Overview As at 3Q05, the Company and its subsidiaries (the Group) had the total of 16,093,200 mobile phone subscribers, comprising of 2,078,000 postpaid subscribers on GSM Advance and GSM 1800 and 14,014,800 prepaid subscribers on 1-2-Call!. The subscriber base grew 278,700 or 1.8% due mainly to an increase in 1-2-Call! subscribers. In 3Q05, a Subsidiary "Advanced Mpay Co., Ltd (mPAY)" had a joint venture partner from Japan"NTT DoCoMo Inc"(DoCoMo) to operate the mobile electronic payment system. mPAY enables customers to conveniently make secured payment through mobile devices for their daily-life transactions such as good and services, utilities bill payment, online shopping, etc. The continuous surge in oil price putting pressure on consumer spending and the impact of market price competitions in 2Q05 contributed to weaker service revenue in this quarter. Moreover, third quarter has long been the seasonally weakest quarter in the year. The Group generated total revenue of Baht 22,219 million for the period of 3Q05, a fall of 0.4% QoQ and 6.8% YoY. The Group recorded its net profit of Baht 4,415 million for 3Q05, an increase of 5.9% from previous quarter. The profit increase mainly owed to a drop in selling and administrative expense and corporate income tax. For the nine-month period, the Group showed the net profit of Baht 13,953 million, down 9.1% compared to the same period of previous year. Total revenue declined 5.2% YoY while total cost increased slightly by 0.5%. However, selling and administrative expense, interest expense, and corporate tax in total declined 14.9%. Operating Results Table 1: Selected financial information Amount in Million Baht 3Q05 % % 9Months % Change Change Change QoQ YoY YoY Total Revenue 22,219 (0.4%) (6.8%) 68,249 (5.2%) Total Cost 13,435 3.1% 1.6% 39,463 0.5% Gross Margin 8,784 (5.3%) (17.2%) 28,786 (12.1%) SG&A 2,433 (8.3%) (7.8%) 7,468 (8.6%) Net Profit 4,415 5.9% (16.2%) 13,953 (9.1%) Diluted EPS 1.50 6.4% (16.2%) 4.74 (9.0%) (Baht) Total Revenue The Group generated total revenue of Baht 22,219 million in 3Q05, down 0.4% from that of 2Q05 and down 6.8% from that of 3Q04, due mainly to the decline of services revenue. For the nine-month period of 3Q05, total revenue was Baht 68,249 million, a decrease of 5.2% from the same period of last year. - Revenue from services and equipment rentals The mobile service revenue was a majority part of revenue from service and equipment rentals. In 3Q05, mobile service revenue was Baht 18,989 million, a decrease of 4.0% from that of 2Q05. The fall in revenue was due to price competitions during 2Q05, weak market subscriber additions and seasonally weak period of the year. When compared to 3Q04, service revenue decreased by Baht 1,955 million or 9.3% YoY due mainly to the intensive price competition during 2Q05. For the nine-month period service revenue was Baht 59,956 million, down by 4.6% from the same period of last year. Price competitions and weaker-than-expected market net additions had contributed to the lower revenues. - Revenue from sales Handset and accessory sales were major components in revenue from sales. In 3Q05, sales revenue were Baht 3,230 million, increased by Baht 703 million or 27.8% from 2Q05, and up by Baht 335 million or 11.6% compared to 3Q04. As the Group was selected as main authorized handset dealer from Nokia , revenue from sales was up starting from ended of 2Q05. For the nine-month period, revenue from sales was Bath 8,293 million reduced by 9.4% from the same period of last year. The decrease in handset sales was a result of slower demand of handset market pushing down sales volume. Total Cost Total cost was Baht 13,435 million in 3Q05, increased by Baht 400 million from higher cost of handsets. When compared to 3Q04, total cost increased by Baht 206 million. Total cost for the nine-month period was Baht 39,463 million, being up Baht 211 million or 0.5% from the same period of last year. - Cost of services and equipment rentals Cost of services and equipment rentals were Baht 6,082 million in 3Q05, rose slightly by 0.3% from 2Q05 and 6.8% compared to 3Q04. The increment was due primarily to higher network amortization resulting from continuous expansion of mobile service network. For the nine- month period cost of services and equipment rentals rose by 8.6% from the same period of last year. - Concession fee and excise tax Concession fee and excise tax were Baht 4,455 million in 3Q05, decreasing by Baht 199 million from previous quarter and Baht 505 million from 3Q04. For the nine-month period, concession fee and excise tax dropped 5.4% from the same period of last year in accordance with the decline in revenue from mobile service. - Cost of Sales Cost of sales was Baht 2,898 million, increased by Baht 581 million or 25.1% from prior period and increased by Baht 322 million or 12.5% compared to 3Q04 which was in-line with revenue from handsets sales. For the nine-month period, cost of sales dropped by Baht 409 million or 5.2% from the same period of last year. Selling and Administrative expenses Total selling and administrative expenses (SG&A) were Baht 2,433 million in 3Q05, accounted for 11.0% of total revenue. The SG&A decreased by Baht 220 million or 8.3% from that of 2Q05. Marketing expense dropped by Baht 183 million, allowance for doubtful account declined by Baht 143 million, while staff costs increased by Baht 74 million. Comparable with 3Q04, SG&A decreased by Baht 207 million or 7.8%. For the nine-month period, SG&A decreased by Baht 702 million or 8.6% from the same period of last year. The main reasons were from marketing expense and allowance for doubtful account decreased by Baht 596 million and Baht 237 million respectively while staff cost increased by Baht 141 million. Income Tax In 3Q05, corporate income tax was Baht 1,711 million, down by Baht 449 million or 20.8% from that of 2Q05. Compared to 3Q04, it