ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
B. LIQUIDITY Liquidity Sources
The main source of our corporate liquidity is cash generated by operating activities and long-term and short-term loans under credit facilities available from banks. See "— Internal Liquidity Sources" and "— External Liquidity Sources" below for additional information. We aim to maintain a strong financial position and have enough liquidity for our operations and to support our growth. Our main cash requirements consist of operating expenses, cash payments relating to the acquisition of properties and purchase of equipment, repayment of borrowings from banks, payment of salaries, payment of cash dividends and corporate income tax. See "— Cash Flows" below for additional information. See also our consolidated statement of cash flows included in our Consolidated Financial Statements included in this annual report on Form 20-F. We seek to keep optimizing our balance sheet and financing capabilities.
We divide our liquidity sources into internal and external liquidity sources.
A. Internal Liquidity Sources
To fulfill our obligations, we rely primarily on our internal liquidity. As of December 31, 2021, we had Rp38,311 billion (US$2,688 million) in cash and cash equivalents available, representing an increase of Rp17,722 billion, or 86.1%, from Rp20,589 billion as of December 31, 2020. In addition, in 2021, we realized cash proceeds of Rp18,463 billion from the initial public offering of Mitratel.
Cash receipts from revenues comprised primarily cash receipts from revenues from customers, which amounted to Rp143,902 billion (US$10,097 million) in 2021, and were used for the payment of operating expenses, the acquisition of property and equipment, the payment of cash dividends and the repayment of loans and other borrowings.
Our internal liquidity strength is reflected in our current ratio, which we calculate as current assets divided by current liabilities. As of December 31, 2020 and 2021, our current ratio was 0.68 and 0.89, respectively.
B. External Liquidity Sources
Our primary external sources of liquidity are short and long-term bank loans, bonds and notes, other borrowings and two-step loans. We had external liquidity from loans and other borrowings of Rp68,579 billion as of December 31, 2021.
External Liquidity Sources
As of December 31, 2021, we had undrawn loan facilities which included the following sources of unused liquidity:
● a credit facility with BCA in the amount of Rp2,650 billion;
● a credit facility with Bank Mandiri in the amount of Rp12,150 billion;
● a credit facility with BTPN Bank in the amount of Rp1,480 billion;
● a credit facility with BNI in the amount of Rp4,496 billion;
● a credit facility with BRI in the amount of Rp1,000 billion;
● a credit facility with HSBC Bank in the amount of Rp2,237 billion;
● a credit facility with Bank of China in the amount of Rp1,600 billion;
● a credit facility with Bank CIMB Niaga in the amount of Rp796.6 billion and US$54,656,707;
● a credit facility with DBS Bank in the amount of Rp275 billion;
● a credit facility with Citibank in the amount of Rp500 billion;
● a credit facility with Permata Bank in the amount of Rp792.8 billion; and
● a credit facility with MUFG Bank in the amount of Rp2,940 billion.
Cash Flows
The following table sets out information concerning our consolidated cash flows, as set out in (and prepared on the same basis as) our Consolidated Financial Statements for 2019, 2020 and 2021:
Years Ended December 31,
2019 2020 2021
(Rp billion) (Rp billion) (Rp billion) (US$ million)
Net cash flows:
provided by operating activities 58,966 65,317 68,353 4,797
used in investing activities (35,875) (35,099) (37,914) (2,660)
used in financing activities (22,175) (27,910) (12,775) (897)
Net increase in cash and cash equivalents 916 2,308 17,664 1,240
Effect of exchange rate changes on cash and cash equivalents (109) 40 59 3
Allowance for expected credit losses (1) — (1) 0
Cash and cash equivalents at beginning of year 17,435 18,241 20,589 1,445
Cash and cash equivalents at end of year 18,241 20,589 38,311 2,688
Year ended December 31, 2021 compared to year ended December 31, 2020
As of December 31, 2021, total cash and cash equivalents amounted to Rp38,311 billion, an increase of Rp17,722 billion, or 86.1%, from Rp20,589 billion as of December 31, 2020.
