News

MD&A Q307


BackOct 24, 2007

Executive Summary

Growth in subscribers slowed down in Q307 compared to 1H07. DTAC added another 401,888 to its subscriber base, bringing the total subscriber base to 14,878,065. DTAC has continuously been expanding the coverage to strengthen market position upcountryand offering customized packages for each region.

Early in Q307, DTAC was able to migrate approximately one-third of its prepaid subscriber base, whose promotions expired at the end of Q207, to new packages with increased tariffs. The migration, couple with general tariff increase for new subscribers during the quarter, resulted in lower usage and more outgoing traffic staying within DTAC's network. The higher on-net traffic had positive impact on interconnect (IC) costs.

DTAC recorded a 4.9% YoY and 2.3% QoQ underlying service revenue growth as a result of growth in subscriber base. However,owing to a decline in incoming traffic, service revenues with IC increased by only 0.9% QoQ. The EBITDA margin dropped to 27.7% due to IEC one-time charge of THB 290 million relating to termination of a service provider agreement. Excluding the one-time charge, the EBITDA margin increased by 1.7 pp to 29.4% due to the reduction of net IC costs.

UCOM's delisting was successfully completed with 99.5% of total UCOM paid-up shares tendered for DTAC new shares. UCOM was delisted from the Stock Exchange of Thailand (SET) on September 14, 2007 and, on the same day, DTAC's new shares were listed.

On the regulatory front, the administrative court ruled against TOT's request for an injunction against the ruling of the NTC's Dispute Resolution Committee (DRC), ordering TOT to enter into an IC negotiation with DTAC. Separately, DTAC brought CAT and Hutch to the DRC for refusing to enter into IC negotiation with DTAC.The concession clarification process is still in progress.DTAC is still awaiting prefix for IDD and has not commercially launched the service. In addition, Mobile Number Portability (MNP) is still being studied by operators and the NTC.

Operation Summary

Q307
Q207 %
QoQ
Q306
% YoY
Additional subscribers
Post-paid
(112,832)
26,613
-524.0%
150,563
-174.9%
Prepaid
514,720
1,121,066
-54.1%
690,481
-25.5%
Total
401,888
1,147,679
-65.0%
841,044
-52.2%
Total subscribers
Post-paid
2,248,080
2,360,912
-4.8%
1,966,602
14.3%
Prepaid
12,629,985
12,115,265
4.3%
9,496,225
33.0%
Total
14,878,065
14,476,177
2.8%
11,462,827
29.8%
MOU
Post-paid
648
646
0.4%
608
6.5%
Prepaid
326
362
-10.0%
309
5.5%
Blended
372
406
-8.3%
357
4.3%
ARPU
Post-paid
793
812
-2.3%
790
0.4%
Prepaid
290
306
-5.2%
261
11.0%
Blended
363
384
-5.6%
346
4.8%

Note:

1. Total and net additional prepaid subscribers for Q306 are based on old definitions, which are validity + 45 days.

2. MOU and ARPU for Q306 do not include IC minutes and revenues.

3. MOU for Q306 is based on charged minutes.

4. Please see Q307 MOU and ARPU without IC in Appendix ii.

Operation Summary (Continued)

Subscribers
Net additional subscribers declined while total sale remained fairly stable compared to Q207. This was partly a result of number shortage in Q307 and DTAC had to shorten the churn process in order to free up and recycle old numbers. Post-paid net additional subscribers turned negative as DTAC consciously scaled back its acquisition activities. On prepaid, net additional subscribers were 514,720.

MOU
Blended MOU increased 4.3% YoY as a result of inclusion of incoming traffic. However, it declined 8.3% QoQ because of an increase in the average tariff, higher proportion of prepaid subscribers, and lower incoming traffic. The incoming traffic represented approximately 29.6% in addition to total outgoing minutes. Without IC, postpaid MOU increased 0.8% QoQ while prepaid MOU decreased 9.7% QoQ due to higher average tariff.

