MD&A Q313 Highlights On 23 July 2013, we successfully launched the new 3G 2.1GHz network, together with our existing 2G and 3G 850MHz networks, enabling us to serve our customers with better customer experience on 3 smart networks under dtac TriNet s brand umbrella with combined nationwide network coverage. As of Q313, we have 3.7 million or 13.4% of total subscribers on 3G 2.1GHz network and on schedule to achieve our target of 10 million subscribers by end of 2013. 3G 2.1GHz service coverage has been extended to major cities in 77 provinces, with a target to achieve at least 50% population coverage by 2013. In Q313, total subscribers reached 27.5 million, adding a total of 239,424 net additional subscribers. Blended Minutes of Use or MOU (excluding IC) was slightly lower 1.5% YoY due to changes in customers behaviors toward more data usage but slightly higher 1.1% QoQ mainly driven by higher usages from prepaid segment due to more attractive packages in response to competition in Q313. Blended Average Revenue Per User or ARPU (excluding interconnection or IC) slightly decreased 1.0% YoY and 2.3% QoQ which were in line with expectations due to lower average rate per minute. Service revenues (excluding IC) rose 10.2% YoY supported by healthy mobile Internet growth, maintaining above 80% YoY for 7 consecutive quarters; however, it slightly declined 1.9% QoQ under Operational Summary In Q313, dtac had total subscribers of 27.5 million with ability to sustain net additional subscribers of 239,424 despite softer economic developments and increasingly competitive market in this quarter. Blended ARPU (excluding IC) slightly decreased 2.3% QoQ and 1.0% YoY due to the launch of competitive packages in the period. Q313 blended MOU (excluding IC) slightly increased 1.1% QoQ but slightly decreased 1.5% YoY mainly driven by prepaid segment. At the end of Q313, data users stood at 10.5 million, reaching 38.2% of total subscribers and growing healthily at 11.1% QoQ and significantly at 46.2% YoY. the pressure of softer economic developments and increased intensity of market competition in Q313. Sales of handsets and starter kits increased 30.2% YoY from continuous popularity of smartphones but declined 32.4% QoQ due to postponement of consumer consumptions due to economic factors as well as the expectation of iphone 5s and iphone 5c launched in Q413. Total revenues slightly increased 0.9% YoY but was lower mainly driven by the IC rate reduction, starting from 1 July 2013, by 12.9% QoQ. EBITDA in Q313 stood at THB 7.2 billion increasing 7.5% YoY but decreasing 4.2% QoQ, in line with service revenue with higher selling and marketing expenses to promote dtac TriNet. EBITDA margin improved by 2pp YoY and 3pps from the last quarter mainly due to the IC rate reduction and better handset margin despite pressure from softer macroeconomics and increased market competition. Net profit at THB 2.7 billion, 4.7% YoY lower mainly driven by higher non-cash amortization and depreciation expenses from 3G 2.1GHz investment, including the amortization of 3G 2.1GHz license fee starting in this quarter. In Q313, we revised our revenue growth guidance from the rate of high single digit to be within 5-7% range and maintained guidance of EBITDA margin at 30%-31% and CAPEX of THB 14.5 billion. 3G subscribers grew to 4.2 million increasing from 1.6 million in Q312 and 3.4 million in Q213, implying growth of 21.5% QoQ and 163.8% YoY. Smartphone penetration significantly increased to 29.1% in Q313 from 19.9% in Q312 and 26.0% in Q213 (the smartphone numbers in Q213 had been restated reflecting the fact that we was able to better identify mobile phones operating systems detected on our network) as a result of attractive and affordable dtac TriNet phones launched in late Q213 together with the overall market push. dtac will continue our effort to encourage higher adoption of 3G smartphone handset in order to support faster customer porting and better user experience on 3G 2.1GHz network. Total active subscribers (in thousand) Q212 Q312 Q412 Q113 Q213 Q313 Postpaid 2,502 2,586 2,816 3,022 3,222 3,334 Prepaid 21,808 21,982 23,502 23,587 24,009 24,137 Total 24,310 24,568 26,318 26,609 27,231 27,471 Net additional subscribers (in thousand) Q212 Q312 Q412 Q113 Q213 Q313 Postpaid 51 84 230 206 201 112 Prepaid 128 174 1,520 85 422 128 Total 179 258 1,750 290 623 239 1
