MD&A Executive Summary The competition level in Q116 heightened after the auctions in Q415 with expiration of 900 MHz concession and changes in spectrum holdings among operators. Handset subsidies on prepaid and mobile number portability campaigns were launched to retain and attract customers, particularly those affected by the pending cessation of 2G- 900MHz network. Furthermore, new postpaid price plans offering a very large monthly data allowance were introduced along with the race to roll out 4G networks nationwide. dtac has a strong spectrum portfolio of 50MHz bandwidth, offering complete 2G/3G/4G services to customers. In selected areas, we will allocate additional 5MHz to provide 4G service on 20MHz bandwidth of 1800MHz frequency band compared with industry standard 15 MHz to enhance customer experience on our 4G network. In the Thai market, we are the only operator who can provide 20MHz bandwidth of 4G service in a single frequency band, and customers with any 4G-enabled device are able to share this experience. With an aim to maintain revenue market share, we responded to industry dynamics by improving network quality and maintaining value-for-money position. Significant progress was made in 4G network rollout, with 4G-1800MHz available in 50 provinces and 4G-2.1GHz available in every province throughout Thailand, serving 2.9 million 4G subscribers by the end of the quarter, or 11% of the total subscriber base. Our 4G services are expected to be available in every district by the end of Q316. Along with the continued expansion of network, the perception of dtac network quality has also improved. In Q116, we strengthened the value-for-money position with new tariffs, including Love & Roll Super Non-Stop, for postpaid segment and prepaid topping packages. In addition, handset subsidy campaigns, such as Super Sales and Operational Summary In Q116, total subscribers increased to 25.5 million, a net addition of 225k subscribers from the previous quarter. The increase came from prepaid and postpaid net additional subscribers of 117k and 108k, respectively. Compared to Q115, the total subscriber base declined due to the prepaid registration requirement last year. Subscribers registered on 2.1GHz licensed network increased to 23.1 million, representing 91% of our total subscribers, an increase from 90% in Q415 and 83% in Q115. We launched new postpaid price plans in order to defend our value-for-money position and handset subsidy campaigns to acquire as well as retain subscribers. Higher CAPEX for expanding network coverage and densifying networks during the past year yielded better Internet Thank You for Being with Us, were launched to support acquisition and retention of subscribers. As a result, our subscriber base and smartphone penetration increased to 25.5 million and 63%, respectively. Intense competition put a pressure on potential data revenue growth, despite high demand for mobile Internet services. Service revenue excluding IC in Q116 dropped 2%YoY to THB 16,437 million due to decline in voice revenue, which was partially offset by data and IDD revenue growth. EBITDA decreased 0.9% YoY to THB 7,327 million due to higher operating expenses partly offset by lower device subsidies. However, EBITDA improved 8.7% QoQ mainly due to lower SG&A expenses. Net profit amounted to THB 1,256 million, declining 45%YoY due mainly to higher depreciation and amortization from network expansion. However, net profit increased 26% QoQ, driven by the higher EBITDA. We maintain the 2016 guidance despite lower service revenue excluding IC YoY and high EBITDA margin level in Q116. Service revenue excluding IC is expected to be in range of flat to slight increase from FY15. CAPEX spending is expected to be at the same level as the previous year, which was about THB 20 billion, and it will mainly be used for the expansion of 4G network and densification of 2.1GHz network. EBITDA margin is expected to be in the range of 27-31%, depending in large part on the amount of handset subsidies required. dtac currently has a strong spectrum portfolio. We will not bid for the 900MHz auction at this point in time. However, to ensure our sustainable growth, we have every intent on securing sufficient spectrum we need to serve growing data demand, in addition to existing 2.1GHz license, which will last until 2027. experience for subscribers. As a result, our data user penetration increased from 56% to 58% in Q415, and smartphone penetration increased from 61% to 63% in the previous quarter. Furthermore, our 4G user base increased from 2.3 million in Q415 to 2.9 million and 4G handset penetration rate reached 20%. Blended Average Revenue per User excluding IC (ARPU) was THB 217, an increase of 11%YoY, due to the lower prepaid subscriber base from the impact of prepaid registration last year, while ARPU decreased 1.3% QoQ. Blended Minutes of Use excluding IC (MOU) was 153 minutes, a decrease of 12% YoY and 9.8%QoQ, due to substitution effect from voice to data.
