Management Discussion and Analysis Annual2004-2003
Management's Discussion and Analysis on the Company's Operating Results Based on the Financial Statements Ended for the Fiscal Year September 30, 2004 and 2003 Overview of the Company and its Subsidiary (1) Results of Operations Since 2002, the Company has continuously transformed its business model structure, modernized its products and its organization, and increased its capability to effectively compete in the market, and the Company 2004 operating results have clearly reflected these improvements. Base on the consolidated financial statements for the fiscal year ended September 30, 2004, the Company operating revenues accounted for 2,757 million Baht, which was 856 million Baht increase or 45.0% increase from 2003 operating revenues. For the fiscal year ended September 30, 2004, the company EBITDA was 1,296 million Baht, which was 370 million Baht or 40.0% increase from 2003 EBITDA. In addition, the company reported a net profit of 1,056 million Baht, which was 290 million Baht or 37.9% increase from the net profit generated in 2003. Unit: Million Baht FY2004 (2) FY2003 Difference BtMn % Operating Revenues 2,757 1,901 856 45.0% - Television 1,760 1,030 730 70.9% - Radio 427 322 105 32.6% - Joint Operations 570 549 21 3.8% EBITDA(1) 1,296 926 370 40.0% Net Profit 1,056 766 290 37.9% EPS(2) 1.76 1.28 (1) EBITDA is calculated from Earnings before Interest Expense and Tax and added by depreciation of operating assets (excluding of assets under the Joint Operation Agreements) and amortization of leasehold right. (2) EPS calculation is based on 600 million of common shares. Notes: 1. The financial statements ended for the fiscal year September 30, 2003 does not include the Company's subsidiary performance: however, the financial statements ended for the fiscal year September 30, 2004 has included the operating results of the subsidiary company: the Company has invested in its subsidiary, Panorama Worldwide since December 26, 2003. 2. For stated information based on the financial statements ended fiscal year September 30, 2004, the Company has used the consolidated financial statements of the Mass Communication Organization of Thailand for the period beginning October 1, 2003 to August 16, 2004, and the consolidated financial statements of MCOT Public Company Limited for the period beginning August 17, 2004 to September 30, 2004, which is the first financial statements after corporatization. For detailed information, investors should study from these audited financial statements. Television Business Television business is the first business that has been revamped with new characteristic and clear differentiation from competitors under the concept of Modenine Television or Modenine TV." With this concept, the Company has continuously improved the programs and adjusted the program schedule every six month since late 2002, and in October this year, the Modernine TV has entered into Phase 5 under the concept of "the Knowledge- Based Society," which clearly emphasized its channel positioning on news and edutainment programs. In addition to its program improvements, the Company has continuously increased the proportion of self- produced and/or time sharing programs while reducing the programs under air time rental arrangement. Therefore, the Company was able to increase its own advertising airtime space and its revenue. Moreover, the Company has implemented a proactive marketing strategy, so the company would be able to best response to clients' demand. Along with the application of the Tailor- made concept, Cross Media Strategy, and Integrated Marketing Communication (IMC,) the Company revenues have constantly increased. The company 2004 revenues generating from television business were 1,760 million Baht (based on the consolidated financial statements ended September 30, 2004,) which were 730 million Baht or 70.9% increase from revenues from television business generating in 2003. The significant increase in television revenue was a result of an increase of advertising revenues, which were 1,325 million Baht in 2004 accounting for 675 million Baht or 103.9% rise from advertising revenues in 2003. Unit: Million Baht FY2004 FY2003 Difference Bt Mn % Television Services - Airtime rentals 300 317 (17) -5.4% - Advertisement income 1,325 650 675 103.9% - Project income 97 56 41 73.2% - Other operating income 38 7 31 442.9% Total revenues from 1,760 1,030 730 70.9% television services Radio Business In December 2003, the Board of Directors has granted an approval for the Company to manage all radio stations by itself to maximize benefit from its existing assets. Thus, the Company would take back its airtime that has been rented out to various private operators, and start managing the entire channel. For the central radio stations, the Company plans to 100% manage 6 out of 7 of its central FM radio stations starting from January 1, 2005. The radio business will be managed under the concept of Modern Radio in which each MCOT radio station will have its own characteristic and clear target group of audience to differentiate itself from its competitors. In addition, there would be station managers with specialized knowledge and expertise delegated to take charge of the management of individual radio station ensuring the unique character of each station. In 2004, revenue from the radio business was accounted for 427 million Baht (based on the consolidated financial statements,) which was an increase of 105 million Baht or 32.6% from revenue from the radio business generating in 2003. The main contribution to this increase was from advertising revenue, which was 399 million Baht. The advertising revenue in 2004 was an increase of 99 million Baht or 33.0% from advertising revenue generated in 2003 because in 2004, the Company has been able to increase advertising space especially on the programs that broadcast simultaneously on both central and regional radio stations (nationwide network radio programs.) Moreover, the Company has increased its advertising rate and reduced promotion on its nationwide network radio programs. Unit: Million Baht FY2004 FY2003 Difference Bt Mn % Radio Services - Airtime rentals 18 22 (4) -18.2 - Advertisement income 399 300 99 33.0 - Other project income 9 - 9 N/A - Other operating income 1 - 1 N/A Total revenues from 427 322 105 32.6 radio services Business under joint operations The revenues from business under joint operations mainly consist of 2 parts: first, revenue sharing under the Joint Operation Agreements, and second, deferred income from transferred assets. In 2004, the total revenue from business under the Joint Operation Agreements was accounted for 570 million Baht, and it was a 21 million Baht or 3.8% increase from total revenue from business under the Joint Operation Agreements in 2003. The reason for this revenue increase was primarily from the increased of revenue sharing under the Joint Operation Agreements with UBC Group since UBC Group has reported higher revenue this year; the revenue from sharing under the Joint Operation Agreements is 6.5% of UBC Group's total revenues (before any expenses.) Unit: Million Baht FY2004 FY2003 Difference Bt Mn % Revenue sharing under the Joint Operation Agreements - BEC 64 58 6 10.3% - UBC (including UBCC) 456 434 22 5.1% - Others 1 8 (7) (87.5%) Total revenue sharing under 521 500 21 4.2% the Joint Operation Agreements Deferred income from 49 49 - 0.0% transferred assets Total revenues from joint 570 549 21 3.8% operations EBITDA In 2004, the Company EBITDA was 1,296 million Baht in which it was 370 million Baht or 40.0% increase from 2003 EBITDA. The increase was a result of significant increase in Company's operating revenue as mentioned above. In addition, the company is able to better utilize and effectively use its existing operating assets and human resources. Besides, for the time sharing program, the Company has been able to gain more advertising space and generate advertising revenue without investing in the program production; as a result, EBITDA was significantly increased. The company's 2004 employee expense was 696 million Baht, which was 247 million Baht or 55.0% increase from employee expense in the year 2003. The main reasons from this increase were due to the increase in overtime payment, the adjustment of salary base in June, 2004, the increase of bonus payment, the inclusion of Panorama Worldwide employee expense in the consolidated financial statements, and also the increase of employees. However, in 2004, the company had incurred one- time expense, which was expense relating to privatization process accounting for 23 million Baht. Net profit In 2004, the Company reported net profit of 1,056 million Baht, which was 290 million Baht or 37.9% increase from net profit reporting in the year 2003. The increase in net profit was due to the significant increase in operating revenues and also EBITDA as stated above. The depreciation expense in 2004 was accounted for 250 million Baht, which was 41 million Baht or 19.6% increase from depreciation expense incurring in 2003. The main reason for such increase was that the Company had completed a new office building in January this year. In addition, after the completion of the privatization process, the Company has started paying about 40 million Baht or 30% Corporate Income Tax for the period starting from August 17 to September 30, 2004. Unit: Million Baht FY2004 FY2003 Difference Bt Mn % Employee Expense 696 449 247 55.0% Depreciation of property, plant, and equipment - Assets used in MCOT's 201 160 41 25.6% operations - Assets under Joint Operation 49 49 - - Agreements Total Depreciation of 250 209 41 19.6% property, plant, and equipment Assets As of September 30, 2004 (based on the consolidated financial statements,) the Company's total assets were 6,161 million Baht, which was a rise of 953 million Baht or 18.3% from total assets reported on September 30, 2003. This increase was due to the rise of 1,422 million Baht in property, plant, and equipment, which was mainly a result of the Company's purchase of 51 rai plot of land opposite from the company main office building. The Company plans to use this plot of land to support the Company's business expansion in the future. In addition, the increase in total assets is also due to the increase in trade accounts receivable accounting for 213 million Baht resulting from the increase in its revenues. The increase mentioned above has been partially offset by the reduction in cash in the amount of 586 million Baht, and short- term investments in the amount of 156 million Baht. Liabilities As of September 30, 2004 (based on the consolidated financial statements,) the Company's total liabilities were 1,882 million Baht, which was 550 million Baht or 41.3% increase from total liabilities in 2003. The increases were mainly due to the increase in the appropriation to the Ministry of Finance, income tax payable, accrued expenses, and other current liabilities as the result of business expansion. Nevertheless, the company does not hold any loans with interests. Owners' Equity On August 17, 2004, MCOT Public Company Limited was registered as a public company limited. The Company formerly known as the Mass Communication Organization of Thailand was corporatized pursuant to the State Enterprise Corporatization Act, B.E. 2542 approved by the Cabinet on July 20, 2004. The Company's registered and initial paid- up capital was 3,000 million Baht consisting of 600 million ordinary shares at a par value of 5 Baht per share. The remaining equity capital would account as retain earnings, and the Company has set 300 million Baht as legal reserve. As of September 30, 2004, the Company's total owners' equities were 4,279 million Baht, which was 403 million Baht or 10.4% increase from total owners' equities in 2003. The increase was due to the increase in the company net profit (after deducting appropriation to Ministry of Finance.) Liquidity For the fiscal year ended September 30, 2004 (based on the consolidated financial statements,) the net cash flow from operating activities was 1,182 million Baht, which was 276 million Baht increase from 2003 net cash flow from operating activities. The increase was mainly due to the increase in operating net profit. For this year, the Company's net cash flow from investing activities was 1,303 million Baht mainly resulting from the purchase of 51 rai plot of land, and the purchase of broadcasting equipments to be used in the new office building. For the fiscal year ended September 30, 2004, the Company's net cash flow from financing activities was 464 million Baht; the Company had to remit 469 million Baht to the Ministry of Finance based on the performance in the fiscal year ended 2003, and there were cash proceeds received from minorities' investment in subsidiary company.