Good day, and thank you for standing by. Welcome to Telkom Earnings Call for First Half of 2024 Results. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the call over to [ Oki ], VP Investor Relations. Thank you. Please go ahead..

Thank you, gentleman. Ladies and gentlemen, welcome to PT Telkom Indonesia conference call for the unlisted results of first semester of 2024. There'll be an overview from our CEO [indiscernible] of Telkom Group followed by the Q&A after the session.

Before we start, let me remind you that today's call and the responses to the questions may contain forward-looking statements within the meaning of safe harbor. Actual results could differ materially from projections or estimations and may involve risks and uncertainties that may cause actual results to be different from what we discussed today.

Ladies and gentlemen, it is my pleasure today to introduce Telkom's Board of Directors, who are joining us today, Mr. Ririek Adriansyah, as President, Director and CEO; Mr. Heri Supriadi as Finance and Risk Management Director; Mrs. Venusiana, as Enterprise and Business Service Director; Mr.

Bogi Witjaksono, as Wholesale and International Service Director; Mr. Budi Setyawan Wijaya, as Strategic Portfolio Director; Mr. Honesti Basyir, as Group Business Development Director; Mr. Herlan Wijanarko, as Network & IT Solutions Director; and Mr. Afriwandi as Human Capital Management Director. Also present are the Board Directors of Telkomsel, Mr.

Nugroho, as President, Director; Mr. Daru Mulyawan, as Finance and Risk Management Director; Mr. Derrick Heng as Marketing Director; and Mr. Adiwinahyu Basuki Sigit as Sales Director. I now hand over the call to our President, Director and CEO, Mr. Ririek Adriansyah for his overview..

Thank you, [Oki]. Good afternoon, ladies and gentlemen. Welcome to our conference call for the unaudited first semester financial results. We appreciate the participation in this call. Ladies and gentlemen, we have seen 2024 as the year of better economic stability and growth compared to the year of 2023.

The initial target of 5.2% economic growth rate in 2024 as compared to 5.05% growth in the previous year despite challenges such as declining commodity process and global economic conditions.

Domestic consumption is predicted to contribute more than half of Indonesian economic growth supported by [indiscernible] and stable inflation rate of 2.5% plus or minus 1%. Indonesia is highest employment rate country among G20 nations with employment level of almost 70%, although [indiscernible] employment comes from [ employment ] sector.

Now the elected president Prabowo Subianto and his administration commit to several current [indiscernible] policies signal stable investment climate and reduced political instability. Energy and food price volatility along with strong U.S. dollar to Indonesian Rupiah should be [indiscernible].

Our growth remained a significant potential for [indiscernible] growth as expanding rates of high-tech products and maximizing the impact on employment could help boost our economic in the case of external financial pressures.

Telecommunication industry contributes to the growth of high-tech products and business opportunities in increasing the economics of macro, micro, small and medium enterprises or MSMEs [indiscernible] wholesale spending growth in Indonesia [indiscernible] and the effect of increased spending, including in the telecommunication sector.

Telkom Group has been transforming to digital services company serving both B2C and B2B segment, we are ready to catch up the opportunity of increasing telecommunication steady growth. Our [indiscernible] telecommunication company enables us to become the retail economic catalyst for Indonesia.

This is important while the industry is in the first solution having the first unique technology coupled with retention of the global geopolitical environment. On the B2C segment, we have implemented fixed-mobile convergence or FMC strategy for one year since 1st of July 2023. And [indiscernible].

Further, [ technical service ] by launching Telkomsat One [indiscernible] offering, Telkomsat Lite and value secondary brand to maintain market share register while we remain focused on profitability so far [indiscernible] and does not create price instability in the market.

This has been [indiscernible] distribution of our ARPU during first semester of [indiscernible]. Mobile customer base grew at a healthy 4.3% to 159.9 million subscribers. As a result, normalized EBITDA margin has also been sustained at 51.9% for this semester.