In 2021, operating activities generated the largest cash receipts which amounted to Rp148,234 billion, or 68.9% of total cash receipts, followed by financing activities which generated cash receipts of Rp65,075 billion, or 30.3% of total cash receipts, and investing activities which generated cash receipts of Rp1,696 billion, or 0.8% of total cash receipts. In total, cash receipts increased by Rp50,610 billion, or 30.8%, compared to 2020.
In 2021, cash used for operating activities amounted to Rp79,881 billion, or 40.5% of total cash disbursements, followed by cash used for financing activities which amounted to Rp77,850 billion, or 39.4% of total cash disbursements, and cash used for investing activities which amounted to Rp39,610 billion, or 20.1% of total cash disbursements. Compared to 2020, cash disbursements increased by Rp35,254 billion, or 21.8%.
Cash Flows from Operating Activities
Net cash generated by operating activities in 2021 was Rp68,353 billion (US$4,797 million), compared to Rp65,317 billion in 2020, representing an increase of Rp3,036 billion, or 4.6%.
Cash receipts from operating activities in 2021 amounted to Rp148,234 billion, an increase of Rp8,783 billion, or 6.3%, compared to 2020.
Cash receipts principally originated from:
cash receipts from customers and other operators of Rp143,902 billion;
cash receipts from tax refund of Rp3,768 billion; and
cash receipts from finance income of Rp564 billion.
Cash disbursements from operating activities in 2021 amounted to Rp79,881 billion, an increase of Rp5,747 billion, or 7.8%, compared to 2020. The cash disbursements were primarily used for:
● cash payments for expenses of Rp44,811 billion;
● cash payments to employees of Rp13,262 billion;
● cash payments for corporate and final income taxes of Rp9,679 billion;
● cash payments for short-term lease and low-value lease assets of Rp5,308 billion;
● cash payments for finance costs of Rp4,426 billion;
● cash payments for value added taxes - net of Rp2,084 billion; and
cash receipts from (payments for) others - net of Rp311 billion.
Cash Flows used in Investing Activities
Net cash flows used in investing activities in 2021 amounted to Rp37,914 billion (US$2,660 million), compared to Rp35,099 billion in 2020, representing an increase of Rp2,815 billion, or 8.0%.
Cash receipts from investing activities amounted to Rp1,696 billion, an increase of Rp1,221 billion, or 257.1%, compared to 2020. The cash receipts principally originated from:
proceeds from (placement in) other current financial assets - net of Rp807 billion;
proceeds from sale of property and equipment of Rp756 billion; and
proceeds from insurance claims of Rp133 billion.
Cash disbursements from investing activities in 2021 amounted to Rp39,610 billion, an increase of Rp4,036 billion, or 11.3%, compared to 2020. The cash disbursements were used for:
purchases of property and equipment of Rp29,923 billion;
additional of long-term investments in financial instrument of Rp6,358 billion, primarily consisting of the subscription for convertible bonds in GoTo and other equity investments;
purchases of intangible assets of Rp2,845 billion;
increase in advance and other assets - net of Rp442 billion; and
additional contribution on long-term investments in associated companies of Rp42 billion.
Cash Flows used in Financing Activities
Net cash flows used in financing activities in 2021 amounted to Rp12,775 billion (US$897 million), compared to Rp27,910 billion in 2020, representing a decrease of Rp15,135 billion, or 54.2%.
Cash receipts from financing activities amounted to Rp65,075 billion in 2021, an increase of Rp40,606 billion, or 165.9%, compared to 2020.
The cash receipts principally originated from:
proceeds from loans and other borrowings of Rp46,612 billion; and
proceeds from initial public offering of subsidiary of Rp18,463 billion.
Cash disbursements from financing activities amounted to Rp77,850 billion in 2021, an increase of Rp25,471 billion, or 48.6%, compared to 2020. The cash disbursements were used for:
repayments of loans and other borrowings of Rp43,740 billion;
cash dividends paid to the Company's stockholders of Rp16,643 billion;
cash dividends paid to non-controlling interests of subsidiaries of Rp13,242 billion; and
repayments of principal portion of lease liabilities of Rp4,225 billion.
