2Q08 MANAGEMENT DISCUSSION & ANALYSIS OPERATIONAL HIGHLIGHTS * Subscriber reached 26m with net additions of 877k in 2Q08 * ARPU slightly declined q-o-q on seasonality while MOU remained stable * RPM continued downward trend from buffet promotion Subscribers as of 2Q08 grew 3.5% q-o-q and 14.4% y-o-y to 26m with net additions of 877k. The growth was mainly driven by upcountry penetration. Prepaid net additions continued to be strong with the churn rate of 4.5% while postpaid subscribers remain solid with stable churn rate of 1.9%. Prepaid net additions were 862k for the quarter, compared to 943k in 1Q08. While new acquisition continued to be strong with improved quality, churn rate slightly increased to 4.5%, compared to 4.4% in 1Q08, reflecting reduced number of multiple SIMs. The seasonal softness has been reflected in all segments, thus ARPU excl. IC declined by 0.9% q-o-q. However, MOU continued to increase 2.3% q-o-q from the continued subscriber sign-up onto buffet plan. As a result, RPM declined to Bt0.86 from Bt0.89 in 1Q08. On y-o-y basis, ARPUs declined by 2.1% despite 22% increase in MOU, mainly from higher usage on off-peak packages. Postpaid net additions were 15.5 k, with the flat churn rate of 1.9%. Subscriber acquisition continued to improve in term of quality. Postpaid ARPU excl. IC was flat y-o-y at Bt743 but declined 1.7% q-o-q as MOU dropped 3.2% q-o-q as well as the slow income from international roaming revenue. RPM slightly increased to 1.30 from 1.28 in 1Q08. SIGNIFICANT EVENTS DPC Settlement agreement Referring to the dispute between DPC and DTAC on the "Unwind Agreement" (assignment right and obligation to operate PCN1800), DPC booked the total liability of Bt4,739m under the concession right payable as of December 31, 2007. In March 2008, the Arbitral ruled on two out of three dispute cases that DPC should pay DTAC for the total amount of USD85m plus interest of 9.5% p.a. The other dispute was pending on the Arbitration process. Consequently, on May 30, 2008, DPC agrees to pay DTAC for the settlement of Bt3,000m. The settlement agreement has effectively surrendered all existing and future claims, disputes and obligations from the Unwind Agreement between DPC and DTAC. As a result, AIS booked in its financial statement as of 2Q08, other income amounted to Bt1,739m, which is subjected to 30% corporate income tax. On cash flow statement, 2Q08 AIS had a cash outflow of Bt3,000m for the DPC settlement. (detail background of dispute is available in note to financial statement) FINANCIAL RESULTS * Delivered 7.5% y-o-y growth in underlying service revenue * Solid revenues from quality growth of subscribers as well as upcountry penetration * Reported net profit of Bt6.3bn including extra gain of Bt1.2bn, normalized net profit of Bt5.1bn, grew 29.4% y-o-y (Bt million) 2Q08 2Q07 1Q08 y-o-y q-o-q Service revenue excluding IC Voice revenue 16,297 77.4% 15,886 81.1% 16,337 76.2% 2.6% -0.2% Postpaid (voice) 3,854 18.3% 4,610 23.5% 3,793 17.7% -16.4% 1.6% Prepaid (voice) 12,443 59.1% 11,276 57.5% 12,543 58.5% 10.4% -0.8% Non-voice revenue 2,656 12.6% 2,057 10.5% 2,674 12.5% 29.1% -0.7% International roaming 952 4.5% 828 4.2% 1,147 5.4% 15.0% -17.0% Others (IDD, other 1,155 5.5% 826 4.2% 1,268 5.9% 39.8% -8.9% fees) 21,060 100.0% 19,597 100.0% 21,426 100.0% 7.5% -1.7% Service revenue Service revenues excl. IC for 2Q08 increased 7.5% y-o-y on the back of solid growth across all revenue segments, supported by the strong growth in prepaid subscribers, continued usage and penetration in non-voice, and higher contribution from international calls. Comparing q-o-q, service revenues slightly declined by 1.7% mainly