We remain of the view that with necessary consolidation and healthy pricing could be developed toward healthy competition. Moving forward, the synergy effect from the FMC initiatives serve as revenue uplift, OpEx efficiency and CapEx efficiency [indiscernible] to ensure maximum effect of FMC strategy to our company's financial.

A part of [indiscernible] 5 Five Bold Moves strategy, our corporate performance and group make sure that all business processes achieved efficient results and no duplication processes within our organization. This includes, for example, in the process of [indiscernible] where thanks to a product of group purchase initiatives.

The rate of CapEx purchase for [ devices and network ] have improved quite meaningfully. Such a group [indiscernible] process as additional made positive impact to digital content offerings, of which in the end of resulted to a better experience to our end customers, efficient content cost for the company.

[indiscernible] we are also successful in [indiscernible] transfer payment mostly in Indonesian Rupiah contract to offset foreign exchange uncertainty. Similarly in June 2024, the group has also initiated an early pension program. This affected more than 1,000 employees.

This profile in line with our budget to optimize and fashion [indiscernible] as well as to create linear [indiscernible] 5 Bold Moves strategy. The program cost has a total of IDR 1.24 trillion with a payback of 2 years. That initiative is aimed to less probability [indiscernible] capital and enhance shareholders' value in the future.

On the B2B business, we continue to be agile and get focus to create long-term sustainability growth of revenue [indiscernible] supported by platform expansions with data center and [indiscernible] business [ envelope ].

Our additional data center capacity within 2024 will be contributed mostly from hyperscale data center by 18-megawatt in Cikarang as well as our capacity expansion of all [indiscernible] data centers and RS data centers [indiscernible] the established competition in order center could be allocated to a small cloud storages and processing demand driven by artificial intelligence standards as ultra-high decision content [indiscernible] and gaming.

International [indiscernible] subsidiary of [indiscernible] end-to-end data center connectivity by building from data center premises up to international gateway.

With the international [indiscernible] business as term source of revenue, Internet connectivity quality and latency will improve, since Internet traffic could be rerouted to the Southwest International Gateway. This might pass though [indiscernible] Singapore and [indiscernible] many international gateways.

[indiscernible] progress has also been encouraging in this -- our business vehicle, Digital Infrastructure Indonesia will serve as [indiscernible] to commence infrastructure asset managed service [indiscernible] asset maintenance.

We have confirmed that the legal day 1 competitor infrastructure Indonesia as our [indiscernible] infrastructure managed service entity will be on the 1st of August 2024. Then it assumes to have a higher duty as an asset owner of dot-com cyber industry in 2025.

We also hope that beside from FMC initiative, the establishment will also enable us to transfer [indiscernible], while also improve as leading infrastructure asset with additional investment to increase CapEx efficiency.

On the B2B digital added services and the company initiative besides preparing for internal capability and hence, we also realigned our portfolio, especially in all subsidiaries, such as [indiscernible]. That will be the end of my remarks. Next, I would like to hand over the presentation to Mr.

Heri Supriadi, our Group Finance and Risk Management Director, to give you brief overview in regard to our financial performance. Thank you..

Thank you, Ririek. Good afternoon, ladies and gentlemen. During the first semester of 2024 unaudited financial results, Telkom Group has delivered a healthy revenue growth of 2.5% year-on-year to [IDR 75.3 trillion]. And -- with EBITDA achieved at IDR 37.9 trillion, a slight decrease by 1.3% year-on-year.

The growth in our revenue has been mostly contributed from our continuing effort in promoting data and Internet services revenue amidst the continuing natural decline of our legacy revenue. The slight decrease in EBITDA, however, occurred during the second quarter.

We initiated an early retirement program, which has affected a total of around 1,000 employees and expenses of IDR 1.24 trillion. This met personnel expenses jumped by 20.9% year-on-year during the semester.

