Career Experiences 2017 – now 2013 – 2017 2013 2006 – 2012 Director General of State Assets Management, Ministry of Finance. Assistant of Minister for Financial Services and Capital Market Policy and Regulation. High Official at the Fiscal Policy Agency, Ministry of Finance. Head of Insurance Bureau, Indonesian Capital Market and Financial Institution Supervisory Agency (BPPMLK), Ministry of Finance. 59 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 Margiyono Darsasumarja Independent Commissioner Born Age Citizenship Domicile Educations 2008 2012 : Klaten, September 14, 1976 : 42 years old : Indonesian : Jakarta Bachelor degree in Law from University of Indonesia. Master degree in Cyber Law from the School of Law University of Leeds. Basis of Appointment Annual General Meeting of Shareholder (AGMS) of Telkom on April 17, 2015. Career Experiences 2012 – 2015 2012 – 2014 2001 – 2011 Coordinator of Advocacy and Partnership for Government Reform of the Bureaucracy reform Project. Lecturer in Law and Media Ethics, Bakrie University. Media Development Manager at Voice of Human Rights (VHR) Media. Cahyana Ahmadjayadi Independent Commissioner Born Age Citizenship Domicile Educations 1980 2004 2010 : Garut, July 12, 1955 : 63 years old : Indonesian : Bandung Bachelor degree in industrial engineering from Bandung Institute of Technology. Master degree in Law of Technology/Business from University of Padjajaran, Bandung. Doctoral degree in Cyber Law from University of Padjajaran, Bandung. Basis of Appointment Annual General Meeting of Shareholder (AGMS) of Telkom on April 21, 2017. Career Experiences 2010 – 2013 2011 2006 2005 2002 1993 Commissioner, PT Bank Mandiri (Persero) Tbk. Expert staff, Ministry of Communication and Informatics. Founder Pengelola Nama Domain Internet Indonesia (PANDI). Director General of Telematics Application, Ministry of Communication and Informatics. Deputy for Communication & Infrormation Network, Ministry of Communication and Informatics. Head of Telkom Regional V Division, West Java. 60 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Pamijati Pamela Johanna Waluyo Independent Commissioner Born Age Citizenship Domicile Educations 1983 : Jakarta, June 20, 1958 : 60 years old : Indonesian : Tangerang Master degree from the University of Tech. Delft, Netherlands. Basis of Appointment Annual General Meeting of Shareholder (AGMS) of Telkom on April 17, 2015. Career Experiences 2014 – 2015 2006 – 2014 2000 – 2006 Director of Corporate Marketing, Obession Media Group. Assistant Director of Sales and Marketing, Metro TV. Corporate Public Relations, Metro TV & Media Group. 61 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 MEMBER OF THE BOARD OF COMMISSIONERS ENDED IN 2018 Born Age Citizenship Domicile Educations 1986 1993 2012 : Ciamis, October 10, 1962 : 56 years old : Indonesian : Bogor Bachelor degree in Law from Padjadjaran University, Bandung. Master of Law (LLM) from Harvard University Law School, USA. Doctoral degree in Law from Padjadjaran University, Bandung. Basis of Appointment Annual General Meeting of Shareholder (AGMS) of Telkom on May 11, 2012. Career Experiences 2006 – 2016 2007 – 2012 2007 – 2009 2005 – 2006 2003 – 2005 Director General of State Asset of the Ministry of Finance. President Commissioner, PT Garuda Indonesia Tbk. President Commissioner, PT Bank Export Indonesia. Head of the Legal of Secretariat General of the Ministry of Finance. Alternative Executive Director, World Bank. Born Age Citizenship Domicile Educations 1995 : Kijang, Kepulauan Riau, October 27, 1968 : 50 years old : Indonesian : Jakarta Bachelor degree from Bandung Institute of Technology. Basis of Appointment Extraordinary General Meeting of Shareholder (EGMS) of Telkom on December 19, 2014. Career Experiences 2012 – 2014 2009 – 2014 2011 2010 2004 – 2009 2001 – 2003 Member of Budget Committee, Indonesian House of Representative. Member, Indonesian House of Representative. Special Committee of the Law, the Healthcare and Social Security Agency (BPJS). Member, Special Committee for the Prevention and Combating Money Laundering. Executive Director, Strategic Consultacy Institute for Research on Policy and Regional Autonomy (REKODE). Executive Director, Bumi Indonesia Hijau Foundation. Hadiyanto Commissioner Dolfie Othniel F. Palit Independent Commissioner 62 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report EDUCATION, TRAINING, SEMINAR, AND CONGRESS To improve the competence of the members of the Board of Commissioners, Telkom provides an opportunity for members of the Board of Commissioners to attend education and training throughout 2018. Commissioner Name Education/Training/Seminar/Congress Time Place Hendri Saparini Mobile World Congress 2018 February 26 – March 2, 2018 Barcelona, Spain Strategic Discussion on Global Telco Industry Meeting with Softbank and NEC Socialization of Integrated Talent Management System (Ministry of SOE) July 4, 2018 Jakarta, Indonesia July 17-21, 2018 August 1, 2018 Japan Jakarta, Indonesia EduTech Asia 2018 October 8-10, 2018 Singapore Rinaldi Firmansyah Mobile World Congress 2018 February 26 – March 2, 2018 Barcelona, Spain Asia Pacific Risk Symposium Strategic Discussion on Global Telco Industry June 6, 2018 July 4, 2018 Singapore Jakarta, Indonesia Meeting with Softbank and NEC July 17-21, 2018 ICT, Consumer’s Integration and Industry 4.0 September 14, 2018 Japan Singapore Association for Financial Professional November 4-7, 2018 Chicago, USA Edwin Hidayat Abdullah Isa Rachmatarwata Strategic Discussion on Global Telco Industry Strategic Discussion on Global Telco Industry July 4, 2018 Jakarta, Indonesia July 4, 2018 Jakarta, Indonesia Factory and Research Visit September 9-11,2018 Shenzhen, China Margiyono Darsasumarja Bali Annual Telkom Conference (BATIC) 2018 April 3-6, 2018 Asia Pacific Risk Symposium Strategic Discussion on Global Telco Industry June 6, 2018 July 4, 2018 Bali, Indonesia Singapore Jakarta, Indonesia Factory and Research Visit September 9-11, 2018 Shenzhen, China RIMS Cyber Risk Annual Conference September 22-25, 2018 San Diego, USA Cahyana Ahmadjayadi Mobile World Congress 2018 February 26 – March 2, 2018 Barcelona, Spain Pamijati Pamela Johanna Waluyo Strategic Discussion on Global Telco Industry July 4, 2018 Jakarta, Indonesia Meeting with Softbank and NEC July 17-21, 2018 Japan The IRES - 506th International Conference on E-Education, E-Business, E-Management and E-Learning The discussion of knowledge update on the development of fixed broadband service in Europe Strategic Discussion on Global Telco Industry December 9-10, 2018 Kyoto, Japan February 21-24, 2018 Athena, Greece July 4, 2018 Jakarta, Indonesia EduTech Asia 2018 October 8-10, 2018 Singapore 63 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789COMMISSIONER AFFILIATION RELATIONSHIPS In accordance with the principle of transparency in the implementation of good corporate governance or GCG, Telkom discloses the affiliation of members of the Board of Commissioners with fellow Commissioners, Directors and major and controlling shareholders, including the names of affiliated parties. Financial Relationship with Family Relationship with Board of Commissioners (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 Rinaldi Firmansyah Edwin Hidayat Abdullah Isa Rachmatarwata Margiyono Darsasumarja Cahyana Ahmadjayadi Pamijati Pamela Johanna Waluyo Hadiyanto* Dolfie Othniel Fredric Palit ** √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Remarks: (1) The controlling shareholder in this matter is the Government of Indonesia represented by the Minister of SOE as a primary shareholder. * No longer in position since April 27, 2018. ** No longer in position since September 20, 2018. STATEMENT OF INDEPENDENCE Telkom requires Independent Commissioners to sign a Statement of Independence for Independent Commissioner when Independent Commissioner has served for more than 2 (two) periods. Until now, the drafting of this report, Telkom’s Independent Commissioners have served since 2015 and 2016 so as not to serve more than 2 (two) periods. 64 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Reportg n a t n e T i a s e n o d n I m o k l e T The coherency of IndiHome technicians is part of the broadband connections distribution in Indonesia. 65 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 PROFILE OF THE BOARD OF DIRECTORS THE DIRECTORS AS OF DECEMBER 31, 2018 Alex Janangkih Sinaga President Director Harry Mozarta Zen Director of Finance Born Age Citizenship Domicile Educations 1986 1994 : Pematang Siantar, September 27, 1961 : 57 years old : Indonesian : Jakarta Bachelor degree in Electrical Engineering from Bandung Institute of Technology. Master degree in Telematics from the University of Surrey, Guildford-England. Basis of Appointment Extraordinary General Meeting of Shareholders (EGMS) of Telkom on December 19, 2014. Career Experiences 2012 – 2014 2007 – 2012 2005 – 2007 2002 – 2005 2002 2000 – 2002 1998 – 1999 1997 – 1998 President Director, Telkomsel. President Director, Multimedia Nusantara. Executive General Manager, Enterprise Service Division. Executive General Manager, Fixed Wireless Network Division. Senior Manager Business Performance Telkom’s Regional Division II Jakarta. General Manager Telkom West Jakarta. General Manager Telkom West Surabaya. General Manager Telkom Malang. Born Age Citizenship Domicile Educations 1993 1996 : Tanjung Pinang, January 9, 1969 : 49 years old : Indonesian : Jakarta Bachelor degree in Metallurgy of Faculty of Engineering, University of Indonesia. MBA in Corporate Finance and Financial Institutions & Market from the State University of New York, Buffalo. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 22, 2016. Career Experiences 2008 – 2015 2007 – 2008 2001 – 2007 1996 – 2001 1993 – 1994 President Director, PT Credit Suisse Securities Indonesia. Director, Barclays Capital. Co-Head Investment Banking, PT Bahana Sekuritas. Assistant Vice President Global Corporate Banking, Citibank. Official Assistant Global Consumer Banking, Citibank. 66 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report David Bangun Director of Digital & Strategic Portfolio Born Age Citizenship Domicile Educations 1989 1999 : Bandung, September 5, 1965 : 53 years old : Indonesian : Bandung Bachelor degree in Engineering from the Bandung Institute of Technology. Master of Engineering in Electrical Engineering from Cornell University New York, USA Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Career Experiences 2014 – 2017 2013 – 2014 2011 – 2014 2011 – 2013 2009 – 2011 2007 – 2009 President Director, PT Dayamitra Telekomunikasi (Mitratel). Executive General Manager Network of Broadband. Commissioner, PT Telekomunikasi Indonesia International (Telin). Executive General Manager, Infratel. Vice President Infrastructure & Service Planning. Assistant Vice President Investment Analysis. Dian Rachmawan Director of Enterprise & Business Service Born Age Citizenship Domicile Educations 1987 1994 : Surabaya, May 14, 1964 : 54 years old : Indonesian : Bogor Bachelor degree in Electro and Telecommunication Engineering from Surabaya Institute of Technology. Master degree in Communication and Real Time System, Telecommunication Engineering from University of Bradford, England. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Career Experiences 2014 – 2017 2011 – 2014 2007 – 2011 2005 – 2007 2004 – 2005 2001 – 2004 2000 – 2001 Director of Consumer Service, Telkom. CEO, PT Telekomunikasi Indonesia International (Hong Kong) Limited. Director of Network Operation & Engineering Business & Partnership Development, Telin. Executive General Manager Division of Fixed Wireless Network, Telkom. General Manager, Telkom South Jakarta. General Manager for Interconnection & Partnership, Telkom’s Regional Division II Jakarta. AVP Interconnection Planning, Head Quarter of Telkom 67 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 Born Age Citizenship Domicile Educations 1988 2000 : Sidoarjo, September 25, 1963 : 55 years old : Indonesian : Jakarta Bachelor degree in Electrical Engineering from Bandung Institute of Technology. Master degree in Information and Technology Systems from Bandung Institute of Technology. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Career Experiences 2018 – now 2017 – now 2015 – 2017 2015 – 2017 2014 – 2017 2015 2015 2012 – 2014 2012 – 2014 2011 – 2012 2009 – 2012 2010 – 2011 2008 – 2009 2007 – 2008 Born Age Citizenship Domicile Educations 1986 1993 1998 President Commisioner, PT Telkom Satelit Indonesia (Telkomsat). President Commisioner, PT Telkom Indonesia International (Telin). President Commisioner, PT Infrastruktur Telekomunikasi Indonesia (Telkom Infratel). President Commisioner, PT Teltranet Aplikasi Solusi (Telkom Telstra). Director of Network & IT Solution, Telkom. Commissioner, PT Sigma Cipta Caraka (Telkom Sigma). Commissioner, PT Telekomunikasi Selular (Telkomsel). Director of Network, Telkomsel. Commissioner, PT Daya Mitra Telekomunikasi (Mitratel). President Commisioner, PT Pramindo Ikat Nusantara. Executive General Manager of Enterprise Service Division, Telkom. Commissioner, PT Infomedia Nusantara. Vice President of Business Development, Telkom. Deputy Executive General Manager Enterprise Service Division, Telkom. : Bandung, June 28, 1963 : 55 years old : Indonesian : Jakarta Bachelor degree in Law from Padjajaran University, Bandung. MBA degree from the Asian Institute Management Philippines - Institute Management Telkom University. Master of Law (LLM) from American University, Washington DC, United States. Basis of Appointment Extraordinary General Meeting of Shareholders (EGMS) of Telkom on December 19, 2014. Career Experiences 2012 – 2014 2007 – 2012 2006 – 2007 2004 – 2006 Director of Human Capital Management, Telkomsel. VP Regulatory Management, Telkom. VP Legal & Compliance, Telkom. General Manager Management Support, Telkom. Abdus Somad Arief Director of Wholesale & International Service Herdy Rosadi Harman Director of Human Capital Management 68 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Zulhelfi Abidin Director of Network & IT Solution Born Age Citizenship Domicile Educations 1987 1996 : Bukittinggi, January 1, 1962 : 56 years old : Indonesian : Jakarta Bachelor degree in Informatics Engineering from Bandung Institute of Technology. Master degree in Computer Science from University of Wollongong, Australia. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Career Experiences 2017 – 2018 2015 – 2017 2014 – 2015 2012 – 2015 2007 – 2014 President Commisioner, PT Infrastruktur Telekomunikasi Indonesia. Director, BRI. Senior Executive Vice President, BRI. Commissioner, Bank BRI Syariah. Head of Information Systems Technology Division, BRI. Siti Choiriana Director of Consumer Service Born Age Citizenship Domicile Educations 1993 2005 : Magetan, May 28, 1970 : 48 years old : Indonesian : Jakarta Bachelor degree in Electrical Engineering from Surabaya Institute of Technology. Master degree in Management from Surabaya Institute of Technology. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 27, 2018. Career Experiences 2017 – 2018 2013 – 2018 2016 – 2017 2016 – 2016 2013 – 2015 2012 – 2013 2009 – 2012 2007 – 2009 Commissioner, Telkom Sigma. Executive Vice President of Enterprise Service Division, Telkom. Chief of Commissioner, Patrakom. Commissioner, AdMedika. Commissioner, Finnet. Deputy Executive Vice President of Enterprise Service Division, Telkom. General Manager Enterprise Finance & Banking of Enterprise Service Division, Telkom. General Manager Enterprise, Telkom’s Regional Division V Surabaya. 69 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 MEMBER OF THE BOARD OF DIRECTOR ENDED IN 2018 Mas’ud Khamid Director of Consumer Service Born Age Citizenship Domicile Educations 1989 : Gresik, December 12, 1964 : 54 years old : Indonesian : Surabaya Bachelor degree in Physics Engineering from Sepuluh November Institute of Technology. Basis of Appointment Annual General Meeting of Shareholders (AGMS) of Telkom on April 21, 2017. Career Experiences 2015 – 2017 2012 – 2017 2012 – 2014 2011 – 2012 2011 – 2012 2010 – 2011 2008 – 2010 2007 – 2008 Chief of Commissioner, Telkom Sigma. Director of Sales, Telkomsel. Commissioner, PT PINS Indonesia. Executive General Manager, Telkom Flexi. Commissioner, PT Metra Digital Media. Executive General Manager Telkom West Area, Telkom. Executive General Manager Telkom’s Regional Division II Jakarta. Executive General Manager Telkom’s Regional Division V East Java. 70 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report EDUCATION, TRAINING, SEMINAR, AND CONGRESS To improve the competence of the Board of Directors, Telkom provides an opportunity for each member of the Board of Directors to attend education and training throughout the 2018 financial year. Director Name Education/Training/Seminar/Congress Time Place Alex Janangkih Sinaga World Economic Forum 2018 and Indonesia Investment Day with Ministry of SOE January 23-26, 2018 Davos, Switzerland Speaker at SOE Coordination Meeting with Ministry of SOE March 12, 2018 Speaker at SOE Coordination Meeting with Ministry of SOE April 25, 2018 Bogor Solo Keynote speech at Bandung ICT Expo 2018 September 27, 2018 Bandung Speaker at SOE Coordination Meeting with Ministry of SOE October 28, 2018 Bontang Harry Mozarta Zen Speaker at 19th Malaysia-Indonesia International Conference on Economics, Management and Accounting October 17-18, 2018 Pontianak Speaker at panel discussion: Contemporary Issues of SAK Full IFRS at the XIII Congress of the Indonesian Accountants Association December 11, 2018 Jakarta David Bangun Executive Training of Strategic Merger & Acquisition June 10-15, 2018 Wharton University, USA Privat Discussion McKinsey “The Digital Archipelago: How Online Commerce is Driving Indonesia’s Economic” August 29, 2018 Jakarta Focus Group Discussion KADIN “Kebijakan Implementasi E-Logistik Menuju era 4.0” October 17, 2018 Jakarta The Conference of Asean Federation of Engineering Organization (CAFEO) Round Table Forum Kementrian Kominfo “Outlook Industri Telekomunikasi Indonesia 2019: Peluang dan Tantangan serta Kebijakan Regulasinya” November 14, 2018 Singapore December 12, 2018 Jakarta Dian Rachmawan Panel Discussion HKI : “Digital Transformation To Support Indonesia’s Fourth Industrial Revolution”. July 26, 2018 Legian – Bali Leadership Talk “Hidup di Era Digital Mulai 2020” October 25, 2018 Workshop “Inovasi & Transformasi Digital” October 31, 2018 National Seminar HKI “Mengintegrasikan Pembangunan Infrastruktur dalam Konsep Pengembangan Kawasan Industri Modern” Applied Technology Innovation National Seminar of Balikpapan National Polytechnic “Peningkatan Inovasi Teknologi Terapan dengan Strategi Bisnis Menuju Kemandirian dan Daya Saing” CX Summit 2018 : Delivering the WOW Customer Experience through Digital Transformation. Leadership Development Program Pejabat Pimpinan Tinggi Pratama, Ministry of Health. November 1, 2018 December 12, 2018 December 13, 2019 Congress of SOE IT Forum: “Tata Kelola TI dan Transformasi Digital dalam memperkuat Sinergi BUMN”. December 19, 2019 November 3, 2018 Swiss-Bel Balikpapan Auditorium Microsoft Indonesia, Indonesia Stock Exchange, Tower 2,18F BPPT Building II 2nd floor Hall A, Conference Room 3 JIEXPO Kemayoran The Ritz Carlton Mega Kuningan Jakarta. The Park Lane Hotel, South Jakarta Rafles Hotel, Mega Kuningan, Jakarta 71 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789Director Name Education/Training/Seminar/Congress Time Place Abdus Somad Arief Pacific Telecomunication Council IT Infrastucture Summit 2018 January 2018 March 2018 Bali Annual Telkom International Conference (BATIC) 2018 April 2018 Asia Pacific Satellite Conference (APSAT) 2018 July 2018 Herdy Rosadi Harman Keynote Speaker in Rakortas Directorate of HR and Law of PT Pegadaian, “Pengelolaan Human Capital pada era Transformasi”. February 7, 2018 Hawaii Jakarta Bali Jakarta Gresik Keynote Speaker in the 14th Plenary Meeting of AFEBI (Asosiasi Fakultas Ekonomi dan Bisnis Indonesia), “Mempersiapkan Fakultas Ekonomi dan Bisnis dalam menghadapi Tantangan Revolusi Industri 4.0”. Keynote Speaker in Technical Coordination Meeting of the BPK-RI HR Manager, “Tantangan Pengelola SDM di Era Digital” Keynote Speaker in Ministry of Defense, “Sharing Pengelolaan SDM” April 18-20, 2018 Pekanbaru May 2, 2018 Padang May 23, 2018 Jakarta Keynote Speaker in KPK, “Sharing Pengelolaan SDM” June 4, 2018 July 4, 2018 Jakarta Bangkalan Keynote Speaker in Nasional Seminar of Faculty of Economy and Business, Trunojoyo Madura University, “Tantangan dan peluang Fakultas Ekonomi dan Bisnis menghadapi era Digital” Keynote Speaker in Ikatan Internal Auditor (IIA) Seminar, “Managing Risk in Talent Management” Keynote Speaker in the Indonesia Compentency National Congress, “Transformasi peran praktisi SDM dalam menghadapi Revolusi Industri 4.0” Keynote Speaker in Ministry of Finance of RI’s Culture Festival, “Transformation Story: Transformasi Mindset dan Produktivitas di Era Digital” August 29, 2018 Bali November 21, 2018 Jakarta December 4, 2018 Jakarta Zulhelfi Abidin Bali Annual Telkom International Conference (BATIC) 2018 April 2018 Bali Workshop Leading 5G Innovations by ZTE April 2, 2018 Workshop Security Awarness April 19, 2018 Strategic Discussion on Global Telco Industry Update July 4, 2018 Four Season Hotel Jakarta The Westin Hotel Jakarta Telkom Landmark Tower, Jakarta Sharing and Open Discussion in the Context of Hari Kebangkitan Nasional with theme “Pemberdayaan Anak Muda di BUMN Digital” Inspiring Talk at MMT Graduation ITS with theme “How Millennials are Changing the Rule of Business” Speaker at KOWANI (Kongres Wanita Indonesia) with theme “Transforming Society Through Women Empowerment” Speaker at SOE Coordination Meeting with theme “SOE Digital Transformation” May 23, 2018 Jakarta August 24, 2018 Surabaya September 13, 2018 Yogyakarta October 28, 2018 Bontang Speaker at ITS Business Management Seminar with theme “Big Data Analytics & Artificial Intelligent in Business” November 3, 2018 Surabaya Siti Choiriana 72 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportDIRECTORS AFFILIATIONS AND RELATIONSHIPS In accordance with the principle of transparency in the implementation of good corporate governance or GCG, Telkom discloses the affiliation of members of the Board of Directors with fellow Directors, Commissioners and major and controlling shareholders, including the names 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 Janangkih Sinaga Harry Mozarta Zen David Bangun Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana* Mas’ud Khamid** √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ Remarks: (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 27, 2018. ** In position until April 20, 2018. 73 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789TELKOM EMPLOYEES For Telkom, employees are the most important business partners. Currently, Telkom employees work professionally throughout 2018 achieving its target and vision to transform into Digital Telecommunication Company. Telkom continues to build employee digital competence and culture. EMPLOYEE PROFILE 47.0% Total Employees Telkom Employees Subsidiaries Employees 53.0% 12.4% Education Post Graduates (Master and Doctorate) University Graduates Diploma Graduates Pre University Preuniversity 56.5% 23.0% Age < 30 years 30-45 years > 45 years Gender Male Female 35.4% 74.9% 15.1% 16.0% 41.6% 25.1% 74 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAt the end of 2018, TelkomGroup has 24,071 employees consisting of 12,765 employees of the parent company and 11,306 employees of subsidiaries. Continuing efforts to revitalize and improve HR efficiency in previous years, total employess in parent company employees in 2018 was 8.5% lower than in 2017. Telkom Employees Subsidiaries employees Total Total Employees in 2016-2018 2018 2017 2016 12,765 11,306 24,071 13,956 10,109 24,065 14,933 8,943 23,876 TOTAL EMPLOYEES BASED ON EDUCATION LEVEL AND AGE DISTRIBUTION In 2018, Telkom has 8,027 employees or 62.9% with undergraduate and postgraduate background. Meanwhile most of subsidiaries have bachelor and postgraduate background with 8,563 employees or 75.7%. In terms of age, most of TelkomGroup’s employees are dominated by employees under the age of 45 which are equal to 58.4% or 14,062 employees. The composition shows that TelkomGroup has good age and education employee composition background and is sufficient for internal regeneration processes. Total Employees Based on Education in 2016-2018 2018 2017 2016 Telkom Subsidiaries Total % Total % Total % Preuniversity Diploma Undergraduate Postgraduate (Master and Doctorate) 2,484 2,254 5,943 2,084 1,146 1,597 3,630 3,851 7,666 13,609 897 2,981 15.1 16.0 56.5 12.4 4,077 4,228 13,017 2,743 16.9 17.6 54.1 11.4 4,523 4,478 12,324 2,551 18.9 18.8 51.6 10.7 Total 12,765 11,306 24,071 100.0 24,065 100.0 23,876 100.0 Total Employees Based on Age in 2016-2018 2018 2017 2016 Telkom Subsidiaries Total % Total % Total % Below 30 Between 30-45 Above 45 Total 1,942 2,261 8,562 3,606 6,253 5,548 8,514 1,447 10,009 23.0 35.4 41.6 4,572 8,490 11,003 19.0 35.3 45.7 3,512 8,514 11,850 14.7 35.7 49.6 12,765 11,306 24,071 100.0 24,065 100.0 23,876 100.0 75 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789TOTAL EMPLOYEES BASED ON POSITION, STATUS AND GENDER TelkomGroup has several levels of position, they are senior management, middle management, supervisors, and other levels. In Telkom, the largest composition in 2018 is in the supervisor level with 55.3% or 7,063 employees. In subsidiaries, the largest composition is in other level, that is equal to 45.9% or 11,050 employees. In terms of gender, total male employees are 18,021 employees higher than female employees of 6,050 employees. Telkom does not differentiate between male and female employees in terms of employment opportunities, but male interest is greater than women to work at Telkom, especially for types of field work. Total Employees Based on Position in 2016-2018 2018 2017 2016 Telkom Subsidiaries Total % Total % Total % Senior Management Middle Management Supervisor Others Total 211 4,092 7,060 1,402 192 2,001 3,990 5,123 403 6,093 11,050 6,525 1.7 25.3 45.9 27.1 655 5,585 11,547 6,278 2.7 23.2 48.0 26.1 620 5,290 12,044 5,922 2.6 22.2 50.4 24.8 12,765 11,306 24,071 100.0 24,065 100.0 23,876 100.0 Total Employees Based on Gender in 2016-2018 2018 2017 2016 Telkom Subsidiaries Total % Total % Total % Male Female Total 9,786 2,979 8,235 3,071 18,021 6,050 74.9 25.1 18,231 5,834 75.8 24.2 18,311 5,565 76.7 23.3 12,765 11,306 24,071 100.0 24,065 100.0 23,876 100.0 76 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportEQUAL OPPORTUNITIES IN THE COMPETENCY DEVELOPMENT TelkomGroup continuously develops employee competencies, especially the ability to innovate and to develop creativity in order maximize their contribution for Telkom’s business. In general, Telkom is committed to providing equal opportunities for every employee to have a competency development program. In 2018, Telkom has spent a total of Rp130.6 billion in competency development program, an increase of Rp109.6 billion or 19.2% compared to 2017. The amount does not include education scholarship funds. Type of Competency Development Program Training Certification Educational Scholarship 2018 2017 2016 Telkom Subsidiaries Total % Total % Total % 5,509 9,773 15,282 91.6 23,034 96.7 26,381 98.5 717 72 623 1,340 - 72 8.0 0.4 657 133 2.8 0.5 286 118 1.1 0.4 Total 6,298 10,396 16,694 100.0 23,824 100.0 26,785 100.0 Great People Trainee Program 77 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789SHAREHOLDERS COMPOSITION Telkom’s share structure consists of 1 Series A Dwiwarna share, and 99,062,216,599 Series B shares (common stock) with total issued and fully paid-up capital of 99,062,216,600 shares. A share of Series A Dwiwarna shares belongs to the Government of the Republic of Indonesia. Composition of Shareholders Telkom on December 31, 2018 Series A Dwiwarna Series B (Common Stock) % Indonesian Government Public Total 1 1 51,602,353,560 47,459,863,039 99,062,216,599 52.09 47.91 100.0 Telkom’s shareholder composition as of December 31, 2018 as follows: 1. Shareholders with more than 5% Ownership (Major Shareholder/Controller) Type of Share Individual or Group Identity Total Shares Percentage Owned Seri A Seri B Government Government 1 51,602,353,560 - 52.09 2. Ownership of Shares by Directors and Commissioners On December 31, 2018 there was no Commissioner or Director which has more than 1.0% of Telkom shares. BOD and BOC Total Shares Percentage Owned Commissioners Directors Total Hendri Saparini Rinaldi Firmansyah Alex Janangkih Sinaga Harry Mozarta Zen Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman David Bangun Siti Choiriana 654,505 454,113 1,683,359 689,492 1,575,562 1,515,022 1,514,720 1,000 540 8,088,313 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 78 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report3. Shareholders with Less than 5% Ownership Telkom Shareholders with Individual Ownership Less than 5%, on December 31, 2018. Group Common Stocks Owned Ownership Percentage of Outstanding Common Stock (%) Foreign Business/Institution Individual Local Business/Institution Limited liability Mutual fund Insurance company Pension funds Others Individual Total 4. Percentage of Shares Owned Domestic and Foreign 36,389,952,660 21,534,800 2,795,328,652 2,542,271,749 3,170,313,097 1,564,740,600 109,623,249 866,098,232 47,459,863,039 36.73 0.02 2.82 2.56 3.20 1.58 0.11 0.87 47.91 On December 31, 2018, a total of 70,803 shareholders, including the Government, registered as holders of common stock, including 36,411,487,460 common stock owned 2,157 foreign shareholders. Thus 36.76 % of Telkom’s shares were owned by foreign shareholders and the rest was controlled by domestic shareholders. There were 83 ADS shareholders owning 68,824,067 ADS (1 ADS equivalent to 100 common stock). 5. List of 20 Largest Public Shareholders Here is a list of the 20 largest public shareholders until December 31, 2018. No Institution Percentage 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. BPJS Ketenagakerjaan GIC Lazard Asset Mgt BlackRock Investment Mgt - Index Vanguard Group Vontobel Asset Mgt Employees Provident Fund Board Eastspring Investments Matthews International Capital Mgt Norges Bank Investment Mgt Taspen American Depositary Receipts AIA Indonesia Schroder Investment Mgt Comgest Abu Dhabi Investment Authority (ADIA) JPMorgan Asset Mgt (JF Asset Mgt) 18. Mandiri Investasi 19. State Street Global Advisors 20. Monetary Authority of Singapore 3.03 2.28 2.10 1.99 1.69 1.38 1.24 1.18 0.80 0.78 0.75 0.74 0.73 0.62 0.61 0.57 0.56 0.53 0.52 0.46 79 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789SUBSIDIARIES, ASSOCIATED COMPANIES, AND JOIN VENTURES Government of Indonesia 52.09% Public 47.91% 100% 65% 100% 100% 100% 30.95% 0.01% 99.9% 51% 49% 60% 51% 49% 60% 51% 0.01% 0.01% 0.01% 0.01% 30.4% 52% 48% 99.9% 99.9% 99.9% 60% 99.9% PT. Satelit Multimedia Indonesia Notes: Direct Subsidiaries (consolidated) Indirect Subsidiaries (consolidated) Unconsolidated 80 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report100% 100% 100% 100% 100% 100% 24% 100% 100% 100% 100% 51% 100% 55% 100% USA 70% MALAYSIA 70% 15.67% 25% 4.33% 81 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789As of December 31, 2018, Telkom consolidated the financial statements of all subsidiaries owned directly or indirectly as follows: SUBSIDIARIES WITH DIRECT OWNERSHIP Company Share Ownership Business Field Operational Status PT Telekomunikasi 65% Telecommunication Operating Total Asset (Rp billion) 82,650 Selular Jakarta, Indonesia PT Dayamitra Telekomunikasi Jakarta, Indonesia PT Multimedia Nusantara Jakarta, Indonesia - provides telecommunication facilities and mobile celluler services using Global Systems for Mobile Communication (GSM) 100% Telecommunication Operating 13,053 100% Network Operating 16,524 telecommunication services and multimedia PT Telekomunikasi 100% Telecommunication Operating 10,408 Indonesia International Jakarta, Indonesia PT Telkom Akses Jakarta, Indonesia 100% Construction, service Operating 4,244 and trade in the field telecommunication Address Telkom Landmark Tower 1st -20th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 25th-27th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 41st floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 16th-17th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Building, West Jakarta. Jl. S. Parman Kav. 8 West Jakarta, 11440, Indonesia PT Graha Sarana 100% Leasing of offices and Operating 5,805 Multimedia Tower. Duta Jakarta, Indonesia providing building management and maintenance services, civil consultant and developer Jl. Kebon Sirih No. 10, Central Jakarta, 10110, Indonesia 82 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCompany Share Ownership Business Field Operational Status PT PINS Indonesia Jakarta, Indonesia 100% Telecommunication Operating construction and services Total Asset (Rp billion) 4,004 PT Infrastruktur Telekomunikasi Indonesia Jakarta, Indonesia PT Telkom Indonesia Satelit Jakarta, Indonesia PT Metranet Jakarta, Indonesia PT Jalin Pembayaran Nusantara Jakarta, Indonesia PT Napsindo Primatel Internasional Jakarta, Indonesia Address Telkom Landmark Tower 42nd floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 19th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 21st floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia 100% Construction, Operating 3,351 service and trade in the field of telecommunications 100% Telecommunication Operating 3,192 - provides satellite communication system, services and facilities 100% Multimedia portal Operating 782 Mulia Business service 100% Payment services - Operating 298 principal, switching, clearing and settlement activities 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 60% Telecommunication Ceased Operations 5 - – provides Network on January 13, Access oint (NAP), 2006 Voice Over Data (VOD) and other related services 83 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789SUBSIDIARIES WITH INDIRECT OWNERSHIP Company Share Ownership Business Field Operational Status Total Asset (Rp/billion) Description PT Sigma Cipta 100% Information technology Operating 7,785 Caraka Tangerang, Indonesia service - system implementation and integration service, outsourcing and software license maintenance Telkom Landmark Tower 23rd floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telekomunikasi 100% Telecommunication Operating 3,413 Maritime Square, #09- Indonesia International Pte. Ltd., Singapore PT Infomedia Nusantara Jakarta, Indonesia 100% Data and information Operating 2,389 PT Infomedia Nusantara 63 Harbour Front Center, Singapore - 099253 services - provides telecommunication information services and other information services in the form of print and electronic media and call center services Head Office. Jl. RS. Fatmawati 77-81 Jakarta, 12150, Indonesia PT Telkom 55% Service for property Operating 2,128 Telkom Landmark Tower, Landmark Tower Jakarta, Indonesia development and management PT Metra Digital 100% Directory information Operating 1,339 Media Jakarta, Indonesia services PT Finnet Indonesia 60% Information technology Operating 1,011 Jakarta, Indonesia services The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Telkom Landmark Tower 18th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia Bidakara Tower 1, 12th floor. Jl. Jend. Gatot Subroto Kav. 71- 73, South Jakarta, 12870 Indonesia TS Global Network 70% Satellite service Operating 832 Teknorat ½ street, Sdn. Bhd Petaling Jaya, Malaysia Cyber 3, 6300 Cyberjaya, Selangor Darul Ehsan, Malaysia Telekomunikasi 100% Telecommunication Operating 1,185 Suite 905, 9/F, Ocean Indonesia International Ltd., Hong Kong PT Metra Digital Investama Jakarta, Indonesia 84 Operating 979 100% Trading and/or providing service related to information and technology, multimedia, entertainment and investment Centre, 5 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong Telkom Landmark Tower, The Telkom Hub. 21st floor. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCompany Share Ownership Business Field Operational Status Total Asset (Rp/billion) Description Telekomunikasi 100% Telecommunication Operating 677 Indonesia International S.A., Dili, Timor Leste PT Nusantara 100% Service and trading Operating 290 Sukses Investasi Jakarta, Indonesia PT Administrasi 100% Health insurance Operating 346 Medika Jakarta, Indonesia administration services PT Melon 100% Digital content exchange Operating 457 Jakarta, Indonesia hub services Timor Plaza 4th Floor, Rua Presidente Nicolao Lobato, Comoro, Dili Timor Leste Multimedia Tower, Annex Building 2nd floor. Jl. Kebon Sirih No. 10-12, Central Jakarta, Indonesia STO Telkom Gambir C Building 3rd floor. Jl. Medan Merdeka Selatan No. 12, Central Jakarta, 10110, Indonesia Telkom Landmark Tower 45th floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia PT Metraplasa 60% Network and Operating 168 Mulia Business Park, J Jakarta, Indonesia e-commerce services Building. Jl. Letjen MT Haryono Kav. 58 – 60 Pancoran, Jakarta 12780, Indonesia PT Graha Yasa 51% Tourism service Operating 250 Jl. Cimanuk No. 33 Selaras Jakarta, Indonesia Bandung Telekomunikasi 100% Telecommunication Operating 115 Level 4, 241 Indonesia International Australia Pty. Ltd., Sydney, Australia Commonwealth Street Surry Hills NSW 2010, Australia PT Nutech Integrasi 60% System integrator Operating 93 Jl. Tanjung Barat Raya, Jakarta, Indonesia No. 17, Pasar Minggu, South Jakarta, 12510, Indonesia Telekomunikasi 100% Telecommunication Operating 57 800 Wilshire Boulevard, Indonesia International Inc., Los Angeles, USA PT Satelit Multimedia Indonesia Jakarta, Indonesia 100% Satellite service Operating 16 Suite 620 Los Angeles, California 90017 Telkom Landmark Tower 41st floor, The Telkom Hub. Jl. Jend Gatot Subroto Kav. 52 Jakarta, 12710, Indonesia 85 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789Company Share Ownership Business Field Operational Status Total Asset (Rp/billion) Description Telekomunikasi 70% Telecommunication Operating 76 Suite 7-3, Level 7, Wisma Indonesia International (Malaysia) Sdn. Bhd. Kuala Lumpur, Malaysia UOA II No. 21, Jalan Pinang, KLCC, 50450, Kuala Lumpur, Malaysia. PT Swadharma 51% System Integrator Operating 460 St Arteri JORR, No. 70, Sarana Informatika Jakarta, Indonesia Services Jati Melati, Pondok Melati, Bekasi, Indonesia. 86 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CHRONOLOGY OF STOCKS REGISTRATION Since November 14, 1995, Telkom shares have been listed and traded in Indonesia Stock Exchange (IDX) and New York Stock Exchange (NYSE) with tickers of TLKM and TLK, respectively. Date Corporate Actions Composition of Share Ownership Government of Republic of Indonesia Public % 13/11/1995 Pre Initial Public Offering 8,400,000,000 - Sale of Shares Held By Government Telkom Right Issue Composition of Share Ownership 11/12/1996 Government Shares Block Sale Composition of Share Ownership 15/05/1997 Government Distributes Incentive Shares to All Public Shareholders Composition of Share Ownership 7/5/1999 Government Shares Block Sale Composition of Share Ownership 2/8/1999 Distribution of Shares Bonus (933,334,000) 933,334,000 - 7,466,666,000 (388,000,000) 7,078,666,000 933,333,000 1,866,667,000 388,000,000 2,254,667,000 (2,670,300) 2,670,300 7,075,995,700 (898,000,000) 6,177,995,700 2,257,337,300 898,000,000 3,155,337,300 - - - 20.0 - 24.2 - 24.2 - 33.8 (Issuance) (Each 50 Shares Gets 4 494,239,656 252,426,984 - Shares) Composition of Share Ownership 7/12/2001 Government Shares Block Sale Composition of Share Ownership 16/07/2002 Government Shares Block Sale Composition of Share Ownership 1/10/2004 Stock Split with Ratio 1:2 21/12/2005 Shares Buy Back Program (I)(1) 6,672,235,356 (1,200,000,000) 5,472,235,356 (312,000,000) 5,160,235,356 10,320,470,712 - Composition of Share Ownership 10,320,470,712 29/06/2007 Shares Buy Back Program (II)(2) - Composition of Share Ownership 10,320,470,712 20/06/2008 Shares Buy Back Program (III)(3) - Composition of Share Ownership 10,320,470,712 19/05/2011 Shares Buy Back Program (IV)(4) - Composition of Share Ownership 10,320,470,712 14/06/2013 Transfer of Shares Buy Back 3,407,764,284 1,200,000,000 4,607,764,284 312,000,000 4,919,764,284 9,839,528,568 (211,290,500) 9,628,238,068 (215,000,000) 9,413,238,068 (64,284,000) 9,348,954,068 (520,355,960) 8,828,598,108 33.8 - 45.7 - 48.8 48.8 - 48.3 - 47.7 - 47.5 - 46.1 Program III to Employees through - 59,811,400 0.3 ESOP Program Composition of Share Ownership 10,320,470,712 8,888,409,508 46.3 87 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 Date Corporate Actions 30/07/2013 Transfer of Shares Buy Back Program I through Private Placement Composition of Share Ownership 2/9/2013 Stock Split with Ratio 1:5 13/06/2014 Transfer of Shares Buy Back Program II through Private Placement Composition of Share Ownership Government of Republic of Indonesia Public % - 211,290,500 - 10,320,470,712 51,602,353,560 9,099,700,008 45,498,500,040 46.9 46.9 - 1,075,000,000 - Composition of Share Ownership 51,602,353,560 46,573,500,040 47.4 21/12/2015 Transfer of Remaining Shares Buy Back Program III through Private - 22,363,000 - Placement Composition of Share Ownership 51,602,353,560 46,595,863,040 47.5 29/06/2016 Transfer of Remaining Shares Buy Back Program IV through Private - 864,000,000 - Placement Composition of Share Ownership 51,602,353,560 47,459,863,040 2017 No corporate action - - Composition of Share Ownership 51,602,353,560 47,459,863,040 47.9 - 47.9 02/07/2018 Transfer of Treasury Stock throught Withdrawal by way of Capital Reduction Composition of Share Ownership - 1,737,779,800 - 51,602,353,560 47,459,863,040 47.9 Remarks: (1) First shares buy back program began on December 21, 2005 (simultaneously with the EGMS when the program was approved) and ended in June 2007. (2) Second shares buy back program began on June 29, 2007 (simultaneously with the EGMS when the program was approved) and ended in June 2008. (3) Third shares buy back program began on June 20, 2008 (simultaneously with the EGMS when the program was approved) and ended in December 2009. (4) Fourth shares buy back program began on May 19, 2011 (simultaneously with the AGMS when the program was approved) and ended in November 2012. 88 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CHRONOLOGY OF OTHER SECURITIES REGISTRATION On July 16, 2002, Telkom issued bonds for the first time with a nominal value of Rp1,000 billion with a term of 5 (five) years and traded on Surabaya Stock Exchange. Five years later, on July 16, 2007, Telkom paid all of the bonds payable. Telkom issued a second bond on June 25, 2010, with a value of Rp1,005 billion for Series A with a period of 5 (five) years and Rp1,995 billion for Series B with a term of 10 (ten) years. These bonds were listed on the Indonesia Stock Exchange (IDX). The Company has repaid the Series A Bonds that due on July 6, 2015. On June 16, 2015, Telkom issued Telkom Shelf Registered Bond I Trance I with each amounting to Rp2,200 billion for Series A with a term of 7 (seven) years, Rp2,100 billion for Series B with a term of 10 (ten) years, Rp1,200 billion for Series C with a term of 15 (fifteen) years, and Rp1,500 billion for Series D with a term of 30 (thirty) years. These bonds were listed on Indonesia Stock Exchange (IDX). On September 26, 2018, the Bondholders General Meeting (Telkom Bond II 2010 ), approved the Trustee replacement from PT Bank CIMB Niaga Tbk to PT Bank Tabungan Negara (Persero) Tbk. Amount (Rp million) Issuance Date Maturity Date Period (year) Interest Rate Underwriter Trustee 1,000,000 July 16, 2002 July 16, 2007 1,005,000 June 25, 2010 July 6, 2015 5 5 17.0% PT Danareksa Sekuritas 9.60% PT Bahana 1,995,000 June 25, 2010 July 6, 2020 10 2,200,000 June 23, 2015 June 23, 2022 7 2,100,000 June 23, 2015 June 23, 2025 10 Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas 10.20% PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas 9.93% PT Bahana Sekuritas; PT Danareksa Sekuritas; PT Mandiri Sekuritas; PT Trimegah Sekuritas 10.25% PT BNI Tbk, PT BRI Tbk PT Bank CIMB Niaga Tbk PT Bank Tabungan Negara (Persero) Tbk PT Bank Permata Tbk Settlement Date July 16, 2007 July 6, 2015 - - 1,200,000 June 23, 2015 June 23, 2030 15 10.60% 1,500,000 June 23, 2015 June 23, 2045 30 11.00% Bond Name Telkom Bond I 2002 Telkom Bond II 2010 Series A Telkom Bond II 2010 Series B Telkom Shelf Registered Bond I 2015 Series A Telkom Shelf Registered Bond I 2015 Series B Telkom Shelf Registered Bond I 2015 Series C Telkom Shelf Registered Bond I 2015 Series D Remark: (1) Telkom Shelf Registered Bond 1 Telkom 2015 Series A was issued June 16, 2015 but the official sale transaction was on June 23, 2015 89 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789On September 4, 2018, Telkom issued Medium Term Notes I Telkom Year 2018 with a principal value of Rp758,000,000,000 (seven hundred fifty eight billion Rupiah) and Medium Term Notes Sharia Ijarah I Telkom Year 2018 with Ijarah of Rp742,000,000,000 (seven hundred forty two billion Rupiah). Both MTN are issued on 3 series. The Monitoring Agent for the MTN issuance is PT Bank Tabungan Negara (Persero) Tbk. Notes Currency Principal (Rp million) Issuance Date Maturity Date Term (Year) MTN I Telkom 262,000 September 4, September 14, Year 2018 seri A 2018 2019 MTN I Telkom 200,000 September 4, September 4, Year 2018 Series B 2018 2020 MTN I Telkom 296,000 September 4, September 4, Year 2018 Series C 2018 2021 1 2 3 Interest Rate per Annum (%) / Installment Payment per Year (Rp million) Arranger Monitoring Agent Settlement Date 7.25% PT Bahana PT Bank Sekuritas, Tabungan PT BNI Negara 8.00% Sekuritas, (Persero) PT CGS-CIMB Tbk 8.35% Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas MTN Syariah 264,000 September 4, September 14, 1 Rp19,000 PT Bahana PT Bank Ijarah I Telkom Year 2018 Series A 2018 2019 MTN Syariah 296,000 September 4, September 4, 2 Rp24,000 Ijarah I Telkom Year 2018 Series B 2018 2020 MTN Syariah 182,000 September 4, September 4, 3 Rp15,000 Ijarah I Telkom Year 2018 Series C 2018 2021 Sekuritas, Tabungan PT BNI Negara Sekuritas, (Persero) PT CGS-CIMB Tbk Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas 90 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNAME AND ADDRESS OF INSTITUTIONS AND/OR SUPPORTING CAPITAL MARKET PROFESSION Address Service External Auditor/ Public Acountant Supporting Capital Market Profession KAP Purwantono, Sungkoro & Surja (a member of Ernst & Young Global Limited) Efek Bursa Indonesia Building, 2nd Tower, 7th floor Jl. Jend. Sudirman Kav. 52- 53 Jakarta - 12190 Securities Administration Bureau PT Datindo Entrycom Wisma Sudirman Jl. Jend. Sudirman Kav. 34- 35 Jakarta - 10220 Trustee PT Bank Tabungan Negara (Persero) Tbk PT Bank Permata Tbk. Menara Bank BTN Jl. Gajah Mada No. 1 Jakarta 10130 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 (Custodian) of institution stock Telkom’s traded on the Indonesia Stock Exchange. common 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 Registered Bond I. 2018 Fee Rp54,555 million Assignment Period Since 2012 Rp136 million Since 1995 - Since September 2018 Rp75 million Since 2015 PT Bank CIMB Niaga Tbk Graha CIMB Niaga, 20th floor Jl. Jend. Sudirman Kav. 58 Jakarta - 12190 Representing the interests of Bond holders with the Company for Telkom II. Rp75 million Until September 2018 Central Custodian PT Kustodian Sentral Efek Indonesia Rating Agency PT Pemeringkat Efek Indonesia Moody’s Fitch ADS Custodian Bank The Bank of New York Mellon Corporation Official Service Agency in The United State Puglisi and Associates Legal Counsel Hadiputranto, Hadinoto & Partners Notary Notaris/PPAT Ashoya Ratam, SH, MKn Indonesia Bursa Efek Building, Tower 1, 5th floor Jl. Jend. Sudirman Kav. 5253 Jakarta - 12190 Panin Tower Senayan City, 17th floor Jl. Asia Afrika Lot. 19 Jakarta - 10270 Moody’s Investors Service Singapore Pte. Ltd, 50 Raffles Place #23-06, Singapore Land Tower, Singapura - 048623 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong + 852 2263 9963 Corporate Headquarters 240 Greenwich Street New York, NY 10286 United States +1 212 495 1784 850 Library Ave # 204, Newark United States - 19711 Pacific Place, Century Level 35 Sudirman Central Business District Lot. 10 Jl. Jend. Sudirman Kav. 52- 53 Jakarta 12190, Indonesia Jl. Suryo No. 54, Kebayoran Baru, Jakarta 12180 Rp10 million Since 1995 - Providing a central depository and settlement of stock transactions on the Stock Exchange. services and settlement of securities transactions, distribution of corporate action results. - Storage Providing rating on credit risk of Telkom bond issuance. Rp150 million Since 2012 Provides ratings on Telkom credit risk. US$70,000 Since 2018 Provides ratings on Telkom credit risk. US$65,000 Since 2018 Acting as a depository institution (Custodian) of ADS shares traded on the NYSE. Acting as an authorized representative in the US with regard to securities in accordance with the law and regulations. - Since 1995 US$500 Since 2012 Acting as capital market legal counsel Rp225 million Since 1995 Acting as notary Rp25 million Since 2012 91 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissioners and DirectorsTelkom Highlights123456789 04 MANAGEMENT DISCUSSION AND ANALYSIS 94 114 120 134 135 136 137 139 139 Operational Overview by Segment Marketing Overview Comprehensive Financial Performance Solvency Capital Structure Capital Expenditure Material Commitment for Capital Expenditure Receivables Collectability Material Information and Fact After Accountant Reporting Date 140 Macroeconomy 141 143 144 145 145 146 146 Indonesia Telecommunication Industry Business Prospects and Sustainability of the Company Comparison of Initial Year Target and the Realization Target or Projections For the Following 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 147 147 92 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Telkom Integrated Operation Center, focus on delivering quality network, service performance, and customer experience for all Telkom customers. 93 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789OPERATIONAL OVERVIEW BY SEGMENT E L I B O M E S I R P R E T N E R E M U S N O C & E L A S E L O H W S S E N I S U B L A N O T A N R E T N I I S R E H T O 94 • Offers mobile voice, SMS, broadband services and digital services. • Nationwide coverage with more than 189,000 BTS. • The largest cellular network operator in Indonesia. • Offers end-to-end integrated ICT and Smart Enabler solutions to corporate and institutional customers. • Market leader serving customers of 1,900 corporates, 300,416 SMBs and 979 government institutions. • Offers high-speed internet, fixed line, and IPTV services through the IndiHome brand with 5.1 million subscribers. • Dominates the largest market share in Indonesia of fixed broadband and IPTV in Indonesia. • Offering telecommunication services, tower, infrastructure, data centre, cloud and digital platform for domestic or international carrier and provider. • Offers various digital lifestyle services such as music, video, e-payment, and e-commerce platform. • Focused on creating unique and different digital experiences. • Building management, property, and company’s asset optimalization service. PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 21,054 16% 85,338 65% Revenue (Rp Billion) Beban ( Rp Milliar )Expenses (Rp Billion) 14,624 17% 1,042 1% 11,739 13% 40,041 45% 21,717 24% 10,084 8% 13,891 11% 130 0% Capital Expenditure (Rp Billion) 5,325 16% 6,321 19% 18 0% 6,958 21% 14,373 44% Mobile WIB WIB Enterprise Enterprise Lain-lain Consumer 95 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789SEGMENT PERFORMANCE HIGHLIGHTS The following table shows an overview of the performance of each of the business segments of TelkomGroup from 2016 to 2018. Telkom’s Results of Operation By Segment Growth 2018-2017 (%) Years ended December 31, 2018 2017 2016 (Rp billion) (US$ million) (Rp billion) (Rp billion) (5.3) 25.7 (4.2) 1.5 7.1 3.0 (14.1) (3.4) 50.5 25.1 697.9 42.0 13.3 142.6 30.3 222.4 7.8 13.8 10.1 7.1 8.7 5.2 7.2 6.0 382.5 (0.4) (2.1) 85,338 3,880 89,218 (40,041) (15,408) (55,449) 33,769 (13,095) 5,934 270 6,204 (2,784) (1,071) (3,856) 2,348 (911) 90,073 3,086 93,159 (39,452) (14,382) (53,834) 39,325 (13,560) 83,998 2,724 86,722 (37,814) (12,547) (50,361) 36,361 (12,808) (438) (30) (291) (221) 13,891 2,290 16,181 (11,739) (3,792) (15,531) 650 (3,060) (438) 21,054 17,995 39,049 (21,717) (16,116) (37,833) 1,216 (2,128) (764) 966 159 1,125 (816) (264) (1,080) 45 (213) (30) 1,464 1,251 2,715 (1,510) (1,121) (2,631) 85 (148) (53) 11,105 287 11,392 (10,360) (1,563) (11,923) (531) (2,839) 10,410 1,877 12,287 (11,024) (2,793) (13,817) (1,530) (2,881) (385) (392) 19,130 16,801 35,931 (20,653) (15,027) (35,680) 252 (2,136) (668) 15,816 12,877 28,693 (17,813) (9,647) (27,460) 1,233 (1,386) 119 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 96 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTelkom’s Results of Operation By Segment Growth 2018-2017 (%) Years ended December 31, 2018 2017 2016 (Rp billion) (US$ million) (Rp billion) (Rp billion) WIB 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 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 35.6 9.0 17.7 18.6 7.1 15.0 27.7 32.1 10,084 16,678 26,762 (14,624) (6,010) (20,634) 6,128 (3,146) (44.1) (71) 3.2 47.2 39.6 6.4 (55.7) 2.3 82.2 (4.5) 150.0 130 886 1,016 (1,042) (31) (1,073) (57) (21) (5) 701 1,160 1,861 (1,017) (418) (1,435) 426 (219) (5) 9 62 71 (72) (2) (74) (4) (1) (0) 7,439 15,305 22,744 (12,333) (5,611) (17,944) 4,800 (2,382) (127) 126 602 728 (979) (70) (1,049) (321) (22) (2) 5,866 14,451 20,317 (10,451) (4,805) (15,256) 5,061 (1,715) (238) 19 209 228 (417) (12) (429) (201) (19) (1) 97 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789OPERATIONAL HIGHLIGHT SUBSCRIBERS Cellular Subsribers Postpaid (kartuHalo) Prepaid (simPATI, Kartu As, Loop) Broadband Subsribers Fixed broadband 1) IndiHome Mobile broadband 2) Fixed Line Subsribers Fixed wireline (POTS) INFRASTRUCTURE Satellite Capacity Point of Presence Domestic International BTS BTS 2G BTS 3G BTS 4G Tower Fiber Optic Backbone Network Domestic International Wi-Fi Services CUSTOMER SERVICE PlasaTelkom 3) GraPARI TelkomGroup Plasa Telkom Digital GraPARI International Domestic GraPARI Mobile IndiHome Mobile EMPLOYEES Unit Year Ended on December 31, 2018 2017 2016 (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers (000) subscribers TPE PoP PoP PoP unit unit unit unit unit km km km access point location location location location location location unit unit People 162,987 5,400 157,587 113,813 7,260 5,104 106,553 11,111 11,111 133 118 46 72 189,081 50,310 82,118 56,653 30,485 161,652 96,952 64,700 382,361 422 7 10 440 11 429 761 196,322 4,739 191,583 111,074 5,266 2,965 105,808 10,957 10,957 73 99 42 57 173,920 4,180 169,740 89,058 4,329 1,624 84,729 10,663 10,663 60 69 40 29 160,705 129,033 50,324 82,228 28,153 29,061 155,524 90,854 64,670 352,642 535 4 - 442 10 432 761 50,344 72,327 6,362 25,558 106,000 85,770 20,230 362,200 566 - - 423 7 416 487 - 23,876 1,142 24,071 1,142 24,065 Remarks: 1) Fixed broadband subscriber consists of IndiHome and high speed internet (HIS) subscriber. 2) Mobile broadband includes Flash user, Blackberry user, and PAYU. 3) Plasa Telkom outlet is a face-to-face customer service points consists of GraPARI TelkomGroup, Plasa Telkom Digital and other Plasa across Indonesia. 98 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Family interaction becomes more definite with video call service on IndiHome TV screen. Outdoor Micro BTS is one solution to expand cellular coverage and increase the capacity in strategic location and central business district. 99 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789MOBILE SEGMENT Telkom performed its mobile segment business through its subsidiary Telkomsel, a leading cellular operator in Indonesia, with its 163 million subscriber and dominated more than 59.1% cellular market share. Telkomsel has been strengthening its broadband infrastructure by building new 4G LTE technology based 28,376 BTS, made its 4G LTE coverage more than 90% population. With this new BTS, Telkomsel has the widest network coverage of 189 thousand total BTS. Telkomsel commits giving the best experience for subscriber and presents the lastest telecommunication service which would be a future trend of telecommunication technology. Throughout 2018, Indonesia cellular telecommunications industry experienced a very dynamic change and a decline, triggered by the accelerated transformation from legacy services to digital business, intense price war competition in data services and the implementation of prepaid SIM card registration policies. Digital Business remained the growth stimulus and made revenue growth of 19.8% which substantially increased digital business contribution to total revenue into 53.0% from 42.3% in the previous year. This was supported by the growth in customer data to 106.6 million, an ARPU data increase, and a data usage growth of 101.7% into 4,373,077 TB. 100 “SIM card registration was the starting point for Telkomsel to re-map its costumers to provide the suitable customized program.” Data traffic increased by 101.7% to 4,373,077 TB More than 23 million TCASH registered users BTS (Unit) 250,000 200,000 150,000 6,362 56,653 28,153 100,000 50,000 0 72,327 958.733 82,228 82,118 50,344 50,324 50,310 FY 2016 FY 2017 FY 2018 2G 3G 4G Although in 2018 there was intense competition on mobile broadband services, especially during the prepaid SIM card registration process, the Mobile segment through Telkomsel efforts to push the data price level to a reasonable level and stifle the decline in legacy businesses, including offering programs such as voice and SMS package, succeeded quite well, then Telkomsel only recorded a decrease of 4.3%, and after consolidation, the Mobile segment only recorded a decrease in revenue of 5.3% compared to 2017. It was better than the decline in revenue of the main three operators of 7.4% PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportThe dynamics of the Indonesian telecommunications industry was also marked by intense competition in data services triggered by a price war especially during the implementation of prepaid SIM card registration, caused unhealthy cellular industry. Telkomsel takes the initiative to increase the price of data services while maintaining an ideal premium level and expects all operators would respond in the similar manner, to industrial conditions and provide improve growing opportunities. that include built-in technology with the internet, so it would be an “intelligence” asset that could interact with the external environment. TCASH, is an electronic money service for financial transactions that supports the government’s goal to expand financial inclusion and become cashless society. Telkom big data business delivers consumer insights to the market and API business which provides a great opportunity for application developers, SMB and corporation to improve their services in line with the online market growth. In addition, the prepaid SIM card registration program conducted by the Government has a significant reduction in all cellular operators customer, but in the long-term it will provide positive benefits. Telkomsel complies with this Government policy and believes that the registration of prepaid SIM cards would form a balance new business competition with more official and accurate customer data, so it could provide more appropriate customized programs for customers. In addition, this would lead to cost efficiency due to reduced SIM card production and distribution costs, the sales business model would be more oriented to the credit top-up packages sale than starter packs so that it is expected to provide a healthier revenue structure. Telkomsel started focussing to increase the High Value Customer (HVC). Nowadays, HVC contributed significantly toward Telkomsel revenue. To increase HVC and maintain their loyality, Telkomsel made profiling so that it could deliver more focused and high quality service. Telkom has several products to serve various customer segments. The market brand for postpaid customers is kartuHalo, while prepaid customers is simPATI, Kartu As and Loop. Mobile broadband services are marketed under Telkomsel Flash and are supported by LTE/HSDPA/3G/EDGE/ GPRS technology. Digital lifestyle continues to focus on providing prime mobile entertainment experiences for customers. Telkomsel aims to become the leading mobile entertainment provider in Indonesia through video, games, music and other VAS mobile service platforms by targeting various segments through various services. The innovation and digital solution product development for enterprise segment are mobile security, NB-IoT and other celular soulution that use myBusiness—a Telkomsel product portfolio. On May 2018, Telkomel launched MAXstream as a platform and one-stop video platform with the joint of OTT video apps, linear channel, and VOD content. Telkomsel also provide a whole digital game ecosystem and released the first game “Shellfire” on October 2018 under “Dunia Games” brand. Telkomsel is committed to providing the best experience for customers and presenting the latest telecommunications services, in the 2018 Asian Games, Telkomsel conducted a 5G trial presenting the “Telkomsel 5G Experience Center” at Gelora Bung Karno, Jakarta. Visitors could get to know and experienced the implementation of revolutionary technology directly through various devices equipped with 5G technology such as Live Streaming, Football 2020, Future Driving, Cycling Everywhere, and Autonomous Bus. Several investments and initiatives have also been made to accelerate the digital services growth, in line with the access support of digital services in Indonesia and the Telkomsel mission to create Indonesia as a digital nation with digital services portfolio consisting of digital advertising, mobile banking, Internet of Things (IoT), mobile financial services, big data and API (Application Programming Interface) and digital lifestyle. Digital advertising and mobile banking business includes several service categories such as digital advertising, mobile coupon and mobile banking as Telkom efforts to constantly improve its products and services as well as develop more channels. Telkomsel IoT (Internet of Things) is an enterprise customer service that connects devices, machines and objects Data Traffic (TB) 4,373,077 2,168,245 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 958,733 0 FY 2016 FY 2017 FY 2018 101 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789Mobile Segment Financial Performance 2016 - 2018 The mobile segment is the largest contributor to revenue in 2018, which is 65.4% of Telkom total revenue. Below is the table of mobile segment performance over the last three years: Mobile Segment Revenues Expenses Results 2018-2017 2018 2017 2016 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) (5.3) 1.5 (10.5) 85,338 (40,041) 45,297 5,934 (2,784) 3,150 90,073 (39,452) 50,621 83,998 (37,814) 46,184 Although there was a severe competition in mobile broadband service in 2018, particularly during the prepaid SIM card registration process, Telkom efforts adjusting data price to the fair level and maintaining the legacy business decrease was quite succsessful, by offering voice and SMS package. Mobile segment only recorded the revenue decrease by 5.3% than 2017. It was better than the decrease of the 3 main operators of 7.4%. Throughout 2018, the revenue of the mobile segment was recorded at Rp85,338 billion (US$5,934 million), decreased by Rp4,735 billion or 5.3% from the previous year revenue. This decrease was mainly due to the decrease in voice revenues of Rp6,815 billion or 18.3% and SMS revenue of Rp4,007 billion or 30.4% from the previous year. However, the voice and SMS decrease was compensated by an increase in cellular data and internet revenues of Rp7,193 billion or grew by 18.9% from the previous year encouraged by mobile data traffic growth of 101.7%. Meanwhile, the expense for the mobile segment in 2018 increased by 1.5% into Rp40,041 billion compared to 2017, which was mainly due to increase of the operational and maintenance expense in line with new BTS construction in 2018. This increase was compensated by the decrease of depreciation and marketing expense due to selective marketing program. Mobile segment made profit of Rp45,297 billion in the 2018. In the 2016-2017, the mobile segment recorded revenue of Rp90,073 billion, increased by Rp6,075 billion or 7.2% compared to Rp83,998 billion in 2016. This revenue increase was encouraged by the data and internet cellular revenue growth due to the increased mobile data consumption. Segment expenses in 2017 also increased by Rp1,638 billion or 4.3% to Rp39,452 billion in line with the construction of network infrastructure and the higher business volume. Compared to the 2016 revenue, Mobile segment result was increased by Rp4,437 billion or 9.6%, into Rp50,621 billion. 102 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report103 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789“The launch Merah Putih Satellite is strengthening Telkom’s capability providing connectivity service for customer, to uncovered fiber optic areas.” 1,900 corporate customers 300,416 SMB customers 979 government institution customers 60 TPE Merah Putih Satellite 49 TPE Telkom-3S Satellite 24 TPE Telkom-2 Satellite 3 Data Centers with a specification of tier 3 and 4 (domestic) Telkom made acquisition of PT Collega Inti Pratama through PT Sigma Cipta Caraka (Telkom Sigma) and PT Swadharma Sarana Informatika (SSI) through PT Multimedia Nusantara (Telkom Metra) to strengthen its capability in finance and banking industry. ENTERPRISE SEGMENT Enterprise segment serves end to end solution and ecosystem to corporates, SMB, and government institutions for digital connectivity, data center and cloud, IT service, digital service, Business Process Outsourcing (BPO), device and adjacent service. Beside exploiting its existing products, Telkom actively explores business partnerships with various global players, including in the fields of Internet of Thing, Big Data Analytics, Financial Service, Smart City and others. In enterprise service, the highest revenue in this segment was from connectivity service, a basic service for customers, contributed 47.3% of the revenue supported by IT service, data center and cloud, grew by 48.2% in enterprise segment. This high growth was in line with the high demand of digitalization from corporate, SMB and government institution. As of December 31, 2018, enterprise customers reach 303,295 customers, including 1,900 corporate, 300,416 SMB, and 979 government institution. Telkom believes that the enterprise segment still has good growth opportunities, in line with the increasing of integrated ICT services importance and needs to improve the work efficiency. Telkom position in enterprise segment is solid. Beside supported by the widest fiber optic-based infrastructure network providing high-quality connectivity services, the provision of end-to-end solutions to Telkom customers is also carried out together with several direct and indirect subsidiaries with its business variety providing a total solution. 104 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportRevenue Composition of Enterprise Segment (Rp Billion) 3,325 2,243 2,808 2,722 1,959 1,802 646 674 930 772 1,579 778 12,000 10,000 9,971 9,945 8,000 6,000 4,000 2,000 0 Connectivity DC & Cloud IT Services BPO Digital Services Device Adjacent Services 2017 2018 In the future, Telkom will strives looking for more recurring new growth engines, by exploring opportunities to be a digital business provider. Telkom will strengthen the business model by encouraging business diversification to various industries offering digital business-based services. Telkom also notices the ICT services penetration in Small and Medium Business (SMBs) is still relatively low. Telkom expects its ICT services presence would help business development among SMBs, considering the generated benefits, and also as the market opportunity for Telkom to grow with customers. Enterprise Segmen Financial Performance 2016–2018 The revenue contribution of the enterprise segment on Telkom revenues is 16.1% of total revenue in 2018. Here is the table of enterprise segment performance over the last three years: Enterprise Segment 2018-2017 2018 2017 2016 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) Revenues Expenses Results 10.1 5.2 56.5 21,054 (21,717) (663) 1,464 (1,510) (46) 19,130 (20,653) (1,523) 15,816 (17,813) (1,997) The enterprise segment revenue in 2018 was recorded at Rp21,054 billion, increased by Rp1,924 billion or 10.1% from the previous year. This increase was from internet, data communication and information technology services revenue of Rp1,233 billion and e-business revenue of Rp251 billion. The main growth revenue booster was the IT service, grew by 48.2%. The higher growth is in line with the increasing companies need in digitizing their business processes to more competitive, and also for central and regional government institution to give better service for society, as well as to support SMB development. In the other hand, the enterprise segment expense in 2018 increased by 5.2% into Rp21,717 billion compared to 2017. The expenses increase was in line with the business volume increase. Based the calculation of intersegment expense allocation, Enterprise segment made loss result, but it was a lower loss result of Rp663 billion, decreased by Rp860 billion or 56.5% compared to last year the loss. In the 2016-2017, enterprise segment revenues increased by Rp3,314 billion or 21.0%, to Rp19,130 billion compared to Rp15,816 billion in the previous year. This is mainly due to the increasing digitalization requirement, especially in corporate, SMB and government institutions customers. The enterprise segment expenses also increased to Rp20,653 billion, increased by Rp2,840 billion or 15.9% compared to Rp17,813 billion in 2016. Based the calculation of intersegment expense allocation, Enterprise segment made loss result in 2017 of Rp1,523 billion, but it was a lower loss result than 2016 of Rp1,997 billion, as the revenue increase was higher than the expense increase. 105 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789“With network modernization, advanced customer service, and attractive content variation, Telkom believes could deliver the best experience for IndiHome subsribers.” 5.1 Million IndiHome subscribers increased 9.1 Million Optical Ports (fiber optic based broadband access) CONSUMER SEGMENT IndiHome provides optical fiber-based fixed broadband services including high-speed fixed internet, (fixed wireline) phone and interactive TV with IPTV tecnology, to satisfy retail housing, apartment and premium cluster needs. In 2018, IndiHome subscribers grew from 2.9 million subscribers in 2017 to 5.1 million subscribers in 2018. The customer growth is inseparable from the marketing strategy of More For Less programs, a bundling services providing programs that has more suitable needs and affordable price. Telkom uses the momentum of celebration days such as Chinese New Year, Ramadhan, Indonesian Independence Day, Christmas and New Year as a promotional period for IndiHome. At the same time, IndiHome also used the moment of the FIFA World Cup 2018 by becoming the official live broadcaster of all FIFA 2018 World Cup matches. Besides special events promotions, Telkom continues to add beneficial services and features to IndiHome to increase its attractiveness for prospective customers. One of them is by enriching TV channel through a variety of attractive minipacks. In 2018, IndiHome customers were served by 18 minipack options, compared to 11 minipack in 2017. Minipack demand has been increasing with the 4.4 million add on minipack transactions grew 243% compared to 2017. 106 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportOn the other hand, a large community of gamers in Indonesia is one of the potential markets for IndiHome. With IndiHome gamer packages, customers would get in-game benefits (game points) that could be exchanged for attractive features. To enhance customer experience, Telkom also offers internet speed upgrade, all GSM operators call packages promotion, and Over-The-Top content such as UseeTV Go, iflix, HOOQ, and CATCHPLAY. STOs in 2018. From these 719 STOs, 268 STOs have been transformed into T-Cloud. Telkom plans in 2020, all 1,234 STOs will be shutted down and transformed into T-Cloud in 2021. The T-Cloud is the STO resulted from the modernization process into 100% optical fiber access Node. With the increase in network quality and capacity as a result of the modernization of STO, the quality of services to customers is expected to increase. It cannot be denied that fixed broadband services are highly dependent on the infrastructure reliability and technicians supports. Network modernization has been carried out by replacing copper networks into fiber optic networks, managed by the subsidiariy, Telkom Akses. Strengthening the skills of technicians has increased the percentage of new installments period (Mean Time To Install or MTTI) to below 3 days to 97% in 2018 from 87% in 2017. In addition, the percentage of under one day disturbances refinement completion increased to 82% in 2018 from 42% in 2017, with a significant reduction in the disturbances refinement or MTTR from 23.4 hours in 2017 to 9.8 hours in 2018. These efforts are in order to improve customer experience. Those service improvement and capacity made Telkom as the market leader with a estimated market share of 84.5%. We believe that the growth opportunity of the fixed broadband business in Indonesia is widely open as the middle-class household population growth and the penetration of high- speed internet services are estimated to be around 12%. It was lower than Malaysia, Vietnam and Thailand which have reached around 34%, 43% and 44%. Telkom emphasizes the retail market as a market positioning by performing expansion across Indonesia. To ensure the availability of IndiHome services across Indonesia, Telkom has built the optical fiber- based broadband access network with a total of 9.1 million optical ports. To improve network quality and capacity, network modernization is carried out by shutting down STOs and transforming them into T-Cloud. Along with technological developments, Telkom has shut down 719 STOs of 1,234 Consumer Segment Financial Performance 2016–2018 Consumer segment contributes revenue of 10.6% of Telkom total revenues in 2018. Here is the consumer segment performance tables over the last three years: Consumer Segment 2018-2017 2018 2017 2016 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) Revenues Expenses Results 25.1 13.3 188.9 13,891 (11,739) 2,152 966 (816) 150 11,105 (10,360) 745 10,410 (11,024) (614) Consumer segment financial performance in 2018 was very good, with the revenue reached Rp13,891 billion, increased by Rp2,786 billion or 25.1% higher than 2017. It was in line with the increase of IndiHome subscriber by 72.2% into 5.1 billion subscribers, the increase of minipack subscriber and up-sell service such as internet speed upgrade. In 2018, IndiHome revenue grew by 66.9% into RpRp11,520 billion, and contributed approximately 82.9% towards total consumer segment revenue, increased from 62.2% in the previous year. Meanwhile, the expense of 2018 for the consumer segment was Rp11,739 billion, increased 13.3% compared to the previous year, in line with the IndiHome business expansion. However, the increase of Consumer segment expense was lower than the increase of the revenue, which indicated the cost control effectivity. With intersegment expense allocation, Consumer segment result in 2018 was quite high by 188.9% into Rp2,152 billion. In the 2016-2017 period, revenue in the consumer segment was Rp11,105 billion, increased by Rp695 billion or 6.7% compared to Rp10,410 billion in 2016, in accordance with the increased of IndiHome subscriber. Meanwhile the expense in 2017 decreased by Rp664 billion or 6.0% from Rp11,024 billion in 2016 to Rp10,360 billion. This prompted consumer segment to record its profit Rp745 billion, better than the previous year which recorded loss of Rp614 billion, in other words, the growth of the results of the consumer segment from 2016-2017 increased by 221.3%. 