MANAGEMENT DISCUSSION AND ANALYSIS F Y 2009 M D & A. Executive Summary

Transcription

1 MANAGEMENT DISCUSSION AND ANALYSIS F Y 2009 M D & A CONTENTS I EXECUTIVE SUMMARY We closed the year 2009 strongly and generated an operating free cash flow of THB 14.3 billion, well ahead of the revised target of THB 13.0 billion. II OPERATION SUMMARY Positive development for both MOU and ARPU was a result of our focus on quality of subscribers and usage stimulation among existing subscriber base. III FINANCIAL SUMMARY Full year service revenues excl. IC increased slightly amid challenging economic and political environment. In addition, EBITDA margin improved as cost efficiency programs helped alleviate the increase in rental expenses from HQ relocation and unfavorable net IC development. IV 2010 OUTLOOK We ll continue to focus on quality of subscriber, and put more attention on smartphones and nonvoice revenues. Furthermore, efficiency enhancement programs will also be carried on from 2009 to further improve our cost base. Executive Summary Record high free cash flow We finished 2009 on a high note. Service revenue excl. IC in grew 4.5 QoQ and 5.7 from higher domestic revenues and recovery in international roaming and IDD businesses. For the full year, domestic revenues (excl. IR, IDD, and IC) increased 2.1 amid global economic crisis, the outbreak of typea (H1N1) flu, and domestic political instability. Net adds also rebounded strongly in as a result of the prepaid onnet and offpeak promotion launched in the quarter. But for the full year, net adds dropped sharply from a year earlier due to already high penetration rate and challenging economic environment. We began 2009 with an operating free cash flow (defined as EBITDA CAPEX) target of THB 12.0 billion, which was revised up to THB 13.0 billion after results. For 2009, we generated a record high THB 14.3 billion operating free cash flow, from the improvement in EBITDA margin and lower CAPEX. For 2009, service revenues excluding IC slightly increased to THB 52.0 billion, or 0.5 from a year earlier. EBITDA margin (excluding the onetime DPC settlement in 2008) was 30.6, slightly higher than 2008 due to the implementation of cost efficiency program throughout the year. Net profit (excluding DPC) amounted to THB 6.6 billion, a decline of 11.5 as a result of higher depreciation and amortization expenses. As revenues from nonvoice services are becoming more important, we launched Blackberry services and started selling the handsets in Dec 09. In addition, we are also planning to offer more selections of smart phone for our subscribers as a measure to stimulate revenue from nonvoice services. Interestbearing debt sharply dropped from the retirement of a debenture and scheduled repayments of longterm loans. It was marginally offset by the issuance of THB 2 billion debenture in. At the end of 2009, outstanding interestbearing debt totaled THB 19.0 billion, declining from THB 28.1 billion at the end of Net IC cost continued to improve. It declined from THB 240 million in both and Q408 to THB 184 million due in part to the prepaid onnet and offpeak promotion launched during the quarter and our ongoing focus on keeping traffic on our network. On the regulatory front, the adhoc committee has completed the review of the draft Frequency Allocation Act and will pass it for approval by the House of Representatives. Furthermore, on Mobile Number Portability (MNP), mobile operators have asked the NTC to extend the service launch to Aug 2010 and will jointly set up a clearing house for the service. The 3G licensing process has been delayed and is now depending on 2 main issues, namely (1) the ruling from the Council of State on NTCโ s authority and (2) the royal endorsement of the 4 newlyelected NTC commissioners. The Board of Directors proposed a dividend payment of THB 1.39 per share, which is subject to the approval by the AGM. INVESTOR RELATIONS 1

