Management's Discussion and Analysis Overview For the year 2003, the Company and its subsidiaries (the Group) had the total of 13,239,200 mobile phone subscribers, comprising of 2,115,400 on GSM Advance and GSM 1800 subscribers and 11,123,800 on 1-2-Call! subscribers. The subscriber base grew 2,576,700 or 24.2% and 530,000 or 4.2% as compare with previous year and previous quarter respectively. During 4Q03, the Company continued various marketing activities to enhance customer care for GSM Advance and 1-2-Call! subscribers in order to foster customer loyalty. Therefore, the marketing expense substantially increased from previous quarter. As well as, the subsidiary, Digital Phone Company "DPC", had a write-off on asset under concession of Baht 598 million. (See detail in operating results). The Company recorded net profit of Baht 18,529 million for the year 2003, rose by 62.1% from that of the year 2002. However, net profit for 4Q03 amounted Baht 3,963 million, decreased 18.0% compared to that of 3Q03. This was despite larger mobile phone users, higher average usage and lower bad debt expense. Operating Results In 4Q03, the Company had adopted a segment approach to the market by launching price plans on prepaid service: Freedom Free Style. More innovative plans aimed clearly at different customer lifestyle. As a result, prepaid subscribers and usages recorded encouraging growth as compare to previous quarter. However, subscriber market share of the Group by the end of 2003 decreased slightly from 61% last year to 60% due to competition from other operators. Table 1: Selected financial information Amount in Million Baht 4Q03 % Change % Change FY03 %Change from 3Q03 from 4Q02 from FY02 Total Revenue 22,420 3.0% 2.3% 89,492 11.5% Total Cost 12,208 2.8% (3.6%) 49,419 10.2% Gross Margin 10,212 3.2% 10.4% 40,073 13.2% SG&A 3,778 33.3% 33.1% 12,321 (10.7%) Net Profit 3,963 (18.0%) 5.2% 18,529 62.1% Earning per share (Baht) 1.34 6.32 Total Revenue Total revenue of the Group increased by 3.0% from Baht 21,766 million in 3Q03 to Baht 22,420 million in 4Q03,or 2.3% compare to 4Q02.For the year2003, total revenue rose by 11.5% year-on-year to Baht 89,492 million as a result of: - Revenue from services and equipment rentals The mobile service revenue has been a majority part of revenue from service and equipment rentals. In 4Q03, mobile service revenue increased mainly due to higher prepaid revenue arising from higher average usage and a larger customer base and changing in scratched card selling price to channels of distribution. Therefore, the Company recorded mobile service revenue of Baht 19,401 million, a 7.1% rise from 3Q03. When compare to 4Q02 and year 2002, revenue from mobile service increased 13.7% and 21.0% respectively, as a result of higher revenue from expansion of prepaid subscribers. In addition to strong new subscriber growth and improved churn, ARPU (Average Revenue Per User) has shown a rising trend to Baht 1,187 and Baht 341 for postpaid and prepaid system in 2003 respectively. The improvement was principally due to implementation of effective retention programs to valuable customers on postpaid service and introduction of segmented price plans for prepaid service. - Revenue from sales Handsets and accessories sales were major components in revenue from sales. In 4Q03, revenue from sales decreased by Baht 626 million or 17.2% from Baht 3,645 million in 3Q03 to Baht 3,019 million and down by Baht 1,819 million compare to 4Q02. For the year 2003, revenue from sales was Baht 15,472 million, decreased by Baht 3,584 million or 18.5% from last year. The fall was mainly owing to a drop in the number of handset sales and lower average selling price per unit. Total Cost Total cost was Baht 12,208 million in 4Q03, increased by 2.8% from 3Q03 but decreased by 3.6% from 4Q02. For the year 2003, total cost increased 10.2% to Baht 49,419 million as a result of: - Cost of services and equipment rentals Cost of services and equipment rentals was Baht 5,149 million in 4Q03, rose by 10.8% or Baht 501 million from 3Q03. When compared to 4Q02 increased by Baht 982 million or 23.6%. The increment was principally due to higher network amortization resulting from mobile service network expansion. For the year 2003, the cost of services and equipment rentals was Baht 19,352 million, an increase of Baht 4,840 million or 33.4% from last year's level as a result of: 1. The amortization increased by Baht 3,519 million according to expansion of network investment and changing useful life of Intelligence Network (IN) from 5 years to 3 years. 