107 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789WHOLESALE AND INTERNATIONAL BUSINESS SEGMENT (WIB) Wholesale and International Business segment serves domestic or global other operators, service provider and digital player for product and solution that could be differentiated into several business lines i.e. carrier service (network and traffic), tower, infrastructure and non-carrier international. The WIB business segment grew by 35.5% in 2018 driven by voice traffic products, digital enabler, infrastructure managed service and tower. Carrier service grew by 29.1% due to marketing strategies targeting and the global transit market niche by carried traffic among countries. The digital enabler business also grew significantly by 112.6% driven by growth in the data center and digital platform business. Telkom has optical fiber-based backbone network with a length of 161,652 km including domestic network of 96,952 km. Throughout 2018, Telkom deployed several submarine cable systems to strengthen its optic fiber network such as the SLM (Sabang-Lhokseumawe-Medan), the PATARA (Papua Utara) connecting Sentani and Sarmi, and MATANUSA. These three submarine cable systems are expected to be ready for service in the first half of 2019. With this connected domestic network, equal communication it could give positive impact for access and broadband information with similar quality across Indonesia. Telkom currently owns interests in global submarine cable infrastructure that connects the continents of Europe, Asia and America. Telkom succeeded completing 108 “With the Indonesia Global Gateway, Telkom is able to provide direct broadband alternative connection across Europe, Asia and America.” 161,652 km Backbone Fiber Optic Network 96,952 km (domestic) 64,700 km (international) Point of Presences (PoP) 72 Overseas PoPs 46 Domestic PoPs 5 Data Centres (overseas) 14 neuCentrIX Data Centres (domestic) 12,485 towers Indonesia Global Gateway cable system with an approximate length of 5,400 km in 2018 that connected two main submarine cable system of SEA-US and SEA-ME-WE 5. With this connected cable system, Telkom could provide alternative direct broadband connection across Europe, Asia, and America. PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTelkom has 14 neutral data centers in 10 cities in Indonesia. Telkom subsidiary, Telin, has 5 overseas data centers consisting of 3 locations in Singapore (Telin-1, Telin-2 and Telin-3), 1 location in Timor Leste and 1 location in Hong Kong. All data centers are given the commercial name neuCentrIX, a neutral data center for domestic and global telecommunications operators and service providers. Currently, Telkom is planning to build a large data center in Indonesia that will function as the main hub for all neuCentrIX data centers. The entire domestic and global data centers will be seamlessly connected, which is expected to be meeting point for digital business people, internet service providers, enterprise customers and others to support the realization of Telkom as a hub or center of the digital ecosystem. Telkom also operated Content Delivery Networks (CDN) so customers could access content that require large bandwidth and prime quality in connection speed and visual quality. In 2018, Telkom added 4 domestic PoP (Point of Presence) so it has 46 PoP dosmestic. Meanwhile, Telkom added 25 global PoP so it has 72 global PoP in major cities in 33 countries. With these PoP, it is expected to improve convenience in providing services and interconnecting. With the growing strength of Telkom’s infrastructure both domestically and globally, it is expected to turn Indonesia become a Global Digital Hub. Telkom international business is operated by its subsidiary, Telin, which has been present in 11 global offices located in Singapore, Hong Kong, Macau, Timor Leste, Australia, Myanmar, Malaysia, Taiwan, the United States of America, Saudi Arabia and New Zealand, who performs the wholesale network business, wholesale voice, data center, MVNO, MNO and BPO. To strengthen international business, Telkom carried out several corporate actions through Telin. Telkom made several corporate actions through its subsidiary to intensify international business, Telin. On April 18 and 25, 2018, Telin increased its share ownership of Telin Malaysia and TSGN into 70%. These two corporate actions aim to give the flexibility and majority control in encouraging Telin Malaysia business strategy, including developing new business initiatives and synergizing the capabilities of TelkomGroup. Telkom manages the Tower business through its subsidiary Mitratel, leasing space to other operators to place their telecommunications equipment on these towers. In 2018, Mitratel aggressively made offers for the operator to reseller and/or collocation its tower, which made growth of 6.6% and controled 27.5% tower market shares. Mitratel has 12,485 units towers with 15,712 tenants. From reseller business Mitratel had 6,494 tenants. including Telkom also manages the telecommunications infrastructure the energy solution, construction business solution, managed services and submarine cables through its subsidiary, Telkom Infra. Telkom Infra business experienced significant growth of 113.0% which was supported by the energy solution project which was Telkom effort in monetizing the capability of building and managing telecommunications infrastructure. Indonesia Global Gateway Cable System SEA-ME-WE-5 SINGAPORE DUMAI BATAM TARAKAN BALIKPAPAN MANADO SEA-US IGG JAKARTA MADURA MAKASSAR DENPASAR 109 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789Wholesale and International Business Segment Financial Performance 2016–2018 The Wholesale and International Business segment contributes revenue of 7.7% of Telkom total revenues in 2018. The following table shows the performance of the Wholesale and International Business segment over the last three years: WIB Segment Revenues Expenses Results 2018-2017 2018 2017 2016 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) 35.6 18.6 7.2 10,084 (14,624) (4,540) 701 (1,017) (316) 7,439 (12,333) (4,894) 5,866 (10,451) (4,585) WIB segment in 2018 recorded its revenue of Rp10,084 billion, increased significantly by Rp2,645 billion or 35.6% from Rp7,439 billion in 2017. The digital business contribution of this segment for 2018 was 57% higher than 53% in 2017. This achievment was due to the increase of international interconnection revenue from voice traffic service managed by Telin of Rp1,241 billion. Other revenue was also contributed by the managed service solution from Telkom Infra of Rp996 billion and network revenue of lease line and transponder of Rp319 billion. In the other hand, the WIB segment expense was Rp14,624 billion in 2018, increased by Rp2,291 billion or 18.6% compared to 2017. The increase was mainly due to strengthening of Telkom domestic and global infrastructure, such as the construction of optic-fiber based submarine cable and telecommunication tower. WIB main role in Group was supporting infrastructure and managed service provision, mainly for Mobile segment. It resulted that the WIB segment recorded its result toward intersegment expense allocation, resulted of Rp4,540 billion which better than last year recorded by Rp4,894 billion. In the 2016-2017 period, the wholesale and international business segment made revenue of Rp7,439 billion in 2017, increased by Rp1,573 billion or 26.8% compared to Rp5,866 billion in 2016. The increase in revenue was in line with the increased of Telkom infrastructure capacity, which is able to provide wider coverage services to customers both domestically and abroad. The expenditure in 2017 increased by Rp1,882 billion or 18.0% into Rp12,333 billion compared to Rp10,451 billion in 2016, which mainly due to expenditure on infrastructure development. The expenses increase was greater than the revenue increase, caused a loss of Rp4,894 billion in 2017, increased by Rp309 billion or 6.7%, compared to the previous year loss of Rp4,585 billion. Indonesia Global Gateway Submarine Cabel Construction 110 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportOTHERS SEGMENT “The sustainable product innovation and digital ecosystem formation would increase the customer satisfaction and convenience in adopting digital lifestyle.” In other segments, Telkom offers digital advertising services, financial services, TV/video, e-Commerce, digital content and lifestyle, big data and smart platforms. Telkom also operates a venture capital fund through the subsidiary, PT Metra Digital Innovation which is also known as MDI Ventures, to invest in digital startups. In digital advertising, Telkom delivers services including a digital advertising agency, integrated digital media, and big data analytics. Telkom also operates an ad exchange platform that brings publishers, advertisers, and agencies together to be able to carry out digital advertising activities effectively and efficiently by linking the buyers and sellers together in one advertisement marketplace. E-Commerce services through BLANJA.com, an online marketplace that facilitates the sale of consumers-to- consumers and business-to-consumer. BLANJA.com also develops B2B commerce service targetting the TelkomGroup internal market, SOE, the Government, and corpoartion. BLANJA.com currently has approximately 3.2 million users with 130.1 thousand transactions and value of Rp102.9 billion. To increase its User Interface (UI) and User Experience (UX), 3.2 million BLANJA.com registered users 34.7 million MelOn active users BLANJA.com developed B2B commerce service for particular category such as education and migrant worker. BLANJA.com also increased its mobile apps, made one-stop account integration with LinkAja, launched seller apps, intensified QR code use and leveraged its big data analytic use. MelOn is a digital content provider for music database and digital music content online application with 34.7 million active users. In 2018, MelOn user transaction reached 3,4 million. In September 2018, Telkom through its subsidiary Metranet, has launched an advertising based mobile video streaming collaborated with OONA, a Hong Kong digital company. This cooperation is expected Telkom capability in video service. 111 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789Telkom held Digital Amoeba and Indigo Creative Nation program to enhance its capability in digital sector. Digital Amoeba is a Corporate Innovation Lab program that aimed to accommodate and accelerate Telkom employee innovation. In order to accomodate and accelerate innovation from Telkom employees, there have been 52 teams validate their new product and process in the end of 2018, 14 of them is ready to further acceleration into a potential business portfolio. Indigo Creative Nation is a Telkom open innovation program collaborate with digital startup for developing new digital business, as well as the Telkom initiative program contributing in Indonesia digital creative industry development. Several startups made synergy with Telkom providing the digital product and solution such as PrivyID, Kofera, Run System, Nodeflux, Bahaso, Qiscus, and Opsigo. Moreover, on January 2018, Metranet acquired 30.4% share ownership of Cellum Global Zrt (Cellum), a provider of international cellular transaction solutions. This acquisition was supposed to strengthen Telkom technological capabilities through the development of mobile wallets as well as to get exclusive B2B partners with Cellum for future operations. Other Segment Financial Performance 2016–2018 The contribution of other segments to Telkom revenue in 2018 is 0.1%. Here are the other segment performance tables over the last three years: Other Segment Revenues Expenses Results 2018-2017 2018 2017 2016 (%) (Rp billion) (US$ million) (Rp billion) (Rp billion) 3.2 6.4 (6.9) 130 (1,042) (912) 9 (72) (63) 126 (979) (853) 19 (417) (398) Other segment revenue was Rp130 billion throughout 2018, increased by 3.2% than the previous year. This revenue occurred due to increased transactions on BLANJA.com and Melon. Other segment expenses in 2018 was Rp1,042 billion, increased by 6.4% compared to 2017 due to the increase of digital business investments. These various situations caused the loss for other segments in 2018 into Rp912 billion, increased by 6.9% compared to last year loss. In the 2016-2017, revenues in other segments recorded Rp126 billion, increased Rp107 billion or 563.2% compared to Rp19 billion in 2016. Meanwhile the increase in expenses in 2017 was Rp562 billion or 134.8%, into Rp979 billion. This resulted in an operating loss that increased by Rp455 billion or 114.3%, into Rp853 billion compared to Rp398 billion in 2016. 112 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportLEVERAGE ASSET PROGRAM Telkom has very large fixed properties of more than 3,000 land and buildings spreading from Sabang to Merauke. In line with the technological development, the smaller telecommunications equipment used today requires smaller space. Due this condition, it resulted idle assets and space that could be utilized to provide maximum benefits for the TelkomGroup. In 2018 Telkom focused and initiated intensively the asset leveraging program. Telkom divides asset leveraging into two categories based on cooperation partners, such as Synergy Group and Strategic & Retail Partnership.Synergy Group (SG) is the utilization of fixed assets specifically for TelkomGroup internal needs, including offices, warehouses, service centers (Plasa Telkom Digital, GraPARI TelkomGroup), and call centers. Telkom Landmark Tower (TLT) and Telkomsel Smart Office (TSO), whose construction was completed in 2017 and 2016, became one of the master pieces of asset utilization that aims to create better synergy within the TelkomGroup entity. The formerly far-flung offices of TelkomGroup and its subsidiaries are now in the environment of The Telkom Hub (including Grha Merah Putih, Telkom Landmark Tower, Telkomsel Smart Office), that previously rented at outside of the TelkomGroup assets, its extensive Semi Gross Area (SGA) decreased by 113,885 m2. Until 2018 the total SGA that has been utilized for the synergy group is 272,368 m2 (an additional area of 23,953 m2 in 2018), spreading in more than 493 locations across Indonesia (an additional 106 locations in 2018). In addition to support the operations and expansion of the TelkomGroup, Synergy Group also aims to create cost efficiency derived from decreasing base rent. This efficiency was resulted from the changes that previously leased land and buildings outside of Telkom assets, then utilized Telkom assets. The Synergy Group project has been operated and utilized by TelkomGroup entities, such as Telkomsel, Telkom Akses, Telkomedika, PINS, Mitratel, Telkom Sigma, Infomedia, Telkomsat. Some of these projects include Graha Merah Putih Sorong, Balai Merah Putih Pematang Siantar, Telkomsel branch offices (Central Jakarta, Bengkulu, Pangkalpinang, and Bandung), Telkomsel Pontianak warehouses and Infomedia call center Bogor. Grha Merah Putih TelkomGroup, Sorong - West Papua Balai Merah Putih, Pematang Siantar - North Sumatera The Strategic and Retail Partnership (SRP) is the utilization of fixed assets specifically for the external TelkomGroup. In 2018 we recorded revenues of Rp324 billion. The revenues obtained from various sectors include food and beverage, hospitality, consumer goods, education, collaboration space, and other retail. The cooperation offer are rent, business cooperation, build-operate- transfer (BOT). Until 2018, Telkom has cooperated with local and global players in more than 40 locations, such as McDonald’s, Mercure (Accor Hotels), Alfamart, Indomaret, Pertamina Retail, Starbucks, The Coffee Bean and Maxx Coffee. This asset utilization activity collaborates on asset utilization and is enriched by the TelkomGroup digital ecosystem. McDonald’s, Pekanbaru - Riau Alfamart, Jimbaran - Bali Mercure Nexa Hotel, Bandung - West Java 113 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789MARKETING OVERVIEW MARKET SHARE Telkom has a dominant market share in almost all business segments. For the mobile segment, Telkom market share based on the number of subsciber until the end of 2018 was 59.1%. The Telkomsel cellular subscibers at the end of 2018 was 163 million, with 107 million subscribers were mobile broadband subsciber. This market share position increased from the previous year of 54.5%. This increase in the cellular market share could not be separated from Telkom success in implementing prepaid SIM card registration and the effectiveness of the marketing programs. Regarding the enterprise segment, there are several indicators that could describe Telkom market share position. In terms of bandwidth service, Telkom estimated its market share position in 2018 was approximately 73%. Through Telkom Sigma, Telkom estimated controlling the integration of the system market share of 55.4%. For business process outsourcing (BPO), Telkom estimated dominating the market of 41% through its subsidiary Infomedia. As for the satellite business, Telkom estimated controlling the market approximately of 37% market share. Cellular Market Share System Integration Market Share 150.0% 100.0% 50.0% 0.0% 43.2% 45.5% 40.9% 56.8% 54.5% 59.1% FY 2016 FY 2017 FY 2018 Telkomsel Competitors 120.0% 100.0% 80.0% 60.0% 42.0% 59.0% 55.4% 40.0% 20.0% 0.0% 58.0% 41.0% 44.6% FY 2016 FY 2017 FY 2018 Telkom Sigma Competitors In the consumer segment, Telkom succeeded significantly in increasing Telkom market share in fixed broadband services. The number of IndiHome subscibers at the end of 2018 increased into 5.1 million subscribers from 2.9 million in the previous year. With this increase, IndiHome controled 84.5% of the fixed broadband market share in Indonesia. This market share position was stronger than 2017 of 81.1% market share. The success of increasing market share includes the results of strengthening access and IT infrastructure that have a good impact impact on service quality, technician productivity, and marketing strategy. For the WIB segment, in the tower business, Telkom estimated the market share of 27.5% through the subsidiary Mitratel. Compared to the previous year, Mitratel market share was higher from 26.6% due to the addition of tenants. Tower Market Share 120.0% 100.0% 80.0% Fixed Broadband Market Share 60.0% 75.7% 73.4% 72.5% 40.0% 20.0% 0.0% 24.3% 26.6% 27.5% FY 2016 FY 2017 FY 2018 Mitratel Competitors 150.0% 100.0% 18.7% 18.8% 15.5% 50.0% 81.3% 81.1% 84.5% 0.0% FY 2016 FY 2017 FY 2018 IndiHome Competitors 114 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportMARKETING STRATEGY Telkom has implemented a comprehensive marketing and promotional strategy to boost Telkom brand and sales, including through marketing communication activities and product and service distribution channel increase sales, Telkom also uses development. To above and below the line marketing (ATL and BTL) channels to promote Telkom services to certain parties and communities. Telkom also continues to place the advertisement in printed and electronic media as well as implement marketing methods such as point of sales broadcasting as well as promotion and sponsorship events. Marketing strategies are customized based on the characteristics of Telkom targeted business and customer segments to be more effective and efficient. Consumer IndiHome was still the leading product for the consumer customer market. Not only targeting the residential segment as the main market segment in 2018 but Telkom also maximizes penetration into apartments and premium clusters. Telkom marketing strategies are: (i) giving promotion price and costumer value, (ii) consistently offer products with attractive values through various sales channels especially digital channels, (iii) and held campaigns and year-round promotions such as Chinese New Year, Ramadhan, Indonesia Independence Day, Christmas and New Year Promo. In 2018, Telkom had sales strategy focused on dynamic pricing implementation allowing prices to project different conditions in areas of Indonesia while providing superior bundled products with faster and better service for customers. Telkom also introduced a points program for the salesperson to incentivize greater sales activity on weekends and holidays in order to provide more convenience for Telkom customers. Telkom intensified operating activities to provide tailored service for customers by using their profiles created through the data compilation in order to personalize service and product which might be attractive to customers. Telkom has also developed an end-to-end traceable customer relationship management process, allowing to identify and rectify problems as they happen, rather than waiting for customers alert us to such issues, so Telkom could proactively solve problems avoiding customers inconvenienced. Mobile For mobile segment, Telkom focused on improving profitability and increasing ARPU through healthier pricing. For instance, in 2018, Telkom introduced “More for More” which would give customers more value-added with higher ARPU. Telkom also continued promotion of mobile package options in order to encourage existing mobile broadband customers to increase their services use. In addition, Telkom continued promoting data package options which targeted the youth segment under Loop brand. Telkom efforts to increase ARPU included providing digital lifestyle and payment services as mobile-based digital life services. In 2018, Telkom continued to introduce new products and to revamp mobile package options in order to appeal to various groups of customers. For example, Telkom introduced MAXstream, a video platform offering free and paid content, as well Shellfire, a gaming platform which offers in-app purchase opportunities and Langitmusik, a streaming music service. Telkom increased opportunities for customers to use TCASH, including 115 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789extending the ability to use TCASH to non-subscribers. Telkom also collaborated with additional partners such as taxi services, petrol stations, and food and beverage operators for the use of TCASH as payment. Enterprise For enterprise customers, Telkom applied a marketing strategy in winning the competition at high-end market customers using strategic managing accounts with the aim of improving relationship quality better than competitors through more focused services and customized to customer needs. Telkom also applied a marketing strategy under the “Disruptive Digitize Nation” program, which comprises: • Ignite Initiatives; which aims to become the Government partner for and provision, communications service (ICT) by collaborating with the government on strategic ICT mega-deals that focus on the digital customer experience; Government information DISRUPTIVE technology • Lead End to End Enterprise DIGITIZED Ecosystem; which markets end-to-end digital ICT solutions to the enterprise customers providing customized specific and segmented solutions based on market and industry diversification; and ICT solutions • Build NATION’s Digital-Driven SMB which markets basic connectivity service in and solution packages massively for SMB by providing proper digital platform to encourage the SMB business. In 2018, Telkom had sales strategies comprises: (i) Provide Account Manager for corporation segment, it acted as the point of contact for interaction to the customer for end-to-end service, from initiation to after-sales service, (ii) Provide Government Relationship Officer for government customers to manage a close relationship with customers for the whole year as courtship for next year contract renewal and current service deliverable, and (iii) Provide Business Account Manager for medium SMB segment, Tele Account Management (TAM) served small SMB segment, and for micro SMB segment served with Value-Added Reseller method. During 2018, Telkom has customer care management or after sales service through several ways, including call and contact center for handling customer request, complaints as well as delivering information of several products and services. 116 Wholesale and International Business international data center or Wholesale and international business customers are mainly domestic Other License Operators (OLO), service providers, global wholesaler and carrier, and enterprises that related to Telkom product or services such as international connectivity (IPLC) besides retail customers in Telkom international operation of MNO and MVNO. However, for both Telkom wholesale and international business and network infrastructure portfolio, Telkom focuses on the implementation of: • Attractive pricing, which is a creative and innovative business scheme in traffic (voice) and network service to satisfy customer need and business target; and • Services improvement for international data center, MNO, MVNO, and BPO customers in order to maintain strong relationships with Telkom customers. In 2018, Telkom had different sales channel in every business lines which acted as the sales and distribution channel for any sales perform by any entity. Telkom has customer care management for wholesale and international business customers such as Account Manager, OLO care center, wholesale digital touch point Apps (covering domestic & international customers), and World Hub Operation Command Center (WHOCC) which supporting for 24 hours every day. Other and Digital Services For digital service customers, Telkom implements a marketing strategy which focuss on strengthening and improving digital innovation, including by: • Enriching digital content; • Creating digital services with unique features; • Improving brand, platform, operational, and customer experiences; • Building digital business models in order to support Indonesia digital economics; • Leveraging assets and to obtain increasing insight into digital services and customer experience; and inventory • Growing the portfolio of digital business through investment in digital startups in order to be a part of Indonesia digital ecosystem. Telkom has a tailor sales strategy for each particular digital business and the needs of their customers. Telkom offers customer care and channel management, including through contact centers, dedicated account management for corporation, websites, and social media. PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportDISTRIBUTION CHANNEL Digital Touch Point Digital touch point is a web-based and mobile-based service provided for IndiHome and corporate customers. Telkom provides MyIndiHome as a mobile-based self-care service for IndiHome customers. Through the application, customers could make subscription requests, billing and payment management, reporting and monitoring network issues, and accessing video on demand and customer reward programs. Telkomsel also offers myTelkomsel, a self-care mobile application-based service for Telkomsel subscribers, which provides information on services, allows the purchase of packages and products as well as account management. For customer journey, Telkom measures experience with the global standard Net Promoter Score (NPS). NPS information is used to improve customer experience in using services and improving the quality of products and services. myTelkomsel myIndiHome myCarrier Authorized Dealers, Retail Outlets and Modern Channel This distribution network provides Telkomsel products such as starter packs, prepaid SIM cards, and top-up vouchers. Telkom operates an authorized dealers and retail outlets network across which is non-exclusive with a discount on all marketable products. Partnership Stores This scheme is an extension of Telkom distribution channels through cooperation with various third-party marketing outlets, such as a computer or electronic stores, banks through ATM networks and other business networks. Contact Center Serving as call centers, Telkom has contact centers that help customers access products and services including billing inquiries, submitting complaints and accessing to certain promotional information and service features. Telkom operates a 24-hour contact center facility in Jakarta, Semarang, Bandung, Surabaya and Malang. Account Management Team Managing relationship and portfolio specifically for corporate, SMB, government institution and wholesale customers. Sales Specialist Sale Specialist is a person who has advanced technical knowledge about product and service for the corporate customer and cooperates with the account manager. Channel Partner For enterprise customers, Telkom cooperates 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. Telkom also works with third parties to conduct sales activities through certain events. 117 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 Customer Service Point Telkom has Plasa Telkom, GraPARI Telkomsel and GraPARI TelkomGroup as walk-in customer service points to access all Telkom and Telkomsel product and service. It includes billing, payments, subscription cancellation, promotion and complaint handling. As of December 31, 2018, Telkom has 422 Plasa Telkom outlet and 429 GraPARI center in Indonesia, as well 11 overseas GraPARI (Saudi Arabia, singapore, Hong Kong, Macau, Taiwan and Malaysia) and 7 GraPARI TelkomGroup. Telkom also operated 761 unit mobile GraPARI and 1,142 unit mobile IndiHome. GraPARI TelkomGroup (GTG) deliver services for Telkom and Telkomsel customers with special concept based on customers journey experience in wider space to make officer help customers more active and persuasive and create customer intimacy. Customers also could have Digital Customer Experience through various sophisticated and unique facilities that relevant to people digital lifestyle. Website TCASH Wallet A digital wallet application which allows customers to purchase data, voice package, and pay bills or other product with TCASH. Telkom operates www.telkom.co.id, www.telkomsel.com and www.indihome.co.id in order to facilitate customers to access products and services. Some features of available services are e-billing, registration, collective billing information, and filing complaints. Social Media In line with the growing digital lifestyle, Telkom uses social media such as Facebook, Instagram, and Twitter, to provide information, and communicate with customers about Telkom products and services. 118 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CUSTOMER RELATIONSHIP MANAGEMENT (CRM) Telkom made the enhancement of IT-based Customer Relationship Management (CRM) to improve customer experience by NCX (New Customer Experience) application. With tis application, Telkom could obtain and integrated information such as historical data and customer preference that helps the customer approaching, acquisition, agreement composition, and order submitting process, so that the customers would get high quality service. NCX has been operated gradually for enterprise as well as wholesale and international business segment in 2018, meanwhile it will be operated in 2019 for consumer segment. OUR CUSTOMERS DIGITAL EXPERIENCE OUR CUSTOMERS DIGITAL EXPERIENCE 119 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789COMPREHENSIVE FINANCIAL PERFORMANCE FINANCIAL POSITION OVERVIEW At the end of 2018, the Telkom recorded Total Assets of Rp206,196 billion, up 3.9% from the position at the end of the previous year. The increase in Total Assets was mainly due to the increase in Fixed Assets in line with infrastructure development. Whereas the Telkom’s total liabilities at the end of 2018 were recorded at Rp88,893 billion, up by 2.9%, which was mainly due to the increase in debt in order to support funding in infrastructure development as well as to optimize the capital structure. These tables show financial position of Telkom for three years, from 2016 to 2018. Consolidated statements of financial position table Growth 2018-2017 (%) Years ended December 31, 2018 2017 2016 (Rp billion) (US$ million) (Rp billion) (Rp billion) Total Current Assets Total Non-Current Assets Total Assets Total Current Liabilities Total Non-Current Liabilities Total Liabilities Total Equity attributable to owners of the parent company Financial Position Comparison (9.0) 8.0 3.9 2.0 4.0 2.9 6.7 43,268 162,928 206,196 46,261 42,632 88,893 98,910 3,009 11,330 14,339 3,217 2,965 6,182 6,878 47,561 150,923 198,484 45,376 40,978 86,354 47,701 131,910 179,611 39,762 34,305 74,067 92,713 84,384 Composition of Assets and Liability during 2018, 2017 and 2016 can be seen in the following graphic. Assets Composition 2016-2018 2018 2017 2016 43,268 21,0% 162,928 79.0% 47,561 24.0% 150,923 76.0% Non Current Assets Current Assets Liability Composition 2016-2018 2018 2017 2016 42,632 48.0% 46,261 52.0% 40,978 47.5% 45,376 52.5% Current Liabilities Non Current Liabilities 47,701 26.6% 131,910 73.4% 34,305 46.3% 39,762 54.7% 120 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Comparison of Financial Position as of December 31, 2018 Compared to as of December 31, 2017 1. Assets As of December 31, 2018, Telkom have total assets of Rp206,196 billion (US$14,339 million), an increase 3.9% from Rp198,484 billion in 2017. a. Current Assets Current assets position reached Rp43,268 billion (US$3,009 million) as of December 31, 2018, decrease by Rp4,293 million atau 9.0% from Rp47,561 billion as at 31 December 2017. The decrease in Telkom current assets is mainly due to: • Decrease in cash and cash equivalent by Rp7,706 billion or 30.6% due to dividen payment, capital expenditure and bank loan payment; • Decrease in other current financial assets by Rp869 billion or 40.0% due to the decrease available for sale financial assets; and • Decrease in claim for tax refund by Rp312 billion or 34.4%. These decrease were compensated by: • Increase in trade receivables by Rp2,192 billion or 23.8% due to third parties trade receivables of Rp1,611 billion; Increase in prepaid taxes by Rp802 billion or 41.2% due to the increase of prepaid cash payments for value added taxes; Increase other current assets by Rp799 billion or 11.1%; Increase or 112.6%; and Increase in assets held for sale by Rp330 billion or 3,300.0%. in other receivables by Rp385 billion • • • • b. Non Current Assets As of December 31, 2018, non-current assets reached Rp162,928 billion (US$11,330 million), increase Rp12,005 billion or 8.0% compared to Rp150,923 billion in 2017. Increase in non-current assets is mainly caused by: • Increase in property and equipment by Rp13,077 billion or 10.0% with the increase in infrastructure construction; Increase in intangible asset by Rp1,502 billion or 42.5% due to the goodwill increase from the acquisition of Swadharma Sarana Informatika, Collega Inti Pratama and Telin Malaysia; and Increase in long-term investment by Rp324 billion or 15.1% due to the acquisition Cellum and other long- term investment. • • These increase were compensated by: • Decrease other non-current assets by Rp2,598 billion or 21.2% due to the decrease in advances for purchases of property; and • Decrease in deferred tax assets by Rp300 billion or 10.7%. 2. Liabilities As of December 31, 2018 Telkom liabilities amount to Rp88,893 billion (US$6,182 million), increase 2.9% from Rp86,354 billion in 2017. a. Current Liabilities As of December 31, 2018, Telkom current liabilities position reached Rp46,261 billion (US$3,217 million), increase 2.0% compared to Rp45,376 billion as at 31 December 2017. Telkom current liabilities increase is mainly due to: • Increase in short-term bank loans by Rp1,754 billion or 76.6% due to the increase of third parties short-term bank loans such as DBS and MUFG Bank for Telkom and subsidiaries working capital. This acquired bank loan facilities was spent for working capital; Increase in current maturities of long term borrowings by Rp1,087 billion or 20.9% due to matured bonds and notes in a year for Rp525 billion; and Increase in advances from customers by Rp329 billion or 26.5%. • • The increase is compensated by: • A decrease in taxes payable by Rp1,610 billion or 57.7% due to the decrease of the subsidiaries value-added tax; • A decrease in trade payables by Rp808 billion or 5.2% due to the decrease in third parties payable by Rp905 billion; and • A decrease in unearned income by Rp237 billion or 4.4%. b. Non Current Liabilities As of December 31, 2018, Telkom non current liabilities reached Rp42,632 billion (US$2,965 million), increase by Rp1,654 billion or 4.0% from Rp40,978 billion as of December 31, 2017. Telkom increase in non current liabilities due to: • Increase in long-term borrowings by Rp5,574 billion or 20.6% due to increase in bank loans by Rp4,859 billion, bond and notes by Rp974 billion and other borrowings by Rp754 billion. The increase is compensated by decrease in obligation under finance leases by Rp672 billion and two step loans by Rp141 billion; and Increase in deferred tax liabilities by Rp319 billion or 34.2%. • The increase is compensated by decrease in pension benefits and other post-employment benefits obligation by Rp4,640 billion or 45.5% due to the decrease of pension benefits by Rp2,405 billion and post-employment health care benefits by Rp2,224 billion. 3. Equity Telkom recorded total equity increase by Rp5,173 billion or 4.6% from Rp112,130 billion as at December 31, 2017 to Rp117,303 billion (US$8,157 million) as of December 31, 2018. The increase is mainly due to total retained earning increase by Rp6,099 billion or 7.2% due to the increase in total comprehensive income for the year attibutable to owners of the parent company is Rp22,844 billion. The increase is compensated by decrease in non controlling interest by Rp1,024 billion. 121 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 Comparison of Financial Position as of December 31, 2017 Compared to as of December 31, 2016 The current liabilities increase is mainly due to: • Increase in trade payables by Rp2,056 billion or 15.2% due to an increase in third party trade payables of Rp2,707 billion; Increase in short-term bank loans by Rp1,378 billion or 151.3%; Increase in accrued expenses by Rp1,347 billion or 11.9% due to operational, maintenance and telecommunication service expense; Increase in current maturities of long term borrowings by Rp688 billion or 15.2%; and Increase in advances from customers and suppliers by Rp400 billion or 47.6%. • • • • The increase is compensated by: • A decrease or 5.6%; and in taxes payable by Rp164 miliar • A decrease in unearned income by Rp136 billion or 2.4%. b. Non Current Liabilities As of December 31, 2017, the non current liabilities reached Rp40,978 billion, increase by 6,673 billion or 19.5% from Rp34,305 billion as of December 31, 2016. The increase in non current liabilities due to: • Increase in pension benefits and other post- employment benefits obligation by Rp4,069 billion or 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 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%. liabilities by Rp565 billion in other • • • • 3. Equity Telkom recorded total equity increase by Rp6,586 billion or 6.2% from Rp105,544 billion as at December 31, 2016 to Rp112,130 billion as of December 31, 2017. The increase is 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 is compensated by decrease in non controlling interest by Rp1,743 billion. 1. Assets As of December 31, 2017, Telkom have total assets of Rp198,484 billion, an increase 10.5% from Rp179,611 billion in 2016. a. Current Assets Current assets position reached Rp47,561 billion as of December 31, 2017, decrease by Rp140 billion or 0.3% from Rp47,701 billion as at 31 December 2016. The decrease in Telkom current assets is mainly due to: • Decrease in cash and cash equivalent by Rp4,622 billion or 15.5% due to dividen payment and capital expenditure; • Decrease in other receivables by Rp195 billion or 36.3%; and • 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 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%. b. Non Current Assets As of December 31, 2017, non-current assets reached Rp150,923 billion, increase by Rp19,013 billion or 14.4% compared to Rp131,910 billion in 2016. Increase in non-current assets is mainly caused by: • Increase in property and equipment by Rp15,673 billion 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; Increase in other non-current asset by Rp762 billion or 6.6%; Increase in intangible asset by Rp441 billion or 14.3%; and Increase in long-term investment by Rp301 billion atau 16.3%. These increase were offset by decrease in prepaid pension benefit cost by Rp199 miliar. 2. Liabilities As of December 31, 2017 Telkom liabilities amount to Rp86,354 billion, increase 16.6% from Rp74,067 billion in 2016. a. Current Liabilities As of December 31, 2017, the current liabilities position reached Rp45,376 billion, increase 14.1% compared to Rp39,762 billion as at 31 December 2016. 122 • • • • • • • PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report PROFIT AND LOSS OVERVIEW In 2018, Telkom recorded a consolidated income of Rp130.8 trillion, a positive growth of 2.0%. Telkom’s digital business revenue, which includes broadband connectivity and digital services, experienced a significant growth of 23.1%, which was able to compensate for the decline in the legacy business by 21.1%. The results of this performance show that the contribution of digital business in 2018 increased significantly to 63.0% from 52.1% in 2017. The achievement also shows that Telkom is on the right track to become the Digital Telecommunication Company by continuing to strengthen the capabilities of digital business, while demonstrating an increasingly solid commitment to serve various digital needs of customers. Operating expenses grew by 12.5% to Rp71.6 trillion, in line with investment in infrastructure development both mobile and fixed line. Sustainable infrastructure development, especially broadband infrastructure is very important to ensure the best customer digital experience. While the total burden in 2018 was recorded at Rp93.96 trillion, or an increase of 9.8% compared to the previous year. In 2018, Telkom profit before interest, tax, depreciation and amortization (EBITDA) decreased by 8.4% into Rp59.2 trillion, along with the development of a sustainable broadband infrastructure. Telkom net profit also decreased by 18.6% into Rp18.0 trillion or 13.7% if not considered income as the impact of asset revaluation in 2017. The following table shows Telkom Comprehensive Profit for three years from 2016 to 2018, with each percentage representing a comparison of total revenues or expenses. Table of Comprehensive Income Growth 2018-2017 (%) (Rp billion) 2018 (US$ million) Years ended December 31, 2017 2016 % (Rp billion) % (Rp billion) % 2.0 130,784 9,095 100.0 128,256 100.0 116,333 100.0 (17.3) (18.3) (11.7) 36,319 30,431 5,888 5.6 5,463 2,526 2,116 409 380 27.8 23.3 4.5 4.2 43,911 37,246 6,665 34.2 29.0 5.2 46,039 38,497 7,542 39.6 33.1 6.5 5,175 4.0 4,151 3.6 12.6 77,153 5,365 59.0 68,535 53.4 58,971 50.6 18.9 45,154 3,140 34.5 37,961 29.6 28,308 24.3 (30.4) 9,185 639 7.0 13,192 10.3 15,980 13.7 29.0 19,454 1,353 14.9 15,085 11.8 13,073 11.2 29.0 141.4 (8.0) 2,508 852 1,723 15.6 10,126 Sales of peripherals (19.2) Telecommunication tower leases Call center service E-payment E-health CPE and terminal Others 14.2 (8.5) (11.1) 19.8 170.5 20.6 1,851 909 1,052 449 563 1,450 3,852 174 59 120 704 129 63 73 31 39 101 268 1.9 0.7 1.3 7.7 1.4 0.7 0.8 0.3 0.4 1.1 2.9 1,944 353 1,873 1.5 0.3 1.5 1,546 64 1,444 1.3 0.1 1.2 8,762 6.8 5,728 4.9 2,292 796 970 505 470 536 3,193 1.8 0.6 0.8 0.4 0.4 0.4 2.5 1,490 733 678 424 415 192 1,796 1.3 0.6 0.6 0.4 0.4 0.2 1.5 123 Revenues Telephone Revenus Cellular Fixed Line 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 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789Table of Comprehensive Income Growth 2018-2017 (%) (Rp billion) 2018 (US$ million) Years ended December 31, 2017 2016 % (Rp billion) % (Rp billion) % 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 sales of handset Electricity, gas and water Cost of SIM cards and vouchers Vehicles rental and supporting facilities Tower leases Assurance Others Personnel Expenses Salaries and related benefits Vacation pay, incentives and other benefits 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 9.8 4.7 93,691 6,515 100.0 85,362 100.0 77,888 100.0 21,406 1,489 22.8 20,446 24.0 18,532 23.8 19.6 43,791 3,045 46.7 36,603 42.9 31,263 40.1 11.7 25,214 1,753 26.9 22,577 26.4 18,610 23.9 28.0 5,473 96.6 2.1 5,125 2,297 20.5 1,860 1.4 1,051 (16.3) 37.2 1.7 (34.4) 177.1 (2.6) 765 413 480 193 920 13,178 3.3 8,077 381 356 160 129 73 53 29 33 13 64 916 562 (1.4) 3,292 229 - (36.9) - 161 78 - 11 5.8 5.5 2.5 2.0 1.1 0.8 0.4 0.5 0.2 1.0 14.1 8.6 3.5 1.2 0.0 0.2 4,276 2,607 2,249 1,544 1,037 914 301 472 294 332 5.0 3.1 2.6 1.8 1.2 1.1 0.4 0.6 0.3 0.4 3,687 2,578 2,217 1,481 960 4.7 3.3 2.8 1.9 1.2 624 0.8 367 322 256 161 0.5 0.4 0.3 0.2 17.5 9.6 13,529 15.8 13,612 7,821 9.2 7,476 3,339 3.9 3,865 5.0 1,700 2.0 1,068 - - 628 1.4 0.8 255 0.3 237 0.3 21.4 335 23 0.4 276 0.3 163 0.1 82.3 (23.8) 41.2 43.4 113 32 48 4,283 8 2 3 298 293 0.1 0.0 0.1 4.6 4.5 62 0.1 82 0.1 42 34 2,987 5,268 0.0 0.0 3.5 6.2 48 45 3,218 4,132 0.1 0.1 4.1 5.3 Pension benefit cost (34.1) 1,120 Marketing Expenses (20.0) 4,214 124 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTable of Comprehensive Income Growth 2018-2017 (%) (Rp billion) 2018 (US$ million) Years ended December 31, 2017 2016 % (Rp billion) % (Rp billion) % General and Administrative Expenses 16.7 6,137 General Expenses 23.7 1,792 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 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 6.6 1.9 1.8 0.5 0.2 0.4 0.9 0.2 0.2 0.4 0.7 (0.1) 0.8 427 125 120 32 11 29 57 16 13 24 47 (5) 52 122 2,701 71 (244) 4 15.4 1,724 (12.8) 16.3 (12.6) 65.3 (3.3) (8.1) 45.4 (46.3) 33.3 (43.2) 68.6 (11.6) (29.3) 26.7 (13.1) 463 157 415 823 233 181 349 682 (68) 750 1,752 38,845 1,014 (3,507) 53 5,260 6.2 4,610 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 1,449 1,494 531 135 475 498 241 197 240 1,269 1.7 1.8 0.6 0.2 0.6 0.6 0.3 0.2 0.3 1.5 (51) (0.1) 1.5 1,320 1,039 43,933 1,434 (2,769) 61 42,659 (9,958) 32,701 (2,332) 30,369 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 18,032 1,254 22,145 19,352 8,947 622 10,556 9,820 22,844 1,589 19,952 17,331 9,077 631 10,417 9,742 125 Profit for the Year (17.5) 26,979 (14.7) 36,405 2,532 (5.3) (9,426) 311.9 4,942 (655) 1,876 344 5.1 31,921 2,220 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 Profit and Loss Comparison Composition of Revenues and Expenses during 2016 until 2018 can be seen in the following diagram. Revenues Composition 2016-2018 2018 2017 2016 10,126 7.7% 36,319 27.8% 77,153 59.0% 5,463 4.2% 1,723 1.3% 8,762 6.8% 43,911 34.2% 68,535 53.4% 5,728 4.9% 5,175 4.0% 1,873 1.5% 46,039 39.6% 58,971 50.7% 4,151 3.6% 1,444 1.2% Telephone Interconnection Data, Internet and Information Technology Network Other Telecommunications Expenses Composition 2016-2018 2018 2017 2016 4.214 4,5% 13.178 14,1% 21.406 22,8% 5,268 6.2% 13,529 15.8% 20,446 24.0% 6.137 6,6% 4.283 4,6% 682 0.7% 43.791 46,7% 4,132 5.3% 13,612 17.5% 18,532 23.8% 5,260 6.2% 2,987 3.5% 1,269 1.5% 36,603 42.9% 4,610 5.9% 3,218 4.1% 2,521 3.2% 31,263 40.1% Depreciation and Amortization Operations, Maintenance and Telecommunication Services Personnel Interconnection Marketing General and Administrative Other 126 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportComparison of Profit and Loss for The Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 1. Revenues Telkom recorded an increase in revenues by Rp2,528 billion or 2.0%, from Rp128,256 billion in 2017 to Rp130,784 billion (US$9,095 million) in 2018. This increase is mainly due to the data, internet and information technology services revenue. a. Cellular Telephone Revenues Cellular voice revenues contributed for 23.3% of 2018 consolidated revenue of Telkom 2018 consolidated revenues. The cellular revenues decrease by Rp6,815 billion, or 18.3%, from Rp37,246 billion in 2017 to Rp30,431 billion (US$2.116 million). The decrease is due to subscriber prefer to use Over the Top (OTT) service as a substitution of cellular service due to cellular service cannibalization. b. Fixed Lines Revenues Fixed line revenues decreased by Rp777 billion or 11.7%, from Rp6,655 billion in 2017 to Rp5,888 billion (US$409 million) in 2018. due to the decrease of voice service usage. c. Data, Internet and Information Technology Services Revenues In 2018 Telkom derived data, internet and information technology services revenues of Rp77,153 billion (US$5,365 million), increase by Rp8,618 billion or 12.6% from Rp68,535 billion in 2017. Revenue from this business activity accounted for 59.0% of consolidated revenue in the year ended December 31, 2018. Increase in data revenues, internet and information technology services is mainly due to: • The increase of internet and data cellular revenue Rp7,193 billion or 18.9% due to the growth in data usage by 101.7% to 4,373,077 TB; • An increase in internet, data communications and information technology services revenue increased by Rp4,369 billion or 29.0% in line with growing fixed broadband subscribers from 5.3 million to 7.2 million, which include IndiHome subscribers; • Pay TV revenues increased by Rp564 billion or 29.0% in line with the increase in add on minipack transactions by IndiHome customers to 4.4 million in 2018, grew 243% compared to 2017; and Increase in other revenue by Rp499 billion or 141.4%. • The increase was compensated by decrease in SMS revenue by Rp4,007 billion or 30.4% due to customers preference transformation to Over the Top (OTT) service. d. Interconnection Revenues interconnection consist revenues revenues interconnection Interconnection revenues incoming calls from Telkom of interconnection revenues from Telkom’s fixed line from Telkomsel and include cellular network. international direct IDD 007 services. Interconnection revenues in 2018 increased by Rp288 billion or 5.6% from Rp5,175 billion in 2017 to Rp5,463 billion (US$380 million) in 2018, due to increased in voice traffic that targeted and considered the niche of the global transit market by flowing traffic between countries. e. Network Revenues Telkom network revenues increased by Rp150 billion or 8.0%, from Rp1,873 billion in 2017 to Rp1,723 billion (US$120 million) in 2018. f. Other Telecommunication Services Revenues Other telecommunications services revenue increased by Rp1,364 billion or 15.6%, from Rp8,762 billion in 2017 to Rp10,126 billion (US$704 million) in 2018. The increased was mainly due to: • Increase in CPE and terminal revenue by Rp914 billion or 170.5% from Enterprise customer for ICT solution service; and Increase in other revenues by Rp441 billion or 19.2%. • These increases were compensated by the decrease of sales of peripherals by Rp441 billion or 19.2%. g. Other Revenues Other revenues increased by Rp713 billion or 68.6%, from Rp1,039 billion in 2017 to Rp1,752 billion (US$122 million) in 2018. 2. Expense Total expenses increased by Rp8,329 billion, or 9.8%, increased from Rp85,362 billion in 2017 to Rp93,691 billion (US$6,515 million) in 2018. a. Operation, Maintenance and Telecommunication Service Expense Operations, maintenance and telecommunication the service expenses contributed 46.7% expenses. Operations, maintenance and total of telecommunication service expenses increased by Rp7,188 billion, or 19.6%, from Rp36,603 billion in 2017 to Rp43,791 billion (US$3,045 million) in 2018. from 127 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 This increase was primarily attributable to the following: • An increase in operations and maintenance expenses by Rp2,637 billion, or 11.7%, due to an increase of network maintenance for broadband, cellular or fixed network improvement; • The increase in leased lines and CPE expenses by Rp2,518 billion or 96.6%, along with the increase in the Enterprise segment revenue in providing end-to-end IT Solutions; • An increase in radio frequency usage charges expense by Rp1,197 billion or 28.0% due to the annual performance bond payment of Rp20 billion and Rp1,030 each for 2.1 GHz and 2.3 GHz frequency by Telkomsel; • The increase of other expense was Rp588 billion or 177.1%; and • An increase in cost of sales of handset by Rp316 billion or 20.5%. This increase was compensated by the decrease in cost of SIM card and vouchers sales by Rp149 billion or 16.3% due to the decrease of production and distribution cost. It occurred due to the SIM Card registration that changed business orientation into top-up phone credit package than starter pack sales. This increase primarily due to: • An increase in general expenses by Rp343 billion or 23.4%; • An increase in professional fees expenses by Rp325 billion, or 65.3%; and • An increase in provision for impairment of receivables by Rp230 billion or 15.4%. g. Gain (Loss) on Foreign Exchange-net Gain on foreign exchange – net amounted to Rp68 billion (US$5 million) in 2018, compared to Rp51 billion in 2017. indicated the relatively low impact of foreign currency rate fluctuation toward Telkom. h. Other Expense Other expenses decreased by Rp570 billion or 43.2%, from Rp1,320 billion in 2017 to Rp750 billion (US$52 million) in 2018. 3. Operating Profit and Operating Profit Margin With the various increases and decreases of transactions, operating profit decreased by Rp5,088 billion, or 11.6%, from Rp43,933 billion in 2017 to Rp38,845 billion (US$2,701 million) in 2018. Operating profit margin decreased from 34.3% in 2017 to 29.7% in 2018. b. Depreciation and Amortization Expense Depreciation and amortization expenses increased by Rp960 billion, or 4.7%, from Rp20,446 billion in 2017 to Rp21,406 billion (US$1,489 million) in 2018 in line with the increase in fixed assets value. 4. Profit Before Income Tax and Pre-Tax Margin The profit before income tax decreased by Rp6,254 billion, or 14.7%, from Rp42,659 billion in 2017 to Rp36,405 billion (US$2,532 million) in 2018. Pre-tax margin decreased from 33.3% in 2017 to 27.8% in 2018. c. Personnel Expense Personnel expenses contributed 14.1% from Telkom total expenses. This expense decreases by Rp351 billion or 2.6%, from Rp13,529 billion in 2017 to Rp13,178 billion (US$916 million) in 2018. This decrease was consisted of the decrease pension benefit cost of Rp580 billion or 34.1% due to past service cost as the previous year. This decrease was compensated by the increase of salaries and related benefit expenses by Rp256 billion or 3.3%. d. Interconnection Expense Interconnection expense increased by Rp1,296 billion, or 43.4%, from 2,987 billion in 2017 to Rp4,283 billion (US$298 million) in 2018. This increase was in line with the efforts in interconnection revenue increase. e. Marketing Expense Marketing expenses decreased by Rp1,054 billion or 20.0%, from Rp5,268 billion in 2017 to Rp4,214 billion (US$293 million) in 2018 due to the marketing program strategy which is effective and efficient, especially in cellular services as the sales business model will be more oriented to the sale of credit top-up packages than the sale of starter packs. f. General and Administrative Expense General and administrative expenses increased by Rp877 billion or 16.7%, from Rp5,260 billion in in 2018. 2017 to Rp6,137 billion (US$427 million) 5. Income Tax Expense Income tax expense decreased by Rp532 billion or 5.3%, from Rp9,958 billion in 2017 to Rp9,426 billion (US$655 million) in 2018, inline with the decrease in profit before income tax. 6. Other Comprehensive Income In 2018, other comprehensive income was Rp4,942 billion (US$344 million). In 2017, other Telkom comprehensive income was to Rp2,332 billion. 7. Profit for The Year Attributable to Owners of The Parent Company Profit for the year attributable to owners of the parent company decreased by Rp4,113 billion or 18.6%, from Rp22,145 billion in 2017 to Rp18,176 billion (US$1,254 million) in 2018. 8. Profit for The Year Attributable to Non-Controlling Interest Profit for the year attributable to non-controlling interest decreased by Rp1,609 billion, or 15.2%, from Rp10,556 billion in 2017 to Rp8,947 billion (US$622 million) in 2018. 9. Net Comprehensive Income for The Year Net Comprehensive income for the year increased by Rp1,552 billion, or 5.1%, from Rp30,369 billion in 2017 to Rp31,921 billion (US$2,220 million) in 2018. 10. Net Income per Share Net income per share decreased by Rp41.52 or 18.6%, from Rp223.55 in 2017 to Rp182.03 in 2018. 128 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Comparison of Profit and Loss for The Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 1. Revenues e. Network Revenues Telkom recorded an increase in revenues by Rp11,923 billion or 10.2%, from Rp116,333 billion in 2016 to Rp128,256 billion in 2017. This increase is mainly due to the data, internet and information technology services revenue. a. Cellular Telephone Revenues Telkom cellular revenues accounted for 29.0% of Telkom 2017 consolidated revenues. Telkom cellular revenues decrease by Rp1,251 billion, or 3.2%, from Rp38,497 billion in 2016 to Rp37,246 billion. The decrease is due to a decrease in usage charges revenue by Rp1,062 billion or 2.8%. b. Fixed Lines Revenues 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%. Telkom network revenues increased by Rp429 Billion or 29.7%, from Rp1,444 billion in 2016 to Rp1,873 in 2017. f. Other Telecommunication Services Revenues Other telecommunication services increased by Rp3,034 billion or 53.0%, from Rp5,728 billion in 2016 to Rp8,762 billion in 2017. The increased was mainly due to: • • Increase in other revenue by Rp1,397 billion or 77.8%; Increase in sales of peripheral by Rp802 billion or 53.8%; Increase in CPE and terminal revenue by Rp344 billion or 179.2%; and Increase in call center service revenue by Rp292 billion or 43.1%. • • g. Other Income Other income increased by Rp289 billion or 38.5%, from Rp750 billion in 2016 to Rp1,039 miliar in 2017. c. Data, Internet and Information Technology Services 2. Expense internet and Revenues Telkom derived data, information technology services revenues of Rp68,535 billion, increase by Rp9,564 billion or 16.2% from Rp58,971 billion in 2016. Revenue from this business activity accounted for 53.4% of consolidated revenue in the year ended December 31, 2017. Increase in data revenues, internet and information technology services is mainly due to: • An increase in celuller internet and data by Rp9,653 billion or 34.1% due to the growth in mobile broadband usage from 84.7 million subscribers in 2016 to 105.8 million subscribers in 2017; • An increase in internet, data communications and information technology services revenue increased by Rp2,012 billion or 15.4% in line with growing fixed broadband subscribers from 4.3 million to 5.3 million, which include IndiHome subscribers; Increased Pay TV revenue by Rp398 billion or 25.7% as IndiHome subscribers; Increase 451.6%; and in other revenue by Rp289 billion or • • • This increase was compensated by a decrease in SMS revenues of Rp2,788 billion or 17.4% due to over the top (OTT) services. d. Interconnection Revenue interconnection consist revenues revenues interconnection of Telkom interconnection revenues from Telkom’s fixed line from Telkomsel’s and include cellular network. international direct IDD 007 services. Interconnection revenues in 2017 increased by Rp1,024 billion or 24.7% from Rp4,151 billion in 2016 to Rp5,175 billion in 2017, due to increased in domestic interconnection revenue. Interconnection revenues incoming calls from Total expenses increased by Rp7,474 billion, or 9.6%, increased from Rp77,888 billion in 2016 to Rp85,362 billion in 2017. a. Operations, Maintenance Telecommunication Service Expense Operations, maintenance and telecommunication service expenses contributed 42.9% from the total of Company’s expenses. Operations, maintenance and telecommunication service expenses increased by Rp5,340 billion, or 17.1%, from Rp31,263 billion in 2016 to Rp36,603 billion in 2017. This increase was primarily attributable to the following: • An increase in operations and maintenance expenses by Rp3,967 billion, or 21.3%, due to an increase of network maintenance; • An increase in radio frequency usage charges expense by Rp589 billion or 16.0% due to additional radio frequency by Telkomsel; • An increase in cost of SIM card and vouchers by Rp290 billion or 46.5%; • An increase in others expense by Rp171 billion or 106.2%; and • An increase in tower leases expense by Rp150 billion or 46.6%. b. Depreciation and Amortization Expense Depreciation and amortization expenses increased by Rp1,914 billion, or 10.3%, from Rp18,532 billion in 2016 to Rp20,446 billion in 2017 due to Telkomsel’s acceleration of transmission depreciation. 129 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 c. Personnel Expense Personnel expenses contributed 15.8% from Telkom total expenses. This expense increases by Rp83 billion or 0.6%, from Rp13,612 billion in 2016 to Rp13,529 billion 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. The decrease was offset by: • An increase in pension benefit cost by Rp632 billion, or 59.2% in line with increase in pensions obligation; • An increase in salaries and related benefits expenses by Rp345 billion, or 4.6%; and • An increase in net periodic post-employment health care benefit cost by Rp113 billion, or 69.3%. 3. Operating Profit and Operating Profit Margin As a result of the foregoing, operating profit increased by Rp4,738 billion, or 12.1%, from Rp39,195 billion in 2016 to Rp43,933 billion in 2017. Operating profit margin increased from 33.7% in 2016 to 34.3% in 2017. 4. Profit Before Income Tax and Pre-Tax Margin Telkom profit before income tax increased by Rp4,470 billion, or 11.7%, from Rp38,189 billion in 2016 to Rp42,659 billion in 2017. Pre-tax margin increased from 32.8% in 2016 to 33.3% in 2017. 5. Income Tax Expense Income tax expense increased by Rp941 billion, or 10.4%, from Rp9,017 billion in 2016 to Rp9,958 billion in 2017, inline with the increase in profit before income tax. d. Interconnection Expense Interconnection expense decreased by Rp231 billion, or 7.2%, from Rp3,218 billion in 2016 to Rp2,987 billion in 2017 in line with decrease in usage charges revenues. In 2017, other comprehensive income amounted to Rp2,332 billion due to an actuarial losses by Rp2,375 billion. In the previous year, Telkom’s other comprehensive income amounted to Rp2,099 billion. 6. Other Comprehensive Income e. Marketing Expense Marketing expenses increased by Rp1,136 billion, or 27.5%, from Rp4,132 billion in 2016 to Rp5,268 billion in 2017. This increase was primarily due to an increased promotion by Telkomsel. 7. Profit for The Year Attributable to Owners of the Parent Company Profit for the year attributable to owners of the parent Company increased by Rp2,793 billion, or 14.4%, from Rp19,352 billion in 2016 to Rp22,145 billion in 2017. f. General and Administration Expense General and administrative expenses increased by Rp650 billion, or 14.1%, from Rp4,610 billion in 2016 to Rp5,260 billion in 2017. This increase primarily 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 expenses by Rp132 billion, or 33.1%. This increase was offset by a decrease in general expenses by Rp177 billion or 10.9%. g. Gain on Foreign Exchange-net Gain on foreign exchange – net amounted to Rp51 billion, while in 2016 loss on foreign exchange net by Rp52 billion. h. Other Expense Other expenses decreased by Rp1,149 billion or 46.5%, from Rp2,469 billion in 2016 to Rp1,320 billion in 2017. 8. Profit for The Year Attributable to Non-Controlling Interest Profit for the year attributable to non-controlling interest increased by Rp736 billion, or 7.5%, from Rp9,820 billion in 2016 to Rp10,556 billion in 2017. 9. Net Comprehensive Income fo 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 in 2017. 10. Net Income per Share Net income per share increased by Rp27.36 or 13.9%, from Rp196.19 in 2016 to Rp223.55 in 2017. 130 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CASHFLOW OVERVIEW The following tables presents the information about Telkom consolidated cash flow, such as on Telkom Consolidated Financial Report from 2016 to 2018. Cash Flow Table Net Cash provided by operating activities used in investing activities used in financing activities Net increase in cash and cash equivalents Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year Growth 2018-2017 (%) Years ended December 31, 2018 2017 2016 (Rp billion) (US$ million) (Rp billion) (Rp billion) (7.6) 6.3 (12.3) 69.3 45,671 (35,090) (18,458) (7,877) 3,176 49,405 47,231 (2,440) (33,007) (27,557) (1,284) (21,052) (17,905) (548) (4,654) 434.4 171 12 32 1,769 (119) Cash and cash equivalents at end of year (30.6) 17,439 (15.5) 25,145 1,749 1,213 29,767 28,117 25,145 29,767 Cashflow Comparison Composition of Cash Receipt and Cash Disbursement from 2016 to 2018 on graphic below. Cash Receipt Composition 2016-2018 2018 2017 2016 131,469 78.3% 962 0.6% 35,398 21.1% 127,669 90.3% 1,550 1.1% 12,219 8.6% 2018 85,798 48.8% 36,052 20.5% 53,856 30.7% Cash Disbursement 2016-2018 2017 78,264 53.6% 34,557 23.7% 33,271 22.8% 2016 Operation Investment Financing 118,326 89.5% 3,007 2.3% 10,921 8.3% 71,095 54.5% 30,564 23.4% 28,826 22.1% 131 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 Comparison of Cash Flow for Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 Telkom total cash and cash equivalents as of December 31, 2018 amounted to Rp17,439 billion (US$1,213 million), decreased by Rp7,706 billion or 30.6% compared to Rp25,145 billion 2017. The largest cash receipts by Rp131,469 or 78.3% came from operations activities, followed by receipts from funding activities by Rp35,398 billion or 21.1% and from investment activities by Rp962 billion or 0.6%. Cash receipts is mostly used for operating activities by Rp85,798 billion or 48.8%, investment activity by Rp53,856 billion or 30.7% and funding activities by Rp36,052 billion or 20.5%. 1. Cash Flows from Operating Activities In 2018, Telkom recorded net cash provided by operating activities were Rp45,671 billion (US$3,176 million) compared to Rp49,405 billion in 2017. Cash receipts from operating increased by activities amounted to Rp131.469 billion, Rp3,800 billion, or 3.0% compared to 2017. The cash receipts came from: • Cash receipts from customers and other operators of Rp127,855 billion; Interest income received of Rp1,036 billion; and • • Receipt for tax refund of Rp2,578 billion; Cash disbursements from operating activities amounted to Rp85,798 billion (US$5,966 million) in 2018, increased by Rp7,534 billion, or 9.6% compared to 2017. The cash disbursements were used for: • Cash for expenses of Rp54,099 billion; • Cash to employees of Rp12,657 billion; • Cash for corporate and final taxes of income The cash receipts came from: • Proceeds from sale of property and equipment of Rp629 billion; • Placement in time deposits and available-for-sale financial assets of Rp171 billion; • Proceeds from insurance claims of Rp153 billion; and • Dividen from associated companies of received Rp9 billion. Cash disbursements from investing activities was Rp36,052 billion, increased by Rp1,495 billion, or 4.3% compared to Rp34,557 billion in 2017. Cash disbursements were used for: • Purchases of property and equipment of Rp31,562 billion; • Purchases of intangible assets of Rp2,972 billion; • • Acquisition of businesses - net of acquired cash of Increase of other assets of Rp461 billion; Rp420 billion; • Additional contribution on long-term investments of Rp337 billion; and • Advances for purchases of property and equipment of Rp300 billion. 3. Cash Flows from Financing Activities Net cash flows used in financing activities in 2018 was Rp18,458 billion (US$1,284 million) compared to with Rp21,052 billion in 2017. Cash receipts from financing activities amounted to Rp35,398 billion, which increased by Rp23,179 billion or 189.7% from Rp12,219 billion in 2017. The cash receipts came from: • Proceeds from bank loans and other borrowings of Rp35,364 billion; and Rp10,375 billion; • Capital contribution of non-controlling interests in • Cash for interest cost of Rp3,735 billion; • Cash for value added taxes-net after of Rp3,434 subsidiaries of Rp34 billion. In 2018, Telkom made cash disbursement for financing activities of Rp53,856 billion. Compared to Rp33,271 billion in 2017, the amount increased by Rp20,585 billion or 61.9%. The cash disbursements were used for: • Cash dividends paid to the company stockholders and to non-controlling interest of subsidiaries of Rp16,609 billion, and Rp10,134 billion; and of of Rp27,113 billion. • Repayment borrowings loans other and billion; and • Other cash (payments) receipts – net of Rp1,498 billion. 2. Cash Flows from Investing Activities In 2018, net cash flows used in investing activities was increase than Rp35,090 billion (US$2,440 million) an Rp33,007 billion in 2017. Cash receipts from investing activities amounted to Rp962 billion in 2018 compared to Rp1,550 billion in 2017. It was decreased by Rp588 billion or 37.9%. 132 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Comparison of Cash Flow for Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Telkom total cash and cash equivalents as of December 31, 2017 amounted to Rp25,145 billion, decreased by Rp4,622 billion or 15.5% compared to Rp29,767 billion 2016. The largest cash receipts by Rp127,669 or 90.3% came from operations activities, followed by receipts from financing activities by Rp12,219 billion or 8.6% and from investment activities by Rp1,550 billion or 1.1%. Cash received is mostly used for operating activities by Rp78,264 billion or 53.5%, investment activity by Rp34,557 billion or 23.7% and financing activities by Rp33,271 billion or 22.8%. The cash receipts came from: • Proceeds from sale of property and equipment of Rp1,367 billion; • Proceeds from insurance claims of Rp155 billion; and • Dividends received from associated companies of Rp28 billion. Cash disbursements from investing activities amounted to Rp34,557 billion, increased by Rp3,993 billion, or 13.1% compared to Rp30,564 billion in 2016.Cash disbursements were used for: • Purchases of property and equipment of Rp32,294 billion; in time deposits and available-for-sale • Placement 1. Cash Flow from Operating Activities financial assets of Rp676 billion In 2017, Telkom recorded net cash provided by operating activities at Rp49,405 billion compared to Rp47,231 billion in 2016. Cash receipts from operating activities amounted to 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. Cash disbursements from operating activities amounted to Rp78,264 billion, increased by Rp7,169 billion, or 10.1% 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 • Purchases of intangible assets of Rp508 billion; • Increases advances for purchases of property and equipment of Rp490 billion; • Additional contribution on long-term investments of Rp269 billion; • Business acquisition, net of acquired cash of Rp243 billion; and • Purchases of other assets of Rp77 billion. 3. Cash Flows from Financing Activities Net cash flows used in financing activities in 2017 were Rp21,052 billion compared to with Rp17,905 billion in 2016. 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 Rp11,846 billion; Rp12,169 billion; and • 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. 2. Cash Flow form Investing Activities In 2017, net cash flows used in investing activities were Rp33,007 billion an increase of Rp27,557 billion in 2016. Cash receipts from investing activities amounted to Rp1,550 billion in 2017, compared to Rp3,007 billion recorded in 2016, The amount is decreased by Rp1,457 billion, or 48.5%. • Capital contribution of non-controlling interests in subsdiaries of Rp50 billion. In 2017, Telkom had cash disbursement for financing activities of Rp33,271 billion. Compared to cash disbursment of 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 interest of subsidiaries of and to non-controlling Rp11,627 billion, and Rp12,355 billion; and • Repayment of Rp9,289 billion. loans and other borrowings of 133 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 SOLVENCY The indicator of Telkom’s liquidity in 2018 is quite good. This shows that Telkom and its subsidiaries have a good ability to pay their debts, both short-term and long-term debt. The liquidity source of Telkom and its subsidiary is mainly from operating cashflow, financing, and investment. Please refer Note 15 and 16 to the Consolidated Financial Statements. SHORT-TERM LIABILITIES Telkom and its subsidiaries maintain the liquidity position at a good level to ensure well operations and fulfillment of matured obligations. This liquidity positions management is carried out in an efficient manner to avoid inefficiencies in the resources use. Telkom and its subsidiaries oversee liquidity ratios to maintain the favorable liquidity position, especially the current ratio, so that they are always at an adequate level and to avoid excessive inefficiencies. The short-term liquidity ratios of Telkom and its subsidiaries are presented in current ratio, quick ratio and cash ratio in the following table. Ratio Current Ratio Quick Ratio Cash Ratio 2018 2017 2016 93.5% 66.8% 40.5% 104.8% 81.3% 60.2% 120.0% 98.4% 78.6% With current ration of 93.5% above the industry average, it indicates that Telkom has a good level of liquidity and ability to meet matured obligations.To maintain company liquidity, Telkom made the following efforts: • Maintain a current ratio above the industry current ratio; and • Maintain the loan availability that can be withdrawn if needed. At the end of 2018, the total loan that have not been drawn were Rp8,507 billion. LONG-TERM LIABILITIES The long-term liquidity ratios serve as the measuring instrument for Telkom and its subsidiaries to analyze their ability to pay 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 2018 2017 2016 0.38X 0.74X 16.9X 0.32X 0.55X 23.3X 0.30X 0.53X 21.2X The debt to equity ratio is 0.38 times, the debt to EBITDA ratio is 0.74 times and the EBITDA ratio of interest expense is 16.9 times, indicating a controlled long-term liability management and a very low risk of default. Nowadays, the financial condition indicators are quite strong, however in order to increase the effectiveness of funding management and working capital, it is necessary to conduct a debt for reprofiling strategy, such as improve the debt profile by changing most portion of the floating interest debt into fixed interest. The main purpose of this debt reprofiling is saving interest expense. Some of the strategies that have been carried out are as follows: • Optimizing the use of internal funding sources to satisfy the corporate funding requirement; • Renegotiating with banking partners related to the reduction in loan interest with floating interest rates; • Renegotiating with banking partners regarding the type of interest loan, from loan with floating interest to a fixed rate loan; and • Issue fixed interest debt instruments through Medium Term Notes (MTN). 134 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CAPITAL STRUCTURE Telkom funding resources are from short-term debt, long-term debt and equity with the largest composition of the capital structure coming from equity. The following are tables and diagrams which illustrate Telkom capital structure and composition during the last three years. 2018 2017 2016 40,044 28.0% 4,043 2.8% 98,910 69.2% 33,183 25.9% 2,289 1.8% 92,713 72.3% 30,888 26.6% 911 0.8% 84,384 72.6% Short Term Long Term Equity Capital Structure Short Term Long Term Debt Equity Total Invested Capital 2018 2017 2016 (Rp billion) (US$ million) (Rp billion) (Rp billion) 4,043 40,044 44,087 98,910 142,997 281 2,785 3,066 6,878 9,944 2,289 33,183 35,472 92,713 128,185 911 30,888 31,799 84,384 116,183 MANAGEMENT POLICY ON CAPITAL STRUCTURE Periodically, Telkom reviewed the position of the capital structure, leverage level, and debt payment performance to add or pay the debt. This result was the basis for management policy on capital structure by taking qualitative and quantitative approaches. Telkom then determined optimal funding composition from equity and debt and took decision whether it is addition or payments of short-term or long-term debt. If possible, the funding scheme could be renewed with a more efficient one. Telkom had concern maintaining credit rate and capital structure. It included maintaining them at least equivalent to competitor value. Moreover, Telkom optimized wighted average cost of capital and tax benefit. In maintaining the balance of capital structure, Telkom uses several financial ratios. In 2018, Telkom debt-to-equity ratio (DER) was 0.38 times and the debt service coverage ratio was 1.9 times. It showed that Telkom had high ability to repay the debt. For information of management policy on capital management, see Note 37 to the Consolidated Financial Statements. 