decreased by Baht 576 million or down 25.2%. For the nine-month period corporate tax decreased by Baht 1,499 million or 18.5% from the same period of last year. Apart from lower profit from operation, the declined tax was a result of introduction of cash card in September 2005. The introduction has changed timing of revenue recognition for tax calculation from at the point of card sales from the Company previously to when customers activate the cards to refill on their mobile phone accounts. Net Profit Net profit in 3Q05 increased 5.9% from that of 2Q05, and dropped by 16.2% compared to 3Q04. For the nine-month period, net profit decreased 9.1% from the same period of last year. Financial Position 1. Assets At the end of this quarter, total assets were Baht 117,120 million, decreased by Baht 4,047 million or 3.3% from YE04. As a percentage of total assets, current assets and non-current assets accounted for 14.2% and 85.8% respectively. Table 2: Major assets component 30 September 2005 31 December2004 Million % of Total Million % of Total Baht Assets Baht Assets Current Assets 16,595 14.2% 19,118 15.8% Plant,Property and Equipment, 10,096 8.6% 11,618 9.6% net (incl. Computer Software) Assets under concession 76,886 65.6% 75,658 62.4% agreements, net Other non current assets 13,543 11.6% 14,774 12.2% - Current Assets As at September 2005, current assets dropped by Baht 2,523 million or down 13.2% from YE04. This was mainly from the significant declining of cash and cash equivalent from Baht 9,449 million as at YE04 to Baht 7,382 million. Net trade account receivable decreased by Baht 663 million resulted from lower post-paid subscribers. Inventory increased by Baht 377 million. 2. Liabilities Total liabilities were Baht 51,028 million at end of 3Q05, decreased by Baht 2,053 million or 3.9% from YE04. Table 3: Major liabilities component 30 September 2005 31 December 2004 Million % of Total Million % of Total Baht liabilities Baht liabilities Other Current Liabilities 16,094 31.6% 16,423 31.0% Concession right payable, 8,390 16.4% 7,017 13.2% accrued concession fee and excise tax Long-term borrowings and 26,449 51.8% 29,521 55.6% debentures, net 1/ Other non-current liabilities 95 0.2% 119 0.2% 1/ Long-term borrowings and debentures, net including current- portion within 1 year and portion over 1 year - Other Current Liabilities As at September 2005, other current liabilities decreased by Baht 329 million or 2.0% from YE04. During this period, the Group made a new short-term loan from bank of Baht 1,500 million. Income tax payable dropped by Baht 3,105 million as the payment of corporate tax was due in August 2005. Trade account payable was up Baht 1,152 million. - Concession right payable, accrued concession fee and excise tax As at September 2005, current portion of concession right payable and accrued concession fee and excise tax accounted for Baht 8,390 million, up by Baht 1,373 million or 19.6%. As the annual concession fee payment for postpaid revenue is due in the month of November each year, the balance of accrued concession fee as at second and third quarter are usually higher than the balance at the end of forth quarter. - Long-term borrowings and debentures, net As at September 2005, net long-term borrowings and debentures were Baht 26,449 million, a decrease of Baht 3,073 million or 10.4% from YE04. For the nine-month period ended September 2005, the Group made a total repayment for long-term debentures of Baht 3,000 million. . The current portion of long-term debentures and borrowings were Baht 4,243 million and the portion over 1 year amounted to Baht 22,206 million. The current portion and the portion over 1 year represented 16.0% and 84.0% of total long-term debentures and borrowings, respectively. 3. Shareholders' Equities As at September 2005, the Group had total equity of Baht 66,093 million, decreased by Baht 1,994 million or 2.9% from YE04. Net income for the nine-month period was Baht 13,953 million. The Company declared its dividend payment for the performance of second half of 2004 at 2.60 baht per share in total of Baht 7,653 million which was paid on April 11, 2005. During the third quarter, the Company declared an interim dividend payment for the performance of first half of 2005 at 3.00 Baht per share in total of Baht 8,839 million, which was paid on September 6, 2005. During the first quarter of 2005, in accordance with SEC regulations, the Company took a capital reserve for treasury stock of Baht 83 million apart from inappropriate retained earnings. In addition, the additional issued and fully paid-up share capital as at end of 3Q05 increased subject to an exercise of ESOP totaling 4.18 million shares. The Company presented advanced receipt of Baht 51 million. A subsidiary recognized a fair value reserved of available-for-sale securities of Baht 20 million as unrealized gain in Shareholder's Equity. The Group had an unrealized gain from dilution of investment in subsidiary of Baht 158 million incurred in the third quarter of 2005. 4. Liquidity For the period of 3Q05, the Group's consolidated net cash flow decreased by Baht 2,085 million principally resulting from net cash inflow from operating activities of Baht 27,324 million. Net cash outflow from investing activities was Baht 11,843 million as a result of network expansion investment. In addition, net cash outflow from financing activities was Baht 17,566 million from : a) the repayment of long-term debentures and financial lease amounting to Baht 3,096 million, b) total dividend payment of Baht 16,492 million, c) additional short-term loan from bank of Baht 1,500 million, d) cash receipt from additional share in a Subsidiary from minority interest totaling Baht 315 million, e) dividend paid to minority interest by Baht 23 million, f) cash receipt from share capital increased and subscription by Baht 231 million. Management's Discussion and Analysis