Management's Discussion and Analysis Overview As of the end of the third quarter of 2003, the Company and its subsidiaries (the Group) retained a total of 12,709,000 mobile phone subscribers, comprising of 2,163,000 for the postpaid GSM Advance and GSM 1800, and 10,546,000 for the prepaid One-2-Call!, programs. The subscriber base grew 445,800, or 3.6%, from 2Q03 and 30.3% from 3Q02. During 3Q03, the Company participated in several marketing activities to enhance customer satisfaction and foster customer loyalty. As a result, marketing expenses increased substantially from the previous quarter. Net profit reached Baht 4,834 million, an increase of 65.0% compared to that in 3Q02, but fell 5.7% versus that in 2Q03. Operating Results A decrease in postpaid subscribers and competition from new operators created a slight decline in subscriber market share for the Group from 62% in 2Q03 to 61% in 3Q03. A slowdown in mobile phone subscriptions also attributed to lower sales. Table 1: Selected financial information Amount in Million Baht 3Q03 % Change % Change 9M03 %Change from 2Q03 from 3Q02 from 9M02 Total Revenue 21,766 (3.8%) 9.5% 67,071 15.0% Total Cost 11,875 (6.7%) 6,2% 37,211 15.6% Gross Margin 9,891 (0.2%) 13.6% 29,861 14.1% SG&A 2,834 6.3% (28.6%) 8,543 (22.1%) Net Profit 4,834 (5.7%) 65.0% 14,566 90.1% Earning per share (Baht) 1.65 4.97 Total Revenue Revenue of the Group decreased 3.8% from Baht 22,634 million in 2Q03 to Baht 21,766 million in 3Q03, but increased 9.5% compared to that in 3Q02. For the nine-month period of 2003, total revenue increased 15.0% to Baht 67,072 million as a result of: - Revenue from services and equipment rentals A 1.5% decline in services and equipment rentals revenue compared to that in the previous quarter mainly resulted from a smaller postpaid subscriber base and lower prepaid usage. Furthermore, subscriber additions slowed from previous quarters. Despite this, the Group continued to record significant subscriber growth, compared to that in the previous year because of prepaid service popularity. Revenue from the service increased 20.4% for the quarter and 23.9% over the nine-month period. - Revenue from sales Revenue from mobile phone sales continued to decrease, stemming mainly from a reduction in volume sales. Revenue from sales fell 13.8% to Baht 3,645 million or 24.7% compare to that in 3Q02. Consequently, revenue over the nine-month period of 2003 decreased 12.2% to Baht 12,723 million. Total Cost Total cost was Baht 11,875 million, or a 6.7% decrease from 2Q03, but an increase of 6.2% from 3Q02. For the nine-month period of 2003, the total cost is Baht 37,211 million, an increase of 15.6% for the year as a result of: - Cost of services and equipment rentals The cost of services and equipment rentals was Baht 4,648 million, which decreased 3.1% from 2Q03. The company wrote off Baht 50 million worth of spare parts-network in 3Q03 attributable to technological obsolescence, compared to Baht 297 million in 2Q03 (and Baht 170 million in 1Q03). The amortization cost increased Baht 217 million from the previous quarter. The cost of services and equipment rentals increased 22.9% from 3Q02, and for the nine months in 2003, this cost increased 37.3% due mainly to increased amortization costs resulting from the expansion in the mobile service network. - Concession fees and excise taxes Concession fees and excise taxes decreased by 3.9% or Baht 4,512 million in 2Q03 to Baht 4,336 million in 3Q03 as a result of lower mobile service revenue. Compared to that in 3Q02, concession fees and excise taxes increased 16.6%. For the nine months of 2003, concession fees and excise taxes increased 17.9% from Baht 11,124 million to Baht 13,120 million, as revenue from mobile service also increased. - Cost of Sales Cost of sales decreased 15.4%, or Baht 3,418 million, in 2Q03 to Baht 2,890 million in 3Q03. Compared to 3Q02, sales costs decreased 21.5%, and for the nine months of 2003, sales costs decreased 7.7% due to a continual drop in handset sales. The Group