135 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789CAPITAL EXPENDITURE Telkom capital expenditure was done as short-term, medium-term and long-term necessity in line with Telkom strategy for developing a digital business portfolio. Telkom understands that to be digital telecommunication company, it should accelerate capital expenditure to respond to the dynamic technology changes which is aligned with Telkom’s strategy of developing a portfolio of digital businesses. PURPOSE OF CAPITAL EXPENDITURE Telkom capital expenditure is aimed to strengthen digital infrastructure in order to maintain competitive and sustainable long-term growth. It is to anticipate the telco industry changes in the digital era by expanding the connectivity business portfolio and digital service. TYPES OF CAPITAL EXPENDITURE Capital expenditure carried out by Telkom can be categorized as follows: • Broadband services, comprising of broadband access, IT, application and content, as well as service node; • Network infrastructure, comprising of transmission network, metro ethernet and Regional Metro Junction (RMJ), and IP backbone as well as satellite; • Optimizing legacy, comprises of fixed wireline telephone; and • Other supporting capital expenditures. AMOUNT OF CAPITAL EXPENDITURE Telkom capital expenditure in 2018 was Rp33,620 billion (US$2,338 million) or around 25,7% of revenue, increased Rp464 billion or 1.4% compared to the previous year. This includes the capital expenditure investment from Telkom and subsidiary. Years ended December 31, 2018 2017 2016 (Restated) (Rp billion) (US$ million) (Rp billion) (Rp billion) Telkom (parent company) 13,186 917 11,572 Subsidiaries Telkomsel Others Subtotal for subsidiaries Total for TelkomGroup 13,885 6,549 20,434 33,620 966 455 1,421 2,338 15,080 6,504 21,584 33,156 10,309 12,564 6,326 18,890 29,199 Telkomsel invested the highest capital expenditure of Rp13,885 billion meanwhile Telkom invested Rp13,186 billion. Other subsidiary capital expenditure investment was Rp6,549 billion. Capital Expenditure Composition of TelkomGroup Year in 2016-2018 2018 13,885 41.3% 6.549 19.5% 13,186 39.2% 2017 15,080 45.5% 6,504 19.6% 11,572 34.9% 2016 12,564 43.0% 6,326 21.7% 10,309 35.3% Telkom Telkomsel Others Subsidiaries The following are some of Telkom’s capital expenditure and its subsidiaries: • Built 28,376 BTS units. Total BTS by the end of 2018 was 189,081 BTS, grew 18% from the previous year. Total BTS in the end of 2018 was 189,081 BTS with 138,771 3G and 4G BTS; • The construction of optic fiber-based network cable in 13 thousand district capitals., Telkom succeeded connecting accumulated 458 district capitals with fiber optic backbone. Telkom has total fiber optic backbone network of 161,652 km; • Built the Indonesian Global Gateway (IGG) submarine cable project; • Built and launched Satellite Merah Putih; and • Built data centers. 136 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report MATERIAL COMMITMENT FOR CAPITAL EXPENDITURE OBJECTIVES OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE Telkom have several material contracts for capital expenditure by holding companies and its 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 Contracting Parties Initial Date of Agreement Significant Provisions of the Agreement September 13, 2018 Procurement agreement for ONT Platform ZTE TII and NEC Corporation May 12, 2016 Consortium Bisnis Submarine Cable November 10, 2017 PT Sisindokom Lintas Buana November 15, 2017 PT Sisindokom Lintas Buana April 26, 2018 PT ZTE Indonesia PT ZTE Indonesia PT ZTE Indonesia May 31, 2018 October 30, 2018 PT Huawei Tech Investment November 23, 2018 PT Lintas Teknologi Indonesia December 13, 2018 NEC Corporation December 13, 2018 PT Datacomm Diangraha December 14, 2018 PT Huawei Tech Investment December 17, 2018 PT Master System Infotama December 31, 2018 PT Lancs Arche Consumma December 31, 2018 Telkomsel installation agreement of Procurement and Sistem Komunikasi Kabel Laut (SKKL) Indonesia Global Gateway Procurement and installation agreement of SKKL Sabang-Lhoksemawe-Medan Procurement and installation for PE-VPNCISCO expans Procurement and installation for PE-VPNCISCO expans Procurement and installation of OLT and ONT Platform ZTE Procurement agreement for Set Top Box (STB) Platform ZTE phase-2 Procurement and Platform Huawei installation for DWDM Procurement and Platform Nokia NARU 2018 installation for DWDM Procurement and installation agreement of ISP SKKL Platform NEC expansion and reengineering transport Procurement and Installation for Metro Ethernet Platform Nokia-ALU expansion Procurement and installation agreement of Methor Ethernet, BRAS, PCEF and PE Transit Platform Huawei Procurement and installation for IP Backbone Platform CISCO expansion Procurement and Platform Coriant Naru 2018 installation for DWDM Contracting Parties Initial Date of Agreement Significant Provisions of the Agreement PT NSN, NSN Oy and Nokia Siemens Network GmbH & Co.KG April 17, 2008 PT Ericsson Indonesia and PT Ericsson AB April 17, 2008 PT Datacraft Indonesia, PT Dimension Data Indonesia and PT Huawei February 3, 2010 Amdocs Software Solutions Limited Liability Company and PT Application Solutions February 8, 2010 PT Application Solutions February 8, 2010 The combined 2G and 3G CS Core Network Rollout Agreement Technical Service Agreement (TSA) for combined 2G and 3G CS Core Network Next Generation Convergence Core Transport Rollout and Technical Support agreement Online Charging System (OCS) and Service Control Points (SCP) System Solution Development Agreements Technical Support agreement technical support services for the OCS and SCP to provide 137 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789Contracting Parties Initial Date of Agreement Significant Provisions of the Agreement Amdocs Software Solutions Limited Liability Company and PT Application Solutions July 5, 2011 Development and Rollout agreement Customer Relationship Management Contact Center Solutions for and PT Huawei March 25, 2013 Support Technical the procurement of Gateway GPRS Support Node (GGSN) Service Complex agreement for Wipro Limited, Wipro Singapore Pte. Ltd. And PT WT Indonesia April 23, 2013 PT Ericsson Indonesia October 22, 2013 Development and procurement of Operational and Strategic Decision Support System (OSDSS) Solution Agreement Procurement of GGSN Service Complex Rollout agreement PT Ericsson Indonesia, PT NSNI, NSN Oy, PT Huawei and PT ZTE Indonesia February 1, 2018 Ultimate Radio Network Infrastructure ROA and SA agreement SOURCES OF FUNDS OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE In 2018, Telkom allocated capital expenditure according to the business scheme with internal or external source fund. Telkom has good leverage ratios and is able to fund capital expenditures thus far. The detail information shall be referred in the discussion of “Capital Expenditure.” DENOMINATED OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE CURRENCIES Telkom use the Rupiah and foreign currencies such as US Dollar, Euro and HKD, to conduct transactions related to material contracts for capital expenditure. The composition of the value of material contracts for capital expenditure as of December 31, 2018 dominated by Rupiah as follows: Table of Material Commitment based on Currencies Amounts in Foreign Currencies (In Million) Equivalent in Rupiah (In Billion) FOREIGN CURRENCY RISK MITIGATION OF MATERIAL CONTRACTS FOR CAPITAL EXPENDITURE Telkom understands that there is an uncertain foreign exchange rate risk when committed to the payment of capital expenditure with foreign currency. On the other hand, Telkom also has 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, Telkom minimize the 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 the risk of foreign exchange rate can be seen in Notes 34 significant contracts and agreements and Notes 36 financial risk management in the Consolidated Financial Statements of 2018. Rupiah US Dollar Euro HKD Total — 94 1.23 0.79 — 7,988 1,349 20 1 9,358 138 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report RECEIVABLES COLLECTABILITY Telkom has a receivables rate in 2018 of 31.9 days with a receivable turnover ratio of 11.5%. Telkom created provision for impairment of receivables based on the collective assessment of historical impairment rates and individual assessment of its customers credit history in the amount to anticipate the uncollected parts of trade receivables throughout 2018. Telkom did not distinguish trade receivables of an affiliated party or third parties in calculating and presenting the due receivables amount. The carrying amount of trade receivables considered past due but not impaired per December 31, 2018 and 2017 are of Rp4,296 billion and Rp3,354 billion respecteively. It means the receivables past due but not impaired, are due from costumer with good credit rating history and expected to be recoverable. For further details on Telkom receivables, please see Note 5 in the Consolidated Financial Statement. Ratio Average collection ratio (days) Receivables turnover ratio (%) Average Collection Duration Ratio (%) 2018 2017 2016 31.9 11.5 26.2 13.9 23.1 15.8 MATERIAL INFORMATION AND FACT AFTER ACCOUNTANT REPORTING DATE In line with the principle of transparency and accountability in good corporate governance, Telkom present material information and facts that occurred after the accountant reporting date, as follows: 1. Based on notarial deed of Bonardo Nasution, S. H. No. 12 dated January 12, 2019 and No. 13 dated January 21, 2018, Telkomsel established a subsidiaries, PT Telkomsel Mitra Inovasi (PT TMI) and PT Fintek Karya Nusantara (PT Finarya) with full ownership by Telkomsel. 2. On January 25, 2019, and on January 14, 2019, Telkomsel fully paid the loan with MUFG and BNI amounting to Rp750 billion and Rp1000 billion, respectively. 3. Based on notarial deed of Jimmy Tanal, S. H., M. Kn., N0. 22 dated March 6, 2019 regarding Shareholder’s Resolution of PT Persada Sokka Tama (PST), approving transfer of right over shares of PST to Dayamitra from Mrs. Rahina Dewayani and Mrs. Rahayu amounting to 2,559,000 and 6,000 shares, respectively, therefore Dayamitra has 2,565,000 shares or 95% ownership of PST. 4. In January, February and March 2019, the Company received the SC’s verdicts as the result of the tax audit for tax period January to April and September 2007. Based on the verdict, SC rejected the Tax Authorities’s Judical review and strengthen the Tax Court’s verdict. On March 11, 2019, Tax authorities issued Decision letter on Company’s objection, wherein the Tax Authorities has granted all the Company’s objection and addition the overpayment amount for the tax period January to April 2016. 5. On February 18, 2019, Telkomsel received SP2PK from the Tax Authorities regarding the 2010 fiscal year VAT amounting to Rp290 billion. On March 25, 2019, the Company received SP2PK payment from the Tax Authorities regarding the 2010 fiscal year VAT amounting to Rp290 billion. 139 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789MACROECONOMY GLOBAL AND INDONESIA ECONOMY IN 2018 In 2018, global economy grew around 3% or more stable than the previous year. Developing countries (Emerging Market and Developing Economies/EMDE) is still the main booster for global economy recovery, with the economic growth of 4.2%. Developing countries in East Asia, Pacific, Southeast Asia and South Asia made better growth than other developing countries. Meanwhile, developed countries (advanced economies) made economic growth of 2.2% throughout 2018. Several main global economic challenges in 2018 were trade war of United States (US) and China, the aggressive increase of Federal Fund Rate interest rate and the uncomplete issue of Brexit. In general, those challenges have given impact to global economy including Indonesia. Badan Pusat Statistik (BPS) or Central Bureau of Statistic showed that Indonesia economy grew 5.17% throughout 2018 or better than the previous year of 5.07%. The Government also succeeded controlling inflation rate which was relatively lower of 3.13% than the previous year of 3.61%. This controlled inflation rate could maintain consumer purchasing power, which domestic consumption is still the main role to encourage economic growth contributing more than half of Indonesia GDP. The dynamics of global economy was the increase of Federal Fund Rate interest rate for 4 times throughout 2018, which responded prudently by Bank Indonesia (BI) with the increase of reference interest rate or BI 7-day reverse repo rate for 6 times. From May to December 2018, BI reference interest rate increases by 175 bps from 4.5% into 6.0%. This reference rate was able to overcome the Rupiah value fluctuation so only depreciated by 6.9% though Rupiah had been weakend on October. The prudent implementation of fiscal and moneter policy as well as the high of foreign exchange reserves have strengthen Indonesia resistance and capacity to encounter external fluctuation. The sturdy Indonesia economy resulted the ranking increase of Sovereign Credit Rating (SCR) from international rating institution Moody’s Investor Service from Baa3/Outlook Positive into Baa2/Outlook Stable on April 13, 2018. With this improvement, now Indonesia has been recognized by four international rating institutions at one level higher than the previous Investment Grade level. 140 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportINDONESIA TELECOMMUNICATIONS INDUSTRY industry encountered varied Indonesia telecommunication industry encountered quite severe situation. Cellular challenge in 2018. The decreasing voice and SMS service (legacy business) is due to Over The Top (OTT) service. The OTT service offers communication convenience of data, voice, and video so it decrease conventional communication usage. The Government also determined pre-paid SIM card registration policy conforming with Miniterial Regulation of Ministry of Communication and Indonesia (KOMINFO) No. 14 Year 2017 which had been applied from October 2017 to April 2018. This policy caused price war of data service in particular, as one of the operator strategy to preserve their customer or attract the new one. However, cellular industry had better condition in the second half of 2018 than the previous half after Telkomsel made initiative to increase its data service price started from July by incouraging the mobile broadband service package price to the reasonable price level. Information Technology For long-term period, SIM card registration is expected to give a great advantage for the country, telecommunication industry and society. It helped The Government to support national cyber security with the more complete and valid citizen identity. Meanwhile, there would be a healthier and balance new competition for telecommunication industry especially cellular industry. Operators would make a more precise marketing programs with this accurate costumer profile that could be adjusted to their demands and needs. It also encouraged cost efficiency as the sales business model would more focuse on credit top-up package than starter pack sales, so it decreased card production and distribution cost. It could be said like pulling back arrow for a while, then cellular industry would accelerate forward faster and sustainably for long-term purpose. internet has been growing and nowadays The fiber optic-based fixed broadband service demand with high-speed it turn out to be the domestic need for information access and entertainment. The high quality fixed broadband also offers other value added service which is growing like home security. Its penetration in domestic purpose is still low, estimated around 12% of all household in Indonesia. Besides, its competitiveness level is healthier. With its growth in middle class resident, it is estimated to have a good demand in the future. In ICT solution service industry that used to be only for corporate customer, the business process digitalization is more important to enhance a competitiveness and efficiency for large company or SMB. Its estimated penetration for corporate customer in general is low, so the opportunity in this business is still quite good. Indonesia In the other hand, The Government also encourages, industry revolution the Government encouraged digital and stimulated the digitalization of economic growth in Indonesia. Ministry of Communication and Information technology through Telecommunication and Information Accessibillity Agency (BAKTI), continue striving internet telecommunication access equity and building infrastructure used by the outermost, underdeveloped, foremost region and Indonesia border. BAKTI targeted there are minimum one BTS in each rural area and expected to connect to internet in 2020. The Government also initiate constructing fiber optic based backbone network in those areas such as Palapa Ring. Palapa Ring had been started in 2016 and for its west segment was completed and can be used by the telecommunication operator.Its central and east segment are expected operating and used by the operator in 2019. It is also expected to support the acceleration of broadband services penetration and equality across Indonesia. COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY Telkom 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 follow below. Mobile Business Basic cellular services i.e. voice and SMS, continue showing decrease trend in line with the increase of Over The Top (OTT) use. It is major challenge for Telkomsel, Telkom subsidiaries, as well as another cellular operator such as Indosat and XL. Telkomsel is still the market leader with the widest coverage, while XL and Indosat are still competing with each other for a more affordable price. is dominant outside Java Telkomsel island, meanwhile competition in Java island is very tight for cellular operators in Indonesia. The rivalry occurred mainly in Java with all operators focusing on developing their network, meanwhile Telkomsel is relatively dominant which supported by wide coverage infrastructure. The regulation of SIM card registration that started on October 2017, increased the rivalry because operator price competition by offering package to attract customers to register in their network. The prepaid SIM card registration program limits the number of prepaid SIM cards for each customer so that by the end of 2018, the number of Telkomsel customers has decreased by 17% to 163.0 million customers. 141 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789The three operators also experienced a drastic decline in legacy business, which was around 21%. On the other hand there was very tight competition in mobile data services triggered by a price war that intensified during the prepaid SIM card registration period. Both of these resulted in a decrease in revenue of 3 main operators by 7.4%. Telkomsel has taken the initiative to prevent increasingly unhealthy industrial conditions by encouraging the price of mobile broadband service packages to reach a reasonable price level in order to provide optimal value for both operators and customers. In addition, Telkomsel also seeks to restrain the decline of the legacy business as a result of the use of OTT services, including by offering programs such as voice packages and SMS packages. As a result of the above efforts, Telkomsel managed to grow better than the industry, and only recorded a decrease in revenue of 4.3%. Enterprise Business Through this business line, Telkom delivered digital solution and integrated ICT. In operating enterprise business, Telkom is supported by partners and subsidiaries such as Telkom Sigma in developing platform solution and data center requirement; Infomedia in fulfilling requirement of call center and BPO; Telkomsat in providing satellite transponder; or PINS to provide supporting telecommunication equipment. In general, the competitors in enterprise was spread out but there is no single player that delivers completed or integrated solutions. Its potential is higher in line with the trend of business process digitalization for corporate, government institution and SMB. It aims to make the business process more efficient. In 2018, there was dynamics of additional frequency spectrum used by domestic operators which secured by auction in October 2017, such as 30 MHz block on 2,300 MHz frequency and two other operators—Indosat and Tri on 2,100 MHz frequency. It will strengthen the operator position to maximize 4G LTE network quality, particularly in dense capacity data service area. This additional frequency spectrum enables the operator to provide higher capacity and speed for better digital lifestyle experience to Indonesia cellular customers. To overcome the rivalry in 2018, Telkom made acquisitions and organizational changes as well as expanded its cross- sector digitalization service as a leveraging core capabilities. Nowadays, Telkom is serving the banking sector, especially the management of ATM communication network and retail for the digitalization of distribution channel. International Traffic and Interconnection Business Fixed Voice & Broadband Business (Fixed Business) Fixed broadband service equipped with content as IPTV, is increasingly in demand. IndiHome customers increased to 5.1 million in 2018, it showed the high potential in this business line. The competitors are LinkNet, Bisznet, MNC Play, and MyRepublic. The competition in fixed voice and fixed broadband, emphasized at minipack offering or bundling, as well as educational, information, and entertainment programs. During 2018, IndiHome has been developing innovation of package programs such as Gamer package and minipacks. In addition, IndiHome also continue developing extended product and service such as IndiHome Smart (smart home) so customers might monitor and control remotely, IndiHome Cloud and Movin so customer might use fixed phone with customer gadget (smartphone). IndiHome Digital touch point is increasing in various digital products and transactions. For smart home product and service, IndiHome compete with MNC Play that had launched MNC Play Smart Home since the end of 2016. Telkom is still dominating in the fixed broadband market in 2018. Though fixed broadband penetration in Indonesia is still low, several operators are still widening their coverage area aggressively, focusing in high income areas, besides applying bundling service strategy or delivering various content collaborating with OTT player, especially video streaming platform. The current operators of traditional international traffic IDD (non-VoIP) in Indonesia are only Telkom and Indosat. But the rivalry in this business line is the presence of OTT or digital communication service such as Skype, Line, and WhatsApp, or other VoIP service providers that open international access. Its contribution to Telkom revenue lessened continuedly by the presence of OTT. To overcome this competition, Telkom prefered to provide OTT service platform than confront it directly. Telkom emphasized revenue and profit of broadband use through digital hub and Content Delivery Network (CDN). Network and Satellite Infrastructure Business In infrastructure business especially tower, Telkom competes with other companies such as Tower Bersama Infrastructure, Sarana Menara Nusantara (Protelindo), and Solusi Tunas Pratama, as well as other telecommunication operators such as Indosat and XL. Its operating activities were managed by Telkom subsidiary Mitratel and Telkomsel. Its strategy was building a new tower or co-location by leaasing the existing tower to cellular operators. Telkom also delivers traffic carrier service as the operator that has backbone network. In satellite business management, Telkom competed with other overseas satellite operators in South East Asia. Capacity limitation is the factor which restricted the capacity of domestic satellite operator to compete. Currently, satellite transponder demand is higher than the domestic transponder availability. It occurred due to the demand of satellite service in Indonesia’s archipelago is very high, particularly in the regions which are not yet connected to the submarine cable and optic fiber. 142 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBUSINESS PROSPECTS AND SUSTAINABILITY OF THE COMPANY NATIONAL POLITICAL AND ECONOMIC PROJECTION In 2019, Indonesia will have a Presidential Election. Telkom consider this opportunity as ‘wait and see’ strategy for industry players that might decrease the intensity of operating activity. On the other hand, the election would increase communication activity particularly broadband use for voice, video, data and information exchange that relates to preparation, implementation and supervision of the campaign and election. On the macro scale, The Government targets Indonesia economy would grow around 5.3% in 2019. Indonesia economy was fundamentally solid with growth of 5.17% in 2018 which better than the previous year of 5.07%. The consumption level and consumer purchasing power is expected to favour quite well in the future, supported by a controlled inflation rate. More infrastructure such as highway, airport, power plant, seaport, and others might enhance long term economic activities for short-term or long-term period. Nevertheless, Telkom notices the global economic fluctuation i.e. the increase potential of US reference interest rate could influence Rupiah exchange rate and domestic interest rates and also Indonesia companies in general. OVERVIEW OF BUSINESS PROSPECTS Telkom believes that the opportunity to continue to grow in the future is still very promising. The connectivity of data and digital services has now become a basic need of the community, and even its use has penetrated in small towns and rural areas. Whereas for institutions and businesses, digital services have become the main requirement for improving services and in maintaining and developing their businesses. Telkom, with all its infrastructure and facilities, is in the leading position to take up these opportunities and continue to grow in the future. For the Mobile segment, there are business potentials in three focus areas, namely increasing growth potential in the High Value Customer, mobile solution services for the Enterprise segment, and developing various digital services such as mobile financial services, games and videos. At present, High Value Customers contribute significantly to Telkomsel’s revenues. To provide the best experience in order to maintain loyalty while increasing the number of High Value Customers, we conduct profiling of High Value Customers and take advantage of big data analytics so that they can offer diverse and quality services according to their personal needs. Telkom also continues to develop innovative products and digital solutions for the enterprise segment including Mobile Security, NB-IoT and other cellular solutions that utilize the Telkomel myBusiness product portfolio. Meanwhile on Digital services, we focus on providing lifestyle experiences such as video, games and music. In May 2018, we launched MAXstream as a platform and became a one-stop video portal by combining OTT Video apps, linear channels and VOD content. Telkom also provides a complete digital game ecosystem and releases the first game “Shellfire” in October 2018 under the Dunia Games brand. Along with the increasing use of smartphones. At the end of 2018 from the total Mobile segment customers in Telkomsel subsidiaries, 66% of our customers have used smartphones, and are expected to continue to grow. The wider use of smartphones will also encourage the growth of digital service & solutions where Telkomsel has prepared platforms, applications and content to anticipate these customer needs. The average consumption of Telkomsel’s customer data is around 4 Gigabytes per month, which is still lower than the data consumption of several operators in other countries such as Malaysia, Thailand and India which have reached more than 10 Gigabytes per month. In the Enterprise segment, opportunities to increase business growth are still wide open. we always strive to find new growth engines that are recurring. We also believe that the trend of digitizing business processes in corporations will continue to strengthen, as well as institutions and government institutions, both central and regional. In addition, the penetration of ICT services in Small and Medium Enterprises (SMBs) is still relatively low. We hope that our presence with the provision of ICT services can help business development among SMEs given the magnitude of the benefits generated, and at the same time constitute a market opportunity for us to grow together. We also actively explore opportunities for enhancing digital capabilities through inorganic activities to strengthen integrated digital services. In the Consumer segment, the opportunity to continue to grow is still wide open, until the end of 2018 the penetration of fixed broadband services in Indonesia is still relatively low, which is around 12%, while the number of middle class households continues to grow, so the potential demand for fixed broadband services is still very large . In addition, the level of competition is also relatively low because fixed broadband service providers require relatively high capital expenditure needs, which is one of the barrier to entry for new entrants or for existing operators to expand. to various regions. In terms of products and services, Telkom always provides additional choices for customers by offering more varied services and products so they can reach a wider market niche according to customer needs. 143 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789For the Wholesale and International Business segment, with the success of Telkom completing the construction of the Indonesia Global Gateway (IGG) cable project, Telkom has adequate network capacity and quality to develop domestic and global market. IGG has a length approximately 5,400 km, connecting the SEA-US submarine cable system (South East Asia - United States) and submarine cable systems SEA-ME-WE5 (South East Asia - Middle East - Western Europe 5), while integrating SEA-US and SEA-ME-WE5 with a network of domestic backbone infrastructure that covers almost all of the district capital in Indonesia. By connecting SEA-ME-WE5 with SEA-US through IGG, Telkom is getting closer to becoming a Global Digital Hub that allows Telkom to provide alternative direct broadband connections between the European, Asian and American regions. The transformation towards the Global Digital Hub is also carried out by developing infrastructure and connectivity, data center, cloud, content and platform services that target the Carriers, Internet Service Provider, Digital Player, Enterprise and other segments in both the domestic and international markets. COMPARISON OF REALIZATION INITIAL YEAR TARGET AND THE In the challenging dynamics of the digital telecommunication industry throughout 2018, Telkom revenue growth was 2.0%. Telkom profit in 2018 was Rp18,032 billion, with EBITDA margin and net income margin of 45.3% and 13.8%. For capital expenditure, Telkom spent 25.7% of revenues in 2018, especially for digital business infrastructure development. Realization in 2018 Targets in Early 2018 Revenue growth outperform the industry average revenue. Revenue growth expected to outperform the industry average revenue EBITDA margin and net income margin decreased into 45.3% and 13.8% The decrease of EBITDA margin was mainly due to the decrease of legacy business that has higher EBITDA margin than other businesses. This decline has not been compensated by the increase in digital business volume. IndiHome Digital business contribution towards EBITDA margin, growth acceleration and other businesses. Broadband expansion in mobile or fixed line, would always operate and is expected to decrease EBITDA and net income margin. realization The expenditure was 25.7% in focusing infrastructure investment. of capital of revenue, the digital business amounted expenditure Capital to 24%-27% of revenue per year with a focus on building digital business infrastructure. Indicator Revenue growth EBITDA Margin Capital expenditure 144 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report TARGETS OR PROJECTIONS FOR THE FOLLOWING YEAR Telkom business activities aim to achieve sustainable growth. In 2019, Telkom will establish three main programs to emphasize customer satisfaction and loyalty, digital business development, and acquisition or partnership. 1. Embracing Best in Class Digital Customer Experience, transforming customer experience by optimizing business process with system, process and people improvement. 2. Intensifying Digital Business, expanding the broadband connectivity and encouraging digital service and solution to maintain the market domination. 3. Driving Smart Initiatives on Cost Effectiveness, optimizing cost by emphasizing the streamlined business organization, system, and process and use its Telkom capability to improve the profit. In 2019, Telkom targets revenue to be above the industry projection by increasing IndiHome contribution. In addition, Telkom still maintains dominance in the cellular market, and aggressively develops its digital business. In the coming year, along with Telkom role in the digitalization era, revenue from voice and sms services will decrease while revenues from digital business will increase. The contribution of digital business is expected to be even greater against the EBITDA margin and net income. The allocation of capital expenditure is set to around 25-30% of revenue for building broadband infrastructure in both the cellular and fixed-line segments. In general, Telkom target for 2019 can be set out below: Indicators Revenue growth EBITDA margin Expenditure capital DIVIDEND 2019 Targets Revenue growth is expected to be better than industry average revenue and other digital business revenue continues to increase. EBITDA and net income margin are projected to decline slightly in line with the development of mobile and cellular broadband infrastructure, along with an increase in the portion of revenue from digital business. Capital expenditure around 25%-30% of revenue, with a focus on investment in digital business infrastructure. Telkom have a dividend pay out policy with the approval of the Annual General Meeting of Shareholders (AGMS). Every year, we distribute cash dividends to shareholders with a payout ratio ranging from 60% to 75%. Then, for performance in 2018, we will set the payment ratio, dividend amount, and total final dividend at the AGMS to be held in 2019. Here are dividend payment data and information for the last five years from 2014 to 2018. Dividend Year Dividend Policy Date of Dividend Payment in Cash and/or Date of Dividend Distribution in Non-Cash Payment Ratio / Payout ratio (%) 1 Dividend Amount paid per year (Million Rp) Dividend Amount per Share (cash and/or non- cash) after Stock Split (Rp) 2013 2014 2015 2016 2017 AGMS, April 4, 2014 May 19, 2014 AGMS, April 17, 2015 May 21, 2015 AGMS, April 22, 2016 May 26, 2016 AGMS, April 21, 2017 May 26, 2017 AGMS, April 27, 2018 May 31, 2018 70 60 60 70 75 9,943,2942 8,782,8123 9,293,1844 13,546,4115 16,608,7516 102.40 89.46 94.64 136.75 167.66 Remarks: 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 Rp7,812,588 million and special cash dividend in the amount of Rp2,130,706 million. 3. Consists of cash dividend in the amount of Rp7,319,010 million and special cash dividend in the amount of Rp1,463,802 million. 4. Consists of cash dividend in the amount of Rp7,744,304 million and special cash dividend in the amount of Rp1,548,880 million. 5. Consists of cash dividend in the amount of Rp11,611,211 million and special cash dividend in the amount of Rp1,935,200 million. 6. Consists of cash dividend in the amount of Rp13.286.997 million and special cash dividend in the amount of Rp3,321,754 million. 145 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights123456789 REALIZATION OF PUBLIC OFFERING FUND As of December 31, 2018, Telkom have several outstanding bonds held by investors as follows: Name of the Bond Amount (Rp million) Date of Issue Maturity Date Bond II Telkom 2010 series B 1,995,000 June 25, 2010 July 6, 2020 Telkom Shelf Registered Bonds I 2015 series A 2,200,000 June 23, 2015 June 23, 2022 Telkom Shelf Registered Bonds I 2015 series B 2,100,000 June 23, 2015 June 23, 2025 Telkom Shelf Registered Bonds I 2015 series C 1,200,000 June 23, 2015 June 23, 2030 Telkom Shelf Registered Bonds I 2015 series D 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 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 and PT Bank Tabungan Negara Tbk as the appointed Trustee. In 2018, all public offering funds had been realized in accordance with the plan to use the proceeds from the public offering, by recording the remaining balance is nil. For more details related to information about Bonds please see Note 16 to the Consolidated Financial Statements. MATERIAL TRANSACTION INFORMATION CONTAINING CONFLICT OF INTEREST, TRANSACTION WITH AFFILIATED PARTIES, INVESTMENT, DIVESTMENT AND ACQUISITION To comply with POJK No.31/POJK.04/2015, Telkom disclosed material transaction information that may affect stock prices or investment decisions. Through this report Telkom declared to have identified and disclosed material transactions containing conflict of interest, transactions with affiliates, and investment, divestment and acquisition transactions throughout 2018, as follows: 1. On January 30, 2018, the Company entered into a conditional new shareholding agreement with Cellum Global Zrt. (Cellum) through two stages. In the first stage, Metranet will include new shares worth USD4,000,000 equivalent to 20.4% ownership and in the second stage valued at USD2,000,000 so that Metranet’s ownership becomes 30.4%. Cellum is a provider solution for mobile payment and commerce services. This new equity participation is expected to strengthen the Company business portfolio, specifically strengthening the TelkomGroup Fin-Tech business ecosystem. 2. On March 31, 2018, Metra signed a Sales Purchase Agreement with shareholders of PT Swadharma Sarana Informatika (Swadharma) in share ownership and the purchase of new shares totaling Rp397 billion. Metra has a 51% interest in Swadharma. Swadharma is engaged in managing computer technology facilities, especially in the banking sector. This new investment is expected to strengthen the Company business portfolio. 3. On April 18, 2018, TII acquired a 21% shareholding owned by Compudyne Telecommunication Systems Sdn, Bhd. at Telin Malaysia at a acquisition cost of MYR8,764,798 (equivalent to Rp31 billion), so TII ownership in Telin Malaysia became 70% and became a consolidated entity. 4. On April 25, 2018, TII increased its share ownership in TSGN to 70% with total acquisition price of MYR42,350,000 (equivalent to Rp150 billion). 5. On December 28, 2018, a Sales and Purchase Agreement involving Telkom Sigma, PT Upperco Usaha Maxima and PT Abdi Anugrah Persada regarding with shares of PT Collega Inti Pratama. In this transaction, Telkom Sigma will become majority shareholder of PT Collega Inti Pratama, reaches 70%. PT College Inti Pratama is ICT solution provider for banking and financial institution. This acquisition will enhance TelkomGroup in providing ICT solution for banking, integrated with other ICT services. 146 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report CHANGES IN REGULATION Good Corporate Governance (GCG) practice encourages Telkom to obey Indonesia regulations. Therefore, Telkom monitored regulation changes throughout 2018 and analysed its impacts. It resulted in no regulation change that affected business process and/or Telkom management strategies including financial or non-financial reports. No Laws and Regulations Having Significant Effect Impact on Financial Statement 1 N/A N/A CHANGES IN ACCOUNTING POLICY The Consolidated Financial Statements of Telkom and its subsidiary under Financial Accounting Standard (SAK) in Indonesia which covers the Statement of Financial Accounting Standard (PSAK) and Interpretation of Financial Accounting Standard (ISAK) in Indonesia, issued by the Board of Financial Accounting Standard – Indonesian Accountant Association. Telkom also comply with Regulation of Capital Market and Financial Institution Supervisory Body (Bapepam-LK) No.VIII.G.7 regarding “the Financial Report Presentation and Disclosure of Issuer or Public Company”, as attached in the letter KEP 347/BL/2012. Accounting standard and interpretation that 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. Telkom as the only company in Indonesia listed on the New York Stock Exchange, has fully implemented the accounting standards of International Financial Reporting Standard (IFRS) since 2011 for financial statements submitted to the Securities and Exchange Commission (SEC). In 2018, Telkom began fully implementing IFRS 9 Financial Instrument and IFRS 15 Revenue from Contracts with Costumers and simultaneously preparing for the implementation of IFRS 16 Leases which became effective on January 1, 2019. The three standards will be adopted as new accounting standards (PSAK71 Financial Instruments, PSAK72 Revenue from Contracts with Customers and PSAK73 Leases), which have been issued by DSAK and will be effective in Indonesia starting January 1, 2020. In line with the development of applicable regulations, Telkom has implemented IFRS 9 and IFRS 15 in full for IFRS financial reports in 2018, where Telkom develops and strengthens IT systems and improves business processes in accordance with the Sarbanes Oxley Act, and simultaneously prepares for IFRS 16 implementation which will take effect on January 1, 2019. Telkom has also carried out process changes in business units, data preparation, and systems and HR readiness for the adoption of the new IFRS accounting standards which require complex processes and a long time in preparing financial reports and the audit process, especially in the first year of implementation. Based on observations in global companies, it will take at least 2-3 years to prepare for implementing the three new IFRS accounting standards (IFRS 9, 15 and 16). Telkom has reformed and fully complied with adjusting its financial statements to meet these international standards in a timely manner. 147 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Boardof Commissionersand DirectorsTelkom Highlights12345678905 CORPORATE GOVERNANCE 150 156 156 157 169 176 181 185 Corporate Governance Principle and Platform Corporate Governance Structure Corporate Governance Assessment General Meeting of Shareholders (GMS) Board of Commissioners Audit Committee Committee for Nomination and Remuneration Committee for Planning and Risk Evaluation and Monitoring Board of Directors Corporate Secretary Internal Audit Unit Internal Control System Risk Management System 189 195 198 201 203 209 Whistleblowing System 211 Board of Directors’ and Commissioners’ Share Ownership Policy Implementation Employee Stock Ownership Program Significant Legal Disputes Informations Regarding Administrative Sanctions Information Access and Company’s Public Data Corporate Code of Conduct Corporate Culture 211 212 212 213 214 215 148 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Annual General Meeting of Shareholder, April, 27 2018. 149 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789CORPORATE GOVERNANCE PRINCIPLE AND PLATFORM The Telkom is continuously striving to apply the principles of Good Corporate Governance (GCG) at throughout organization’s levels. The goal improve performance, and meet the expectations of stakeholders. is to maintain accountability, Telkom’s commitment in implementing GCG can be seen from Resolution of Board of Directors related to Group GCG Guidelines No.602/2011. This Resolution of Board of Directors contains several systems for implementing GCG that guarantee the implementation of GCG for ethical and comply wih the Good Corporate Governance practices internal and external transactions. In line with this, the GCG support system policies and infrastructure continue to be evaluated and improved by the Telkom to strengthen the implementation quality of governance practices. IMPLEMENTATION OF PRINCIPLES GCG BASIC Telkom has implemented all the basic principles of GCG since it first listed its shares at IDX more than 23 years ago, the five basic principles of GCG are: 3. Principle of Responsibility Telkom ensures compliance with applicable laws and regulations also applies principles of a healthy corporation. These include laws and/or tax regulations, fair competition, relations, occupational health and safety, payroll standards and other relevant regulations. In addition, Telkom has the function of VP Legal and Compliance which is tasked to ensure the fulfillment of all regulations and legislation’s. industrial 4. Principle of Independence Telkom professionally works without conflict of interest and free from other parties’ pressure that are against regulation with regulations and contrary to the principles of healthy corporation. Telkom explicitly states corporate in the board charter decision-making rules/authority and the Company’s Articles of Association. In addition, TelkomGroup has additional policies in the Corporate Governance Guidelines, such as conflict of interest transaction policy, prohibitions on political party donations and prohibitions on affiliate relations. 1. Principle of Transparency 5. Principle of Equality and Equity Telkom regularly publishes financial reports and annual reports also other material information such as the decision-making process as a means for investors to easily access important information. The access information is provided in the form of the Company’s website, print media and press releases, face-to-face meetings with investors, public expose, and press gatherings. 2. Principle of Accountability is carried out Telkom applies the principle of equality and equity in fulfilling the rights of stakeholders that arise based on agreements and applicable laws and regulations. Implementation in various operational aspects, susch as respecting the rights of minority shareholders, prohibiting insider trading, implementing performance management based on the balanced scorecard, conducting open auctions in the procurement of goods/services and implementing e-procurement. of accountabilities Telkom ensures the availability of charter, guidance or manual that contain clarity of functions, implementations, and of Commissioners, Board of Directors, committees, and Corporate Secretary. This will create check and balances mechanism on authority and roles in the management of the Company. In addition, clear criteria for Key Performance Indicators (KPI) and operational targets are also stipulated. shareholders, Board 150 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report IMPLEMENTATION OF GCG MANAGEMENT PRINCIPAL - FINANCIAL SERVICES AUTHORITY Telkom has also implemented the 8 (eight) principles of Company management according to the guidelines of Listed company governance from Financial Services Authority, as follows: Principle Principle 1 Recommendation Implementation Status Improving The Value 1. Technical methods or procedures Telkom already has technical procedures Comply of General Meeting for open and closed voting that Shareholders (GMS). prioritize independence and for voting set out in the procedures for the General Meeting of Shareholders. interest of the shareholders. 2. Members of Board of Directors All of the members of Board of Directors Comply and Board of Commissioners and Board of Commissioners attended attend the Annual GMS. the GMS. 3. A summary of minutes of GMS is available at the Website at least Telkom provided a Summary of Minutes of GMS at the Company’s Website under Comply 1 year. Investor Relations. Principle 2 Improving The Public 1. To have a policy on Telkom has a policy on communications Comply Listed Company communications between Public Communication Quality Company and shareholders with Shareholders or and investors. Investors. with Investors through Non Deal Roadshow, One on One Meeting, Earnings Call, Public Expose, Conference and Investor Summit. 2. Posted the communications Telkom has made available materials Comply policy of a Public Company at of each Earnings Call, Conference and the Website. materials of presentation to investors at the Company’s website to provide equality for Shareholders and Investors regarding implementation Communications with the Company. the of Principle 3 Strengthening The Membership and 1. Determination of the numbers of board of commissioners Telkom has complied with the provision Comply applicable to the Company as Public Composition of Board of should consider the company Company as set out in Article 20 Commissioners. condition members should of Regulation of Financial Services take into account the Authority No.33/POJK.04/2014 that Company’s Conditions. the number of members of Board of Commissioners must be more than 2 (two) persons. 2. Determination of the At the Shareholders’ discretion, Comply composition of members of members of Board of Commissioners Board of Commissioners takes have been appointed by taking into into account the required account a variety of skills, knowledge, variety of skills, knowledge and experience. experiences and Telkom’s business conditions and complexity. 151 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Principle Principle 4 Recommendation Implementation Status Improving The 1. Board of Commissioners has Basically, the assessment of the Explain Quality of Duty and a policy to self-assess the Responsibility of Board of performance of Board of Commissioners. Commissioners. performance of Board of Commissioners is carried out by Class A Dwiwarna Shareholders through the mechanism of a General Meeting of Shareholders. 2. The self-assessment policy is reported in an Annual Report. Telkom does not has any self- Explain assessment policy yet, therefore there is no self-assessment policy reported in the Annual Report. 3. Board of Commissioners has a policy of resignation in the In accordance with Telkom’s Articles of Comply Association, jo. Regulation of Financial event of involvement in any Services Authority No. 33/POJK.04/2014 financial crimes. any member of Board of Commissioners who does not meet any requirements to be a member of Board of Commissioners as set out in the Articles of Association and Regulation of Financial Services Authority No. 33/POJK.04/2014 including any involvement in any financial crimes, consequently his/her position will be null and void. In the event that the member of Board of Commissioners resigns, it will be resolved at a GMS. 4. Board of Commissioners or the KNR sets out a provision of The Committee for Nomination and Comply Remuneration sets out in the Committee succession in the Nomination for Nomination and Remuneration Process of a member of Charter that among its duties is to Board of Directors. give recommendations to Board of Commissioners which will inform the Class A Dwiwarna Shareholders about the Planning of Succession of Members of Board of Directors. In addition, as an SOE, the provision of succession of Board of Directors refers to Regulation of Minister of SOE No.PER-03/MBU/02/2015 on the requirements, procedures for the appointment and dismissal of a member of Board of Directors of an SOE. 152 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportPrinciple Principle 5 Strengthening Membership and Recommendation Implementation Status 1. Determination of the number of Determination of the number of members Comply members of Board of Directors of Board of Directors of the Company Compositions of Board of takes into account the Company’s refers to the Article 2 paragraph (1) and Directors. conditions and effectiveness in paragraph (2) Regulation of Financial decision-making. Services Authority No.33/POJK.04/2014 regarding Board of Directors and Board of Commisioner of listed Company which provides that 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. 2. Determination of the At the Shareholders’ discretion, members Comply Composition of members of Board of Directors takes into account a variety of skills, knowledges and experiences as required. of 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. 3. Members of Board of Directors in charge of accounting and finance The member of Board of Directors in Comply charge of accounting and finance in the have skills and/or knowledge Company is the Finance Director who in accounting. has sufficient accounting and financial knowledge and experience as can be seen in the position and education history of Board of Directors under the section of Profiles of Board of Directors. Principle 6 Improving The Quality of Task execution and Responsibility of Board of 1. Board of Directors has a policy to self-assess the performance of Board of Directors. Directors. 2. The self-assessment policy is reported in an Annual Report. 3. Board of Directors has a in the in any policy of resignation involvement event of financial crimes. Board of Directors has a Self-Assessment Comply policy as set out in the section of Performance Assessment of Board of Commissioners and Board of Directors. Results of the Self-Assessment of Comply Board of Directors are reported in the Company’s Annual Report under the section of Corporate Governance. In accordance with our Articles of Comply Association jo. Regulation of Financial Services Authority No. 33/POJK.04/2014, any member of Board of Directors who does not meet any requirements to be a member of 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 Board of Directors resigns, it will be resolved at a GMS. 153 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Principle Principle 7 Recommendation Implementation Status Improving Corporate 1. To have a Policy to prevent Governance Aspect Insider Trading. In of accordance with Regulation Comply Human Capital Management Through Stakeholders Participation. 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 Anti Telkom always committed to preventing Comply Corruption and Anti Fraud. 3. To have a Policy on the Selection Corruption in our Company. This is realized through the existence of integrity pact completed by all employees of Telkom and the existence of a separate website as an integrity portal for all employees of Telkom, called myintegrity.telkom.co.id. Telkom selects our vendors and and Capacity Building of suppliers in accordance with our Suppliers and Vendors. 4. To have a Policy on the fulfillment of Creditors’ Rights. internal procurement policy managed through the Share Service Operation Procurement Department and implemented by reference to Regulation of Finance Director No.PR.301.08/r.01/ COP-A00110000/2016 on Procurement Implementation Guidelines. Telkom has a policy to fulfill the rights of our creditors through the Corporate Finance Unit that sets out and manages the rights of Telkom’s creditors. Comply Comply 154 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportPrinciple Recommendation Implementation Status 5. To have a Policy on Pursuant to Decision of Board of Comply whistleblowing system. Commissioners No.08/KEP/DK/2016 dated June 8, 2016 on the Provision of Complaint Handling Procedures (Whistleblowers) at PT Telkom Indonesia, Tbk and its consolidated Subsidiaries which then ratified by Board of Directors through Regulation of Board of Directors No. PD.618.00/r.00/HK200/ COP-C0000000/2016 dated December 21, 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. 6. To have a Policy on the granting of long-term incentives to Board In determining the incentives to be Comply earned by Board of Directors, Telkom of Directors and Employees. guided by Regulation of Minister of SOE 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, Telkom also provide long-term incentives in the form of Employee Stock Option Plan (ESOP), which was last done in 2013. Principle 8 Improving The Implementation of 1. To use information technology than a more widely other Telkom also active in various social Comply media as medium for information Information Disclosure. Website as a medium of disclosure and product promotion. In information disclosure. addition, Telkom also use the mailing list system as medium for information disclosure and communication with investors. 2. The Annual Reports of Public Telkom discloses the most current Comply Companies disclose the most beneficial owners of the Company’s current beneficial owners of ownership with 5% or more in our the Company’s ownership, Annual Report under the section at least 5% other than Major of Shareholders’ Composition Shareholders and Controllers. and Ownership. 155 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789CORPORATE GOVERNANCE STRUCTURE Telkom’s governance structure consisting of Main and Supporting Organs, is in accordance to the Law of the Republic of Indonesia No.40/2007 regarding Limited Liability Companies and the prevailing regulations in the capital market. The Main Organs of the Company consist of the General Meeting of Shareholders (GMS), the Board of Commissioners and the Board of Directors. The Supporting Organs consist of the Audit Committee, the Committee for Nomination and Remuneration, the Committee for Planning and Risk Evaluation and Monitoring, the Corporate Secretary and the Internal Auditor. BOARD OF DIRECTORS First Unit GENERAL MEETING OF SHAREHOLDERS (GMS) BOARD OF COMMISSIONERS Corporate Secretary Audit Committee Supporting Unit Internal Auditor Committee for Nomination & Remuneration Committee for Planning and Risk Evaluation & Monitoring CORPORATE GOVERNANCE ASSESSMENT Assessment of Telkom’s Disclosure of governance practices is done using the Corporate Governance Scorecard Methodology, which reviews all of our publicly available information, including all the information included in the annual report, website, announcement, and circular letter made by Telkom. The information used in the assessment is presented in English. In 2018, the Indonesian Institute for Corporate Directorship (IICD) underwent an assessment to the top 200 companies listed in the Indonesia Stock Exchange ranked by market capitalization. The assessment (supported by 10 assessors and four reviewers) was divided into 2 groups, with 100 companies listed in the Big Market Capitalization Group (Big Capitalization), and the rest the Mid Market Capitalization Group (Mid Capitalization). The OECD Scorecard for Economic Co-operation and Development (OECD) was used to assess the top 200 companies. The OECD Principles consist of: 1. Shareholder rights; 2. Fair Shareholder treatment; 3. Stakeholder roles; 4. Disclosure and transparency; 5. Board Responsibility. The IICD has been doing corporate governance assessments to hundred listed companies since 2005, using the international standards of the Corporate Governance principles of the OECD’s Corporate Governance Scorecard. This has been implemented previously in some ASEAN Countries including Indonesia. In the future, the IICD will list anti corruption and financial performance as defining factors in the Corporate Governance performance assessment. In this assessment, Telkom, with 2 other listed companies, achieved the title of “The Best State Owned Enterprise” apart of the Big Capitalization Category. Telkom was considered as an SOE that had implemented Good Corporate Governance properly and transparently, and could explain and give responsibility to the public regarding public decisions. 156 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportGENERAL MEETING OF SHAREHOLDERS (GMS) Telkom as the highest governance organ is a General Meeting of Shareholders (GMS), which facilitates shareholders to make important and strategic decisions. In accordance with the provisions of Telkom’s Articles of Association and statutory regulations, the Annual GMS (AGMS) is held once a year with the following routine discussion agenda: 1. Approval of the Company’s Annual Report, including 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 Board of Directors and Commissioners. 3. Determination of the Company’s Net Income, including dividend payment in the financial year. 4. The determination of remuneration for the members of Board of Directors and Commissioners. 5. The appointment of a Public Accounting Firm to Audit the 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 Partnership and Community Development Programs. 6. Any other agenda proposed by one or more Shareholder thata represent 1/20 or more of all shares that have a voting right. 157 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789AGMS RESOLUTION FOR 2016 FINANCIAL YEAR Telkom conducted the AGMS on April 21, 2017 for the performance of the 2016 financial year with details of the agenda and realization of the 2016 fiscal year AGMS decisions as follows: Agenda AGMS Resolution Status of the AGMS Resolution 1. To approve the Annual Report of the Company including the Board of Resolution effective immediately. 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. 2. 1. To ratify Resolution effective immediately. 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. 158 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAgenda 3. AGMS Resolution Status of the AGMS Resolution • Dividend distribution was conducted on May 26, 2017. • The decision on reserve effective immediately. 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). 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. 159 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Agenda 4. 5. AGMS Resolution Status of the AGMS Resolution Has been implemented. The PAF’s approval is effective immediately. 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. 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. Tetermine the amount of audit fee and other terms and conditions of appointment of the relevant Public Accounting Firm. 6. To approve the ratification of Minister of State Owned Enterprise’s Regulation Has been followed-up. 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. 160 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAgenda 7. AGMS Resolution Status of the AGMS Resolution Resolution effective immediately. 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. 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 Minister 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. 161 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Status of the AGMS Resolution Resolution effective immediately. Agenda 8 AGMS Resolution 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. 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. 162 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAgenda AGMS Resolution Status of the AGMS Resolution 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 JANANGKIH SINAGA as President Director; • Mr. HARRY MOZARTA 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. 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 163 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789AGMS RESOLUTION FOR 2017 FINANCIAL YEAR In addition, Telkom has conducted the AGMS in April 27, 2018 for the performance of the 2017 financial year with details of the agenda and realization of the 2017 fiscal year AGMS decisions as follows: Agenda AGMS Resolution 1. To approve the Annual Report of the Company including the Board of Commissioners’ Supervision Duty Report for the Financial Year 2017, 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. Status of the AGMS Resolution Resolution effective immediately. 2. 1. To ratify Resolution effective immediately. a. The Company’s Consolidated Financial Statements for the Financial Year 2017 which has been audited by the Public Accounting Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) according to its report number RPC-5841/PSS/2018 dated March 12, 2018 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 as of December 31, 2017 and the financial performance and consolidated cash 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 2017 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 Accounting Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) according to its report RPC-5580/PSS/2018 dated January 24, 2018 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, 2017 and financial performance and cash flow for the year ended on such date in accordance with the Non Publicly Accountable Entities Financial Accounting Standards. Then, by the approval of the Company’s Annual Report for the Financial Year 2017 including Supervisory Task of the Board of Commissioners’ Report and the ratification of Financial Statement for the Financial Year 2017 and Annual Report on Partnership and Community Development Program for the Financial Year 2017, 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 2017 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 2017 and Annual Report of Partnership and Community Development for the Financial Year 2017. Authorize to the Board of Commissioners with the first by obtaining written approval from the Series A Dwiwarna Shareholder in relation to the authority of the General Meeting of Shareholders as provided in Regulation of the Minister of State Owned Enterprise Number PER-09/MBU/07/2015 as amended the latest by the Regulation of the Minister of State Owned Enterprise Number PER-02/MBU/ 7/2017 and its amendments. • 2. 164 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportStatus of the AGMS Resolution • Dividend distribution was conducted on May 31, 2018. • The decision on reserve effective immediately. Agenda AGMS Resolution 3. 1. To Approve and determine the appropriation of the Company’s net profit for the Financial Year ended on the December 31, 2017 in the amount of Rp22,144,990,327,956 (twenty two trillion one hundred forty four billion nine hundred ninety million three hundred twenty seven thousand nine hundred fifty six Rupiah) as follow: a. Cash Dividend amounting to 60% of the net profit or in the amount of Rp13,286,997,175,681.50 (thirteen trillion two hundred eighty six billion nine hundred ninety seven million one hundred seventy five thousand six hundred eighty one point five zero Rupiah) or amounting to Rp134.1278 (one hundred thirty four point one two seven eight rupiah) per share, based on shares have been issued (excluding shares have been repurchased by the Company) on the date of the Meeting, namely amountly 99,062,216,600 (ninety nine billion sixty two million two hundred sixteen thousand six hundred) of shares; b. Special Dividend amounting to 15% of the net profit or in the amount of Rp3,321,754,247,031.20 (three trillion three hundred twenty one billion seven hundred fifty four million two hundred forty seven thousand thirty one point two zero Rupiah) or amounting to Rp33.5320 (thirty three point five three two zero rupiah) per shares based on shares have been issued (excluding shares have been repurchased by the Company) on the date of the Meeting, amounting to 99,062,216,600 (ninety nine billion sixty two million two hundred sixteen thousand six hundred) of shares; c. 25% of Net Profit of the Company or amount of Rp5,536,238,905,243.30 (five trillion five hundred thirty six billion two hundred thirty eight million nine hundred five thousand two hundred forty three point three zero Rupiah) determined as Retained Earning which will be used to finance the development of the Company’s business; 2. To Approve the distribution of Cash Dividend and Special Dividend for the Financial Year 2017 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 11, 2018 up to 16.15 Western Indonesia Standard Time; b. Cash Dividend and Special Dividend shall be paid all at the lattest on May 31, 2018. 3. To the Board of Directors granted the authorization with the right of substitution to regulate further the procedure of dividend distribution and to announce the same with due regard to the prevailing laws and regulations in the stock exchange where the Company’s share are listed. 4. 1. To grant authority and authorize to serie A Dwiwarna shareholder to determine the amount of tantieme for financial year 2017 and to determine honorarium allowance, facility and other incentive to members of the Board of Commissioners for financial year 2018. Has been implemented. 2. To grant authority and authorize to the Board of Commissioners by first obtaining written approval of serie A Dwiwarna Sahreholders to determine the amount of tantieme for financial year 2017 and to determine salary, allowance, facility and other incentive to members of the Board of Directors for financial year 2018. 165 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Agenda AGMS Resolution 5. 1. Appointment of Public Accounting Firm Purwantono, Sungkoro & Surja (a member firm of Ernst & Young Global Limited) to conduct an integrated audit of the Company which include the audit of the Consolidated Financial Statements of the Company, including the audit of the Internal Control over Financial Reporting for the Financial Year 2018 and to audit the Financial Statements of Partnership and Community Development Program for the Financial Year 2018. Status of the AGMS Resolution The PAF’s approval is effective immediately. The decision is effective from the amendment to the Articles of Association approved by the Minister of Law and Human Rights on July 2, 2018. The amendment to the Articles of Association was approved by the Minister of Law and Human Rights on July 2, 2018. 6. 7. 2. 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. To approve the transfer of Treasury stock through withdrawal of 1,737,779,800 (one billion seven hundred thirty seven million seven hundred seventy nine thousand eight hundred) shares which are all shares which have been repurchased by the Company, by way of reduction of issued and paid up capital from Rp5,039,999,820,000,- (five trillion thirty nine billion nine hundred ninety nine million eight hundred twenty thousand rupiah) to Rp4,953,110,830,000,- (four trillion nine hundred fifty three billion one hundred ten million eight hundred thirty thousands Rupiah). Therefore, to comply with the provisions of Article 33 of Law No. 40 of 2007 regarding Limited Liability Company, approved the reduction of the authorized capital of the Company from Rp20,000,000,000,000,- (twenty trillion Rupiah) to Rp19,500,000,000,000,- (nineteen trillion five hundred billion Rupiah). 1. 2. 3. 4. 5. To approve amendment article 4 paragraph (1), (2) and (3) of the Articles of Association regarding issued and paid up capital and authorized capital. To approve amendment of other Articles of Association of the Company. To approve to recompile of all the provisions of the Articles of Association in relation with the changes as referred to in point 1 (one) and 2 (two) of the above mentioned resolutions. To approve to the Board of Directors of the Company with rights of substitution to do all necessary actions in relation with the resolutions of the agenda of this Meeting, including to compile and restate of all Articles of Association in a Notarial Deed and to submit to the competent authority to obtain the approval and/or receipt of notification of the amendment of the Articles of Association, to do everything deemed necessary and useful for such purposes with no exceptions, including to add and/or to change the amendments of the Articles of Association if they are required by the competent authority. To approve, in the case of reduction of issued and paid-up capital of the Company does not obtain approval from and the Ministry of Law and Human Rights of the Republic of Indonesia, the Sixth Agenda’s resolution related with the approval of the transfer of the Treasury stock through withdrawal by way of reduction of capital to be automatically null and void without approval of the General Meeting of Shareholders (AGM) and therefore Article 4 paragraph (1) of the Articles of Association of the Company has not changed, therefore the Authorized Capital of the Company is remains as before. 166 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAgenda AGMS Resolution 8. To approve the ratification of Ministry of State Owned Enterprise’s Regulation Number PER-03/MBU/08/2017 about State Owned Enterprise Partnership Guidance and Number PER-04/MBU/09/2017 about amendment of Ministry of State Owned Enterprise’s Regulation Number PER-03/MBU/08/2017 including its amendments. Status of the AGMS Resolution Resolution effective immediately. 9, 1. Confirmation the dismissal the following names: Resolution effective immediately. 1) Miss DEVY WILDASARI as Commissioner of the Company, as of her appointment as Marketing and Service Director of PT ANGKASA PURA I (Persero) based on Minister of State Owned Enterprise’s Decision No. SK-289/MBU/12/2017 on December 22, 2017; 2) Mister HADIYANTO, related to his appointment as Commissioner of PT Bank BRI (Persero) Tbk; 3) Mister MAS’UD KHAMID as Consumer Service Director of the Company, as of his appointment as Retail Marketing Director of PT PERTAMINA (Persero) based on Minister of State Owned Enterprise’s Decision No. SK-97/MBU/04/2018, on April 20, 2018; With appreciation for contribution of dedication and thoughts during their term as Commissioner and the Board of Directors of the Company. 2. To appoint the following names as members of the Board of Directors and member of the Board of Commissioners of the Company: 1) Mistress SITI CHOIRIANA as Consumer Service Director; 2) Mister EDWIN HIDAYAT ABDULLAH as Commissioner; and 3) Mister ISA RACHMATARWATA as Commissioner. Term of office member of the Board of Directors and member of the Board of Commissioners in accordance with provision of the Articles of Association, with due regard to regulation of Capital Market and without prejudice to the rights of General Meeting of Shareholders to dismiss at anytime. For the members of the Board of Directors and the Board of Commissioners who are appointed as reffered in number 2 above who still serve in other positions that are prohibited under the prevailing regulation to hold multiple offices with the position of the Board of Directors and the Board of Commissioner of State Owned Enterprises, then the concerned must resign from his position or dismissed from his/her position. By the dismissal and appointment the member of the Board Directors and the Board of Commissioners as stated in number 1 and 2, then composition of the member of the Board Directors and the Board of Commissioners of the Company are becomes as follows: 3. 4. 167 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Agenda AGMS Resolution A. Board of Directors: Status of the AGMS Resolution 1) Mister ALEX JANANGKIH SINAGA as President Director. 2) Mister HARRY MOZARTA ZEN as Finance Director. 3) Mister DAVID BANGUN as Digital & Strategic Portfolio Director. 4) Mister DIAN RACHMAWAN as Enterprise & Business Service Director. 5) Mister ABDUS SOMAD ARIEF as Wholesale & International Service Director. 6) Mister HERDY ROSADI HARMAN as Human Capital Management Director. 7) Mister ZULHELFI ABIDIN as Network & Information Technology Solution Director. 8) Mistress SITI CHOIRIANA as Consumer Service Director. B. Board of Commissioners: 1) Mistress HENDRI SAPARINI as President Commissioner. 2) Mister MARGIYONO DARSA SUMARJA as Independent Commissioner. 3) Mister DOLFIE OTHNIEL FREDRIC PALIT as Independent Commissioner. 4) Mistress PAMIJATI PAMELA JOHANNA W. as Independent Commissioner. 5) Mister CAHYANA AHMADJAYADI as Independent Commissioner. 6) Mister EDWIN HIDAYAT ABDULLAN as Commissioner. 7) Mister RINALDI FIRMANSYAH as Commissioner. 