ARPU
Blended ARPU went up 4.8% YoY because of the inclusion of incoming traffic but declined 5.6% QoQ as a result of lower usage due to tariff increase, lower incoming traffic, and an increasing portion of prepaid subscribers. Excluding IC revenues, ARPU dropped 20.1% YoY and 4.4% QoQ. Post-paid ARPU increased 0.4% YoY but dropped 2.3% QoQ. Excluding IC, ARPU declined 15.7% YoY and 2.5% QoQ. Prepaid ARPU increased 11.0% YoY but dropped 5.2% QoQ. Excluding IC, ARPU declined 18.8% YoY and 2.9% QoQ as a result of lower usage and new subscribers coming in at lower ARPU levels.

Financial Summary

(THBmillion)
Q307
Q207
%QoQ
Q306
%YoY
Revenue from Telephone Services withIC*)
16,113
15,964
0.9%
11,876
35.7%
Revenue from Telephone Services(withoutIC*)
12,460
12,179
2.3%
11,876
4.9%
Revenue from Starter Kits and Telephone sets
163
170
-4.2%
306
-46.6%
Revenue from Other Operating Income
91
95
-4.0%
87
4.9%
Total Revenues
16,367
16,229
0.9%
12,268
33.4%
Cost of Telephone Services (with IC*)
11,062
11,252
-1.7%
7,462
48.3%
Cost of Telephone Services (without IC*)
6,884
6,291
9.4%
7,462
-7.7%
Cost of Starter Kits and Telephone sets
87
85
1.8%
80
8.4%
Total Costs
11,149
11,337
-1.7%
7,542
47.8%
SG&A
2,716
2,233
21.6%
2,180
24.6%
Operating Profit
2,502
2,659
-5.9%
2,546
-1.7%
Net Profit
1,362
1,333
2.2%
1,199
13.6%
EBITDA
4,563
4,682
-2.5%
4,409
3.5%
EBITDA margin
27.7%
28.7%
-3.6%
35.8%
-22.7%

* IC charges include revenues and costs between DTAC and True Move, AIS, Triple T Broadband, and DPC only.

Revenues Breakdown

Service Revenues
Service revenues grew 35.7% YoY from the inclusion of IC revenues and growth of subscriber base. Service revenues grew 0.9% QoQ despite lower revenues from IC. Excluding IC, service revenues grew 4.9% YoY and 2.3% QoQ due to higher subscriber base.Service revenues comprised:

1. Voice revenues increased 4.1% YoY and 1.7% QoQ due to subscriber growth. It accounted for 62.0% of total service revenues, slightly up from 61.6% in Q207.

2. Revenues from Value Added Services (VAS) increased 27.0% YoY and 7.6% QoQ due to higher data usage. VAS revenues accounted for 8.2% of service revenues in Q307, slightly up from 7.6% in Q207.

3. Revenue from International Roaming (IR) declined 6.6% YoY but increased 0.9% QoQ. It accounted for 3.1% of service revenues, approximately the same as Q207 but down from 4.5% in Q306.

4. Interconnection Revenue (IC) declined 3.5% QoQ and accounted for 22.7% of service revenues, down from 23.7% in Q207. It represented approximately 29.3% in addition to service revenue excluding IC, a slight decline compared to 31.1% in Q207.

Revenue from starter kits and telephone sets declined 46.6% YoY and 4.2% QoQ due to lower average SIM prices.

Cost Breakdown

Cost of Services
For Q307, cost of services increased 48.3% YoY as a result of the inclusion of IC costs but declined 1.7% QoQ mainly due to lower IC costs. However, excluding regulatory and IC, cost of services grew 16.8% YoY and 14.5% QoQ. Cost of services consisted of:

1. Regulatory costs comprised revenue share to CAT, excise tax, access charge to TOT, and numbering fees. For Q307,regulatory costs sharply dropped 30.0% YoY due to the amendment of access charge to TOT to interconnect cost. Regulatory costs increased 9.5% QoQ because of higher revenue and lower net IC costs. Regulatory costs as a share of total cost of services increased to 27.7% from 24.9% in Q207 but declined from 58.6% in Q306.