2 Operation Summary MOU and ARPU steadily improved For 2009, mobile phone usage took a severe hit during the first half of the year. However, usage gradually recovered in the second half along with the recovery of the overall economy. In the final quarter of the year, usage increased sharply due in part to the introduction of the prepaid offpeak onnet promotion and seasonality effect. subscribers Sub grew moderately in 2009 At the end of 2009, total active subscriber base was 19.7 million, of which 11.7 were in the postpaid segment. Total yearly net adds were approximately 1.0 million, down from approximately 2.9 million a year earlier. This was a result of already the high penetration rate, the scale down in subscriber acquisition, and the focus on quality of subscribers. In, we added another 386 thousand subscribers, a sharp increase from due to the launch of a new prepaid promotion. The postpaid subscriber base was roughly flat from last quarter. Q408 2,291 17,366 2,332 16,939 mou Sharp increase in 2,470 16,212 Total 19,657 19,271 18,682 Table 1: Total active subscribers (in thousand) Q ,153 After suffering a decline in the first half of the year, blended MOU started to pick up during the second half and increased sharply in the final quarter of For 2009, blended MOU declined 8.4 from the previous year from lower incoming traffic from other networks and difficult economic environment. However, in, blended MOU rose 10.4 QoQ and 4.1, reflecting a price elasticity of mobile phone usage after the launch of prepaid offpeak onnet promotion. MOU excluding IC for 2009 rose marginally from a year earlier due to the focus on quality of subscribers. Nonetheless, in, it declined 2.1 QoQ from lower usage during the holiday season but increased 2.4 from the improvement in economic sentiment. For prepaid, MOU excluding IC for 2009 dropped 5.1 from the previous year as a result of worsening economic condition. But in, it grew 16.5 QoQ and 10.1 due to the launch of the prepaid promotion mentioned earlier ,513 Total ,910 Table 2: Net additional subscribers (in thousand) w/o IC w/o IC Blended w/o IC QoQ Q Table 3: MOU (minutes/sub/month) w/o IC w/o IC Blended w/o IC IC traffic from other networks still declined markedly and put a downward pressure on the MOU growth. However, it was stabilizing on a quarterly basis. arpu Gradual improvement QoQ Blended ARPU excluding IC for 2009 dropped 7.9 from 2008 as a result of the challenging economic environment and lower average calling rate. However, it gradually improved QoQ in the second half of 2009 in line with improvement in overall consumer confidence. For 2009, postpaid ARPU excluding IC declined 5.4 due to lower average calling rate. But in, it increased 1.5 QoQ and 8.9 due to higher usage of nonvoice services. ARPU excluding IC for 2009 dropped 8.1 from a year earlier from the global economic crisis. However, it showed a positive QoQ and development in from the attractive prepaid promotion launched in the quarter. IC revenue fell sharply but was stabilizing QoQ QoQ Q Table 4: ARPU (THB/sub/month) INVESTOR RELATIONS 2

3 Financial Summary EBITDA margin continued to improve QoQ Q408 Service revenues Interconnection revenue Telephone sets and starter kits sale Other operating income 13,440 3, ,861 3, ,720 3, ,956 12, , Total revenues 16,943 16, , ,685 67, Regulatory fees Cost of services Interconnection cost Cost of starter kits and telephone sets 3,547 1,885 3, ,445 1,739 3, ,481 1,922 3, ,014 7,153 13, ,832 7,383 15, Total operating costs 8,924 8, , ,255 36, Gross profit SG&A Other income 8,018 2, ,588 2, ,240 2, ,430 10, ,042 10,429 2, EBITDA Depreciation and amortization Impairment of goodwill and intangible asset Interest income Gain/Loss on foreign exchange Loss from capital reduction of a subsidiary 5,559 2, ,064 2, ,465 2, ,215 10, ,193 9, EBIT Financial costs Income tax 3, , , ,311 1,455 2,242 14,399 1,948 3, Net profit for the period 2,142 1, , ,614 9, Table 5: Income statement operating revenues Service revenues maintained despite challenges Service revenues excluding IC for 2009 grew 0.5 from higher domestically generated revenues, comprising mainly voice and nonvoice services. However, revenues from international roaming (IR) and international direct dialing (IDD) services suffered a sharp decline from the ongoing global financial crisis, the domestic disturbances during the Songkran holiday, and the outbreak of the typea (H1N1) flu. Furthermore, IC revenue continued to go down as all operators were focusing on keeping traffic within their