MOU (minutes/sub/month) Q212 Q312 Q412 Q113 Q213 Q313 Postpaid 486 492 484 464 415 417 Prepaid 241 248 252 251 243 244 Blended 265 273 276 274 262 264 Postpaid w/o IC 365 371 366 350 312 311 Prepaid w/o IC 197 207 211 213 205 208 Blended w/o IC 214 223 227 227 217 220 ARPU (THB/sub/month) Q212 Q312 Q412 Q113 Q213 Q313 Postpaid 714 710 727 727 710 656 Prepaid 212 210 210 201 202 176 Blended 262 260 263 258 259 231 Postpaid w/o IC 592 589 607 611 605 603 Prepaid w/o IC 169 168 168 162 164 157 Blended w/o IC 211 211 214 210 214 209 Financial Summary Operating Revenues Total Revenues for Q313 amounted to THB 21.4 billion, decreasing 12.9% QoQ but slightly increasing 0.9% YoY as a result of IC rate cut. Service revenue excluding IC slightly dropped 1.9% QoQ due to softer economy and seasonality effect; however, it grew strongly 10.2% YoY mainly driven by non-voice revenue. Revenue from Voice Service in Q313 decreased 7.3% QoQ and 4.4% YoY to THB 10.2 billion. Postpaid voice decreased 8.4% QoQ due to behavioral change towards data but increased 3.3% YoY as high spending Prepaid converted to Postpaid. Prepaid voice revenue declined 6.8% QoQ and 7.0% YoY. Contribution from voice revenue to service revenue without IC has become smaller from 67.3% in Q312 to 58.4% in Q313. Revenue from Value-Added Service (VAS) continuously sustained its growth in Q313 at 54.5% YoY and 10.3% QoQ to THB 5.9 billion. The major contributor in VAS revenue remained mobile Internet usage on the back of continued popularity in smartphones and social applications, and our quality combined 3G service on both 850MHz and 2.1GHz. dtac continued its effort to encourage new data users and to increase data usage through providing attractive promotions and improving network quality. Contribution from VAS revenue to service revenue excluding IC has increased from 24.3% in Q312 to 34.1% in Q313. This trend shall continue for the rest of the year. Revenue from International Roaming Service (IR) in Q313 decreased 9.2% QoQ and 19.8% YoY due to softer seasonality of tourism especially in inbound and intense roaming competition. For Q313, IR revenue stood at THB 472 million, contributing 2.7% to service revenue excluding IC in Q313 which was smaller than the contribution of 3.7% in Q312. Interconnection (IC) Revenue for Q313 at THB 1.7 billion significantly decreased 51.0% QoQ and 52.3% YoY as a result of IC rate cut from approximately THB 1.00 to THB 0.45 per minute which has been effective bilaterally with other telecom providers since 1 July 2013. Other Service Revenues, comprising mainly of revenues from IDD services and other fees, in Q313 decreased 4.5% QoQ but increased 12.6% YoY, mainly driven by IDD services. Revenue from Sales of Handsets and Starter Kits for Q313 at THB 2.2 billion increased 30.2% YoY on the back of continued popularity on smartphones but decreased 31.7% QoQ as an effect of waiting demand for iphone 5s and 5c to be launched in Q413. Operating Costs Total operating costs, decreasing 17.9% QoQ and 1.6% YoY mainly from lower IC cost, stood at THB 14.3 billion. Regulatory Costs, mainly comprising revenue share to CAT and numbering fee and USO fee to the NBTC and starting to include license fee and more USO fee to the NBTC in this period, in Q313 stood at THB 5.6 billion, increasing 6.9% YoY from service revenue growth and larger subscriber base but decreasing 2.2% QoQ. Regulatory costs to service revenue excluding IC slightly decreased from 33.0% in Q312 to 32.1% in Q313. Network OPEX in Q313 at THB 1.0 billion increased 6.0% QoQ and 6.2% YoY mainly from additional 3G 2.1GHz network. However, network OPEX to service revenue excluding IC slightly decreased from 6.2% in Q312 to 6.0% in Q313 since service revenue excluding IC grew faster. Interconnection (IC) Cost for Q313, amounting to THB 1.6 billion, decreased 51.8% QoQ and 52.6% YoY, same effect from IC rate cut as IC revenue. Net IC for the period was THB 99 million, decreasing from THB 186 million in Q312 and THB 150 million in Q213. Other Operating Costs of Services, consisting of prepaid card production costs and commissions, IR and IDD costs, network insurance costs and others, in Q313 stood at THB 868 million decreasing 22.7% QoQ and 10.2% YoY due mainly to lower prepaid card production and lower IDD costs. These costs to service revenue excluding IC decreased from 6.1% in Q312 to 5.0% in Q313. Depreciation and Amortization (D&A) of Operating Costs of Services for Q313 increased 1.5% QoQ and 34.4% YoY from the completion of both 2G network modernization and 3G 850MHz projects and additional 3G 2.1GHz network. Moreover, 2.1GHz license started to be amortized in this quarter. As a result, D&A of operating costs of services increased to 17.7% in Q313 from 14.5% in Q312. 2