8) Mister ISA RACHMATARWATA as Commissioner. To authorize with the right of substitution to the Board of Directors of the Company to perform all necessary actions related with this agenda resolution in accordance with the prevailing laws and regulations, including to state in a notarial deed and to notify the composition of the Board of Commissioners and the Board of Directors to the Ministry of Law and Human Rights. Note: All of the above AGMS resolutions are in line with the adopted agenda and is reflected in the AGMS invitation 168 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBOARD OF COMMISSIONERS Telkom’s Board of Commissioner collectively work and responsible to supervise the Board of Directors in performing its duties and responsibilities, In addition, the Board of Commissioners give advice to the Board of Directors regarding Telkom’s Business and the implementation of Good Corporate Governance (GCG) Principle. BOARD OF COMMISSIONERS’ COMPOSITION In accordance with the results of the Annual General Meeting of Shareholders (AGMS) on April 27, 2018, Telkom changed the composition of the Board of Commissioners. The 2018 AGMS has decided to appoint Edwin Hidayat Abdullah and Isa Rachmatarwata as Commissioners, with a term of service until the AGMS in 2023. However, on March 22, 2018 Hadiyanto was appointed as Commissioner of PT Bank Rakyat Indonesia (Persero) Tbk based on the results of PT Bank Rakyat Indonesia (Persero) Tbk’s AGMS. In addition, on September 20, 2018, Dolfie Othniel Fredric Palit was named in The House of Representatives’ Final Candidates List for The 2019 General Election, meaning his term of office as an Independent Commissioner has ended due to his naming in the Final Candidate List. Board of Commissioners’ Composition per December 31, 2017 No. Name Position Appointment Discharge Date 1. 2. 3. 4. 5. 6. 7. Hendri Saparini Rinaldi Firmansyah Hadiyanto President Commissioner Commissioner Commissioner Dolfie Othniel Fredric Palit Independent Commissioner Margiyono Darsasumarja Independent Commissioner Pamijati Pamela Johanna Waluyo Independent Commissioner Cahyana Ahmadjayadi Independent Commissioner 2014 2015 2017 2014 2015 2015 2017 AGMS 2019 AGMS 2020 AGMS 2022 AGMS 2019 AGMS 2020 AGMS 2020 AGMS 2022 Board of Commissioners’ Composition per December 31, 2018 No. Name Position Appointment Discharge Date 1. 2. 3. 4. 5. 6. 7. Hendri Saparini Rinaldi Firmansyah Edwin Hidayat Abdullah Isa Rachmatarwata President Commissioner Commissioner Commissioner Commissioner Margiyono Darsasumarja Independent Commissioner Cahyana Ahmadjayadi Independent Commissioner Pamijati Pamela Johanna Waluyo Independent Commissioner 2014 2015 2018 2018 2015 2017 2015 AGMS 2019 AGMS 2020 AGMS 2023 AGMS 2023 AGMS 2020 AGMS 2022 AGMS 2020 169 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789BOARD OF COMMISSIONERS’ DIVERSITY To fulfill the fairness principle in implementing GCG and Law No.39 of 1999 regarding Human Rights, Telkom guarantees non-discrimination in the workplace. The principle of non- discrimination also includes the selection and appointment of members of the Board of Commissioners. Although Telkom does not yet have a written policy regarding the diversity of the Board of Commissioners, Telkom guarantees that members of the Board of Commissioners are selected and appointed based on their respective expertise, skills and integrity. Both men and women who have met the conditions and requirements have equal opportunities to be appointed as members of the Board of Commissioners. As of December 31, 2018, Telkom has male and female members of the Board including of Commissioners with various skills needed, economics, public policy, media, telecommunications, marketing and public relations. Board of Commisioners’ Diversity per December 31, 2018 No. Name Position Gender Background of Expertise & Skill Level of Education 1. 2. 3. 4. 5. 6. 7. Hendri Saparini President Commissioner Female Economics, Development Policy Doctor Rinaldi Firmansyah Commissioner Male Edwin Hidayat Abdullah Isa Rachmatarwata Margiyono Darsasumarja Cahyana Ahmadjayadi Commissioner Commissioner Independent Commissioner Independent Commissioner Male Male Male Male Engineering, Telecommunications, Business and Finance Doctor Public policy Mathematics, Risk Assessment in Insurance, Finance and Industry Master Master Media, Media and Internet Law Master Engineering, Telecommunications, Law and Content Application Doctor Pamijati Pamela Johanna Waluyo Independent Female Sales, Marketing, Public Relations Master Commissioner Board of Commisioners’ Gender Composition Diversity Board of Commisioners’ Position Composition Diversity 29% Female 43% Independent 71% Male 57% Non Independent Board of Commisioners’ Education Level Composition Diversity 43% Doctor 57% Master 170 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report BOARD OF COMMISSIONERS’ DOUBLE POSITION Some members of Telkom’s Board of Commissioners hold more than one position as committee members. Complete information regarding the double position of Telkom’s Board of Commissioners may be seen in the following table: Board of Commissioners’ Double Position Telkom Position Other Position President Commissioner None Commissioner No. Name Hendri Saparini Rinaldi Firmansyah 1. 2. 3. 4. 5. Edwin Hidayat Abdullah Commissioner Isa Rachmatarwata Commissioner Margiyono Darsasumarja 6. Cahyana Ahmadjayadi 7. Pamijati Pamela Johanna Waluyo Independent Commissioner Independent Commissioner Independent Commissioner 1. 2. 1. 2. 1. 2. 1. 2. 3. 1. 2. 3. 1. 2. Member of Audit Committee Member of KNR Chairman of KEMPR Member of KNR Member of KEMPR Member of KNR Chairman of Audit Committee Member of KNR Member of KEMPR* Chairman of Audit Committee Member of KNR Member of KEMPR Chairwoman of KNR Member of KEMPR* Subsidiary None None None None None None None Remarks: KEMPR KNR : (Committee for Planning and Risk Evaluation and Monitoring) : (Committee for Nomination and Remuneration) * : start from May 9, 2018 until October 25, 2018 BOARD OF COMMISSIONERS’ REMUNERATION The structure of the remuneration for Telkom’s Board of Commissioners is based on the Regulation of SOE’s State Minister No.PER-04/MBU/2014 regarding Guidelines for the Determination of Income for Directors, Board of Commissioners and Board of Trustees of SOE’s along with their changes. Based on the said regulation, the income component for members of Board of Commissioners consists of: 1. Salaries; 2. Allowances; 3. Facilities; and 4. Bonus/Incentive. Board of Commissioners Remuneration Mechanism and Procedure KNR* by the instruction from Board of Commissioners create remuneration draft. The result will be decide in AGMS 5 4 1 3 AGMS KNR ask Independent Party for Suggestion 2 Independent Party give the suggestion to KNR *KNR : Committee for Nomination and Remuneration 171 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 Telkom determines the remuneration of the Board of Commissioners through the following procedures: 1. The Board of Commissioners requests the KNR to draft a remuneration proposal for the Board of Commissioners. 2. The Committee for Nomination and Remuneration requests an independent party to draw up a framework on the remuneration of Board of Commissioner. 3. The Committee for Nomination and Remuneration proposes the remuneration to Board of Commissioners. 4. The Board of Commissioners proposes remuneration for Board of Commissioner 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 Board of Commissioner. During 2018, the total remuneration paid to the entire Board of Commissioners was Rp 102,8 billion. Taxes from remuneration borne by Telkom amounted to Rp 30,2 billion. The next table below sets forth the remuneration that Telkom’s Commissioners received in 2018: Board of Commissioners’ Recapitulation of Remuneration No. Board of Commissioners 1. 2. 3. 4. 5. 6. 7. 8. 9. Hendri Saparini Rinaldi Firmansyah Edwin Hidayat Abdullah (2) Isa Rachmatarwata (2) Margiyono Darsasumarja Cahyana Ahmadjayadi Pamijati Pamela Johanna Waluyo Hadiyanto (3) Dolfie Othniel Fredric Palit (4) Honorarium Tantiem & THR (1) Total (Rp millions) 2,908 2,821 2,011 2,009 2,804 2,823 2,804 1,137 1,779 13,393 12,033 97 97 12,054 8,011 12,054 11,936 12,033 16,301 14,854 2,108 2,106 14,858 10,833 14,858 13,073 13,812 Remarks: (1) “THR” refers to Tunjangan Hari Raya or religious holiday allowance (2) Since the AGMS on April 27, 2018 (3) Until AGMS on April 27, 2018 (4) Until September 28, 2018 PARTICIPATION IN BPJS Telkom always support Government Program which one of them is the National Healtg Insurance Program. This is proven by Telkom’s commitment to include all the Board of Directors and Board of Commissioner and their family into BPJS. INDEPENDENCE STATEMENT In order to do their duties and responsibilities, Independent Commissioners need to maintain their independence. That explains, Telkoms requirement for Independent Commissioner to sign an integrity pact when first appointed. This integrity pact is renewed every year. In 2017, all Independent Commissioners of Telkom declared their independence commitment in writing. Independent Commissioners’ Independence Statement No. Name Position Date of Signing 1. 2. 3. Margiyono Darsasumarja Independent Commissioner April 21, 2017 Cahyana Ahmadjayadi Independent Commissioner April 21, 2017 Pamijati Pamela Johanna Waluyo Independent Commissioner April 21, 2017 Status Renewal First Time Renewal 172 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBOARD OF COMMISSIONERS’ BOARD CHARTER Based on the Resolution Letter of Board of Commissioners No. 16/KEP/DK/2013 dated December 17, 2013, Telkom’s Board of Commissioners adopted a Board Charter to guide them in performing their duties to be in line with GCG practices. 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 Board of Commissioners to Board of Directors and the GMS. In addition, the Company’s Articles of Association and joint decrees between Board of Commissioners and Directors are also used as guidelines. BOARD OF AUTHORIT IE S, RESPONS IBI LI TI ES COM M IS S ION E RS ’ AN D DU T IE S , Based on the Article of Association of Telkom, Board of Commissioners have this following obligations: 1. Provide advices to the Board of Directors in performing the management of the Company; 2. Provide opinion and give approval over the Annual Work Plan and Budget of the Company as well as other work plans which have been prepared by the Board of Directors, in accordance with the provisions of this Articles of Association; 3. Keep up with the progress of activities of the Company, provide opinions and advices to the GMS with regard to every issue considered important for the management of the Company; 4. Report to the holder of Dwiwarna A Series share if there is any indication of decreasing performance of the Company; 5. Propose to the GMS for the appointment of Public Accountant who will perform the audit over the books of the Company; 6. Review and analyze the periodic reports and the Annual Report prepared by the Board of Directors as well as execute the Annual Report; 7. Provide explanation, opinion and advice to the GMS with regard to the Annual Report, if requested; 8. Draw up the minutes of meeting of the Board of Commissioners and keep their copies; 9. Report to the Company with regard to their and/or their families share ownership in the Company aforesaid and in other companies; 10. Provide report regarding the supervisory duties which have been performed during the recently passed financial year to the GMS; 11. Provide explanation regarding any matters inquired about or requested by the holder of Dwiwarna A Series share with due observance of- the statutory regulations, particularly those prevailing in the Capital Market sector; 12. Perform other obligations in the framework of supervisory duties and advice provision, to the extent it does not contradict to the statutory- regulations, the Articles of Association and/or the resolutions of the GMS. Other than the duties and responsibilities previously explained, the Board of Commissioners also have the following authority: 1. Examine books, letters, as well as other documents, examine cash position for verification purposes and other securities and examine the assets of the Company; 2. Enter the yards, buildings, and offices used by the Company; 3. Demand explanation from the Board of Directors- and/or other officials with regard to any issues concerning the management of the Company; 4. Be informed of any policy and actions which have been and which will be taken by the Board of Directors; 5. Demand the Board of Directors and/or other officials under the level of the Board of Directors, with the knowledge of the Board of Directors, to attend the meeting of the Board of Commissioners; 6. Appoint and dismiss a Secretary of the Board of Commissioners; 7. Suspend the members of the Board of Directors in accordance with the provisions of this Articles of Association; 8. Form the Audit Committee, the Remuneration and- Nomination Committee, the Risk Monitoring Committee and other committees, if considered necessary, with due observance of the capability of the company; 9. Utilize experts for certain matters and within a certain period of time on the account of the Company, if considered necessary; 10. Perform the management actions over the Company in certain conditions for a certain period of time in accordance with the provisions of this- Articles of Association; 11. Approve the appointment and dismissal of the Corporate Secretary and/or the Head of Internal Supervisory Unit; 12. Attend the Meeting of the Board of Directors and give viewpoint towards the matters being discussed; 13. Perform other supervisory authorities to the extent they do not contradict with the statutory regulations, the Articles of Association and/or the resolutions of the GMS. Jointly, the Board of Commissioners are responsible for the Company’s losses caused by errors or omissions of members of Board of Commissioners in carrying out their duties. Board of Commissioners cannot be responsible for the Company’s losses if they can prove that: 1. Such loss is not caused by their mistake or negligence; 2. They have performed in good faith with 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 4. The have taken the action to prevent the occurrence or continuation of such loss. 173 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789BOARD OF COMMISSIONERS’ MEETING Based on the Regulation of Financial Services Authority 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 inthe presence of more than half of total members of Board of Commissioners. In addition, the Board of Commissioners shall also be obliged to organize 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 Board of Directors and Board of Commissioners within the Company shall also be referred to as the Joint Meeting. Decision making at Board of Commissioners meeting is based on discussion to reach 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 2018, Board of Commissioners held 28 internal meetings and 13 Joint Meetings with the Board of Directors. Some important themes or agendas discussed at Board of Commissioners’ meetings and joint meetings during 2018 can be seen in the appendix 1 - 3. The following tables describe attendance frequency of the Board of Commissioners meetings and joint Meetings: Board of Commissioners’ Attendance at Internal Meetings No. Name Total Meetings Total Attendances Percentage of Attendance (%) 1. 2. 3. 4. 5. 6. 7. 8. 9. Hendri Saparini Rinaldi Firmansyah Edwin Hidayat Abdullah (1) Isa Rachmatarwata (1) Margiyono Darsasumarja Cahyana Ahmadjayadi Pamijati Pamela Johanna Waluyo Hadiyanto (2) Dolfie Othniel Fredric Palit (3) Remarks: (1) Since the AGMS on April 27, 2018 (2) Until AGMS on April 27, 2018 (3) Until September 28, 2018 28 28 19 19 28 28 28 9 19 28 23 17 8 28 28 28 2 1 100 82 89 42 100 100 100 22 5 Board of Commissioners’ Attendance at Joint Meetings No. Name Total Meetings Total Attendances Percentage of Attendance (%) 13 13 9 9 13 13 13 4 9 13 12 4 6 13 13 13 0 0 100 92 44 67 100 100 100 0 0 1. 2. 3. 4. 5. 6. 7. 8. 9. Hendri Saparini Rinaldi Firmansyah Edwin Hidayat Abdullah (1) Isa Rachmatarwata (1) Margiyono Darsasumarja Cahyana Ahmadjayadi Pamijati Pamela Johanna Waluyo Hadiyanto (2) Dolfie Othniel Fredric Palit (3) Remarks: (1) Since the AGMS on April 27, 2018 (2) Until AGMS on April 27, 2018 (3) Until September 28, 2018 174 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report No. Name Total Meetings Total Attendances Percentage of Attendance (%) Board of Directors’ Attendance at Joint Meetings 1. 2. 3. 4. 5. 6. 7. 8. 9. Alex Janangkih Sinaga Harry Mozarta Zen David Bangun Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana (1) Mas'ud Khamid (2) Remarks: (1) Since the AGMS on April 27, 2018 (2) Up to April 20, 2018 13 13 13 13 13 13 13 9 3 12 13 13 12 12 10 12 8 3 92 100 100 92 92 77 92 89 100 BOARD OF PERFORMANCE ASSESSMENT COMMISSIONERS’ BOARD OF DIRECTORS’ ASSESSMENT PERFORMANCE Telkom uses the balance scorecard in the implementation of the assessment of the performance of Board of Directors by measuring four main aspects, namely financial, customer, internal business process, and learning and growth. Both the Board of Commissioners and the GMS also assess the performance of the Board of Directors based on the achievement of the Key Performance in accordance with the Articles of Association of the Company, as well as the realization of the RKAP. Indicator (KPI) There are three KPI criteria used by Telkom, namely shared KPI, Common KPI, and specific KPI. Shared KPI is the KPI with the same naming, target, realization and achievement for all Board of Directors. Common KPI is KPI with the same naming and targets, but different realization and achievements for each Board of Directors. Specific KPI is a different KPI for each Board of Directors and is a specific program which is the main task and priority of each Director and Directorate he leads. The assessment of the performance of Board of Directors begins with filling in the realization of an online Management Contract (KM) and then following up with a face-to-face meeting to clarify and determine the final performance value that will be submitted to the Performance Committee and Managing Director for final determination, then submitted to Board of Commissioners. The performance of the Board of Commissioners is evaluated through the mechanism of the Company’s AGMS. Shareholders assess the achievement of the Board of Commissioners based on their Performance Implementation Report which is accounted at the Annual GMS of the Company to the Shareholders for the current financial year. The evaluation criteria used includes the level of participation of members of Board of Commissioners in meetings and activities of the Company, as well as the achievement of targets and work targets, both in carrying out their functions as members of Board of Commissioners and as committee members. COMMITTEE UNDER BOARD OF COMMISSIONERS’ ASSESSMENT The Board of Commissioners have 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. In 2018, the Audit Committee assisted Board of Commissioners in overseeing the audit process conducted by independent auditors. In addition, the Audit Committee also helps to evaluate and provide recommendations on the results of internal and external audit very well. The Committee for Nomination and Remuneration (KNR) has assisted Board of Commissioners to give consideration to Board of Directors in making strategic decisions. This committee did a good job in carrying out their responsibility, especially in terms of proposals for candidates and the remuneration of Board of Directors and top management. Meanwhile, 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, theBoard of Commissioners could give recommendations to Board of Directors on Telkom’s long-term business continuity, including the Company’s decisions on Merger & Acquisition (M&A). 175 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789AUDIT COMMITTEE In order to comply with Regulation of Financial Services Authority No.55/POJK.04/2015 dated December 23, 2015, the provisions of the US SEC Exchange Act 10A-3, the principles of Good Corporate Governance (GCG), and other related regulations, Telkom has an Audit Committee. Throughout 2018, the Audit Committee assisted the Board of Commissioners in carrying out their supervisory functions in accordance with the Audit Committee Charter which was determined in the same year through Resolution of Board of Commissioners No.10/KEP/DK/2018 regarding the Audit Committee Charter of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk. AUDIT COMMITTEE’S COMPOSITION The Audit Committee consists of at least three members, one of them being an Independent Commissioner who also acts as the chairman. The two other members of the Audit Committee must be independent parties. The composition of the audit committee members refers to the Regulations of Financial Services Authority and US Regulations of SEC. The Resolution of 2018 Annual GMS dated April 27, 2018, decided to change the composition of Board of Commissioners due to one of the Members of Board of Commissioners’ terms of service is ending as a result of a prohibited double position. As a result of this, Telkom adjusted the composition of the Audit Committee under Resolution of Board of Commissioners No.07/KEP/DK/2018 dated September 28, 2018 regarding Composition of the Audit Committee of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, as follows: Audit Committee’s Composition per December 31, 2018 Name and Double Position Status Term of Service Basis of Appointment Position Chairman Margiyono Darsasumarja* Independent Commissioner 2017-Now Secretary Tjatur Purwadi Independent Member 2014-Now Member Rinaldi Firmansyah* Commissioner (non Voting Member) 2017-Now Cahyana Ahamdjayadi* Independent Commissioner 2017-Now Sarimin Mietra Sardi Independent Member 2016-Now Resolution of Board of Commissioners No.05/KEP/DK/2017 dated April 28, 2017, and lastly stipulated by Resolution of Board of Commissioners No.07/KEP/DK/2018 dated September 28, 2018. Resolution of Board of Commissioners No.05/KEP/DK/2014 dated March 25, 2014and lastly stipulated by Resolution of Board of Commissioners No.07/KEP/ DK/2018 dated September 28, 2018. Resolution of Board of Commissioners No.05/KEP/DK/2017 dated April 28, 2017, and lastly stipulated by Resolution of Board Commissioners No.07/KEP/DK/2018 of dated September 28, 2018. Resolution of Board of Commissioners No.05/KEP/DK/2017 dated April 28, 2017, and lastly stipulated by Resolution of Board Commissioners No.07/KEP/DK/2018 of dated September 28, 2018. Resolution of Board of Commissioners No.04/KEP/DK/2016 dated March 31, 2016 and lastly stipulated by Resolution of Board Commissioners No.07/KEP/DK/2018 of dated September 28, 2018. Remark: * Profile of Audit Committee’s Member can be seen on Profile of The Board of Commissioners Audit Committee’s Previous Composition Position Chairman Secretary Member Name Margiyono Darsasumarja* Tjatur Purwadi Rinaldi Firmansyah* Dolfie Othniel Fredric Palit* Cahyana Ahmadjayadi* Sarimin Mietra Sardi Duplicate Position Status Independent Commissioner Member Independent Commissioner/Non Voting Member Independent Commissioner Independent Commissioner Independent Member Remark: * Profile of Audit Committee’s Member can be seen on Profile of The Board of Commissioners 176 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAUDIT COMMITTEE MEMBER’S PROFILE WHO ARE NOT BOARD OF COMMISSIONERS’ DOUBLE POSITION Tjatur Purwadi Secretary and Independent Member Born Age Citizenship Domicile : Surabaya, January 28, 1956 : 62 years old : Indonesian : Bandung Sarimin Mietra Sardi Independent Member Born Age Citizenship Domicile : Ujung Pandang, September 17, 1958 : 60 years old : Indonesian : Bandung Educations 1990 Bachelor degree in Accounting, University of Gadjah Mada, Yogyakarta, Indonesia. 2000 Master degree of Management in Finance, University of Padjajaran, Bandung, Indonesia. Educations 1993 Bachelor degree in Accounting, Sekolah Tinggi Akuntansi Negara (STAN), Jakarta, Indonesia. 2008 Master degree of Management, Universitas Pendidikan Indonesia (UPI), Jakarta, Indonesia. Basis of Appointment Resolution of Board of Commissioners No.05/KEP/DK/2014 dated March 25, 2014 and lastly stipulated by Resolution of Board of Commissioners No.07/KEP/DK/2018 dated September 28, 2018. Aside from being the Secretary of the Audit Committee, there is currently no other position held by Tjatur Purwadi in the Company. Term of Service 2014 up to present. Career Experiences 2014 - Present Basis of Appointment Resolution of Board of Commissioners No.04/KEP/DK/2016 dated March 31, 2016 and lastly stipulated by Resolution of Board of Commissioners No.07/KEP/DK/2018 dated September 28, 2018. Term of Service March 1, 2016 up to the present. Career Experiences 2016 - Now of for the Member supervising Independent Audit Committee. (Responsible and monitoring the integrated audit process, financial statement consolidation process, effectivity of internal control of financial reporting. In accordance with Resolution of Board of Commissioners No. 07/KEP/ DK/2018, he was appointed as member of the Audit Committee). 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). 1982 - 2014 of the Audit independent auditors. Secretary/Member Committee. (Responsible to facilitate the Audit Committeee members’ performance, conducting correspondence, preparing documentation, making reports of the Audit Committee to changes Charter, and coordinating the selection process of In accordance with Resolution of Board of Commissioners No.09/KEP/DK/2016, he was appointed as Secretary and financial expert concurrently for the Audit Committee). Director Tanudiredja, Wibisana & Rekan/PwC. PT Telkom Indonesia (Persero) Tbk. (Holding strategic a number offices including Vice President (VP) - Financial & Logistic Policy and Head of Internal Audit). - Assurance Team KAP of 2012 - 2014 1979 - 2012 177 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 In order to monitor and analyze compliance with laws and the effectiveness of the Risk Management as mentioned by number 10 and 11 above, based on the Resolution of Board of Commissioners No. 04/KEP/DK/2011 dated March 24, 2011, regarding Committee For Planning And Risk Evaluation And Monitoring Charter of PT Telekomunikasii Indonesia, Tbk, the task of Audit Committee and Committee for Planning and Risk Evaluation and Monitoring is divided, as follow: 1. Audit Committee analyze and monitor The Company’s compliance to the Capital Market Regulation where The Company’s stock is listed, especially related to the financial reporting risk. 2. KEMPR analyze ad monitor The Company’s compliance to laws and regulation related to the business of The Company. AUDIT COMMITTEE’S PERFORMANCE AND IMPLEMENTATION ACTIVITIES Based on the Audit Committee Activity Report during 2018, the Audit Committee has implemented its functions, among others, as follows: 1. To conduct the supervision of the Integrated Audit process for the 2018 financial year The Audit Committee has conducted the discussion with the internal and independent auditor Ernst & Young (EY) in relation to the quality and acceptability of financial accounting standard implemented by the Company. Also the discussion regarding the properness of significant accounting estimate and judgements and the adequacy of disclosure in the consolidated financial report as well as the internal control conducted by the Management. Therefore the quality of the 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 have a material impact on the presentation of the financial report. independent auditors In addition, the Audit Committee also reviews and discusses with the management’s compliance with the implementation of capital market regulations and other regulations relating to the Company’s business in accordance with the PSA 62 standard that began auditing in 2017 financial year. (EY) AUDIT COMMITTEE’ INDEPENDENCE Telkom require all members of the Audit Committee to sign a statement of integrity and independence as a commitment to uphold GCG principles ensuring they show integrity at all times and be independent in performing their duties and responsibilities. Accordingly, Telkom convinced that the decisions made through the Audit Committee will be free of pressure from any other parties. AUDIT COMMITTEE’S SCOPE, DUTIES, AND RESPONSIBILITIES its duties and The Audit Committee shall perform responsibilities as follows: 1. To assist the Board of Commissioners in the process of selecting independent auditors to conduct the integrated audit for the Company and its consolidated subsidiaries based on independency, scope of work and service fee. 2. To oversee the integrated audit process for the Company and the audit process of the subsidiaries of which the financial statements are consolidated into the Company’s consolidated financial statements. independent opinions in the event of any different opinion between the management and the independent auditors. 3. To give 4. To give pre-approval of non-audit services to be assigned to 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. 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 analyze inspection done by the Internal Auditor. 8. Supervise Auditors’ findings Internal follow-up by management. 9. Providing facilities to receive, study and follow-up complaint (whistleblower) which includes The Company, Subsidiaries and Affiliate (Affiliate definition based on the Article 1 Number 1 Law No. 8 in 1995 regarding Capital Market). 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 analyze Risk Management policies and implementation made and run by management. 12. Analyzing and giving advise to the Board of Commissioners regarding potential conflict of interest inside The Company. 13. Maintain confidentiality of The Company and its consolidated Subsidiaries’s document, data and information. 14. To do other tasks given by the Board of Commissioners. 178 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report and Community Development program in 2018, the audit process for the financial report in the financial year of 2018 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 2018 financial year To provide opportunities and convenience to all parties in submitting complaints either from the TelkomGroup employees or from outside the TelkomGroup (third parties), the Audit Committee has prepared a Whistleblower application system that can be accessed easily from anywhere through the Internet. 2. To conduct the supervision and review of the plan and implementation of the work program of Internal Auditor Unit for the 2018 financial year The Audit Committee has conducted the review and discussion regarding the proposal of Internal Audit Unit’s working program for 2018 in relation to the risks that may occur in 2018 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 act completed by the Management. 3. To conduct the supervision upon the audit process of Partnership and Community Development Program (PKBL) conducted by the Community Development Center (CDC) Unit for the 2018 financial year 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 AUDIT COMMITTEE’S MEETING Regulation of Financial Services Authority No.55/POJK.04/2015 dated December 23, 2015 regarding Establishment and Guidelines of Implementation of the Works of Audit Committee, in particular Article 13, states that the Audit 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. Pursuant to the above provisions, the Audit Committee held 26 meetings throughout 2018. 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. No. Name Total Meetings Total Attendances Percentage of Attendance (%) Audit Committee’s Meeting Attendances 1. 2. 3. 4. 5. 6. Margiyono Darsasumarja Tjatur Purwadi Rinaldi Firmansyah Cahyana Ahamdjayadi Sarimin Mietra Sardi Dolfie Othniel Fredric Palit* Remark: 26 26 26 26 26 19 25 26 24 19 26 12 * Profile of members of Audit Committee can be seen on the Board of Commissioners’ profile 96 100 92 73 100 63 179 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 EDUCATION AND TRAINING Telkom includes members of the Audit Committee in various activity programs to competency development throughout 2018 in order to improve the skill of Audit Committee members to perform their duties and responsibilities, as follows: Audit Committee’s Education and Training No. Nama Program Pelatihan Tanggal Lokasi 1. Margiyono Darsasumarja Conference Security of things Worlds 2018 by We, Connect Global Leader September 16-18, 2018 San Diego, USA 2. Tjatur Purwadi 1. The latest PSAK Workshop according to IFRS convergence on January 1, 2018 by Ikatan Akuntan Indonesia July 24-27, 2018 Denpasar, Indonesia 2. COMiMS Finance World Congress 2018 by November 27-29, 2018 London, UK TMT Finance 3. Rinaldi Firmansyah Association for Finance Professional 2018 by AFP Financial Institute November 4-7, 2018 Chicago, USA 4. Cahyana Ahmadjayadi The IRES – 506th International Conference on December 9-10, 2018 Kyoto, Japan E-Education, E-Business, E-Management, and E-Learning (IC4E) by The IRES 5. Sarimin Mietra Sardi 1. The latest PSAK Workshop according to IFRS convergence on January 1, 2018 by Ikatan Akuntan Indonesia July 24-27, 2018 Denpasar, Indonesia 2. COMiMS Finance World Congress 2018 by November 27-29, 2018 London, UK TMT Finance 180 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCOMMITTEE FOR NOMINATION AND REMUNERATION The Committee for Nomination and Remuneration (KNR) plays an important role in ensuring the selection process and remuneration policy making are based on professional and independent considerations without any pressure from other parties. Telkom has a Committee for Nomination and Remuneration in charge of assisting Board of Commissioners to supervise the determination of qualifications and nomination process, as well as the remuneration of Board of Commissioners, Directors and executive officers. This committee works based on Regulation of Financial Services Authority No.34/POJK.04/2015 regarding the Committee for Nomination and Remuneration of Issuers or Public Companies. Telkom also has a Committee for Nomination and Remuneration Charter established through the Resolution Letter of Board of Commissioners No.13/KEP/DK/2018 dated 31 December 2018 concerning the Nomination and Remuneration Work Guidelines (Charter) of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk. KNR’S COMPOSITION Committee for Nomination and Remuneration stipulates that the Committee for Nomination and Remuneration shall consist of at least three members, one of whom is an Independent Commissioner who also serves as Chairman of the Committee for Nomination and Remuneration. The remaining two members may be appointed from any members of Board of Commissioners, external parties, or management under Board of Directors. The composition of this member is in accordance with Regulation of Financial Services Authority No.34/POJK.04/2015. Until now, the KNR does not have any members from external parties. Pursuant to such regulation, the Board of Commissioners issued Resolution of Board of Commissioners No.08/KEP/DK/2018 dated October 25, 2018 regarding the composition of the Committee for Nomination and Remuneration of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk, which stipulating that the Committee for Nomination and Remuneration Members are as follows: Committee for Nomination and Remuneration’s Composition Position Chairman Name and Double Position Status Duties of Each Member Pamijati Pamela Johanna Waluyo* Independent Commissioner 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. To be responsible to coordinate the inputs coming from the parties that has relationship with the controlling shareholders in relation to the issue of nomination and remuneration. Secretary/Member Ario Guntoro Secretary of Board of Commissioners Member Rinaldi Firmansyah* Commissioners Edwin Hidayat Abdullah* Commissioners Isa Rachmatarwata* Commissioners Margiyono Darsasumarja* Independent Commissioners Cahyana Ahmadjayadi* Independent Commissioners Remark: * Profile of KNR’s Member can be seen on Profile of The Board of Commissioners 181 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 KNR’S MEMBER PROFILE WHO ARE NOT BOARD OF COMMISSIONERS’ DOUBLE POSITION KNR’S SCOPE, RESPONSIBILITIES DUTIES, AND Duties and responsibilities of the Committee for 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 Board of Directors and member of 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 Board of Directors to select the candidate for strategic titles within the Company (member of Board of Directors and member of 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 Board of Directors. b. The succession planning of members of Board of Directors. c. Assessment based on the parameter that has been prepared as the evaluation material for the capability development of Board of Directors’ members. 4. Provide recommendations to the Board of Commissioners 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 Board of Directors and Board of Commissioners. 5. Remuneration of the Board 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 Board of Directors. In general, the Chairman of the Committee for Nomination and Remuneration has a role to directing and coordinating 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. Ario Guntoro Secretary Education 1993 Bachelor degree in Economics, University of Gadjah Mada, Yogyakarta, Indonesia. Basis of Appointment Resolution of Board of Commissioners No.08/KEP/DK/2018 dated October 25, 2018. Term of Service Year 2013 up to present. Career Experiences 2008 - 2013 Secretary of the Committee for Planning and Risk Evaluation and Monitoring (KEMPR) of PT Telkom Indonesia (Persero) Tbk. 2004 - 2008 Member of Committee for Planning And Risk Evaluation and Monitoring (KEMPR) PT Telkom Indonesia (Persero) Tbk. 2004 Serving as special advisor to 1999 - 2004 Working at the Indonesian Bank PT PPA (Persero). 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 Branch Manager. KNR’S INDEPENDENCE To ensure that each member of the Committee for Nomination and Remuneration is upholding the GCG principles and committing to maintaining integrity and independence in performing their duties and responsibilities, Telkom requires that each member of the Committee for Nomination and Remuneration sign a statement of integrity and independence. This is important to each member to make professional decisions without pressure from any other parties. 182 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportKNR’S PERFORMANCE AND IMPLEMENTATION ACTIVITIES Throughout 2018, the Committee for Nomination and Remuneration assisted Board of Commissioners in making strategic decisions, including: No. Letter Date 1. Letter of Board of Commissioners No.020/SRT/DK/2018 regarding Prospective January 25, 2018 President Director of PT Dayamitra Telekomunikasi. 2. Letter of Board of Commissioners No.33/SRT/DK/2018/RHS regarding Application for February 15, 2018 Approval of Proposal of Company Representative of PT Telkom Indonesia (Persero) Tbk in PT Dayamitra Telekomunikasi. 3. Letter of Board of Commissioners No.039/SRT/DK/2018/RHS regarding Your Appointment March 2, 2018 Mr. S. Mietra Sardi as Member of the Audit Committee. 4. Letter of Board of Commissioners No.055/SRT/DK/2018/RHS regarding Submission of Proposal March 20, 2018 Documents of Telkom Representatives as Mitratel’s Managing Director. 5. Letter of Board of Commissioners No.056/SRT/DK/2018/RHS regarding Approval of March 21, 2018 Representative of Telkom as Commissioner of PT Telkom Metra and Mitratel. 6. Letter of Commissioners No.062/SRT/DK/2018/RHS regarding Appointment of April 3, 2018 Sri Hartati Rahayu as KEMPR Member. 7. Letter of Board of Commissioners No.065/SRT/DK/2018/RHS regarding Proposals for April 9, 2018 Prospective Directors of PT Telekomunikasi Indonesia Tbk. 8. Letter of Board of Commissioners No.070/SRT/DK/2018/RHS regarding Submission of 3 April 10, 2018 Proposals of Company Representatives at PT Mitratel. 9. Letter of Board of Commissioners No.080/SRT/DK/2018/RHS regarding Proposal for Prospective April 20, 2018 Directors of PT Telkom Indonesia. 10. Letter of Board of Commissioners No.084/SRT/DK/2018/RHS regarding Acting Managing April 24, 2018 Director of Consumer Director PT Telkom Indonesia, Tbk. 11. No.086/SRT/DK/2018/RHS Letter of Board of Commissioners regarding Application for 2017 April 30, 2018 Financial Year Tantiem and Board of Directors & Board of Commissioners Remuneration for 2018 Book Year. 12. 13. Letter of Board of Commissioners No.119/SRT/DK/2018 regarding Commissioner of PT Telkomsel. June 26, 2018 Letter of Board of Commissioners No.129/SRT/DK/2018 regarding Approval of Reappointment of SVP Internal Audit PT Telkom Indonesia, Tbk. July 3, 2018 14. Letter of Board of Commissioners No.168/SRT/DK/2018/RHS Regarding Approval of August 20, 2018 Representative of Telkom as President Director of PT Dayamitra Telekomunikasi (Mitratel). 15. Letter of Board of Commissioners No.169/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. Ario Guntoro. 16. Letter of Board of Commissioners No.170/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. Tjatur Purwadi. 17. Letter of Board of Commissioners No.171/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. S. Mietra Sardi. 18. Letter of Board of Commissioners No.172/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Ms.Sri Hartati Rahayu. 183 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Letter Date 19. Letter of Board of Commissioners No.173/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Ms. Widuri Meintari Kusumawati. 20 Letter of Board of Commissioners No.174/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Ms. Diyah Santi Indrawati. 21. Letter of Board of Commissioners No.175/SRT/DK/2018/RHS regarding New Honoraium Notice August 21, 2018 Mr. Adam Wirahadi. 22. Letter of Board of Commissioners No.176/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. Juminta. 23. Letter of Board of Commissioners No.177/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. Fahmi Khaudzi. 24. Letter of Board of Commissioners No.178/SRT/Dk/2018/RHS regarding New Honorarium August 21, 2018 Notification Ms. Dyah Swasti. 25. Letter of Board of Commissioners No.179/SRT/DK/2018/RHS regarding New Honorarium August 21, 2018 Notification Mr. Farkhan Al-Fathoni. 26. Letter of Commissioners No.218/SRT/DK/2018/RHS regarding Consultants of Remuneration Survey of Company Management in 2018. October 12, 2018 27. Letter of Board of Commissioners No.223/SRT/DK/2018/RHS regarding Appointment of October 16, 2018 Ms. Widia Praptiwi as a Member of KEMPR PT Telkom Indonesia, Tbk. 28. Letter of Board of Commissioners No.246/SRT/DK/2018/RHS regarding the Appointment of November 13, 2018 Mr. Adam Wirahadi as KEMPR Staff. 29. Letter of Board of Commissioners No.247/SRT/DK/2018/RHS regarding Vehicle Facilities of November 13, 2018 the Board of Directors. KNR’S MEETINGS Regulation of Financial Services Authority No.34/POJK.04/2014 regarding the Committee for Nomination and Remuneration of Issuers or Public Companies requires that the Committee for Nomination and Remuneration shall hold meetings at least once every four months. In 2018, the Committee for Nomination and Remuneration helds 44 meetings, including 29 meetings by circulation. Committee for Nomination and Remuneration’s Meeting Attendance in 2018 No. Name Total Meetings Total Attendances Percentage of Attendance (%) 1. 2. 3. 4. 5. 6. 7. 8. 9. Pamijati Pamela Johanna Waluyo Ario Guntoro Edwin Hidayat Abdullah Rinaldi Firmansyah Isa Rachmatarwata Margiyono Darsasumarja Cahyana Ahmadjayadi Hadiyanto Dolfie Othniel Fredric Palit KNR’S EDUCATION AND TRAINING 44 44 26 44 26 44 44 18 36 44 44 24 42 21 44 44 11 23 100 100 92 95 81 100 100 61 64 In the 2018 financial year, education and training activities in order to improve the competence of the members of the Committee for Nomination and Remuneration are were not yet required. The policy was taken because ofdue to the activities of the Committee for Nomination and Remuneration, specifically the remuneration proposal process, supported by independent and professional consultants. 184 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report COMMITTEE FOR PLANNING AND RISK EVALUATION AND MONITORING Telkom has a Committee for Planning and Risk Evaluation and Monitoring (KEMPR) which assist Board of Commissioners in the fields of planning, management and risk evaluation. This is in line with Telkom’s commitment to implement good governance, especially in relation to evaluation, monitoring and planning of various risks. Committee for Planning and Risk Evaluation and Monitoring’s duties and responsibilities are stipulated by the Committee for Planning and Risk Evaluation and Monitoring Charter, under Resolution Letter of Board of Commissioners No.04/KEP/DK/2011 dated March 24, 2011, regarding Charter of the Committee for Planning and Risk Evaluation and Monitoring 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. KEMPR’S COMPOSITION Resolution of Board of Commissioners No.09/KEP/DK/2018 dated October 25, 2018, regarding Composition of the Committee for Planning and Risk Evaluation and Monitoring of Telkom is as follows: Committee for Planning and Risk Evaluation and Monitoring’s Composition Position Name and Double Position Status Term of Service Duties of Each Member Chairman Edwin Hidayat Abdullah* Starting from Mei 9, To give the direction, to coordinate and monitor Commissioners 2018 the implementation of duties of all Members of Committee. Member Isa Rachmatarwata* Starting from Mei 9, Supervise and monitor the implementation of Commissioner 2018 RJPP / CSS, RKAP and enterprise risk management, Cahyana Ahmadjayadi* Starting from Mei 8, implement non-organic business growth initiatives, Independent Commissioners 2017 Widia Praptiwi Starting from October Independent Member 25, 2018 as well as certain actions of the Board of Directors that require Board of Commissioners approval. Remark: * Profile of KEMPR’s Member can be seen on Profile of The Board of Commissioners 185 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789KEMPR’S MEMBER PROFILE WHO ARE NOT BOARD OF COMMISSIONERS’ MEMBER KEMPR’S PERFORMANCE IMPLEMENTATION ACTIVITIES AND Widia Praptiwi Independent Member Born Age Citizenship Domicile : July 7, 1974 : 44 years old : Indonesian : Jakarta Education 1992 - 1997 Bachelor degree in Accounting, University of Indonesia, Indonesia. 2001 - 2004 Master of Science in Accounting, University of Indonesia, Indonesia. Basis of Appointment Resolution of Board of Commissioners No.09/KEP/DK/2018 dated October 25, 2018, regarding Membership Composition of Committee for Planning and Risk Evaluation and Monitoring of Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia, Tbk. Term of Service October 25, 2018 up to present. Career Experiences 2015 - Present Lecturer in Universitas Krisnadwipayana Jakarta. 2015 - 2018 Member of Hotel Indonesia Natour’s Audit 2002 - 2008 PT Bina Prima Perdana. Committee. KEMPR’S INDEPENDENCE The Committee for Planning and Risk Evaluation and Monitoring is not regulated by any regulator. However, Telkom still require the Committee to have good integrity and to maintain its independence as mentioned in the KEMPR Charter Chapter 4 point 4.b. KEMPR’S RESPONSIBILITIES SCOPE, DUTIES, AND Committee for Planning and Risk Evaluation and Monitoring has the following duties and responsibilities: 1. To conduct a comprehensive evaluation upon the proposal of the Company’s Long Term Plan (RJPP) or CSS and Company’s Budget Activity Plan as submitted by Board of Directors; 2. To conduct the evaluation of the implementation of RJPP and RKAP to assess whether the implantation is in line with the target of RJPP and RKAP which has been ratified by the Board of Commissioners; and 3. To conduct the monitoring towards the implementation of enterprise risk management within the Company. 186 Throughout 2018, the Committee for Planning and Risk Evaluation and Monitoring did its activities based on Committee Guidelines/Charter and Resolution Board of Commissioners No.10/KEP/DK/2017 dated October 27, 2017, regarding the Arrangement of the Certain Actions of Directors who Must Obtain the Written Approval of Board of Commissioners and/or Holders of Series A Dwiwarna Share which have been updated by the Resolution of Board of Commissioners No. 11/KEP/DK/2018 dated November 15, 2018, as well as Resolution of Board of Commissioners No.02/ KEP/DK/2017 dated February 24, 2017, regarding Standard Operating Procedures (SOP) on the Process of Giving Board of Commissioners’ Approval. It consists of: 1. Company’s Long Term Plan (RJPP) a. Evaluation of RJPP 2018-2022 Evaluation of the implementation of RJPP 2018-2022 increasingly difficult challenge for the shows an Company to achieve the target market capitalization and at the same time realize its vision of becoming the King of Digital in the Region. To face this challenge, the Company maximized growth in three portfolios, namely IT & services, media, and edutainment. transformation towards digital In addition, on the internal side, the Company accelerated the telco, both through digitization and digitalization. Digital maturity measurements are conducted periodically, especially related to strategy & business aspects, customer experience, technology, and operation; also people, culture, and organization. In addition to strengthening on the side of organic initiatives, achieving the Company’s vision also requires sharpening on the side of inorganic initiatives. Sharpening on the side of strategic initiatives includes determining the focus of inorganic investment (business portfolio, area, and investment size (expansion of inorganic strategies - not only on acquisitions but also on initiatives that are able to unlock the current business value of the Company, and monitor post-implementation business inorganic initiatives. b. Preparation of RJPP 2019-2023 The focus of KEMPR in the preparation of the RJPP 2019- 2023, among others: • Harmonization of strategic initiatives between CFU, especially on initiatives related to the development of business portfolios; • Sharpening inorganic initiatives, especially those related to business unlocking; • Efforts to optimize the value of capital expenditure invested by the Company, including maintaining the level of efficiency and effectiveness of the capital expenditure; and • The need for refinement of several roadmaps related to changes in the direction of business portfolios, including satellite, e-commerce, and financial services. PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report 2. Company’s Work and Budget Plan as well as Capital Expenditure a. Monitoring focus of RKAP and Capital Expenditure of 2018 In the implementation of the 2018 RKAP, the monitoring focus of KEMPR including the implementation of efforts to maintain the growth of CFU Mobile - especially in the legacy component; improving the performance of fixed broadband products through a value added service solution developed on broadband services, evaluating the impact of changes in exchange rates and interest rates on the performance of the Company and its subsidiaries, and monitoring the performance of subsidiaries - especially those acting as vehicles for international business, and business development information, media, and edutainment. On the capital expenditure side, monitoring of the absorption of capital expenditure is primarily directed at the realization of the development of the Company’s strategic projects, achievement of healthiness & effectiveness CAPEX indicators, and optimizing the absorption of capital expenditure for CFU Consumer. b. Evaluation to the Proposal of RKAP and Capital Expenditure of 2019 Evaluation of the proposed RKAP and capital expenditure in 2019 will focus on 3 (three) things as follows: • Control of growth expenses on revenue growth In line with the direction of transformation towards digital business, controlling the growth of the expense on revenue growth needs to be a control so that the Company’s margins are maintained. This is also in line with investor recommendations and also benchmarks for similar telecommunications companies at the regional level. • to suppress Increased loyalty customer withdrawals and increase revenue The increase in the number of cellular, broadband and corporate customers also SMB needs to be accompanied by efforts to increase customer loyalty. Customer loyalty needs to be grown by providing integrated end to end services; providing products, services, and solutions as needed; and creating superior customer experience for customers. These efforts are expected to reduce the rate of revocation, while increasing customer engagement with the Company. 3. Enterprise Risk Management Based on monitoring of the Company’s risk profile, there are three things that need attention, namely: a. Mitigation strategic, of operational risks; compliance and b. Effectiveness of ERM management organizations in the Company; and c. Implementation of ERM online monitoring. Mitigation of strategic, compliance and operational risks related to the Company’s activities in digital business, the need to anticipate the development of regulations and improvement of internal control, as well as the management of international traffic business. In the past few years, these three things are still the main agenda in managing the Company’s risk profile. The biggest challenge lies in anticipating the development of digital business that suppresses the Company’s margins, and at the same time challenges the Company to create new businesses and/or digital service distribution lines according to the needs of the community. Changes to the risk management organization structure and implementation of ERM online monitoring are expected to provide added value in the Company’s risk management. Strengthening the risk management organization needs to be done considering the Company’s expanding business including developments in its subsidiaries. Therefore, as part of the efforts to monitor the ERM management of the Company, it is necessary to evaluate in 2019 regarding the effectiveness of changes in organizational structure and implementation of the tools used in monitoring the Company’s risk. 4. Certain Action from Board of Directors that Requires the Approval from Board of Commissioners In 2018, KEMPR has assisted Board of Commissioners in reviewing the proposal of strategic plans as submitted by Board of Directors, among others: a. Strategic fit and final approval of equity participation in PT Telkom Satelit Indonesia (Telkomsat); b. Inorganic project strategic fit related to digital business, telecommunications B2B, financial services, and infrastructure; c. Proposal for write-off of receivables in 2018; and d. Approval of the release of phase II capital expenditures - after the Phase I approval that is carried out in conjunction with the approval of the 2018 RKAP. • The need for increased orchestration between CFU in developing business initiatives The Company has 4 main CFUs as the spearhead of services to customers, namely Mobile, Enterprise & Business Service, Consumer, and Wholesale & International Business. Orchestration between CFUs is needed to ensure the allocation of the Company’s resources for each business initiative at each CFU, there is no overlap of services and products, and minimize investment duplication. 187 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 KEMPR’S MEETING In 2018, KEMPR conducted 10 Committee meetings attended by the members who are members of Board of Commissioners and non-members of Board of Commissioners, with the following detail of attendance: Committee for Planning and Risk Evaluation and Monitoring’s Meeting Attendance 2018 No. Name Total Attendances Percentage of Attendance (%) 1. 2. 3. 4. 5. 6. 7. 8. 9. Hadiyanto (1) Dolfie Othniel F.P (2) Margiyono D.S (2) Pamijati Pamela Johanna Waluyo (2) Cahyana Ahmadjayadi Sri Hartati Rahayu (2) Edwin Hidayat Abdullah (3) Isa Rachmatarwata (3) Widia Praptiwi (4) Remarks: (1) until April 19, 2018 (2) until October 24, 2018 (3) start May 9, 2018 (4) start October 25, 2018 * Carry out state duties on the middle of October - November 8, 2018 KEMPR’S EDUCATION AND TRAINING 2 0 5 5 10 5 8 2 4 100 0 100 100 100 100 100 25* 100 Telkom includes KEMPR members in various training and education activities to improve competency during 2018,as follows: Date Name of Training Organizer Remarks February 26, - March 2, 2018 Mobile World Congress 2018 GSMA Barcelona, Spain July 4, 2018 Strategic discussion on Global Telco Industry Internal Jakarta, Indonesia September 9-11, 2018 Factory and Research Visit July 17-12, 2018 Pertemuan dengan Softbank dan NEC December 9-10, 2018 The IRES – 506th International Conference on e-education, e-business, e-management, and e-learning Internal Internal IRES Shenzhen, PR China Japan Japan 188 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBOARD OF DIRECTORS Directors at Telkom collectively have the duty and responsibility to manage the Company in accordance with the provisions of the Company’s Articles of Association. In carrying out its duties, members of Board of Directors act and decide a policy in accordance with the duties and authority of each member. BOARD OF DIRECTORS’ COMPOSITION During 2018, there was a change in the composition of Board of Directors. On April 20, 2018, Mas’ud Khamid was appointed as director at PT Pertamina (Persero). Related to this, through the Annual General Meeting of Shareholders (AGMS) on April 27, 2018, Telkom made a decision regarding the changes in the Company’s Management as follows: 1. Mas’ud Khamid was honorably dismissed from his position as a Board of Directors because of his assignment in another place. 2. Siti Choiriana was appointed Director of Consumer Service. The composition of Board of Directors differences at the end 2018 and at the end of the year before can be seen in these following table: Board of Directors’ Composition per December 31, 2017 No. Name Title Appointment Discharge Date 1. 2. 3. 4. 5. 6. 7. 8. Alex Janangkih Sinaga Harry Mozarta 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) Board of Directors’ Composition per December 31, 2018 No. Name Title Appointment Discharge Date 1. 2. 3. 4. 5. 6. 7. 8. Alex Janangkih Sinaga President Director Harry Mozarta Zen David Bangun Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana Director of KEU Director of DSP Director of EBIS Director of WINS Director of HCM Director of NITS Director of CONS 2014 2016 2017 2014 2014 2014 2017 2017 AGMS 2019 AGMS 2021 AGMS 2022 AGMS 2019 AGMS 2019 AGMS 2019 AGMS 2022 AGMS 2023 Remarks: KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), NITS (Network, IT, & Solution), dan CONS (Consumer Service). 189 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789BOARD OF DIRECTORS’ DIVERSITY As a form of compliance with Law No. 39 of 1999 concerning Human Rights, Telkom guarantees that there is no discrimination in the selection and appointment of Directors. At present there is no written policy that specifically regulates the diversity of Board of Directors, but Telkom guarantees that members of Board of Directors are elected and appointed based on their respective expertise, skills and integrity. Based on the results of the 2018 AGMS, the composition of the Telkom Directors consists of seven men and a woman. The low number of female directors in Telkom is based on the results of the selection and is not an attempt to discriminate women for the position of Directors. Board of Directors’ Diversity per December 31, 2018 No. Name Position Gender Background of Expertise & Skill Level of Education 1. 2. 3. 4. 5. 6. 7. 8. Alex Janangkih Sinaga President Director Male Telecommunication and Master Telematics Engineering Harry M Zen Director of KEU Male Administration, Business Master and Finance David Bangun Director of DSP Male Telecommunication and Master Electrical Engineering Dian Rachmawan Director of EBIS Male Telecommunications Master Engineering Abdus Somad Arief Director of WINS Male Technology and Information Master Herdy Rosadi Harman Director of HCM Male Systems Law, Business Administration Master Zulhelfi Abidin Siti Choiriana Director of NITS Male Information and Technology Master Director of CONS Female Electrical Engineering and Master Technology Management Remarks: KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), NITS (Network, IT, & Solution), dan CONS (Consumer Service). Board of Directors’ Gender Composition Diversity Board of Directors’ Education Level Composition Diversity 12,5% Female 0% Doctor 87,5% Male 100% Master 190 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBOARD OF DIRECTORS’ DOUBLE POSITION Some of Telkom’s Directors have dual positions, either in Telkom as the holding Company or subsidiaries. Information on the double positions of Directors can be seen in the following table: Board of Directors’ Double Position per December 31, 2018 No. Name Telkom Position Other Position Subsidiary 1. 2. 3. 4. 5. 6. 7. 8. Alex Janangkih Sinaga President Director Harry Mozarta Zen Director of KEU None None President Commissioner of Telkomsel. Commissioner of Telkomsel and President Commissioner of GSD. David Bangun Director of DSP None Commissioner of Metra and President Commissioner of Metranet. Dian Rachmawan Director of EBIS None President Commissioner of Metra and President Commissioner of Teltranet. Abdus Somad Arief Director of WINS None President Commissioner of Telin and Herdy Rosadi Harman Director of HCM Zulhelfi Abidin Siti Choiriana Director of NITS Director of CONS None None None President Commissioner of Telkomsat. President Commissioner of Infomedia. President Commissioner of Sigma. President Commissioner of Telkom Akses. Remarks: KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), NITS (Network, IT, & Solution), dan CONS (Consumer Service). BOARD OF DIRECTORS’ REMUNERATION The structure of the remuneration of the Directors is based on the provisions of State Minister of SOE’s Regulation No.PER-04/ MBU/2014 Number jo: PER-02/MBU/06/2016 Number jo: PER- 01/MBU/06/2017 Number jo: PER-06/MBU/06/2018 regarding Guidelines for the Determination of Income for Directors, Board of Commissioner and Board of Trustees of SOE’s. Based on such regulation, the income component for members of the Directors consists of: 1. Salaries; 2. Allowances; 3. Facilities; and 4. Bonus/Incentive. Telkom determines the remuneration of Board of Commissioners through the following procedures: 1. Board of Commissioners requests Committee for Nomination and Remuneration to draft a remuneration proposal for Board of Directors. 2. The Committee for Nomination and Remuneration requests an independent party to draw up a framework on the remuneration of Board of Directors. 3. The Committee for Nomination and Remuneration proposes the remuneration to Board of Commissioners. 4. Board of Commissioner proposes remuneration for Board of Directors the GMS. 5. The GMS delegates authority and power to Board of Commissioners with the prior approval of Series A Shareholders to determine the remuneration for Board of Directors. 191 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789The determination of income in the form of salary/honorarium, allowances and facilities that are fixed is based on the Company’s conditions. While bonus/work incentive is an annual employment benefit based on the performance of the Company which the amount of the company’s performance is determined by the General Meeting of Shareholders. Board of Directors Remuneration Mechanism and Procedure KNR* by the instruction from Board of Commissioners create remuneration draft. The Result will be decide in AGMS. 5 4 1 3 AGMS KNR ask independent Party for Suggestion 2 Independent Party give its suggestion to KNR *KNR : Committee for Nomination and Remuneration In 2018, the total remuneration of the entire Board of Directors was Rp160.5 billion. Taxes from remuneration borne by our Company amounted to Rp5.9 billion. The table below sets forth the remunerations that Telkom’s Directors received in 2018: No. Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9. Alex Janangkih Sinaga Harry Mozarta Zen David Bangun Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana (2) Mas'ud Khamid (3) Board of Directors’ Recapitulation of Remuneration Honorarium Tantiem and THR (1) Allowance Total (Rp millions) 3,530 2,989 2,989 2,989 2,989 2,989 2,989 2,021 986 20,870 18,783 12,526 18,783 18,783 18,783 12,526 216 12,310 300 300 300 300 300 300 300 203 100 24,700 22,072 15,815 22,072 22,072 22,072 15,815 2,440 13,396 Remarks: (1) “THR” refers to Tunjangan Hari Raya or religious holiday allowance (2) Since AGMS on April 27, 2018 (3) Up to April 20, 2018 PARTICIPATION IN BPJS Telkom always support Government Program which one of them is the National Health Insurance Program. This is proven by Telkom’s commitment to include all the Board of Directors and Board of Commissioner and their family into BPJS. BOARD OF DIRECTORS’ BOARD CHARTER In performing its duties, responsibilities, and authority, Board of Directors shall be guided by the Charter of Board of Directors established by Resolution of Board of Directors No.PD.604.00/r.00/HK000/C00-D0030000/2011 dated July 11, 2011. The Charter of 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 Board of Directors which are not set out by the Company’s Articles of Association and the applicable laws and regulations. This is intended to improve the performance of the Directors and more coordinated and make Board of Directors’ working time more effective in managing the Company. 192 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report BOARD OF DIRECTORS’ AUTHORITIES, DUTIES, AND RESPONSIBILITIES Based on the Article of Association of Telkom, Board of Directors have this following obligations: 1. Work for and ensure the performance of businesses and activities of the Company in accordance with its purposes and objectives as well as business activities; 2. Prepare in a timely manner, the Long Term Plan of the Company, the Annual Work Plan and Budget of the Company and other work plans as well as their changes to be submitted to the Board of Commissioners and to obtain approval of the Board of Commissioners; 3. Prepare the Register of Shareholders, the Special Register, the Minutes of the GMS, and the Minutes of Meeting of the Board of Directors; 4 . Prepare the Annual Report which, among others, contains the financial statement, as the materialization of the accountability report on the management of the Company, as well as the financial documents of the Company, as referred to in the Law regarding Corporate Documents; 5. Compose the financial statement in number 4 above based on the Financial Accounting Standards and submit it to the Public Accountant for audit; 6. Submit the Annual Report after having been reviewed by the Board of Commissioners within a period of at the latest 5 (five) months after the financial year of the Company has ended to the GMS for approval and ratification; 7. Provide explanation to the GMS with regard to the Annual Report; 8. Submit the Balance Sheet and the Profit and Loss Statement which have been ratified by the GMS to the Minister in the Law Sector in accordance with the provisions of the statutory regulations; 9. Compose other reports which are obliged by the provisions of the statutory regulations; 10. Maintain the Register of Shareholders, the Special Register, the Minutes of GMS, the Minutes of Meeting of the Board of Commissioners and the Minutes of Meeting of the Board of Directors, the Annual Report and the financial documents of the Company as referred- to in letter b.4 and letter b.5 above, and other documents of the company; 11. Maintain at the place of domicile of the Company: the Register of Shareholders, the Special Register, the Minutes of GMS, the Minutes of Meeting of the Board of Commissioners and the Minutes of Meeting of the Board of Directors, the Annual Report and the financial documents of the Company as well as other documents of the company; 12. Maintain and keep the bookkeeping and administration of the Company in accordance with the common practices for a company; 13. Compose an accounting system in accordance with the Financial Accounting Standards and based on the internal control principles, particularly the management, registration, retention, and supervisory functions; 14. Provide periodic report according to the method and at the time in accordance with the provisions, as well as other reports, once requested by the Board of Commissioners and/or- the holder of Dwiwarna A Series share, with due observance of the statutory regulations, particularly the regulations in the Capital Market sector; 15. Prepare the organizational structure of the Company, complete with its breakdown and their- duties; 16. Provide explanation with regard to any matters to be inquired about or requested by the members of the Board of Commissioners and the holder of Dwiwarna A Series share, with due observance of statutory regulations, particularly the regulations in the Capital Market sector; 17. Perform other obligations in accordance with the provisions stipulated in this Articles of Association and which are stipulated by the GMS by continue observing the statutory regulations. In addition to having obligations as mentioned above, the Board of Directors also have this following authority: 1. To determine the policies considered appropriate in the management of the Company; 2. To arrange the delegation of authorities of the Board of Directors to represent the Company, inside and outside the Court to one or several individuals specifically appointed for such purposes, including the employees of the Company, both individually and collectively and/or other entities; 3. To stipulate the provisions regarding the employees of the Company, including the stipulation of salary, pension or old age insurance and other income for the employees of the Company based on the statutory regulations; 4. To appoint and dismiss the employees of the Company based on the manpower regulations of the Company and the statutory regulations; 5. To appoint and dismiss the Corporate Secretary and/or the Head of Internal Supervisory Unit with the approval of the Board of Commissioners; 6. To write-off non-performing loans with the provisions as stipulated in this Articles of Association and which furthermore will be reported to the Board of Commissioners to be further reported and accounted in the Annual Report; 7. Not to further collect interest receivables, penalties, costs and other receivables outside the principal debts which is carried out in the framework of restructuring and/or receivables settlement as well as other actions in the framework of Company’s receivables settlement with the obligation to report it to the Board of Commissioners, the provisions and reporting- procedures of which are stipulated by the Board of Commissioners; 8. To take any actions and other deeds with regard to the management and ownership of the Company’s assets, to bind the Company to other parties and/or other parties to the Company, as well as to represent the Company inside and outside the Court with regard to any matters and in any events, with the restrictions as stipulated in the statutory regulations, this Articles of Association and/or the Resolutions- of the General Meeting of Shareholders. 193 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Any member of 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. They have taken the action to prevent the occurrence or continuation of such loss. BOARD OF DIRECTORS’ MEETING Board of Directors shall hold an internal meeting periodically at least 1 (one) time in each month and may also be held at any time as necessary. In addition, Board of Directors shall also hold a meeting with Board of Commissioners at least once in 4 (four) months and may also be held at any time as necessary. The joint meetings of Board of Directors and Board of Commissioners within the Company are referred to as the Joint Meeting. The meeting quorum shall be reached if more than half of members of Board of Directors are present or legally represented in such meeting. Any member of Board of Directors that present shall have a casting vote (and one vote for any other Director that is being represented). The decision-making mechanism at Board of Directors meeting is based on deliberations to reach 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. Throughout 2018, Board of Directors’ meetings were held as many as 59 times. Some important themes or agendas discussed in Board of Directors meeting are more detailed in the Appendix 4. The following table shows Directors’ attendance frequency of in internal meetings: Board of Directors’ Attendances at Internal Meeting No. Name Total Attendances Total Meetings Percentage of Attendance (%) 53 56 54 55 51 51 52 36 18 59 59 59 59 59 59 59 37 21 90 95 92 93 86 86 88 97 86 1. 2. 3. 4. 5. 6. 7. 8. 9. Alex Janangkih Sinaga Harry Mozarta Zen David Bangun Dian Rachmawan Abdus Somad Arief Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana (1) Mas’ud Khamid (2) Remarks: (1) Since AGMS on April 27, 2018 (2) Up to April 20, 2018 194 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCORPORATE SECRETARY Corporate Secretary in Telkom has a significant role in facilitating the Company’s internal communication, connect the Company and its shareholders, The Financial Services Authority, and other stakeholders. In addition, the Corporate Secretary also ensures the Company’s compliance with capital market regulations. CORPORATE SECRETARY’S PROFILE Andi Setiawan Education 2002 Bachelor degree in Financial Management, University of Indonesia, Indonesia. Basis of Appointment Decision Letter of Board of Directors. Term of Service March 4, 2015 up to present. Born Age Nationality Domicile : June 6, 1978 : 40 years old : Indonesian : Jakarta CORPORATE SECRETARY’S FUNCTIONS According to Telkom’s Guidelines on GCG, the functions of the Corporate Secretary are: 1. To prepare and communicate accurate, complete, and information regarding the performance and timely prospect of the Company to stakeholders. 