2. Amortization of deferred rights for Q307 rose by 13.0% YoY and 2.5% QoQ as a result of the continuation of cellular network expansion and lower amortization period (which is based on concession life)

3. Interconnection costs (IC) comprised IC with TOT (IC-TOT) and with True Move, AIS, Triple T Broadband, and DPC.

a. IC-TOT is the cost of traffic transited via TOT's network net of the balance of DTAC's traffic terminated on TOT network and TOT's traffic terminated on DTAC's network. It fell by 37.7% from the previous quarter as a consequence of more direct links being installed between DTAC's and other operators' networks. It accounted for approximately 1.9% of total cost of services, further decline from 3.0% in Q207.

b. IC-True Move, AIS, Triple T Broadband, and DPC dropped 15.8% from Q207 due to the migration of prepaid subscriber to higher tariff packages and the increase in tariff for new subscribers. It accounted for 37.8% of total cost of services compared with 44.1% in Q207.

4. Others

a. Production costs, including refill vouchers and sales margin, grew 6.0% YoY and 2.9% QoQ due to higher revenues.

b. Roaming charges and cost of international long distance calls (IR and IDD) includes costs paid to roaming partners, CAT Telecom PLC (CAT), and TOT PLC (TOT). For Q307, roaming charges and IDD costs grew 13.4% YoY but declined 13.3% QoQ.

c. Other operating costs increased 35.7% YoY and 84.9% QoQ due to higher number of cell sites and a one-off expense related to repair & maintenance of cell sites.

Cost of starter kits and telephone sets grew 8.4% YoY and 1.8% QoQ.

SG&A
SG&A for Q307 amounted to THB 2.7 billion, a growth of 24.6% YoY and 21.6% QoQ, and mainly comprised:

1. Selling and marketing expenses increased 4.2% YoY and 3.7% QoQ, and accounted for 4.8% of revenues, a slight increase from 4.6% in Q207 but dropped from 6.1% in Q306 due to higher revenue base. Excluding IC, the ratio stood at 6.1%, slightly higher than 6.0% in Q207.

2. General administrative expenses increased 35.7% YoY and 30.2% QoQ due mainly to a one-time charge relating to termination of a service provider agreement in order to save future operating expense. In proportion to revenues, general administrative expenses were 9.7% in Q307, rising from 7.5% in Q207 but largely at the same level as in Q306. Excluding IC, the ratio stood at 12.4% in Q307 and 9.8% in Q207.

3. Provision for doubtful accounts was approximately 5.0% of post-paid revenue, higher than the corresponding figure of 4.0% in Q207.

4. Depreciation and amortization declined 6.4% YoY and 4.6% QoQ.

EBITDA and Net Profit

EBITDA in Q307 amounted to THB 4,563 million, an increase of 3.5% YoY but a decline of 2.5% QoQ. The decline was mainly as a result of the one-time charge relating to the termination of a service provider agreement. The EBITDA margin dropped to 27.7% from 28.7% in Q207. Excluding IEC one-time charge, EBITDA margin improved to 29.4%, 1.7pp higher than Q207 due to the significant reduction in interconnect costs.

Net profit for the period was THB 1,362 million, a 2.2% increase from Q207 and 13.6% from Q306. Excluding the one-time charge, net profit increased 30.0% YoY and 17.0% QoQ.

