Telkom Indonesia (Persero) Tbk PT (TLK) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Telkom first-half 2012 results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

I would now like to hand the conference over to your speaker today, Mr. Albert Tan, Senior Vice President of Business Strategy Integration of PT Telkom. Sir, please go ahead.

Well, ladies and gentlemen, thank you for participating in today's conference call to discuss PT Telkom's Indonesia first half of 2012 results. On July 30th, 2012 we released our financial results for the first half of 2012, ending June 30th, 2012. The press release and other materials are available at our website at www.telkom.co.id.

Today's presentation is also available on the webcast and an audio recording will be provided after the call for the next seven days.

With me on the call is Mr. Honesti Basyir, Telkom's Chief Financial Officer and the members of the Board of Directors and Senior Management of PT Telkom and PT Telkomsel. Our CFO will give you an overview of the results after my opening remarks.

Before beginning, let me remind you that today's call and the responses to questions maybe forward looking statement within the meaning of Safe Harbor. Actual results could differ materially from projections, estimations, or expectations voiced during today's call. These may involve risk and uncertainty and may cause actual results and development to differ substantially from those expressed or implied in these statements. The Company does not guarantee to any actions which may have been taken in reliance of these statements.

Ladies and gentlemen, as you're also already informed, the Telkom's AGM held in May 11, 2012 appointed new Board of Directors. It is my pleasure to introduce, Telkom's new Board of Directors, who are joining us today; is Mr. Honesti Basyir, as the Director of Finance and Chief Financial Officer. Also present on the Board of Directors of Telkomsel who are joining us today is Mr. Heri Supriadi, the Director of Finance, Mrs. Rachel Goh, Director of Marketing, Mr. [Masuk Kamit], Director of Sales, [Mr. Asa], Director of Networks.

Before Honesti delivers his remark, I would like to take this opportunity to give a brief overview of Telkom Indonesia. Telkom is the largest -- single largest integrated telecommunication company and network provider in Indonesia. Serving more than 154 million customers nationwide, we provide a strong portfolio of time, which reaches to them -- telecommunication, information, media and edutainment service, directly or through our subsidiaries.

As of June 30th, 2012, the majority of our common stocks, 53.8%, is owned by the government of Indonesia with the remaining 46.2% under public ownership. Our shares are traded on the Indonesian stock exchange, the New York Stock Exchange and the London Stock Exchange, and also publicly offered without listing in Japan.

With that said, I will now turn the call over to Mr. Honesti Basyir for his remarks. Honesti, the time is yours.

Thank you, Albert. Ladies and gentlemen, good afternoon. On behalf of Telkom's management and employees, I would like to thank our valued stakeholders for your support and business for the Company. We sincerely appreciate your participation on this conference call.

Ladies and gentlemen, let me share some highlights of our first half results before getting to the detailed results. Our consolidated revenue grew by 6.8% year on year to IDR36.7 trillion and our cellular operation, Telkomsel, recorded a 9.5% year-on-year revenue growth to IDR25.4 trillion.

Our broadband users grew by 12.9%, Q on Q, consists fixed broadband, fixed broadband users grew by 3.9% to 2 million, mobile broadband/flash users reached 5.8 million, a 10.8% increase. Blackberry users kept growing by 21.1% to 4.1 million.

Cellular customer base increased 14.6% year on year to 117.2 million with total net-add 10.2 million in the first half of 2012.

Ladies and gentlemen, now I shall present the operational and financial performance results for the first half of 2012. Our broadband subscribers still show a significant growth year on year. Mobile broadband/flash grew 12% to 5.8 million subscriber.

Blackberry grew very strongly by 85% to more than 4 million subscribers and our fixed broadband became 2 million subscribers. Meanwhile user of our data services with the pay-as-you-use scheme reached 37.3 million, 101% increase year on year.

Fixed broadband and mobile broadband revenues amounted IDR5.6 trillion, 34% increase compared to the previous year. Our ancillary subsidiary, Telkomsel, gained a significant subscriber net-add for the first half of 2012. Total net add was 10.2 million. This makes Telkomsel's total subscribers to be 117.2 million. With more than 117 million subscriber, we maintained our leadership in the cellular market with an estimated market share around 45%.