On the other side, we believe this initiative will not only create leaner organization, but also increase [indiscernible] efficiency and productivity.

Stripping out the one-off cost from the program, our normalized EBITDA stood at IDR 39.1 trillion, which grew by 1.9% and making the normalized EBITDA margin stabilized at 51.9% as compared to that in the first quarter of 2024.

Meanwhile, our operating net income grew by 4.2% year-on-year to IDR 13 trillion after stripping out mark-to-market effect from GoTo ERP costs and one-off from unlocking asset at a consol level. Taking a deep dive into expenses breakdown beside the strategic initiative on early retainment program as the highlight during the quarter.

The higher cost in interconnection has been attributed to the growth in revenue related to [indiscernible] The dilution of margin in the business, however, come following the decline in legacy business, including voice and SMS A2P revenue.

After first semester of 2024, we have realized a total CapEx of IDR 11.7 trillion, largely used for connectivity followed by spending for digital platform and services. CapEx realization to revenue was 15.5%, and hopefully, accelerated towards the end of the year at the level of 22% to 24% and gradually create significant additional revenue.

And at the end of June, our liabilities saw net additional in the position. The increase was seen as we withdraw a certain [debt] used for dividend payment. Our gearing ratio, however, was maintained at a healthy level with net debt-to-EBITDA stood at 0.67x at the end of June 2024. On B2C business.

Despite the deterioration of outsource spending [indiscernible] combined with the increasing dynamic of competition in the industry, the second quarter of 2024 has been steadily quarter for Telkomsel.

In second quarter of 2024 alone, mobile revenue come at IDR 28.6 trillion, which modestly grew by 0.4%, while in the home revenue was IDR 6.6 trillion with an increase of 0.3% from the previous quarter. This brought our revenue for Telkomsel grew solidly by 29.9% to IDR 57.2 trillion for the semester with EBITDA margin steady at 47%.

We have also managed further acceleration in our convergence penetration to 47% and reached digital asset users to around 80 million. Productivity improved driven by data payload, which increased by 11.7% year-on-year, while customer base reached 159.9 million, an increase of 4.3% at the end of June 2024.

Our continuous effort to give better customer excellence in digital services together with [further push] in synergy value initiative yield positive impact and maintain ARPU at a healthy level of IDR 45,000. This is [the spread] of our recent introduction of Telkom Satellite, which has proven to maintain healthy pricing and not creating price war.

Our IndiHome business has also been showing a consistent positive growth trajectory to capture the tremendous opportunity for growth in the fixed broadband business. We believe the journey of our next 10 million growth in customer life in the mass market segment.

This has become our main strategic focus and marked by the recent launch of EZnet of which not only aim at expanding our fixed broadband business into a new segment, but also to grow our [indiscernible] use further. Moving to wholesale and international business segment.

In the first semester of 2024, the segment contributed [group] revenue in the amount of IDR 9.2 trillion, grew by 13.1% year-on-year as the result of growing international wholesale voice business and digital connectivity infrastructure with this.

[Telin] [indiscernible] as one of the contributors to the segment with international connectivity as the main driver of the growth. In the meantime, we are continuing our journey and our attempt to unlock value of our data center business.

We are exploring new strategic partners, of which together could accelerate the growth of our DC business, not only for domestic, but also in the regional Asia.

As of first semester of 2024, our data center business has contributed IDR 1 trillion to total group revenue, a solid increase by 22% growth year-on-year driven by higher traffic in Content Delivery Network or CDN. On tower business, as of first semester of 2024.

Mitratel keeps maintaining its position as the largest tower provider in Southeast Asia in terms of tower owned with more than 38,600 of towers and more than 58,600 of tenants. The tenancy rate still was improved to 1.52x.

On the standalone business, in the first half of 2024, Mitratel recorded revenue of IDR 4.5 trillion or grew by 7.8% year-on-year, driven by tower leasing revenue EBITDA and net income grew by 10.2% and 4.1% year-on-year, respectively. This resulted in strong EBITDA and net income margin of 83.1% and 23.9%.