Active subscribers (in thousand) Q115 Q415 Q116 %QoQ %YoY Postpaid (under concession from CAT) 706 561 537-4.3% -24% Prepaid (under concession from CAT) 4,251 2,089 1,808-13% -57% Postpaid (under 2.1GHz license ) 3,298 3,763 3,895 3.5% 18% Prepaid (under 2.1GHz license ) 20,171 18,840 19,237 2.1% -4.6% Total 28,427 25,252 25,477 0.9% -10% Net additional subscribers (in thousand) Q115 Q415 Q116 %QoQ %YoY Postpaid 155 208 108-48% -31% Prepaid 263 192 117-39% -55% Total 419 400 225-44% -46% MOU (minutes/sub/month) Q115 Q415 Q116 %QoQ %YoY Postpaid 349 318 299-6.1% -14% Prepaid 195 192 173-10% -11% Blended 216 213 194-9.0% -10% Postpaid excluding IC 253 231 216-6.8% -15% Prepaid excluding IC 162 157 140-11% -13% Blended excluding IC 174 169 153-9.8% -12% ARPU (THB/sub/month) Q115 Q415 Q116 %QoQ %YoY Postpaid 582 542 531-2.1% -8.8% Prepaid 159 178 176-1.6% 10% Blended 215 238 234-1.4% 8.8% Postpaid excluding IC 553 519 512-1.3% -7.4% Prepaid excluding IC 141 162 159-2.0% 13% Blended excluding IC 195 220 217-1.3% 11% Financial Summary Revenues In Q116, total revenues amounted to THB 21,676 million, a decrease of 5.3%YoY, due to lower handset sales, declining voice revenue, and the reduction of the IC rate last year. QoQ, total revenue decreased 6.8%, mainly due to lower handset sales and voice revenue. Service revenues excluding IC amounted to THB 16,437 million, declining 2.0%YoY and 1.1% QoQ, mainly due to declining voice revenue partly offset by data revenue growth. Average daily service revenue was flat from previous quarter as the QoQ decline was from lower number of days in Q116. Furthermore, handset and starter kit revenues dropped YoY due to lower iphone sales and decreased QoQ due to new iphone models launched in Q415. Voice revenues amounted to THB 6,612 million, a decrease of 15%YoY and 6.7%QoQ, due to the substitution effect from voice to data after subscribers adopting smartphones. Data revenues amounted to THB 8,216 million, an increase of 10%YoY and 4%QoQ, driven by higher number of data users and increased usage. Demand for data service continued to grow strongly, but the data monetization challenge still remains. Data revenues represented 50% of service revenues excluding IC, up from 47.5% in Q415 and 44.5% in Q115. International Roaming (IR) revenues amounted to THB 392 million, an increase of 2.9%YoY and 13%QoQ, driven by inbound roaming. Other service revenues, mainly consisting of IDDs revenue and other service fees, amounted to THB 1,216 million and increased 3.2%YoY due to higher IDD revenues. QoQ, other service revenues decreased 6.2% from lower IDD revenues. Interconnection charge (IC) revenue amounted to THB 1,185 million, decreasing 27%YoY mainly due to the change of IC rate to THB 0.34 from THB 0.45 per minute starting from July 1, 2015. QoQ, IC revenues decreased 1.8%. Net IC was THB 63 million, compared to THB 37 million in Q415 and THB 86 million in Q115. Handsets and starter kits revenues amounted to THB 3,836 million, a decrease of 13%YoY and 27%QoQ. The YoY decrease was due to lower iphone sales, while the QoQ decrease came from higher iphone sales in Q415 when the new iphone model was launched. The net loss in handset and starter kits sales was THB 152 million, improved from the net loss of THB 789 million in Q115 when we had prepaid handset subsidy campaigns. The net loss in handsets and starter kits sales in Q116 increased from the net loss of THB 54 million in Q415. The margin on handsets and starter kit sales remained negative -4% due to continued handset subsidy campaigns in the postpaid segment. Costs of Services Costs of service excluding IC amounted to THB 10,193 million and increased 9%YoY, due to higher depreciation & amortization and network OPEX, partly offset by lower regulatory cost. QoQ, cost of service excluding IC decreased 1.1% due to lower other operation cost and network OPEX.