earned a gross profit of 20.7% from sales, as compared to a gross profit of 19.1% in previous quarter, mainly a function of lower average costs of mobile phones sales. Given lower volume sales, however, gross profit for the Group decreased compared to that in 3Q02 (23.9%). Gross profit for this nine- month period last year was 26.0%, while this year's nine-month period gross profit was 22.3%. Selling and Administrative expenses Total selling and administrative expenses (SG&A) were Baht 2,834 million or an increase of 6.3% from 2Q03. The increase mainly resulted from increased advertising and promotion expenditures (Baht 383 million), partially offset by a decrease in bad debt expense (Baht 187 million). SG&A expenses decreased Baht 1,133 million or 28.6% from that in 3Q02, and for the nine-month period of this year, they were significantly reduced from Baht 10,963 million to Baht 8,542 million, or 22.1%, as a result of: 1. For 3Q02, the Group had a marketing expense of Baht 528 million attributable to persuading NMT analog system customers to switch to the Digital GSM advance system. 2. Bad debt expense reduction of Baht 281 million and Baht 1,638 million for 3Q02 and 9M02, respectively. 3. For 3Q02, the Company had losses from unwinding a forward contract (Baht 106 million) and amortized premium expenses on forward contracts (Baht 131 million) for 9M02. 4. Lower staff costs in 3Q03 compared with that in 3Q02, as a result of staff incentive accruals of Baht 160 million based on corporate performance. 5. Mobile phone equipment write-off of Baht 294 million in the first quarter of this year. Income Tax Corporate income tax was Baht 1,792 million, an increased of 2% from 2Q03 as a result of: 1. Corporate income tax of a subsidiary resulting from tax shield on a loss carry forward that was fully utilized this year. 2. In 2Q03, Baht 251 million was adjusted in 2002 as the tax calculation method for scratch card transactions was changed from volume of usage to volume of sold in prepaid service. Corporate income tax increased 18.3% in 3Q03 compared to that in 3Q02, mainly due to a sale on a subsidiary that accumulated a taxable loss of Baht 1,447 million last year to a third party by the Company. Net Profit As mentioned above, net profit decreased Baht 291 million or 5.7% from 2Q03, but increased Baht 1,905 million, or 65.0%, from 3Q02. For the nine-months of 2003, net profit increased substantially by Baht 6,903 million or 90.1% for the year. Financial Position 1. Assets As of 3Q03, total assets were Baht 123,061 million, which decreased by Baht 3,024 million, or 2.4% from YE02. Most asset categories saw decreases, excluding property and equipment, and assets under concession agreements. Table 2: Asset categories 30 September 2003 31 December 2002 % of %of Million Baht Total Assets Million Baht Total Assets Current Assets 14,599 11.9% 18,382 14.6% Property and equipment, net 11,561 9.4% 9,747 7.7% Assets under concession 80,115 65.1% 79,795 63.3% agreements, net Other non current assets 16,786 13.6% 18,161 14.4% Current Assets As of 3Q03, current assets decreased by Baht 3,783 million or 20.6% from YE02 as a result of: 1. Decreases in accounts receivable-trade, net, mainly a result of lower GSM Advance and GSM 1800 subscriber numbers. 2. Advances to suppliers decreased by Baht 1,080 million from Baht 1,531 million to Baht 450 million due to completion of work on asset under concession agreements. 3. Other current assets decreased by approximately 1,200 million from Baht 2,754 million to Baht 1,556 million, primarily due to VAT receivable collection. Property and equipment, net During the year, the Company made an investment of about Baht 3,800 million in Prepaid Billing System IN (Intelligence Network) to support the expansion of the Prepaid subscriber base. Although the Company revised the estimated useful life of IN from 5 years to 3 years in 1Q03, property and equipment, net still increased by Baht 1,814 million or 18.6% from YE02. Asset under concession agreements, net Asset under concession agreements had increased from Baht 79,795 million at YE02 to Baht 80,115 million at 3Q03. It was caused by the investment in mobile service network to accommodate a larger customer base. Other non-current asset Other assets decreased by Baht 1,375 million mainly owing to the amortization of goodwill (Baht 875 million) and concession rights (Baht 341 million). 