Furthermore, Mitratel demonstrated a strong financial position with relatively low leverage ratio of 1.8x to net debt to EBITDA as compared to the industry.

Enterprise segment recorded revenue of IDR 10.2 trillion during the first semester of 2024 or grew by 9.4% year-on-year driven by digital connectivity, contributed by high-speed Internet and digital services contributed by e-payment. We continue to strengthen our capabilities in the cloud business, digital, IT services and cybersecurity.

This initiative by among few building strategic partnerships with global technology players. Lastly, in regards to our guidance for 2024. Looking at the latest development in the economy and further dynamic in the industry impairment, we are now aiming for our revenue to grow by low single digits for the year.

This will come with EBITDA margin in the range of 50% to 52% and CapEx to revenue ratio of 22% to 24%. That would be the ending of my remarks, and thank you for your kind attention..

Thank you very much Mr. Heri. Ladies and gentlemen, we will now begin the Q&A session.

[Operator Instructions] Operator, may we have the first question, please?.

[Operator Instructions] First question comes from the line of Kelsey Santoso of Goldman Sachs..

This is Kelsey speaking. A couple of questions from my side. Firstly, on your two cost items. First one is your G&A costs. So if we look at the quarterly basis instead of on semester basis, Q2 actually saw a 20% increase quarter-on-quarter and year-on-year. So can I check what led to the spike? And second one would be your personnel costs.

Understand that the spike in Q2 was due to the ERP. But can I confirm if this is already largely behind? Or if there's still some headwinds remaining in the upcoming quarters? And my second question would be on your mobile business. So we saw that ARPU still declined slightly Q-on-Q, while [subs] were still flattish.

So how should we expect these to trend in the upcoming quarters? And should there be any uplift that we can expect as you continue executing on the FMC strategy?.

Okay. Kelsey, your question. Allow me to answer that one. On the -- in the second quarter of this year, we have kind of spending in the [indiscernible] as part of the [indiscernible] of the [DoD] and also the employees. Second question is will there be any headwind upcoming quarters.

Basically, the ERP is a program that follow our transformation in making fixed mobile business becoming more efficient with the reminding those employee who cannot [indiscernible] catch up with our plan with new skill sets and so on. We provide this ERP.

We see this ERP in the -- I think, in the -- I think, feel more years becoming [indiscernible] that we're going to do this again because this is part of the transformation, and this transformation in the process of implementation and [indiscernible] that one. This one, I think one of the biggest part of the transformation.

We don't have any plan in the near future for another ERP. And the third question, ARPU [indiscernible] I think this question comes to you, Derrick..

Yes. This is Derrick and I'll share some color on our ARPU. In our context, Telkomsel sustained stable ARPU at IDR 45,000. And there are several factors that we think that's attributing to this. From a macro economy perspective, we see contraction of consumer purchasing power.

And when we look at it from a [pricing] perspective, the Lebaran incentives out in end of March impacted to spread the spending between Q1 and Q2. And we have maintained the current stake of our average pricing. In fact, there was higher monetization rate. We want to stay relevant and affordable to our customer needs and manage the competitiveness.

We have been selective to expand our engagement to the [indiscernible] new segments. Our strategy with our new plans of [indiscernible] and by.U has helped us maintain our churn rate. There was also downside risk in terms of ARPU, which is maintained at the minimum.

We are maximizing our CDN strategy, our digital adoption through engaging digital ecosystem. We have also enriched our content offering to stimulate customer usage, which is seen in the payload growth both year-on-year as well as Q-on-Q.

So if you look at what next to come, we want to increase our product competitiveness to targeted segments to ensure ARPU stability through productivity gains addressing the mass segment, you customers as well as maintaining and monetizing our high-value customers. We want to maintain subscriber growth and base through healthy market conduct.

