Management's Discussion and Analysis Overview As at 2Q05, the Company and its subsidiaries (the Group) had the total of 15,814,500 mobile phone subscribers, comprising of 2,126,000 postpaid subscribers on GSM Advance and GSM 1800 and 13,688,500 prepaid subscribers on 1-2-Call!. The subscriber base grew 338,000 or 1.9% due mainly to an increase in 1-2-Call! subscribers. Due to impact from oil price surge in the period, consumer sentiment has been weak and more cautious on spending. In response to price competition in cellular service industry, AIS launched a tactical price plan, Sure-Sure to end the intensive competition. The impact of the tactical price plan pushed down the service revenues. As a result, the Group generated a total revenue of Baht 22,308 million for the period of 2Q05, a fall of 6.0% QoQ and 7.4% YoY. The Group recorded the net profit of Baht 4,169 million for 2Q05, a decrease of 22.4% from previous quarter. The profit decrease was principally owing to a drop in total revenues as well as a rise on network cost and marketing expenditure. For the six-month period, the Group showed the net profit of Baht 9,538 million, down by 5.3% compared to the same period of previous year, principally resulting from a decline in total revenues. Operating Results Table 1: Selected financial information Amount in Million Baht % % % 2Q05 Change Change 6 Months Change QoQ YoY YoY Total Revenue 22,308 (6.0%) (7.4%) 46,030 (4.5%) Total Cost 13,035 0.3% (0.3%) 26,028 0.0% Gross Margin 9,273 (13.6%) (15.9%) 20,002 (9.7%) SG&A 2,653 11.4% (7.1%) 5,035 (9.0%) Net Profit 4,169 (22.4%) (17.3%) 9,538 (5.3%) Diluted EPS (Baht) 1.41 (22.5%) (17.5%) 3.23 (5.6%) Total Revenue The Group generated total revenue of Baht 22,308 million in 2Q05, down 6.0% from that of 1Q05 and down 7.4% from that of 2Q04, mainly resulting from the decline of services revenue. For the six-month period of 2005, total revenue was Baht 46,030 million, a decrease of 4.5% 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 2Q05, mobile service revenue was Baht 19,781 million, decreased by 6.6% from that of 1Q05 mainly resulting from lower 1-2-Call! revenue due to intensive price competition. Moreover, ARPU in the second quarter of the year has been generally lower than that of first quarter. When compared to 2Q04, service revenue decreased by Baht 1,309 million or decreased by 6.2%. For the six-month period it was Baht 40,967 million, down by 2.3% from the same period of last year despite the more number of subscribers. The decline was caused by a fall in the 1-2 Call! ARPU, a majority group of total subscribers. - Revenue from sales Handset and accessory sales were major components in revenue from sales. In 2Q05, sales revenue were Baht 2,527 million, being close to that of 1Q05, but falling Baht 483 million or 16.0% compared to 2Q04. The decrease in handset sales was mostly affected from lower average selling price. For the six-month period, revenue from sales was Bath 5,064 million reducing by 19.0% from the same period of last year. The decrease in handset sales came from lower sales volume as well as lower average selling price, impacted from an intense competition in handset sales. Total Cost Total cost was Baht 13,035 million in 2Q05, a slight increase caused of, a rise of cost of handsets. When compared to 2Q04, it maintained stable. Total cost for the six-month period was Baht 26,028 million, which was also constant from the same period of last year. - Cost of services and equipment rentals Cost of services and equipment rentals were Baht 6,064 million in 2Q05, rose by 4.1% from 1Q05 and rose by 10.9% compared to 2Q04. The increment was due primarily to higher network amortization resulting from continuous expansion of mobile service network. For the six-month period they rose by 9.5% from the same period of last year. - Concession fee and excise tax Concession fee and excise tax were Baht 4,654 million in 2Q05, decreasing by Baht 296 million or 6.0% from previous quarter and Baht 317 million or 6.8% from that of 2Q04. For the six-month period, they dropped by 3.0% from the same period of last year. 