2. To synergize with related units, including the subsidiaries, implementation, monitoring and for reviewing of GCG, and its implementation. socialization, 3. To assist Board of Directors in various activities, information, and documentation, among others: a. Preparing the Register Book of Shareholders; b. Attending 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. Career Experiences 2014-2015 2010-2014 2007-2010 2004-2007 PT Telekomunikasi Seluler as GM of Investor Relations. PT Summarecon Agung Tbk as a Manager of Investor Relations. PT Bakrieland Development Tbk as a Manager of Corporate Secretary. PT Pemeringkat Efek Indonesia as a Corporate Rating Analyst. CORPORATE SECRETARY’S TASKS AND DUTIES 1. Preparing and organizing GMS, including the material, particularly the Annual Report; 2. Attending the Board of Directors’ meetings and joint meetings between Board of Commissioners and Board of Directors; 3. Managing and maintaining documents related to the Company’s activities, including the GMS’s documents, Board of Directors’ minutes of meetings, the minutes of joint meetings between Board of Directors and 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, can be published as including public documents. information that 195 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 CORPORATE SECRETARY’S IMPLEMENTATION TASKS Throughout the 2018 financial year, the Corporate Secretary has performed its tasks in accordance with the tasks and duties under the applicable laws and regulations. During the 2018 financial year, activities carried out by the Investor Relations/Corporate Secretary including: Date Name of Activities Organize by January 10, 2018 Non-Deal Roadshow Investor Relations Telkom January 11, 2018 DBS Vickers Securities Pulse DBS Vickers Securities of Asia February 6 and 8-9, 2018 Mandiri Investment Forum Mandiri Sekuritas May 3-4, 2018 May 7, 2018 May 10-11, 2018 May 14-15, 2018 Citi-Indonesia Conference Non-Deal Roadshow Non-Deal Roadshow Investor Citi Group Investor Relations Telkom HSBC dbAccess Asia Conference Deutsche Bank May 24-25, 2018 Non-Deal Roadshow Bahana Sekuritas July 11-12, 2018 CGS-CIMB 12th Annual Indonesia Conference CGS-CIMB Location Singapore Singapore Jakarta Jakarta Singapore Hong Kong Singapore Jakarta Denpasar August 1, 2018 Non-Deal Roadshow Investor Relations Telkom Singapore August 9-10, 2018 Non-Deal Roadshow Macquarie Melbourne and Sydney, August 15-16, 2018 Credit Suisse 3rd Annual Credit Suisse Indonesia Conference August 27-28, 2018 Macquarie ASEAN Conference Macquarie 2018 Australia Singapore Singapore September 3-7, 2018 Non-Deal Roadshow Deutsche Bank Paris, Frankfurt, and London September 12-14, 2018 25th CLSA Investor's Forum CLSA Hong Kong November 5-9, 2018 Non-Deal Roadshow J. P. Morgan Toronto, Boston, New York, and San Fransisco November 13-14, 2018 dbAccess Indonesia Conference Deutsche Bank Jakarta 2018 November 29-30, 2018 Seventeenth Annual Asia Pacific Morgan Stanley Singapore Summit December 6, 2018 Citi ASEAN Top Picks 2018 Citi Group December 11-12,2018 Non-Deal Roadshow Deutsche Bank Malaysia Hong Kong 196 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCORPORATE SECRETARY’S TRAINING AND EDUCATION 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 Name of Activities Organizer January 15-19, 2018 Disclosure Management Report Merrill Corporation Location Hong Kong March 5-7, 2018 Business Valuation for Startup Company Telkom Corporate University Bandung March 16, 2018 Sertifikasi Pengadaan Barang dan Jasa Telkom Corporate University Bandung Pemerintah March 21-22, 2018 Executive Leadership Program-Business Telkom Corporate University Surabaya Simulation Expedition April 4, 2018 Investment in Indonesia Euromoney Jakarta April 19-20, 2018 Infographic for Creative Presentation Telkom Corporate University Bandung May 8-9, 2018 June 4-6, 2018 August 2, 2018 August 20-21, 2018 Sustainability Report Telkom Corporate University Bogor Advance Excel for Professionals Telkom Corporate University IR BUMN Gathering Sosialisasi Update Knowledge: Macro Economy 2019 dan Finance Regulatory Update Investor Relations BNI Telkom Corporate University Jakarta Jakarta Jakarta August, 27-29, 2018 Essential Financial Analysis and Indonesia Investor Relations Bandung Reporting Writing Institute September 3-6, 2018 Certified Investor Relations Indonesia Investor Relations Jakarta Institute September 27, 2018 Seminar POJK Nomor 9/POJK.04/2018 dan Bursa Efek Indonesia, Asosiasi Jakarta POJK Nomor 11/POJK.04/2018 Emiten Indonesia, Indonesian Corporate Secretary Association October 18, 2018 Seminar IPO untuk Perusahaan Tercatat dan Bursa Efek Indonesia Jakarta Entitas Anak December 6, 2018 Sosialisasi Pengenalan E-Proxy Bursa Efek Indonesia Sekolah Pasar Modal Batch 1 Bursa Efek Indonesia December 18, 2018 Sekolah Pasar Modal Batch 2 Bursa Efek Indonesia Jakarta Jakarta Jakarta 197 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 INTERNAL AUDIT UNIT Telkom has an Internal Audit Unit or Internal Audit (IA) who provides independent and objective views on the conditions of our internal controls, risk management and corporate Governance processes in business activities. The purpose of this function to become a catalyst, through the submission of recommendations for Telkom in improving its business operations. SVP INTERNAL AUDIT UNIT’S PROFILE Harry Suseno Hadisoebroto Education 1990 1999 Master’s degree in Civil Engineering (Ir.), Bandung Institute of Technology, Bandung, Indonesia. Doctoral degree in Engineering – Project Management (MSc.), University of Manchester, Institute of Science and Technology, Manchester, United Kingdom. Born Age Nationality Domicile : Bandung, June 24, 1966 : 52 years old : Indonesian : Bandung Basis of Appointment 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. Carreer Experiences May 1, 2014 - June 30, 2015 SVP Internal Audit, PT Telekomunikasi Seluler. April 1, 2011 - April 30, 2014 VP Infrastructure & Supply January 1, 2010 - March 31, 2011 November 1, 2007 - December 31, 2009 Management Audit, PT Telkom Indonesia (Persero) Tbk. AVP Infrastructure Audit, PT Telkom Indonesia (Persero) Tbk. Deputy General Manager Kandatel Malang, PT Telkom Indonesia (Persero) Tbk. INTERNAL AUDIT UNIT’S STRUCTURE AND POSITION Internal Audit Telkom is a unit that is directly responsible to the President Director and an independent unit to other work units. This is in line with applicable capital market regulations. The following is a chart of IA Telkom’s organizational structure. President Director Board of Commissioners SVP Internal Audit Harry S. Hadisoebroto VP Infrastruncture & Operation Audit Purwadi Siswana VP Integrated & Financial Audit Agus Widjajanto VP Planning & Development Audit Imam Santoso VP Information & Technology Audit Rahardian Krishna Sundara Auditor utama Achmad Aliyadin 198 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report The Internal Audit Unit is led by a Head of Internal Audit Unit called the Head of Internal Audit (Senior Vice President of Internal Audit) who is appointed and dismissed by the President Director with the approval of the Board of Commissioners. The President Director can dismiss the Head of Internal Audit, after obtaining approval from the Board of Commissioners, if the Head of Internal Audit does not meet the requirements as an auditor for the Internal Audit Unit as stipulated in the Regulation of Financial Services Authority No.56/POJK.04/2015 regarding “Establishment and Guidelines for Preparation of the Internal Audit Unit Charter” and/or fail or are incapable of carrying out their duties. The term of office of the Head of Internal Audit is a maximum of 3 (three) years and can be reappointed for one subsequent period. Until the end of 2018, the Head of Internal Audit assisted by 88 members and each Auditor who sits in the Internal Audit Unit is responsible in stages to the Head 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 IA’s Auditor requirements. 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 Resolution of Board of Directors No.Tel.09/PW000/UTA/COP-C0000000/2015 regarding Internal Audit Charter. INTERNAL AUDIT UNIT’S DUTIES AND RESPONSIBILITIES Based on Internal Audit Charter, duties and responsibilities of the Internal Audit are: 1. To compose Annual Internal Audit plan; 2. To execute the Annual Internal Audit Plan that has been consulted by the Audit Committee or has been reviewed by Audit Committee; 3. To examine and evaluate the adequacy of internal control and 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. Create audit report and to deliver that report to the President Director and Board of Commissioner c.q. Head of Audit Committee; 9. To monitor, analyze 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; 11. To provide consultation needed by the Company’s management and its affilation Company which the coverage 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 (management instruction); 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 deep inspection 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. INTERNAL AUDIT UNIT’S TASK IMPLEMENTATION In accordance with the Annual Internal Audit Work Plan, in the year 2018, Unit IA implemented 69 assignments consisting of audit, consultation, evaluation and review activities, as follows: Sub Department Audit Consultancy Review Evaluation Total Infrastructure & Operation Audit (IOA) Integrated & Financial Audit (IFA) Information & Technology Audit (ITA) Total 7 6 9 22 11 5 9 25 0 16 0 16 0 6 0 6 18 33 18 69 199 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789INTERNAL AUDIT’S QUALIFICATION AND PROFESSIONAL CERTIFICATION To ensure the quality of internal controls works well, our internal audit unit members possess various certifications that relevant and necessary in carrying out their work. Here are the details of certification held by Internal Audit members. Certification Type Number of Certification Certification in Risk Management Assurance (CRMA) Certified Accountant (CA) Certified Banking Internal Audit (CBIA) Certified Behaviour Consultan (CBC) Certified Business Analysis Professional (CBAP) Certified Data Center Specialist (CDCS) Certified Data CenterProsessional (CDCP) Certified Data Security Specialist (CDSS) Certified Ethical Hacker (CEH) Certified Fraud Examiner (CFE) Certified Information Systems Auditor (CISA) Certified Internal Auditor (CIA) Certified IT Infrastructure Library Certified Management Accountant (CMA) Certified Professional Accountant of Indonesia (CPAI) Certified Public Accountant (CPA) Chartered of Accountant (CA) Chartered Risk Manager Professional (CRMP) Computer Hacking Forensic Investigator (CHFI) ISO (9001, 14001, 18001, 20000, 22301, 27001) Manajemen Umum Dana Pensiun (MUDP) Organization Learning Technology (OLT) Qualified Internal Audit (QIA) Total INTERNAL AUDIT’S TRAINING AND EDUCATION During 2018, to improve quality, Telkom’s internal auditors attended the trainingas follows: 1 3 1 1 2 1 1 1 5 3 4 2 3 4 1 1 4 3 3 21 2 2 11 80 Number of Participants Number of Days 28 8 89 176 22 101 424 14 28 110 275 60 116 603 Programs Culture Leadership Business Technical Certification Sharing Knowledge Total 200 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportINTERNAL CONTROL SYSTEM The provisions of SOX Section 404 require Telkom to build, maintain, test and disclose the effectiveness of internal controls over financial reporting. To fulfill this, Telkom has an Internal Control System (SPI) which designed by/or under the supervision of the President Director and the Director of Finance and run by Board of Directors, management and other personnel. The purpose of implementing the SPI is to gain public confidence regarding 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. INTERNAL CONTROL FRAMEWORK In practice, Telkom uses the Internal Control-Integrated Framework 2013 as a reference from The Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO’s internal controls contain five mutually tied components that have applied at all levels and business units of the Company, including: 1. Control Environment a. Demonstrates commitment to integrity and ethical values. b. Exercises oversight responsibility. c. Establishes structure, authority and responsibility. d. Demonstrates commitment to competence. e. Enforces accountability. 2. Risk Assessment a. Specifies relevant objectives. b. Identifies and analyzes risk. c. Assesses fraud risk. d. Identifies and analyzes significant change. 3. Control Activities a. Selects and develops control activities. b. Selects and develops general controls over technology. c. Deploys through policies and procedures. 4. Information and Communication a. Uses relevant information. b. Communicates internally. c. Communicates externally. 5. Monitoring Activity a. Conducts ongoing and/or separate evaluations. b. Evaluates and communicates deficiencies. 201 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 These five components have been applied to Telkom’s policies, such as: INTERNAL CONTROL IMPLEMENTATION IN TELKOM Control Environment • Telkom builds 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 namely 3S: Solid, Speed, Smart. • Telkom ensures the effectiveness of implemented Internal Audit activities by implementing the SOA 302/404 prerequisites and managed with a risk based audit approach. Telkom also ensures 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. • Telkom has 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 • Telkom has 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. • Telkom has a principle of financial assertion in ICOFR planning that is well respected by all relevant employees. • Telkom manages internal and external corporate risk with established mechanisms. • Telkom also implements an anti fraud policy control system and have potential fraud prevention. Control Activities • Telkom sets up a Business Process Owner (BPO) and AO (Application Owner) that have duties and responsibilities related to ICOFR. • Risk determination rules and internal controls refer to the ICOFR policy consisting of segregation of duties, risk determination and determination of internal controls. • Telkom has 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 • Telkom has 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. • Telkom has 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 • Telkom has 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. • CEO Telkom always increases awareness from management regarding audit and change management in the form of CEO Notes and establishes Integrated Audit and forms Probis IFRS. As of December 31, 2018, Telkom assessed the effectiveness of internal controls over the company’s financial reporting with the results of the report being effective. The result shows that the implementation of the five components also in line with the Regulation of Minister of SOE Article 26 paragraph 2 in 2011 regarding Internal Control System. The effectiveness assessment has also been audited by KAP Purwantono, Sungkoro & Surja, an independent and registered public accounting firm. Other than the COSO framework as our refference, Telkom also committed to ensure 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. 202 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report RISK MANAGEMENT SYSTEM Risk management is important for Telkom to protect assets and business activities and create value for stakeholders. The risk management also constitutes compliance towards the prevailing regulations. The role and function of risk management supports the telecommunications business that has a wide scope of business areas, requires very large investments, has a high level of competition, rapid technological development, regulated business and changes in the way of communication. GENERAL ILLUSTRATION REGARDING THE RISK MANAGEMENT SYSTEM Regulation of Minister of SOE No. 1 in 2011 requires SOE, including Telkom, to implement risk management. In addition, the implementation of risk management is also Telkom’s obligation as a Company listed on the New York Stock Exchange (NYSE) to fulfill the Sarbanes-Oxley Act, specifically article 302 and 404. Risk Management System (Framework) and Policy Telkom’s Risk Management Policies is regulated through the Regulation of Board of Directors No.PD.614.00/r.00/HK.200/ COP-D0030000/2015 dated September 30, 2015 regarding Telkom Enterprise Risk Management and Regulation of Director of Finance No.PR.614.01/r.00/HK200/COP-D0030000/2016 regarding the implementing guideline for Telkom Enterprise Risk Management. The main framework of Risk Management in Telkom refers to the framework of COSO (COSO ERM Framework), which includes three main components: 1. The implementation of Company’s risk management must be able to support the Company’s objective from the aspects of strategic, operational, reporting and compliance. 2. Company’s risk management is applied at all levels of the organization, namely Enterprise level, Division, Business Unit, and Subsidiary, in the Company. 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. References and other guidelines relevant to the implementation of risk management at Telkom, among others: 1. ISO 31000 Enterprise Risk Management as comparison and implementation complementary. 2. ISO 27001 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. 3. ISO 22301 Business Continuity Management System (BCMS) as a reference in the effort to ensure 4. ISO 20000 Information Technology Service Management (ITSM) as a reference to ensure IT service. business continuity. Risk Management’s Organizational Structure According to the Regulation of Board of Directors and the Regulation of Director of Human Capital Management in 2018, Telkom’s risk management function is implemented by Sub-Directorate of Risk & Process Management in the Directorate of Finance with following structure: SVP Group Financial, Planning Analysis & Control VP Financial Controller CFU Consumer, WIB & Digital Service VP Financial Controller CFU Enterprise AVP Management Reporting, Analysis & Support AVP Group Strategic Budgeting & Investment AVP Group Coasting Management AVP Risk Managemenent 203 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 TYPES OF RISK AND MANAGEMENT METHOD The risk management system helps Telkom to identify significant risks for business sustainability. Telkom has specifically identified risks in Indonesia, which cover social and political risks, macroeconomics, disasters, and other risks. Then for business risks, Telkom has identified operational, financial, legal, and compliance risks, regulations, inherent risks of the fixed and cellular telecommunications business. In addition to these risks, Telkom also conducts quantitative and qualitative disclosures on market risks. Type of Risk Risks That Is Faced The Impact to Telkom Mitigation/Risk Management a. Risks Related to Indonesia Political and Social The disruption of political Have negative impact to the 1. Monitoring of the influence stability and social instability business, operation, financial of social political instability to specific issues. condition, business proceeds to the disruption of and prospect as well as market operational/service. price for securities. 2. The maintenance of awareness through the improvement of safety & Security functions. Macro Economy The change of global, 1. Have the impact on the 1. Monitoring of the influence regional, or Indonesian business, financial of macro economy to the economic activities. condition, business result change to increase the The fluctuation of Rupiah or business prospect. expense through Cost Exchange rate. The increase of loan interest rate. The decrease of Government or Company’s credit rating. 2. Have a material adverse the business, effect to financial condition, Leadership program. 2. To look for the opportunity to increase the spending business proceeds or of APBN pursuant to business prospect. the government focus (Maritime, Tourism, Energy, Transportation, etc). 1. Transfer of risk by using insurance of assets the Risk of Disaster Flood, thunder, storm, Disrupting its business earthquake, tsunami, volcano operations and give negative eruption, epidemic, fire, impact to the financial to anticipate the natural drought, power shut down performance and profit, disaster and fire. and other event beyond business prospect as well as Telkom’s control. market price of securities. 2. Coordination with ASKALSI Cable (Indonesian Sea Association) to secure SKKL. 3. Preventive & Corrective Action by preparing the Disaster Recovery Plan and Crisis Management Team. Other Risks Indonesian corporate Disrupting its business The use of a competent legal information disclosure standard operation and giving the consultant that has experience is significantly different than negative impact to the financial with the issues on corporate law what is implemented in other performance and profit, in other countries particularly countries including the United business prospect as well as the United States of America. States of America. market price of securities. The difference in the regulation of dividend determination. The issue on the legal certainty in Indonesia and United States the of America including implementation of law. The possibility on the difference in the interest of controlling shareholders with the interest from other shareholders. 204 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Type of Risk Risks That Is Faced The Impact to Telkom Mitigation/Risk Management b. Business Related Risks Operational Risk The failure in the sustainability Has the negative impact to the 1. Implementation of BCM, of network operation, business, financial condition, BCP, and DRP. main system, gateway on proceeds from the operation 2. Certification of Integrated Telkom’s network or other and business prospect. Management System operator’s network. (IMS) for infrastructure management. Threat of physical and cyber Has the negative impact 1. The upgrade of Preventive security, such as theft, to the business, financial Action in the form of destruction, or other action. condition, result from the Vulnerability Assessment operation materially. and Penetration Test periodically. 2. Monitor and Identificate all types of attack in the real time as well as to choose and conduct a necessary action immediately. 3. Preparing the recommendation to handle Cyber Attack based on the historical incident analysis. 4. Intensive coordination with relevant parties to handle the Cyber Attack. Risk regarding internet service. May face a lawsuit and To be more prudent in the damage the reputation. preparation of contract with content provider partner. Leak of revenue due to the Has a negative impact to 1. Acceleration of leak internal capability weakness Telkom’s business result. detection time and revenue or external factor. 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 1. The preparation of competitive power. Technology Roadmap by taking into account future technologies and the possible implementation of competitor’s technologies. 2. Acceleration of IDN (Indonesia Digital Network) program to support future services. 205 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 Type of Risk Risks That Is Faced The Impact to Telkom Mitigation/Risk Management The limit of operation period, Can create loss to financial 1. The planning to change damage or ruin, delay or failure condition, operation result and to launch, or the revocation of capability to give services. Satellite license. the Satellite of which operation period will be immediately expired. 2. The insurance of Satellite operation during the active period. 3. Insurance Manufacturing for and Launching of new Satellite. 4. Developing understanding the with Regulator in relation to the Satellite operation by Telkom. Financial Risk Interest Rate Risk. Has an adverse effect to the business, financial condition and result from the operation. Interest rate swap contract from the float interest rate to become the fix interest rate upon certain loan term. Foreign exchange rate risk. Has negative impact on the Placement of time deposit financial condition or result and hedging to cover from the operation. the fluctuation risk of foreign exchange. The limit to fund capital Has a material adverse effect Maintaining and improving expenditure. to the business, financial the Company’s performance condition, operational to obtain the trust from performance and business National or Global fund prospect. institution/source. Legal and Compliance Risk Penalty/fine by KPPU in Reducing Telkom’s revenue Strengthening Legal Review relation to the price fixing and and has negative impact towards corporate action plan the occurrence of class action. to the business, reputation or certain contract. and profit. Regulation Risk The change of Indonesian or Has the impact to the International Regulation. business, financial condition, 1. Analysis on the impact of the regulation plan towards operational performance and the industry in general and business prospect. Telkom in particular. 2. Giving inputs so that the regulation that will be stipulated will give positive impact to the Company and industry. Risk in relation to Fix and Losing the cable phone Has a material adverse effect 1. Improving QoS – Quality Mobile Telecommunication customers and revenue from on the result from operation, of Service for cable Business the service of cable phone financial condition and phone customers. voice call. Telkom’s business prospect. 2. Giving Value Added Service. 206 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Type of Risk Risks That Is Faced The Impact to Telkom Mitigation/Risk Management Competition on the internet Has a negative impact on the 1. Strengthening the service (fixed Broadband). business, financial condition perception and quality of operational performance and IndiHome as New Digital business prospect. Life Style. 2. Acceleration on launching of the the infrastructure for fixed broadband service. The competition on Has a negative impact on the 1. Acceleration of the launch mobile service. business, financial condition of the infrastructure for 4G operational performance and service. business prospect. 2. Improving QoS – Quality of Service. RISK MANAGEMENT SYSTEM’S REVIEW ON THE EFFECTIVENESS Throughout 2018, Telkom’s risk management system has been effective in supporting every business policy and process in Telkom and subsidiaries. Assessment of the effectiveness of Risk Management Implementation is carried out through an evaluation process, namely: 1. One-on-one Evaluation/discussion with business unit as necessary. 2. Workshop for sharing 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 Board of Directors level as necessary. 5. Evaluation with Committee for Planning and Risk Evaluation and Monitoring (KEMPR) as necessary. Telkom using application (tools)/ risk management information system as an infrastructure to support risk management system effectivity, such as: 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 to manage documentation system of Integrated Management System. c. SMK 3 Online application managed by Security & Safety Unit for Health and Safety documentation management. d. Telkomcare application for the coordinate with Crisis Management Team. 207 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 In 2018, the implementation of Telkom’s risk management system is in accordance with certification standards from external parties, namely: External Institution Type of Award PT. TUV Rheinland Indonesia Integrated Management System for infrastructure management includes: • The certificate of ISO 20000-1:2011 - IT Service Management • The certificate of ISO 22301:2012 - Business Continuity Management System • The certificate of ISO 27001:2013 - Information Security Management System • The certificate of ISO 9001:2015 - Quality Management System In order to maintain and improve the quality of risk management, Telkom developed risk management competencies through training. In addition, Telkom conducts socialization and workshops related to risk management in the division office and subsidiaries so that individuals in Telkom have a common understanding of risk management. No. Type of Training Risk Management Training in 2018 Risk Register Management Time February 2018 Responding to Our VUCA World “with Effective Risk Management with The New ISO May 2018 31000:2018 Risk Management Guidelines” Risk Control Self Assessment Cyber Risk Management Asia Pacific Risk Symposium 2018 Nurturing Agile Internal Auditors in Distruptives Times Financial Risk Management Business Continuity Management: Business Disruptions May 2018 May 2018 June 2018 August 2018 September 2018 September 2018 The giving of the cake as a symbolic expression of gratitude and happiness at Telkom’s birthday celebration was carried out by the President Director to the youngest employees and the President Commissioner to Mr. Setyanto P. Santosa as Chairperson of the Telkom Retired Association (P2Tel). 1. 2. 3. 4. 5. 6. 7. 8. 208 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportWHISTLEBLOWING SYSTEM Telkom has a violation reporting system or known as a Whistleblowing System (WBS) since 2006. Through the WBS, all individuals within Telkom and third parties can report violations, fraud or other forms of ethical violations that occur. The WBS is managed by the Audit Committee through the decisions of Board of Commissioners and ratified by the Resolution of Board of Directors. Telkom has socialized the WBS to employees so the existing system can be used properly and effectively. The application of WBS in Telkom’s environment is an effort to uphold business ethics and work ethics. THE VIOLATION REPORT All individuals at all of our Telkom staffing levels, including Board of Directors, Board of Commissioners and members of the committees under Board of Commissioner, are entitled to use the WBS. Reports can be submitted via email, fax, or letter with an address: Audit Committee PT Telkom Indonesia (Persero) Tbk Telkom Landmark Tower 40th Floor, The Telkom Hub Jl. Jend. Gatot Subroto Kav. 52, Jakarta, 12710 Email: whistleblower@telkom.co.id; ka301@telkom.co.id Fax: +6221 80863540 Website: www.telkom.co.id The Complaint must fulfil the following requirements: 1. 2. Complaints submitted related to the issue on internal control, accounting, auditing, breach of regulation, allegation on the fraud It is submitted through the website, email, fax or letter. 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 Telkom guarantees protection of the identity of the reporter through Resolution of Board of Commissioners No.08/KEP/DK/2016 dated June 8, 2016 regarding the Complaints Handling Procedure (Whistleblowing) Policy of PT Telkom Indonesia (Persero) Tbk and its subsidiaries which followed up by Standard Operating Procedure (SOP) which the last one that released through the Resolution of Board of Commissioners No. 01/KEP/DK/2018 regarding Standard Operating Procedure of Whistleblowing System on Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk. and its consolidated subsidiaries. The Resolution of Board of Commissioners regarding whistleblowing system were later ratified by the Resolution of Board of Directors No.PD.618.00/r.00/ HK200/COP-C0000000/2016 dated December 21, 2016. Furthermore, the implementation of the WBS always prioritizes confidentiality and the principle of presumption of innocence in following up on any complaints or reports submitted. This is stated in the standard procedures for handling the WBS with the aim of encouraging safe reporting of violations without fear or worry about their safety. THE COMPLAINT HANDLING The Whistleblowing System is the responsibility of the Audit Committee based on Regulation of Financial Services Authority No.55/ POJK.04/2015 and Sarbanes-Oxley Act 2002 Section 301 regarding the Public Company Audit Committee. On the other hand, the requirements for complaints are also needed to ensure that the reporter submits the complaint responsibly and is not a slander against someone. In general, complaint reports submitted by internal or third parties handled by the audit committee covers the following topics: 1. Accounting and Auditing. 2. Violation of Regulation. 3. Fraud and/or The Allegation of Corruption. 4. Code of Conduct. THE COMPLAINT HANDLING MECHANISM Telkom encourages reporters to ensure the correctness and accuracy of information and provide sufficient supporting data so that reports can be followed up immediately. In practice, some WBS cases cannot be processed because the data and information are inaccurate and unreliable. 209 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789UBIS HR Subsidiary Committee Process R e v e w i C a s e R e m a r k s : T P T A : i T m P e r t i Audit Committee PD S t a r t F o l l o w - u p A p p r o v a l t o i i ( A d m n s t r a t i v e M e a s u r e s C n s d e r a t i o n T e a m i i ) i m b a n g a n T n d a k a n A d m n s t r a s i i i Y e s T P T A i J o n t T e a m ? i J o n t N o R e p o r t T P T A F U U b s i R e p o r t F U 210 3 . 2 . o f T e l k o m A u d i t C o m m i t t e e I n t e r n a l A u d i t S u b s d a r y i i 1 . i R e l a t e d P r e s d e n t D i r e c t o r F U ? R e s p o n s e L e t t e r N o i D s c u s s o n i i S u b s d a r y i Y e s Y e s i C o m b n e d F U ? N o i S u b s d a r y i b y I n v e s t i g a t i o n R e p o r t T h e A u d i t S u b s i d a r i e s ? i L e t t e r o f t h e P r e s d e n t i Y e s N o D i r e c t o r t o S u b s d a r y C c i i . T e a m I n v e s t i g a t i o n i F o r m n g a n N e e d E x p e r t s ? I n v e s t i g a t i o n T h e R e p o r t I n v e s t i g a t i o n T h e R e s u l t o f E x p e r t P r o c e s s o f i A p p o n t m e n t Y e s N o E x p e r t C C i S u b s d a r y i T P T A R e p o r t T P T A N o t e s F U T P T A ? Y e s F U ? Y e s N o N o N o t e s F U D o c u m e n t a t i o n E n d R e p o r t F U I n v e s t i g a t i o n P r o c e s s R e p o r t i n g a n d F o l l o w - u p E v a l u a t i o n M a t e r i a l A r c h v e s i PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report THE PARTY THAT MANAGES THE COMPLAINT The Whistleblower Protection Officer (WPO) is a member of the Audit Committee whose task is handle complaints by doing the following things: 1. Receiving the complaint. 2. Administering the complaint. 3. Conducting the initial verification whether the complaint is in line with the criteria. 4. Monitoring the follow up of the complaint. The Audit Committee through the meeting shall determine: 1. To give approvals to follow up of complaints received. 2. To give approvals on whether a complaint is to be followed up by an internal or external party. 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. BOARD OF DIRECTORS’ AND COMMISSIONERS’ SHARE OWNERSHIP POLICY IMPLEMENTATION The obligation of each member of Board of Directors and Commissioners of Telkom to report any changes in share ownership directly or indirectly is regulated in the Regulation of Financial Services Authority No.11/POJK.04/2017 regarding Ownership Reports or Any Change in Public Company Share Ownership. In line with these regulations, in this report Telkom provides information about share ownership by members of Board of Directors and Board of Commissioners and changes throughout 2018. The information referred to is found at the beginning of this annual report. EMPLOYEE STOCK OWNERSHIP PROGRAM 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. Telkom had opened opportunity for employees to participate in employee ownership programs and/or management, or also called Employee Stock Ownership Programs (ESOP). On November 14, 1995, during the Initial Public Offering (IPO), on November 14, 1995, 43,218 employees owned 116,666,475 Telkom shares. THE RESULT OF COMPLAINT HANDLING In 2018, there were 24 (twenty four) whistleblowing complaints submitted in WBS, but after the Audit Committee reviewed the complaints, there were only 5 (five) complaints that qualified as WBS category, while the remaining qualified as service/product complaints. Description Total Remarks Total Complaint Fulfil the requirements 24 5 Received complaints Complaints proper to be followed up Then on June 14, 2013, Telkom transferred a portion of the buyback shares in the form of employee share ownership as part of the annual work incentive for financial year 2012. A total of 59,811,400 of buyback shares (equivalent to 299,057,000 shares after the stock split) transferred to 24,993 employees with an overall fair value of Rp661 billion. In 2018, Telkom has not entered into an ESOP program in 2018, thus returning, so that there is no information on the number of shares and/or options, implementation period, eligible employee and/or management requirements, and implementation prices displayed in this Report. 211 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 SIGNIFICANT LEGAL DISPUTES During 2018, none of Telkom’s board of commissioners’ and directors’ members, either 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, Telkom faces 52 legal cases consisting of 14 criminal law cases and 38 civil law cases. Recapitulation of Lawsuits Cases in 2016-2018 Legal Issues Status In process Final and binding (inkracht) Sub Total Total 2018 2017 2016 Criminal Civil Criminal Civil Criminal Civil 14 22 36 38 27 65 4 19 23 36 29 65 9 0 9 36 24 60 101 88 69 Significant legal issues faced by the Telkom during the period of January to December 2018 can be seen in the table as follows. Key Case Faced in 2018 Object of Dispute Type of Court Status of Dispute Financial Implications Telkom became the Appeallee in the DKI Jakarta High Court with allegations of malafides in stopping transponder services to PT Citra Sari Makmur (PT CSM). High Court The High Court of DKI Jakarta has issued an Appeal Decision whose core concern is to state that this case is the absolute authority of the Tax Court. - INFORMATIONS REGARDING ADMINISTRATIVE SANCTIONS In 2018 financial year, Telkom received several administrative sanctions from capital market authorities. Details of sanctions as follows: Administrative Sanctions 2018 No. Administrative Sanctions Institution Financial Implications (Rp) 1. Administrative Sanctions for Delays in Submitting Reports and OJK 2,000,000 Announcements Information or Material Facts for the Acquisition of Shares in PT Bosnet Distribution Indonesia. 2. Administrative Sanctions for Delays in Submitting Reports and OJK 3,000,000 Announcements Information or Material Facts on Acquisition of PT Nutech Integrasi Shares. 3. dministrative Sanctions for Delays in Submitting Reports and Announcements OJK 5,000,000 of Information or Material Facts related to Appointment of Ms. Devy W Suradji as Director of the Company (Company) of PT Angkasa Pura I. 212 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report INFORMATION ACCESS AND COMPANY‘S PUBLIC DATA Telkom provides access to company’s information and data on a regular basis through various approaches and lines of communication. This is done to fulfill the principles of transparency and accountability in the implementation of good corporate governance (GCG). In addition, Telkom also establishes communication with stakeholders and participates in fulfilling the information disclosure of the capital market environment regulated in the Regulation of Financial Services Authority No.31/POJK.04/2015 regarding Disclosure of Material Information and Facts by Issuers or Public Companies. Approaches and lines of communication applied includes: 3. Media During 2018, Telkom made a news release and sent it to the mass media in order to spread the company’s information transparency to stakeholders. 4. Meeting with Analysts and Investors Telkom meets with analysts and investors to provide information about performance and prospects of the Company and provide up-to-date information about the telecommunications industry in general. 1. General Meeting Of Shareholders (GMS) Through the GMS, information related to company’s performance is delivered to shareholders. The GMS is also a rool for shareholders to participate in decision making, especially regarding decisions of strategic matters. Telkom is open to communicate with stakeholders through e-mail. For communication facilities, the customercare@ telkom.co.id e-mail address can be used by stakeholders who are Telkom customers, while the e-mail address of investor@telkom.co.id is intended for investors. 5. Contact Via E-Mail the www.telkom.co.id website, 2. Website Through latest information about Telkom can be accessed by stakeholders. Information that can be accessed includes profiles, corporate governance, CSR programs, careers, reports including annual reports and financial reports, and products from Telkom. the 6. Internal Media Intra Telkom is a media managed by Telkom as a tool of information, education and socialization for Telkom to all internal employees of the company. 7. Social Media Telkom uses a variety of social media to communicate with stakeholders, including the younger generation, who are very familiar with digital media and social media. Social Media Account Twitter Facebook Instagram Youtube @TelkomIndonesia Telkom Indonesia @telkomindonesia Telkom Indonesia Official Followers/Subscribers/Fans 109,596 Followers 292,394 Fans 140,243 Followers 6,620 Subscribers 213 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 CORPORATE CODE OF CONDUCT CODE OF CONDUCT’S IMPLEMENTATION FOR BOARD OF DIRECTORS, BOARD OF COMMISSIONERS AND EMPLOYEES In accordance with Circular Letter of Financial Services Authority No.32/SEOJK.04/2015 regarding Corporate Governance Guidelines and Sarbanes-Oxley Act (SOA) 2002 section 406, Telkom owns and runs a code of ethics that applies to all levels of the organization. This Telkom specified by the Regulation of Board of Directors No.PD. 201.01/2014 regarding Business Ethics in TelkomGroup and the Regulation of Director of the Human Capital Management No.PR.209.05/r.00/PS800/COP-A4000000/2017 regarding Employees’ Ethics and Compliance. The 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 Board of Directors, Member of Board of Commissioners and a large family of Telkom employees 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 TelkomGroup. In addition, Telkom Directors through Regulation of Board of Directors No.PD.604.00/r.00/HK000/C00-D0030000/2011 dated July 11, 2011 which contains a Board of Directors Charter which is not only contains duties and responsibilities but also contains the Code of Ethics which prevail for all Directors. As for the Board of Commissioners through the Board of Commissioners Charter as outlined in the Resolution of Board of Commissioners No.16/KEP/DK/2013, it also has a Code of Ethics that applies to the entire Board of Commissioners, both Commissioners and Independent Commissioners. Besides the Code of Ethics, Telkom through Resolution of Board of Directors Number KD.36/HK290/COP-D0053000/2009 regarding the Integrity Pact also requires employees and Directors to sign the Integrity Pact which contains the commitment of Employees and Directors not to violate the integrity codes described in the regulation. Likewise with the Board of Commissioners who signed the Integrity Pact as a manifestation of the Board of Commissioners’ commitment not to violate the existing Code of Ethics. CODE OF CONDUCT’S PRINCIPLES The Telkom Code of Ethics that is applied includes arranging the main matters regarding: 1. Employee Ethics Which is the system of values or norms that are used by all employees and leaders in the daily work. 2. Business Ethics Which is a system of values or norms that is upheld by the Company as guidelines for the Company, Management, and its Employees to interact with the surrounding business environment. CODE OF CONDUCT’S SOCIALIZATION AND EFFORTS TO ENFORCE THEM Telkom sends out the socialization materials to employees about GCG understanding, business ethics, integrity pacts, fraud, risk management, internal control (SOA), whistleblowing, ban of gratification, IT Governance, maintain information security and other matters related to corporate governance practices. This form of socialization is carried out so that employees can continue to maintain and apply the code of ethics as long as they are part of the Telkom family. Telkom also organizes e-learning on business ethics and employee’s ethics and compliance with the population of all employees through the media portal/intranet. Through this e-learning, employees are expected to extend their understanding of the code of ethics 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. 214 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCORPORATE CULTURE THE TELKOM WAY Telkom has “The Telkom Way” which was established on June 10, 2013 as a Company culture or values. The determination was made through Resolution Letter of Telkom’s Board of Directors No.PD.201.00/r.00/HK250/COP-B0020000/2013 regarding Architectural Leadership and Corporate Culture. The above corporate culture determination refers to the Telkom management concept which is based on 8S elements, namely Spirituality, Style, Shared Values, Strategy, Staff, Skill, System, and Structure. The complete Corporate Culture is formulated as follows: 1. Philosophy to be the Best: Integrity, Enthusiasm, Totality. 2. Principles to be the Star: Solid, Speed, Smart. 3. Practices to be the Winner : Imagine - Focus - Action. Furthermore, guidelines for the implementation of Corporate Culture in the TelkomGroup are stipulated in Regulation of the Director of Human Capital Management Number: PR.201.01/r.01/HK250/COP-B0400000/2018 regarding Telkom Corporate Culture. In this Regulation, it is regulated in detail regarding Corporate Culture, one of which is the description of Do’s and Dont’s of the values of The Telkom Way facilitating Employees to understand the values of Corporate Culture. CORPORATE CULTURE’S IMPLEMENTATION IN 2018 The measurement of corporate culture’s implementation in Telkom is done by measuring the Cultural Health Index through the Corporate Culture Entropy Survey. Until now, the TelkomGroup has succeeded in maintaining the Corporate Culture Health Index at the PRIME or HEALTHY level. 215 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 CORPORATE CULTURAL ACTIVATION PROGRAMS IN 2018 Our corporate culture is internalized from top to down, CEO of TelkomGroup is a role model of Corporate Culture and assigns all Unit Leaders to be Role Models. Role Models are also obliged to select and assign Culture Agents in charge of organizing cultural activation initiatives in the relevant units and motivating all employees to participate in the initiatives to allow smooth internalization process of The Telkom Way. To date the TelkomGroup has assigned 1,659 Culture Agents (consisting of 445 Culture Agents of Telkom, 582 Culture Agents of Subsidiaries and 632 Culture Booster) who prior to carrying out their duties as Culture Agents were engaged in the Culture Agent on Boarding program to provide skills and knowledge as well as common perception to be Culture Agents. To accelerate the implementation of corporate cultural activities at the unit level, all Unit Leaders are instructed to establish a Cultural Activation Provocation Community (Komunitas Provokasi Aktivasi Budaya/KIPAS Budaya) in their respective units. A total of 123 units of KIPAS Budaya were recorded until December 2018. Each unit has discretion to name their KIPAS Budaya according to their respective goal and awesome. The theme of KIPAS Budaya activities is tailored to the Company’s business strategy. In 2018, the theme was set nationally as “Dealing with real problem N the work place with the right TTW Attitude (DNA)”. As a reference for unit cultural activation activities, a Calendar of Event Program was published with an approach of National Days. CALENDAR OF EVENT Calendar of Events (COE) is one of media to communicating culture activation program every month and as a refference to the TelkomGroup’s Unit in constructing and do their culture activation in its own unit the values of The Telkom Way in order to instill corporate culture to the daily attitude of employees. 216 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportBUILDING DIGITAL CULTURE As part of the company’s transformation, the Company builds human resources with a digital culture while still referring to The Telkom Way as a system value formulated as the Philosophy To Be The Best, Principles To Be The Star and Practices To Be The Winner. This system value provides the spirit for every Telkom employee to always give the best, mobilize their abilities in total, enthusiastic and with integrity. Every Telkom employee is also encouraged to build synergy towards a common goal, have initiative in serving and looking for new ways to solve various problems. Internalization of the values of The Telkom Way is always carried out through various culture activation activities, especially in daily works so that the behavior and characteristics of the winner are embedded in every Telkom Employee. In order to build digital competency, The Company gives trainings to strengthen digital culture that has been built at the top of 4 development pillars. The first pillars are character development by referring to values of The Telkom Way. The second pillars are leadership development, by referring to 8 main competency of Digital Leader which expected to have a good character with business capabilities and a strong leadership, have a national insight and global orientation. The third pillars are professional development including soft skill aspect needed to become manager & Leader like decision making, people development, teamwork, organization awareness, analytical & conceptual thinking and many others related skill. The last one is the development of technical skill, such as the development of job family, job function and job role that are relevant with its role in the organization, for example for the ICT & Digital we develop trainings like digital business, user interface (UI) & user experience (UX), data analytics, digital marketing and many other related trainings. The Company also equipped employee with digital tools for daily operation namely corporate portal, which includes e-office, e-budgeting, filesharing, collaboration (Diarium), career & succession management (Ingenium), learning & knowledge management (Cognitium), and many other digital applications. The Company encourage its employees to develop digital based innovation culture which expected to produce digital product and services, improve service given to the customer and solve operational problems. In order to build the innovation culture mentioned before, the shape of our organization and method of work need to be changed into an agile one by expanding “team based” method of work. Telkom made a breakthrough in terms of how the organizations work through tribe and squad scheme which allows a group of employees with certain competency move faster and more agile in order to serve certain customer. Telkom also made a breakthrough by providing media for our employee that have certain competency and expertise to participate in a project outside its working unit, among them are that the company encourage its employee to develop digital based innovation culture through program Digital Amoeba which is expected to produce digital product and services. Employee ideas are also possible to be channeled more easily through the hackaton model known as HackIdea which is carried out routinely and massively throughout the Telkom organization and region. Ideas that are considered to have value for the organization are exposed regularly through innovation festivals and developed structurally through the Digital Amoeba innovation program. 217 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights12345678906 CORPORATE SOCIAL RESPONSIBILITY (CSR) 220 222 225 228 Goods and Services Responsibility Employment, Health, and Safety Community Social Development Environmental Responsibility 218 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTower Maintenance is caried out to maintain the quality of mobile service. 219 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789GOODS AND SERVICES RESPONSIBILITY PRODUCT INFORMATION Telkom constantly ensures customers to obtain accurate and current information product could be satisfied so the customer would not incur losses. Telkom provided product information in various ways such as in starter pack mobile packaging, website, promotion occasion and intensive marketing communication. CONSUMER HEALTH AND SAFETY Telkom has several activities to ensure costumers would not incur losses in health and safety such as Telkom Integrated Quality Assurance (TIQA) program, after-sales warranty, and customer service policy implementation. For customer service, Telkom policy emphasized on service delivery, service assurance and quality service measurement CUSTOMER SATISFACTION High customer satisfaction is one indicator of Telkom service quality. Customer satisfaction measurements are conducted annually through the Customer Satisfaction Index (CSI), Customer Dissatisfaction Index (CDI), and Customer Loyalty Index (CLI). The following table shows the results of the CSI, CDI and CLI surveys in the last three years. 2018 87.71 82.84 2.17 Year 2017 86.56 82.01 2.78 2016 85.26 78.31 2.50 Moreover, the corporate customer complaints may be submitted through: • 1500250 and e-mail tele-am@telkom.co.id and social media @Smart_Bisnis (Twitter) and Smartbisnis (Facebook) for SMB customers. • 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. Description Customer Satisfaction Index (CSI)* Customer Loyalty Index (CLI)* Customer Dissatisfaction Index (CDI)* *IndiHome & Wifi.id customers CUSTOMER COMPLAINTS In response to customer complaints, Telkom provides 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: • Plasa Telkom • Call Center: 147 • Social Media: @telkomcare (twitter), telkomcare (FB). • Apps: myIndiHome. • Complaint via web chat at www.indihome.co.id. Specifically for the celular’s customers, Telkom provides “Caroline” call center, which is an abbreviation for customer care online. The contact numbers of Caroline are as follows: • • • 0807-1811811 (PSTN local rate tariff) for national scale. 133 for Kartu Halo. 188 (24 hours, paid) for simPATI and Kartu As. 220 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report In 2018, 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: Customer’s complaint Internet Directly solved 1-3 days > 3 days Telephone Directly solved 1-3 days > 3 days 2018 % 2017 % 2016 % 44.3 52.6 3.1 100.0 44.0 52.5 3.5 100.0 37.0 59.8 3.2 22.1 60.5 17.4 100.0 100.0 30.0 65.6 4.4 23.7 60.9 15.4 100.0 100.0 221 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789 EMPLOYMENT, HEALTH, AND SAFETY PRACTICES GENDER EQUALITY AND EMPLOYMENT OPPORTUNITIES Telkom has employment practices in accordance with international regulations and business ethics. Telkom high concern about gender equality and employment opportunities. In Telkom, every gender could hold the position at the various level according to their competency. In 2018, Telkom recruited 349 men and 212 women. The number of male and female employees at the end of 2018 was 18,042 and 5,961 people. The proportion of male employees to women in Telkom was not due to discrimination. However, there was more men were compared to women who were interested in working in the telecommunications industry, especially for the types of outdoor work. Telkom Employee Recruitment Based on Gender for 2016-2018 Description Entry Level a. Age Range 18-25 Years Old b. Age Range 26-30 Years Old 2018 2017 2016 Men Women Men Women Men Women 244 105 349 141 71 212 232 21 253 147 13 160 200 20 220 202 24 226 Total 561 413 446 Employees by Managerial and Gender Position per 31 December 2016-2018 Description Band I Band II Band III Total 2018 2017 2016 Men Women Men Women Men Women 144 607 2.010 2,761 6 58 355 419 111 498 2.027 2,636 8 44 319 371 110 420 1.661 2,191 8 40 212 260 3,180 3,007 2,451 222 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report EDUCATION AND/OR TRAINING Telkom is committed to providing the best education and training for the employee because improving employee competencies will impact on the performance. Telkom always strives for a quantitative and qualitative improvement for employee education and training. In 2018, Telkom provided opportunities for education and training for 12,897 men and 2,385 women. It was lower than the previous year in general due to the change of learning method into self-led learning so Telkom provided knowledge repository for business requirement. Description Certification Leadership Development Program Regular Training a. Operational b. Management 2018 2017 2016 Men Women Men Women Men Women 1,140 1,048 10,709 10,054 655 193 426 1,766 1,668 98 850 822 321 262 308 446 14,719 6,060 19,849 9,367 5,352 4,299 12,385 1,761 7,464 12,897 2,385 16,391 6,643 20,603 118 62 5,598 3,493 2,105 5,778 Total 15,282 23,034 26,381 EMPLOYEE TURNOVER RATE Our employee turnover rate in 2018 reached 0.16% compared to 0.19% in 2017. Most of the employees who left the Company were on their own request. Description 2018 2017 2016 Total number of Telkom Employees 12,765 13,956 14,933 Employee turnover rate By own request/voluntary Becoming a political party official Becoming an SOE director/government official Disciplinary misconduct Marry another Telkom employee Retired Died 21 15 - 4 - 2 - - 27 15 - 4 - 8 - - 11 11 - - - - - - Turn Over percentage 0.16% 0.19% 0.07% 223 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789REMUNERATION In terms of remuneration, Telkom conform with provincial minimum wage regulations. Telkom set the lowest salary above the provincial minimum wage. The following table shows that the salary conditions apply to all Telkom employees at various levels. Description Senior Management Middle Management Supervisor Other 2018 2017 2016 Men Women Men Women Men Women 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Complaints of labor issues may be submitted through: • HR helpdesk is a complaint mechanism through the web- in service, mail-in service HR_helpdesk@telkom.co.id, and phone-in service number 1500305. • HR Wiki is a search engine service used by the employees to obtain information about employment in Telkom. • Employee aspiration is an adaptation of the employee suggestion system (ESS) which may be utilized by the employees to convey their suggestions and aspirations. • Employee reference is a catalog of human capital or employment policy of Telkom available to the employees, including regulations and explanations. Telkom accepted 348 employment complaints and solved 307 complaints or 95%. Most of the complaints are about remuneration, administration, service, and career management. Telkom did refinement such as: • Remuneration increasing housing allowance basic rate in 2018 followed by the adjustment for employee who took 5-year housing allowance option. improvement by • Administration service improvement by providing help to update employee and family data, healthcare facilities information and allowance for social security of employment and health program. • Career management improvement by providing Ingenium application that could be accessed online to choose their desired career path, talent management with compatible job function, and assessment in promotion and mutation. FACILITY AND WORK SAFETY In terms of workplace safety and health, Telkom has an internal policy on occupational safety in the Directors Decree No.37 of 2010 concerning the Establishment of a Company Safety and Security Management Policy dated October 26, 2010. Telkom also maintains a reputation for safe working hours and zero fatality in the last few years and implemented a workplace safety and health management system (SMK3). The socialization of the implementation of SMK3 was carried out online through Safety Care Online and the SAS Portal application was in accordance with Government Regulation No. 50 of 2012. The consistency of the SMK3 implementation was online through application in SAS Portal in accordance with Government Regulation No. 50 of 2012. In 2018, the SMK3 certification program was implemented in 19 Telkom office locations throughout Indonesia. This program has an impact on improving employees work safety readiness in accordance with applied regulations and policies. RATE OF OCCUPATIONAL ACCIDENTS Telkom has maintained zero accident for three years since 2016. This is a good achievement of various efforts to handle employee safety and health. COMPLAINTS HANDLING MECHANISM OF LABOR ISSUES Telkom understands 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, Telkom makes our best efforts to minimize the negative impacts of existing labor issues. One of Telkom’s effort is provide a number of employee complaint mechanisms for the early detection and settlement of problems. 224 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportCOMMUNITY SOCIAL DEVELOPMENT LOCAL WORKERS Telkom noticed to the socio-economic impacts of the operating activities such as the absorption of local labor. It was done directly by the recruitment of Telkom and its subsidiaries, as well as indirectly by the recruitment of Telkom partner contractors. ANTI-CORRUPTION MECHANISM AND PROCEDURAL POLICIY Telkom has an internal policy related to Anti-Corruption through Directors Decree No.43 of 2008 concerning Anti-Fraud Policies in Telkom on December 2, 2008. Each employee is required to sign the Integrity Pact. Telkom also has anti-corruption portal called myintegrity.telkom.co.id. In order for employees to have good capacity to prevent corruption, Telkom holds anti-corruption training for employees. One of Telkom efforts in preventing corruption is the supplier selection process that needs to take several stages such as name registration through the application of supply management and logistic enhancement (SMILE), supplier selection, and determination of suppliers entitled to bid. In addition, Telkom also complies with regulations that regulate the Obligations of State Administrators to report assets. The obligation refers to: 1. Law No. 28 of 1999 concerning State Administrators that Are Clean and Free of Corruption, Collusion and Nepotism 2. Law Number 30 of 2002 concerning the Corruption Eradication Commission 3. Corruption Eradication Commission Regulation Number: 07 of 2016 concerning Procedures for Registration, Announcement and Examination of State Assets Assets As an implementation of these regulations, Telkom requires all echelon I and II officials to report their assets according to applicable procedures. EMPOWERMENT OF OUR COMMUNITIES Telkom’s CSR program includes the Partnership and Community Development Program (PKBL) and CSR-PR. In 2018, Telkom’s CSR program, BUMN, was present for the country, taking the theme of Telkom Indonesia for Indonesia. The main programs are: Planet - Digital Environment, People - Digital Society, and Profit - Digital Economy. Planet People Profit Digital Environment Digital Society Digital Economy Wifi Corner Disability Care TelkomCraft Indonesia Broadband Learning Center & Pustaka Digital Digital Lounge Creative Camp Telkom Culture Care BUMN Goes to Campus UMKM Go Digital Village Economic Center Indonesia Digital Learning Veteran Home Renovation Natural Disaster Donation Marketing Online Workshop BUMN Creative House Digital SMB Village BUMDes Partnership Village Economic Center (Balkondes) 225 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789In 2018, the costs incurred for the implementation of our social responsibility activities reached Rp425.66 billion. The biggest proportion of the costs was for partnership programs of Rp279.98 billion, followed by Rp105.88 billion for environmental development and Rp39.80 billion for CSR programs. The following funds are allocated for community empowerment: Description Partnership & Community Development Program Partnership Program Community Development Program CSR-PR Total 2018 2017 Rp (Billion) 2016 385.86 279.98 105.88 39.80 425.66 389.58 307.61 81.97 28.50 418.08 442.89 360.92 81.97 19.30 462.19 UPGRADING OF SOCIAL FACILITIES AND INFRASTRUCTURE Telkom held several activities such as rehabilitation of the education facilities, orphanage, sanitation and environment, maintenance of the public road, and facilities recovery in disaster affected area. Telkom conducted social facilities and infrastructure improvement in several Indonesia area throughout 2018 below. Minister of SOE Rini M. Soemarno accompanied by East Nusa Tenggara Governor Frans Lebu Raya dan Telkom President Director Alex Janangkih Sinaga presented Telkom CSR such as clean water facilities for residents in Adonara, East Nusa Tenggara. In the activity series of BUMN Hadir untuk Negeri at NTT, Telkom gave help renovating St. Martinus Hinga Church, Nur Sa’adah Puhu Mosque and Jabal Nur Great Mosque in East Adonara District, as well as constructed artesian well in Wotan Ulu Mado District to overcome scarcity of freshwater, and built Broadband Learning Center facilities at MTs Nurul Iman, Kupang; and provided iChat application Weri States SLB, Larantuka. Telkom provided Broadband Learning Centre and renovated Utsmaniyah Al-Musri Boarding School that had a fire in Garut, West Java. Telkom HCM Director Herdy Harman simbolicly delivered help for Al Andalusia Orphanage, Jakarta. 226 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Telkom Consumer Service Director Siti Choiriana delivered Telkom CSR for national border posts. Telkom and other BUMNs worked together to improve the quality of public and social facilities for the society in Oebela Village, Rote Barat Laut District, Rote Ndao District, East Nusa Tenggara. Telkomsel President Director Ririek Adriansyah inaugurated public toilet and clean water facilities in Cilincing, North Jakarta at BUMN Hadir Untuk Negeri 2018 Program. Telkom Finance Director Harry M. Zen, as the advisor for the improvement and provision of school infrastructure for the BUMN Hadir untuk Negeri 2018, visited schools in the Marunda, Cilincing, North Jakarta to see the progress of school facilities and the BLC (Broadband Learning Center) room. On that occasion, he also gave volleyball and basketball to Al Rahmah and Al Aminiyah Elementary School. Telkom President Director Alex Janangkih Sinaga presented 1000 simPATI simcard to IT Head Division of Central Sulawesi Police AKBP M. Haritsuddin, witnessed by Ministry of SOE Rini M. Soemarno and Telkomsel Network Director Bob Apriawan at Integrated Operation Center (IOC) Telkom Regional Office in Palu, Central Sulawesi. It was supposed to help the communication of police officer and volunteer in disaster area. President Joko Widodo was accompanied by Minister of SOE Rini M. Soemarno, Telkom President Director Alex Janangkih Sinaga, PLN President Director Sofyan Basir, and West Java Governor Ridwan Kamil observed “Sambungan Listrik Gratis” (Free Electrical Connection) program in Cibatu, Garut, West Java. This program was part of BUMN Hadir untuk Negeri 2018 program when Telkom, PLN and other SOEs participated increasing electrification ratio and compliance of basic electricity needs for resident in south region West Java and Banten to enhance their productivity. Director of WINS Abdus Somad Arief accompanied by Director of Consumer Siti Choiriana helped resident that affected by tsunami disaster in Banten, Jawa Barat. 227 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789ENVIRONMENTAL RESPONSIBILITY RECYCLABLE AND ENVIRONMENT-FRIENDLY MATERIAL AND ENERGY USE Telkom made various efforts to reduce the bad impact on the environment. Since 2010, Telkom has used inverter AC and LED lighting. Telkom data center also uses cooling system management, making it more energy efficient. To save energy use of the office building, Telkom uses reflective glass with a thickness of 6 mm, thereby reducing the incoming heat. From the various initiatives, Telkom succeeded in saving electricity consumption as reflected in the following table. Electricity Consumption Fixed Network (STO) Operational (Building) Total 2018 2017 Kwh 2016 327,744,883 338,902,852 71,226,285 69,556,971 345,016,112 70,412,205 398,971,168 408,459,823 415,428,317 Telkom provides vehicles Employee Shuttle Bus (EMSHUB) which contribute decreasing in the level of congestion in the city of Jakarta. The presence of EMSHUB is supported by Satellite Office facilities in Bogor, Tangerang, and Bekasi that allow employees to continue working while in high traffic. EMSHUB also have a meeting room and collaboration room equipped with video conference and high-speed internet so that it could work mobile comfortably and productive. In addition, Telkom also provides operational vehicles that can be used by employees alternately, by ordering through the online application Trends Online. Regarding the use of environment-friendly energy, Telkom utilizes solar panels to generate electricity in electricity scarcity areas where electricity supply which difficult for BTS resource, so it can save fuel oil. WASTE TREATMENT SYSTEM In the case of waste management, Telkom submits both the solid waste of hazardous and toxic materials or B3 waste, and non-B3 waste, to the Government official mechanism through the local Sanitary Agency. ENVIRONMENTAL COMPLAINT HANDLING MECHANISMS Telkom 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, Telkom welcome any complaints to the mechanism of Whistle Blowing System (WBS) or complaints may be submitted directly to the Corporate Secretary. ENVIRONMENTAL AWARD In line with concern for the environment, Telkom received the Subroto 2018 Award in the category of Energy Management in Industry and Building from Ministry of Energy and Mineral Resources (ESDM). 228 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportWith eco green concept, Vertical Garden located between Telkom Landmark Tower and Telkomsel Smart Office equipped with giant screen and high speed Wifi network. 07 PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM 232 Partnership and Community Development Program Report 230 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportTelkom actively participates in plogging activities, fitness activities accompanied including doing by picking up trash found on Jalan Sehat 7.300m BUMN Hadir Untuk Negeri route to create a clean and healthy environment. 231 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789PARTNERSHIP AND COMMUNITY DEVELOPMENT PROGRAM (PKBL) REPORT For Telkom, the Partnership and Community Development Program is an effort to manage the impact of operational policies and activities on society and the natural environment. The Partnership Program is the government’s mandate to distributed loan funds to Micro and Small Business (MSB) and increases the capacity of Foster Partners, while the Community Development Program is a social empowerment program consisting of seven objects of assistance, namely: 1. Natural disaster victims donation 2. Education donation 3. Healthcare improvement donation 4. Improvement for infrastructure and/or public facility donation 5. Places of worship donation 6. Nature conservation donation 7. Civil sociaety in order for poverty alleviation donation LEGAL BASIS AND GENERAL POLICY The legal basis for the implementation of PKBL activities has been regulated through Law No. 19 of June 19, 2003 regarding SOE, as well as a series of Regulation of Minister of SOE which has undergone several changes. The last change is Regulation of Minister of SOE No.PER-02/MBU/7/2017 dated July 5, 2017 regarding the Second Amendment to Regulation of Minister of SOE No.PER-09/MBU/07/2015 regarding the Partnership Program and the Agency for Community Development Programs of SOE. Another legal basis is Letter of Minister of SOE No.S 513/ MBU/08/2016 dated August 30, 2016 regarding the Submission of Aspirations of Shareholders/Capital Owners for Preparation of Company Work Plans and Budgets for 2017. To carry out this obligation, the company has formulated policy and operational guidelines, namely Regulation of Directors PR.202.60/r.00/HK200/COP-A2000000/2017 dated August 8, 2017, regarding the Community Development Center Organization. SUCCESS PARAMETER CSR (PKBL) Index In 2018, the Company conducted a measurement of CSR (PKBL) Index with the achievement of 72.14%. The achievement shows that the Company’s CSR activities brought an impact at the rate of 72.14% on customer satisfaction and corporate reputation. Net Promoter Score – NPS In measuring the success of social responsibility, especially for customers, Telkom measures the Net Promoter Score (NPS) which indicates the motivation of the community to advocate or promote Telkom products and services. The results of the NPS measurement in 2018 show a positive value from the point of view of the community in recommending the use of Telkom products. NPS Measurement Results in 2017-2018 Criteria Promoters Passive Detractor 2018 2017 46.75% 40.50% 12.75% 42.88% 35.32% 21.80% 232 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report The Effectiveness of Partnership Program Fund Disbursement In 2018, Telkom targets the effectiveness of distributing the Partnership Program funds by 80% of available funds. The realization of the distribution of the Partnership Program funds reached 95.27% and a score of 3. Effectiveness of Program Fund Disbursement in 2016-2018 Partnership Program Total Funds Disbursed (Rp billion) Total Funds Allocated (Rp billion) Fund Disbursement Effectiveness Rate (%) Fund Disbursement Effectiveness Score 2018 2017 2016 279.98 293.87 95.27 3 307.61 328.21 93.72 3 360.92 366.54 98.47 3 The Collectability of Partnership Program Funds Telkom sets a target for 2018 collectability of 80%. Realization in 2018 recorded collectability of 88.85% with the achievement of a score of 3. Collectability Rate of Partnership Program Funds in 2016-2018 Collectability Collectability Rate (%) Score 2018 2017 2016 88.85 3 85.17 3 88.54 3 The Effectiveness of Community Development Program Fund Disbursement In setting the target for 2018, Telkom is expected to be able to distribute as 80% of Community Development funds from the allocation of funds of Rp105 billion. The fund realization of the Community Development Program is Rp105.88 billion or 100.84% of the fund allocation in 2018. Effectiveness of Community Development Program Fund Disbursement in 2016-2018 Community Development Program 2018 2017 2016 Total Funds Disbursed (Rp billion) Total Funds Allocated (Rp billion) Fund Disbursement Effectiveness Rate (%) PKBL BUDGET ALLOCATION 105.88 105.00 100.84 81.97 82.00 99.97 81.97 82.00 99.97 In accordance with the regulations of Minister of SOE, the Partnership Program budget allocation sources from profit provision, while the Community Development Program sources from the Telkom budget. In 2018, the PKBL budget increase from Rp404.00 billion in 2017 to Rp405.00 billion in 2018. Budget Allocation of Partnership Program and Community Development in 2017-2018 No 1 2 Type of Program Partnership Program Community Development Program Total 2018 2017 Change Rp (billion) % 300.00 105.00 405.00 322.00 82.00 404.00 (6.83) 28.05 0.25 233 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789PKBL REALIZATION PKBL Program in 2018 consists of The Partnership Program and The Community Development Program. Partnership Program The Partnership Program is a community economic empowerment program to increase income through micro and small scale business activities carried out by providing loan funds with a low administration fee. By focusing on digitizing the management of partnership programs, digital training for fostered partners and including fostered partners at national and international scale exhibitions. For 2018, the Partnership Program funds that have been distributed by Telkom are Rp279.98 billion to 7,498 Foster Partners consisting of industry, trading, agriculture, farming, plantation, fishery, service, and other sectors. The following are data on the realization of the number of Foster Partners and fund disbursements per business sector from 2016 to 2018. No Business Sector 1 2 3 4 5 6 7 8 Industry Trading Agriculture Farming Plantation Fishery Service Others Sub Total Fostering Partnership Fund Total CAGR (%) Number of Foster Partners Total Disbursements (Rp billion) 2018 2017 2016 2018 2017 2016 1,699 1,683 1,784 53.86 53.92 60.92 4,028 4,592 6,371 134.39 144.56 203.48 125 216 80 146 120 237 121 199 200 351 201 276 4.17 8.20 2.71 4.78 4.37 8.56 3.46 6.48 7.18 13.29 5.40 7.97 1,184 1,404 1,751 43.06 47.80 61.52 20 11 22 0.77 0.43 1.16 7,498 8,367 10,956 251.99 269.58 360.92 27.99 38.03 0 279.98 307.61 360.92 (10.40) (23.63) (8.56) (8.98) (14.77) 4.02 The number of recipients of the Partnership Program funds in 2018 decreased by 10.4% compared to 2017, while the amount of funds distributed in 2018 has a decrease of 8.98%. This is because there is no additional agreement on budget allocations from the Ministry of BUMN. Foster Partners Capacity Building In 2018, Telkom increased the capacity of fostered partners with three main activities, namely digitizing the management of partnership programs, digital training for fostered partners and involving fostered partners at national and international scale exhibitions. Partnership Program Management Digitalization Telkom has used digital technology to manage Partnership Program fostered partners’ data by implementing PKBL management information system (SIM) since 2007. Then, in 2016 Telkom implemented a Partnership Program fund loan submission service through the SmartBisnis web, installment payments through a bank virtual account, Mandiri Bank and BNI Bank. In 2017, the installment payment through virtual accounts was expanded in collaboration with its subsidiary, PT Finnet Indonesia as a non-bank payment point aggregator, as well as PT Pos Indonesia, PT Pegadaian, Alfamart, and Indomaret, in order to facilitate the Foster Partners in making installment payments. Furthermore, Telkom also innovates on Smart Survey and SMS Reminder in 2018. 