2. Cost of maintenance increased by Baht 829 million partly owing to expansion of mobile phone network and network spare parts write-off of Baht 545 million due to technology obsolescent. - Concession fee and excise tax Concession fee and excise tax was Bath 4,606 million in 4Q03, increased by 6.2% and 11.5% from 3Q03 and 4Q02 respectively. For the year 2003, it rose by 16.2% from last year. The increase in concession fee and excise tax was in-line with the rise in revenue from mobile services. - Cost of Sales Cost of sales fell 15.2% from Baht 2,890 million in previous quarter to Baht 2,452 million in this quarter and a significantly decrease of 43.7% compare to 4Q02. For the year 2003, the cost of sales also dropped 18.1% from year 2002 as a result of a decrease in number of handset sold. The Group earned a gross profit of 18.8% from sales in 4Q03 which decreased from 20.7% in 3Q03. The decline in gross profit margin primarily reflected changes in sale mix within each of handset model and a decrease in SIM card's selling price. The gross profit on sales was 9.9% in 4Q02 and 21.6% for year 2003, compared to 22.0% in year 2002. Selling and Administrative expenses Total selling and administrative expenses (SG&A) were Baht 3,778 million or jumped quarter-on-quarter by 33.3% and year-on-year by 33.1%. For the year 2003, SG&A decreased by Baht 1,482 million or down 10.7% from the year before. The change of SG&A was principally because: 1. Marketing expense increased Baht 357 million from that of 3Q03 and Baht 367 million compared to that of 4Q02. The increase primarily due to various activities to enhance satisfactions of customers and channels of distribution. For the year 2003, the expense decreased Baht 335 million compared to that of year 2002. The decrease was mainly due to an expense in a migration program from analog NMT system to digital GSM system in year 2002. 2. Bad debt expense fell by Baht 135 million from 3Q03's level and Baht 343 million from 4Q02's level. For the year 2003, the expense also fell by Baht 1,980 million from the expense in the year 2002. The decrease was mainly due to the Group's efforts in strengthening collection performance. 3. The Group wrote off Baht 598 million worth of mobile phone network equipment in a subsidiary "DPC" in 4Q03. The write-off was related to site preparation and installation costs of network base station that were no-longer in operations as a result of network optimization. 4. The Group wrote off Baht 294 million worth of mobile phone network equipment in the first quarter of this year as a result of technology obsolescent. Income Tax In 4Q03, corporate income tax was Baht 2,142 million, increased by 19.5% from the amount in 3Q03 but decreased by 1.2% from 4Q02's. The rise in tax was because accrued tax for the first nine months was not enough to smooth out tax shield from loss carried forward in a subsidiary evenly throughout four quarters. For the year 2003, this corporate income tax went down from Baht 7,816 million in previous year to Baht 7,529 million as a result of: 1. One of subsidiaries began to have corporate income tax resulted from tax shield from loss carry forward was fully utilized in this year. 2. During the year 2003, income tax was adjusted by Baht 251 million for year 2002 due to a change in tax calculation for scratch card sales from usage to unit sold. 3. During the year 2002, the Company gained tax benefit of Baht 434 million from selling the investment in Advanced Paging Co., Ltd. to third party. Net Profit Due to factors mentioned above, net profit in 4Q03 dropped by Baht 872 million or 18.0% from 3Q03. However, from 4Q02's level, net profit increased by Baht 196 million or 5.2%. Net profit for the year 