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 2,317 million, increased by Baht 97 million or 4.4% from that of 1Q05 but decreased by Baht 314 million or 11.9% compared to 2Q04. For the six-month period, it dropped by Baht 731 million or 13.9% from the same period of last year due to lower in sales volume and average handsets cost per unit. Selling and Administrative expenses Total selling and administrative expenses (SG&A) were Baht 2,653 million in 2Q05, accounted for 11.9% of total revenue. The SG&A increased by Baht 271 million or 11.4% from that of 1Q05. The change of SG&A was principally from the increase of marketing expense totaling of Baht 220 million from last quarter. When compared to 2Q04, the SG&A decreased by Baht 203 million or 7.1%. For the six-month period, SG&A decreased by Baht 495 million or 9.0% from the same period of last year. The main reasons were from an allowance for doubtful and marketing spending decreased by Baht 164 million and Baht 420 million respectively while staff cost increased by Baht 118 million. Income Tax In 2Q05, corporate income tax was Baht 2,160 million, down by Baht 572 million or 20.9% from that of 1Q05 resulting mainly from the decrement in total revenues and an increase in cost and SG&A. Compared to 2Q04, it decreased by Baht 624 million or down 22.4%. For the six-month period it decreased Baht 923 million or 15.9% from the same period of last year. Net Profit As aforesaid, net profit in 2Q05 dropped by 22.4% from that of 1Q05, and dropped by 17.3% compared to 2Q04. For the six-month period, net profit decreased by 5.3% from the same period of last year. Financial Position 1. Assets At the end of this quarter, total assets were Baht 123,254 million, increased by Baht 2,087 million or 1.7% from YE04. As a percentage of total assets, current assets and non-current assets accounted for 18.7% and 81.3% respectively. Table 2: Major assets component 30 June 2005 31 December 2004 % of Total % of Total Million Baht Assets Million Baht Assets Current Assets 23,011 18.7% 19,118 15.8% Plant, Property and 10,495 8.5% 11,618 9.6% Equipment, net (incl. Computer Software) Assets under concession 75,813 61.5% 75,658 62.4% agreements, net Other non current assets 13,935 11.3% 14,774 12.2% - Current Assets As at June 2005, current assets considerably increased by Baht 3,894 million or up 20.4% from YE04. This was mainly from the significant increment of cash and cash equivalent from Baht 9,449 million as at YE04 to Baht 13,351 million. 2. Liabilities Total liabilities were Baht 53,142 million at end of 2Q05, increased by Baht 62 million or 0.1% from YE04. Table 3: Major liabilities component 30 June 2005 31 December 2004 % of Total % of Total Million Baht liabilities Million Baht liabilities Other Current Liabilities 16,819 31.7% 16,423 31.0% Concession right payable, 8,252 15.5% 7,017 13.2% accrued concession fee and excise tax1 Long-term borrowings and 27,966 52.6% 29,521 55.6% debentures, net2 Other non-current liabilities 105 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 June 2005, the Group had an increase in other current liabilities was up Baht 396 million or 2.4% from YE04. The main item came from A/P-Trade increasing of Baht 924 million. - Concession right payable, accrued concession fee and excise tax As at June 2005, the concession right payable, accrued concession fee and excise tax within 1 year presented at Baht 8,252 million, up by Baht 1,235 million or 17.6%. 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 27,966 million, a decrease of Baht 1,555 million or 5.3% from YE04. During the six-month period ended June 2005, the Group made total repayment of Baht 1,500 million of long-term debentures. As at June 2005, the Group presented the current portion within 1 year of total long-term debentures and borrowings of Baht 5,011 million and the portion over 1 year of that amounting of Baht 22,955 million or represented as 17.9% and 82.1% of its own category respectively. 3. Shareholders'Equities As at June 2005, the Group had total equity of Baht 70,112 million, increasing by Baht 2,025 million or 3.0% from YE04; as a result of the net income in six-month period Baht 9,538 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 inappropriate retained earnings. In addition, the additional issued and fully paid-up share capital as at end of 2Q05 increases subject to an exercise of ESOP totaling 2.47 million shares.The Company presents advanced receipt of Baht 20 million. A subsidiary recognized a fair value reserved of available for sale-securities of Baht 4 million as unrealized gain in Shareholder's Equity. 4. Liquidity For the period of 2Q05, the Group's consolidated net cash flow increased by Baht 3,868 million principally resulting from net cash inflow from operating activities of Baht 19,568 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 6,594 million rising from Baht 4,367 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 9,106 million from the repayment of long-term debentures amounting Baht 1,500 million and the second payment of dividend from the net operating result of YE04 totaling Baht 7,653 million.