own networks. Thus, total revenue declined 3.0 from last year. Operating revenues consists of: 1) Voice revenue grew modestly at 3.3 QoQ as the prepaid promotion launched during the quarter induced higher usage among existing subscriber base and attracted a number of new prepaid subscribers. Revenue from voice service represented 63.3 of total service revenues, a slight decline from 63.6 in. 2) Revenue from Value Added Services (VAS) rose 6.4 QoQ from continuing increase in data traffic and SMS and MMS usage during New Year holiday. In addition, in order to sustain the growth of VAS revenue, we launched Blackberry service in, with a strong reception from mobile phone users. Revenue from VAS accounted for 10.3 of total service revenues, up from 10.1 in. 3) Revenue from International Roaming (IR) service for 2009 fell 20.1 from a year earlier. On a quarterly basis, it grew by 9.0 QoQ in line with an improvement in the number of visitors coming to Thailand, but declined 23.3 Amt Amt QoQ Q408 Amt Amt Amt Voice* postpaid prepaid VAS* IR IC Others 10,512 2,860 7,653 1, , ,4 10,176 2,876 7,300 1, , , ,328 2,093 7,235 2, , ,806 10,330 29,476 7,566 1,882 12,729 2, ,2 39,103 9,524 29,579 7,222 2,354 14,878 3, Service revenues 16, , , , , Table 6: Breakdown of service revenues * Please note that the booking method of VAS discounts has been revised since. Comparison of voice and VAS revenues can be made only to previous quarter. INVESTOR RELATIONS 3

4 Regulatory Network IC Others Operating cost of services 3,547 1,018 3, , , QoQ due to high usage of IR service during the airport closure in Q408. For the full year, revenue from IR service accounted for 2.9 of total service revenues, down from 3.5 in On a quarterly basis, its share of total service revenues was up to 2.9 from 2.7 in but down from 3.9 in Q408. 4) Interconnection Revenue (IC) declined 14.4 from It increased slightly by 1.1 QoQ but was down by 6.8 on a quarterly basis from competitors continuing effort to keep their traffic within their networks. For the full year, IC revenue represented 19.7 of total service revenues, down from 22.3 in On a quarterly basis, it accounted for 19.1 of service revenues, down from 19.6 in and 21.1 in Q408. 5) Other service revenues, comprising mainly revenue from IDD services, for the full year declined 11.2 from Quarterly revenues, however, improved moderately QoQ and. Revenue from telephone sets and starter kits sale declined 15.1 from last year due to our focus on quality of subscribers and lower subscriber acquisition activities. On a quarterly basis, it sharply rose by 97.8 QoQ and Q408 3, , ,014 3,802 13,745 3,352 13,832 3,721 15,033 3, from the commencement of Blackberry handset sales in Dec 09. operating costs Cost development under control ,790 8, , ,912 36, Table 7: Breakdown of operating cost of services Selling&marketing General admin Bad debt Less: impairment of goodwill and intangible asset 781 1, , QoQ Q , ,044 6, ,557 6, SG&A 2,505 2, , ,391 10, Table 8: Breakdown of SG&A Operating cost of services for 2009 were down 3.7 from the previous year, mainly driven by lower IC cost and other operating cost of services. Excluding regulatory and IC costs, operating costs declined 3.1 from a year earlier. Operating costs mainly include: 1) Regulatory costs comprised revenue sharing to CAT and numbering fees to the NTC. For 2009, regulatory costs increased 1.3 from the onetime provision for numbering fee dispute with CAT in Q109. Excluding the provision, regulatory cost was fairly flat from last year. On a quarterly basis, it increased 2.9 QoQ and ) Network OPEX for the full year rose 2.2 from 2008 as we put additional 322 cell sites on air during the year. Quarterly network OPEX increased 9.3 QoQ due to higher repair and maintenance expenses and 3.7 from higher number of cell sites. 