1.5 Changes of strategy and program schedules including attempt to create a unique identity of the TV station in the future may not be well-received by viewers as in the past; the Company may not be able to adapt to rapid changes in viewer's behaviors and tastes Due to other TV operators are reshuffling their strategies and programs in order to re-capture both target viewers and advertisement budgets as well as viewers' tastes and behaviors keep changing all the time, as a result, the Company cannot assure that its strategic change and TV programs in the future will be as successful as it experienced in the past. 1.6 The Company may not succeed in the MCOT Television (MCOT TV) Project and the investment may be higher than expected MCOT TV may require a large amount of capital and capable staff with experience and expertise. MCOT TV is a new project, coupled with the fact that the Company and its staff have no experience in managing this type of project before. In addition, the Company may face competition with foreign competitors, who have more capital, technology, personnel and experience. Therefore, the Company cannot assure that the project will succeed or able to achieve its financial objectives. In addition, there is also the risk that the project will end up costing more than the amount previously determined which may affect the Company's capital expenditures. 1.7 The Company has never operated as a public limited company as MCOT Public Company Limited was corporatized from the Mass Communication Organization of Thailand, a state enterprise established under the Royal Decree The Company's directors and executives must adjust themselves to the corporate governance principles and to respond to the needs from public shareholders and from the government, its major shareholder. Due to several factors previously mentioned, the Company may suffer from operation disruption and lack of efficiency in its management and operation to adapt to new environment conditions 1.8 Revenues in the Company's joint operations from the Pay TV service may drop if the Supreme Administrative Court rules in a way that is not favourable to the Company Due to the Foundation for Consumers and the Peace Media Project filed a complaint in 1999 claiming that the Company's resolution allowing the increase of UBC Group's subscription fee was done without a regard to consumer's rights as protected by the Thai Constitution. The Supreme Administrative Court is reviewing the case. If the Supreme Administrative Court rules unfavorably against UBC Group (by stating that the Company's approval to allow UBC Group to increase its cable TV subscription fee was inappropriate), the Company would receive less revenue sharing from UBC Group which could adversely affect the Company's results of operations and financial condition. Moreover, if the Supreme Administrative Court rules that its decision has a retroactive effect to the date the Company's approval of fee increase was made, and that UBC Group is required to return a portion of the subscription fee to the subscribers, the Company may be required to return UBC Group a portion of the amount received from UBC Group based on such increased subscription fees. 1.9 Because of its status as a state enterprise, the Company's actions may be restricted in some areas The Company will be required to get approvals from the relevant state agencies in setting certain policies and implementing business strategies which may limit or affect the Company's ability or flexibility to make investments, make capital expenditures, and obtain financing. The Company may not be able to respond changes in technology, market conditions, or consumer's behaviors in a timely manner, which could adversely affect the Company's business, financial condition and results of operations. 1.10 Because of the Company's recent Corporatization, its past performance may not be indicative of its future performance As a result of the Company's recent corporatization through the State Enterprise Corporatization Act, the Company's past performance may not be indicative of its future results due to certain changes. For example, (1) the Company is no longer required to remit annual appropriation to the Ministry of Finance for 60 percent of its net profits, but the Company will have to pay corporate income tax, and (2) the Company has increased the salaries of its employees to meet the private sector's standard. 1.11 Some of the public information about the Company have not been verified and investors should not rely on such information in making an investment decision. The Company's plans for future capital expenditures provided to the government were subject to various assumptions made at the time, including financing assumptions, estimates of amount of capital, anticipated revenue, and projected number of viewers, making it possible that the actual numbers may be different from those made available to the public. 1.12 The Company's performance may be affected by fluctuations in foreign exchange rates While the Company's revenues are almost entirely denominated in Baht, the Company incurs a portion of its expenses in US dollars and other foreign currencies. Accordingly, the Company is exposed to fluctuations in the exchange rates between those currencies and the Baht. The Company has not hedged its foreign currency exposure. There can be no assurance that the Company's exposure to foreign currency risk will not increase in the future, and any significant fluctuations of the Baht against foreign currencies may adversely affect the Company's results of operations. 2. Risks relating to the Industry 2.1 The Company may have to face fierce competition in the TV and radio media business The Company cannot assure that its current or future competitors will not use some strategy to capture the Company's target viewers or listeners and that how strong the competition in radio and television business will be. In addition, if there is such competition and if the Company is not able to obtain data that truly reflects the popularity of its programs as mentioned above, there could have a material adverse affect on the Company's financial condition and results of operations. 2.2 Increasing number of new entrants into the business After the establishment of the NBC, the enactment of the law governing the broadcasting and television business, and the completion of a frequency management master plan under the NBC Act, it is possible that new operators will obtain license, leading to an increasing number of competitors, which will prompt competition in the mass media industry to be even higher. This could have a material adverse affect on the Company's business as well as that of other mass media operators. 2.3 New technological developments for television broadcasting and the capital budgeted to upgrade equipment may be insufficient In the future, when digital technology is introduced, restrictions and monopolies in the media used in mass media business is expected to decline. If operators in the mass media business including the Company cannot adapt themselves or develop their personnel and technology to keep up with the changes, especially with regards to the developmentof contents, it may not be able to compete with other operators within the industry, which could have a material adverse affect on the results of operations and business opportunities of those operators, including the Company. In addition, the Company cannot assure that the budget will be enough to upgrade all its equipment to enable the Company to move to digital broadcasting. 2.4 Development of electronic media in the form of Internet and new advertisement media alternative aside from traditional television or radio If technology has been developed to the point that the Internet or any other media can widely and effectively reach consumers, advertisers may consider switching their expenses to this medium instead. Advanced technology therefore may affect operators in the mass media industry in general. 2.5 Revenues may be affected by seasonal variations Advertising spending may increase or decrease during certain periods. Therefore, most companies in mass media business, including the Company, will be affected by the seasonal variation in the advertising industry. The Company believes that its earnings during a certain period may be different from earnings of a subsequent period due to the seasonal aspect of the advertising industry, as well as other factors. Accordingly, quarterly results of operations of companies in mass media business such as the Company are depended upon advertising revenues that may vary, and comparisons of quarterly results of operations may not be proper indicators of the future performance of such businesses. Such uncertainties in the Company's results of operations may result in fluctuation or a decline in the share price. 2.6 The Company may be subject to claims for compensation based on the content it provides over its network and third party networks. As a broadcaster of content, the Company faces potential liability relating to content that it broadcasts, including defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the programs that it broadcasts, whether via networks of the Company or others. The Company does not currently carry general liability insurance that will cover these types of liabilities. 3 Other risks 3.1 The Office of the Prime Minister, which supervises policy, and the Ministry of Finance, as a controlling shareholder, may, vote and act in conflict with the interests of the Company and the investors After completion of the Offering, the government, through the Ministry of Finance, will remain the Company's major shareholder, causing the Company to still remain a state enterprise according to the laws governing budgeting procedures. Accordingly, the Company cannot assure that it will not engage in activities that will give preference to the government's interest than its own business objectives, including the maximization of profits to add value to shareholders. 3.2 Shares offered to employees are priced lower than the price set for this offering The trading price of the Company shares on the SET therefore may be affected as a result of the sale of shares by employees and the executives after the prohibition period to sell their shares of no sooner than one year and six months from the first trading day of the Company shares on the SET. Lawsuit As of 17 August 2004, MCOT has no material, pending, or threatened regulatory action that would adversely affect its assets by more than 5 percent of the shareholders' equity, nor a legal dispute which may materially affect its operations. As of 17 August 2004, MCOT has legal disputes which can be summarized as follows: - There are only two legal disputes resulting from the Company's ordinary course of normal business where it is the defendant. The two cases are civil cases and involve a combined claim of 7.3 million Baht. Details are as follows: 1. Future Hitech Company Limited, the Plaintiff, filed a suit in connection with a breach of the sale and purchase agreement. The Court of First Instance has already dismissed the case and it is being appealed. 2. Erawan Union Company Limited, the Plaintiff, filed a suit claiming a violation of the hire of service agreement. The suit is being tried at the Court of First Instance. - MCOT has one legal dispute that is an administrative case which was not resulting from the Company's ordinary course of business. That is, the Foundation for Consumers and the Peace Media Project filed a complaint that the Company's approval for the UBC Group to raise its service fee was an action that failed to take into consideration consumer's rights. The complaint was later transferred as an administrative case to the Central Administrative Court where it was dismissed. Then, the Foundation for Consumers and the Peace Media Project appealed the Central Administrative Court's decision with the Supreme Administrative Court. The Supreme Administrative Court is reviewing the case. However , the result of the Supreme Administrative Court's decision turn out to be different than the Central Administrative Court's decision. The Supreme Administrative Court may have the holding of the Central Administrative Court affirmed or reversed. If the Supreme Administrative Court reverses the Central Administrative Court's decision by stating that the Company's approval to allow UBC Group to increase its Pay TV service fee is illegal, the order to approve the increase of service fee would be terminated by the virtue of the Supreme Administrative Court's decision. If the Supreme Administrative Court holds that the decision shall have a retroactive effect to the date when the Company approved the increase of the service fee, the UBC Group will definitely be affected if it is required to return extra fees it earlier charged to the members. In the future, the UBC Group will have to charge at the previous rate, meaning that the UBC group will enjoy lower income. It would not be considered that the Company is in breach of the joint operation agreement