2003 rose strongly by Baht 7,099 million or 62.1% from that of last year. Financial Position 1. Assets At the end of this year total assets were Baht 124,949 million which decreased slightly by Baht 1,136 million or 0.9% from the previous year. Most of asset components decreased except plant, property and equipment that the Company had more investment in Prepaid Billing System IN (Intelligence Network). Table 2: Major assets component 31 December 2003 31 December 2002 Million %of Total Million %of Total Baht Assets Baht Assets Current Assets 17,896 14.3% 18,382 14.6% Plant, Property and equipment, net 12,120 9.7% 9,748 7.7% Assets under concession agreements, net 78,549 62.9% 79,795 63.3% Other non current assets 16,384 13.1% 18,161 14.4% 2. Liabilities Total liabilities were Baht 65,323 million at the end of year 2003, decreased by Baht 9,521 million or 12.7% from year 2002. This was mainly owing to the Group made repayment of long term debentures and borrowings on schedule. Table 3: Major liabilities component 31 December 2003 31 December 2002 Million % of Total Million % of Total Baht liabilities Baht liabilities Other Current Liabilities 15,913 24.4% 16,087 21.5% Concession right payable, accrued concession fee and excise tax(1) 6,810 10.4% 7,006 9.4% Long-term borrowings and debentures, net(2) 42,585 65.2% 51,734 69.1% Other non-current liabilities 15 0.0% 17 0.0% (1) Concession right payable, Accrued Concession fee and Excise Tax including current-portion within 1 year and portion over 1 year (2) Long-term borrowings and debentures, net including current-portion within 1 year and portion over 1 year Concession right payable, accrued concession fee and excise tax At the year ended 2003, the total of Baht 6,810 million was primarily due to the followings: 1. The current portion within 1 year was Baht 5,585 million higher than previous year by Baht 1,111 million or 24.8% . 2. The portion over 1 year was Baht 1,225 million lower than year 2002 by Baht 1,307 million. Long-term borrowings and debentures, net During the year, the Group made total repayments of Baht 13,164 million, comprising of long-term debentures of Baht 7,050 million (included Baht 50 million from buy back of debentures) and borrowings of Baht 6,114 million. One subsidiary made a new long-term borrowing of Baht 3,943 million as a resulted from loan repackaging. As at the end of 2003, total long-term debentures and borrowings were Baht 42,585 million of which Baht 12,079 million was current portion within 1 year and Baht 30,506 million was portion over 1 year. 3. Shareholders' Equities At the year end of 2003, the Group had total equity of Baht 59,626 million, grew strongly by Baht 8,385 million as a result of: 1. The retained earnings increased by Baht 18,529 million from net profit. 2. The Company repurchased 0.38 million shares at the average price of Baht 33.08 per share. As the end of this year, the Company repurchased totaling 2.54 million shares at the average price of Baht 32.73 per share. 3. For the year 2003, the Company had additional issued and fully paid up share for exercise ESOP totaling Baht 169 million. By 3.5 million of number of shares and advance receipt for share subscription of Baht 26 million. 4. The Company had paid dividend to shareholders totaling Baht 10,410 million of which Baht 4,541 million was paid on May 23, 2003 at Baht 1.55 per share and Baht 5,869 million was paid on Sept 4, 2003 at Baht 2 per share. 4. Liquidity The Group's operating cash flow remains strong, during the year 2003, the Group recorded positive cash flow of Baht 40,437 million. The additional in the net cash flow from operating activities primarily resulted from the increase in operating revenues. The Group's net cash payment from financing activities of Baht 19,419 million was mainly due to repayments of long term debentures and borrowings and dividend payments. Net cash payment from investing activities of Baht 16,425 million which decreased from Baht 20,321 million in the last year caused by higher investment in asset under concessions in prior year. Thus, cash and cash equivalent of the Group increased by Baht 4,568 million.