Current Assets
As of December 31, 2021, our current assets were Rp61,288 billion (US$4,300 million) compared to Rp46,529 billion as of December 31, 2020, an increase of Rp14,759 billion, or 31.7%. This increase was primarily due to:
●an increase in our cash and cash equivalents of Rp17,722 billion, or 86.1%, from Rp20,589 billion as of December 31, 2020 to Rp38,311 billion as of December 31, 2021, primarily due to an increase in cash deposited with banks in the amount of Rp17,841 billion;
●an increase in contract assets by Rp1,294 billion, or 124.9%, from Rp1,036 billion as of December 31, 2020 to Rp2,330 billion as of December 31, 2021, primarily due to an increase in Enterprise Segment's contract assets from government customers;
● an increase in assets held for sale of Rp779 billion, or 1,997.4%, from Rp39 billion as of December 31, 2020 to Rp818 billion as of December 31, 2021. As of December 31, 2020 and 2021, the equipment units of Telkomsel with the carrying amount of Rp39 billion and Rp818 billion, respectively, to be exchanged, and therefore the equipment units were reclassified as assets held for sale in the consolidated statement of financial position; and
●an increase in contract costs of Rp202 billion, or 44.5%, from Rp454 billion as of December 31, 2020 to Rp656 billion as of December 31, 2021.
This increase was partially offset by:
a decrease in trade and other receivables of Rp2,849 billion, or 24.7%, from Rp11,554 billion as of December 31, 2020 to Rp8,705 billion as of December 31, 2021, primarily due to a decrease in third parties and related parties receivables by Rp1,864 billion and Rp965 billion, respectively;
●a decrease in other current financial assets by Rp810 billion, or 62.2%, from Rp1,303 billion as of December 31, 2020 to Rp493 billion as of December 31, 2021, primarily due to a decrease in time deposits of Rp778 billion;
●a decrease in prepaid income taxes by Rp782 billion, or 72.5%, from Rp1,079 billion as of December 31, 2020 to Rp297 billion as of December 31, 2021, primarily due to an increase in our subsidiaries corporate income tax;
●a decrease in our prepaid other taxes of Rp408 billion, or 13.9%, from Rp2,945 billion as of December 31, 2020 to Rp2,537 billion as of December 31, 2021, primarily due to a decrease in VAT payable by Telkom and its subsidiaries;
●a decrease in inventory by Rp204 billion, or 20.8%, from Rp983 billion as of December 31, 2020 to Rp779 billion as of December 31, 2020, primarily due to a decrease in component, SIM cards and blank prepaid vouchers; and
● a decrease in other current assets of Rp185 billion, or 2.8%, from Rp6,547 billion as of December 31, 2020 to Rp6,362 billion as of December 31, 2021 due to the decrease of advances paid by the customers.
Current Liabilities
As of December 31, 2021, our current liabilities were Rp68,695 billion (US$4,819 million) compared to Rp68,500 billion as of December 31, 2020, an increase of Rp195 billion, or 0.3%. This increase was primarily due to:
an increase in accrued expenses of Rp1,620 billion, or 11.4%, from Rp14,265 billion as of December 31, 2020 to Rp15,885 billion as of December 31, 2021 due to an increase in accrued expenses for operation, maintenance, and telecommunication services of Rp523 billion and an increase in salaries and benefit of Rp781 billion;
an increase in other tax liabilities of Rp892 billion, or 62.7%, from Rp1,422 billion as of December 31, 2020 to Rp2,314 billion as of December 31, 2021, due to a Rp396 billion increase in VAT payable by our subsidiaries;
an increase in current maturities of lease liabilities of Rp720 billion, or 15.0%, from Rp4,805 billion as of December 31, 2020 to Rp5,525 billion as of December 31, 2021;
● an increase in customers deposits of Rp392 billion, or 19.4%, from Rp2,024 billion as of December 31, 2020 to Rp2,416 billion as of December 31, 2021, primarily due to an increase in customer deposit from new IndiHome customers which can be used to deduct the billing in 13th month or can be refund to customer who want to deactivate the services;
● an increase in current income tax liabilities of Rp318 billion, or 24.6%, from Rp1,291 billion as of December 31, 2020 to Rp1,609 billion as of December 31, 2021, due to an increase in corporate income tax payable by Telkom by Rp276 billion; and
● an increase in trade and other payable of Rp202 billion, or 1.1%, from Rp17,577 billion as of December 31, 2020 to Rp17,779 billion as of December 31, 2021 due to an increase in trade payables to third parties by Rp456 billion.