234 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Micro and Small Enterprises (MSE) Digitalization Training Since 2015, Telkom has provided training and digital seminars to Foster Partners to promote and market their products by utilizing the facilities of the BLANJA.com website. In 2018, these training were given to 1,038 MSB. National and International Exhibitions Telkom consistently encourages Foster Partners to take part in national and international exhibitions. This is also one of Telkom’s strategies to increase the capacity of the Foster Partners. In 2018, The exhibition that followed, among others Telkom Craft Indonesia, was a part of Rumah Kreatif BUMN. This exhibition was participated by 400 Leading Foster Partners and it was Telkom’s improvement to improve the capacity of Foster Partners. Furthermore, the other exhibitions were Adiwastra Exhibition, Kriyanusa Exhibition, and international scale exhibition namely Indonesia Creative Product Festival (ICPF) in Malaysia. The exhibitions were participated by 5 leading fostered partners. The other activities were followed such as Exhibition Trade Expo Indonesia (TEI), Indonesia Pavillion at the World Bank Event in Bali, and the MSB exhibition event organized by the Local Government. Telkom Craft Indonesia 2018 at Jakarta Convention Center. 235 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Community Development Program The Community Development Program includes seven Donation Type, such as natural disaster victims donation, education donation, healthcare improvement donation, improvement for infrastructure and/or public facility donation, places of worship donation, nature conservation donation, and civil society in order for poverty alleviation donation. The donation is part of the BUMN Hadir Untuk Negeri Program. In 2018, the actual distribution of funds for the Community Development Program amounted to Rp105.88 billion or 100.84% of fund disbursement commitment of Rp105.00 billion. The following table shows the distribution of funds for the Community Development Program per donation type from 2016 until 2018. No Donation Type 1 2 3 4 5 6 7 8 Natural disaster victims donation Education donation Healthcare improvement donation Improvement for infrastructure and/or public facility donation Places of worship donation Nature conservation donation Civil society in order for poverty alleviation donation Capacity improvement donation to foster partners Total CAGR (%) Total Donation Objects Total Disbursements (Rp billion) 2018 2017 2016 2018 2017 2016 44 346 125 328 408 13 101 0 20 392 113 311 395 18 86 0 20 492 154 4.69 0.69 0.94 31.50 25.08 35.68 6.16 4.78 10.42 221 22.47 11.85 13.37 382 15.93 10.21 10.62 30 22 115 0.29 1.10 24.84 28.26 0.91 1.64 0 0 8.39 1,365 1,335 1,436 105.88 81.97 81.97 0.70 (7.03) 64.11 29.17 0 13.20 Natural Disaster Victims Donation In 2018, Telkom provides disaster assistance such as donation for of earthquake natural disasters in Lombok and Palu and tsunami in Banten. Healthcare Improvement Donation Public health is Telkom’s concern in 2018, including through the Disability Care program that has been ongoing since 2016. The implementation of the Disability Care program in 2018 is The Gantari Award Program which collaboration with Kick Andy Foundation, donated to people with disabilities consist of 1,000 artificial eyes, 188 artificial legs, and hearing aids. Education Donation As a form of commitment to the nation’s children, Telkom is active in improving the quality of education, particularly related to the development of Indonesian digital technology competencies, which are packaged in the Indonesia Digital Learning program, including providing Digital Library (PaDi) and My Teacher My Hero Programs. As of 2018, Telkom has provided as many as 5,843 PaDi, holding digital training for teachers in the My Teacher My Hero Program as many as 1,027 teachers. In addition, Telkom also maintains local wisdom and national cultural values towards the young generation through the Telkom Cultural Care program held in Jakarta. 236 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportProviding Assistance to Disabilities in the 2018 Gantari Award Program. Improvement for Infrastructure and/or Public Facility Donation The goal of implementing this program is to improve services to the community in facilities and infrastructure. This program is expected to be able to increase community accessibility in activities, facilitating activities that can be carried out with build 28 suspension bridges in difficult access areas, making drill wells in Wotan Ulu Mado District, Cash for Work Program in the form of road casting in Gunung Kidul Regency. Places of Worship Donation Telkom improves the quality of public services to the community, especially in terms of increasing public access to utilize public facilities and infrastructure. The activities carried out throughout 2018 were construction, renovation, assistance with facilities for houses of worship including the construction of the mosque, church and other places of worship. Nature Conservation Donation The donation program for Nature Conservation is part of the Telkom’s commitment to the environment. The Nature Conservation Program includes mangrove cultivation in Banten and Rhino Conservation in Lampung and West Kalimantan. Poverty Alleviation Donation Through Civil Society in Order for Poverty Alleviation Donation, Telkom hopes to improve the lives of pauper society both in urban and rural areas. The Civil Society in Order for Poverty Alleviation Donation provided in 2018 included retirement and community home renovation that reach 164 beneficiaries and installation of electricity for poor people in Bantarjati Bogor, West Java. 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 TelkomGroup (Telkomers) in the scope of individuals, business units, and employee communities within the TelkomGroup. In 2018, as many as 3,887 Telkom employees have participated in EVP. 237 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights12345678908 APPENDICES 240 242 Appendix 1: Board of Commisioners’ Agenda and Attendance Internal Meetings Appendix 2: Board of Commisioners’ Agenda and Attendance at Joint Meeting 243 Appendix 3: Board of Directors’ Agenda and Attendance at Joint Meeting 244 Appendix 4: Board of Directors’ Agenda and Attendance Internal Meetings 248 252 255 Appendix 5: Glossary Appendix 6: List of Abbreviations Appendix 7: Circular Letter to Financial Services Authority No.30/SEOJK.04/2016 Cross Reference 238 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report Telkom develops the Smart Mosque at Al-Istiqamah Mosque which is equipped with various digital technology facilities such as interactive online media sharing through video conferencing, live streaming da’wah, Digital Library and cashless infaq facilities. 239 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789APPENDIX 1: BOARD OF COMMISIONERS’ AGENDA AND ATTENDANCE AT INTERNAL MEETINGS 2. Extention for Mr. S. Mietra Sardi (Komite √ √ N/A N/A √ Audit Member) 3. PT Telkomsel Business Development Commissioners’ Attendance HS RF EHA (1) IR (1) MGD CA PJW HD (2) DOFP (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 √ √ √ - - - - - - - - - No Date Agenda 1. January 24, 2018 Proper Test and Feasibility of Prospective Candidates for the Main Director of a Subsidiary 2. February 3, 2018 1. Discussion of Candidate Submissions to Series A Dwiwarna Shareholders 2. Strategic Update Project 3. February 7, 2018 1. Strategic Project Discussion 2. Strategic Final Project Agreement Discussion 4. February 21, 2018 1. BPJS Ketenagakerjaan for Board of Commissioners 5. March 13, 2018 1. Strategic Fit Agrement Discussion 2. Extention for Ms. Sri Hartati Rahayu (KEMPR’s meeting) 3. Miscellaneous 6. March 26, 2018 1. Article of Association PT Telkom Indonesia, Tbk Amendnt 2. Proposed KBM Facilities for Directors 7. April 11, 2018 1. Article of Association PT Telkom Indonesia, Tbk Amendement 8. April 18, 2018 2. Proposals Directors 1. Proposals Directors for Prospective Telkom’s for Prospective Telkom’s 2. Proposal for Management Remuneration 2018 (by Hay Group Consultant) 3. Determination of the Chairperson of the 2018 GMS 9. April 24, 2018 1. Acting Proposal Director of the Consumer Service 2. Update on Proposal to Telkom’s Articles of Association Amendment 10. May 2, 2018 1. Proposed Amendment to the Committee Membership Arrangement 2. Remuneration proposal 1. Strategic Project Submission 2. Discussion of the Threshold Proposal on Article 12 Paragraph 7 of Telkom’s Articles of Association 1. Vehicle Facilities Board of Directors 2. Proposed Addition of Secretariat Staff and KEMPR Members 1. Strategic Strategic Fit Project Discussion 2. Discussion of Capex Phase 2 Release √ √ √ √ √ N/A N/A √ - √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ N/A √ N/A √ N/A √ N/A - - - - Agreement √ √ √ √ 3. Submission of Draft Board Manual 4. Others: Commissioner Telkomsel 1. Strategic Fit Approval and Final Approval to of Telkom’s Equity Participation Telkomsat 2. Strategic Fit Changes in Equity Injection Allocation for Subsidiaries 3. Capex Phase 2 Release Agreement and Additional Capex Discussion 4. Remuneration √ √ √ - √ √ √ N/A - 11. May 7, 2018 12. May 30, 2018 13. June 8, 2018 14. July 3, 2018 240 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo Date Agenda 15. July 16, 2018 1. Submission of Local Capital Market Commissioners’ Attendance HS RF EHA (1) IR (1) MGD CA PJW HD (2) DOFP (3) Instrument 2. Discussion of the Initial CSS Draft 2019- 2023 √ √ √ - 3. Remuneration 4. Others: Resignation of Mr. Dolfie OFP from Independent Commissioner 16. 17. 18. 19. July 30, 2018 Discussion of the CSS Final Draft 2019-2023 August 10, 2018 Agreement on Principles for Issuance of MTN August 27, 2018 Validation of CSS 2019-2023 September 6, 2018 Follow up on Amendments to Articles of Association of TelkomGroup Subsidiary 20. October 4, 2018 Application for Strategic Fit Project Strategic Approval 21. October 16, 2018 1. Application for Strategic Fit Project Strategic Approval 2. Remuneration 22. November 1, 2018 Request for Final Approval of Strategic Projects 23. November 9, 2018 1. Application for Strategic Fit Project Strategic Approval 2. Vehicle Facilities Board of Directors 24. November 15, 1. Request for Final Approval of Strategic 2018 Projects 2. Approval of Proposal for Write-Off of Uncollectible Receivables in 2018 3. Discussion on the Preliminary Draft of the Proposed RKAP in 2019 √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ 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 25. November 19, 1. Strategic Discussion of Fit Release of 2018 Subsidiary’s shares 2. Discussion of Initial Draft Proposal for 2019 RKAP 26. November 29, Strategic Strategic Fit Project Final Approval 2018 27. December 5, 2018 1. Request for Approval of the 2019 RKAP Proposal 2. Request for Strategic Approval Fit for the majority of the Company’s Subsidiary Sales √ √ √ - √ √ √ √ √ 28. December 20, 2018 1. Request for Approval of Capital Participation of TelkomGroup Subsidiary √ √ - 2. Miscellaneous Total Attendances Total Meetings Board of Commissioners’Attendance Level (%) 23 28 82 17 19 89 - √ - - 8 19 42 √ √ √ √ √ √ √ √ √ √ N/A N/A N/A N/A √ N/A N/A √ N/A N/A 28 28 28 28 28 28 2 9 100 100 100 22 1 19 5 Remarks: HS (Hendri Saparini), RF (Rinaldi Firmansyah), EHA (Edwin Hidayat Abdullah), IR (Isa Rachmatarwata), MGD (Margiyono Darsasumarja), CA (Cahyana Ahmadjayadi, PJW (Pamiyati Pamela Johanna Waluyo), HD (Hadiyanto), dan DOFP (Dolfie Othniel Fredric Palit). (1) Since the AGMS on April 27, 2018 (2) Until AGMS on April 27, 2018 (3) Until AGMS on September 28, 2018 241 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789APPENDIX 2: BOARD OF COMMISIONERS’ AGENDA AND ATTENDANCE AT JOINT MEETINGS No. Date Agenda HS RF EHA (1) IR (1) MGD CA PJW HD (2) DOFP (3) Commissioners’ Attendance January 30, 2018 Company Performance in December 2017 1. 2. 3. February 21, 2018 March 21, 2018 √ √ √ √ N/A N/A N/A N/A √ √ √ √ √ √ √ √ N/A N/A √ √ √ - - - 2. 2017 Key Performance Indicator √ √ N/A N/A √ Company Performance in January 2018 1. Company’s performance in February 2018 2. 2017 Annual Integrated Audit Completion Report 3. Report on GMS Preparation for 2018 1. Company Performance Month March 2018 (KPI) 3. Others: AGMS Agenda Company Performance Month April 2018 1. Company Performance Month May 2018 2. Explanation of the Additional Capital to TelkomGroup Subsidiary 1. Company Performance Month June 2018 2. Submission of Final CSS Draft 2019-2023 Company Performance Month July 2018 Company Performance Month August 2018 Company Performance Month September 2018 4. April 25, 2018 5. 6. May 30, 2018 June 28, 2018 7. July 30, 2018 8. 9. August 23, 2018 September 25, 2018 10. October 25, 2018 11. November 21, 2018 1. Company Performance Month October 2018 12. December 7, 2018 2. Annual RKAP proposal 2019 Company Performance Month October 2018 13. December 20, 2018 Annual RKAP proposal 2019 √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ - √ √ - - - √ 4 9 √ √ √ √ - √ - √ - 6 9 - - - - - - - - - √ - √ 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 0 4 0 0 9 0 √ √ √ √ √ √ √ √ √ √ Total Attendances Total Meetings Board of Commissioners’ Level Attendances (%) 13 13 100 12 13 92 13 13 13 13 13 13 44 69 100 100 100 Remarks: HS (Hendri Saparini), RF (Rinaldi Firmansyah), EHA (Edwin Hidayat Abdullah), IR (Isa Rachmatarwata), MGD (Margiyono Darsasumarja), CA (Cahyana Ahmadjayadi, PJW (Pamiyati Pamela Johanna Waluyo), HD (Hadiyanto), dan DOFP (Dolfie Othniel Fredric Palit). (1) Since the AGMS on April 27, 2018 (2) Until AGMS on April 27, 2018 (3) Until AGMS on September 28, 2018 242 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportAPPENDIX 3: BOARD OF DIRECTORS’ AGENDA AND ATTENDANCE AT JOINT MEETINGS Directors’ Attendance PD AJS KEU HMZ DSP EBIS WINS HCM NITS CONS DB DR ASA HRH ZA SC(1) MK(2) No. Date Agenda 1. 2. 3. January 30, 2018 Company Performance in December 2017 February 21, 2018 Company Performance in January 2018 March 21, 2018 1. Company’s performance in February 2018 2. 2017 Annual Integrated Audit Completion Report 3. Report on GMS Preparation for 2018 4. April 25, 2018 1. Company Performance Month March 2018 2. 2017 Key Performance Indicator (KPI) 3. Others: AGMS Agenda 5. 6. May 30, 2018 Company Performance Month April 2018 June 28, 2018 1. Company Performance Month May 2018 2. Explanation of the Additional Capital to TelkomGroup Subsidiary 7. July 30, 2018 1. Company Performance Month June 2018 2. Submission of Final CSS Draft 2019-2023 8. 9. 10. 11. 12. 13. August 23, 2018 Company Performance Month July 2018 September 25, 2018 Company Performance Month August 2018 October 25, 2018 Company Performance Month September 2018 November 21, 2018 1. Company Performance Month October 2018 2. Annual RKAP proposal 2019 December 7, 2018 Company Performance Month October 2018 December 20, 2018 Annual RKAP proposal 2019 √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ - - √ √ √ √ - √ √ √ √ N/A N/A √ √ √ N/A √ √ √ √ - √ √ √ √ √ √ √** N/A N/A N/A N/A N/A N/A N/A N/A N/A 3 3 √ √ √ √ √ √ √ √ - 8 9 89 100 Total Attendances Total Meetings Board of Directors’ Attendance Level (%) 12 13 92 13 13 13 13 100 100 12 13 92 12 13 92 10 13 77 12 13 92 Remarks: PD (President Director), KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), CONS (Consumer Service), dan NITS (Network, IT, & Solution). AJS (Alex Janangkih Sinaga), HMZ (Harry Mozarta Zen), DB (David Bangun), DR (Dian Rachmawan), ASA (Abdus Somad Arief), HRH (Herdy Rosadi Harman), ZA (Zulhelfi Abidin), SC (Siti Choiriana), dan MK (Mas’ud Khamid). ** The position of Director of Consumer Service was temporarily held by the Director of WINS (ASA) (1) Up to April 20, 2018 (2) Since AGMS on April 27, 2018 243 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789APPENDIX 4: BOARD OF DIRECTORS’ AGENDA AND ATTENDANCE AT INTERNAL MEETINGS No. Date Agenda PD KEU DSP EBIS WINS HCM NITS CONS AJS HMZ DB DR ASA HRH ZA SC(1) MK(2) Directors’ Attendance January 3, 2018 January 9, 2018 Operational & Revenue MtD December 2017 Performance Report 1. Operational & Revenue YtD December 2017 Performance Report 1. 2. 3. 4. 5. 6. 7. 8 9. January 16, 2018 January 22, 2018 January 23, 2018 January 30, 2018 February 6, 2018 February 9, 2018 February 13, 2018 10. 11. February 16, 2018 February 20, 2018 12. February 27, 2018 2. NARU 2017/2018 Implementation Report 3. Telkom Click 2018 Preparation Report 4. Limited Agenda Report 1. Operational & Revenue MtD January 2018 Performance Report 2. Limited Agenda Report Limited Agenda Report 1. Operational & Revenue MtD January 2018 Performance Report 2. Limited Agenda Report 1. Operational & Revenue MtD January 2018 Performance Report 2. FU HCM Report 3. Limited Agenda Report 1. Operational & Revenue MtD January 2018 Performance Report 2. Limited Agenda Report Limited Agenda Report 1. Operational & Revenue MtD February 2018 Performance Report 2. SMPCS Handling Disorders Progress Report 3. Limited Agenda Report Limited Agenda Report 1. Operational & Revenue MtD February 2018 Performance Report 2. 2018 Customer Experience Report 3. Limited Agenda Report 1. Operational & Revenue MtD February 2018 Performance Report 2. FU HCM Report 3. Limited Agenda Report 13. March 6, 2018 1. Operational & Revenue YtD February 2018 Performance 14. 15. 16. 17. March 13, 2018 March 15, 2018 March 20, 2018 March 27, 2018 Report 2. Limited Agenda Report Limited Agenda Report 1. Operational & Revenue MtD March 2018 Performance Report 2. TelkomCraft Indonesia Preparation Report 3. Limited Agenda Report 1. Operational & Revenue MtD March 2018 Performance Report 2. Limited Agenda Report 1. Operational & Revenue MtD March 2018 Performance Report 2. Limited Agenda Report 18. April 3, 2018 1. Operational & Revenue MtD March 2018 Performance Report 2. Limited Agenda Report 19. April 10, 2018 1. Operational & Revenue YtD March 2018 & MtD April 2018 Performance Report 2. Limited Agenda Report 244 - √ √ √ - √ √ √ √ √ √ √ - √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ - - √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ - √ √ √ √ - - √ - - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ - √ √ √ √ - √ √ √ √ - - √ √ √ √ √ √ √ √ √ √ √ - √ √ 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 N/A N/A N/A √ √ √ √ √ √ - - √ √ √ √ √ √ √ √ √ √ √ PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Date Agenda PD KEU DSP EBIS WINS HCM NITS CONS AJS HMZ DB DR ASA HRH ZA SC(1) MK(2) Directors’ Attendance 20. April 17, 2018 1. Operational & Revenue MtD April 2018 Performance Report 2. FU HCM Report 3. Updated RAPIM TelkomGroup I in 2018 Implementation 21. 22. Plan 4. Limited Agenda Report April 20, 2018 Limited Agenda Report April 24, 2018 1. Operational & Revenue MtD April 2018 Performance Report 2. Limited Agenda Report 23. May 2, 2018 1. Operational & Revenue MtD April 2018 Performance √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ N/A N/A √ - N/A N/A Report 2. Launching Update Indonesia Digital Learning Preparation √ √ √ √ √ √ √ √ N/A 3. RAPIM TelkomGroup I 2018 Theme Update 4. Limited Agenda Report 24. May 15, 2018 1. Operational & Revenue YtD April 2018 & MtD Mei 2018 Performance Report 2. TelkomGroup Siaga RaFi 2018 & HUT Telkom – 53 √ √ Rundown Event Update 3. Limited Agenda Report 25. May 22, 2018 1. Operational & Revenue MtD May 2018 Performance Report 2. Limited Agenda Report 26. May 30, 2018 1. Operational & Revenue MtD May 2018 Performance Report 2. Limited Agenda Report √ √ 27. June 5, 2018 1. Operational & Revenue YtD May 2018 Performance Report 2. Mudik Bareng BUMN, Halal Bi Halal TelkomGroup, HUT √ √ √ √ Telkom ke-53 Update 3. Limited Agenda Report 28. June 26, 2018 1. Operational & Revenue MtD June 2018 Performance Report √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ N/A N/A N/A N/A 2. Halal Bi Halal TelkomGroup 2018 Event Update - √ √ √ √ √ √ √ N/A √ √ √ √ √ - √ √ N/A 3. Limited Agenda Report 29. July 3, 2018 1. Operational & Revenue MtD June 2018 Performance Report 2. HUT Telkom ke-53 Rundown Event Update and Merah Putih Satellite Launching 3. FU HCM Report 4. Limited Agenda Report 30. July 10, 2018 1. Operational & Revenue YtD June & MtD July 2018 Performance Report 2. RAPIM TelkomGroup II 2018 Scenario Update 3. Portfolio Evaluation Q1Y18 Update 4. Limited Agenda Report 31. 32. July 17, 2018 Limited Agenda Report July 18, 2018 Launch Preparation of Merah Putih Satellite Program Update 33. July 24, 2018 1. Operational & Revenue MtD July 2018 Performance Report 2. BUMN Hadir Untuk Negeri Program Update √ √ √ √ √ √ √ √ √ √ √ √ 3. Experience Center Progress Update √ √ - - 4. Project Telkom Update for SOE Investment Forum 5. Limited Agenda Report √ √ √ √ - √ √ √ √ √ √ √ √ N/A N/A N/A √ - √ N/A 245 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Date Agenda PD KEU DSP EBIS WINS HCM NITS CONS AJS HMZ DB DR ASA HRH ZA SC(1) MK(2) Directors’ Attendance 34. July 31, 2018 1. Operational & Revenue MtD July 2018 Performance Report 2. Digital Grapari TelkomGroup GMP Building Update 3. Experience Center Progress Report 4. Limited Agenda Report 35. August 7, 2018 1. Update Live Streaming Events Launch of Telkom Merah Putih Satellite √ √ √ √ √ √ √ N/A - 2. Operational & Revenue YtD July 2018 Performance - √ √ √ - √ √ N/A - Report 3. Limited Agenda Report 36. August 14, 2018 1. Operational & Revenue YtD July & MtD August 2018 Performance Report √ √ √ √ √ √ - N/A √ 2. BUMN Hadir Untuk Negeri Progress Report and ASIAN Games 2018 Implementation Readiness 3. Telkom Digital Experience Progress Update 4. Limited Agenda Report 1. Operational & Revenue MtD August 2018 Performance Report 2. FU HCM Report 3. Limited Agenda Report 1. Launching TLT Progress Report 37. August 21, 2018 38. August 23, 2018 2. Material Update Joint Meeting: Company Performance July 2018 3. Limited Agenda Report √ √ √ √ 39. August 28, 2018 1. Operational & Revenue MtD August 2018 Performance Report 2. Q2 2018 Company Performance Report 3. Limited Agenda Report 1. Operational & Revenue MtD August 2018 Performance √ √ √ √ 40. September 4, 2018 √ √ √ √ √ √ √ √ √ √ √ N/A √ √ N/A √ √ N/A √ Report 2. TDX Progress Report 3. FU HCM Report 4. Limited Agenda Report √ - √ √ - √ √ N/A √ 41. September 12, 2018 1. Operational & Revenue YtD Agustus & MtD September 2018 Performance Report 2. The Telkom Hub Launching Readiness Progress Report √ √ √ √ √ √ √ N/A √ 42. September 18, 2018 3. Limited Agenda Report 1. Operational & Revenue MtD September 2018 Performance Report 2. Limited Agenda Report 3. The Telkom Hub Launching Readiness Progress Report 43. September 25, 2018 1. Operational & Revenue MtD September 2018 Performance Report 2. IBD Expo 2018 Readiness Report FU HCM Report 3. Telkom Supported in IMF-WB Annual Summit 2018 Readiness Report 4. The Telkom Hub Grand Launching Readiness Report 5. CAM 2019 Update and RAPIM TelkomGroup III-2018 Theme 6. Limited Agenda Report Limited Agenda Report 44. October 5, 2018 246 √ √ √ √ √ √ √ N/A √ √ √ √ √ √ √ √ N/A √ √ √ √ √ √ √ √ N/A √ PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Date Agenda PD KEU DSP EBIS WINS HCM NITS CONS AJS HMZ DB DR ASA HRH ZA SC(1) MK(2) Directors’ Attendance 45. 46. 47. 48. 49. October 10, 2018 October 16, 2018 October 22, 2018 October 24, 2018 October 30, 2018 50. November 6, 2018 51. 52. 53. 54. 55. 56. 57. November 13, 2018 November 14, 2018 November 19, 2018 November 21, 2018 November 27, 2018 December 4, 2018 December 11, 2018 1. Operational & Revenue YtD September and MtD October 2018 Performance Report 2. Limited Agenda Report 1. Operational & Revenue YtD September and MtD October 2018 Performance Report 2. The Telkom Hub Grand Launching Readiness Report 3. Limited Agenda Report Limited Agenda Report Limited Agenda Report √ √ √ √ √ √ √ √ 1. Operational & Revenue MtD October 2018 Performance Report 2. FU HCM Report 3. The Telkom Hub Grand Launching Readiness Report √ √ 4. Limited Agenda Report 1. Operational & Revenue YtD October 2018 Performance Report 2. FU HCM Report 3. Limited Agenda Report 1. Operational & Revenue MtD November 2018 Performance Report 2. Limited Agenda Report Limited Agenda Report Limited Agenda Report 1. Operational & Revenue MtD November 2018 Performance Report 2. FU HCM Report 3. Limited Agenda Report 1. Operational & Revenue MtD November 2018 Performance Report 2. Limited Agenda Report 1. Operational & Revenue YtD November 2018 Performance Report 2. Limited Agenda Report 1. Operational & Revenue MtD December 2018 Performance Report 2. Limited Agenda Report √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ - √ √ √ √ √ √ √ √ - √ √ √ √ 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 √ √ √ √ √ √ √ √ 58. December 18, 2018 1. Operational & Revenue MtD December 2018 Performance Report 2. TelkomClick 2019, TelkomGroup 2019 Logo & Corporate Theme Readiness Report 3. FU HCM Report 4. Limited Agenda Report 59. December 27, 2018 Operational & Revenue MtD December 2018 Performance Report Total Attendances Total Meetings Board of Directors’ Attendance Level (%) √ √ √ √ √ √ √ N/A √ - 53 59 90 √ 56 59 95 - 54 59 92 √ 55 59 93 √ 51 59 86 - 51 59 86 √ 36 37 97 N/A 18 21 86 √ 52 59 88 Remarks: PD (President Director), KEU (Finance), DSP (Digital & Strategic Portfolio), EBIS (Enterprise & Business Service), WINS (Wholesale and International Service), HCM (Human Capital Management), CONS (Consumer Service), dan NITS (Network, IT, & Solution). AJS (Alex Janangkih Sinaga), HMZ (Harry Mozarta Zen), DB (David Bangun), DR (Dian Rachmawan), ASA (Abdus Somad Arief), HRH (Herdy Rosadi Harman), ZA (Zulhelfi Abidin), SC (Siti Choiriana), dan MK (Mas’ud Khamid). (1) Since AGMS on April 27, 2018 (2) Up to April 20, 2018 247 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Bandwidth The capacity of a communication link. Bapepam-LK Badan Pengawas Pasar Modal dan Lembaga Keuangan, or the Indonesian Capital Market and Financial Institution Supervisory Agency, the predecessor to the OJK. 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. BTS transmits Base Transceiver Station, equipment and receives radio telephony signals to and from other telecommunication systems. that C-Band is a frequency allocation for communications C-Band satellites. C-Band uses 3.7-4.2GHz for downlink and 5.925- 6.425Ghz for uplink. The lower frequencies that C Band uses perform better under adverse weather conditions than the Ku band or Ka band frequencies. Consortium Co-financing a project or enterprise undertaken by two or more banks or financial institutions. 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 operator and located on the customer premises. Cyber Attack A cyber attack is deliberate of exploitation of computer systems, technology-dependent enterprises, and networks. Cyber attacks use malicious code to alter computer code, logic or data, resulting in disruptive consequences that can compromise data and lead to cyber crimes, such as information and identity theft. APPENDIX 5: GLOSSARY 2G The abbreviation for second generation: relating to or using a technology that gave mobile phone users improved features and allowed people to send text messages (SMS). for term generic 3G generation mobile The 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. third 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. ADS American Depositary Share (also known as an American Depositary Receipt, or an “ADR”), a certificate traded on a U.S. securities market (such as New York Stock Exchange) representing a number of foreign shares. Each of our ADS represents 200 of our Series B shares having a par value of Rp50 per share (“common stock”). ARPU Average Revenue per User, a measure used primarily by telecommunications and networking companies which states how much money we make from the average user. It is defined as the total revenue from specified services divided by the number of consumers for those services. Backbone The main telecommunications network consists of transmission and switching facilities that connect multiple network access nodes. The transmission network between node and switching facilities includes microwaves, submarine cables, satellites, optical fibers, and other transmission technologies. Balanced Scorecard One of the tools used by managers to measure the performance of a business seen from four perspectives. The four perspectives consist of a financial perspective, a customer perspective, an internal business process perspective, and a growth and learning perspective. 248 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Reporte-Commerce Electronic Commerce, the buying and selling of products or services over electronic systems such as the internet and other computer networks. GMS General Meeting of Shareholders, which may be an Annual General Meeting of Shareholders (“AGMS”) or an Extraordinary General Meeting of Shareholders (“EGMS”). EBITDA Adjusted EBITDA is defined as earnings before interest, tax, depreciation and amortization. Adjusted EBITDA and other related ratios in this Annual Report serve as additional indicators on our performance and liquidity, which is a non- GAAP financial measure. 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. Edutainment Education and Entertainment. e-Procurement electronic procurement, the process of procuring goods and services carried out online. Fiber Optic Cables using optical fiber and laser technology through which modulating light beams representing data are transmitted through thin filaments of glass. 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. Gateway A peripheral that bridges a packet based network (IP) and a circuit based network (PSTN). GraPARI Telkomsel service network. GSM Global System for Mobile Telecommunication, a European standard for digital cellular telephone. Home passed A connection with access to fixed line voice, IPTV and broadband services. ICT Platform An abbreviation of information and communications ICT platform services consist of technology platform. enterprise connectivity, IT services, data center and cloud services, business process outsourcing, device & hardware sales and services. Insider Trading The trading of a public company’s stock or other securities (such as bonds or stock options) by individuals with access to nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal. Gbps Gigabyte per second, the average number of bits, characters, or blocks per unit time passing between equipment in a data transmission system. This is typically measured in multiples of the unit bit per second or byte per second. 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. 249 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Interconnection The physical linking of a carrier’s network with equipment or facilities not belonging to that network. MHz Megahertz, a unit of measure of frequency equal to one million cycles per second. IP Internet Protocol, the method or protocol by which data is sent from one computer to another on the internet. Mobile Broadband The marketing term for wireless internet access through a portable modem, mobile phone, USB Wireless Modem or other mobile devices. IPO Initial Public Offering, the first sale of stock by a Company to the 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. Ku-Band The Kurtz-under band (Ku band) is a frequency range or segment of the radio spectrum 11-17GHz. This range is often used for satellite communications, including VSAT, and some types of satellite antennas. Network Access Point A public network exchange facility where ISPs connected with one another in peering arrangements. OJK Otoritas Jasa Keuangan, or the 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. PSA 62 Audit Standard Statement No. 62 (PSA 62) is a statement issued by the Indonesian Accounting Association which states that in conducting audits of financial statements of government entities or other recipients of government financial assistance which conducts stock offers through the capital market, auditors must comply with the provisions of the Capital Market Law. Market Cap Market cap (market capitalization) is the market value of a publicly traded company’s outstanding shares. PSTN Public Switched Telephone Network, a telephone network operated and maintained by us and the KSO Units for us and on our behalf. 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 different locations. RMJ Regional Metro Junction, an installation service in one regional (region/province). inter-city cable network 250 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportSatellite Transponder Radio relay equipment embedded in a satellite that receives signals from earth and amplifies and transmits the signal back to the earth. Stock split Splitting the number of shares becoming more shares using lower value per share. SCCS Submarine Communications Cable System, a cable laid on the sea bed between land-based stations to carry telecommunication signals across stretches of ocean. Switching A mechanical, electrical or electronic device that opens or closes circuits, completes or breaks an electrical path, or selects paths or circuits, used to route traffic in a telecommunications network. SIM cards Subscriber Identity Module card is a stamp-sized smart card placed on a mobile phone that holds the key to the telecommunication service. TIMES Telecommunication, and Service. Information, Media, Edutainment SMS Short Messaging Service, a technology allowing the exchange of text messages between mobile phones and between fixed wireless phones. TPE A normalized way to refer to transponder bandwidth it simple means how many transponders would be used if the same total bandwidths used only 36 Mt transponder (1 TPE = 36 MHz). 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. SOE State-Owned Enterprise (Badan Usaha Milik Negara/BUMN) is a government-owned company, state-owned company, state-owned entity, state-owned company, public-owned company, or parastatal which is a legal entity formed by the Government to conduct commercial activities on behalf of the Government as the owner. SOX Section 404 SOX Section 404 (Sarbanes-Oxley Act Section 404) mandates that all publicly-traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. Treasury Stock Company’s share that has been buy back from the outstanding share temporarily. UMTS Universal Mobile Telephone System, one of the 3G mobile systems being developed within the ITU’s IMT2000 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. Whistleblower The term for employees, former employees or workers, members of institutions or organizations who report actions that are considered to violate the regulation to the authorities. 251 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789APPENDIX 6: LIST OF ABBREVIATIONS Keyword Descripstions Keyword Descripstions CONS CORE COSO CPO CSI CSR CSS DER DMCS DR DRP DS DSAK DSP DWDM EBIS Consumer Service Center of Reformation Committee of Sponsoring Organizations of the Treadway Commission Crude Palm Oil Customer Satisfaction Index Corporate Social Responsibility Corporate Strategic Scenario Debt-To-Equity Ratio Dumai-Malacca Cable System Deposite Receipt Disaster Recovery Plan Depositary Shares Dewan Standar Akuntansi Keuangan or Board of Financial Accounting Standard Digital & Strategic Portfolio Dense Wavelength Division Multiplexing Enterprise & Business Service Edutainment Education and Entertainment EDGE Enhanced Data Rates for GSM Evolution EMSHUB Employee Shuttle Bus ERM ESOP EVP EY Enterprise Risk Management Employee Stock Ownership Program Employee Volunteer Program Ernst & Young FRAMES Fraud Management System FO FU GCG GGSN GHz GSD GTG GTT Harbolnas HCM HIS HKI Fiber Optic Functional Unit Good Corporate Governance Gateway GPRS Support Node Gigahertz Graha Sarana Duta GraPARI TelkomGroup Go-Jek, Tokopedia, and Traveloka Hari Belanja Online Nasional or Nation Online Shopping Day Human Capital Management High Speed Internet Hak Kekayaan Intelektual or Intellectual Property Rights A&A AAG AC AO APJI APSAT ASEAN ATL ATM AUP B2B B3 BAKTI BATIC BCM BCP Alliance & Acqusition Asia-America Gateway Air Conditioner Application Owner Asosiasi Penyelenggara Jasa Internet or Internet Service Provider Association Asia Pasific Satellite System Association of Southeast Asian Nations Above The Line Anjungan Tunai Mandiri Agreed Upon Procedure Bussiness to Bussiness Bahan Berbahaya dan Beracun or Hazardous and Toxic Substances Badan Aksesibilitas Telekomunikasi dan Informasi or Telecommunication and Information Accessibility Agency Bali Annual Telkom International Conferences Business Continuity Management Business Continuity Plan BEI / IDX Bursa Efek Indonesia atau Indonesia Stock Exchange Board of Commisioners Board of Directors Badan Penyelenggara Jaminan Sosial or Social Insurance Administration Organization Business Process Outsourcing Biro Pusat Statistik Batam-Singapore Cable System Below The Line Compound Annual Growth Rate Capital Expenditure Community Development Center Customer Dissatisfaction Index Content Delivery Networks Chief Executive Officer Chief Financial Officer Customer Facing Unit Customer Loyalty Index Calendar of Event BOC BOD BPJS BPO BPS BSCS BTL CAGR CAPEX CDC CDI CDN CEO CFO CFU CLI COE 252 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportKeyword Descripstions Keyword Descripstions HR HRM HSDPA IA IAS ICOFR ICPF IDN IFRS IGG IICD IMS IoT IPLC ISAK ISO IT Human Research Human Resource Management High Speed Downlink Packet Access Internal Audit International Accounting Standards Internal Control Over Financial Reporting Indonesia Creative Product Fetival Indonesian Digital Network International Financial Reporting Standard Indonesia Global Gateway Indonesian Institute for Corporate Directorship Integrated Management System Internet of Things International Data Center or International Connectivity Interpretasi Standar Akuntansi Keuangan or Interpretation of Statements of Financial Accounting Standards International Organization for Standardization Information Technology JaKaLaDeMa Jawa Kalimantan Sulawesi Denpasar Mataram Jo. KAP KEMPR KEU KIPAS KM KNR KOWANI KPEI Juncto Kantor Akuntan Publik or Public Accountant Firm Komite Evaluasi dan Monitoring Perencanaan dan Risiko or Committee for Planning and Risk Evaluation and Monitoring Keuangan or Finance Komunitas Provokasi Aktivasi or Comunity Cultural Activation Provocation Kontrak Manajemen or Contract Management Komite Nominasi dan Remunerasi or Committee for Nomination and Remuneration Kongress Wanita Indonesia or Indonesian Woman Congress Kliring Penjaminan Efek Indonesia or The Indonesian Clearing and Guarantee KPI KPKU KPPU KSEI Kwh LED Key Performance Indicator Kriteria Penilaian Kinerja Unggul or Criteria for Superior Performance Appraisal Komisi Pengawasan Persaingan Usaha or Commission for the Supervision of Business Competition Kustodian Sentral Efek Indonesia or The Indonesia Central Securities Depository Kilo Watt Hour Light Emitting Diode LSA Expenses Long Service Award Expenses LSE M&A M2M MDI MNO MSE MTN MVNO NAP NITS NPS NPWP NYSE OCS OECD OLO ONT OSDSS OSP-FO OTT PaDi PANDI PAYU PE-VPN PII London Stock Exchange Merger & Acquisition Machine to Machine Metra Digital Investama Mobile Network Operator Micro and Small Enterprices Medium Term Notes Mobile Virtual Network Operator Network Access Point Network, IT & Solution Net Promotor Score Nomor Pokok Wajib Pajak or Tax Identification Number New York Stock Exchange Online Charging System Organization for Economic Co- operation and Development Other Licensed Operator Optical Network Termination Operational and Strategic Decision Support Systems Outside Plan Fiber Optic Over The Top Pustaka Digital or Digital Library Pengelola Nama Domain Internet Indonesia or Indonesian Internet Domain Name Registry Pay As You Use Provider Edge Virtual Private Network Persatuan Insiyur Indonesia 253 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Descripstions Sulawesi Maluku Papua Cable System Standard Operating Procedures Sarbanes Oxley Act Sistem Pengendalian Internal or Internal Control System Sustainability Reporting Award Set Top Box Sentral Telepon Otomat or Private Automatic Branch Exchange Tele Account Management Tanda Daftar Perusahaan or Company Registration Certificate Trade Expo Indonesia Tunjangan Hari Raya or Religious Festivity Allowance Telkom Indonesia International Telkom Integrated Quality Assurance Thailand-Indonesia-Singapore Kode Saham Telkom di New York Stock Exchange Kode Saham Telkom di Bursa Efek Indonesia Telkom Landmark Tower Technical Support Agreement Universal Service Obligation UMTS Terrestrial Radio Access Network Voice Over Data Voice over Internet Protocol Vice President Virtual Private Network Whistleblowing System World Hub Operation Command Center Wholesale and International Business Wholesale and International Service Whistleblower Protection Officer Keyword SMPCS SOP SOX SPI SRA STB STO / PABX TAM TDP TEI THR TII TIQA TIS TLK TLKM TLT TSA USO UTRAN VOD VoIP VP VPN WBS WHOCC WIB WINS WPO Descripstions Program Kemitraan Bina Lingkungan or Partnership and Community Development Program Perusahaan Negara or State Company Peraturan Otoritas Jasa Keuangan or Regulation of Indonesia Financial Services Authority Point of Presence Plain Old Telephone Service Pernyataan Standar Akuntansi Keuangan or Statements of Financial Accounting Standards Quality Management System Quality of Service Radio Access Network Rencana Jangka Panjang Perusahaan or Company’s Long Term Plan Rencana Kerja Anggaran dan Pendapatan or Budgeting and Revenue Work Plan Return on Asset Return on Equity Standar Akuntansi Keuangan or Financial Accounting Standard Security and Safety Service Control Points Sumber Daya Manusia South East Asia – Middle East – Western Europe 5 South East Asia-United States Securities and Exchange Commission Surat Edaran Otoritas Jasa Keuangan or Circular Letter of Indonesia Financial Service Authority Surat Izin Usaha Perdagangan or Business Permit South East Asia Japan Sambungan Langsung Internasional or International Direct Dialing Small Medium Business Supply Management and Logistic Enhancement Sistem Manajemen Keselamatan dan Kesehatan Kerja atau Occupational Health and Safety Assessment System Keyword PKBL PN POJK PoP POTS PSAK QMS QoS RAN RJPP RKAP ROA ROE SAK SAS SCP SDM SEA-ME-WE-5 SEA-US SEC SEOJK SIUP SJC SLI SMB SMILE SMK3 / OHSAS 254 PT Telkom Indonesia (Persero) Tbk | 2018 Annual Report APPENDIX 7: CIRCULAR LETTER TO FINANCIAL SERVICES AUTHORITY NO.30/SEOJK.04/2016 CROSS REFERENCE No. Criteria Explaination Pages I 1 2 3 II 1 a b. 2. a. Form of Annual Report Annual Report should be able to be reproduced in printed document copy and electronic document copy Annual Report presented as printed document should be printed on light-colored, good quality, A4 sized paper, bound and possible to be reproduced in good quality Annual Report presented as electronic document copy is the Annual Report converted to pdf format √ √ √ Content of Annual Report General Requirements Annual Report should at least contain information about: 1) Key financial data highlight; 2) Share information (if any); 3) Directors’ report; 4) Board of commissioners’ report; 5) Issuer or public company’s profile; 6) Management discussion and analysis; 7) Issuer or public company’s governance; 8) Issuer or public company social and environmental responsibility; 9) Audited annual financial report; and 17 18-19 30-39 24-29 10-12 92-145 146-215 216-227 268 10) Statement of directors and board of commissioners on the 40-41 responsibility for the annual report. Annual Report may present information in the form of images, graphs, tables, and/or diagrams by including clear title and/or description to be easily read and understood. Description of The Contents of Annual Report Key Financial Data Highlight Highlights of Key Financial Data presents information in comparative form over a period of 3 (three) financial years or since the commencement of business if the Issuer or Public Company has been running for less than 3 (three) years, and should at least contain: √ 17 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; 255 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination Pages b. Share Information 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. Information of share (if any) at least contains: 1) Shares issued for three months period (if any) presented in comparative form in the last 2 (two) financial years at least contain: a) Outstanding shares; b) Market capitalization by the price in the stock exchange where the share is listed; c) Highest, lowest, and closing share price by the price in the stock exchange where the share is listed; 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. 18-19 20 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. Tidak ada suspension/ delisting Tidak ada suspension/ delisting 256 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Criteria c. Director’s Report Pages 30-39 Explaination Report from the Directors at least contain: 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: 1) Assessment on the performance of the directors in managing the 24-29 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, reasons for such changes, and the effective date of name; 2) Access to issuer or public company, including branch or representative offices that enables people to obtain 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; 5) Business activities under the latest articles of association, business activities conducted during the financial year, and type of goods and/or services offered; 6) Organizational structure of issuer or piblic company in a form of chart, of at least to 1 (one) structural level under the directors, with name and position included; 10-12 10-11 46-47 44-45 48-49 56-57 257 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination 7) Profile of the directors, consisting of at least: a) Name and position that corresponds to the duties and Pages 66-73 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: 58-64 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); i) h) Affiliation with other member of Board of Commissioners and Major Shareholders (if any), consisting of the names of affiliated parties; and Independence Commissioners’ disclosure of independency in terms of the board has served more than 2 period (if any); and j) Education and/or trainings participated by member of Board of Commissioners in enhancing the competencies within a financial year (if any); 258 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Criteria Explaination 9) In the event of a change in the composition of the Board of Commissioners and/or Directors taking place after the fiscal year until the deadline of Annual Report submission, management composition stated in the Annual Report is then the composition of the Board of Commissioners and/or Directors both the latest and the previous one; Pages 58-73 10) Number of employees and description of the range of educational 74-77 background and ages in a financial year; 11) Name of Shareholders and ownership percentage at the end of 78-79 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 78-79 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; 14) Names of subsidiaries, associated companies, joint ventures in which Issuer or Public Company owns control with the entities, along with the percentage of share ownership, line of business, total asset, and operating status of such companies (if any); For subsidiaries, information of company’s address should be added; 15) Chronology of shares listing, number of shares, share value, and offering price from the beginning of listing up to the end of the financial year and name of Stock Exchange where Issuer or Public Company’s shares are listed (if any); 16) Chronology of other securities listing other than the securities reffered to in point 15) that contains the least securities’ name, year of issuance, maturity date, offering value, and rating (if any); 17) Names and addresses of supporting professionals; institutions and/or capital market 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 80-81 80-86 87-88 89-90 91 91 259 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination f. Management Discussion and Analysis 19) Award and certification received by the Issuer or Public Company, both national and international scale during the fiscal year (if any), that includes: a) Name of Award and/or certification; b) Rewarding body or institution; and c) Validity period of the award and/or certification (if any). Annual Report must contain discussion and analysis of Financial Report and other significant information by emphasizing material changes taking place during the year under review. It should at least contain: 1) Operational review by business segment in accordance with the industry of Issuer or Public Company, consisting of at least: a) Production, which includes process, capacity and its development; b) Revenue; and c) Profitability. 2) Comprehensive financial performance including a comparison between the financial performance of the last two financial years, explanation on the causes of such changes and their impact, which among others includes: a) Current assets, non-current assets, and total assets; b) Short-term liabilities, long-term liabilities, and total liabilities; c) Equity; d) Revenue, expenses and profit (loss), other comprehensive revenue and comprehensive income (loss); and e) Cash flow; Pages 50-55 94-111 118-131 3) Capability to pay debts by presenting relevant ratio; 4) Collectable accounts of Issuer or Public Company receivable by presenting relevant ratio; 5) Capital structure and Management’s policies on the capital structure, as well as basis of the policy making; 132 137 133 6) Discussion on material commitment for the investment of capital 135-136 goods 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 134 Financial year, that at least contains: a) Type of capital goods investments; b) Purpose of capital goods investments; c) Value of capital goods investments issued. 8) Material information and facts occurring after the date of accountant’s report (if any); 9) Business prospects of Issuer or Public Company in relation to the industry, economy in general, and international market, and accompanied with the supporting quantitative data from reliable Data resource; 137 141 260 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Criteria Explaination 10) Comparison between target/projection at the beginning of financial year and the realization, that includes: a) Revenue; b) Profit (loss); c) Capital structure; or d) Other information deemed necessary by the Issuer or Public Company. Pages 142 11) Target/projection of the Issuer or Public Company within 1 (one) 142 year, 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 Company, including among others marketing strategies and market Share; 112-117 13) Description of dividend during the past 2 (two) financial years (if 143 any), includes at least: a) Dividend policy; b) Date of cash dividend payment and/or date of non-cash dividend Distribution; c) Amount of dividend per share (cash and/or non-cash); and d) Amount of dividend paid per year; 14) Realization of the use of proceeds from Public Offering is under the 143 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; 144 acquisition, divestment, merge, 15) Material information (if any) concerning, among others investment, expansion, 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 144 17) Changes in the accounting policy, rationale and impacts on the 148 financial statement (if any); 261 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination g. Governance of Issuer or Public Company Governance of Issuer or Public Company at least contains brief description of: 1) Directors, consisting of among others: Pages 189-194 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; 2) Board of Commissioners, consisting of among others: 169-175 a) Description of responsibility of the Board of Commissioners; b) Disclosure that the Board of Commissioners has Board of Commissioners’ charter; c) Disclosure of procedures, basis of decision, and amount of remuneration for members of Board of Commissioners; d) Disclosure of company policies and the implementation on frequency of Board of Commissioners meetings, including joint meetings with the Directors, and attendance of members of Board of Commissioners in such meetings; e) Disclosure of Issuer or Public Company’s policies on performance assessment of members of Directors and Board of Commissioners and its implementation, including among others: 1) Procedure of performance assessment implementation; 2) Criteria of assessment; and 3) Parties conducting the assessment. f) Disclosure of performance assessment of committee supporting the duties of Board of Commissioners; and g) In the event that the Board of Commissioners did not establish least Committee of Nomination and Remuneration, the information to disclose includes: 1) Reasons for not establishing a committee; and 2) Procedure of nomination and remuneration implemented during financial year; 262 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Criteria Explaination 3) Syariah Supervisory Board, for Issuer or Public Company running business under the principles of Syariah as expressed in the Articles of Association, contains at least: a) Name; b) Tasks and responsibilities of Syariah Supervisory Board; and c) Frequency and method of advising and supervisory on the compliance 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: 1. Legal basis of appointment as member of committee; 2. Double position, either as member of Board of Commissioners, directors, and/or committee and other positions (if any); and 3. Work experience and the time period, both inside and outside the Issuer or Public Company; f) Period of service of Audit Committee members; g) Disclosure of independence of Audit Committee; h) Disclosure of company policies and the implementation on frequency of Audit Committee meetings and the attendance of Audit Committee members in such meetings; i) Education and/or trainings participated within a financial year (if any); and j) Brief description activities carried out by Audit Committee during the financial year based on what is stated in Audit Committee Charter; Pages Tidak relevan 176-180 263 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Pages 176-184 No. Criteria Explaination 5) Other committees the Issuer or Public Company has in order to support the function and tasks of Directors and/or Board of Commissioners, such as Nomination and Remuneration Committee, consisting of among others: a) Name and position in the committee; b) Age; c) Nationality; d) Educational background; e) Employement record, consisting of: 1. Legas basis of appointment as committee member; 2. Double position, either as member of Board of Commissioners, Directors and/or committee and the other positions (if any); and 3. Work experience and the time period both inside and outside the Issuer or Public Company; f) Period of service of committee members; g) Description of the tasks and responsibilities; h) Disclosure that the committee has charter of committee; i) Disclosure of independence of committee members; j) Disclosure of company policies and the implementation on frequency of committee meetings and the attendance of committee members in such meetings; k) Education and/or trainings participated within a financial year (if any); and l) Brief description activities carried out by committee during the financial year; 6) Corporate Secretary, consisting among others: 195-197 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; 264 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportPages 198-201 No. Criteria Explaination 7) Internal Auditing Unit, consisting among others: 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 201-202 Public Company, consisting of at least: a) Operational and financial control, along with compliance with other prevailing rules and regulations; and b) Review on effectiveness of internal control system; 9) Risk management system implemented by Issuer or Public Company, 203-208 consisting of at least: 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; 10) Material litigation faced by the Issuer or Public Company, subsidiaries, present members of the Board of Commissioners and Directors (if any), including among others: a) Material of the case/claim; b) Status of settlement of case/claim; and c) Impacts on the financial condition of the Issuer or Public Company; 11) Information on administrative sanctions to Issuer or Public Company, members of the Board of Commissioners and Directors, by capital market authority and other authorities during the fiscal year (if any); 212 212 12) Information on code of conducts and culture of Issuer or Public 214 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; 265 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination 13) Information on corporate culture or corporate values (if any); 14) Explanation on employees and/or Management share ownership program carried out by Issuer or Public Company, including among others amount, period of time, requirements for eligible employees and/or Management, and exercise price (if any): a) Amount of share and/or options; b) Time period of exercise; c) Requirements for eligible employees and/or Management; and d) Exercise price; 15) Explanation on Whistleblowing System at the Issuer or Public Company to report misconducts causing potential loss to the company or the stakeholders (if any), consisting of among others: a) Procedure to submit whistleblowing report; 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; Pages 215-217 211 209-210 16) Implementation of Public Company Governance Guidelines for Issuer 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); 150-156 266 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportNo. Criteria Explaination h. Social and Environmental Responsibility of Issuer or Public Company 1) Information on Issuer or Public Company’s social and environmental responsibility consisting of policies, types of programs, and cost, in relation of the aspects of among others: a) Environment, among others: 1. Use of environmentally friendly and recyclable material and Pages 228 energy; Issuer or Public Company’s waste management system; 2. 3. Mechanisms of complaints on environmental concern; 4. Certification in the field of environment; b) Labor practices, occupational health and safety, among others: 222-223 1. Equality in gender and work opportunity; 2. Work facility and safety; 3. Employees turnover; 4. Level of work accident; 5. Eduation and/or training. 6. Remuneration; and 7. Mechanisms of complaints on Employment concern; c) Social and community development, among others: 1. Use of local work force; 2. Empowerment of the Issuer or Public Company’s surrounding community, among others by the use of raw materials produced by the community or provision of education to the community; Improvement of social facilities and infrastructure; 3. 4.Other forms of donations; and 5. Communication on anti corruption policy and procedure in the Issue or Public Company, as well as training on anti corruption(if any). 225-227 d) Product and/or services responsibility, among others: 220-221 1. Consumers’ health and safety; 2. Product and/or services information; and 3. Facilities for customers’ complaints, number of complaints and complaints handling. 267 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789No. Criteria Explaination Pages 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. in accordance with Financial Accounting Standard The Financial Report contained in the Annual Report should be presented 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 Statement of members of Directors and Board of Commissioners on the Responsibility for the Annual Report is composed in accordance to the format of Statement of members of Directors and Board of Commissioners on the Responsibility for the Annual Report as attached in the Appendix as an inseparable part of the Circular Letter of FSA. 272 40-41 i. j. Audited Financial Report Statement of members Board of Directors and Board of Commissioners on the Responsibility for the Annual Report 268 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportThis page intentionally left blank 269 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights12345678909 CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidates Financial Statements 2018 Audited PKBL Financial Statements 2018 270 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportPreparation ceremony of TelkomGroup operational task force for the 2018 IMF-WB Annual Meeting Event. 271 PT Telkom Indonesia (Persero) Tbk | 2018 Annual ReportConsolidated Financial StatementsAppendicesPartnership andCommunity Development ProgramCorporate Social ResponsibilityCorporateGovernanceAnalysis andDiscussionAboutTelkomReport of The Board of Commissioners and DirectorsTelkom Highlights123456789Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk. and its subsidiaries Consolidated financial statements as of December 31, 2018 and for the year then ended with independent auditor’s report PERUSAHAAN PESEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018 AND FOR THE YEAR THEN ENDED WITH INDEPENDENT AUDITOR’S REPORT TABLE OF CONTENTS Consolidated Statement of Financial Position Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Page 1 2 3-4 5 6-128 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION As of December 31, 2018 (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) Notes 2018 2017 ASSETS CURRENT ASSETS Cash and cash equivalents Other current financial assets Trade receivables - net provision for impairment of receivables Related parties Third parties Other receivables - net of provision for impairment of receivables Inventories - net provision for obsolescence Assets held for sale Prepaid taxes Claim for tax refund Other current assets Total Current Assets 2c,2e,2u,3,31,36 2c,2e,2u,4,31,36 2g,2u,2ac,5,36 2c,31 2g,2u,36 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 Intangible assets - net of accumulated amortization Deferred tax assets - net Other non-current assets Total Non-current Assets TOTAL ASSETS 2f,2u,8 2l,2m,2ab,2ac,9,34 2d,2k,2n,2ab,11 2t,26 2c,2g,2i,2n,2t,2u,10,26,31,36 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 Liabilites 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 interest TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 2o,2u,12,36 2c,31 2u,36 2t,26 2c,2u,13,31,36 2r,14 2c,31 2c,2p,2u,15a,31,36 2c,2m,2p,2u,2v,15b,31,36 2t,26 2r,14 2s,30 2s,29 2c,2m,2p,2u,2v,16,31,36 2u,2o,2aa 1c,18 2w,19 2w,20 2f,2u,21 28 2b,17 17,439 1,304 2,126 9,288 727 717 340 2,749 596 7,982 43,268 2,472 143,248 5,032 2,504 9,672 162,928 206,196 993 13,773 448 1,180 12,769 5,190 1,569 4,043 6,296 46,261 1,252 652 852 5,555 33,748 573 42,632 88,893 4,953 2,455 - 507 15,337 75,658 98,910 18,393 117,303 206,196 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 12,270 150,923 198,484 896 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 The accompanying notes form an integral part of these consolidated financial statements. 1 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME For the Year Ended December 31, 2018 (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) Notes 2c,2r,22,31 2018 2017 130,784 128,256 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 cost Share of profit of associated companies PROFIT BEFORE INCOME TAX 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 INCOME TAX (EXPENSE) BENEFIT 2t,26 Current Deferred 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 actuarial gain (loss) - 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 EARNING PER SHARE (in full amount) Net income per share Net income per ADS (100 Series B shares per ADS) 2f,2q,21 2u,21 2f,8 2s,29 2b,17 2b 2x,27 (43,791) (21,406) (13,178) (4,283) (6,137) (4,214) 68 1,752 (750) (36,603) (20,446) (13,529) (2,987) (5,260) (5,268) 51 1,039 (1,320) 38,845 43,933 1,014 (3,507) 53 1,434 (2,769) 61 36,405 42,659 (9,432) 6 (9,426) (11,357) 1,399 (9,958) 26,979 32,701 146 (10) (14) 4,820 4,942 31,921 18,032 8,947 26,979 22,844 9,077 31,921 24 20 (1) (2,375) (2,332) 30,369 22,145 10,556 32,701 19,952 10,417 30,369 182.03 18,202.70 223.55 22,354.64 The accompanying notes form an integral part of these consolidated financial statements. 2 , 0 3 1 2 1 1 7 1 4 , 9 1 y t i u q e l a t o T s t s e r e t n i 3 1 7 , 2 9 t e N g n i l l o r t n o c - n o N 4 3 7 2 ) 9 6 ( 4 3 5 6 ) 9 6 ( - ) 8 3 ( - - - - ) 0 4 7 , 6 2 ( ) 1 3 1 , 0 1 ( ) 9 0 6 , 6 1 ( ) 9 0 6 , 6 1 ( - 2 4 9 , 4 9 7 9 , 6 2 , 3 0 3 7 1 1 - 0 3 1 7 4 9 , 8 3 9 3 , 8 1 - 2 1 8 , 4 2 3 0 , 8 1 0 1 9 , 8 9 - 6 7 6 , 4 2 3 0 , 8 1 8 5 6 , 5 7 - - - - - - - 7 3 3 , 5 1 . s t n e m e t a t s 9 5 5 , 9 6 7 3 3 , 5 1 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 3 t n i n a m r o f s e t o n i g n y n a p m o c c a e h T - 7 8 3 ) 6 1 ( - - - - 6 3 1 7 0 5 ) 1 4 5 , 2 ( - - - - - - - 1 4 5 , 2 - - - ) 2 2 ( 1 3 9 , 4 ) 4 5 4 , 2 ( - - 5 5 4 , 2 - - - - 0 4 0 , 5 - - ) 7 8 ( 3 5 9 , 4 d 2 8 2 , 7 1 0 2 , v 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 f o n o i t i s u q c A i s e s s e n s u b f o i n o i t i s u q c A i i s e i r a d s b u s i o t n o i t u b i r t n o c l a t i p a C 8 1 0 2 , 1 y r a u n a J , e c n a l a B s k c o t s y r u s a e r t f o n o i t a l l e c n 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 8 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 s n e d v d i i h s a C i s g n n r a e d e n a t e R 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 I . k b T A S E N O D N I I I S A K N U M O K E L E T T P 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 I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 8 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 n a i s e n o d n I f o s n o i l l i b n i d e s s e r p x e s e l b a t e h t n i s t n u o m A ( 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 k c o t s l a t i p a C s e t o N n o i t p i r c s e D n i - d i a p l a n o i t i d d A . e g a u g n a l i n a s e n o d n I e h t 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 , 4 4 5 5 0 1 0 6 1 , 1 2 y t i u q e l a t o T s t e r e t n i 4 8 3 , 4 8 t e N g n i l l o r t n o c - n o N 4 0 5 5 4 1 ) 2 8 9 , 3 2 ( ) 2 3 3 , 2 ( 1 0 7 , 2 3 , 0 3 1 2 1 1 - 0 5 5 4 1 ) 9 3 1 ( ) 5 5 3 , 2 1 ( 6 5 5 , 0 1 7 1 4 , 9 1 - 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 d 2 8 2 , w 2 7 1 , b 2 7 1 , u 2 , s 2 , q 2 , f 2 . 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 4 t n i n a m r o f s e t o n i g n y n a p m o c c a e h T 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 I I I S E R A D S B U S S T I D N A I . k b T A S E N O D N 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 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 T N E M E T A T S D E T A D L O S N O C I 8 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 n a i s e n o d n I f o s n o i l l i b n i d e s s e r p x e s e l b a t e h t n i s t n u o m A ( i s g n n r a e d e n a t e R i 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 n o i t p i r c s e D - d i a p l a n o i t i d d A . e g a u g n a l i n a s e n o d n I e h t 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 t s e r e t n i g n i l l o r t n o c - n o n s e s s e n s u b i f o f o n o i t i s u q c A i n o i t i s u q c A i 7 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 t e n - 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 s n e d v d i i h s a C These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended December 31, 2018 (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) Notes 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Total cash receipts from customers and other operators (Payment) receipts for tax refund Interest income received Cash payments for expenses Cash payments to employees Cash payments for corporate and final income taxes Payment for interest costs Cash payments for value added taxes - net Other cash (payments) receipts - net Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment Receipts (placement) in time deposits and available-for-sale financial assets Proceeds from insurance claims Dividen received from associated companies Purchase of property and equipment Purchase of intangible assets Additional contribution on long-term investments Increase in advances for purchases of property and equipment Acquisition of businesses - net of acquired cash Purchase in other assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank loans and other borrowings Capital contribution of non-controling interests in subsidiaries Repayments of loan and other borrowings Cash dividends paid to the Company's stockholder subsidiaries Cash dividends paid to non-controlling interests of subsidiaries Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR 9 9 8 9, 38 11, 38 8 15, 16 15, 16 28 3 3 127,855 2,578 1,036 (54,099) (12,657) (10,375) (3,735) (3,434) (1,498) 45,671 629 171 153 9 (31,562) (2,972) (337) (300) (420) (461) (35,090) 35,364 34 (27,113) (16,609) (10,134) (18,458) (7,877) 171 25,145 17,439 125,111 585 1,431 (49,604) (11,739) (11,846) (3,133) (1,942) 542 49,405 1,367 (676) 155 28 (32,294) (508) (269) (490) (243) (77) (33,007) 12,169 50 (9,289) (11,627) (12,355) (21,052) (4,654) 32 29,767 25,145 The accompanying notes form an integral part of these consolidated financial statements. 5 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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). in Indonesia 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 its Decision Letter No. C2-6870.HT.01.01.Th.1991 dated Republic of 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 increase the flexibility and independency of Commissioners in approving the Directors’ actions at a certain threshold and changes in authorized and issued capital stocks due to the transfer of total shares of cancelation treasury stocks by deducting from equity as stated in notarial deed No. 34 and No. 35 dated May 15, 2018 of Ashoya Ratam, S.H., MKn. The latest amendments were accepted and approved by the Ministry of Law and Human Rights of the Republic of Indonesia (“MoLHR”) in its Letter No. AHU-AH.01.03-0214555 dated June 8, 2018 and MoLHR decision’s No. AHU-0013328.AH.01.02 year 2018 dated July 2, 2018. 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 to provide high quality and competitive goods and/or services to gain/pursue profit in order to increase the value of the Company with applied the Limited Company principle. 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 or 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 the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 No. Type of services Grant date/latest renewal date License of electronic money issuer) License of money remittance License to operate internet telephone services for public purpose License to operate fixed domestic long distance network Bank Indonesia License No. 11/432/DASP Bank Indonesia License No. 11/23/bd/8 127/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 948/KEP/ M.KOMINFO/05/2016 191/KEP/DJPPI/ KOMINFO/10/2016 Electronic money July 3, 2009 Money remittance service 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 August 5, 2009 March 30, 2016 May 16, 2016 May 16, 2016 May 16, 2016 May 31, 2016 October 31, 2016 7 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) a. Establishment and general information (continued) License License No. Type of services License to operate internet service provider License to operate content service provider License for the Implementation of Internet Interconnection Services 2176/KEP/ M.KOMINFO/12/2016 1040/KEP/ M.KOMINFO/16/2017 1004/KEP/ M.KOMINFO/2018 Grant date/latest renewal date December 30, 2016 Internet service provider Content service May 16, 2017 provider Interconnection Services December 26, 2018 b. Company’s Board of Commissioners, Directors, Audit Committee, Corporate Secretary, Internal Audit, 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. 54 and No. 28 of Ashoya Ratam., S.H., M.Kn., dated April 27, 2018 and April 21, 2017, the composition of the Company’s Boards of Commissioners and Directors as of December 31, 2018 and 2017, respectively, were as follows: President Commissioner Commisioner Commisioner Commisioner Independent Commissioner Independent Commissioner* Independent Commissioner Independent Commissioner President Director Director of Finance Director of Digital and Strategic 2017 Hendri Saparini Rinaldi Firmansyah Hadiyanto 2018 Hendri Saparini Edwin Hidayat Abdullah Rinaldi Firmansyah Isa Rachmatarwata Margiyono Darsasumarja Margiyono Darsasumarja - Dolfie Othniel Fredric Palit Pamijati Pamela Johanna Pamijati Pamela Johanna Cahyana Ahmadjayadi Alex Janangkih Sinaga Harry Mozarta Zen Cahyana Ahmadjayadi Alex Janangkih Sinaga Harry Mozarta Zen - Portfolio David Bangun David Bangun 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 Service Dian Rachmawan Dian Rachmawan Abdus Somad Arief Abdus Somad Arief Herdy Rosadi Harman Herdy Rosadi Harman Zulhelfi Abidin Siti Choiriana Zulhelfi Abidin Mas'ud Khamid * Dolfie Othniel Fredric Palit has been appointed as a permanent candidate for the House Representatives of the Republic of Indonesia starting from September 20, 2018, hence his position as Commissioner of the Company was ended by law. 8 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) b. Company’s Board of Commissioners, Directors, Audit Committee, Corporate Secretary , Audit Internal and Employees (continued) 2. Audit Committee, Corporate Secretary, and Internal Audit The composition of the Company’s Audit Committee, Corporate Secretary, and Internal Audit as of December 31, 2018 and 2017, were as follows: Chairman Secretary Member Member Member Member Corporate Secretary Internal Audit 2018 Margiyono Darsasumarja Tjatur Purwadi Rinaldi Firmansyah - Sarimin Mietra Sardi Cahyana Ahmadjayadi Andi Setiawan Harry Suseno Hadisoebroto 2017 Margiyono Darsasumarja Tjatur Purwadi Rinaldi Firmansyah Dolfie Othniel Fredric Palit Sarimin Mietra Sardi Cahyana Ahmadjayadi Andi Setiawan Harry Suseno Hadisoebroto 3. Employees As of December 31, 2018 and 2017, the Company and subsidiaries (“Group”) had 24,064 employees and 24,071 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. 9 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) c. Public offering of securities of the Company (continued) 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). 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., M.Kn., 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., M.Kn., 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, 2018, all of the Company’s Series B shares are listed on the IDX and 68,824,067 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). 10 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) c. Public offering of securities of the Company (continued) 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). 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). At the AGM held on April 27, 2018, which were covered by notarial deed No. 54 of Ashoya Ratam, S.H., M.Kn., the stockholders approved for cancellation 1,737,779,800 shares of treasury stock by reduced the Company’s capital stock (Note 20). 