from the lower-tourist season, which caused IDD calls and international roaming to slow down. The seasonal impact on domestic usage was mitigated by quality net additions and helped support solid voice and non-voice revenues. For 1H08, service revenue excl. IC rose 8.7% y-o-y due to strong growth in prepaid subscribers and revenues from International Roaming and IDD. Voice revenue in 2Q08 slightly decreased by 0.2% q-o-q reflected mild seasonality impact, as voice revenue from postpaid still grew at 1.6% q-o-q, mitigated 0.8% q-o-q drop in voice revenue from prepaid. The mild impact of seasonal trend in 2Q revenue was due in part to the more focused distribution strategy that helped improve quality of subscriber acquisition. The bundled packages as well as buffet plans also contribute positively to the ARPU. On y-o-y basis, voice revenue increased 2.6%, fueled by 10.4% growth in voice revenue from prepaid. Due to the aggressive postpaid subscriber acquisition during 1Q07, postpaid revenues were abnormally high during 1H07 which also came with higher bad debt. Hence, on y-o-y basis, postpaid voice revenues dipped by 16.4%. The acquisition strategy of both postpaid and prepaid subscribers is therefore emphasizes on generating organic revenue growth. Non-voice revenue grew strongly by 29.1% y-o-y, and now represented 12.6% of service revenue (excl. IC) in 2Q08, increased from 10.5% in 2Q07. Key growth areas were from (1) higher GPRS consumption as well as increase in active users of GPRS to 4m from 2.8m in 2Q07, and (2) higher penetration on both SMS and Calling Melody (ring-back tone) .Although SMS, remained the majority part accounted for 39% of non-voice revenue, GPRS contribution has significantly increased during the past two years, now accounted for 23% of non-voice revenue. International roaming & international call seasonally declined q-o-q. IDD revenue increased significantly y-o-y from the full service on AIN international telephone gateway. Interconnection revenue/cost Interconnection 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 (Bt million) Revenue 2,656 5,217 4,357 4,301 4,256 4,144 Cost 2,154 4,101 3,842 3,956 4,139 4,080 Net interconnection 501 1,116 515 345 117 64 * Recognition of IC in 2007 was fully realized only in 4Q07 Net interconnection (IC) for 2Q08 declined to 64m from 117m in 1Q08. This was the result of lower incoming minutes from the IC corresponding parties (DTAC & True Move) while outgoing minutes also declined but at a slower rate. Sales revenues increased by 1.9% y-o-y and 5.9% q-o-q due mainly to higher unit sales of handset from 847k in 2Q07 to 1m in 2Q08. In addition, sales margin improved to 8.8% from 6.9% in 2Q07. For 1H08, sales revenue dropped by 13.8% y-o-y due to falling average selling prices, despite flat handset units of 1.85m in 1H08. Cost of service Cost of service excl. IC 2Q08 2Q07 1Q08 y-o-y q-o-q (Bt million) Amortization 4,426 4,117 4,380 7.5% 1.0% Base station rental & utility 628 590 611 6.6% 2.9% Maintenance 427 442 425 -3.4% 0.4% Others 929 871 945 6.7% -1.6% 6,411 6,020 6,361 6.5% 0.8% Cost of service excluding IC cost for 2Q08 was Bt6,411m, remained flat from 1Q08 but increased 6.5% y-o-y mainly from higher amortization which rose 7.5% y-o-y as the amortization period becomes shorter according to the remaining concession life. 1H08 cost of service ex IC increased 8% y-o-y due to 9.8% y-o-y higher amortization. Including IC costs, 1H08 cost of service surged 77.6% y-o-y due to recognition of interconnection. Cost of sales in 2Q08 remained flat y-o-y and increased 4.5% q-o-q, followed 1.9% y-o-y and 5.9% q-o-q sales growth. 1H08 cost of sales declined 14.4% followed 13.8% y-o-y drop in sales revenue. Concession fee (Bt million) 2Q08 2Q07 1Q08 y-o-y q-o-q Concession fee 5,051 4,838 5,157 4.40% -2.06% % of service revenue excl. IC 24.0% 24.7% 24.1% Concession fee was 24% of service revenue excluding IC, declined from 24.7% in 2Q07 as revenue proportion from postpaid was smaller. SG&A (Bt million) 2Q08 2Q07 1Q08 % marketing expense to total revenue (excl. IC) 2.4% 3.8% 2.6% % bad debt to postpaid revenue 2.2% 8.1% 2.5% % SG&A to total revenue (excl. IC) 10.8% 14.6% 10.6% SG&A to total revenues excluding IC was 10.8% in 2Q08, declined from 14.6% in 2Q07 due to less marketing spending, no amortization of goodwill, and lower bad debt provision. Marketing spending for 2Q08 was 2.4% of total revenue excluding IC, compared to 3.8% in 2Q07. Bad debt continued to improve in this quarter, representing 2.2% of postpaid revenue, declined from 8.1% in 2Q07 and 2.5% in 1Q08 as a result of the group's credit policy in screening new postpaid subscribers. EBITDA margin was 42.3%, dropped from 45.4% in 2Q07 due to the impact of IC recognition, which caused the denominator larger. Excluding IC, EBITDA margin improved y-o-y to 49.2% due to revenue improvement and unusually low marketing expense and bad debt in this quarter. EBITDA (Bt million) 2Q08 2Q07 1Q08 Operating profit 7,326 5,650 7,664 Depreciation PPE 752 765 755 Amortization of computer software 94 115 94 Amortization of asset under concession 3,708 3,352 3,638 Amortization of concession right 113 113 114 Amortization of goodwill - 292 - Impairment loss on goodwill - 0 15 EBITDA 11,994 10,286 12,280 EBITDA margin 42.3% 45.4% 42.9% EBITDA excl. IC 11,915 10,286 12,164 EBITDA margin excl. IC 49.2% 45.4% 49.9% Interest expense for the period declined 5.5% y-o-y but rose 5.4% q-o-q from issuance of Bt4,000m debenture during the quarter. Exchange gain for 2Q08 was Bt41.6m, reversed from the loss of Bt6.8m in 2Q07, due to the Baht weakness, which have impacts on international roaming receivable. Other income significantly increased both y-o-y and q-o-q to Bt1,944m from the settlement of the "Unwind Agreement" between DPC, a subsidiary, and DTAC. The settlement to pay Bt3,000m against the previously recognized liability of Bt4,739m resulted in net gain of Bt1,739m booked as other income before tax for the period. Net profit for 2Q08 was Bt6,333m, surged 72.9% y-o-y and 23.6% q-o-q due mainly to the gain from DPC settlement. Stripping out non-recurring items, 2Q08 normalized net income was Bt5,116m rose 29.4% y-o-y from improving revenue and lower SG&A to total revenues. On q-o-q basis, net profit slightly declined by 0.4% due to soften q-o-q service revenues. For comparison, the below table was developed to show the comparable net profit by quarter. Comparative net profit Consolidated (Bt million) Tax Where 2Q08 2Q07 1Q08 y-o-y q-o-q deductible Net income 6,333 3,663 5,124 72.9% 23.6% Add: Goodwill amortization No SGA 292 Impairment of No SGA goodwill 15 Deduct: Gain on DPC Yes Other settlement after tax income (1,217) Normalized net income 5,116 3,955 5,139 29.4% -0.4% Add: Actual net IC Yes Not 626 recognized in 2Q07 Comparative net income 5,116 4,581 5,139 11.7% -0.4% Balance sheet structure Total asset in 2Q08 was Bt128,952m, increased from Bt128,942m in 4Q07 mainly due to increased in cash and short term investment. With the network expansion in 1H08, the base stations reached 13,600 from 12,500 as of December 2007. Bt million 2Q08 % of 4Q07 % of total asset total asset Current Assets 24,162 18.7% 20,586 16.0% Property and Equipment 8,037 6.2% 8,561 6.6% Networks under Concession 75,301 58.4% 78,527 60.9% Intangible asset 10,314 8.0% 