Regulatory Costs amounted to THB 2,916 million, declining 4.9%YoY, due to migration of subscribers to 2.1GHz licensed network. However, regulatory costs increased 0.7%QoQ. Regulatory costs as a percentage of service revenue excluding IC, were 17.7%, compared to 17.4% in Q415 and 18.3% in Q115. Network OPEX amounted to THB 1,292 million, increasing 3.7%YoY, due to network expansion, being lower QoQ. The total number of 4G/3G base stations was 35.5k nodes, an increase of 12.9k base stations from Q115. During Q116, we expanded 4G-1800MHz network to cover 50 provinces, while our 4G-2.1GHz network became available in every province of Thailand. We plan to have 4G network coverage in every district throughout Thailand by the end of Q316. Other Operating Costs of Services amounted to THB 958 million, a decrease of 7.7%YoY and 17%QoQ. The YoY decrease came mainly from lower IP transit costs, while the QoQ decrease was due to lower IDD costs. Depreciation and Amortization (D&A) of Costs of Service amounted to THB 5,027 million, an increase of 26%YoY and 3.4%QoQ, due to network investments. Selling, General and Administrative Expenses (SG&A) SG&A Expenses amounted to THB 4,511 million, increasing 20%YoY but declining 8.4%QoQ. Selling and Marketing (S&M) Expenses amounted to THB 1,825 million, increasing 24%YoY due to higher advertising expenses, implementation of cluster based operating model, and support of selling activities. QoQ, S&M expenses decreased 12%, mainly due to high seasonality S&M spending in Q4. S&M expenses as a percentage to total revenues, were 8.4%, compared to 8.9% in Q415 and 6.4% in Q115. General Administrative Expenses amounted to THB 2,226 million, increasing 28%YoY mainly due to IT related expenses, implementation of cluster operating model, and impairment of assets. General Administrative Expenses decreased 2.1%QoQ due to change in bonus accrual scheme in Q116 and one-time provision of doubtful account made in Q415. Provision for Bad Debt amounted to THB 191 million, decreasing 8.7%YoY and 37%QoQ, due to higher provision of bad debt in the previous quarter following the expiration of prepaid registration in Q315. EBITDA and Net Profit EBITDA amounted to THB 7,327 million, an increase of 8.7%QoQ, due to lower operating expenses. However, EBITDA decreased 0.9%YoY due to lower service revenues and higher operating expenses, partly offset by lower regulatory cost and handset subsidies. The EBITDA margin stood at 33.8%, improving from 29% in Q415, mainly due to the lower proportion of handset sales and SG&A expenses. The EBITDA margin improved from 32.3% in Q115, mainly due to lower handset subsidies, partly offset by higher SG&A expenses. Excluding the handsets and starter kits, the EBITDA margin was 41.9%, compared to 37.8% in Q415 and 44.3% in Q115. Net Profit amounted to THB 1,256 million, declining 45%YoY, due to lower EBITDA and higher D&A charges and finance cost. QoQ, net profit increased 26% due to higher EBITDA partially offset by higher D&A charges. Balance Sheet and Key Financial Information As of Q116, total assets amounted to THB 114,933 million, increasing from THB 110,965 million at the end of last year. The increase was mainly due to higher cash level. Cash and cash equivalents amounted to THB 17,045 million, an increase from THB 10,121 million in Q415, while interestbearing debt amounted to THB 49,000 million, an increase from THB 48,000 million in Q415. Despite of higher interestbearing debt, net debt to EBITDA landed at 1.1x a decrease from 1.4x in the previous quarter due to higher EBITDA and cash level. Operating Cash Flow (defined as EBITDA - CAPEX) amounted to 2,630 million, increasing from THB 1,871 million in Q115, due to lower CAPEX in this quarter. CAPEX was THB 4,697 million, representing 22% of total revenue. Statement of financial position (THB million) Q415 Q116 Cash and cash equivalent 10,121 17,045 Other current assets 16,074 13,779 Non-current assets 84,771 84,109 Total assets 110,965 114,933 Current liabilities 49,843 42,758 Non-current liabilities 33,899 44,927 Total liabilities 83,742 87,685 Total shareholders equity 27,224 27,248 Total liabilities and shareholders equity 110,965 114,933 Cash flows statement (THB million) Q115 Q116 Cash flows from operating activities 7,603 10,638 Cash paid for interest expenses and tax (757) (790) Net cash flows from operating activities 6,846 9,848 Net cash flows from investing activities (4,425) (3,924) Net cash receipt/(repayment) - loan & debenture (1,500) 1,000 Dividend paid - - Net cash flows from financing activities (1,500) 1,000 Net change in cash & cash equivalent Increase/(decrease) 921 6,924 Beginning cash & cash equivalent 5,823 10,121 Ending cash & cash equivalent 6,744 17,045