Our cellular BTS reached 47,254 units, 19.3% grew compared to the same period last year.

As subscriber is increasing, Telkomsel recorded a strong revenue growth in first-half 2012. It reached IDR35.4 trillion, an increase of 9.5% year on year as a result of growth in voice, SMS and data revenues. In the meantime, expenses grew only 4.6% year on year to IDR15.7 trillion, much lower than the expense growth in the same period last year which reached 9.4%.

SMS interconnection regulation that was being effective on June 1st give a positive impact. It give a net revenue of IDR44 billion. We expect this impact will sustain in the next coming quarters.

On the fixed broadband side, from the last six quarter the subscriber are increasing. In the first half of 2012, fixed wireless subscribers grew 4.2% to 8.8 million. This figure saw people's interest to subscribe fixed wireline telephones. We could slow down our fixed wireline revenue decline from negative 6.9% a year ago to negative 4.1%.

Mitratel, our tower subsidiary, still showed significant revenue achievement, shown by revenue growth of more than 180% compared to last year. Until end of June 2012, Mitratel operates more than 3,800 towers with more than 11,000 tenants. We expect this year Mitratel revenue to exceed IDR1.5 trillion.

Ladies and gentlemen, as I will now briefly present the financial results and try not to repeat all the information that you may have read in the Info Memo of this on our website. Revenue contribution for this period was still dominated by cellular, which contributed 39.9% to our total operating revenue.

The second major revenue contributor was data, Internet & IT, this contributed close to 34.7%, followed by fixed line with a 15.2% contribution, interconnection, networks and others totaled 10.2% contribution to total revenues. Meanwhile, for our expenses O&M was 33.2% of total expenses. This O&M expense amount was in line with the additional number of cellular BTS. The projected expenses were at 28.1% of total expenses. Personnel expense contribution was 15.8%, Interconnection, G&A, and marketing totaled 20.3% contribution to total expenses.

We are grateful to have 6.8% year-on-year increase of our revenue, as there was only 2.2% increase in the same period last year. The increase of revenue was still driven by the growth on data, Internet, and IT service and also cellular revenues.

Our expense increased 6.3% year on year due to the implementation of SMS interconnection and nonrecurring expense in G&A.

As of first half 2012, total Group spending for CapEx reached IDR7.3 trillion. CapEx apportioned to Telkom, Telkomsel and Other Subsidiary amounted to IDR1.8 trillion, IDR4.4 trillion and IDR1.1 trillion respectively. The utilization of our CapEx is mostly to enhance backbone and access infrastructure to support broadband businesses, radio access network and tower construction through Mitratel.

Telkom Management is committed to spend every effort to make sure Telkom [positive that it] can grow in the years to come. We want to accelerate modernization process of our infrastructure, to make ourselves ready to accommodate growing user demands for broadband traffic use.

We are expanding and improving our mobile and fixed line infrastructure to be able to provide quality broadband services, and step up capacity and coverage. We intend to step up the process of replacing our copper cable network with fiber, especially in high demand areas, to make sure the future needs of our customers with high capacity of bandwidth could be fulfilled.

Until end of June, we have 11,164 Node-B, a 28% increase compared to same period last year. By end of 2012, we expect to deploy more than 45,000 new Node-B BTS. Of 100 broadband city we are targeting by end of 2012, we have completed 61 by first half of 2012.

Fixed broadband. Speedy capacity increased to around 4.2 million clients nationally. This gives us latitude to expand our fixed broadband. We expect by end of 2012 Speedy subscriber could reach 2.6 million.

Satellite. Our new satellite Telkom-3 will be launched in this coming August. This will fulfill communication demands that cannot be met by this year in fiber optic networks. Additionally, Telkom-3 can function as a backup network in a disaster situation.

Nusantara Super Highway. Our plan for Nusantara Super Highway, our fiber optic network that will bring true broadband access, with speeds of up to 100 mbps that ordinarily will connect 12 million homes and businesses across the nation by 2015. We will be accelerating to complete by 2014.

We will continuously seek opportunities to allow us strengthening our core business and at the same time, leveraging new businesses. We will enhance our new synergy among certain Group members, and intensify partnership to develop our IT, media, edutainment and service businesses.