Financial Summary - Balance Sheet and Cash flow

(THBmillion)
Q307
Q207
%QoQ
Q306
%YoY
Cash and cash equivalent

11,343

7,028

61.4%

9,466

19.8%

Current assets

20,810

16,108

29.2%

19,215

8.3%

Non-current assets

86,241

85,674

0.7%

82,429

4.6%

Total assets

107,051

101,781

5.2%

101,644

5.3%

Current liabilities

31,856

23,998

32.8%

31,542

1.0%

Non-current liabilities

24,876

30,372

-18.1%

29,951

-16.9%

Total liabilities

56,732

54,369

4.4%

61,493

-7.7%

Shareholders' equities

50,318

47,412

6.1%

40,151

25.3%

Total liabilities and shareholders' equities

107,051

101,781

5.2%

101,644

5.3%

Assets
At the end of Q307, total assets were THB 107.1 billion, up 5.3% YoY and 5.2% QoQ due mainly to the increase in cash reserved for interconnection payment, the proceeds from IPO and cash from operation.

Liabilities
At the end of Q307, total liabilities were THB 56.7 billion, down 7.7% YoY owing to the reduction in interest bearing debt but up 4.4% QoQ because of the accumulation of IC payable.

Shareholders' Equities
At the end of Q307, total shareholders' equities were THB 50.3 billion, up 25.3% YoY and 6.1% QoQ.

Cash Flow
During Q307, DTAC generated THB 6.5 billion of net cash from operating activities and used THB 2.1 billion for investing activities, mainly on network coverage expansion. At the end of Q307, cash and cash equivalent was THB 11,343 million, an increase of 19.8% YoY and 61.4% QoQ and 19.8% YoY.

Financial Summary - Financial Ratios

Q307
Q207
Q306
Net debt to Equity
0.5
0.6
0.8
Net debt to EBITDA
1.3
1.6
1.9
Interest Coverage Ratio
7.4
7.2
5.3
FFO to Total Debt (%)
57.7
47.4
33.5

Key financial ratios strengthened and were in line with DTAC's target leverage ratios.

Outlook for 2007
By the end of 2007, the penetration rate is expected to be at approximately 80% of total population and yearly net additional subscriber for the total market is expected to reach an all time high level of 10-12 millions. DTAC is on track to take at least the same number of net subscribers as last year. The prepaid segment will drive the subscriber growth while the focus in the post-paid segment will be on quality of subscriber.

DTAC will continue to expand its network coverage, strengthen its brand image, and continually improve its service in order to meet full year target. The guidance for year end 2007 is as follows; (1) underlying service revenues growth of 5 - 10%, (2) EBITDA margin of 28-30%, and (3) CAPEX of THB 12 billion.

Appendix i: Q207 MOU and ARPU with and without IC

MOU
With IC
Without IC
ARPU
With IC
Without IC
Post-paid
646
516
Post-paid
812
682
Prepaid
362
274
Prepaid
306
218
Blended
406
312
Blended
384
290

Appendix ii: Q307 MOU and ARPU with and without IC

MOU
With IC
Without IC
ARPU
With IC
Without IC
Post-paid
648
520
Post-paid
793
666
Prepaid
326
248
Prepaid
290
212
Blended
372
287
Blended
363
277

Appendix iii: Breakdown of figures

SERVICE REVENUE
Q306
Q406
Q107
Q207
Q307
Post-paid airtime revenue
28%
28%
22%
21%
20%
Prepaid airtime revenue
53%
53%
40%
41%
42%
Value added service revenue
9%
9%
8%
8%
8%
International Roaming
5%
5%
4%
3%
3%
Others
6%
6%
5%
4%
4%
Interconnection revenue
0%
0%
20%
24%
23%

 

COST OF SERVICES
Q306
Q406
Q107
Q207
Q307
Revenue sharing
26%
36%
26%
24%
27%
Amortization of deferred rights
22%
22%
16%
16%
17%
Access charge
32%
15%
0%
0%
0%
Net interconnection charge - TOT
0%
5%
9%
3%
2%
Interconnection charge - AIS & True Move
0%
0%
34%
44%
38%
Others
20%
22%
15%
13%
17%

 

