Telkom's first half profit drops 18.7%

Tony Hotland, Jakarta

Publicly listed telecommunications firm PT Telkom said on Friday first half net profit dropped by 18.7 percent compared to the same period last year due to foreign exchange losses and a higher interest rate burden.

Telkom president Kristiono said that net profit in the first semester ending June 30 declined to Rp 2.87 trillion (US$312.46 million) from Rp 3.53 trillion in the first half of 2003.

"The drop in profit is largely caused by the depreciation of the rupiah as we have debts in foreign currencies, mostly in the U.S. dollar," Kristiono said after the company's shareholders meeting.

Telkom suffered some Rp 869.81 billion in foreign exchange losses during the semester.

The firm's outstanding debts in foreign currencies are estimated at $800 million.

"However, the loss is just seasonal as our total revenue increased by 27 percent to Rp 16.1 trillion, so the company is showing good performance. We believe the loss would have been much less if the rupiah had strengthened against the U.S. dollar," he explained.

The rupiah has been under pressure due to a combination of rising political uncertainty at home amid the elections and a rising interest rate trend in the U.S., which had prompted some people to switch investments from local assets to dollar-based assets.

Telkom's total revenue surged by 27.9 percent to Rp 16.1 trillion in the first half, led by big gains in its fixed-line and cellular services.

The shareholders meeting also approved the company's plan for a two-for-one stock split (one old share splits into two new shares). The split will double the number of the firm's shares to 80 million shares. The split will also halve the nominal value of a share to Rp 250.

"The split is expected to increase the liquidity and the trade volume of Telkom's shares, which has been declining over the last year, as the shares will be more affordable for people." said Kristiono.

The meeting also approved Telkom's 2003 financial report. Profit dropped by 24.29 percent to Rp 6.09 trillion from the previous year.

Half of the profit will be used to pay dividends, which means Rp 301.94 per share, and the rest will be allocated for investment (48 percent) and internal cash reserves (2 percent).

Telkom management had previously proposed a 40 percent dividend payout, but the government as a major shareholder demanded a 50 percent dividend.

Kristiono said that Telkom's planned capital expenditure for 2004 was about Rp 8.9 trillion, with some Rp 3.9 trillion to be contributed by Telkom's long-term investments with its joint- operation (KSO) partners.

Telkom's shares remained unchanged on Friday from the previous day, closing at Rp 7,750.