And then we also support our FMC's rollout strategy, increasing penetration into multilayer of segments by leveraging to grow [underserved] segment. If you look at our convergence penetration, year-on-year, we have already done to reach a state of 47% market product holding in our base.

So that will continue our strategy to drive more engagement at the household segment perspective..

Can I just double check on the G&A costs, didn't really catch that..

On the G&A, basically, basically the increase on the second quarter mostly coming from the [incentive] and bonus for the group of management..

[Operator Instructions] Next question comes from the line of [ Ranjan Sharma ] of JPMorgan..

Sorry, can I just again request clarification on what G&A costs are up 20% quarter-on-quarter. I apologize the line is very unclear, so I asked this question again. The other question that I have is on the early retirement program.

Are there any costs [indiscernible] level as well [indiscernible]? And lastly, on data center side, if you can help us understand how the lease rates are trending in Jakarta..

Can you repeat again your second and third questions, please?.

The early retirement program first, are there any costs put within Telkomsel? And on the data center if you can help us understand how the lease rates are trending in Jakarta..

Sorry, your third question is on data center, you asked in regard to lease rates trending in Jakarta, am I correct?.

Yes, for the data center business..

Data center business, okay.

And number two is in regards to your Telkomsel cost of early retirement?.

Yes, early retirement program costs that you have booked, what are the costs booked within Telkomsel?.

Within the Telkomsel for the ERP related cost. Okay. Thank you..

Okay. On the G&A costs, as we explained before, this must be coming from the payment of the bonus for the -- and funding for the management of the company. And on the cost [indiscernible], ERP-related costs in Telkomsel, we don't have that program in Telkomsel.

This is from Telkom, the parent company because with regards to the, I think, transformation following the [fixed mobile conversion] and some also following the, I think, establishment of InfraCo, we need to basically mapping the talent that we need to increase the business.

Those who cannot really follow after we do retrain and so on, we offer them the early retirement program. Please see this cost as basically our investment for the future, as we do expect by having this ERP, we then can free the space for the new talent with more, I think, relevant skill set with the business.

And also [DCRP], the way we calculate basically, we get the net present value of what we pay to them as compared if they stay with us. So this basically put in -- financially, this will benefit us in the medium term. And strategically, we also can fill up the talent in the company with the right skill set.

Data center, how is trending?.

Yes. Since the demand, they are higher than the supply side. We believe that the leasing rate still trend -- increasing the trend. But I think in the long term, because there are so many [players] will come into Jakarta, maybe will be a rationale the rest and the [indiscernible]..

Does that answer your question?.

If I can just have a quick follow-up on the G&A side.

Sorry, can I just have a quick follow-up on the G&A cost?.

Yes. Sure..

So if the G&A costs are up because of payment of bonuses, I mean, that would have been paid last year as well, right? Why is it up 20% on a year-on-year basis?.

This month, the timing issue. By the end of the year, it is towards the [indiscernible] year. This is supposed to be normalized again. I think increased by -- I think, the rate of how much the bonus is increased.

And second, also the G&A, one of the contribution also coming from the allowance for bad debt in which we also believe that is in the good shape right now. This is supposed to be quite normal after the end of the year..

[Operator Instructions] Our next question comes from Luis Hilado from Citi..

We had three questions. The first is on the wireless side. It seems to be that your revenue market share is still slipping.

What's driving this growth gap? Is it because your usage is growing to the other operators? And is it mainly in Java that this happening or in the ex-Java areas where you're seeing the usage shifting? Second question is on fixed broadband. It seems to be quite slow for the entire industry aside from yourselves.

What's the key bottleneck in driving better broadband subscriptions going forward? And last question is on the [indiscernible]. As you mentioned, there'll be savings from that as well as having room to hire new talent.

But in terms of the savings, can you quantify for us what the amount you're looking at for the medium term in terms of savings?.