With that approach, we will be able to make new development more effectively and efficiently.

Albert, this is my explanation. Thank you.

Thank you, Honesti. Now, let's open for the Q&A questions. When raising your question, we would appreciate if you could speak clearly and also state your name and your company. Operator, may we have the first question please?

Thank you, sir. Luis Hilado, HSBC.

This is Luis from HSBC. I have two questions. The first one is regarding your trends in wireless revenue growth. We're seeing a good recovery in voice, but wondering if you anticipate in the coming quarters that data -- wireless data will be the one leading the growth?

My second question is more of a strategy, it was quoted in the past that your IME acquisitions would be pursued this year. How -- can you give us an update how far along are you there, if you have identified any targets, and any potential investment amounts?

And third question is regarding the share buyback, could you share with us what the average price of the buyback has been so far, and what your plans are for the shares that have been put in treasury?

Hi Luis, Heri speaking here. I would address your question on the wireless broadband. What we see in the upcoming second half of this year, we expect the wireless broadband still (technical difficulty) the reason for growing (technical difficulty) device, network and application. Also in addition with the customer, more experience with the broadband data services. With this environment, we still believe that broadband data still will be a good contributor for the growth in the next second half.

Rachel, you want to add some more? Okay.

I will point your next question number two to -- IME acquisition and share buyback to Honesti Basyir. Okay.

Okay.

Thank you, Luis. Talking about the strategy, IME, I think Telkom now is more focused on how to build the strategic partnership with our partner rather than we tried to do the acquisition because you know that IME is the main portfolio for us, and we have to be careful to do the acquisition or any [corporate action] in this portfolio. So I think partnership is the first thing that we have to focus before we want to decide to do another corporate action.

And talking about the share buyback, as of June 30, 2012, we already have total 175.7 million shares in our treasury stock. It mean that's 5% of (inaudible) share. I think -- let me try to -- total treasury stock is 5% of its share, meaning that is already 175.7 million shares. And what we plan to do for this treasury stock, first is I think is for our cost of financing, because we plan to have some maybe [corporate action] coming next year, and I think the treasury stock is one our solution as a source of financing.

And another option is we want to swap this treasury stock to be our Management and Employee Stock Ownership plan. So I think with this -- the three, one as source of financing and the second is about the Management Stock Ownership and Employee Stock Ownership plan.

Thank you for that. Just one follow-up is that could you disclose the average price of those 975 million shares?

Total price is some IDR8 trillion -- IDR7.9 trillion.

Okay. I'll get back.

Shall we proceed to the next question please?

Sachin Salgaonkar, Goldman Sachs.

Thank you for the call. I have three questions. Firstly, could you help us elaborate some of the key changes in strategies which have been made since you guys, i.e. the new management has come up?

Secondly, your net adds in this quarter was very strong versus one of your competitor which reported very weak net adds. So I was wondering what was leading to the strong net adds for you versus competition, and could we see risk of some churn in the coming months?

And lastly, how should we look at the utilization of your cash proceeds, i.e. is the priority there for dividends or will priority be given to any potential acquisitions?

Thank you, Sachin. So I think what the new management want to do for the parity, first, we want to focus to expand our broadband infrastructure and services. Maybe as you know that's from our -- some of our competition in media and also, with the investors, we want to modernize our infrastructure. We want to replace of the copper cable to the fiber.

So the plan we call it the TITO, trade in trade out, , which is we want to replace of the copper to be fiber, I mean the fiber-to-the-home.

And the second thing about broadband, we want to deploy up to 100,000 access point of Wi-Fi in the high -- and the big cities in Indonesia and also to accelerate our 3G network. I think that is the focus of new management.

Second question on (inaudible).

Okay. Rachel, you want to answer that question.

Okay. Yes, in -- specially in cellular, we've developed a new engine how to get a strong net add. The first, in retail customer, we try to implement a clustering system with zonal marking scenario. We divide Telkomsel [affiliate] become 270 clusters and each cluster we manage very well how to -- how can we see it, our competitor. And the second one is how to manage corporate customer, this is very important. And the last one, we create new engine, we try to attract a community customer. These three-pillar is very powerful how to increase our net add now. Maybe Rachel from marketing can --

I am Rachel, Telkomsel Marketing. We have also improved -- in addition to the engines from the sales side, we have also improved the way we are doing our customer analytics to help that understanding, of what kind of packages and products would appeal best to the market. And hence, you will also have seen that in the campaigns that we launched in the recent months, they've got very attractive headlines and also very segmented kind of voice, SMS and data packages. So we are going to the market with a full communication service rather than just focusing on free minutes or free SMSs, yes. So that together with the sales structure, we have improved our net adds and so improving the way we drive the market and also churn management. Thanks.