Cost of Handsets and Starter Kits for Q313 decreased 34.3% QoQ but increased 27.5% YoY in line with the corresponding revenue. Handsets and starter kits margin was 5.7% in Q313, significantly increasing from 3.7% in Q312 and 2.0% in Q213 as the handset margin jumped to 5.8% from 1.9% in Q312 and 1.7% in Q213 which was mainly contributed by sales incentives from device vendors. We include the fee to BrightStar, world leading device service provider, in the cost of handsets. The handset margin is believed to remain low due to intense market competition and continuous efforts to encourage smartphones by all operators. Selling, General and Administrative Expenses (SG&A) SG&A for Q313 at THB 3.5 billion increased 16.0% QoQ and 22.1% YoY mainly from higher selling and marketing expenses. Selling and Marketing Expenses for Q313 at THB 1.3 billion significantly increased 30.3% QoQ and 116.3% YoY due to many activities to support dtac TriNet and to cope with more intense competition. In Q313, selling and marketing expenses rose to 7.5% to service revenue excluding IC, from 3.8% in Q312. We believe that selling and marketing activities will continue to be aggressive to respond with market competition. General Administrative Expenses in Q313 stood at THB 1.6 billion increasing 16.3% QoQ as there was a positive one-time effect of the New Order Management system (NEO) write-off settlement in the previous quarter but deceasing 3.3% YoY as a result of operational efficiency. Their percentage to service revenue excluding IC stood at 9.2% in Q313, decreasing from 10.4% in Q312. Provision for Bad Debt in Q313 at THB 136 million decreased 24.8% QoQ but increased 152.9% YoY as the level of accounts receivable was trending back to normal after being abnormally increased and impacted by NEO. Provision for postpaid bad debt for Q313, increasing from THB 49 million in Q312 but decreasing from THB 111 million in Q213, stood at THB 98 million which was 1.8% of postpaid revenue, lower than our comfortable level of 2.0%. Depreciation and Amortization of SG&A for Q313 decreased 1.0% QoQ and 19.9% YoY as some assets already reached the end of their useful lives. D&A of SG&A to service revenue excluding IC stood at 2.5% in Q313, decreasing from 3.4% in Q312. EBITDA and Net Profit EBITDA in Q313 was THB 7.2 billion, decreasing 4.2% QoQ from softer total revenue and higher selling and marketing expenses but growing 7.5% YoY from better cost management. EBITDA margin for Q313 stood at 33.4%, increasing from 31.4% in Q312 and 30.4% in Q213, due mainly to IC rate reduction and better handset margin. Net profit for Q313 amounted to THB 2.7 billion, decreasing 6.5% QoQ and 4.7% YoY, detracting effect on EBITDA growth by higher depreciation and amortization expenses and foreign exchange loss due to exchange rate fluctuations in the period. Balance Sheet and Key Financial Information Total Assets at the end of Q313 stood at THB 111.0 billion, increasing from THB 102.6 billion at the end of Q213 mainly from the increase in cash and cash equivalents. Interest-Bearing Debt at the end of Q313 was THB 28.6 billion increasing from THB 23.6 billion at the end of Q213 from THB 5.0 billion debenture issued in the period. Operating Cash Flow (defined as EBITDA - CAPEX) for Q313 was THB 3.1 billion, decreasing 32.8% QoQ from lower EBITDA and higher CAPEX than Q213. CAPEX for Q313 stood at THB 4.1 billion, increasing from THB 2.9 billion in Q213. We will continue to invest to achieve our 3G 2.1GHz population coverage at 55% by year end. Statement of financial position (THB million) Q213 Q313 Cash and cash equivalent 9,520 17,800 Other current assets 10,992 10,878 Non-current assets 82,108 82,321 Total assets 102,620 110,999 Current liabilities 41,940 47,498 Non-current liabilities 26,416 29,514 Total liabilities 68,355 77,012 Shareholders equity 34,265 33,987 Total liabilities and shareholders equity 102,620 110,999 3
