Management's Discussion and Analysis Overview As at 1Q05, the Company and its subsidiaries (the Group) had the total of 15,516,900 mobile phone subscribers, comprising of 2,166,400 postpaid subscribers on GSM Advance and GSM 1800 and 13,350,500 prepaid subscribers on 1-2-Call!. The subscriber base grew 332,900 or 2.2% due mainly to an increase in 1-2-Call! subscribers. The Group recorded the net profit of Baht 5,369 million for 1Q05, a 9.2% increase over previous quarter despite of a decline of Baht 699 million, or 2.9%, in total revenues. The profit increase was principally owing to lower marketing spending and lower administrative expense. Operating Results Table 1: Selected financial information Amount in Million Baht % Change % Change 1Q05 QoQ YoY Total Revenue 23,722 (2.9%) (1.5%) Total Cost 12,994 (5.5%) 0.3% Gross Margin 10,729 0.5% (3.5%) SG&A 2,382 (16.6%) (11.0%) Net Profit 5,369 9.5% 6.7% Diluted EPS (Baht) 1.82 9.6% 6.4% Total Revenue The Group generated total revenue of Baht 23,722 million in 1Q05, down 2.9% from that of 4Q04 and down 1.5% from that of 1Q04 resulting from the declination of both services revenue and sales revenue. - Revenue from services and equipment rentals The mobile service revenue was a majority part of revenue from service and equipment rentals. In 1Q05, mobile service revenue was Baht 21,186 million, decreased by 1.6% from that of 4Q04 due mainly to the lower usage per subscriber of both GSM ADVANCE and 1-2-Call! service. When compared to 1Q04, service revenue increased by 1.7%. - Revenue from sales Handset and accessory sales were major components in revenue from sales. In 1Q05, sales revenue were Baht 2,537 million, dropped by Baht 358 million or 12.4% from 4Q04 and dropped by Baht 706 million or 21.8% compared to 1Q04. The decrease in handset sales came from lower sales volume. Total Cost Total cost was Baht 12,994 million in 1Q05, decreased by Baht 750 million or 5.5% from that of 4Q04 and slightly increased by 0.3% from that of 1Q04 as a result of: - Cost of services and equipment rentals Cost of services and equipment rentals were Baht 5,823 million in 1Q05, down 0.7% from 4Q04 mainly from lower network maintenance. When compared to 1Q04, it rose by 8.0%. - Concession fee and excise tax Concession fee and excise tax were Baht 4,950 million in 1Q05, slightly decreased from previous quarter but increased 0.5% by comparison with 1Q04. The decline in concession fee and excise tax was in-line with the decrease in revenue from mobile services. - Cost of Sales Cost of sales was Baht 2,220 million, decreased by Baht 547 million or 19.8% from that of 4Q04 and decreased by Baht 416 million or 15.8% compared to 1Q04. Selling and Administrative expenses Total selling and administrative expenses (SG&A) were Baht 2,382 million in 1Q05, accounted for 10.0% of total revenue. The SG&A decreased by Baht 475 million or 16.6% from that of 4Q04, and decreased by Baht 293 million or 10.9% from that of 1Q04. The change of SG&A was principally because a drop of marketing expense totaling of Baht 320 million from last quarter addition to the donation to Tsunami victims totaling Baht 120 million in 4Q04. Income Tax In 1Q05, corporate income tax was Baht 2,732 million up by Baht 232 million or 9.3% from that of 4Q04 resulting from the decrement in cost and SG&A. Compared to 1Q04, it decreased by Baht 300 million or down 9.9%. Net Profit As aforesaid, net profit in 1Q05 rose by 9.2% from that of 4Q04, and rose by 6.7% compared to 1Q04. Financial Position 1. Asset At the end of this quarter, total assets were Baht 128,134 million, increased by Baht 6,966 million or 5.7% from YE04. As a percentage of total assets, current assets and non-current assets accounted for 21.2% and 78.8% respectively. Table 2: Major assets component 31 March 2005 31 December 2004 % of % of Million Baht Total Million Baht Total Assets Assets Current Assets 27,190 21.2% 19,118 15.8% Plant, Property and Equipment, net 9702 7.6% 10,162 8.4% Assets under concession agreements, net 75,473 58.9% 75,656 62.4% Other non current assets 15,769 12.3% 16,230 13.4% - Current Assets As at March 2005, current assets considerably increased by Baht 8,072 million or up 42.2% from YE04. This was mainly from the significant increment of cash and cash equivalent from Baht 9,449 million as at YE04 to Baht 17,644 million, which was reserved for the payment of dividends in April 2005. 2. Liabilities Total liabilities were Baht 62,232 million at end of 1Q05, increased by Baht 9,152 million or 17.2% from YE04. This was due principally to dividend payable of Baht 7,653 million. Table 3: Major liabilities component 31 March 2005 31 December 2004 Million % of Million % of Baht Total Baht Total liabilities liabilities Other Current Liabilities 26,236 42.1% 16,423 31.0% Concession right payable, accrued concession fee and excise tax1 7,888 12.7% 7,017 13.2% Long-term borrowings and debentures, net2 27,995 45.0% 29,521 55.6% Other non-current liabilities 113 0.2% 119 0.2% 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 - Other Current Liabilities As at March 2005, the Group had an increase in other current liabilities excluding dividend payable Baht 2,160 million or up 13.1% from YE04; and corporate tax payable increased Baht 2,251 million. - Concession right payable, accrued concession fee and excise tax As at March 2005, the concession right payable, accrued concession fee and excise tax within 1 year presented Baht 7,888 million, up by Baht 871 million or 12.4%. Due to the schedule of annual concession fee payment in November of each year, so the balance of accrued concession fee as of YE04 was not as much as that of the second quarter and the third quarter of each year. - Long-term borrowings and debentures, net The Group showed net long-term borrowings and debentures of Baht 27,995 million, a decrease of Baht 1,526 million or 5.2% from YE04. During the three-month period ended March 2005, the Group made total repayment of Baht 1,500 million of long-term debentures. As at March 2005, the Group presented the current portion within 1 year of total long-term debentures and borrowings of Baht 4,042 million and the portion over 1 year of that amounting of Baht 23,953 million. 3. Shareholders'Equities As at March 2005, the Group had total equity of Baht 65,902 million, declined by Baht 2,185 million or 3.2% from YE04; as a result of the net income in 1Q05 Baht 5,369 million. The Company declared the second payment of dividends at 2.60 baht per share totaling Baht 7,653 million addition to an interim dividend payment on 9 September 2004 at the rate of 2.15 baht per share. As a result, The total of dividend payment from the net operating result of YE04. was 4.75 baht per share. During the 1Q05, by the regulation of SEC, the Company took a capital reserve for treasury stock of Baht 83 million apart from unappropriated retained earnings. In addition, the additional issued and fully paid-up share capital as at end of 1Q05 increases subject to an exercise of ESOP totaling 0.96 million shares. The Company presents advanced receipt of Baht 50 million. A subsidiary recognized a fair value reserved of available for sale- securities of Baht 12 million as unrealized gain in Shareholder's Equity. 4. Liquidity For the period of 1Q05, the Group's consolidated net cash flow increased by Baht 8,250 million principally resulting from net cash inflow from operating activities of Baht 13,434 million. A part of the increment of cash flow was invested in short-term investment to earn more interest than saving in commercial bank. Net cash outflow from investing activities was Baht 3,731 million rising from Baht 2,804 million, compared to the same period of prior year. This was mainly from network expansion investment. In addition, net cash outflow from financing activities was Baht 1,453 million from the repayment of long-term debentures amounting Baht 1,500 million.