11 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries As of December 31, 2018 and 2017, the Company has consolidated the following directly or indirectly owned subsidiaries (Notes 2b and 2d): (i) Direct subsidiaries: Subsidiary/place of incorporation Nature of business/date of Year of start Percentage of ownership Incorporation or acquisition of commercial interest Total assets before elimination by the Company operations 2018 2017 2018 82,650 2017 85,748 PT Telekomunikasi Selular Telecommunication - provides 1995 65 65 ("Telkomsel"), Jakarta, Indonesia telecommunication facilities and mobile celuller services using Global Systems for Mobile Communication ("GSM") technology/ May 26, 1995 PT Multimedia Nusantara Network telecommunication services and multimedia/ May 9, 2003 ("Metra"), Jakarta, Indonesia 1998 100 100 16,524 13,275 Telecommunication/ May 17, 2001 1995 100 100 13,053 13,606 PT Dayamitra Telekomunikasi ("Dayamitra") Jakarta, Indonesia PT Telekomunikasi Indonesia International (“TII”), Jakarta, Indonesia Telecommunication/ July 31, 2003 1995 100 100 10,408 9,125 PT Graha Sarana Duta Leasing of offices and 1982 100 100 5,805 5,641 ("GSD") Jakarta, Indonesia providing building management and maintenance services, civil consultant and developer/ April 25, 2001 PT Telkom Akses (“Telkom Akses”), Jakarta, Indonesia Construction, service and trade in the field of telecommunication/ November 26, 2012 2013 100 100 4,244 5,716 PT PINS Indonesia Telecommunication 1995 100 100 4,004 3,473 (“PINS”), Jakarta, Indonesia construction and services/ August 15, 2002 PT Infrastruktur Construction, service and trade 2014 100 100 3,351 1,871 Telekomunikasi Indonesia (“Telkom Infratel”), Jakarta, Indonesia in the field of telecommunication/ January 16, 2014 PT Telkom Satelit Telecomunication - provides 1996 100 100 3,192 576 Indonesia* (“Telkomsat”), previously PT Patra Telekomunikasi Indonesia Jakarta,Indonesia satellite communication system, services and facilities/ September 28, 1995 PT Metra-net Multimedia portal service/ 2009 100 100 782 524 (“Metranet”), Jakarta, Indonesia April 17, 2009 PT Jalin Pembayaran Payment services - principal, 2016 100 100 298 225 Nusantara (“Jalin”), Jakarta, Indonesia swithcing, clearing and settlement activities/ November 3, 2016 12 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (i) Direct subsidiaries (continued): Subsidiary/place of Nature of business/date of Incorporation or acquisition Year of start Percentage of ownership of commercial interest Total assets before elimination incorporation by the Company PT Napsindo Primatel Telecommunication - Internasional (“Napsindo”), Jakarta, Indonesia provides Network Access Point (NAP), Voice Over Data (VOD) and other related services/ December 29, 1998 operations 1999; ceased operations on January 13, 2006 (ii) Indirect subsidiaries: 2018 2017 2018 2017 60 60 5 5 Subsidiary/place of incorporation PT Sigma Cipta Caraka (“Sigma”), Tangerang, Indonesia Nature of business/date of Incorporation or acquisition Nature of business Year of start Percentage of ownership of commercial operations interest 2017 2018 Information technology 1988 100 100 service - system implementation and integration service, outsourcing and software license maintenance/ Total assets before elimination 2018 7,785 2017 6,064 May 1,1987 Telekomunikasi Indonesia International Pte. Ltd., Singapore Telecommunication/ December 6, 2007 2008 100 100 3,413 3,048 PT Infomedia Nusantara Data and information 1984 100 100 2,389 2,122 (“Infomedia”), Jakarta, Indonesia 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 PT Metra Digital Media Directory information (“MD Media”), Jakarta, Indonesia services/ January 22, 2013 Telekomunikasi Indonesia International Ltd, Hong Kong Telecommunication/ December 8, 2010 2012 55 55 2,128 2,009 2013 100 100 1,339 1,106 2010 100 100 1,185 710 PT Finnet Indonesia Information technology 2006 60 60 1,011 907 (“Finnet”), Jakarta, Indonesia services/ October 31, 2005 PT Metra Digital Investama (“MDI”), Jakarta, Indonesia Trading and/or providing service related to information and tehnology, multimedia, entertainment and investment/ January 8, 2013 2013 100 100 979 658 TS Global Network Satellite services/ 1996 70 49 832 818 Sdn. Bhd. (“TSGN”), Petaling Jaya, Malaysia December 14, 2017 13 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (ii) Indirect subsidiaries (continued): Subsidiary/place of incorporation Nature of business/date of Year of start Percentage of ownership Incorporation or acquisition of commercial interest Nature of business operations 2018 2017 Total assets before elimination 2018 2017 Telekomunikasi Indonesia International (“TL”) S.A., Dili, Timor Leste Telecommunication/ September 11, 2012 2012 100 100 677 639 PT Melon Digital content exchange 2010 100 100 457 231 (“Melon”) Jakarta, Indonesia hub services/ November 14, 2016 PT Swadharma Sarana System Integrator Services/ 2001 51 - 460 - Informatika (“Swadharma”) Jakarta, Indonesia April 2, 2018 PT Administrasi Health insurance 2002 100 100 346 273 Medika (“Ad Medika”), Jakarta, Indonesia PT Nusantara Sukses Investasi (“NSI”), Jakarta, Indonesia PT Graha Yasa Selaras (”GYS”), Jakarta, Indonesia administration services/ February 25, 2010 Service and trading/ September 1, 2014 Tourism service/ April 27, 2012 2014 100 100 290 303 2012 51 51 250 178 PT Metraplasa Network & e-commerce 2012 60 60 168 203 (“Metraplasa”), Jakarta, Indonesia services/ April 9, 2012 Telekomunikasi Indonesia International Pty Ltd, (“Telkom Australia”), Sydney, Australia Telecommunication/ January 9, 2013 2013 100 100 115 123 PT Nutech Integrasi System integrator/ 2001 60 60 93 60 (“Nutech”), Jakarta, Indonesia Telekomunikasi Indonesia International Inc., (“Telkom USA”), Los Angeles, USA Telekomunikasi Indonesia Intl (Malaysia) Sdn. Bhd (“Telin Malaysia”) Malaysia PT Satelit Multimedia Indonesia (“SMI”), Jakarta, Indonesia December 13, 2017 Telecommunication/ December 11, 2013 Telecommunication/ July 2, 2013 Satellite services/ March 25, 2013 2014 100 100 57 36 2013 70 49 76 23 2013 100 100 16 18 14 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 and 11 dated December 13, 2017, Metra purchased 36,000 shares of 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 was recognized as goodwill (Note 11). In accordance to independent appraisal report, fair value of net assets amounting to Rp18 billion. The difference between transaction price with the fair value of net assets amounting to Rp6 billion was recognized as goodwill (Note 11). Based on notarial deed Utiek Rochmuljati Abdurachman S.H., MLI., M.Kn, No. 3, 4, and 5 dated April 2, 2018, Metra purchase 14,600 shares of PT Swadharma Sarana Informatika (SSI) ownership interests from Yayasan Danar Dana Swadharma, PT Tri Handayani Utama, dan Koperasi Swadharma or equivalent to 36.50 % ownership interests from SSI with purchase consideration amounting Rp220 billion. Based on notarial deed N.M. Dipo Nusantara Pua Upa, S.H., MKn, No. 4 dated April 9, 2018, the Company as Metra's shareholders subscribing for 11,837 new shares issued by SSI with purchase consideration amounting Rp178 billion. These transaction result in change composition become 51% causing Company to have control over SSI as a subsidiary with total purchase consideration amounting to Rp397 billion (consideration paid on acquisition of control net of cash acquired is Rp210 billion). Acquisition cost of SSI which was higher than the ownership portion of net book value, which amounting to Rp196 billion. As of December 31, 2018, the difference recorded as provisional goodwill. As of the completion date of the consolidated financial statements, purchase price allocation of the acquisition is in progress. From the date of acquisition until December 31, 2018, the total revenue and profit before tax of Swadharma included in the statements of profit or loss income and other comprehensive income amounted to Rp630 billion and Rp101 billion, respectively. If acquisition occurred since the beginning of the year, revenue and profit before tax recognized in consolidated profit and loss and other comprehensive income was Rp 823 billion and Rp110 billion, respectively. 15 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (b) Sigma Based on notarial deed Utiek Rochmuljati Abdurachman S.H., MLI., M.Kn, No. 151 and 152, dated Decemberl 28, 2018, Sigma purchase 2,493 (equal 67% ownership share’s) shares from PT Upperco Usaha Maxima with purchase consideration paid amounting Rp208 billion and 111 share’s (equal 3% ownership share’s) from PT Abdi Anugerah Persada with purchase consideration paid amounting Rp9 billion, hence Sigma own 2,604 shares (equal 70% ownership shares) causing Company to have control over SCC as a subsidiary with total purchase consideration amounting to Rp217 billion (consideration paid on acquisition of control net of cash acquired is Rp188 billion).. Acquisition cost of CIP which was higher than the ownership portion of net book value, which amounting to Rp165 billion. As of December 31, 2018, the difference recorded as provisional goodwill. As of the completion date of the consolidated financial statements, purchase price allocation of the acquisition is in progress. From the date of acquisition until December 31, 2018, the total revenue and profit before tax of CIP included in the statements of profit or loss income and other comprehensive income amounted to Rpnil. If acquisition occurred since the beginning of the year, revenue and profit before tax recognized in consolidated profit and loss and other comprehensive income was Rp 166 billion and Rp24 billion, respectively. (c) TII On December 14, 2017, TII 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 Very Small Aperture Terminal (“VSAT”) services. Non-controlling interests of the acquiree are measured at fair value. Based on Sale and Subscription Agreement, TII owns the control over TSGN through placing and replacing of 3 out of 5 key managements that controls the overall business of TSGN. On April 25, 2018, TII purchased 21% of ownership shares obtained from issued new shares. This acquisition will enhance synergy and utilization of assets and resources between companies in order to provide more innovative services to customers. 16 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 1. GENERAL (continued) d. Subsidiaries (continued) (c) TII (continued) The fair values of the identifiable assets and liabilities acquired at acquisition date were: Assets Cash and cash equivalents Trade receivables Other current assets Property and Equipment (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 Provisional goodwill (Note 11) Fair value consideration transferred Total 21 18 57 770 20 (422) (155) 309 (157) 68 220 On July 2, 2013, Telin Malaysia was incorporated, with TII obtaining 49% direct ownership, and on April 18, 2018 TII purchased 21% of Compudyne Telecommunication Systems Sdn, Bhd shares in Telin Malaysia. The acquisition cost amounted to MYR8,764,789 or equivalent to Rp31 billion (consideration paid on acquisition of control net of cash acquired is Rp16 billion). In connection with the acquisition of Telin Malaysia’s shares, TII recognized goodwill amounting to Rp61 billion (Note 11). From the date of acquisition until December 31, 2018, the total revenue and profit before tax of Telin Malaysia included in the statements of profit or loss and other comprehensive income amounted to Rp23 billion and Rp20 billion, respectively. If acquisition occurred since the beginning of the year, revenue and loss before tax recognized in consolidated profit and loss and other comprehensive income was MYR13.323.065 (equivalent to Rp47 billion) and MYR7.888.930 (equivalent to Rp28 miliar) respectively. e. Completion and authorization for the issuance of the consolidated financial statements The Company’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Indonesian Financial Accounting Standards, which have been completed and authorized for issuance by the Board of Directors of the Company on April 29, 2019. 17 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2019 • Amendments to PSAK 22: Business Combination The amendments clarifies that when a party in joint arrangement obtains control of a business that is a joint operation (as defined in PSAK 66) and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. The acquirer shall therefore apply the requirements for a business combination achieved in stages, including remeasuring its previously held interest in the assets and liabilities of the joint operation at fair value. • Amendments to PSAK 24: Plan Amendment, Curtailment or Settlement The amendments provides guidance for entities in recognizing past service costs, gains and losses, current service costs and net interest after amendments, curtailments, or settlement of programs using the latest actuarial assumptions (previously using acturial assumptions at the beginning of the annual reporting period). In addition, the amendments also clarifies how the accounting requirements for amendments, curtailments, or settlement can affect the asset ceiling requirements reflected in the surplus reduction which causes the impact of the asset ceiling to change. • Amendment to PSAK 26: Borrowing Costs Eligible for Capitalisation The amendments clarifies that capitalisation rate shall be the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period, but the entity shall exclude from this calculation borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended use or sale are complete. 18 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) a. Basis of preparation of financial statements (continued) Effective January 1, 2019 (continued) • Amendment to PSAK 46: Income Tax The amendments clarifies that an entity shall recognise the income tax consequences of dividends as defined in PSAK 71: Financial Instruments when it recognises a liability to pay a dividend. An entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. • Amendment to PSAk 66: Joint Arrangements The amendments clarifies that a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business (as defined in PSAK 22). In such cases, previously held interests in the joint operation are not remeasured. • • 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. ISAK 34: Uncertainty over Income Tax Treatments ISAK 34 clarifies how to apply the recognition and measurement requirements in PSAK 46 Income Taxes when there is uncertainty over income tax treatments. When there is uncertainty over income tax treatments, ISAK 34 addresses: • whether an entity considers uncertain tax treatments separately, • the assumptions an entity makes about the examination of tax treatments by taxation authorities, • how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, and • how an entity considers changes in facts and circumstances. Effective January 1, 2020 • 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. 19 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 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. • 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. 20 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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. 21 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 that arise 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 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. 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. 22 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Business combinations (continued) 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, cash 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 statements 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. 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. 23 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) f. Investments in associated companies (continued) 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 Cellum Global Zrt. (“Cellum”) is Hungary Forint (“HUF”) and PT Citra Sari Makmur (“CSM”) is the United States dollar (“U.S. dollars”). 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 expected costs to sell. Cost is determined using the weighted average method. The amounts of any write-down of inventories below cost to net realizable value and all losses of inventories are recognized as expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognized as a reduction in the amount of general and administrative expenses in the year in which the reversal occurs. Provision for obsolescence is primarily based on the estimated forecast of future usage of these inventory items. i. Prepaid expenses Prepaid expenses are amortized over their future beneficial periods using the straight-line method. 24 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 25 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 measured reliably. 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. 26 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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. 27 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 prepayment 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, Indonesia Telekomunikasi 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, TS Global Network Sdn. Bhd. and Telekomunikasi Indonesia International Sdn. Bhd. whose functional currency is Malaysian ringgit. 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): Dolar A.S. (“US$”) 1 Dolar Australia (“AU$”) 1 Euro 1 Yen Jepang 1 Ringgit Malaysia (“MYR”) 1 2018 2017 Buy Sell Buy Sell 14,375 10,157 16,432 130.56 3,474 14,385 10,167 16,446 130.70 3,480 13,565 10,592 16,231 120.48 3,520 13,570 10,598 16,242 120.55 3,526 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. 28 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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. 29 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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. 30 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 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. Gains 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. Gains 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. 31 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Group 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. Tax deduction from the reversal of deferred tax assets is excluded from the estimation of future taxable income. 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”. 32 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, other non-current financial assets, and available-for- sale investments. 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 income/(expense) 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, 2018 and 2017. 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. 33 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) u. Financial instruments (continued) i. Financial assets (continued) c. Held-to-maturity investments 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) 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. b) c) financial assets were classified as held-to-maturity No December 31, 2018 and 2017. 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 investments primarily consist of mutual funds, corporate and government bonds and capital stock, which are recorded as part of “Other Current Financial Assets” and “Long-term Investsments” in the consolidated statements of financial position. Available-for-sale investments are stated at fair value. Unrealized holding gains or losses on available-for-sale investments 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 gains or losses from the sale of available-for-sale investments 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, other borrowings and other liabilities. Interest-bearing loans consist of short-term bank loans, two-step loans, bonds and notes, long-term bank loans and obligations under finance leases. a. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial liabilities classified as held for trading. A financial liability is classified as held for trading if it is incurred principally for the purpose of selling or repurchasing it in the near term and for which there is evidence of a recent actual pattern of short-term profit taking. No financial liabilities were categorized as held for trading as of December 31, 2018 and 2017. 34 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, interest-bearing loans, other borrowings, and other liabilities. Interest-bearing loans consist of short-term bank loans, two-step loans, bonds and notes, long-term bank loans and obligations under finance leases. 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 36. 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. 35 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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. Sukuk Ijarah Sukuk Ijarah issued by the Group is recognized at nominal value, adjusted to the premium or discount and related transaction costs. The difference between the carrying amount and the nominal value is amortized on a straight-line basis over the period of the sukuk and is recognized in the income statement as the sukuk issuance expense. Sukuk Ijarah, after adjusting for premium or discount and unamortized transaction costs, is presented as part of liabilities. 36 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) w. 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”. x. 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. y. 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. z. 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 (“CODM”) 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. aa. 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. 37 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ab. 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. 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. ac. Critical accounting 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. 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. 38 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ac. Critical accounting estimates and assumptions (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. 39 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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”) PT Bank Tabungan Negara (Persero) Tbk (“BTN”) Others Sub-total Third parties PT Bank Permata Tbk (“Bank Permata”) PT Bank HSBC Indonesia ("HSBC") The Hongkong and Shanghai Banking Corporation Ltd. ("HSBC Hongkong") Standard Chartered Bank (“SCB”) PT Bank UOB Indonesia ("UOB") United Overseas Bank Limited ("UOB Singapore") Others (each below Rp75 billion) Sub-total Total cash in banks Time deposits Related parties BNI BTN BRI Bank Mandiri Sub-total Currency Rp Rp US$ JPY EUR HKD AUD Rp US$ EUR SGD Rp US$ Rp Rp US$ Rp US$ Rp US$ HKD Rp US$ SGD Rp US$ SGD MYR Rp US$ EUR MYR TWD AUD HKD MOP Rp US$ Rp US$ Rp US$ Rp US$ 2018 Balance 2017 Balance Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent - - 10 8 1 1 0 - 2 0 0 - 2 - - 0 - 2 - 12 5 - 10 1 - 4 1 3 - 4 1 3 17 0 0 0 - 58 - 31 - 47 - 16 36 1,199 139 1 20 1 0 791 28 0 0 728 31 342 15 0 3,295 218 30 1 181 9 0 148 14 17 55 14 9 197 60 20 12 8 2 0 0 995 4,290 2,640 837 2,559 446 1,911 676 611 230 9,910 - - 27 7 1 1 0 - 1 0 0 - 6 - - 0 - 0 - 14 4 - 11 0 - 1 0 2 - 4 1 0 8 0 0 0 - 9 - - - 15 - - 12 1,481 367 1 17 2 0 968 13 6 0 466 82 7 14 1 3,425 278 2 - 184 6 0 154 1 23 15 2 8 361 46 20 0 4 1 0 0 1,105 4,530 5,315 116 2,958 - 4,954 203 446 - 13,992 40 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 3. CASH AND CASH EQUIVALENTS (continued) 2018 Balance 2017 Balance Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Time deposits (continued) Third parties PT Bank Pembangunan Daerah Jawa Barat dan Banten Tbk (“BJB”) PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”) UOB PT Bank Mega Tbk (“Bank Mega”) PT Bank Bukopin Tbk (“Bank Bukopin”) PT Bank CIMB Niaga Tbk (“Bank CIMB Niaga”) PT Bank Muamalat Indonesia Tbk PT Bank OCBC NISP Tbk (“OCBC NISP”) SCB PT Bank ANZ Indonesia (”ANZ”) Others Sub-total Total time deposits Total Rp Rp US$ US$ Rp Rp Rp US$ Rp Rp US$ Rp US$ Rp MYR - - 25 30 - - - - - - - - - - 11 1,295 181 363 429 365 248 190 - 40 - - - - 53 39 3,203 13,113 17,439 - - 30 20 - - 0 2 - - 10 - 5 - 14 1,726 676 401 263 1,243 22 600 31 91 1,200 136 5 73 97 47 6,611 20,603 25,145 Interest rates per annum on time deposits are as follows: Rupiah Foreign currency 2018 2.50%-9.25% 0.50%-3.75% 2017 2.85%-8.50% 0.40%-1.75% 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. 41 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 4. OTHER CURRENT FINANCIAL ASSETS 2018 Balance 2017 Balance Original currency Rupiah Original currency Rupiah Currency (in millions) equivalent (in millions) equivalent Time deposits Related parties BNI BRI Third parties SCB UOB HSBC Others Total time deposits Available-for-sale financial assets Related parties PT Mandiri Manajemen Investasi PT Bahana TCW Investment Management (“Bahana TCW”) Others Sub-total Third parties Total available-for-sale financial assets Escrow accounts Others Total Rp Rp US$ US$ US$ Rp Rp Rp Rp Rp Rp US$ MYR Rp US$ MYR AUD - - 8 3 3 - - - - - - 0 5 - - - - 1 - 116 45 43 - 205 379 91 - 470 - 470 136 1 16 476 - - - 1,304 - - 8 14 - - - - - - - 6 5 - 0 0 0 - 2 109 191 - 23 325 711 360 80 1,151 17 1,168 318 78 15 263 6 0 0 2,173 The time deposits have maturities of more than three months but not more than one year, with interest rates as follows: Rupiah Foreign currency 2018 5.00% 1.35%-1.92% 2017 6.00%-7.00% 1.38%-1.64% Refer to Note 31 for details of related parties transactions. 42 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 43 2018 2017 1,649 522 219 467 2,857 (731) 2,126 721 465 372 670 2,228 (683) 1,545 2018 2017 12,044 1,542 13,586 (4,298) 9,288 9,808 1,517 11,325 (3,648) 7,677 2018 2017 1,748 296 813 2,857 (731) 2,126 1,405 100 723 2,228 (683) 1,545 2018 2017 8,006 1,502 4,078 13,586 (4,298) 9,288 6,809 688 3,828 11,325 (3,648) 7,677 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 7,512 2,244 1,797 4,890 16,443 394 281 329 4,025 5,029 2018 Provision for impairment of receivables Gross Gross 2017 Provision for impairment of receivables 920 281 258 2,872 4,331 6,788 1,426 788 4,551 13,553 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, 2018 and 2017, the carrying amounts of trade receivables of the Group considered past due but not impaired amounted to Rp4,296 billion and Rp3,354 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 2018 2017 2,850 7 0 2,857 (731) 2,126 2018 2017 11,348 2,118 19 101 13,586 (4,298) 9,288 2,187 41 0 2,228 (683) 1,545 10,300 968 19 38 11,325 (3,648) 7,677 44 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 2018 2017 4,331 1,724 (1,026) 5,029 2,990 1,494 (153) 4,331 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, 2018, certain Rp7,116 billion have been pledged as collateral under lending agreements (Notes 15 and 16c). the subsidiaries amounting trade receivables of 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 2018 2017 429 137 218 784 (38) (28) (1) (67) 717 Movements in the provision for obsolescence are as follows: Beginning balance Provision recognized during the year Inventory written off Ending balance 2018 2017 53 22 (8) 67 447 168 69 684 (24) (29) 0 (53) 631 47 6 - 53 inventories The in operations, maintenance and telecommunication service expenses as of December 31, 2018 and 2017 amounted to Rp2,625 billion and Rp2,458 billion, respectively (Note 24). recognized as expense and included 45 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Rp235 billion have been pledged as collateral under lending agreements (Notes 16c). As of December 31, 2018 and 2017, modules and components held by the Group with book value amounting to Rp125 billion and Rp143 billion, respectively, have been insured against fire, theft, and other specific risks. Total sum insured as of December 31, 2018 and 2017 amounted to Rp176 biliion and Rp256 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 The breakdown of other current assets is as follows: Frequency license (Note 34c.i) Advances Prepaid rental Prepaid salaries Advance to employee Others Total 2018 2017 3,636 1,803 1,382 200 30 931 7,982 Refer to Note 31 for details of related parties transactions. 8. LONG-TERM INVESTMENTS The Group has investments in several entities as follows: 2018 Percentage of Beginning Additions balance (deductions) Dividend Impairment Share of net profit (loss) Share of other comprehensive income Long-term investments in associated companies: Tiphonea Indonusab Teltranetc PT Integrasi Logistik ownership 24.00 20.00 51.00 Cipta Solusi (“ILCS”)d 49.00 45.00 30.40 25.00-32.00 PT Graha Sakura Nusantara (“GSN”)e Cellumf Othersg Sub-total Other long-term investments Total long-term investments 1,539 221 18 43 14 - 4 1,839 309 2,148 - - - - - 84 - 84 253 337 87 (11) (19) 1 0 (5) 0 53 - 53 (9) - - - - - 0 (9) - (9) (15) - 1 0 - - 0 (14) - (14) - - - - - - - - - - (43) (43) 46 3,760 1,156 1,349 227 35 656 7,183 Ending balance 1,602 210 0 - 44 - 14 79 4 1,953 519 2,472 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 8. LONG-TERM INVESTMENTS (continued) Summarized financial information of the Group’s investments accounted under the equity method for 2018: Tiphone Indonusa Teltranet ILCS GSN Cellum Others 269 116 (269) (138) (22) 132 47 (87) (2) 90 184 - 154 - 338 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 7,615 892 (1,466) (3,062) 3,979 29,228 (28,117) (391) 720 (137) 583 (63) 449 310 (571) (297) (109) 824 (583) (39) 202 (55) 147 (3) 520 144 Percentage of Beginning Additions 206 (264) 164 (162) 1 3 (1) 2 - 2 (13) (71) 12 (59) 1 (58) 2017 22 43 (23) (20) 22 22 (46) (10) (34) - (34) - 201 601 (663) (1,863) (1,724) 95 (233) (33) (171) (1) (172) - 5 (5) 1 1 (0) 1 - 1 (34) (172) balance (deductions) Dividend Share of net profit (loss) Share of other comprehensive Ending balance income ownership 24.00 20.00 51.00 49.00 45.00 25.00-49.00 Long-term investments in associated companies: Tiphonea Indonusab Teltranetc ILCSd GSNe Othersg Sub-total Other long-term investments Total long-term investments 1,488 221 38 42 - - 1,789 58 1,847 - - - - 14 4 18 251 269 80 - (20) 1 0 (0) 61 - 61 (28) - - - - - (28) - (28) (1) - - - - (0) (1) - 1,539 221 18 43 14 4 1,839 309 (1) 2,148 47 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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) 332 307 415 (877) (177) (332) 692 (333) (364) (5) - (5) - (5) 174 101 (149) (90) 36 209 (255) (5) (51) 13 (38) (0) (38) 145 32 (87) (2) 88 122 (116) (4) 2 1 3 (0) 3 1 185 (27) (129) 30 190 606 (724) (1,882) (1,810) 0 (0) (0) 0 - 0 - 0 106 (287) (19) (200) - (200) - (200) 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, 2018 and 2017, to Rp1,649 billion and Rp1,755 billion, respectively. The fair value was calculated by multiplying the number of shares by the published price quotation as of December 31, 2018 and 2017 amounting to Rp940 and Rp1,000 per share, respectively. investment amounted fair value of the the Reconciliation of information December 31, 2018 and 2017 is as follows: financial to the carrying amount of long-term investment in Tiphone as of Assets Liabilities Net Assets Group's proportionated share of net assets (24.00% in 2018 and 2017) Goodwill Carrying amount of long-term invesment 8,507 (4,528) 3,979 955 647 1,602 9,078 (5,362) 3,716 892 647 1,539 2018 2017 b Indonusa had been a subsidiary of the Company until 2013 when the Company disposed 80% of its interest in Indonusa. On May 14, 2014, based on the Circular Resolution of the Stockholders of Indonusa as covered by notarial deed No. 57 dated April 23, 2014 of FX Budi Santoso its Letter No. AHU-02078.40.20.2014 dated April 29, 2014, Indonusa’s stockholders approved an increase in its issued and fully paid capital by Rp80 billion. The Company 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%. c 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. The unrecognized share of losses in Teltranet for the year ended December 31, 2018 are Rp11 billion. Isbandi, S.H., which was approved by the MoLHR in d ILCS is engaged in providing E-trade logistic services and other related services. e On August 31, 2017, NSI and third party established GSN which engaged in real estate, residential and apartment marketing business. f Investment in Cellum is accounted for under the equity method, which covered by a conditional shares subscription agreement between Metranet and Cellum in January 30, 2018. Cellum is a company which engaged in mobile payment and commerce services. g The unrecognized share of losses in other investments cumulatively as of December 31, 2018 are Rp263 billion. 48 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT January 1, 2018 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2018 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 Asset under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total 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 46 43 - - - - - - 13 23 - 46 6 - 2 - - - - - - - 179 39 67 23 818 3 3,266 2,414 5,887 484 140 1,765 471 203 18 17,821 21 - 176 4 - - - 33,620 - (1) (24) (1,920) - (6,398) (3) (36) (187) (540) - (18) (1) - (23) - (82) - (68) - (90) - (9,391) 22 1,922 119 (2,070) - 10,743 261 (7,555) 1,275 1,348 (1) 86 (6) (21) (17,339) - - 1 - - - - (11,215) 1,626 11,833 1,375 15,291 1,586 141,408 11,972 45,451 17,864 14,265 3,423 2,142 641 94 4,876 5,603 1 578 16 22 125 252 280,444 January 1, 2018 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2018 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 Asset under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Net book value 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 20 120 234 137,080 130,171 513 150 1,307 518 10,958 677 2,076 1,332 1,040 428 290 62 4 603 7 60 44 - 43 10 20,122 (1) (24) (1,920) - (5,579) (3) (36) (177) (519) - (18) (1) - - (82) - (54) - (90) - (8,504) 13 - (3,390) - (372) (3) (7,719) 7 (10) (1) 4 (6) (25) - - - - - - - (11,502) 3,405 949 10,550 1,320 74,247 5,005 12,185 12,316 10,747 1,029 1,312 281 75 3,241 1 126 70 20 73 244 137,196 143,248 - - - - - - - - - - - - - - - - - - - - - 49 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Asset under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Accumulated depreciation and impairment losses: Directly acquired assets Buildings Leasehold improvements Switching equipment Telegraph, telex and data communication equipment Transmission installation and equipment Satellite, earth station and equipment Cable network Power supply Data processing equipment Other telecommunication peripherals Office equipment Vehicles Other equipment Asset under finance lease Transmission installation and equipment Data processing equipment Vehicles Office equipment CPE assets Power supply RSA assets Total Net book value January 1, 2017 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2017 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 Acquisition Additions Deductions Reclassifications/ Translations December 31, 2017 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 a. Gain on sale of property and equipment Proceeds from sale of property and equipment Net book value Gain on sale of property and equipment 2018 2017 629 (1) 628 1,367 (1,009) 358 50 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) b. Asset impairment In 2014, the Group decided to cease its fixed wireless business, and accelerated the depreciation of its fixed wireless assets in 2015. In 2017, the Company derecognized the fixed wireless asset which fully depreciated with acquisition cost of Rp3,193 billion. As of December 31, 2018, the CGUs that independently generate cash inflows were fixed wireline, cellular and others. Management believes that there is no indication of impairment in the assets as of December 31, 2018. c. Others (i) to property under construction amounted Interest capitalized to Rp271 billion and Rp328 billion for the years ended December 31, 2018 and 2017, respectively. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization ranged from 9.68% to 11.00% and 8.15% to 11.00% for the years ended December 31, 2018 and 2017, respectively. (ii) No foreign exchange loss was capitalized as part of property under construction for the years ended December 31, 2018 and 2017. (iii) In 2018 and 2017, the Group obtained proceeds from the insurance claim on lost and broken property and equipment, with a total value of Rp153 billion and Rp155 billion, respectively, and were recorded as part of “Other Income” in the consolidated statements of profit or loss and other comprehensive income. In 2018 and 2017, the net carrying amount of those assets of Rp51 billion and Rp7 billion, respectively, were charged to the consolidated statements of profit or loss and other comprehensive income. (iv) In 2018 and 2017, Telkomsel decided to replace certain equipment units with net carrying amount of Rp341 billion and Rp620 billion, respectively, as part of its modernization program and 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, 2018 amounting to Rp378 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 change in useful lives increases 2018 profit before income tax amunting to Rp135 billion. In 2018, the estimated useful lives of radio software license and data processing equipment were changed from 7 to 10 years and from 3 to 5 years, respectively. The reduction in the depreciation expense for the year ended December 31, 2018 amounting to Rp925 billion. The change in useful lives will increase/(decrease) profit before income tax in future years as follows: Years 2019 2020 2021 2022 Increase (Decrease) 637 266 18 (106) 51 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (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 2018 and 2017, the Company derecognized the copper cable network asset with net carrying amount of Rp0 and Rp1 billion, respectively, and recorded the fiber optic network asset from the exchange transaction of Rp0 and Rp506 billion, respectively. In 2018 and 2017, Telkomsel’s certain equipment units with net carrying amount of Rp777 billion and Rp816 billion, respectively, were exchanged with equipment from Ericsson AB, PT Ericsson Indonesia, PT Huawei Tech Investment, PT Nokia Solutions and Network Indonesia, and PT ZTE Indonesia. As of December 31, 2018, Telkomsel’s equipment units with net carrying amount of Rp340 billion are going to be exchanged and, therefore, these equipment were reclassified as “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, 2018, the Group’s property and equipment excluding land rights, with net carrying amount of Rp134,586 billion were insured against fire, theft, earthquake and other specified totalling Rp16,059 billion, US$47 million, HKD9 million, SGD225 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, (viii) As of December 31, 2018, the percentage of completion of property under construction was around 62.80% of the total contract value, with estimated dates of completion until September 2020. 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 gross carrying value amounting to Rp8,077 billion have been pledged as collateral under lending agreements (Notes 15, 16c and 16d). (x) As of December 31, 2018, the cost of fully depreciated property and equipment of the Group that are still used in operations amounted to Rp50,633 billion. The Group is currently performing modernization of network assets to replace the fully depreciated property and equipment. 52 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 9. PROPERTY AND EQUIPMENT (continued) c. Others (continued) (xi) In 2018, 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 Rp33,557 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 Future minimum lease payments required for assets under finance leases are as follows: Years 2018 2019 2020 2021 2022 2023 Thereafter Total minimum lease payments Interest Net present value of minimun lease payments Current Maturities (Note 15b) Long-term portion (Note 16) 2018 2017 - 1,049 945 781 605 254 130 3,764 (619) 3,145 (807) 2,338 1,083 969 866 778 605 254 130 4,685 (881) 3,804 (794) 3,010 The details of obligations under finance leases as of December 31, 2018 and 2017 are as follows: 2018 2017 PT Tower Bersama Infrastructure Tbk PT Profesional Telekomunikasi Indonesia PT Mandiri Utama Finance PT Solusi Tunas Pratama PT Putra Arga Binangun PT Mitsubishi UFJ Lease & Finance Indonesia PT Bali Towerindo Sentra Others (each below Rp75 billion) Total 1,089 930 186 181 159 103 86 411 3,145 1,293 1,120 198 212 189 135 100 557 3,804 53 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 10. OTHER NON-CURRENT ASSETS The breakdown of other non-current assets is as follows: Prepaid rental - net of current portion (Note 7) Claims for tax refund - net of current portion (Note 26) Frequency license - net of current portion (Note 7) Prepaid income taxes - net of current portion (Note 26) Deferred charges Advances for purchases of property and equipment Convertible bonds Restricted Cash Security deposit Others Total 2018 2017 2,662 2,450 1,743 1,142 474 387 213 183 173 245 9,672 2,688 3,085 2,019 753 413 2,805 64 31 116 296 12,270 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, 2018 and 2017, deferred charges represent deferred Indefeasible Right of Use (“IRU”) Agreement charges. Total amortization of deferred charges for the year ended December 31, 2018 and 2017 amounted to Rp56 billion and Rp46 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, 2018 Additions Acquisition Deductions Reclassifications/translations Balance, December 31, 2018 Accumulated amortization and impairment losses: Balance, January 1, 2018 Amortization Deductions Reclassifications/translations Balance, December 31, 2018 Net book value 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 Goodwill Software License Other intangible assets Total 680 - 422 - (36) 1,066 (29) - - - (29) 1,037 8,387 2,328 1 (51) 15 10,680 (5,714) (1,226) 51 (7) (6,896) 3,784 84 14 2 (11) 5 94 (71) (9) 4 (5) (81) 13 635 19 - - 33 687 (442) (49) - 2 (489) 198 9,786 2,361 425 (62) 17 12,527 (6,256) (1,284) 55 (10) (7,495) 5,032 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 54 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 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 11. INTANGIBLE ASSETS (continued) (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), Nutech (2017), Swadharma (2018), CIP (2018) and Telin Malaysia (2018) (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, 2018, the cost of fully amortized intangible assets that are still used in operations amounted to Rp4,463 billion. 12. TRADE PAYABLES The breakdown of trade payables is as follows: Related parties Purchases of equipments, materials and services Payables to other telecommunication providers Sub-total Third parties Purchases of equipments, 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: Rupiah U.S. dollar Others Total Refer to Note 31 for details of related parties transactions. 13. ACCRUED EXPENSES 2018 2017 804 189 993 10,874 1,471 1,428 13,773 14,766 574 322 896 11,662 1,561 1,455 14,678 15,574 2018 2017 11,726 2,978 62 14,766 13,344 2,167 63 15,574 The breakdown of accrued expenses is as follows: Operation, maintenance and telecommunication services General, administrative and marketing expenses Salaries and benefits Interest and bank charges Total 8,013 2,299 2,219 238 12,769 7,093 2,684 2,664 189 12,630 2018 2017 Refer to Note 31 for details of related parties transactions. 55 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 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 2018 2017 4,374 356 284 176 5,190 2018 2017 258 394 652 4,800 300 148 179 5,427 205 319 524 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 MUFG Bank, Ltd. ("MUFG Bank") DBS UOB HSBC SCB Bank CIMB Niaga PT Bank Sumitomo Mitsui Indonesia ("Sumitomo") Others Sub-total Total Currency Rp Rp Rp Rp US$ Rp Rp US$ Rp Rp Rp Rp 2018 Outstanding Rupiah 2017 Outstanding Original currency (in millions) Rupiah equivalent - - - - - - - - - - - - 1,252 45 1,297 - 408 - 400 18 - - 83 80 3 992 2,289 equivalent 956 - 956 1,295 699 13 580 317 4 100 78 - 1 3,087 4,043 Original currency (in millions) - - - - 1 - - 0 - - - - 56 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 15. SHORT-TERM BANK LOANS AND CURRENT MATURITIES OF LONG-TERM BORROWINGS (continued) a. Short-term bank loans Other significant information relating to short-term bank loans as of December 31, 2018 is as follows: Borrower Currency Total facility (in billions)* Maturity date BNI 2014 - 2017 GSDe, Sigmaa Rp 375 January 9, 2019 - November 8, 2019 Interest payment period Monthly Interest rate per annum Security 9.00% Trade receivables (Note 5) and property and equipment (Note 9) Trade receivables (Note 5) None None Trade receivables (Note 5) Trade receivables (Note 5) Trade receivables (Note 5) Trade receivables (Note 5) None 2013 - 2018 MUFG Bank 2018 Telkom Infratel, Infomediaf, MD Media, Sigmae Telkomsel, Infomedia, Metra, TII 2018 2016 2016 Telkom Infratel, Infomedia Nuteche Sigmab,c DBS UOB Rp 2,895 January 9, 2019 - November 30, 2019 Monthly 1 month JIBOR + 2.20% - 3.00% Rp 2,350 March 27, 2019 - September 27, 2019 Monthly, Semi-annually 1 months JIBOR + 0.70% - 0.95%. 6 months JIBOR + 0.70% Rp 600 February 26, 2019 Monthly 1 month JIBOR + 0.70% None Rp US$ 17 October 13, 2019 Monthly 0.02 July 31, 2019 Semi-annually 10.50% - 11.00% 3.25% (US$), 10.75% (Rp) 2016 - 2018 MD Media, Finnetd Rp 800 April 6, 2019 - December 20, 2020 Monthly 1 month JIBOR + 2,00% HSBC 2018 Sigma Rp 600 July 15, 2019 Monthly 14.34% 2018 Sigma US$ 0.004 July 15, 2019 Monthly 13.12% 2018 PINS Rp 300 June 28, 2019 Quarterly 3 months JIBOR + 1,00% SCB 2015 Bank CIMB Niaga 2013 GSDe Rp GSDe Rp 100 March 28, 2019 Monthly 10.50% None 85 January 1, 2019 Monthly 10,90% - 11,50% Trade receivables (Note 5) and property and equipment (Note 9) a Based on the latest amendment on December 21, 2017. b Based on the latest amendment on December 5, 2018 c Facility in U.S. Dollar. Withdrawal can be executed in U.S. Dollar and Rupiah. d Based on the latest amendment on June 5, 2018. e Unsettled loan will be automatically extended. f Based on the lates amendment on March 28, 2018 and July 6, 2018. 57 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 15. SHORT-TERM BANK LOANS AND CURRENT MATURITIES OF LONG-TERM BORROWINGS (continued) a. Short-term bank loans (continued) Other significant information relating to short-term bank loans as of December 31, 2018 is as follows (continued): On February 26, 2018, the Company, Telkom Infratel and Infomedia entered a credit agreements with DBS amounting to Rp600 billion. As of December 31, 2018 the unused facilities was amounting to Rp125 billion. On March 21, 2018, the Company, TII, Infomedia and Metra entered a credit agreement with MUFG Bank amounting to Rp500 billion. As of December 31, 2018 the unused facilities was amounting to Rp80 billion. The credit facilities were obtained by the Company’s subsidiaries for working capital purposes. b. Current maturities of long-term borrowings Two-step loans Bonds and notes Bank loans Other borrowings Obligation under finance leases Total Notes 16a 16b 16c 16d 9c.xiii 2018 2017 198 525 4,472 294 807 6,296 206 - 4,110 99 794 5,209 16. LONG-TERM LOANS AND OTHER BORROWINGS Two-step loans Bonds and notes Bank loans Other borrowings Obligation under finance leases Total Notes 16a 16b 16c 16d 9c.xiii 2018 2017 751 9,956 18,753 1,950 2,338 33,748 892 8,982 13,894 1,196 3,010 27,974 Scheduled principal payments as of December 31, 2018 are as follows: Two-step loans Bonds and notes Bank loans Other borrowings Obligation under finance leases Total Notes 16a 16b 16c 16d 9c.xiii a. Two-step loans Total 2020 751 9,956 18,753 1,950 198 2,490 7,653 404 2,338 33,748 768 11,513 Year 2021 181 477 3,051 405 670 4,784 2022 2023 144 2,197 2,577 405 Thereafter 101 4,792 2,659 321 127 - 2,813 415 549 5,872 233 3,588 118 7,991 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. 58 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) a. Two-step loans (continued) 2018 Outstanding Original currency Rupiah Currency (in millions) Yen US$ Rp Lenders Overseas banks Total Current maturities (Note 15b) Long-term portion Lenders Overseas banks 2017 Outstanding Original currency (in millions) 5,375 17 - Rupiah equivalent 648 237 213 1,098 (206) 892 4,607 13 - equivalent 602 188 159 949 (198) 751 Currency Yen US$ Rp Principal payment schedule Semi-annually Semi-annually Semi-annually Interest payment period Semi-annually Semi-annually Semi-annually Interest rate per annum 2.95% 3.85% 7.50% 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, 2018, the Company has complied with the above-mentioned ratios. b. Bonds and notes Bonds and notes Currency (in millions) equivalent (in millions) equivalent 2018 Outstanding 2017 Outstanding Original currency Rupiah Original currency Rupiah Bonds 2010 Series B 2015 Series A Series B Series C Series D Medium Term Notes ("MTN") MTN I Telkom 2018 Series A Series B Series C MTN Syariah Ijarah I Telkom 2018 Series A Series B Series C Total Unamortized debt issuance cost Total Current maturities (Note 15b) Long-term portion Rp Rp Rp Rp Rp Rp Rp Rp Rp Rp Rp - - - - - - - - - - - 1,995 2,200 2,100 1,200 1,500 262 200 296 264 296 182 10,495 (14) 10,481 (525) 9,956 - - - - - - - - - - - 1,995 2,200 2,100 1,200 1,500 - - - - - - 8,995 (13) 8,982 - 8,982 59 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) i. Bonds 2010 2010 Bonds Series B Principal Issuer 1,995 The Company Listed on IDX Issuance date Maturity date Interest payment period June 25, 2010 July 6, 2020 Quartely 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 the General Meeting of Bondholders on is Bank CIMB Niaga. Based on September 26, 2018, the trustee was changed to BTN. 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, 2018, 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, 2018 the Company has complied with the above-mentioned ratios. 2015 Bonds Series A Series B Series C Series D Total Principal Issuer 2,200 The Company 2,100 The Company 1,200 The Company 1,500 The Company 7,000 Issuance date Listed on IDX IDX IDX IDX 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 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 Bahana, PT Danareksa Sekuritas, PT Mandiri Sekuritas, and PT Trimegah Sekuritas Indonesia, Tbk 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. As of December 31, 2018, the rating of the bonds issued by Pefindo is idAAA (stable outlook). 60 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) i. Bonds (continued) 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, 2018, the Company has complied with the above-mentioned ratios. i. MTN MTN I Telkom Year 2018 Notes Currency Principal Issuance date Maturity date Interest payment period Series A Series B Series C Rp Rp Rp 262 September 4, 2018 September 14, 2019 Quarterly 200 September 4, 2018 September 4, 2020 Quarterly 296 September 4, 2018 September 4, 2021 Quarterly 758 Interest rate per annum Security 7.25% All assets 8.00% All assets 8.35% All assets Based on Agreement of Issuance and Appointment of Monitoring Agents of Medium Term Notes (MTN) I Telkom Year 2018 dated August 31, 2018 as covered by notarial deed No. 24 of Fathiah Helmi, S.H., the Company issued MTN with the principal amount up to Rp758 billion in series. Bahana, PT BNI Sekuritas, PT CGS-CIMB Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas act as the Arranger, BTN as the Monitoring Agent and PT Kustodian Sentral Efek Indonesia (“KSEI”) as the Custodian. The MTN are traded in private placement programs. The funds obtained from MTN are used for investment projects. As of December 31, 2018, the rating of the MTN issued by Pefindo is idAAA (Triple A). Under to the 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 interest ratio should not be less than 4:1 3. Debt Service Coverage is at least 125% As of December 31, 2018, 2018, the Company has complied with the above-mentioned ratios. MTN Syariah Ijarah I Telkom Year 2018 Notes Currency Principal Issuance date Maturity date return period Annual return payment Series A Rp 264 September 4, 2018 September 14, 2019 Quarterly Series B Rp 296 September 4, 2018 September 4, 2020 Quarterly Series C Rp 182 September 4, 2018 September 4, 2021 Quarterly 742 19 24 15 58 Security The Right to benefit of ijarah objects The Right to benefit of ijarah objects The Right to benefit of ijarah objects Based on Agreement of Issuance and Appointment of Monitoring Agents of Medium Term Notes (MTN) Syariah Ijarah Telkom Year 2018 dated August 31, 2018 as covered by notarial deed No. 26 of Fathiah Helmi, S.H., the Company issued MTN Syariah Ijarah with the principal amount up to Rp742 billion in series. 61 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) b. Bonds and notes (continued) ii. MTN (continued) MTN Syariah Ijarah I Telkom Year 2018 (continued) Bahana, PT BNI Sekuritas, PT CGS-CIMB Sekuritas Indonesia, PT Danareksa Sekuritas and PT Mandiri Sekuritas act as the Arranger, BTN as the Monitoring Agent and KSEI as the Custodian. The MTN Syariah Ijarah are traded in private placement programs. The funds obtained from MTN Syariah Ijarah are used for investment projects. The object of MTN Syariah Ijarah transaction is telecommunication network which is located in the special region of Yogyakarta, its network telecommunication involves cable network, information technology equipments, and other production tools of telecommunication services. As of December 31, 2018, the rating of the MTN Syariah Ijarah issued by Pefindo is idAAA sy (Triple A Syariah). Under to the 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 interest ratio should not be less than 4:1 3. Debt Service Coverage is at least 125% As of December 31, 2018, the Company has complied with the above-mentioned ratios. c. Bank loans Lenders Related parties BNI Bank Mandiri BRI Sub-total Third parties MUFG Bank Syndication of banks Citibank PT Bank Central Asia Tbk (“BCA”) UOB Singapore Sumitomo Bank CIMB Niaga ANZ UOB DBS PT Bank ICBC Indonesia ("ICBC") Exim Bank of Malaysia Berhad Japan Bank for International Cooperation ("JBIC") Others Sub-total Total Unamortized debt issuance cost Current maturities (Note 15b) Long-term portion 2018 Outstanding 2017 Outstanding Currency Original currency (in millions) Rupiah equivalent Original currency (in millions) Rupiah equivalent Rp Rp Rp Rp US$ Rp US$ Rp Rp US$ Rp Rp Rp Rp Rp Rp MYR US$ Rp MYR - - - - 10 - 37 - - 49 - - - - - - 23 3 - 13 6,826 4,546 1,248 12,620 3,011 144 1,750 532 1,000 740 710 661 462 440 428 379 204 81 45 33 46 10,666 23,286 (61) 23,225 (4,472) 18,753 62 - - - - - - - - - 49 - - - - - - 37 9 - 15 4,603 1,126 2,166 7,895 1,944 - 2,250 - - 1,100 664 804 1,726 440 500 144 249 124 128 26 50 10,149 18,044 (40) 18,004 (4,110) 13,894 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) Other significant information relating to bank loans as of December 31, 2018 is as follows: Total facility (in billions)* Current period payment (in billions)* Borrower Currency Principal payment schedule Interest payment period Interest rate per annum Security BNI 2018 2013 - 2018 Bank Mandiri 2016 - 2018 GSD Rp 182 8 2018 - 2021 Monthly 8.75% The Company, Telkomsela, GSD, TLT, Sigma, Dayamitra, Telkom Infratel, Telkom Akses The Company, Telkomsela,c, Balebat, Telkomsat Rp 9,892 1,671 2016 - 2033 Monthly, Quarterly 1 month JIBOR + 1.50% - 3.00%; 3 months JIBOR + 1.85% - 2.50% Rp 8,750 4,035 2017 - 2024 Monthly, Quarterly 8.50%, 8.75%, 9.00%, 9.50% 2017 BRI 2013 GSD, TII, Dayamitra Rp 845 - 2019 - 2024 Quarterly 3 months JIBOR + 1.85% GSD Rp 103 17 2014 - 2021 Monthly 10.00% Trade receivables (Note 5) Trade receivables (Note 5), Inventory (Note 6) and Property and equipment (Note 9) Trade receivables (Note 5), Inventory (Note 6) and Property and equipment (Note 9) None Trade receivables (Note 5), Property and equipment (Note 9) and lease agreement None 2017 - 2018 MUFG Bank 2015 - 2018 The Company, Dayamitra GSD, Metra, Infomedia, Dayamitra Rp 1,200 - 2019 - 2025 Rp 3,950 194 2016 - 2025 2018 TII US$ 0.01 - 2019 - 2023 Quarterly 3 months JIBOR + 1.85% Quarterly 3 months JIBOR + 1.43% - 2.25% Quarterly 3 months LIBOR + 1,25% Property and equipment (Note 9) and lease agreement None Syndication of Banks 2015 2018 Citibank 2018 BCA The Company, GSD TII Rp 3,000 US$ 0.09 500 2016 - 2022 Quarterly 3 months JIBOR + 2.00% - 2020 - 2024 Semi-annually 6 months LIBOR + 1,25% All Assets None The Company Rp 1,000 - 2019 - 2020 Quarterly 8.50% None 2017 - 2018 Metra, Dayamitra, Telkom Infratel Rp 870 21 2018 - 2025 UOB Singapore 2016 Sumitomo 2015 - 2017 TII US$ 0.06 - 2019 - 2024 GSD, Metra, Infomedia, Dayamitra Rp 1,150 194 2016 - 2022 Quarterly 3 months JIBOR + 1.50% - 1.85% Property and equipment (Note 9) Monthly 1 months JIBOR + 1.25% Quarterly 3 months JIBOR + 1.50% - 2.15% None None 63 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) Other significant information relating to bank loans as of December 31, 2018 is as follows (continued): Total facility (in billions)* Currency Borrower Current period payment (in billions)* Principal payment schedule Interest payment period Interest rate per annum Security Bank CIMB Niaga 2011 GSD Rp 78 8 2011 - 2021 Monthly 9.75% 2017 GSD, Metra ANZ 2015 - 2017 GSD, PINS Rp Rp 495 28 2018 - 2023 750 - 2020 - 2022 UOB 2016 Dayamitra Rp 500 71 2018 - 2024 Quarterly 3 months JIBOR + 1.50% Quarterly 3 months JIBOR + 2.00% Quarterly 3 months JIBOR + 2.20% DBS 2016 - 2017 Nutech, Telkomsat Rp 136 17 2017 - 2022 Monthly, Semi-annually 9.17%, 11.00% 2017 PINS, Dayamitra Rp 400 38 2018 - 2022 ICBC 2017 GSD Rp 272 45 2017 - 2023 Quarterly 3 months JIBOR + 1.50% Quarterly 3 months JIBOR + 2.36% Exim Bank of Malaysia Berhard 2016 JBICb 2013 2013 TIi The Company The Company MYR 0.06 0.014 2017 - 2020 Monthly ECOF + 1.89% US$ US$ 0.03 0.03 0.004 2014 - 2019 Semi-annually 2.18% 0.003 2014 - 2019 Semi-annually 6 months LIBOR + 1.20% Property and equipment (Note 9) and lease agreement None Property and equipment (Note 9) Property and equipment (Note 9) Trade receivables (Note 5) and Property and equipment (Note 9) None Trade receivables (Note 5) and Property and equipment (Note 9) None None None Other significant information relating to bank loans as of December 31, 2018 is as follows (continued): * 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, 2018 Telkomsel has complied with the above covenants. 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 December 11, 2018. 64 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) c. Bank loans (continued) As stated in the agreements, the Group is required to comply with all covenants or restrictions such financial ratios. As of as dividend distribution, obtaining new December 31, 2018, the Group has complied with all covenants or restrictions, except for certain loans. As of December 31, 2018, the Group obtained waiver from lenders to not demand the loan payment as consequence of the breach of covenants. loans, and maintaining On March 13, 2015, the Company, GSD, Metra and Infomedia entered into several credit facilities agreements with Sumitomo, MUFG Bank, ANZ and syndication of banks (BCA and BNI) amounting to Rp750 billion, Rp750 billion, Rp500 billion, and Rp3,000 billion, respectively. Based on amendment on August 2, 2016, Dayamitra and Telkom Akses are included as borrowers into Sumitomo and MUFG Bank credit facilities agreement and excluded GSD from those agreement. Based on the latest amendment on March 13, 2017, PINS is included as one of borrower into ANZ’s credit facility agreement. In 2017, PINS drawn down the facility amounted to Rp200 billion. As of December 31, 2018 the unused facilities for Sumitomo, MUFG Bank and ANZ amounted to Rp82.5 billion, Rp82.5 billion and Rp60 billion, respectively. On March, 24, 2017, the Company, Dayamitra, Sigma, GSD and TII entered several credit agreements with BRI, BNI, and Bank Mandiri amounting to Rp1,000 billion, Rp2,005 billion and Rp1,500 billion, respectively. As of December 31, 2018, the unused facilities for Bank Mandiri amounted to Rp5 billion. On March 30, 2017, The Company, GSD, Metra, Dayamitra, PINS, and Telkomsat entered into several credit agreements with MUFG Bank, Sumitomo, DBS, Bank CIMB Niaga, and BCA amounting to Rp400 billion, Rp400 billion, Rp850 billion, Rp495 billion and Rp850 billion, respectively. Based on amendment on June 29, 2017, Telkom Infratel is included as one of borrower into BCA’s credit facility agreement replaced PINS. As of December 31, 2018, the unused facilities for MUFG Bank, Sumitomo, DBS, Bank CIMB Niaga, and BCA amounted to Rp79 billion, Rp79 billion, Rp420 billion, Rp20 billion and Rp564 billion, respectively. On March, 27, 2018, the Company, Dayamitra and TII entered into several credit agreements with BNI, BRI, Bank Mandiri and MUFG Bank amounting to Rp825 billion, Rp700 billion, Rp775 billion and Rp800 billion. As of December 31, 2018, the unused facilities for BNI, BRI, Bank Mandiri dan MUFG Bank amounting to Rp825 billion, Rp500 billion, Rp775 billion, and RpNil, respectively. The credit facilities were obtained by the Group for working capital purposes. d. Other borrowing Lenders PT Sarana Multi Infrastruktur Unamortized debt issuance cost Total Current maturities (Note 15b) Long-term portion Currency Rp Outstanding Rupiah 2018 Rupiah 2017 2,250 (6) 2,244 (294) 1,950 1,300 (5) 1,295 (99) 1,196 65 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 16. LONG-TERM LOANS AND OTHER BORROWINGS (continued) d. Other borrowing (continued) i. Dayamitra Borrower Currency Total facility (in billions) Current period payment (in billions) Principal payment schedule Interest rate per annum Security PT Sarana Multi Infrastruktur October 12, 2016 50 Rp Rp 700 Dayamitra Dayamitra March 29, 2017 Semi- annually (2018-2024) 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%. Semi- annually (2018-2024) 3 months JIBOR+1.85% 3 months JIBOR+1.85% 600 - As of December 31, 2018, Dayamitra has complied with the above-mentioned ratios. ii. The Company Borrower Currency Total facility (in billions) Current period payment (in billions) Principal payment schedule Interest rate per annum Security PT Sarana Multi Infrastruktur November 14, 2018 The Company Rp 1,000 - Semi- annually (2019-2023) 8.35% None Under the 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 interest ratio should not be less than 4:1. 3. Minimal debt service coverage at least 125%. As of December 31, 2018, The Company has complied with the above-mentioned ratios. 66 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Non-controlling interests in net income (loss) of subsidiaries: Telkomsel Metra TII GSD Total 2018 2017 17,899 212 171 111 18,393 18,944 186 115 172 19,417 2018 2017 8,937 11 7 (8) 8,947 10,637 (82) 6 (5) 10,556 Material partly-owned subsidiary As of December 31, 2018 and 2017, 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 2018 2017 Current assets Non-current assets Current liabilities Non-current liabilities Total equity Attributable to: Equity holders of parent company Non-controlling interest 16,836 65,814 (20,737) (10,767) 51,146 33,247 17,899 21,098 64,650 (23,031) (8,587) 54,130 35,186 18,944 67 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 17. NON-CONTROLLING INTERESTS (continued) Summarized statements of profit or loss and other comprehensive income 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 Attributable to non-controlling interest Dividend paid to non-controlling interest Summarized statements of cash flows Operating activities Investing activities Financing activities Net decrease in cash and cash equivalents CF 18. CAPITAL STOCK 2018 2017 89,246 (55,286) 124 34,084 (8,548) 25,536 356 25,892 8,937 10,105 93,217 (53,183) 380 40,414 (10,018) 30,396 (392) 30,004 10,637 12,334 2018 2017 36,848 (16,095) (24,867) (4,114) 39,564 (13,984) (34,720) (9,140) Description Series A Dwiwarna share Government Series B shares Government The Bank of New York Mellon Corporation* Commissioners (Note 1b): Hendri Saparini Rinaldi Firmansyah Directors (Note 1b): Alex Janangkih Sinaga Herdy Rosadi Harman Abdus Somad Arief Dian Rachmawan Harry Mozarta Zen David Bangun Siti Choiriana Public (individually less than 5%) Total Number of shares 2018 Percentage of ownership Total paid-in capital 1 51,602,353,560 4,944,921,880 654,505 454,113 1,683,359 1,514,720 1,515,022 1,575,562 689,492 1,000 540 42,506,852,846 99,062,216,600 0 52.09 4.99 0 0 0 0 0 0 0 0 0 42.92 100.00 0 2,580 247 0 0 0 0 0 0 0 0 0 2,126 4,953 68 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 18. CAPITAL STOCK (continued) 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 Number of shares 1 51,602,353,560 6,078,374,280 2017 Percentage of ownership Total paid-in capital 0 52.09 6.14 0 2,580 304 414,157 875,297 147,100 0 0 0 0 0 0 920,349 828,012 828,314 888,854 41,376,586,676 99,062,216,600 1,737,779,800 100,799,996,400 0 0 0 0 41.77 100.00 - 100.00 0 0 0 0 2,069 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. 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 211,290,500 shares under the treasury stock plan phase I (Note 20) Excess of value over cost of selling 215,000,000 shares under the treasury stock plan phase II (Note 20) Difference in value arising from restructuring transactions between entities under common control Excess of value over cost of treasury stock transferred to employee stock ownership program (Note 20) Excess of value over cost of selling 22,363,000 shares under the treasury stock plan phase III (Note 20) Excess of value over cost of selling 864,000,000 shares under the treasury stock plan phase IV (Note 20) Capitalization into 746,666,640 Series B shares in 1999 Reduction additional paid in capital as a result of cancellation treasury stock (Note 20) Differences from acquisition of non-controlling interest Net 2018 2017 1,446 1,446 544 576 478 228 36 1,996 (373) (2,454) (22) 2,455 544 576 478 228 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 the development of Government telecommunication infrastructure. As of December 31, 2018 and 2017, the accumulated development of the related infrastructure amounting to Rp537 billion, respectively. this compensation funds received to use from the for 69 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 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 Maximum Purchase 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 Movements in treasury stock as a result of the repurchase of shares are as follows: Beginning balance Sale of treasury stock Ending balance 2018 Number of shares 1,737,779,800 (1,737,779,800) - % 1.72 (1.72) - 2017 Number of shares Rp 2,541 1,737,779,800 - (2,541) - 1,737,779,800 % 1.72 - 1.72 Rp 2,541 - 2,541 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 2011, the Company bought back 283,085,460 shares (equivalent to 1,415,427,300 shares after stock split) from the public (part of stock repurchase program 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) amounting to Rp1,744 billion. Total shares of repurchase amounting to 2,601,779,800 shares. 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). The Company diverted shares of repurchase program phase I in 2013, shares of repurchase program phase II in 2014, and shares of repurchase program phase III in 2015. 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). 70 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 20. TREASURY STOCK (continued) At the AGM held on April 27, 2018 which were covered by notarial deed No.54 of Ashoya Ratam, S.H.,M.Kn., the stockholders approved for cancellation 1,737,779, 800 shares of treasury stock with acquisition cost amounting to Rp2,541 billion by reduced the Company’s capital stock from 100,799,996,400 shares to 99,062,216,600 shares (decrease amounting to Rp87 billion) (Note 18). 21. OTHER EQUITY Translation adjustment Effect of change in equity of associated companies Unrealized holding gain on available-for-sale securities Difference due to acquisition of non controlling interests in subsidiaries Other equity components Total 673 386 48 (637) 37 507 527 386 58 (637) 53 387 2018 2017 22. REVENUES REVENUES 22. Telephone revenues Cellular Fixed lines Total telephone revenues Interconnection revenues Data, internet, and information technology service revenues Cellular 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 CPE and terminal Call center service Telecommunication tower leases E-health E-payment Others Total other revenues Total revenues Note.2 2. 1.R ev enu es_ Eng 2018 2017 30,431 5,888 36,319 5,463 45,154 19,454 9,185 2,508 852 77,153 1,723 1,851 1,450 1,052 909 563 449 3,852 10,126 130,784 37,246 6,665 43,911 5,175 37,961 15,085 13,192 1,944 353 68,535 1,873 2,292 536 970 796 470 505 3,193 8,762 128,256 71 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 22. REVENUES (continued) The detail of net revenues received by the Group from agency relationships for the years ended as December 31, 2018 and 2017 are as follows: Gross revenues Compensation to value added service providers Net revenues Refer to Note 31 for details of related parties transactions. 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) LSA expense (Note 30) Other employee benefit cost (Note 29) Other post-employment benefit cost (Note 29) Others Total Refer to Note 31 for details of related parties transactions. 2018 2017 46,672 (1,518) 45,154 39,111 (1,150) 37,961 2018 2017 8,077 3,292 1,120 335 161 113 32 48 13,178 7,821 3,339 1,700 276 255 62 42 34 13,529 24. OPERATION, MAINTENANCE AND TELECOMMUNICATION SERVICE EXPENSES The breakdown of operation, maintenance and telecommunication service expenses is as follows: Operation and maintenance Radio frequency usage charges (Note 34c.i) 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 Refer to Note 31 for details of related parties transactions. 2018 2017 25,214 5,473 5,125 2,297 1,860 1,051 765 480 413 193 920 43,791 19,929 4,276 5,255 2,249 1,544 1,037 914 472 301 294 332 36,603 72 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 25. GENERAL AND ADMINISTRATIVE EXPENSES The breakdown of general and administrative expenses is as follows: General expenses Provision for impairment of receivables (Note 5d) Professional fees Training, education and recruitment Travelling Meeting Social contribution Collection expenses Others Total Refer to Note 31 for details of related parties transactions. 2018 2017 1,792 1,724 823 463 415 233 181 157 349 6,137 1,449 1,494 498 531 475 241 197 135 240 5,260 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 Article 22 - Witholding tax on goods delivery and import Article 23 - Witholding tax on service delivery VAT Subsidiaries: Corporate Income Tax Income Tax Article 23 - Witholding tax on service delivery VAT Total prepaid taxes Current portion Non-current portion (Note 10) 73 2018 2017 494 1,119 406 1,027 3,046 (596) 2,450 610 1,338 174 1,871 3,993 (908) 3,085 2018 2017 - 63 1,048 14 1 2,765 3,891 (2,749) 1,142 1 44 629 1 17 2,008 2,700 (1,947) 753 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) c. Taxes payable 2018 2017 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 - Tax collector Subsidiaries: Income taxes Article 4 (2) - Final tax Article 21 - Individual income tax Article 22 - Withholding tax on goods delivery and imports Article 23 - Withholding tax on services Article 25 - Installment of corporate income tax Article 26 - Withholding tax on non-resident income Article 29 - Corporate income tax VAT Total taxes payable 18 47 3 36 1 3 334 442 75 113 5 110 14 7 389 25 738 1,180 26 81 3 29 1 1 372 513 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 2018 2017 236 9,196 9,432 (103) 97 (6) 9,426 586 10,771 11,357 (1,603) 204 (1,399) 9,958 74 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) d. The components of income tax expense (benefit) are as follows (continued): 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: 2018 2017 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 Deferred tax assets that cannot be utilized - net Deferred tax assets on fixed assets revaluation for tax purpose Others Net income tax expense 36,405 (1,277) 35,128 7,026 1,753 398 60 (2) - 191 9,426 42,659 (1,491) 41,168 8,234 2,046 761 591 (6) (1,796) 128 9,958 The reconciliation between the profit before income tax and the estimated taxable income of the Company for the years ended December 31, 2018 and 2017 are as follows: 2018 2017 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 Deferred installation fee Provision for impairment of assets Provision for personnel expenses Depreciation and gain on sale of property and equipment Finance leases Other provisions Net temporary differences 36,405 25,933 62,338 (43,322) 19,016 (425) 18,591 193 133 92 - (532) (180) (10) 349 45 42,659 21,445 64,104 (43,702) 20,402 (462) 19,940 1,030 985 (4) (1,012) 188 (3,120) (3) (76) (2,012) 75 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2018 and 2017 are as follows (continued) : 2018 2017 Permanent differences: Net periodic post-retirement healthcare benefit costs Employee benefits Donations Gain on transfer business to under common control entities Equity in net income of associates and subsidiaries Others Net permanent differences Compensation of fiscal loss Taxable income of the Company Current corporate income tax expense Final income tax expense Current income tax expense on tax assessment Total current income tax expense of the Company Current income tax expense of the subsidiaries Total current income tax expense 335 215 123 - (17,852) (71) (17,250) (986) 400 80 57 99 236 9,196 9,432 276 264 194 86 (20,635) 1,026 (18,789) - (861) - 586 - 586 10,771 11,357 implementing Tax Law No. 36/2008 with rules under 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, 2018 and 2017, the Company has reduced the applicable tax rate by 5%. The Company applied the tax rate of 20% for the years ended December 31, 2018 and 2017. The subsidiaries applied the tax rate of 25% for the years ended December 31, 2018 and 2017. 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 2018 that will be reported to the tax office based on prevailing regulations. The amount of corporate income tax for the year ended December 31, 2017, is different with what was reported in the annual tax return due to adjustment of fiscal correction from tax assessment for fiscal year 2016. 76 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (i) The Company On November 15, 2013, the Company received tax underpayment assessment letters (“SKPKBs”) for the underpayment of VAT for the period January to September and November 2007 amounting to Rp142 billion. On January 20, 2014, the Company filed its objection to the Tax Authorities, 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. to The portion of VAT 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 the rejection of its objection to the assessment of VAT international incoming call interconnection. interconnection amounting incoming call international 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% VAT 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 tax collection letter (”STP”) for withholding tax article 21 and SKPKBs of VAT on tax collected and self-assessed offshore VAT. for request filed a On October 26 and November 23, 2017, the Company received a notification from Tax Court review. On November 23 and that Tax Authorities December 21, 2017, to response the judicial review from Tax Authorities, the Company sent contra memorandum for judicial review to Supreme Court (“SC”). In September and November 2018, the Company received the verdict from the SC as the result of the tax audit for tax period June to August and November 2007. Based on the verdict, the SC rejected the Tax Authorities’ judicial review and strengthen the Tax Court’s verdict. As of the date of approval and authorization for the issuance of these consolidated financial statements, the judicial review for tax period May 2007 is still in process. judicial In November 2014, the Company received SKPKBs from the Tax Authorities as the result of the tax audit 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. 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 this objection. On January 20, 2016, the Company filed an appeal on the decision of its objection. issued a regarding rejection 77 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (i) The Company (continued) On April 4 and 5, 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% VAT and granted the Company’s appeal for the tax period January and September to December 2011. 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. On October 15, 2018, the Company received a notification from Tax Court that Tax Authorities field a request for judicial review for the tax period January and September to December 2011. On November 13, 2018, to response the judicial review from Tax Authorities, the Company sent contra memorandum for judicial review to SC for the tax period January and September to December 2011. In November 2018, the Company received a notification from Tax Court that Tax Authorities field a contra memorandum for judicial review for the tax period February to August 2011. As of the date of approval and authorization for the issuance of these consolidated financial statements, the judicial review is still in process. On May 3, 2016, the Tax Authorities issued Field Tax Audit Notification Letter for tax period January to December 2012. On November 3, 2016, Tax Authorities issued SKPKBs for fiscal year 2012, wherein the Company was liable for underpayment 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 on tax collected underpayment amounting to Rp57 billion (including penalty of Rp18.5 billion). The Company also received 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 2016 consolidated statement of profit or loss and other comprehensive income. 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 from Directorate General of Taxes (“DGT”) 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. 