This increase was partially offset by:
● a decrease in contract liabilities of Rp1,037 billion, or 13.2%, from Rp7,832 billion as of December 31, 2020 to Rp6,795 billion as of December 31, 2021, primarily due to decrease in advances from customers for mobile and enterprise amounting Rp892 billion and Rp723 billion, respectively. This decrease was offset by increase in advances from customers for WIB amounting Rp470 billion; and
● a decrease in short-term bank loans and current maturities of long-term liabilities of Rp2,912 billion, or 15.1%, from Rp19,284 billion as of December 31, 2020 to Rp16,372 billion as of December 31, 2021, primarily due to a decrease in short-term bank loans of Rp3,252 billion and an increase in current maturities of long-term liabilities of Rp340 billion. We primarily decreased our short-term bank loans to have less debt to use for working capital purposes. The increase in current maturities of long term liabilities was primarily due to an increase in bonds and notes of Rp1,722 billion. This increase was offset by a decrease in two-step loans of Rp46 billion and a decrease of bank loans of Rp1,337 billion.
Working Capital
As of December 31, 2021, our working capital, defined as the difference between current assets and current liabilities as of the same date, increased by Rp14,564 billion compared to our working capital as of December 31, 2020. As at December 31, 2021, our current assets were lower than our current liabilities, resulting in a current ratio, defined as our current assets divided by our current liabilities, of 0.89 as of December 31, 2021. We closely monitor our working capital and generally try to lower it to maintain it at an optimal level so that we may manage our working capital efficiently, without restricting our ability to meet our current liabilities. This decrease in working capital was primarily due to:
an increase in current assets of Rp14,759 billion, or 31.7%, from Rp46,529 billion as of December 31, 2020 to Rp61,288 billion as of December 31, 2021. See"— Current Assets."
an increase in current liabilities of of Rp195 billion, or 0.3%, from Rp68,500 billion as of December 31, 2020 to Rp68,695 billion as of December 31, 2021. See"—Current Liabilities."
We believe that our available cash, working capital, cash generated by future operations, and borrowings from banks and other financial institutions are sufficient for our present requirements. We expect that our working capital requirements will continue to be addressed by various funding sources, including cash from operating activities, bank loans and potential offerings of debt securities in the capital markets.
Capital Structure
Our capital structure as of December 31, 2021 is described as follows:
Amount Portion
(Rp billion) (%)
Short-term debt 6,682 3.5
Long-term debt 61,897 32.5
Total debt 68,579 36.1
Equity attributable to owners of the parent company 121,631 63.9
Total 190,210 100.0
As of December 31, 2021, our net debt to equity ratio was 0.25 and our debt service coverage ratio was 1.6 times, indicating our strong ability to meet our debt obligations. Our debt levels are primarily driven by our plans to develop our existing and new strategic businesses. In determining our optimum debt levels, we also consider our debt ratios with reference to regional peers in the telecommunications industry.
For further information on our Company's management policies related to capital, see Note 36 to our Consolidated Financial Statements.
Indebtedness
Consolidated total indebtedness (consisting of short-term bank loans, long-term liabilities, current maturities of long-term liabilities and other borrowings) as of December 31, 2019, 2020 and 2021 were as follows:
As of December 31,
2019 2020 2021
(Rp billion) (Rp billion) (Rp billion) (US$ million)
Indonesian Rupiah 65,085 63,256 67,587 4,742
U.S. Dollar(1) 1,315 1,007 671 47
Japanese Yen(2) 491 418 285 20
Malaysian Ringgit(3) 66 41 36 3
Total 66,957 64,722 68,579 4,812
Notes:
(1) The amounts as of December 31, 2019, 2020 and 2021 translated into Rupiah at Rp13,882.5, Rp14,050 and Rp14,252.50 = US$1, respectively, being the Reuters average rates for U.S.
Dollar at each of those dates.
(2) The amounts as of December 31, 2019, 2020 and 2021 translated into Rupiah at Rp127.79, Rp136.03 and Rp123.84 = Yen 1, respectively, being the Reuters average rates for Yen at each of those dates.
(3) The amount as of December 31, 2019, 2020 and 2021 translated into Rupiah at Rp3,391.77, Rp3,481.17 and Rp3,421.97 = Ringgit 1, being the Reuters average rates for Ringgit.
Of our total indebtedness, as of December 31, 2021, Rp21,897 billion, Rp22,221 billion, Rp14,549 billion, and Rp9,912 billion were scheduled for repayment in 2022-2023, 2024-2025, 2026 and thereafter, respectively.
For further information on our Company's indebtedness, see Notes 20 and 21 to our Consolidated Financial Statements.
Capital Expenditures
In 2021, we incurred capital expenditures of Rp30,329 billion (US$2,129 million) for not only increasing capacity but also to improve the quality of our services. Our capital expenditures are grouped into the following categories for planning purposes:
● Broadband services, which consist of mobile (4G and 5G) and fixed broadband access;
● Network infrastructure, which consists of core transmission network, submarine cable systems, metro-ethernet and Regional Metro Junction ("RMJ") and IP backbone;
● Data centers, IT, applications and content, as well as service node; and
● Capital expenditure supports, such as capital expenditure for the construction or maintenance of telecommunications towers.
Of our Rp30,329 billion capital expenditure in 2021, Telkom, as the parent company, incurred capital expenditures of Rp15,347 billion (US$1,077 million), Telkomsel incurred capital expenditures of Rp10,540 billion (US$740 million) and our other subsidiaries incurred capital expenditures of Rp4,442 billion (US$312 million). The following table set forth our capital expenditure breakdown between Telkom as a parent company, Telkomsel and our other subsidiaries for the periods indicated.
Years Ended December 31,
2019 2020 2021
(Rp billion) (Rp billion) (Rp billion) (US$ million)
Telkom (parent company) 16,956 15,205 15,347 1,077
Subsidiaries
Telkomsel 11,849 9,820 10,540 740
Others 7,680 4,254 4,442 312
Subtotal for subsidiaries 19,529 14,074 14,982 1,052
Total for Telkom Group 36,485 29,279 30,329 2,129
Material Commitments for Capital Expenditures
As of December 31, 2021, we had material commitments for capital expenditures under contractual arrangements totaling Rp10,825 billion (US$759 million), principally relating to procurement and installation of data, internet and information technology, cellular, transmission equipment and cable network in Indonesia. We also have capital expenditure planned for investments outside Indonesia, in particular, in relation to Telin, which will extend its fiber optic network with the laying of a 15,000 km of submarine cable in collaboration with the Bifrost Cable System consortium which will connect Singapore, Indonesia, the Philippines, Guam and the west coast of North America and is expected to be completed in 2024.
The following table sets forth information on our committed capital expenditures under contractual arrangements as of December 31, 2021.
Currencies Amounts in Foreign Currencies Equivalent in Rupiah
(in millions) (in billions)
Rupiah — 10,355
U.S. Dollar 31.00 448
Euro 1.36 22
HKD 0.02 0
Total 10,825
For a more detailed discussion regarding our material commitments for capital expenditures, see Note 34a to our Consolidated Financial Statements.
Source of Funds
We have historically funded our capital expenditures primarily with cash generated from operations. In 2022, we expect that our capital expenditure to revenue ratio will range approximately from 24% to 27%. We expect that the most significant proportions of capital expenditure will be allocated to the development of infrastructure to support broadband services, both for mobile and fixed line broadband services. A portion of our capital expenditure is allocated to our subsidiaries, primarily to Telkomsel. We expect to fund the above commitments with our internal and external source of funds.
The realization and use of future capital expenditures may differ from the amounts indicated above due to various factors, including but not limited to changes in the Indonesian and global economy, the Rupiah/U.S. Dollar or other applicable foreign exchange rates, the availability of supply or vendor or other financing on terms acceptable to us, and also any technical or other problems in the implementation.
Critical Accounting Policies, Estimates and Judgments
For a complete discussion of our critical accounting policies, estimates and judgments, see Note 2ab to our Consolidated Financial Statements.