Income statement (THB million) Q115 Q415 Q116 %QoQ %YoY Voice 7,754 7,084 6,612-6.7% -15% Data 7,456 7,899 8,216 4.0% 10% IR 381 347 392 13% 2.9% Others 1,178 1,296 1,216-6.2% 3.2% Service revenues ex. IC 16,768 16,627 16,437-1.1% -2.0% IC revenue 1,631 1,206 1,185-1.8% -27% Service revenues 18,400 17,834 17,621-1.2% -4.2% Handsets and starter kits sales 4,425 5,280 3,836-27% -13% Other operating income 59 134 218 62% 268% Total revenues 22,884 23,249 21,676-6.8% -5.3% Costs of services (10,893) (11,475) (11,314) -1.4% 3.9% Regulatory (3,066) (2,897) (2,916) 0.7% -4.9% Network (1,245) (1,391) (1,292) -7.1% 3.7% IC (1,545) (1,170) (1,121) -4.1% -27% Others ** (1,037) (1,157) (958) -17% -7.7% Depreciation and Amortization (3,999) (4,861) (5,027) 3.4% 26% Costs of handsets and starter kits (5,214) (5,335) (3,989) -25% -24% Total costs (16,108) (16,810) (15,303) -9.0% -5.0% Gross profit 6,776 6,439 6,373-1.0% -6.0% SG&A (3,749) (4,926) (4,511) -8.4% 20% Selling & Marketing expenses ** (1,468) (2,072) (1,825) -12% 24% General administrative expenses (1,741) (2,274) (2,226) -2.1% 28% Provision for bad debt (210) (303) (191) -37% -8.7% Depreciation and Amortization (330) (276) (269) -2.5% -18% Gain/(Loss) on foreign exchange 199 58 73 25% -63% Interest income 15 55 34-37% 131% Other income & share of profit from investment in associated company (0) 26 20-23% 53,171% EBIT 3,241 1,653 1,989 20% -39% Finance cost (315) (372) (404) 8.8% 28% Income tax expenses (634) (283) (329) 16% -48% Net profit attributable to equity holder 2,292 998 1,256 26% -45% (**) Reclassification between other operating costs of service and selling & marketing expenses. No impact to EBITDA and net profit EBITDA (THB million) Q115 Q415 Q116 %QoQ %YoY Net profit for the period 2,291 998 1,256 26% -45% Finance costs 315 372 404 8.8% 28% Income tax expenses 634 283 329 16% -48% Depreciation & Amortization 4,331 5,137 5,296 3.1% 22% Other items (175) (50) 42 184% 124% EBITDA 7,397 6,740 7,327 8.7% -0.9% EBITDA margin 32.3% 29.0% 33.8% EBITDA margin-excluding handsets and starter kits 44.3% 37.8% 41.9% Debt repayment schedule (THB million) at end of Q116 Loan Debenture In 2016-5,000 In 2017 - - In 2018-2,000 In 2019 12,600 - In 2020 12,600 4,000 In 2021-2027 3,800 9,000 Interest bearing debt at end of Q116 29,000 20,000 Key Financial Ratio Q115 Q415 Q116 Return on Equity (%) 31% 21% 18% Return on Asset (%) 9% 5% 4% Interest Coverage Ratio (times) 11x 7x 6x Net debt to EBITDA (times) 0.8 1.4 1.1 CAPEX to Total Revenue (%) 24% 17% 22%
Outlook 2016 Competition among operators in the market is expected to remain intense due to the race for leading 4G position after the spectrum auctions in Q415. Operators aggressively roll out 4G networks and engage in handset subsidy campaigns to acquire and retain subscribers. We respond to the challenging industry dynamics with improving network quality and attractive offers. We utilize our strong spectrum portfolio of 50MHz bandwidth to provide complete mobile telecom services with 4G, 3G and 2G technologies. Our 4G network is expected to be available in every district throughout Thailand by the end of Q316, in addition to existing nationwide 3G/2G networks. In selected areas, we will deploy 4G service with 20MHz bandwidth on a single contiguous 1800MHz frequency band, reaching a total of 25 MHz 4G bandwidth with our 2.1 GHz spectrum. In other areas, we serve 4G customers with 20MHz bandwidth, comprising 15MHz on 1800MHz and 5MHz on 2.1GHz. We maintain our 2016 guidance despite lower service revenue excluding IC YoY and higher EBITDA margin in Q116. Service revenue excluding IC is expected to be in the range of flat to slight increase from FY15. We will defend our position and be competitive on price plans and handset offerings, and strengthen our value-for-money position. CAPEX in FY16 is expected to be at the same level as the previous year, which was about THB 20 billion. With competitive 4G network and attractive 4G device bundle offerings, we aim to have 4.5 million 4G users by the end of 2016. Furthermore, EBITDA margin guidance in FY16 is maintained in the range of 27-31%, depending in large part on the level of handset subsidies required to respond to market competition in coming quarters. 2016 Guidance: Service revenue excluding IC growth: in the range of flat to slight increase from FY15 EBITDA margin: in the range of 27-31% CAPEX: same level as previous year 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.