Okay. The last question about the utilization of our strong cash flow. I think the first thing that we keep [stay] in cash, especially for if we have M&A opportunity. And also for the dividend payment policy, I think we will keep try -- we will try to keep at minimum in 65% of dividend payment.

Okay. This is very clear. Just one follow-up question for Rachel. Rachel, are you seeing your competitors following up some of the marketing promos you are doing up, i.e. should the net adds continue to remain strong going forward also?

We will of course -- we will, of course, do our best to get our net adds to be continuously stronger. But that's our business, yes, without customers we can't get revenue, yes. And also rolling out our Node-Bs and also our network improvements, I think this is -- it's natural in our business to continue to grow a -- strong growth in net adds and market share. Thanks.

Okay, thank you.

Operator, can we move to next question then?

Sachin Gupta, Nomura.

Three questions. First of all, just want to clarify, I think you said that the buyback average price was IDR8,000. And given where the current share price is around IDR9,000 plus, just wondering if the management still looking to complete the IDR5 trillion buyback which was previously announced? That's one.

Secondly, on the balance sheet once again, obviously one market which is getting a lot of focus is Myanmar. I am just wondering, A, how are you guys positioned there? And B, how appealing or what are your views on that market in general?

And the last question is obviously, I mean you talked about the revenues and the customer analytics. Sounds like the Company has a pretty good handle on the revenues, but the cost base seems to be evolving quite rapidly as well, if you look at the O&M cost and the other cost of sales that have gone up quite sharply half-and-half. Just wondering any thoughts on how -- any thoughts on the cost structure? There's lots of business as well going forward. Thanks.

Okay. I'll point you back to Honesti again to answer the first two questions.

Okay. The buyback price, our price point is around IDR7,900, that is the average price for buyback.

And the second question about Myanmar, I think Telkom is always trying opportunity for to find the new growth, because you know that growth in domestics is still limited now so. But how to get the new growth new opportunities in the overseas, I think we have some discipline. So I mean that if we cannot get more value from the opportunity in overseas, I think we can do that -- we cannot do that. So I mean that -- we will try to find the opportunities, but as long as it's same with our expectation we can do but if it's not met with our expectations, I think we will not execute them.

For the next question we'll, yes, Heri Supriadi.

Hi Sachin, this is Heri. I would like to respond your question on the cost side. In term of side, if you see the operation and maintenance costs, and some other costs also that add to the cost of sale piece, basically all the cost can be categorized to [O&M] and can be considered as good cost because the costs relative to the growth of the subscriber, such as in the BlackBerry, our subscriber growth becoming double.

And then also in terms of data subscriber, also growth, very strong. And in addition also, some of the costs, especially in the personnel costs, growth seems to be higher than before, because the costs relative to the accrual system that we implement this year compared to the un-accrual basis for some of bonuses and incentives that we implement every year. So basically until the end of the year, we will try to keep the cost growth at least in line with the revenue growth, so that we can see it that way, what we can say about the cost management.

Okay, thank you for that.

Okay.

Operator, can we move to the next question please? Thank you.

Roshan Raj, Merrill Lynch.

Three questions. First, on 2012 guidance, could you just remind us, has there been any shift in the guidance for this year both on revenue as well as cost and margins?

Secondly for the first half of this year, could you just help us identify the one-off expenses and hence try to identify the normalized EBITDA for first half of this year?

And third question is on 3G network. What percentage of population is under 3G network coverage, and what are your targets for this year and say next one, two years? Thank you.

Hi there, Sachin -- hi, there Roshan. Honesti will take your first two questions and then the third one, for Asa will take from the Networks team.

Thank you. I think the guidance for revenue growth for the next six months, we'll try to keep the revenue growth around 5% -- up to 7%. And about EBITDA margin, I think we try to keep the minimum slab, but we'll do the best effort to get more growth for EBITDA margin, I mean better than planned.

To the third question on the 3G network.

Yes.

Hello, this is Asa speaking. Your answer about the question for 3G network of Telkomsel. So currently, we have 11,000 3G nodes all over Indonesia and it covers around 40% of population now. And then -- from that numbers, around 50% already (inaudible), so we can deliver maximum benefits for the customers.

And the plan of this year, we -- the composition of 3G comparing to 2G is 60% to 40% and next year would be more 3G than 2G. And then we estimate then within three years then no more 2G we will deploy. So we have -- we will be stronger in broadband upgrade of wireless. Thank you.

Okay. I want to add some explanation for the second question about the costs, especially for regarding EBITDA. You can see in our first-half 2012, we know that some nonrecurring has happened there. That's why our EBITDA margin is a little bit decreased. But if we normalize the nonrecurring expense to the recurring expense, I think our recurring EBITDA that is getting higher than what we reported in our first-half 2012.

For example, EBITDA margin that we reported is -- the growth is minus 0.1% and EBIDA is grow 6.7%. But if we normalize the EBITDA, the EBITDA will grow 7.3% and the recurring EBITDA margin will grow 0.2%. So you can see the difference if we normalize the EBITDA.

Thanks a lot. And then just moving to the second half, if I could just kind of follow up on that, do you expect any one-off expenses in the second half? And have -- I just have another question which is on the competition. How do you see this evolving in the next 12 to 18 months, and where do you think there could be a trigger for aggressive price cuts -- for the next round of aggressive price cuts in the market?

Yes. I think our policy is we plan to keep the cost is less -- the cost less than the revenue growth. In terms of competition, I think now the competition in Indonesia is getting healthier. The price war just -- are fought by the small operator, but the biggest operator -- they try to focus how to improve the quality of services. Heri, do you want to add something?

Okay. I think if we review some year back, maybe the fairly -- that competition happened in year 2007 and 2008. And a big operator tried to get the customer and they did get the customer, but doesn't reflect it in the good financial results.

Now starting in this second quarter of 2011, we see the competition relatively stable and we see also all the -- I think from the advertising campaigns and so on a bit healthier compared to before. And we see also that some of our competitors doing -- increasing the price. So we see that they also are concentrating their effort on improving network and service quality as we also doing right now.

We really feel this trend will continue until the second half of this year because there are also doing some investment in their network. So we expect the competition relatively still will be healthy and they'll be the rest of this year.

Thank you.

You're welcome.

Hi, operator. Can we move to the next question please? Thank you.

Navin Killa, Morgan Stanley.

I had three questions. First I wanted to check with regards to you CapEx guidance for this year. I mean, you talked about accelerating you network rollout both on the fixed and the mobile side. Could this potentially mean that you need to raise your CapEx spending either for this year or next year, so if you could help understand your CapEx outlook for the next couple of years?

The second question was with regards to the initiative from two of your major competitors Indosat and Excel to share network, including potentially active network sharing. How do you view that? I mean, could that be a major competitive threat given that network coverage has been a big advantage for you?

And the third question I wanted to ask was again with regards to cash utilization. You obviously mentioned that you're looking at M&A and dividend payout of 65%. But you also mentioned that you want to be disciplined with regards to acquisitions. So, I mean -- look, given your current cash flow generation rate and your given current dividend payout ratio, I would imagine that you would start accumulating a lot of cash over the next 18, 24 months. Is there a time frame beyond which you start increasing dividend payout or do more proactive share buybacks, et cetera? What kind of time frame do you have where you start feeling that your balance sheet is becoming very inefficient? Thank you.

Okay. About the CapEx, yes, CapEx guidance total our -- as a Group will be IDR19 trillion, consists of Telkom. So we'll spend around IDR6 trillion, Telkomsel we'll spend around IDR10 trillion and Others IDR3 trillion. And we feel our policy, we tried to maintain the CapEx revenue ratio 25%.

I may have by on its -- information on the cellular side. As mentioned by Honesti, our CapEx this year we expect we'll spend around IDR10 trillion -- IDR10.1 Trillion. And that will be used for 60% for spending for 3G network and 40% for 3G networks.

And for the upcoming years, we believe one will be relatively stable and we will fix the number in October regarding how much we're going to spend in next three years but that's our guideline from the cellular side.

We will put forward to your question on competition to (inaudible) on sharing.

Thank you. So regarding network sharing, we have insight of consideration, first is obligation from the local government. Local government gave us obligation to share the network. And then second consideration is regarding the competition. So we divide the area into these two considerations. First group of area, we hold the share because the sharing of network was we are -- for example we are still [new] there on the Telkomsel [equities] and the area. So we look and we follow local government.

And then secondly, we grouped the area into the selective area, depending on the competition landscape where we group or we share the network. So by that consideration, we hope that we can maintain our strong competition in this area. Thank you.

So talking about the cash utilization, when our cash would be efficient, I think before we decided to give more dividend there, basically to the investors, I think first thing that's how we can use the cash to be more optimum, efficient. I think we want to use the cash to buy more -- I mean to more -- to buy back [action].

And second thing is, if we see the polity is good, maybe we can discuss within person how to increase our dividend payout ratio.

And also if we find another opportunity in M&A, I think we will use also our cash to do the operation in M&A. And I think that on that, if you ask about the -- when the cash will be efficient, yes, I think maybe it's around two or three years, I think. Hopefully with -- of the extent that we want to do, our cash will be optimal. Thank you.

Operator, shall we move to the next question then?

Sebastian Tobing, UBS.

So my first question is -- apologies if I ask again on details on the cost. Just elaborate a little bit on which ones are really recurring, which ones are not. I suspect that if you look at the -- the G&A expenses, that looks like a nonrecurring increase than in Q2, but the likes of interconnection expense, that looks like a recurring increase.

And related to that interconnection and expense increase, could you just elaborate a little bit on the SMS interconnection whether on a net basis, if you just look at the last month whether Telkom, how much of our beneficiaries Telkom is of the SMS interconnection? That would be very helpful.

And second question is if you look at the trend of the marketing, it looks like there's a lot of bucket plans nowadays. Could you just let us know like how many percent roughly of your subscribers are really on this bucket plans and how many are really on the others, just voice specific or data specific plans?

And thirdly, can you just let us know how many percent of your subscribers really on a -- are using smartphones in your network? Thank you.

About nonrecurring costs, our nonrecurring costs is -- mostly happened in G&A costs, yes, which is first IDR50 billion as a build BOD, BOC severance (technical difficulty)that increased to IDR66 billion to new the assessment of Telkomsel postpaid collection. This is how they'll be nonrecurring. And also the --

We have continued to the interconnection SMS, but then we are in the net beneficiary of the interconnection and new interconnection ranges. For June, we get up a new around IDR144 billion and also we've spend around IDR100 billion, so the net for us around IDR44 billion.

But again this -- during just the first month of the implementation of the new regime, we believe also that the customer or subscribers try to understand more of the scheme. So we expect by having the July figure, we will be -- have a better data projection of the SMS regime implication to the revenue. But so far, the implication is positive for us.

Yes. For your next question on the trends of marketing, I'll refer you to Mrs. Rachel Goh then.

Yes, Sebastian, your question on smartphones and market trend seemed to be interrelated. So I'll just address them together in the same answer. The percentage of our subs using smartphones, being the market leader in data as well as market leader in postpaid as well as the market leader in the high-value segment of this market.

It is also evident that we do have the highest penetration of smartphones of Indonesia market on Telkomsel network as you can see from the number of sub base we have in BlackBerry, even at Android base and also the iPhone (technical difficulty) key smartphone as well as Nokia Symbians. So our percentage of smartphone subs is high, and it is higher than the market that we're seeing from published reports.

Secondly in terms of the trend or market trends, meaning combination of voice, SMS, data, as well as value-added services and applications, we're also seeing an increase in the customer base who is using multiple services, which is also in line with the pick-up rate of low priced data devices, low priced Android devices in the market.

So to address your question, yes, the trend is going up and we are positive and we're also seeing high ARPUs on customers who move onto data and smartphone devices. I hope that answers your question.

Okay. We have two more questions and operator, can we please move on to the next question?

Arthur Pineda, Citigroup.

I have three questions. Firstly, you wanted to belabor the point on capital management, you'd obviously generate a lot more cash flow compared to your dividend payout. And you had that financing capability by your treasury shares, you probably return that cash within the next two years. What factors do you think you would really need to consider before you could raise payout levels sustainably above 65%?

Second question I had is with regard to the nonrecurring expense breakdown. Sorry the line was quite choppy, could you please repeat the breakdown of that for 2Q? And lastly, I wanted to clarify on the CapEx for 2012. You mentioned a while ago IDR19 trillion. I recall previously this was something like IDR15 trillion to IDR16 trillion. Has the number been increased for this year? Thank you.

Okay. About the nonrecurring expense, that has mainly happened in D&A cost, which is BOD, BOC severance pays around IDR50 billion. [CSR] that we didn't book yet last year is around IDR44 billion and also for [accounts receivable] that increased IDR66 billion due to new assessment of the tariff prospect collection. (inaudible).

And if we normalize the nonrecurring expenses, I think for recurring EBITDA, I think we can get better number. Which is -- year-on-year growth is around 7.3% year on year. And about the recurring net income, it will grow to around 16.9% year on year.

Yes, sir. Thank you.

We also put the ForEx loss this semester to around IDR213 billion. Last year, it's around IDR194 billion.

Thank you.

About the CapEx, I think our CapEx -- we still keep it around $2 billion as a Group. This is our guidance.

Sorry, that is cash CapEx or that is committed CapEx?

Cash CapEx.

Cash CapEx for the year?

Yes.

Last question was on the payouts. What do you need to consider to raise payout levels beyond 65%?

Yes, I think our policy -- dividend policy is depend on our shareholders -- our Government of Indonesia because they ask us for 65% of the dividend payout ratio. But if we have opportunity to increase, I think what was I said before we still keep at minimum 65% of dividend payout ratio.

Thank you.

Thank you. Can we move to next question please?

[Robert Baruwada, Daiwa].

Two questions from me please. Firstly with regards to the early retirement program, do you have any plans of doing that this year and which quarter would you be booking the costs and to what magnitude?

The second one has to do with the operating trends in the Flexi business, in particular I'm looking at the page 10 of your Info Memo and trying to understand the trends on the minutes of usage and SMS, and it looks like there's probably an error in terms of 1H and 1Q '12 because they don't really total. But if you could provide some data there in terms of how the MOU and SMS have been trending on a quarter-on-quarter basis?

Our ERP plan for this year, we already have budgeted is around totally IDR650 billion consist of IDR100 billion in Telkom and IDR150 billion Telkomsel, if you target up to 800 employees.

About Flexi, I think all of us now, the CDMA industry is continued declining. So I think the -- there is no one of the operators -- CDMA operator now is making money. So I think the consolidated -- consolidation among the operators is still being done. I think it is -- I believe that of the CDMA operator, we'll try to find another opportunity to consolidate this industry, including Flexi.

But if you feel that happens, how should we think about the operating trends? I mean the MOUs have been down for past couple of quarters. Not very clear what the 2Q '12 trend there is, but how should we think about it if there is no consolidation?

Yes, I think that on my explanation, yes, this industry is declined, continued decline including of the -- all of the business parameters.

Okay, thank you very much.

Thank you everyone for participating. We look forward to updating everyone in a few weeks to review the nine months results. If you have any further questions, please feel free to contact us directly. We apologize for those whose questions could not be addressed. Please send us e-mail if you still have questions.

Before we end our conference call, I would like to ask the CFO for his closing remarks.

Ladies and gentlemen, I appreciate all the questions raised during this discussion, but I assure you that your concern are indeed our concerns as well. The first half of 2012 saw encouraging results particularly in the cellular side. This is a result from combination of a more [regional] as well as competition for the last few quarters and then in rest of our infrastructures in accommodating customer needs.

We believe that at the end, customers are looking at quality of service either for voice or data. Infrastructure improvement that has been going on for a while both in mobile and fixed line will give us capability to provide better quality of service to our customers. We are optimistic that we could maintain our leading position in telco industry in Indonesia.

I would like to thank you all again for participating in this conference call and look forward to meeting you again in the near future and I wish you all a good day. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.