2. Liabilities As of 3Q03, total liabilities equaled to Baht 67,464 million, which decreased by Baht 7,380 million, or 9.9%, from YE02, mainly a result of Long Term debenture payments made according to schedule. Table 3: Liabilities categories 30 September 2003 31 December 2002 Million % of Total Million % of Total Baht liabilities Baht liabilities Other Current Liabilities 13,030 19.3% 16,086 21.5% Concession right payable, 10,662 15.8% 7,006 9.4% accrued concession fee and excise tax1 Long-term borrowings and 43,757 64.9% 51,735 69.1% debentures, net2 Other non-current 15 0.0% 17 0.0% liabilities 1 Concession right payable, Accrued Concession fee and Excise Tax (Included Current-portion within 1 year and over 1 year) 2 Long-term borrowings and debentures, net (Included current-portion within 1 year and over 1 year) Other current liabilities As of 3Q03, other current liabilities decreased by Baht 3,056 million, or 19.0%, from YE02 as a result of a decrease in accounts payable amounting to Baht 1,841 million, and a decrease in corporate tax payable amounting to Baht 2,183 million, partially offset by an increase in unearned income scratch card of about Baht 966 million. Concession right payable, accrued concession fee, and excise tax As of 3Q03, a total of Baht 10,662 million primarily resulted from: 1. The current-portion payable within 1 year was Baht 9,295 million, greater than Baht 4,821 million in YE02. 2. The portion over 1 year payable was Baht 1,367 million, less than Baht 1,165 million in YE02. Given the concession agreements, the Company is required to pay TOT the minimum charges in October and additional amount in November, thus the year-end amount will be smaller . Long-term borrowings and debentures, net During the year, the Company made repayments of long term debentures and borrowings of Baht 7,000 million and of Baht 4,932 million, totaling Baht 11,932 million. One subsidiary made a new long-term borrowing of Baht 3,943 million as result of loan repackaging. As of 3Q03, total long-term debentures and borrowings equaled Baht 43,757 million, which consist of a Baht 5,272 million current portion within 1 year, and a Baht 38,485 million after 1 year. 3. Shareholders' Equities As of 3Q03, total equity (Baht 55,597 million) increased by Baht 4,356 million over the quarter as a result of: 1. An increased of Baht 14,566 million in retained earnings derived from net profit. 2. The Company repurchased 0.38 million shares at an average price of Baht 33.08 per share. As of 3Q03, Company had repurchases amounted to 2.54 million shares at an average price of Baht 32.73 per share. 3. During the third quarter, the Company had an advance receipt of share subscriptions of 0.1 million shares totaling Baht 6 million for exercises of ESOP. 4. The Company paid dividends to shareholders totaling Baht 10,410 million (Baht 4,541 million at Baht 1.55 per share on May 23, 2003 and of Baht 5,869 million at Baht 2 per share on Sept 4, 2003). 4. Liquidity During 2003, the Group recorded a positive cash flow of Baht 31,670 million from operating activities. The improvement in net cash flow from operating activities primarily resulted from an increase in operating revenues and effective cost reductions. The Group had a net cash payment from financing activities of Baht 18,308 million, mainly resulting from changes in Long-Term debentures and dividends paid as aforesaid. Net cash payment from investing activities of Baht 11,780 million decreased from the same period previous year, stemming from additional investments made in asset under concessions in previous year. Thus, the cash and cash equivalents increased by Baht 1,582 million.