78 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (i) The Company (continued) On October 19, 2017, the Tax Authorities issued Decision Letter on Company’s objections, wherein the Tax Authorities has reduced Company’s underpayment. Based on Decision Letter, the Company was liable for underpayment of withholding tax article 21 amounting to 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 withholding 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 and 31, 2017, the Tax Authorities issued Decision Letter on Company’s objection, wherein the Tax Authorities has reduced Company’s underpayment for VAT from the tax period January to December 2012 totaling to 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 Authorities issued Field Tax Audit Notification Letter for tax period January to December 2015 regarding overpayment of corporate income tax amounting to Rp414 billion. On April 25, 2017, the Tax Authorities issued Tax Overpayment Assessment Letter (“SKPLB”) for overpayment of corporate income tax amounting to to Rp13 billion Rp147 billion, and SKPKBs (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). The Company also received STP for VAT amounting to Rp34 billion, VAT on tax collected amounting to Rp7 billion and self-assessed offshore VAT amounting to Rp8 billion. for underpayment of VAT amounting The Company accepted tax audit decision amounting to Rp17 billion for corporate income tax, to transfer deductible temporary differences related to provision for incentives to fixed wireless (Flexi) subscribers’ migration amounting to Rp42 billion from Annual Tax Return of corporate income tax fiscal year 2015 to Annual Tax Return of corporate income tax fiscal year 2016. The Company also accepted underpayment of VAT, underpayment of VAT on tax collected and STP for VAT on tax collected totaling to Rp26 billion. The accepted portion was charged to the 2017 consolidated financial statement of profit or loss and other comprehensive income. On July 24, 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. On May 3 and 22, 2018, the Tax Authorities issued Decision Letter on Company’s objections for SKPLB of self-assessed offshore VAT amounting to Rp54 billion and granted all the Company’s objection. On July 18, 2018, the Tax Authorities issued Decision Letter on Company’s objections for SKPLB of corporate income tax, wherein the Tax Authorities has granted the several Company’s objection and additional amount of overpayment which should be received amounting to Rp76 billion. On October 10, 2018, the Company filed an appeal. As of the date of approval and authorization for the issuance of these consolidated financial statements, the appeal is still in process. 79 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (i) The Company (continued) On August 25, 2017, the Tax Authorities issued Field Tax Audit Notification Letter for tax periods January to December 2016 regarding overpayment of corporate income tax amounting to Rp114.4 billion. On June 7, 2018, Tax Authorities issued SKPLB of corporate income tax amounting to Rp15.3 billion, SKPKB of withholding tax article 26 amounting to Rp557 million (including penalty of Rp180 million) and SKPLB of VAT amounting to Rp923 billion. The Company accepted the assessment on the overpayment of corporate income tax amounting to Rp15.3 billion and for the remaining balance amounting to Rp99.1 billion was charged as current income tax expense on tax assesment, underpayment of withholding tax article 26 and correction of VAT In totaling to Rp10.5 billion, STP for VAT on tax collected amounting to Rp7.1 billion, VAT on free gifts amounting to Rp7.3 billion, VAT on transfer asset amounting to Rp1.2 billion and STP for VAT amounting to Rp1.7 billion. The accepted portion was charged to the consolidated financial statement of profit or loss and other comprehensive income. In July 2018, the Company received tax refund amounting to Rp882.7 billion and for the remaining balance amounting to Rp39.9 billion has been compensated to STP for VAT amounting to Rp31.9 billion, VAT on tax collected amounting to Rp7.1 billion, withholding tax article 23 amounting to Rp556 million and withholding tax article 21 amounting to Rp300 million. On August 31, 2018, the Company filed an objection to the Tax Authorities for VAT international incoming call interconnection services amounting to Rp151 billion and STP for VAT amounting to Rp30.3 billion. As of the date of approval and authorization for the issuance of these consolidated financial statements, the objection 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 and November 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. On July 25 and September 7, 2018, the Company received SKPLB for tax period December and November 2014. On August 24, 2018, the Company received tax refund amounting to Rp122.5 billion for December 2014 period. In October 2018, the Company received tax refund amounting to Rp80.8 billion and for the remaining balance amounting to Rp3.6 billion has been compensated to SKPKBs for self- assessed offshore VAT for tax period March, April and June 2015, STP for VAT for tax period November 2014, and other tax assessment letters. On November 6, 2018, the Tax Authorities issued Field Tax Audit Notification Letter for tax period 2017 for all taxes. As of the date of approval and authorization for the issuance of these consolidated financial statements, the tax audit is still in process. (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 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 Authorities has granted Telkomsel’s claim on interest income will be compensate against corporate income tax installment for the period of April 2017. In July 2018, Telkomsel received the official verdict from the SC which rejected the Tax Authorities request. 80 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) e. Tax assessment (continued) (ii) Telkomsel (continued) On April 21, 2010, the Tax Authorities filed a request for judicial review to the SC for the Tax Court’s acceptance of Telkomsel’s request to cancel the 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, Telkomsel 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 expense based on its previous experience on a similar income tax case. 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 the underpayment on which rejected Telkomsel’s request, July 10, 2017. On July 19, 2017, Telkomsel filed the second judicial review to contest against the SC’s verdict. On August 8, 2018, the SC accepted Telkomsel’s request. Telkomsel received Surat Pelaksanaan Putusan Peninjauan Kembali (“SP2PK”). therein Telkomsel paid In July and October 2017, Telkomsel received notifications that the Tax Authorities had filed a request for 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 memorandum for judicial review in August and November 2017. As of the date of approval and authorization for issuance of these financial statements, Telkomsel has received partial official verdicts from the SC which rejected the Tax Authorities’s request for VAT case amounting to Rp1.1 billion. On July 28, 2016 and March 24, 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 the issuance of these consolidated financial statements, the tax audit is still in progress. 81 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) f. Tax incentives In December 2015, the Company took advantage of the Economic Policy Package V in the form of tax incentives for fixed assets revaluation as stipulated in the Ministry of Finance Regulation (“PMK”) No. 191/PMK.010/2015 juncto PMK No. 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. to DGT on The Company submitted 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. fixed asset revaluation documents phase 1 the revaluation increment of Rp8,961 billion with estimated 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 tax of Rp538 billion. In 2017, 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 Rp2 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. income final A deductible temporary difference arose on this fixed assets revaluation for tax purposes since the tax base of the fixed assets is higher than their carrying amount. The deductible temporary difference results in a deferred tax asset since the economic benefits will flow to the Company in a form of reduction of taxable income in the future periods when the assets are recovered. In 2016 and 2017, the Company recognized deferred tax assets amounting to Rp1,415 billion and Rp1,796 billion, respectively, on the phase 1 and phase 2 revaluation increment on fixed assets as approved by the DGT. 82 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) g. Deferred tax assets and liabilities The details of the Group's deferred tax assets and liabilities are as follows: December 31, 2017 (Charged) credited to profit or loss Charged to other comprehensive income Charged to equity and reclassification December 31, 2018 663 632 420 215 92 79 9 - 2,110 (1) (11) (12) 2,098 406 641 270 911 (896) (616) (118) (1,630) (719) (533) (1,252) 2,504 The Company Deferred tax assets: Net periodic pension and other post-employment benefit costs Provision for impairment of receivables Difference between accounting and tax bases of property and equipment Provision for employee benefits Deferred installation fee Accrued expenses and provision for inventory obsolescence Land rights, intangible assets and others Fiscal loss Total deferred tax assets Deferred tax liabilities: Finance leases Valuation of long-term investment Total deferred tax liabilities Deferred tax assets 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 License amortization 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 1,102 594 240 247 74 43 (1) 172 2,471 1 (11) (10) 2,461 343 677 184 861 (561) (552) (225) (1,338) (477) (456) (933) 2,804 27 38 180 (32) 18 36 10 (172) 105 (2) - (2) 103 76 83 86 169 (335) (64) 107 (292) (123) (50) (173) 179 (466) - - - - - - - (466) - - - (466) (8) (119) - (119) - - - - (119) (5) (124) (474) - - - - - - - - - - - - - (5) - - - - - - - - (22) (22) (5) 83 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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): (Charged) Credited to other credited to equity December 31, credited to profit 2016 or loss comprehensive income and reclassification December 31, 2017 (Charged) 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 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 License amortization Total deferred tax liabilities Deferred tax liabilities of Telkomsel - net Deferred tax liabilities of the other subsidiaries - net Total deferred tax liabilities - net Total deferred tax assets - net 563 388 209 (772) - 75 69 1 533 (11) (11) (22) 511 258 478 143 621 (549) (482) (48) (1,079) (458) (287) (745) 769 197 206 38 1,012 172 (1) (26) (0) 1,598 - 10 10 1,608 (20) 68 41 109 (12) 55 (177) (134) (25) (164) (189) 1,588 342 - - - - - - - 342 - - - 342 9 131 - 131 - - - - 131 12 143 351 - - - - - - - - - - - - - 1,102 594 247 240 172 74 43 1 2,473 (11) (1) (12) 2,461 96 343 - - - - (125) - (125) (125) (17) (142) 96 677 184 861 (561) (552) (225) (1,338) (477) (456) (933) 2,804 As of December 31, 2018 and 2017, the aggregate amounts of temporary differences associated with investments in subsidiaries and associated companies, for which deferred tax liabilities have not been recognized were Rp31,461 billion and Rp31,928 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. h. Administration From 2008 to 2017, 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, 2018, the Company calculates the deferred tax using the tax rate of 20%. 84 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 26. TAXATION (continued) h. Administration (continued) 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 Rp18,032 billion and Rp22,145 billion by the weighted average number of shares outstanding during the period totaling 99,062,216,600 shares for the years ended December 31, 2018 and 2017, 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 Rp182.03 and Rp223.55 (in full amount) for the years ended December 31, 2018 and 2017, respectively. The Company does not have potentially dilutive financial investments for the years ended December 31, 2018 and 2017. 28. CASH DIVIDENDS AND GENERAL RESERVE 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., M.Kn., 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. Pursuant to the AGM of Stockholders of the Company as stated in notarial deed No. 54 dated April 27, 2018 of Ashoya Ratam, S.H., M.Kn., the Company’s stockholders approved the distribution of cash dividend and special cash dividend for 2017 amounting to Rp13,287 billion (Rp134.13 per share) and Rp3,322 billion (Rp33.53 per share), respectively. 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, 2018 and 2017 amounting to Rp15,377 billion, respectively. 85 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS The details of pension and other post-employment benefit liabilities are as follow: Notes 2018 2017 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 Telkomsat MD Media Infomedia 29a.i.a 29a.i.a.i 29a.i.a.ii 29a.i.b 29a.ii Projected pension benefit obligations Net periodic post-employment health care benefit Other post-employment benefit Obligation under the Labor Law Total 29b 29c 29d 1,057 6 1,830 1,541 0 0 - 4,434 195 419 507 5,555 1,540 1,076 2,384 1,839 0 0 0 6,839 2,419 510 427 10,195 The details of net pension benefit expense recognized in the consolidated statements of profit or loss and other comprehensive income is as follows: Notes 2018 2017 Pension benefit cost The Company - funded Defined pension benefit obligation Additional pension benefit obligation The Company - unfunded Telkomsel MD Media Infomedia Telkomsat 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 511 69 198 342 0 0 0 1,120 335 32 113 1,600 557 657 239 247 0 0 0 1,700 276 42 62 2,080 86 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) The details of the net pension benefit expense recognized in the consolidated statements of profit or loss and other comprehensive income is as follows (continued): Notes 2018 2017 Defined benefit plan actuarial gain (losses) The Company - funded Defined pension benefit obligation Additional pension benefit obligation The Company - unfunded Telkomsel MD Media Infomedia Telkomsat 29a.i.a 29a.i.a.i 29a.i.a.ii 29a.i.b 29a.ii Post-employment health care benefit cost Other post-employment benefit Obligation under the Labor Law Sub-total Deferred tax effect at the applicable tax rates Defined benefit plan acturial gain (losses) - 29b 29c 29d 26g net of tax a. Pension benefit cost i. The Company a. Funded pension plan i. Defined pension benefit obligation 1,236 934 137 514 0 0 0 2,559 24 14 5,418 (598) 4,820 (1,154) (419) (100) (530) (2) (1) 0 (551) (40) (72) (2,869) 494 (2,375) The Company sponsors a defined benefit pension plan for employees with permanent status prior to July 1, 2002. The plan is governed by the pension laws in Indonesia and managed by Telkom Pension Fund (“Dana Pensiun Telkom” or “Dapen”). The pension benefits are paid based on the participating employees’ latest basic salary at retirement and the number of years of their service. 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, 2018 and 2017. 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, 2018 and 2017, under the defined benefit pension plan: 2018 2017 Changes in projected pension benefit obligations Projected pension benefit obligations at beginning of year Charged to profit or loss: Service costs Past service cost - plan amendments Interest costs Pension plan participants’ contributions Actuarial (gain) losses recognized in OCI Pension benefits paid Projected pension benefit obligations at end of year 87 22,354 18,849 384 - 1,459 38 (2,691) (1,423) 366 94 1,454 41 2,862 (1,312) 20,121 22,354 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Provision of additional benefit Plan administration cost Fair value of pension plan assets at end of year Projected pension benefit obligations at end of year 2018 2017 20,814 1,357 (1,455) 38 (1,423) (205) (62) 19,064 1,057 19,046 1,387 1,709 41 (1,312) - (57) 20,814 1,540 As of December 31, 2018 and 2017, plan assets consist of: 2018 Quoted in active market Unquoted 2017 Quoted in active market Unquoted 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 873 1,456 1,336 530 199 124 420 112 55 362 1,336 - 6,166 54 - - - 13,023 88 - - - - - - - - - - - 5,267 - - 288 178 308 6,041 1,481 1,463 1,411 656 363 115 388 92 46 377 1,233 - 6,968 54 - - - 14,647 - - - - - - - - - - - 5,428 - - 237 188 314 6,167 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Rp372 billion and Rp469 billion, representing 1.95% and 2.25% of total plan assets as of December 31, 2018 and 2017, respectively, and bonds issued by the Company with fair value totalling to Rp314 billion and Rp340 billion representing 1.65% and 1.64% of total plan assets as of December 31, 2018 and 2017, 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 Rp(158) billion and Rp3,039 billion for the years ended December 31, 2018 and 2017, 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, 2018, Dapen’s FSR is below 105%. Therefore, the Company will make contributions to the defined benefit pension plan in 2019. Based on the Company's policy issued on June 7, 2017 regarding Pension Regulation by Dapen, the Company provided other benefits in the form of additional benefit in 2017 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, 2018 and 2017 are as follow: Projected pension benefit obligations (prepaid pension benefit cost) at beginning of year Net periodic pension benefit cost Provision of additional benefit Actuarial (gain) losses recognized in OCI Return on plan assets (excluding amount (included in net interest expense) Projected pension benefit obligations at end of year 2018 2017 1,540 548 205 (2,691) 1,455 1,057 (197) 583 - 2,862 (1,708) 1,540 89 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 December 31, 2018 and 2017 are as follow: for the years ended 2018 2017 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 cost charged to subsidiaries 384 - 62 102 548 (37) 511 366 94 57 66 583 (26) 557 Amounts recognized in OCI for the years ended December 31, 2018 and 2017 are as follow: 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 2018 2017 329 (3,020) 1,455 (1,236) 163 2,699 (1,708) 1,154 The actuarial valuation for the defined benefit pension plan was performed based on the measurement date as of December 31, 2018 and 2017, with reports dated April 1, 2019 and February 27, 2018, 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, 2018 and 2017 are as follows: Discount rate Rate of compensation increases Indonesian mortality table 2018 2017 8.25% 8.00% 2011 6.75% 8.00% 2011 90 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Dapen, 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. 2018 2017 Changes in projected pension benefit obligations Projected pension benefit obligations at beginning of year Charged to profit or loss: Past service costs Interest costs Actuarial (gain) losses recognized in OCI Pension benefits paid Projected pension benefit obligations at end of year Changes in pension benefit plan assets Fair value of pension plan assets at beginning of year Provision of additional benefit Return of benefit plan assets Pension benefits paid Fair value of pension plan assets at end of year Projected pension benefit obligations at end of year 1,076 - 69 (948) (93) 104 - 205 (14) (93) 98 6 - 657 - 419 - 1,076 - - - - - 1,076 As of December 31, 2018 there is no plan asset on additional pension benefit obligation. Plan asset will be recognized in accordance with the reserve of additional benefits funds determined by the board (pengurus) with the approval of the Supervisory board (Dewan Pengawas) Changes in additional pension benefit obligation for the years ended December 31, 2018 and 2017 are as follow: 2018 2017 Additional pension benefit obligation at beginning of year Past service cost Interest costs Provision of additional benefit Actuarial loss (gain) recognized in OCI Return on plan asset Projected additional pension benefit obligation at end of year 91 1,076 - 69 (205) (948) 14 - 657 - - 419 - 6 1,076 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 (continued) The components of additional pension benefit cost December 31, 2018 and 2017 are as follows: for the years ended Past service costs Net interest costs Pension benefit costs 2018 2017 - 69 69 657 - 657 Amounts recognized in OCI for the years ended December 31, 2018 and 2017 are as follows : 2018 2017 Actuarial (gain) losses recognized during the year due to: Experience adjusment Changes in financial assumption Return on plan assets (excluding amount included in net interest expense) Total (773) (175) 14 (934) - 419 - 419 The actuarial valuation for the additional pension benefit plan was performed based on the measurement date as of December 31, 2018 and 2017, with report dated April 1, 2019 and 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, 2018 and 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 2018 9.30%-10.00% 8.25% 9.25%-9.50% 8.00% 2011 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 to Rp13 billion and Rp10 billion, respectively, for the years ended December 31, 2018 and 2017, respectively. the participants’ salaries and amounted 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. 92 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Company also provides benefits to employees during a pre-retirement period in which they are inactive for 6 months prior to their normal retirement age of 56 years, known as pre-retirement benefits (Masa Persiapan Pensiun or “MPP”). During the pre-retirement period, the employees still receive benefits provided to active employees, which include, but are not limited to, regular salary, health care, annual leave, bonus and other benefits. Since 2012, the Company has issued a new requirement for MPP effective for employees retiring since April 1, 2012, whereby the employee is required to file a request for MPP and if the employee does not file the request, such employee is required to work until the retirement date. The following table presents the changes in the unfunded projected pension benefit obligations for MPS and MPP for the years ended December 31, 2018 and 2017: Unfunded projected pension 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 Unfunded projected pension benefit obligations at end of year 2018 2017 2,384 2,507 54 144 (137) (615) 51 188 100 (462) 1,830 2,384 The components of total periodic pension benefit cost the years ended December 31, 2018 and 2017 are as follow: Service costs Net interest costs Total periodic pension benefit cost Amounts recognized in OCI are as follow: Actuarial (gain) losses recognized during the year due to: Experience adjusments Changes in demographic assumptions Changes in financial assumptions Net 2018 2017 54 144 198 2018 2017 27 (21) (143) (137) 51 188 239 19 - 81 100 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 April 1, 2019 and February 27, 2018, respectively, 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 and 2016 are as follow: Discount rate Rate of compensation increases Indonesian mortality table 2018 8.00%-8.25% 6.10%-8.00% 2011 2017 6.00%-6.75% 6.10%-8.00% 2011 93 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 (excluding functional allowance) and 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 the plan. Starting 2005, the entire contributions have been fully made by Telkomsel. Telkomsel’s contributions to Jiwasraya amounted to Rp125 billion and Rp131 billion for the years ended December 31, 2018 and 2017, 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, 2018 and 2017, under Telkomsel’s defined benefit pension plan: 2018 2017 Changes in projected pension benefit obligations Projected pension benefit obligation at beginning of year Charged to profit or loss: Service costs Net interest costs Actuarial (gain) losses recognized in OCI Benefit paid Projected pension benefit obligation at end of year 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) Employer’s contributions Benefit paid Fair value of pension plan assets at end of year Pension benefit obligation at end of year 94 2,928 2,034 213 203 (583) (27) 149 167 584 (6) 2,734 2,928 1,089 74 (68) 125 (27) 1,193 1,541 841 69 54 131 (6) 1,089 1,839 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2018 and 2017: Pension benefit obligation at beginning of year Periodic pension benefit cost Actuarial (gain) losses recognized in OCI Return on plan assets (excluding amount included in net interest expense) Employer's contributions Pension benefit obligation at end of year 2018 2017 1,839 342 (583) 68 (125) 1,541 1,193 247 584 (54) (131) 1,839 The components of the periodic pension benefit cost for the years ended December 31, 2018 and 2017 are as follow: Service costs Net interest costs Total Amounts recognized in OCI are as follow: 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 2018 2017 213 129 342 2018 2017 192 (774) 68 (514) 149 98 247 (77) 661 (54) 530 The actuarial valuation for the defined benefit pension plan was performed based on the measurement date as of December 31, 2018 and 2017, with reports dated February 14, 2019 and February 8, 2018 respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2018 and 2017, are as follow: Discount rate Rate of compensation increases Indonesian mortality table 2018 2017 8.25% 8.00% 2011 7.00% 8.00% 2011 95 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2018 and 2017. 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 2018: 2018 2017 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: Interest costs Actuarial (gain) losses recognized in OCI Post-employment health care benefits paid Projected post-employment health care benefit obligation at end of year Changes in post-employment health care benefit plan assets Fair value of plan assets at beginning of year Interest income Return on plan assets (excluding amount included in net interest expense) Post-employment health care benefits paid Plan administration cost Fair value of plan assets at end of year Projected for post-employment health care benefit obligation-net 15,448 13,357 1,102 (3,641) (486) 1,115 1,460 (484) 12,423 15,448 13,029 927 (1,082) (486) (160) 12,228 195 11,765 979 909 (484) (140) 13,029 2,419 96 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 29. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (continued) b. Post-employment health care benefit cost (continued) As of December 31, 2018 and 2017, plan assets consists of: 2018 Quoted in active market 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 1,115 799 799 190 332 177 77 60 32 85 3 1,204 7,020 - 11,893 2017 Quoted in active market 1,354 Unquoted 835 840 254 350 137 65 38 35 68 1 1,113 7,642 - - - - - - - - - - - - - - - - - - - - - - - - - - 335 335 - 12,732 297 297 Yakes plan assets also include Series B shares issued by the Company with fair value totalling Rp249 billion and Rp265 billion, representing 2.03% and 2.04% of total plan assets as of December 31, 2018 and 2017, 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 Rp(315) billion and Rp1,748 billion for the years ended December 31, 2018 and 2017, respectively. The movements of the projected post-employment health care benefit obligation for the years ended December 31, 2018 and 2017 are as follow: Projected post-employment health care benefit obligation at beginning of year Net periodic post-employment health care benefit costs Actuarial (gain) 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 2018 2017 2,419 335 (3,641) 1,082 195 1,592 276 1,460 (909) 2,419 97 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2018 and 2017 are as follow: Plan administration costs Net interest costs Periodic post-employment health care benefit cost Amounts recognized in OCI are as follow: 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 2018 2017 160 175 335 141 135 276 2018 2017 (1,100) (2,541) 1,082 (2,559) (1,198) 2,658 (909) 551 The actuarial valuation for the post-employment health care benefits plan was performed based on the measurement date as of December 31, 2018 and 2017, with reports dated April 1, 2019 and February 27, 2018 respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2018 and 2017 are as follow: Discount rate Health care costs trend rate assumed for 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 2018 2017 8.75% 7.00% 7.00% 2018 2011 7.25% 7.00% 7.00% 2018 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”). 98 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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, 2018 and 2017 are as follow: 2018 2017 Projected other post-employment benefit obligations at beginning of year Charged to profit or loss: Service costs Net interest costs Actuarial (gain) losses recognized in OCI Benefits paid by employer Projected other post-employment benefits obligations at end of year 510 6 26 (24) (99) 419 502 6 36 40 (74) 510 The components of the projected other post-employment benefit cost for the years ended December 31, 2018 and 2017 are as follow: Service costs Net interest costs Total Amounts recognized in OCI are as follow: Actuarial (gain) losses recognized during the year due to: Experience adjusments Changes in demographic assumptions Changes in financial assumptions Total 2018 2017 6 26 32 2018 2017 40 (34) (30) (24) 6 36 42 10 - 30 40 The actuarial valuation for the other post-employment benefits plan was performed based on measurement date as of December 31, 2018 and 2017, with reports dated April 1, 2019 and February 27, 2018 respectively, by TWP, an independent actuary in association with WTW. The principal actuarial assumptions used by the independent actuary as of December 31, 2018 and 2017, are as follow: Discount rate Indonesian mortality table d. Obligation under the Labor Law 2018 2017 8.00% 2011 5.75% 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 December 31, 2018 and 2017 amounted to Rp507 billion and Rp427 billion, respectively. The related pension employee benefits cost charged to expense amounted to Rp113 billion and Rp62 billion for the years ended December 31, 2018 and 2017, respectively (Note 23). The actuarial losses recognized in OCI amounted to Rp(14) billion and Rp72 billion for the years ended December 31, 2018 and 2017, respectively. 99 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 2018 are as follow: Expected Benefits Payment Time Period obligation obligation Unfunded Telkomsel Post-employment Other post- employment benefits health care benefits The Company Funded Defined Additional pension benefit pension benefit 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 16,370 20,349 16,207 9,400 3,383 644 62 2 - - 20 38 30 50 101 - 948 160 29 9 - - - - 2,498 7,880 6,680 1,580 - - - - 5,620 6,913 6,217 3,193 661 22 0 - 485 91 39 3 - - - - 9.11 years 9.11 years 3.97 years 10.58 years 17.41 years 3.13 years 1% change in discount rate and rate of compensation would have effect on DBO ,as follow : 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% Increase 1% Decrease 1% Increase 1% Decrease Increase (decrease) in amounts Increase (decrease) in amounts (1,568) (2) (41) (497) (1,428) (12) 1,832 (1) 38 562 1,815 13 275 - 42 294 1,783 - (286) - (45) (276) (1,508) - 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. 100 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 30. LSA PROVISIONS Telkomsel and Telkomsat 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 Rp852 billion and Rp758 billion as of and December 31, 2018 and 2017, respectively. The related benefit costs charged to expense amounted to Rp161 billion and Rp255 billion for the years ended December 31, 2018 and 2017, 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 telecommunication services revenues, operating expenses and purchase of property and equipment Interconnection revenues, leased lines revenues, satellite transponder usage revenues, interconnection expenses, telecommunication facilities usage expenses, operating and maintenance expenses, usage of data 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”) INTI Entity under common control Internet and data service revenues, other telecommunication service revenues telecommunication service revenues, purchase of property and equipment and construction services State-owned banks BNI Entity under common control Entity under common control Finance income and finance costs Internet and data service revenues, other telecommunication service revenues, finance income, and finance costs Bank Mandiri Entity under common control Internet and data service revenues, other BRI BTN telecommunication service revenues, finance income, and finance costs Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income, and finance costs Entity under common control Internet and data service revenues, other telecommunication service revenues, finance income, and finance costs PT Pegadaian (“Pegadaian”) Entity under common control Internet and data service revenues and other telecommunication service revenues 101 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 PT Balai Pustaka (“Balai Pustaka”) PT Garuda Indonesia (“Garuda Indonesia”) PT Angkasa Pura (“Angkasa Pura”) Perum Peruri (“Peruri”) Nature of relationships parties Entity under common control Nature of accounts/transactions 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 PT Kereta Api Indonesia Entity under common control Internet and data service revenues and other (“KAI”) telecommunication service revenues PT Asuransi Jasa Indonesia Entity under common control Fixed assets insurance expenses (“Jasindo’) PT Mandiri Manajemen Investasi Entity under common control Entity under common control Bahana TCW Entity under common control PT Sarana Multi Infrastruktur Associated company Indonusa Associated company Teltranet Associated company Tiphone Other related entities PT Poin Multi Media Nusantara Available-for-sale financial assets Available-for-sale financial assets, and bonds. Finance costs Pay TV expenses CPE Expenses Distribution of SIM cards and pulse reload voucher Purchase of handset (“POIN”) PT Perdana Mulia Makmur Other related entities Purchase of handset (“PMM”) Yakes Other related entities Medical expenses Koperasi Pegawai Telkom Other related entities Purchase of property and equipment, construction and (“Kopegtel”) 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 Koperasi Pegawai Telkomsel Other related entities Internet and data service revenues, other (“Kisel”) PT Graha Informatika Nusantara Other related entities (“Gratika”) PT Pembangunan Other related entities Telekomunikasi Indonesia (“Bangtelindo”) Directors Commissioners 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 Network service revenues, operation and maintenance expenses, purchase of property and equipment and construction services and distribution of SIM card and pulse reload voucher Purchase of property and equipment and construction services 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, 2018, the Group recorded impairment of receivables from related parties of Rp(150) billion. Impairment assessment is undertaken each financial year through examining the current status of existing receivables and historical collection experience. 102 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties The following are significant transactions with related parties: REVENUES Majority Stockholder Ministry of Finance Entities under common control Indosat BRI Pegadaian BNI Pertamina BTN Bank Mandiri Peruri Angkasa Pura Garuda Indonesia KAI Balai Pustaka Lain-lain Sub-total Other related entities Associated companies Total EXPENSES Entities under common control PLN Indosat Jasindo Others Sub-total Other related entities Kisel PMM POIN Kopegtel Yakes Others Sub-total Associated companies Indonusa Teltranet Others Sub-total Total 2018 % of total revenues Amount 2017 % of total revenues Amount 258 1,002 397 228 188 183 179 173 120 114 105 83 81 696 3,807 73 55 3,935 0.20 0.77 0.30 0.17 0.14 0.14 0.14 0.13 0.09 0.09 0.08 0.06 0.06 0.53 2.70 0.06 0.04 3.00 280 1,789 237 115 105 94 129 157 - - 55 18 - 682 3,818 31 65 4,084 0.22 1.39 0.18 0.09 0.08 0.07 0.10 0.12 - - 0.04 0.01 - 0.54 1,89 0.02 0.05 3,17 2018 % of total expenses Amount 2017 Amount % of total expenses 2,596 933 349 189 4,067 916 850 850 836 128 190 3,770 306 181 11 498 8,335 2.79 1.00 0.38 0.20 4.37 0.98 0.91 0.91 0.90 0.14 0.20 4.04 0.33 0.19 0.01 0.53 8.94 2,269 890 168 68 3,395 813 404 405 713 139 81 2,555 264 123 38 425 6,375 2.69 1.06 0.20 0.08 4.03 0.96 0.48 0.48 0.85 0.16 0.10 3.03 0.31 0.15 0.04 0.50 7.56 103 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) The following are significant transactions with related parties (continued): FINANCE INCOME Entities under common control State-owned banks Others Total FINANCE COSTS Majority stockholder Ministry of Finance Entities under common control State-owned banks Sarana Multi Infrastruktur Total PURCHASE OF PROPERTY AND EQUIPMENTS (Note 9) Entities under common control INTI Others Sub-total Other related entities Kopegtel Bangtelindo Others Sub-total Total DISTRIBUTION OF SIM CARD AND VOUCHER Other related entities Tiphone Kisel Gratika Total 2018 2017 Amount % of total finance income Amount % of total finance income 596 6 602 2018 58.78 0.59 59.37 850 35 885 2017 59.27 2.44 61.71 Amount % of total finance costs Amount % of total finance costs 41 1,140 110 1,291 1.17 32.51 3.14 36.82 54 819 94 967 1.95 29.58 3.39 34.92 2018 % of total purchases Amount 2017 % of total purchases Amount 137 41 178 144 135 193 472 650 0.43 0.13 0.56 0.46 0.43 0.61 1.50 2.06 203 93 296 130 64 189 359 655 0.79 0.33 1.12 0.41 0.20 0.64 1.25 2.37 2018 % of total revenues Amount 2017 % of total revenue Amount 4,390 4,221 474 9,085 3.36 3.23 0.36 6.95 3,888 4,181 408 8,477 3.03 3.26 0.32 6.61 104 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) Presented below are balances of accounts with related parties: a. Cash and cash equivalents (Note 3) b. Other current financial asset (Note 4) c. Trade receivables - net (Note 5) d. Other current asset (Note 7) e. Other non-current asset (Note 10) f. Trade payables (Note 12) Majority stockholder Ministry of Finance Entities under common control Indosat State-owned enterprises Sub-total Other related entities Kopegtel 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 Majority stockholder Government Entities under common control PLN Total 2018 % of total assets Amount 2017 % of total assets Amount 13,205 471 2,126 159 44 6.40 0.23 1.03 0.08 0.02 17,417 1,153 1,545 126 55 8.78 0.58 0.78 0.06 0.03 2018 % of total liabilities Amount 2017 % of total liabilities Amount 0.00 0.14 0.33 0.47 0.31 0.33 0.64 1.11 0.01 0.10 0.07 0.17 0.21 0.01 0.40 0.02 0.01 0.03 29 225 102 327 209 329 538 869 9 113 36 149 235 1 394 19 11 30 0.03 0.26 0.12 0.38 0.24 0.38 0.62 1.00 0.01 0.13 0.04 0.17 0.27 0.00 0.46 0.02 0.01 0.03 2 122 294 416 279 296 575 993 7 86 61 147 183 13 350 19 12 31 105 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 31. RELATED PARTIES TRANSACTIONS (continued) b. Transactions with related parties (continued) Presented below are balances of accounts with related parties (continued): i. Short-term bank loans (Note 15) j. Two-step loans (Note 16a) k. Long-term bank loans (Note 16c) l. Other borrowings (Note 16d) 2018 % of total liabilities Amount 2017 % of total liabilities Amount 956 949 12,620 2,244 1.08 1.07 14.19 2.52 1,297 1,098 7,895 1,295 1.50 1.27 9.14 1.50 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 the MoCI Regulation No.8/Year 2006. These amendments took effect starting on January 1, 2007. tariff obligations under implementation of the cost-based 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. 106 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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 Directors. The total of such remuneration is as follow: 2018 % of total expenses Amount 2017 % of total expenses Amount Directors Board of Commissioners 360 166 0.39% 0.18% 175 65 0.21% 0.08% 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 Group has four primary reportable segments, namely mobile, consumer, enterprise and WIB. 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. Other segment represents Digital Service Operating Segments that does not meet the disclosure requirements for a reportable segments. No Operating Segments have been agregated to from the reportable segments. 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. 107 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 32. OPERATING SEGMENT (continued) Segment revenues dan expenses include transactions between operating segments and are accounted at prices that management believes represent market prices. 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 Mobile Consumer Enterprise WIB Others Total segment Adjustment and elimination Total consolidated 2018 85,338 3,880 89,218 (40,041) (15,408) (55,449) 33,769 13,891 2,290 16,181 (11,739) (3,792) (15,531) 650 21,054 17,995 39,049 (21,717) (16,116) (37,833) 1,216 10,084 16,678 26,762 (14,624) (6,010) (20,634) 6,128 130 886 1,016 130,497 41,729 172,226 287 (41,729) (41,442) (1,042) (31) (1,073) (57) (89,163) (41,357) (130,520) 41,706 (2,776) 41,357 38,581 (2,861) 130,784 - 130,784 (91,939) - (91,939) 38,845 (14,373) (13,095) (6,958) (3,060) (5,325) (2,128) (6,321) (3,146) (18) (21) (32,995) (21,450) (625) 44 (33,620) (21,406) (438) (438) (764) (71) (5) (1,716) (8) (1,724) Mobile Consumer Enterprise WIB Others Total segment Adjustment and elimination Total consolidated 2017 90,073 3,086 93,159 11,105 287 11,392 (39,452) (14,382) (53,834) 39,325 (10,360) (1,563) (11,923) (531) 19,130 16,801 35,931 (20,653) (15,027) (35,680) 252 7,439 15,305 22,744 (12,333) (5,611) (17,944) 4,800 126 602 728 127,873 36,081 163,954 383 (36,081) (35,698) (979) (70) (1,049) (321) (83,777) (36,653) (120,430) 43,525 (572) 36,653 36,081 382 128,256 - 128,256 (84,349) - (84,349) 43,907 (15,134) (13,560) (6,544) (2,839) (3,637) (2,136) (7,120) (2,382) (11) (22) (32,447) (20,940) (709) 494 (33,156) (20,446) (291) (385) (668) (127) (2) (1,473) (8) (1,481) Adjustment and elimination: Segment result Operating loss of operating business Other elimination and adjustment Consolidated operating income 2018 2017 41,706 (798) (2,063) 38,845 43,525 (786) 1,168 43,907 108 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 32. OPERATING SEGMENT (continued) Geographic information: The revenue information below is based on the location of the customers. External revenues Indonesia Foreign countries Total 2018 2017 127,438 3,346 130,784 125,970 2,286 128,256 Non-current operating assets for this purpose consist of property and equipment and intangible assets. Non-current operating assets Indonesia Foreign countries Total 2018 2017 144,631 3,649 148,280 130,468 3,233 133,701 33. TELECOMMUNICATIONS SERVICE TARIFFS Under Law No. 36 Year 1999 and Government Regulation No. 52 Year 2000, tariffs for operating telecommunications network and/or services are determined by providers based on the tariff type, structure and with respect to the price cap formula set by the Government. a. Fixed line telephone tariffs The Government has issued a new adjustment tariff formula which is stipulated in the Decree No. 15/PER/M.KOMINFO/4/2008 dated April 30, 2008 of the MoCI concerning “Mechanism to Determine Tariff of Basic Telephony Services Connected through Fixed Line Network”. This Decree replaced the previous Decree No. 09/PER/M.KOMINFO/02/2006. Under the Decree, tariff structure for basic telephony services connected through fixed line network consists of the following: • Activation fee • Monthly subscription charges • Usage charges • Additional facilities fee. b. Mobile cellular telephone tariffs On April 7, 2008, the MoCI issued Decree No. 09/PER/M.KOMINFO/04/2008 regarding “Mechanism to Determine Tariff of Telecommunication Services Connected through Mobile Cellular Network” which provides guidelines to determine cellular tariffs with a formula consisting of network element cost and the previous Decree No. 12/PER/M.KOMINFO/02/2006. retail services activity cost. This Decree replaced 109 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian 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. 110 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS a. Capital expenditures As of December 31, 2018, 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 Amounts in foreign currencies (in millions) Equivalent in Rupiah Rupiah U.S. dollar Euro HKD Total - 94 1,23 0,79 7.988 1.349 20 1 9.358 The above balance includes the following significant agreements: (i) The Company installation installation for PE-VPN for PE-VPN Significant provisions of the agreement Procurement and installation agreement of Sistem Komunikasi Kabel Laut (“SKKL”) Indonesia Global Gateway Procurement and installation agreement of SKKL Sabang-Lhoksemawe-Medan Procurement and CISCO expans Procurement and CISCO expans Procurement and installation of OLT and ONT Platform ZTE Procurement agreement for ONT platform ZTE Procurement agreement for Set Top Box (“STB”) Platform ZTE phase-2 Procurement and Platform Huawei Procurement and Platform Nokia NARU 2018 Procurement and installation agreement of ISP SKKL Platform NEC and reengineering transport Procurement and installation for Metro Ethernet Platform Nokia-ALU expansion Procurement and installation agreement of Methor Ethernet, BRAS, PCEF and PE Transit Platform Huawei Procurement and installation for IP Backbone Platform CISCO expansion Procurement and Platform Coriant Naru 2018 for DWDM for DWDM for DWDM installation installation installation expansion Contracting parties Initial date of agreement The Company, TII and NEC Corporation May 12, 2016 The Company and Consortium Bisnis Submarine Cable The Company and PT Sisindokom Lintas Buana The Company and PT Sisindokom Lintas Buana November 10, 2017 November 15, 2017 April 26, 2018 The Company and PT ZTE Indonesia May 31, 2018 The Company and PT ZTE Indonesia September 13, 2018 The Company and PT ZTE Indonesia October 30, 2018 The Company and PT Huawei Tech Investment The Company and PT Lintas Teknologi Indonesia November 23, 2018 December 13, 2018 The Company and NEC Corporation December 13, 2018 The Company and PT Datacomm Diangraha December 14, 2018 The Company and PT Huawei Tech Investment December 17, 2018 The Company and PT Master System Infotama The Company and PT Lancs Arche Consumma December 31, 2018 December 31, 2018 111 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) a. Capital expenditures (continued) (ii) Telkomsel Contracting parties Telkomsel, PT NSN, NSN Oy and Nokia Siemens Networks GmbH & Co.KG Telkomsel, PT Ericsson Indonesia dan PT Ericsson AB Telkomsel, PT Datacraft Dimension Data Indonesia and PT Huawei Telkomsel, Amdocs Software Solutions Limited dan PT Application Solutions Liability Company Indonesia, PT Telkomsel dan PT Application Solutions Telkomsel, Amdocs Software Solutions Limited dan PT Application Solutions Liability Company Telkomsel dan PT Huawei Telkomsel dan Wipro Limited, Wipro Singapore Pte. Ltd. dan PT WT Indonesia Telkomsel dan PT Ericsson Indonesia Telkomsel, PT Ericsson Indonesia, PT NSNI, NSN Oy, PT Huawei dan PT ZTE Indonesia Initial date of agreement April 17, 2008 April 17, 2008 February 3, 2010 February 8, 2010 February 8, 2010 July 5, 2011 March 25, 2013 April 23, 2013 October 22, 2013 February 1, 2018 for (“TSA”) Significant provisions of the agreement The combined 2G and 3G CS Core Network Rollout Agreement Technical Service Agreement combined 2G and 3G CS Core Network Next Generation Convergence Core Transport Rollout and Technical Support agreement Online Charging System ("OCS") and Service Control Points ("SCP") System Solution Development Agreements 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 Development and procurement of Operational and Strategic Decision Support System (“OSDSS”) Solution Agreement Procurement of GGSN Service Complex Rollout agreement Ultimate Radio Network Infrastructure ROA and SA agreement b. Borrowings and other credit facilities (i) As of December 31, 2018, 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 BRI BNI Bank Mandiri Total Total facility Maturity March 14, 2020 March 31, 2019 500 850 500 December 23, 2019 Currency Rp Rp Rp 1,850 facility utilized 280 261 361 902 112 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) b. Borrowings and other credit facilities (continued) (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, 2019. Telkomsel has a Rp1,000 billion bank guarantee facility with BRI. The facility will expire on September 25, 2022. Under this facility, as of December 31, 2018, Telkomsel has issued a bank guarantee amounting to Rp499 billion as payment commitment guarantee for annual right of usage fee valid until March 31, 2019 and Rp20 billion as frequency performance bond valid until May 31, 2019 (Note 34c.i). Telkomsel has a Rp150 billion bank guarantee facility with BCA. The facility will expire on April 15, 2019. Telkomsel also has a Rp2,100 billion bank guarantee facility with BNI. The facility will expire on December 11, 2019. 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 equal to Rp210 billion bank guarantee from Bank Mandiri and has been renewed in accordance with the addendum V (five) on December 18, 2017 with a maximum credit limit of US$10 million equal to Rp135 billion. The facility will expire on December 18, 2018. As of December 31, 2018, TII has not used the facility. (iv) As of December 31, 2018, Sigma has a Rp354 billion bank guarantee from BNI and HSBC. The used facility on December 31, 2018 amounting to Rp156 billion. 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. As an implementation of the above decree, the Company and Telkomsel paid annual frequency usage fees since 2010. 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: 1. Mobile telecommunication services with radio frequency bandwidth in the 800 MHz, 900 MHz, 1800 MHz, 2.1 GHz and 2.3 GHz; and 2. Basic telecommunication services. 113 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) (i) Radio Frequency Usage (continued) With reference to Decision Letters No. 268/KEP/M.KOMINFO/9/2009, No. 191 Year 2013, 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 Biaya Hak Penyelenggara (“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. 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 (Note 34b.ii). 2. (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 2019 and 2028. Periods may be extended based on the agreement by both parties. Future minimum agreements as of December 31, 2018 are as follows : lease payments/receivables under non-cancelable operating lease As lessee As lessor (iii) USO Total 23,832 4,105 Less than 1 year 1-5 years 13,030 2,464 6,271 1,084 More than 5 years 4,531 557 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 gross revenues (with due consideration for bad debts and/or interconnection charges and/or connection charges and/or the exclusion of certain revenues that are not considered as part of gross revenues as a basis to calculate the USO charged) for USO development. Subsequently, Decree No. 17 year 2016 dated September 26, 2016 was replaced by Decree No. 19 year 2016 which was effective from November 8, 2016. The latest Decree stipulates, among other things, the USO charged was effective for fiscal year 2016 and thereafter. Based on MoCI Regulation No. 25 year 2015 dated June 30, 2015, 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 Penyedia dan Pengelola replaced Balai Pembiayaan Telekomunikasi dan Telekomunikasi Decree No. 18/PER/M.KOMINFO/11/2010 dated November 19, 2010 of MoCI. (“BPPPTI”). BPPPTI based Informatika Informatika Pedesaan (“BTIP”) dan on 114 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 34. SIGNIFICANT COMMITMENTS AND AGREEMENTS (continued) c. Others (continued) 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. In 2015, the Program was ceased. In January 2016, Telkomsel filed an arbitration claim to BANI for the settlement of the outstanding receivables of USO Programs. 22, June 2017, from BANI On 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 received the payment from BPPPTI amounting to Rp83 billion (before tax). Telkomsel received decision letter a As of December 31, 2018 and 2017, 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 Rp115 billion. 115 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 35. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are as follows: 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 Short-term bank loan Advances from customers Current maturities of long-term borrowings Other liabilities Long-term borrowings - net of current maturities Total liabilities Assets (liabilities) - net 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 Current maturities of long-term borrowings Other liabilities 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) 2018 253.37 14.56 0.49 146.39 0.34 - 57.42 472.57 (0.21) (206.20) (3.63) (47.10) (1.15) (0.76) (18.77) (19.63) (93.41) (390.86) 81.71 8.02 - - - - - - 8.02 - (33.39) - (15.64) - - (767.90) - (3,839.49) (4,656.42) (4,648.40) 10.50 1.30 - 9.55 0.12 0.51 1.17 23.15 - (4.99) (4.44) (2.51) - - (4.07) - (4.71) (20.72) 2.43 3,802 223 7 2,238 6 14 840 7,130 (3) (3,037) (111) (709) (17) (11) (430) (284) (1,917) (6,519) 611 U.S dollar (in millions) Japanese yen (in millions) Others* (in millions) Rupiah equivalent (in billions) 2017 154.07 28.34 - 3.02 71.38 0.15 0.10 4.27 317.22 (0.22) (159.65) (4.12) (42.20) (0.48) (10.59) (21.83) (65.22) (304.31) 12.81 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) *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, 2018 using the exchange rates on April 29, 2019 the unrealized foreign exchange loss amounting to Rp17 billion. 116 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT 1. Fair value of financial assets and financial liabilities a. Classification i. Financial asset Loans and receivables Cash and cash equivalents Other current financial assets Trade and other receivables, net Other non-current assets Available-for-sale financial assets Available-for-sale investments Total financial assets 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 leases Other borrowings Total financial liabilities b. Fair values 2018 2017 17,439 834 12,141 460 1,204 32,078 25,145 1,005 9,564 183 1,541 37,438 2018 2017 15,214 12,769 4,043 949 10,481 23,225 3,145 2,244 72,070 15,791 12,630 2,289 1,098 8,982 18,004 3,804 1,295 63,893 2018 Financial assets measured at fair value Available-for-sale investments 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 leases Other borrowings Other liabilities Total Fair value measurement at reporting date using Quoted prices in active markets Significant for identical assets or liabilities (level 1) other observable inputs (level 2) Significant unobservable inputs (level 3) Carrying value Fair value 1,204 1,204 470 - 734 949 10,481 23,225 3,145 2,244 261 41,509 898 10,894 22,878 3,145 2,154 261 41,434 - 9,380 - - - - 9,850 - - - - - - - 898 1,514 22,878 3,145 2,154 261 31,584 117 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT (continued) 1. Fair value of financial assets and financial liabilities (continued) b. Fair value (continued) 2017 Financial assets measured at fair value Available-for-sale investments Financial liabilities for which fair values are disclosed Interest-bearing loans and other borrowings Two-step loans Bonds Long-term bank loans Obligation under finance leases Other borrowings Other liabilities Total Fair value measurement at reporting date using Quoted prices in active markets for identical assets or liabilities (level 1) Significant unobservable inputs (level 3) inputs (level 2) observable Significant other Carrying value Fair value 1,541 1,541 1,151 17 373 1,098 8,982 18,004 3,804 1,295 296 35,020 1,116 10,038 18,108 3,804 1,370 296 36,273 - 10,038 - - - - 11,189 - - - - - - 17 1,116 - 18,108 3,804 1,370 296 25.067 Loss on fair value measurement recognized in consolidated statements of profit or loss and other comprehensive income for 2018 amounting to Rp10 billion. There is no movement between fair value hierarchy during 2018. 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 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. 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 the impact of discounting is not significant. 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) available-for-sale investments 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; (ii) 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. 118 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT (continued) 1. Fair value of financial assets and financial liabilities (continued) c. Fair value measurement (continued) The fair value estimates are inherently judgemental 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. Financial risk management is carried out by the Corporate Finance unit under policies approved by the Board of Directors. The Corporate Finance unit identifies, evaluates and hedges financial risks. a. Foreign exchange risk The Group is exposed to foreign exchange risk on sales, purchases and borrowings that are denominated in foreign currencies. The foreign currency denominated transactions are primarily in U.S. dollars and Japanese yen. The Group’s exposures to other foreign exchange rates are not material. 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: Financial assets Financial liabilities Net exposure 2018 2017 U.S. dollar (in billions) Japanese yen U.S. dollar (in billions) (in billions) Japanese yen (in billions) 0.47 (0.39) 0.08 0.01 (4.66) (4.65) 0.26 (0.31) (0.05) 0.01 (5.41) (5.40) 119 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) a. Foreign exchange risk (continued) Sensitivity analysis A strengthening of the U.S. dollar and Japanese yen, as indicated below, against the Rupiah at December 31, 2018 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, 2018 U.S. dollar (1% strengthening) Japanese yen (5% strengthening) Equity/profit (loss) 12 (30) A weakening of the U.S. dollar and Japanese yen against the rupiah at December 31, 2018 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 the consolidated statements of profit or loss and other comprehensive income. The performance of the Group’s available-for-sale investments is monitored periodically, together with a regular assessment of their relevance to the Group’s long-term strategic plans. As of December 31, 2018, 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 2018 2017 (21,260) (22,827) (14,204) (21,267) Sensitivity analysis for variable rate borrowings As of December 31, 2018, a decrease (increase) by 25 basis points in interest rates of variable rate borrowings would have increased (decreased) equity and profit or loss by Rp67 billion, respectively. The analysis assumes that all other variables, in particular foreign currency rates, remain constant. 120 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) 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 Other non-current assets Total 2018 2017 17,439 1,304 12,141 460 31,344 25,145 2,173 9,564 183 37,065 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. 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 4.30% of trade receivables as of December 31, 2018. 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. 121 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 36. FINANCIAL RISK MANAGEMENT (continued) 2. Financial risk management (continued) e. Liquidity risk (continued) The following is the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments: 2018 Trade and other payables Accrued expenses Interest bearing loans and other borrowings Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Other liabilities Total 2017 Trade and other payables Accrued expenses Interest bearing loans and other borrowings Two-step loans Bonds and notes Bank loans Other borrowings Obligations under finance leases Other liabilities Total Carrying amount Contractual cash flows 2019 2020 2021 2022 2023 and thereafter 15,214 12,769 (15,214) (12,769) (15,214) (12,769) - - - - - - - - 949 10,481 27,268 2,244 3,145 261 72,331 (1,075) (19,050) (33,363) (2,905) (3,764) (306) (88,446) (242) (1,562) (10,434) (490) (1,049) (16) (41,776) (232) (3,436) (9,160) (570) (945) (36) (14,379) (205) (1,231) (3,991) (533) (781) (36) (6,777) (159) (2,817) (3,219) (495) (605) (109) (7,404) (237) (10,004) (6,559) (817) (384) (109) (18,110) Carrying amount Contractual cash flows 2018 2019 2020 2021 2022 and thereafter 15,791 12,630 (15,791) (12,630) (15,791) (12,630) - - - - - - - - 1,098 8,982 20,293 1,295 3,804 296 64,189 (1,243) (18,278) (24,378) (1,759) (250) (929) (7,655) (220) (4,685) (355) (79,119) (1,083) (17) (38,575) (222) (929) (5,078) (303) (969) (34) (7,535) (214) (2,873) (4,006) (285) (866) (34) (8,278) (189) (726) (2,660) (266) (778) (135) (4,754) (368) (12,821) (4,979) (685) (989) (135) (19,977) 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. The changes in liabilities arising from financing activities is as follows: Short-term bank loans Two step loans Bonds and notes payable Long-term bank loans Other borrowings Obligations under finance leases Total liabilities from financing activities Non-cash changes January 1, 2018 Foreign exchange Cash flows Acquisition movement 2,289 1,098 8,982 18,004 1,295 3,804 1,757 (220) 1,497 5,046 947 (828) - - - 58 - - (1) 72 - 90 - - New leases - - - - - 168 Other Changes December 31, 2018 (2) - 2 28 - 1 4,043 950 10,481 23,226 2,242 3,145 35,472 8,199 58 161 168 29 44,087 122 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 37. 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 2018 2017 Amount Portion Amount Portion 4,043 40,044 44,087 2.83% 28.00% 30.83% 2,289 33,183 35,472 1.78% 25.89% 27.67% 98,910 142,997 69.17% 100.00% 92,713 128,185 72.33% 100.00% The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and benefits to other stakeholders and to maintain an optimum capital structure to minimize the cost of capital. Periodically, the Group conducts debt valuation to assess possibilities of refinancing existing debts with new ones which have more efficient cost that will lead to more optimized cost-of-debt. In case of idle cash with limited investment opportunities, the Group will consider buying back its shares of stock or paying dividend to its stockholders. In addition to complying with loan covenants, the Group also maintains its capital structure at the level it believes will not risk its credit rating and which is comparable with its competitors. Debt-to-equity ratio (comparing net interest-bearing debt to total equity) is a ratio which is monitored by management to evaluate the Group’s capital structure and review the effectiveness of the Group’s debts. The Group monitors its debt levels to ensure the debt-to-equity ratio complies with or is below the ratio set out in its contractual borrowings arrangements and that such ratio is comparable or better than that of regional area entities in the telecommunications industry. The Group’s debt-to-equity ratio as of December 31, 2018 and 2017 are 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 2018 2017 44,087 (17,439) 26,648 98,910 26.94% 35,472 (25,145) 10,327 92,713 11.14% 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, 2018 and 2017, the Group has complied with the externally imposed capital requirements. 123 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 38. SUPPLEMENTAL CASH FLOWS INFORMATION The non-cash investing activities for the years ended December 31, 2018 and 2017 are as follows: Acquisition of property and equipment: Credited to trade payables Credited to obligations under finance lease Interest capitalization Advance paid Acquisition of intangible assets: Credited to trade payables 2018 2017 4,275 201 270 2,837 235 5,525 328 816 - 846 124 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 39. SUBSEQUENT EVENT 1. Based on notarial deed of Bonardo Nasution, S. H. No. 12 dated January 12, 2018 and No. 13 dated January 21, 2018, Telkomsel established a subsidiaries, PT Telkomsel Mitra Inovasi (“PT TMI”) and PT Fintek Karya Nusantara (“PT Finarya”) with full ownership by Telkomsel. 2. On January 25, 2019, and on January 14, 2019, Telkomsel fully paid the loan with MUFG and BNI amounting to Rp750 billion and Rp1,000 billion, respectively. 3. Based on notarial deed of Jimmy Tanal, S. H., M. Kn., No. 22 dated March 6, 2019 regarding Shareholder’s Resolution of PT Persada Sokka Tama (“PST”), approving transfers of right over shares of PST to Dayamitra from Mrs. Rahina Dewayani and Mrs. Rahayu amounting to 2,559,000 and 6,000 shares, respectively, therefore Dayamitra has 2,565,000 shares or 95% ownership of PST. PST is a company engaged in managing tower rental. This new investment is expected to strengthen the Company's business portfolio. The fair values of the identifiable assets and liabilities acquired at acquisition date were: Assets Cash and cash equivalents Trade receivables Property and Equipment (Note 9) Other assets Liabilities Current liabilities Non-current liabilities Other liabilities Fair value of identifiable net assets acquired Fair value of non-controlling interest Provisional goodwill Fair value consideration transferred Total 5 121 1,107 113 (129) (378) (104) 735 (37) 415 1,113 4. As of the date of approval and authorization for the issuance of these consolidated financial statement, purchase price allocation calculation is still in process. In January, February and March 2019, the Company received the SC’s verdicts as the result of the tax audit for tax period January to April and September 2007. Based on the verdict, SC rejected the Tax Authorities’s Judicial review and strengthen the Tax Court’s verdict. On March 11, 2019, Tax Authorities issued Decision letter on Company’s objection, wherein the Tax Authorities has granted all the Company’s objection and addition the overpayment amount for the tax period January to April 2016. 5. On February 18, 2019, Telkomsel received SP2PK from the Tax Authorities regarding the 2010 fiscal year VAT amounting to Rp290 billion. On March 25, 2019, the Company received SP2PK payment from the Tax Authorities regarding the 2010 fiscal year VAT amounting to Rp290 billion. 125 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 40. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) These are summary of significant differences between PSAK and IFRS for the year 2018. Impact of significant differences between PSAK and IFRS on consolidated statements of financial position as of December 31, 2018 were as follows: Reference PSAK Reconciliation IFRS 17,439 1,304 2,126 9,288 - 727 - 7,982 43,268 2,472 143,248 2,504 - 9,672 162,928 206,196 993 13,773 5,190 - 46,261 1,252 652 - 33,748 42,632 88,893 2,455 507 90,995 98,910 18,393 117,303 206,196 (4) 10 17,435 1,314 (112) (2,001) 1,560 2,014 7,287 1,560 (100) 924 (702) (425) 190 (336) (27) 320 (18) 129 (296) 627 924 7,280 42,843 2,662 142,912 2,477 320 9,654 163,057 205,900 1,496 (1,496) (5,190) 5,252 62 (55) (652) 652 (5) (60) 2 2,489 12,277 - 5,252 46,323 1,197 - 652 33,743 42,572 88,895 (479) (186) 493 (172) (126) (298) (296) 1,976 321 91,488 98,738 18,267 117,005 205,900 ASSETS Cash and cash equivalents Other current financial assets Trade receivables - net provision for impairment of receivables Related parties Third parties Contract asset Other receivables - net of provision for impairment of receivables Contract expense Other current assets Total Current Assets Long-term investments Property and equipment - net of accumulated depreciation Deferred tax assets - net Contract expense Other non-current assets Total Non-current Assets TOTAL ASSETS LIABILITIES AND EQUITY Trade payables Related parties Third parties Unearned income Contract liabilities Total Current Liabilities Deferred tax liabilities - net Unearned income Contract liabilities Long-term borrowing Total Non-current Liabilites TOTAL LIABILITIES EQUITY Additional paid-in capital Other equity Retained earnings Net equity attributable to owners of the parent company Non-controlling interest TOTAL EQUITY TOTAL LIABILITIES AND EQUITY d d d,b d,b c d c d d a c,d c,d a b b c c c,d c c b 126 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 40. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN PSAK AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued) Impact of significant differences between PSAK and IFRS on consolidated statements of profit and loss and other comprehensive income for the year ended December 31, 2018 were as follows: Reference PSAK Reconciliation IFRS REVENUES Operation, maintenance and telecommunication service expenses Depreciation and amortization expenses Marketing expenses General and administrative expenses Gain on foreign exchange - net Other income Other expenses OPERATING PROFIT Finance cost PROFIT BEFORE INCOME TAX INCOME TAX (EXPENSE) BENEFIT 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 Other comprehensive income - net c c a c d d d d c d 130,784 (43,791) (21,406) (4,214) (6,137) 68 1,752 (750) 4 (102) 130,788 (43,893) (36) 213 (457) 3 (7) 70 (21,442) (4,001) (6,594) 71 1,745 (680) 38,845 (312) 38,533 (3,507) (16) (3,523) 36,405 (328) 36,077 (9,426) 60 (9,366) 26,979 (268) 26,711 146 (10) 4,942 2 10 12 148 - 4,954 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 31,921 (256) 31,665 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 EARNING PER SHARE (in full amount) Net income per share Net income per ADS (100 Series B shares per ADS) 18,032 8,947 26,979 22,844 9,077 31,921 (230) (38) (268) (216) (40) (256) 17,802 8,909 26,711 22,628 9,037 31,665 182.03 18,202.70 (2.32) 179.71 (232.18) 17,970.52 127 These consolidated financial statements are originally issued in the Indonesian language. PERUSAHAAN PERSEROAN (PERSERO) PT TELEKOMUNIKASI INDONESIA Tbk. AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and For the Year Then Ended (Amounts in the tables expressed in billions of Indonesian Rupiah, unless otherwise stated) 40. 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. c. Revenue and expense recognition Under PSAK, for sale of goods, revenue is recognised when entity has transferred all risk of goods to the customer and entity no longer has effective control over the goods. As for services, revenue is recognised when the amount of revenue can be measured reliably and the level of completion of a transaction at the end of the reporting period can be measured reliably. Expenses recognized as incurred. Under IFRS, revenue is recognised when control of a product or service is transferred to the customer. Revenue is measured according to the value of the expected consideration in a contract with a customer. In addition, whoever fulfill its obligation, the entity presents contracts in the statement of financial position as contract asset or contract liabilities, depend on performance and customer’s payment. Entity presents unconditional right to consideration deparately as receivables. IFRS required recognition of incremental cost on contract acquisition and fulfillment as assets with several conditions. d. Financial instruments Under PSAK, financial assets are classified based on management intention. Provision of impairment on financial assets is recognised using the incurred loss method, which is its formed when the quality of financial assets has decreased. Under IFRS, financial assets are classified based on business model of entity and characteristic of contractual cash flows from financial assets. Provision of impairment on financial assets is recognised using the expected credit loss method, which is its formed as long as the financial assets is owned by the Company and started from the financial assets is acquired. 128 2018 ANNUAL REPORT FEEDBACK FORM PT TELKOM INDONESIA (PERSERO) TBK Thank you for reading our 2018 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. SA A M D 2. In your opinion, the materials in this Annual Report include data and information that are easily understood. SA A M D 3. In your opinion , the materials in this Annual Report include data and information that are sufficiently complete. SA A M D SD SD SD 4. In your opinion, the materials in this Annual Report include data and information that are accountable and can be validated for decision making process. SA A M D SD Remarks: SS: Strongly Agree A: Agree M: Moderate D: Disagree SD: Strongly Disagree 5. In your opinion, what was the 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 NGO Government Please send back this form to: Investor Relations Telkom Landmark Tower, 2nd Tower, 39th Floor Jl. Jend. Gatot Subroto Kav. 52, Jakarta 12710 Tel : (6221) 521 5109 Fax : (6221) 522 0500 email : investor@telkom.co.id www.telkom.co.id Industry Public Media Other ANNUAL REPORT PRODUCTION TEAM Doing a good job is not always about impressive innovation. Sometimes is only about doing something with plain dedication. it Thank you for the dedications! DATA CONTRIBUTORS PRODUCTION TEAM Setio Nuranto Moh Ahmad Agus Suprijanto Hery Saepul Azis Putri Irmawati Yuniasari Hendri Purnaratman Nurcholis Feri Ahmadi Prakoso Imam Santoso Novy Kartikayanti Kurnia Rimadani Dianti Mellisa Junainah I Gusti Agung Ayu Triana Dewi Brahmandi Andria Sastra Fadjrul Falah Sudaryadi Raden Riharso Ferry Studiyono Purba Rizki Ramadhan Buddy Restiady Yadi Ruslannurzaman Mohamad Abdul M. S. Hono Novangga Leni Triwanti Bambang Wahyu Samodra Sang Kompiang Muliartawan Ristianto Arieyanto Antonius Dwi Ananto Rohmat Nugroho M. Rosadi Bagas Pradana Yudha Bestari Merry Arizona Nova Yuanita Andi Setiawan Dewi Erni Ambarsari Hendra Priatna Muhamad Patria Narotama Widjaja Heti Triaswati Nike Josephine Rinaldi Nainggolan Jarot Widyatmoko Dessy Sandra Era Azura Liza Puspitasari Ardi Desento Chintia Febrianti Soepardi Melani Muchlis Moechtar Putriana Rahmatika Mohammad Izzatullah Uwes Qorni Candri Yuniar Roisy Fildatrya Winanda Thalia Isavani Viany Juliana Seran Anisa Ayu Artati Nur Azizah Joko Susilo Rizki Utami Agustinus Budi Wibowo Muhammad Nursalim Ida Widayani Adinda Syifaurrohmah Anggia Permatasari Maya Putri Arini Tantang Yudha Santoso Fikri Akhmadi Ratri Natarini Willy Arief Yudhistira Bima Aryo Putro Lara Soraya Rifana Suhartono Imam Rijanto Ahmad Hidayat Ida Bagus Putu Ariartha Hepta Yuniarita Endang Trisia Retnoningsih Yantito Simanjuntak Prayudi Nugroho Fiandis Susanto Abbas Paul Ricardo Girsang Sukma Nandini Valian Kusumawardhana Susilo Budi Utomo Retno Dyah Arumsari Uum Suryaman Budi Cahyadinata Yuli Purwanti Fridh Zurriady Ridwan Wahyudi Handriyanto Pradipta Wismaya Albi Ronny Rahmat Hidayat Dinaryati Aminda Sigit Trinarto Dinoor Susatyo Fauzan Feizal Hazim Ahmadi Muhammad Ramli Githa Kharismawati Wartono Purwanto Muhamad Wahyudi Jan Esson Saragih Sonny Komara Yoga Maharseto Iskandar Didi Haryadi Malikoeswari S Didit Dwiantoro Andri Herawan Sasoko Sumarno Anggoro Kurnianto Widiawan Pujo Pramono Mochamad Yazid Saktiono Hendra Gunawan Cholis Safrudin Wuryanto Anton Widaryanto Elysabeth Damayanti Dahrin Effendi Ageng Kharisma I Wayan Sukerata Rani Siesaria Handrianus Eddy Sunaryo Donny Kertaputra Widjaja Shera Aulia Junike Laura Desi Ariani Indah Wahyuni Wintoko M Pribadi Mario Holasan Lubis Achmad Sulkon Syukri Sinai Handayani Umar Farouk Ratri Taluningtias Dwi Fitri Parmania Kamal Adiati Sutjipto Yanti Lestari Ananto Dwi Nugroho Wibowo Sigit Sudjendro Bonny S Ario Guntoro Santi Aswin Fahmi Khaudzi Damara Ryandi Rustam Efendi Marpaung Ni Ketut Sukantini PHOTOGRAPHY Mike Marcus • Ery Punta H • • Suleksono • Ryan Nugroho • Andri MR • Kenneth Li • Sofyan DESIGN PT Desain Nindya Amarta (DNA Komunika) www.dnakomunika.com COPYWRITER Matahati Insphira PRINTING PT Metra Digital Media Onky Yudisetyawan Saputra (MD MEDIA) Vitry Junita Ahmad Fitriadi Hardi Purwanto PHOTO LOCATION GraPari TelkomGroup BSD GraPari TelkomGroup Graha Merah Putih Rooftop Graha Merah Putih Telkom Akses Slipi STO Cengkareng Data Center Sentul Pusat Pengendali Satelit Cibinong TelkomGroup Integrated Operation Center (TIOC) Telkom Digital Experience (TDX) 2018 Annual Report PT Telkom Indonesia (Persero) Tbk Investor Relations Telkom Landmark Tower, 39th Floor The Telkom Hub Jl. Jend. Gatot Subroto Kav. 52 Jakarta 12710, Indonesia T +62 21 521 5109 F +62 21 522 0500 e-mail: investor@telkom.co.id www.telkom.co.id

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