Okay. This is Derrick. I'll answer your question on wireless. Well, what's our view on the current market mobile competition? Well, we see that our competition is expanding aggressively outside of Java. And that's the space that we want to make sure that we will defend aggressively.

With regards to our strategy, we will continue to tailor fit pricing strategy, coupled with [indiscernible] packaging. We will also be -- double down on physical culture and personalized offerings. So we will want to synchronize pricing the specific needs of each customer segment. We want to deliver superior customer experience.

So we have also been working very hard to make sure that at our touch points, we have convenient as well as seamless, efficient experience for our customers and flexibility to respond to market dynamics to deliver maximum value. And we aim for a revenue share along with profitability while expanding footprint to maintain market share.

If you look at our new initiatives like Telkomsel Lite as well as value, it has gained traction where we see Facebook shares as a proxy as well as our new market share in terms of gaining customer share. Your next question on the fixed broadband business.

We are really focusing on accelerating fixed broadband penetration as a first mover by leveraging on our assets. And if you look at our strategy in terms of FMC, we want to maintain our leadership as the nation's largest convergent operator. So we want to drive productivity gains by bringing more value to customers at a household perspective.

So hence, our [indiscernible] has shown strongly in our Q2 '24 aligned with positive growth in revenue. This is in context to our strategy that we ultimately want to secure and lock up households and grow via the [ARPH], the average revenue per household..

Let me add on fixed broadband growth in [indiscernible]. I think where we have seen in the market so far, of course, yes, there's competitions among the fixed broadband players. However, we've seen there is a potential growth that we have addressed since Q2 where we have launched the penetrations aggressively on ARPU below 200,000 where we have EZnet.

This has addressed the affordability on the fixed broadband. And at the same time, it is aligned with our strategy to increase the penetration of fixed broadband.

I think as we have [indiscernible] since the beginning when we transferred in the home to Telkomsel, our main objective is how to increase aggressively our presentations of fixed broadband from 15% on the [current situations] to, of course, above that. And the only way we have to do it is with addressing our affordability.

And with EZnet, we've seen that it is still maintaining the net debt in terms of additional subscribers. However, of course, there's an impact on ARPU. We believe that this impact on the ARPU will be able to balance with how we can [indiscernible] to improve or any home, both from the quality as well as on our value add.

We have improved our speed and also additional [indiscernible] surface for our Indigo subscribers in order to improve our ARPU in any home segments. So basically, in a way, our strategy is to continuously improve our mid- to high segments on fixed broadband and also continuously penetrate our fixed broadband [indiscernible] EZnet..

Luis, on the ERP. I can basically describe to you how we kind of collect this one in one of the, I think, parameter we use is [ MVP ]. And, of course, by calculating this one with the pay that we give to the early retirement as compared to the -- if they stay and we still pay them the salary and [ MVP ] the different is positive.

The other way to see this one is these activities actually resulted the ERR around 21%. If we see in the [ average ], I think the remaining term of most of the employees that follow this one is around 5 years. The payback period is just around [2.5 years] of period. So this is basically more positive to the company. That's maybe my explanation..

Just one follow-up question.

I didn't catch the earlier answer to the question on whether there is going to be ERP in the second half or for next year? Or you're done for the year?.

I think for the ERP itself, we don't see that we need to do this one because in the fixed mobile convergent, FMC, most of the employees that can really have a catching with the new skill set that we need already [indiscernible], I think identified and already followed this program.

Also with regard of the -- I think, [indiscernible] that we established with the business model that we have, we also can reduce some people. The people also already follow this program as well. So with this, we see that in the near future, there's no additional plan for the ERP..

[Operator Instructions] I'm seeing no more questions from the line. Allow me to hand the call back to management for closing..

Thank you very much, everyone, for participating in the call today. We apologize for those whose questions could not be addressed yet. If you have any questions further, please do not hesitate to contact us directly to the investors@telkom.co.id or always reach out to me directly. Thank you very much. Good afternoon..

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines..