Date : 13/05/2003 08:25 ADVANC : MANAGEMENT DISCUSSION AND ANALYSIS QUARTER 1/2003 EXPLANATION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS 1. OVERVIEW As of the first quarter in 2003, the company and its subsidiaries had the total of 11,534,90011,535,000 mobile phone subscribers, comprising of 2,348,300000 GSM Advance and GSM 1800 subscribers and 9,186,6009,187,000 One-2-Call subscribers. The subscriber base grew 8.23% from the previous quarter or 75.9% higher compared to the year before. The main factors were the decrease in price competition in this industry, and the continuous popularity in prepaid service. Although this quarter the company and its subsidiaries increased SIM price, subscriber market share of the company and its subsidiaries 's total market share in existing subscribers still increased from 61% as of the end of 2002, to 62% as of the first quarter in 2003. The company and its subsidiaries generated the total revenues of Baht 22,672 million and the net profit of Baht 4,607 million, an increase from the revenues of Baht 21,908 million (3.5% up) and the net profit of Baht 3,767 million (22.3%) in the previous quarter. Compared to the first quarter 2002, the revenues grew 15.8% while net profit grew 43.630%. The results were driven mainly be larger subscriber base. The results in this quarter included accounting items that were non-cash and not related to normal operations. Some changes in accounting were introduced in the quarter. Those items are as follows: * AIS wrote off Baht 170 million worth of its spare-parts with more than one-year aging for conservative accounting (due to potential obsolescent due to technological changes). This item was included in cost of service (maintenance). * DPCTheA subsidiary had wroteitten off Baht 294 million worth of Nortel network equipment with potential obsolescent due to technological changes, recorded in selling and administrative expenses. * AIS shortened its estimate on useful life of Intelligence Network (IN), as the Revenue Department allows 3 years useful life for computer equipment, from previously 5 years. As a result, AIS booked an extra of Baht 124 million of network amortization for the year 2002FY02. Moreover, network amortization increased Baht 125 million in the first quarter this year1Q03 due to the change. The amortization is taxable expense. 2. ANALYSIS OF OPERATION RESULTS 2.1. CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE-MONTH ENDED MARCH 2003, COMPARING TO THE THREE-MONTH ENDED DECEMBER 2002. Revenue from services and equipment rental In the first quarter in 2003, the company and its subsidiaries recorded Baht 17,822 million of revenue from services and equipment rental, increased by Baht 752 million or 4.4% when compared to previous quarter. The result was from notably larger customer bases, especially the prepaid service. Moreover, revenue per subscriber had improved over the previous quarter due mainly to lower free airtime given during the last few quarters. Revenue from sales Revenue from sales increased from Baht 4,838 million in the previous quarter to Baht 4,850 million in this quarter. Concession fee and excise tax During the first quarter in 2003, the Ministry of Finance announced the introduction of an excise tax on telecommunication services. The excise tax is set at 10% (plus municipal tax of 1%, totally 11%) of mobile phone service revenues. The excise tax can be deducted from the concession fee to be paid to TOT. Thus, there is no financial impact to the company its subsidiaries' expenses. As of the first quarter in 2003, the company and its subsidiaries recorded concession fee and excise tax of Baht 4,272 million, an increased of Baht 141 million or 3.4% because of higher service and equipment rental revenues. Cost of services and equipment rental Cost of services and equipment rental was Baht 4,758 million, Baht 591 million or 14.2% higher from the previous quarter due mainly to the following factors. (1) The amortization of mobile phone networks increased by Baht 337 million. In the first quarter 2003, the company changed an estimated useful life of Intelligence Network equipment from 5 to 3 years. The result was an increase in the amortization expense of Baht 249 million (Baht 124m for the period before December 2002 and Baht 125 million for 1Q03). Besides, the company invested more in mobile service network to support its subscriber growth. (2) The cost of maintenance increased by Baht 321 million, primarily due to the provision of obsolete in network spare parts of Baht 170 million. Costs of sales Costs of sales decreased by Baht 780 million or 17.9% from the previous quarter to Baht 3,580 million due to the lower unit cost of handsets. Selling and administrative expenses Selling and administrative expenses of the company and its subsidiaries were Baht 3,042 million, a decrease of Baht 202 million or 7% from the previous quarter. In the first quarter, marketing expenses and staff expenses decreased by Baht 346 million and Baht 166 million, respectively. On the other hand, the company and its subsidiaries made a Baht 294 million write-off in mobile phone equipment. Income tax As of the first quarter in 2003, the company and its subsidiaries recorded income tax of Baht 1,837 million, decreased by Baht 331 million from previous quarter (15.3%). This was primarily due to utilization of loss carry forward of a subsidiary. Net profit From the above mentioned, the company and its subsidiaries reported net profit of Baht 4,607 million, an increase of Baht 840 million, or 22.3% compared to the previous quarter. 2.2. CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE-MONTH ENDED MARCH 2003, COMPARING TO THE THREE-MONTH ENDED MARCH 2002. Revenue from services and equipment rental The company and its subsidiaries recoded Baht 17,822 million of revenue from services and equipment rental in the first quarter 2003, increased by Baht 3,637 million or 25.6% when compared with those of the first quarter 2002. The result was notably due to larger customer bases, especially on pre-paid service. Revenue from sales When compared with revenue as of the first quarter 2002, revenue from sales decreased by Baht 538 million or 10%. Mobile phone trading was more competitive in 2003 than the first quarter 2002 due mainly to due to unlock of phone ID (IMEI - International Mobile Equipment Identity) in the second quarter 2002. Concession fee and excise tax As of the first quarter 2003, the concession fee and excise tax increased by Baht 603 million or 16.4% because of an increase in service and equipment rental revenues. Cost of services and equipment rental Cost of services and equipment rental was up Baht 1,752 million, or 58.2%. It increased to Baht 4,758 million from Baht 3,006 million in the same period last year. This was mainly from 2 components; (1) The amortization of mobile phone networks was up Baht 985 million when compare to the first quarter of previous year. The company had invested more in mobile phone network to support its subscriber growth. Moreover, during the first quarter this year, the company changed an estimated useful life of Intelligence Network equipment from five to three years as. The result of the change in amortization period was an increase in amortization expense of Baht 249 million (Baht 124m for FY02 and the rest for 1Q03). (2) The cost of maintenance increased Baht 225219 million was primarily due to the provision of obsolete in network spare parts Baht 170 million. Costs of sales Costs of sales decreased by Baht 217 million or 5.7% from Baht 3,796 million to Baht 3,580 million due to lower unit cost of sales. Selling and administrative expenses Selling and administrative expenses of the company and its subsidiaries were Baht 3,041 million, which decreased by Baht 125 million or 3.9% from those of the first quarter in previous year because of the following reasons: (1) An increase from write-off in mobile phone equipment of Baht 294 million (2) A decrease in allowance for doubtful accounts by Baht 377 million. Income tax As of the first quarter this year, the company and its subsidiaries recorded Baht 1,837 million in income tax. Compared to the first quarter in previous year, income tax decreased by 21.2% primarily due to utilization of loss carry forward of subsidiary. Net profit From the above mentioned, the company and its subsidiaries reported a net profit Baht 4,607 million, an increase of Baht 1,399 million, or 43.6% when compared to the net profit of the first quarter 2002. 3. ANALYSIS OF FINANCIAL POSITION 3.1 ANALYSIS OF ASSETS Cash on hand and cash equivalents and short-term investments At the end of this quarter, the company and its subsidiaries' cash on hand and cash equivalents were Baht 7,470 million and current investments were Baht 559 million. By the end of the first quarter 2002, the amount of cash on hand and cash equivalents was Baht 4,069 million and current investments were Baht 62 million. The increase was primarily from the net cash flow received from operating activities more than the net cash outflow from investing and financing activities. Trade accounts receivable net At the end of this quarter, net trade accounts receivable decreased from Baht 7,239 million as of the end of 2002, to Baht 6,325 million. The decrease was primarily due to higher proportion of prepaid revenue results in the decline of average receivable collection period from 33 days to 30 days. Net inventories Net inventories increased to Baht 2,254 million at the end of this quarter. The amount increased Baht 293 million from the end of the year 2002 to support higher sales in the future. Property and equipment net Net property and equipment totaled Baht 9,437 million, as of the end of March 2003, decrease from Baht 9,748 million at the year ended 2002. The decrease was mainly due to the change of estimated life of Intelligence network from 5 to 3 years. Asset under concession agreements net Asset under concession agreements had increased from Baht 79,795 million at the end of year 2002 to Baht 80,927 million at the end of March 2003. It was caused by the investment in mobile service network to accommodate a larger customer base. 3.2 ANALYSIS OF LIABILITIES Trade accounts payable The company and its subsidiaries' trade accounts payable increased from Baht 7,649 million at the end of year 2002 to Baht 9,106 million at the end of this quarter. The increase in trade accounts payable was due to rise in trading activities. Long-term debentures and long-term loans During this quarter, the company and its subsidiaries repaid for debenture principal and long term loan Baht 5,500 million and Baht 903 million respectively, totaling Baht 6,403 million. At the end of this quarter 2003, the company and its subsidiaries had a total of Baht 45,338 million of the long-term debentures and loans. The portion of long-term debentures and loans, maturing within 1 year amounted to Baht 2,972 million and Baht 1,311 million, respectively. Other current liabilities Other current liabilities were Baht 9,683 million, as of the end of this quarter, an increase from Baht 7,969 million at the end of 2002. The major items were the increase in income tax payable of Baht 1,534 million and the increase in unearned income from prepaid revenue of Baht 307 million. 3.3 ANALYSIS OF SHAREHOLDERS' EQUITY As of the end of this quarter, the company and its subsidiaries had Baht 55,861 million equities, increased from Baht 51,241 million at the end of 2002. The retained earning increased by Baht 4,607 million from net profit. During this quarter the company repurchased 0.38 million shares at the average price of Baht 33.08 per share. As of the end of this quarter the company repurchased totaling 2.54 million shares at the average price of Baht 32.73 per share. 3.4 ANALYSIS OF LIQUIDITY As of the first quarter in 2003, the company and its subsidiaries grew their service and equipment rental revenues continuously. The companys net cash flow from operating activities increased from Baht 9,057 million in the first quarter 2002 to Baht 14,324 million. The company and its subsidiaries had net cash flow from financing activities of Baht 6,415 million and net cash payment from investing activities of Baht 4,509 million. Thus, cash and cash equivalent of the company and its subsidiaries increased by Baht 3,399 million.