SG&A
Q306
Q406
Q107
Q207
Q307
General administration expenses
54%
48%
51%
54%
58%
Depreciation and amortization
8%
8%
7%
8%
6%
Selling and marketing expenses
34%
42%
34%
34%
29%
Provision for doubtful accounts
4%
2%
8%
4%
7%

Appendix iv: DTAC Promotions in Q307

Post-paid

Launch date
Product name
Fixed payment/mth
Tariff Summary
Conditions
Promotion Ended
Validity Period
05-Sep-07
Maximize 1299 bt
1,299
3bt/call call value 1,299 bt
month 1-12 : Min 1-30 : 3bt/call , Min 31up : 1bt/min 24 hrs
31-Oct-07
12 billing cycles
01-Sep-07
WoW Sood Sood
199
1.50bt/min call value 199 bt
month 1-12 : 1.50 bt/min all network
31-Oct-07
12 billing cycles
01-Sep-07
ZAD free call 5 no. II
299
3/3/0.25
For 5 Special number free call (on dtac network), M1-60 Free M61up 1bt/min. For other number 3bt/min for 1st and 2nd min and 0.25 bt/min onwards.
30-Sep-07
6 Cycle Billings
01-Sep-07
ZAD Buffet 199 DTAC Free per hr
199
2/1 (off net)
month1-6 : 5.00-17.00 : Min 1-60 Free call onnet ,min 61up 1bt/min out of special period 2/0.25 , offnet 2/1 @ 24hrs.
31-Oct-07
6 Cycle Billings
01-Sep-07
ZAD 2/0.50 DTAC network
299
2/0.50(onnet) 3/0.50(offnet) value 299 bt
month1-3 : onnet 2/0.50 ,offnet 3/0.50 month 4-12 : 3/1 all network
31-Oct-07
12 billing cycles
10-Aug-07
WoW 303 Free call DTAC 100 bt
199
2.50bt/min call value 199 bt
month1-6 : 8.00-20.00 all net Min1-3 : 2.50bt/min , Min4-30: Free (Call more than 3hrs : 2.50 bt/ min ) Out of special period : 2.50/1 month 7-12 : 2.50/1
30-Sep-07
12 billing cycles
16-Jul-07
WoW 303
199
2.50bt/min call value 199 bt
month1-6 : 8.00-20.00 all net Min1-3 : 2.50bt/min , Min4-30: Free (Call more than 3hrs : 2.50 bt/ min ) Out of special period : 2.50/1 month 7-12 : 2.50/1
31-Oct-07
12 billing cycles
01-Jul-07
ZAD Buffet Don Jung Jung

139

199

2/1 (off net)
month 1-3 : Buffet 139 bt , On net : During 5:00 - 17:00 free call (Max 60 mins), exceed 60 mins : 1bt/min ,other time 2/0.50 / Offnet : 2/1 @ 24 hr month 4-12 : Buffet 199 bt On net : During 5:00 - 17:00 free call (Max 60 mins), exceed 60 mins : 1bt/min ,other time 2/0.5 / Offnet : 2/1 @ 24 hr.
31-Oct-07
6 billing cycles

 

Prepaid

Launch date
Campaign
Tariff Summary
Conditions
Promotion Ended
Validity Period
01-Aug-07
Happy onnet 50st/offnet1bt

2/0.50 (on net),

2/2/1 (off net)

2/0.50 (on net), 2/2/1 (off net)
31-Aug-07
31-Oct-07
12-Jul-07
Dfamily 1.50 bt /min Received call get money

1.50 bt/min (onnet)

2bt/min (offnet )

get 1bt/min when recieved callfrom Dtac1Min (Max 5 bt/call and max200bt/refill period)
31-Jul-07
30-Sep-07
01-Jul-07
Happy 50 satang
2/0.50 (on net) 2/1 (off net, other no.)
Bonus free call on net 300 bt (50 bt * 6)
31-Jul-07
30-Sep-07

Attachments

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