3) Interconnection cost (IC) for 2009 fell by 8.6 from a year earlier. On a quarterly basis, it further declined by 0.6 QoQ and 7.9 as more traffic was kept onnet. Owing to the decline in outgoing interconnection traffic, net IC cost dropped from THB 240 million in to THB 184 million in. For the full year, net IC cost increased from THB 155 million in 2008 to THB 1,016 million in ) Other cost of services, including prepaid card production costs and commissions, IR and IDD costs, and other operating costs, declined by 8.5 in 2009 as a result of cost efficiency programs implemented during the year. Furthermore, they increased 7.3 QoQ due to higher prepaid topup during the quarter, and higher IR and IDD revenues, but fell 7.8 from improvement in cost of prepaid card and commission, and the decline in IR and IDD revenues. Cost of telephone sets and starter kits for 2009 declined 15.3 from prior year, in line with the decline in the corresponding revenues. However, it increased QoQ and 29.8 from the sale of Blackberry handsets. sg&a SG&A maintained despite higher rental expense SG&A for 2009 amounted to THB 10.4 billion, flat from the previous year as increase in rental expense was offset by reduction in selling and marketing expenses. For, SG&A totaled THB 2.5 billion, declining 2.6 QoQ from lower general admin expenses, which was partly offset by higher selling and marketing expenses, and fell by 11.2 due to lower selling, marketing, and general admin expenses. SG&A expenses mainly comprised: 1) Selling and marketing expenses for 2009 sharply declined by 14.4 from 2008 as the economic downturn put a pressure on spending in this regard. The quarterly expenses rose 12.0 QoQ due to higher net adds and marketing activities but fell 19.2 from the slow down in customer INVESTOR RELATIONS 4

5 Amortization of deferred right Depreciation and amortization SG&A EBITDA reported Less DPC settlement 5,559 5,064 acquisition activities. For the full year, they accounted for 4.6 of total revenues, down from 5.3 in On a quarterly basis, selling and marketing expenses in proportion to total revenues was 4.6 in, up from 4.3 in but down from 5.9 in Q408. 2) General administrative expenses increased 7.7 from 2008 due mainly to higher rental expenses from the relocation of headquarter to Chamchuri Square. However, they were down 9.3 QoQ and 10.4 from Q408 partly as a result of cost efficiency programs implemented during the year. In proportion to total revenues, general administrative expenses were at 10.1 in 2009, up from 9.1 in 2008, and they were at 9.1 in, down from 10.4 in and 10.5 in Q408. 3) Provision for doubtful accounts for 2009 increased 6.6 as a result of worsening economic condition and amounted to 5.2 of postpaid revenues, up from 4.8 in For, it was up 1.0 QoQ and 33.8 and was QoQ Q , ,215 approximately 5.1 of postpaid revenues, flat from the previous quarter but up from 3.9 in Q408. depreciation and amortization Continued to rise 23,193 2,420 1) Amortization of deferred rights for 2009 increased by 3.9 from a year earlier as a result of the expansion of the network and shorter amortization period. For, it increased 1.5 QoQ but declined ) Depreciation and amortization SG&A for 2009 increased 50.9 due to the investment in the new headquarter and computer system and software for customer service enhancement. In, it rose 2.5 QoQ and ebitda and net profit EBITDA margin on an upward trend EBITDA excl DPC 5,559 5, , ,215 20, EBITDA margin excl DPC EBITDA margin 2, Table 10: EBITDA excluding DPC settlement 2, QoQ Q , ,304 1,718 7,991 1, pp pp D&A expenses 2,541 2, , ,021 9, Table 9: Depreciation and amortization expenses Net profit reported Less DPC settlement 2,151 1,629 QoQ Q , ,614 9,325 1, pp 3.4pp Net profit excl DPC 2,151 1, , ,614 7, Table 11: Net profit excluding DPC settlement EBITDA in 2009 amounted to THB 20.2 billion, a decline of 2.7 (excluding onetime DPC settlement) from the previous year as a result of higher net IC cost. Excluding the impact form net IC cost, EBITDA increased 1.4 from 2008 as a result of improvement in cost efficiency. The EBITDA margin improved by 20 bps to In, EBITDA increased by 9.8 QoQ and 24.5 to THB 5.6 billion from higher service revenues, lower net IC costs, and lower administrative costs. The EBITDA margin improved substantially both QoQ and as a result of the cost efficiency program implemented during the year. Furthermore, net profit for 2009 amounted to THB 6.6 billion, a decrease of 11.5 (excluding onetime DPC settlement) from lower EBITDA and higher depreciation and amortization expenses. In, net profit totaled THB 2.2 billion, an increase of 32.1 QoQ and 