in which UBC Group may claim for compensations because a cancellation of an approval to increase the service fee is a result of the court's order. However, the Company's future revenue may be reduced in proportion to the decrease of the service fee to be payable to the UBC Group by the subscribers resulting from the Supreme Administrative Court's decision. In the case where the Supreme Administrative Court's decision rules to cause the retroactive effect, the Company may be required to return a portion of the amount received from UBC Group in regard to the increase of the service fee, on a retroactive basis, if UBC Group is required to return a portion of the service fee to the subscribers by virtue of such court decision. Other than the legal dispute in Court as specified above, the Secretary-General of the Campaign for Popular Democracy, the Secretary-General of the Campaign for Popular Media and the Manager of the Confederation of Consumer have sent a complaint to the Parliament's Ombudsman asking them to review the Cabinet's resolution on 20 July 2004 for corporatization of the Mass Communications Organization of Thailand by means of incorporating it as a public limited company and distributing its shares on the Stock Exchange of Thailand. It was alleged that there were some major points concerning the legality under the Constitution. The Ombudsman was also asked to refer the matter together with their opinion to the Constitution Court for consideration and decision before Mass Communication Organization of Thailand is registered as a public limited company with the Ministry of Commerce. The Ombudsman is in the process of evaluating the matter in order to decide as to whether there are sufficient reasons to refer the matter to the Constitution Court. However, the Company is of the view that the Cabinet's resolution on 20 July 2004 for corporatization of the Mass Communication Organization of Thailand by means of incorporating it as a public limited company and distributing its shares on the Stock Exchange of Thailand does not involve the point of legality under the Constitution as alleged because such corporatization process was carried out in accordance with the State Enterprise Corporatization Act and the Constitution in all respects. Following the Cabinet's resolution on 20 July 2004 for the corporatization of the Mass Communication Organization of Thailand by means of incorporating it as a public limited company, on 16 August 2004, the Royal Decree Prescribing the Time to Repeal the Royal Decree Establishing the Mass Communications Organization of Thailand, B.E. 2520, B.E. 2547 was also announced and has come into force since 17 August 2004. Moreover, the Public Companies Registrar of the Department of Business Development, Ministry of Commerce has already registered the incorporation of MCOT Public Company Limited on 17 August 2004. No. of Employees As of 31 March 2004, the Company has a total number of 1,106 of employees (not including executives). Company Background The Company was established from the initiative of General Por Pibulsongkram's administration, which believed that it was important to have a radio and television broadcasting service in Thailand. Thai Television Co., Ltd. was, therefore, founded on 10 November 1952. However, after facing a number of operational problems, it was dissolved by the cabinet's resolution led by Prime Minister Tanin Kraiwichien on 3 February 1977. The Royal Decree to Establishing Mass Communication Organization of Thailand B.E. 2520 was enacted by virtue of Section 3 of the Act on the Establishment of State Agencies B.E. 2496 on 25 March 1977 to set up the Mass Communication Organization of Thailand with the objective of conducting a mass communication business or other relevant or related businesses both within and outside the Kingdom. Employees and staff of Thai Television Co., Ltd. were transferred to become Mass Communication Organization of Thailand's employees and also transferred Thai Television Co., Ltd.'s radio and television business to continue its operation, effective 9 April 1977. On August 17, 2004, MCOT Public Company Limited was registered to become a public limited company under the State Enterprise Corporatization Act. The initial registered capital was 3,000 million Baht, divided into 600 million ordinary shares at 5 Baht par value per share, with the Ministry of Finance as the sole shareholder. Investment in Subsidiary/Associated/ Related Companies As of 30 June 2004, the investment of the Company can be summarized as follows: unit : Baht Name Type of business Paid-up capital % of shareholding Investment cost 1. Panorama Worldwide TV programs Company Limited producing service 10,000,000 49 4,900,000 2. United Broadcasting Corporation Public Company Limited Pay television service 7,524,750,000 0.40 85,000,000 3. UBC Cable Network Public Company Limited Pay television service 5,108,646,000 0.98 50,000,000 4. World Cable Network Public Company Limited Pay television service 300,000,000 10 30,000,000 5. Cellular Vision (Thailand) Public Company Limited Pay television service 100,000,000 10 10,000,000 6. R.B.D.S. (Thailand) Company Limited News information service 100,000,000 20 20,000,000 Increase (Decrease) of capital during the past three years unit : Baht Date Capital increase (decrease) After the increase (decrease) Note/ Purpose for using funds 24 September 2004 835,000,000 3,835,000,000 Building renovation and investing in MCOT TV project and Digital broadcasting system Accounting Period 1 January 31 December Auditor Office of the Auditor General of Thailand Registrar Thailand Securities Depository Company Limited Financial Advisor Phatra Securities Company Limited Dividend Policy MCOT's dividend policy is to distribute no less than 40 percent of the remaining net profits less various provisions determined by MCOT. However, the dividend payment will depend on investment plans, necessities and other appropriate reasons in the future. The Board of Directors' resolution which approves a dividend payment must be proposed to seek an approval from the Shareholders' Meeting unless it is an interim dividend payment which the Board of Directors shall have the power to approve before reporting to the Shareholders' Meeting at the following meeting. In October 2004, the Private Participation Committee, set up by the State Enterprise Policy Committee Order No. 71/2547, and the Company's Board of Directors resolved to pay dividends to all shareholders on the results of operation in 2004 at 0.50 Baht per share. (more)