Income statement (THB million) Q312 Q213 Q313 %QoQ %YoY Voice 10,625 10,956 10,161-7.3% -4.4% Postpaid 2,702 3,046 2,791-8.4% 3.3% Prepaid 7,923 7,910 7,371-6.8% -7.0% VAS 3,835 5,374 5,926 10.3% 54.5% IR 589 520 472-9.2% -19.8% Others 737 868 830-4.5% 12.6% Service revenues ex. IC 15,786 17,718 17,389-1.9% 10.2% IC revenue 3,602 3,509 1,719-51.0% -52.3% Service revenues 19,388 21,227 19,108-10.0% -1.4% Handsets and starter kits sales 1,722 3,282 2,242-31.7% 30.2% Other operating income 67 40 23-42.9% -66.0% Total revenues 21,177 24,549 21,373-12.9% 0.9% Cost of services (12,868) (14,192) (12,181) -14.2% -5.3% Regulatory (5,214) (5,696) (5,574) -2.2% 6.9% Network (984) (986) (1,045) 6.0% 6.2% IC (3,417) (3,359) (1,620) -51.8% -52.6% Others (966) (1,123) (868) -22.7% -10.2% Depreciation and amortization (2,288) (3,029) (3,075) 1.5% 34.4% Cost of handset and starter kits (1,658) (3,215) (2,114) -34.3% 27.5% Total costs (14,526) (17,408) (14,294) -17.9% -1.6% Gross profit 6,650 7,141 7,079-0.9% 6.4% SG&A (2,842) (2,990) (3,469) 16.0% 22.1% Selling & marketing expenses (606) (1,006) (1,311) 30.3% 116.3% General administrative expenses (1,649) (1,372) (1,595) 16.3% -3.3% Provision for bad debt (54) (181) (136) -24.8% 152.9% Depreciation and amortization (533) (431) (427) -1.0% -19.9% Gain/Loss on foreign exchange 85 (135) (53) 60.8% -162.4% Interest income 105 54 47-12.2% -55.1% Other income 21 53 38-27.6% 84.5% EBIT 4,019 4,124 3,643-11.7% -9.4% Financial cost (242) (342) (212) -37.8% -12.4% Corporate income tax (896) (846) (684) -19.2% -23.7% Net profit for the period 2,881 2,936 2,747-6.5% -4.7% EBITDA (THB million) Q312 Q213 Q313 %QoQ %YoY Net profit for the period 2,881 2,936 2,747-6.5% -4.7% Financial costs 242 342 212-37.8% -12.4% Corporate income tax 896 846 684-19.2% -23.7% Depreciation expense 315 330 482 46.1% 53.0% Amortization expense 2,506 3,130 3,020-3.5% 20.5% Interest income (105) (54) (47) 12.2% 55.1% Loss (gain) on foreign exchange (85) 135 53-60.8% 162.4% Loss (gain) on disposal of fixed assets and writeoff other intangible assets - (197) 1 100.5% N/A EBITDA 6,651 7,467 7,151-4.2% 7.5% 4
Outlook 2013 dtac s investment plan for 2013-2015 to achieve 80% population coverage on 3G 2.1GHz maintains at THB 34.0 billion. This investment shall be financed mainly by debt since our target ratio of net debt to EBITDA is approximately 2 times. Our dividend policy remains to pay minimum 80% of the company s net profit with an aim to pay quarterly. We are confident that our quality 3 combined networks, existing 2G modernized network, nationwide 3G 850MHz network and recently launched 3G 2.1GHz, could provide the best customer experience. In addition to improving network quality, we are revamping our service outlets to better serve our customers which could well reflect our philosophy of customer centricity. In Q313, we decided to scope down our revenue guidance of high single digit growth to be within 5-7% range. The rationale was based on our expectations that the economic development would continue to be soft and competition would intensify in Q413. However, we are still optimistic with 2014. Therefore, our 2013 guidance is as following: 1) Revenue growth within 5-7% range (revised from high single digit) 2) EBITDA margin in the range of 30% to 31% (maintained) 3) CAPEX at THB 14.5 billion (maintained) CONTACT US: TOTAL ACCESS COMMUNICATION PLC. 319 Chamchuri Square, Phayathai Road, Pathumwan, Bangkok 10330 Investor Relations Tel: +662 202 8882 E-mail: IR@dtac.co.th Website: www.dtac.co.th Disclaimer Some statements made in this material are forward-looking statements with the relevant assumptions, which are subject to various risks and uncertainties. These include statements with respect to our corporate plans, strategies and beliefs and other statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as may, will, expect, anticipate, intend, estimate, continue plan or other similar words. The statements are based on our management s assumptions and beliefs in light of the information currently available to us. These assumptions involve risks and uncertainties which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Please note that the company and executives/staff do not control and cannot guarantee the relevance, timeliness, or accuracy of these statements. 5