73.6 due to higher EBITDA and a sharp reduction in financial costs. balance sheet and key financial ratios Solid financial position Total assets at the end of 2009 were standing at THB billion, a decrease from THB billion at the end of last year due to low level of CAPEX during the year. Cash and cash equivalent Other current assets Noncurrent assets 7,491 8,489 84,100 7,082 9,521 87,832 Total assets 100, ,435 Current liabilities Noncurrent liabilities 25,258 12,274 27,581 17,363 Total liabilities 37,532 44,944 Shareholders equity 62,548 59,491 Total liabilities and shareholders equity Table 12: Balance sheet 100, ,435 Q408 Net debt : Equity Net debt : EBITDA Interest coverage FFO : Total debt () Table 13: Key financial ratios INVESTOR RELATIONS 5

6 Interestbearing debt at the end of 2009 was reduced to THB 19.0 billion compared to THB 28.1 billion at the end of 2008, including the new THB 2.0 billion debenture issued during the year. The debt ratio continued to improve with net debt to equity of 0.2x and net debt to EBITDA of 0.6x. Moreover, interest coverage ratio and FFO:Total Debt also improved QoQ from improvement in operating performance. Cash flow in 2009 remained healthy with cash flow from operating activities of THB 19.1 billion. Cash outflow from investing activities, excluding shortterm investment, amounted to THB 6.1 billion from investment in the new headquarter, network coverage and quality enhancements, as well as computer system for customer service. Furthermore, cash used in financing activities amounted to THB 12.7 billion as a result of repayment of longterm loans and debenture, the issuance of new THB 2.0 billion debenture, and dividend payment of THB 3.6 billion. In total, dtac generated a net cash outflow of THB 0.7 billion for the year and had cash on hand of THB 7.5 billion, including shortterm investment. CONTACT US: TOTAL ACCESS COMMUNICATION PLC. Investor Relations Unit 391 Chamchuri Square, 28 th Fl., Phayathai Road, Pathumwan, Bangkok Tel: (66) Fax: (66) IR@dtac.co.th Chavit Sangudomlert, CFA Taddao Panyacharoen Thitirat Sivapornchai Outlook 2010 Moderate top line growth, with improving margin Even though the penetration rate has reached 100 level by the end of 2009, we believe that subscriber base for the industry will expand along with the recovery in the overall economy. Thus, we expect to see another 3 4 million net adds in We intend to maintain our market share of subscribers but will give a higher priority to quality of subscribers. In line with subscriber expansion and overall economic recovery, we expect the industry revenue growth to be in line with the GDP growth. As we will focus more on smart phones sale, our revenue growth, including handset sale, is expected to be in high single digit range. Furthermore, we expect the cost efficiency programs to continue to pay off and result in an improvement in EBITDA margin. Moreover, CAPEX for 2010 will largely be unchanged from the previous year. Consequently, we target operating free cash flow for the year at approximately THB 16.0 billion. INVESTOR RELATIONS 6

7 Appendix i) Active vs Registered subscribers Active subscribers QoQ Q408 2,291,349 17,365,700 2,331,876 16,939, ,469,866 16,212, Total 19,657,049 19,271, ,682, Registered subscribers 2,291,349 19,878,459 2,331,876 19,421, ,469,866 18,392, Total 22,169,808 21,753, ,861, ii) promotions launched in Launch Date Product Name Monthly Payment Tariff Summary Conditions Promotion Ended Validity Period 8Dec09 Mouth S 299 Free call 200 mins/month each for on 1.50 Bt/min for exceeding minute 31Jan10 12 cycles and off net 20 hrs free dtac internet (1 Bt/min for Mouth M 549 Free call 400 mins/month each for on exceeding minute) and off net Mouth L 799 Free call 600 mins/month each for on and off net iii) promotions launched in Launch Date Product Name Tariff Summary Conditions Promotion Ended Validity Period 6Nov09 Happy Supermouth 49 Bt Free call onnet during 10 PM 6 PM 7 days validity period Calls outside specified period and offnet: depend on basic promotion 1Dec09 HP Call 15 Satang Onnet call during 10 PM 10 AM: 0.16 Bt/min Calls outside specified period and offnet: 1.23 Bt/min 31Nov09 31Dec09 7 days after subscription 30Jun10 INVESTOR RELATIONS 7