10,593 8.2% Defer tax asset 10,085 7.8% 10,031 7.8% Others 1,053 0.8% 644 0.5% Total Assets 128,952 100.0% 128,942 100.0% Liquidity further improved from higher outstanding cash as well as lower concession right payable from the DPC settlement. As such, the current ratio was 95%, compared to 73% as of year end 2007. Bt million 2Q08 % of 4Q07 % of total asset total asset Cash 12,528 9.7% 8,317 6.5% ST investment 1,146 0.9% 123 0.1% Trade receivable 5,417 4.2% 8,054 6.2% Inventories 1,923 1.5% 1,236 1.0% Other current assets 3,148 2.4% 2,718 2.1% Current Assets 24,162 18.7% 20,586 16.0% Capital structure remained solid from the strong balance sheet with low financial leverage. Total liability to equity improved to 67% from 71% as of year-end 2007 due to higher retained earnings for the period. Net debt to equity was 23% increased from 14% as of 1Q08 due to lower cash after the dividend payment of Bt3.30 per share in May-08. The Board of Directors also approved an interim dividend for the 6-month period of 2008 from January 1st to June 30th of 2008 at the rate of Bt3.00 per share. Dividend payment will be made on September 10th. Bt million 2Q07 3Q07 4Q07 1Q08 2Q08 Total interest-bearing debt 31,321 33,600 30,349 26,105 30,104 Total liabilities 55,570 56,173 53,481 51,937 51,593 Total equity 75,556 70,308 75,461 80,743 77,359 Net debt to equity 30% 37% 29% 14% 23% Total liabilities to equity 74% 80% 71% 64% 67% Debentures and Loans as of 2Q08 increased to Bt30,104m, from Bt26,105m as of 1Q08 as the Company has issued the debenture amounted Bt4,000m in April 2008. Of the total outstanding debt, 5% remained exposed to floating interest rate, the rest was either fixed rate or engaged into fixed interest swap contract. Effective interest rate was 5.3% per annum down from 5.5% in the previous quarter as a result of the new debenture issued, at the interest rate of 4.0% for year 1-2 and 4.9% for year 3-5. All outstanding foreign-currency loans have been fully hedged. Bt million Balance Balance Repayment(1) 1Q08 2Q08 2008 2009 2010 2011 2012 2013 Long term loan(2) 10,679 10,680 30 59 59 9,544 59 59 Debenture 15,363 19,357 1,500 6,627 - 4,000 - 8,000 Financial lease 63 67 23 17 12 8 4 - Total debt 26,105 30,104 5,045 6,703 71 13,552 63 8,059 (1) includes bond issuing cost; (2) includes swap and forward contract Cash Flow Cash flow position remained strong to support capex and debt repayment. For 1H08, the group generated Bt20,728m of cash flow from operation, spent Bt5,012m on network investment while repaid debt amounted Bt4,262m as well as paid dividend amounted Bt9,770m. The net cash increase was Bt4,299m reserved as cash and short-term B/E. Source and use of fund: 1H08 Source of Fund Bt Use of Fund Bt million million Operating CF before change in 26,492 CAPEX & Fixed assets 5,012 working capital Share capital and share premium 256 Repayment of LT borrowing & 762 finance lease Interest received 140 Repayment of ST borrowing 3,500 Disposal of property and 126 Interest paid 750 equipment Proceed from L-T borrowing 3,991 Changes in working capital 5,764 Dividend Payment 9,770 Short-term investments & subsidiary 1,149 Cash increase 4,299 Total 31,005 Total 31,005 FY2008 Management outlook & strategy Market subscriber forecast 8-10m net additions for the market Market share 50% revenue market share Service revenue (revised) 7-8% service revenue growth excluding IC Marketing expense 4% of total revenue excluding IC Network amortization (revised) 10% rise in FY08 (network amortization and depreciation as booked under cost of service only, excluding PPE depreciation in SGA, goodwill, and amortization of concession right) EBITDA margin (revised) 46-47% excluding IC Capex (revised) Bt14bn cash capex for FY08 (no 3G) Net IC revenue Bt400-600m For FY08, AIS expect industry subscriber growth of 15-20% y-o-y or a total net addition of 8-10 millions. SIM penetration is expected to reach 93-96% while human penetration will be approximately 65-70% as multi-SIM phenomena remains a significant part in the industry. Pricing environment will continue to be stable or have slight improvement given each operator tends to set tariff to reflect the cost of interconnection as well as to better utilize the network between peak and off-peak hours. Due to strong revenue momentum in the past several quarters with 8.6% y-o-y growth for 1H08, service revenue guidance for 2008 is being revised upward to 7-8% from the previous 5-7%. Hence, EBITDA margin guideline is also revised upward to 46-47% from the previous 45-46%. For 1H08, EBITDA margin was 49.6%, relatively higher than the guidance as many cost items particularly on marketing spending is normally higher in 2H08. The key growth drivers to the revenue and EBITDA are (1) higher penetration in upcountry areas (2) continued improving voice revenue from stable pricing environment (3) strong 15-20% growth in non-voice services and (4) higher contribution from IDD business. In 2007, the launch of IDD business contributed additional 1.3% of service revenue, and is expected to growth 40-50% y-o-y in FY08. AIS targets its network expansion to reach 14,500 base stations by year end with the 2G capex budget revised down to Bt14bn from the previous Bt16-17bn focusing on (1) continued expansion into rural area to differentiate coverage gap with competitors (2) transportation route such as new roads, expressway, Bangkok transit system, (3) new residential areas, business and industrial areas, and tourist attractions. Amortization in 2008 is expected to rise 10% y-o-y as the network asset is amortized over the shorter remaining period of concession life which expired in 2015. As a largest-subscriber base operator with premium pricing, the traffic position is highly likely to be net IC receiver. Meanwhile, as the company's strategy targets on stabilizing revenue market share, the focus has been on maximizing revenue from the outgoing minutes rather than the incoming minutes. The company hence expects net IC for FY08 to be significantly lower than the Bt2.5bn net IC in 2007. Based on 1H08 net interconnection revenue of 181m, the net IC for FY08 is expected to decline to Bt400-600m. +++++++++++++++++++++++++++++++++++++++++++++++++++++++ Disclaimer "Some statements made in this presentation are forward-looking statements, which are subject to various risks and uncertainties. These include statements with respect to our corporate plans, strategies and beliefs and other statements that are not historical facts. These statements can be identified by the use of forward-looing terminology such as "may" , "will" , "expect" , "anticipate", "intend" , "estimate" , "continue" "plan" or other similar words. The statements are based on our management's assumptions and beliefs in light of the information currently available to us. These assumptions involve risks and uncertainties which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. FINANCIAL SUMMARY Consolidated income statement Unit: Bt. Million 2Q08 2Q07 1Q08 y-o-y q-o-q Service 21,060 74.3% 19,597 86.4% 21,426 74.8% 7.5 -1.7 revenue excl. IC IC revenue 4,144 14.6% n/a 0.0% 4,256 14.9% n/a -2.6 Service 25,204 88.9% 19,597 86.4% 25,682 89.6% 28.6 -1.9 revenue Sales revenue 3,141 11.1% 3,082 13.6% 2,966 10.4% 1.9 5.9 Total revenue 28,345 100.0% 22,678 100.0% 28,648 100.0% 25.0 -1.1 (more)