Management Discussion and Analysis

Ref. FNA 54/010 28 February 2011 Subject: Management Discussion and Analysis for 2010 Performance To : The President The Stock Exchange of Thailand Management Discussion and Analysis for 2010 Performance The Company is a domestic hi-speed data communications network service provider and provides related service for example last mile network management and installation service. The Company's major source of income derives from leased line service which has been growing over the past years due to its strategies to position as "Neutral Premium Telecom Network Service Provider" (Network Provider Only), not competing with its customers, focusing on hi-end market and service customization to meet various requirements from customers. The Company also gives emphasis to after sale services to all customers and keeps up high quality standard of service to retain its customer base. In 2010, the Company offered new shares to employees (ESOP) on 19 October 2010, at the price of 3.50 Baht/share, for 3 million shares, amount of proceeds totaled Baht 10.50 million; and the initial public offering (IPO) during 17-19 November 2010, at the price of 8.80 Baht/share, for 72 million shares, net amount of proceeds totaled Baht 613.26 million after the deduction of the offering expenses. The amount of proceeds from increased capital totaled Baht 623.76 million. The proceeds from increased capital strengthen the Company's financial position, and enhance its capacity to expand network service to high potential areas. The Company has expanded the network service and commercially launched in 6 industrial estates, for example; Rojana Industrial Estate, Hi-tech Industrial Estate, Bang Pa-in Industrial Estate, Bangkadi Industrial Estate etc. and plans to cover other 5 industrial estates within 2013, and expanded Ready Ethernet services to cover 150 hi-rise building within 2013 to serve rising demand from corporate sector. Operating Performance Leased Line Service Income Leased Line Service Income in 2009 and 2010 were Baht 477.89 million and Baht 536.04 million respectively, increased by 12.17% comparing to the last year due to increasing income from Metro Ethernet and Ready Ethernet, thanks to increasing demand of Ethernet, both in term of bandwidth and number of circuits coupled with the expansion of network coverage area. Ethernet technology is widely used and cost effective. Therefore, it gains popularity over the years among corporate clients. Income from Metro Ethernet Service in 2009 and 2010 were Baht 222.04 million and Baht 270.27 million respectively, increased by 21.72% comparing to the last year. Income from Ready Ethernet Service in 2009 and 2010 was Baht 33.91 million and Baht 43.55 million respectively, increased by 28.43% comparing to the last year. Income from Dark Fiber Service (Optical Fiber Network Connection) in 2009 and 2010 were Baht 50.20 million and Baht 60.32 million respectively, increased by 20.10% comparing to the last year. Due to the increasing awareness of business continuity, Disaster Recovery Center (DRC) becomes indispensible for today businesses, hence, increasing demand for Dark Fiber to connect between Head Office and the DRC. Income from TDM Service in 2009 and 2010 were Baht 112.31 million and Baht 97.42 million respectively, decreased by 13.26% comparing to the last year. Due to the limited capacity of the copper wired last mile, some customers shifted to other service such as Ethernet service. Revenue from sales and Management and maintenance service income - network Revenue from sales in 2009 and 2010 were Baht 23.61 million and Baht 3.18 million respectively. The decrease was due to equipments sold to a major ISP client in 2009 for network installation, in which, that client granted the Company a long-term contract to manage that network & equipments with a monthly fee of Baht 2.50 million, therefore, the Company recorded Management and maintenance service income - network in 2009 and 2010 in the amount of Baht 30.00 million per year. Income from related companies Income from related companies in 2009 and 2010 were Baht 9.84 million and Baht 3.11 million respectively, which comprised Management Fee Income, Network Service Income, Rental Fee and other income. Global Crossing Services Co., Ltd., "GCSV" has common shareholders with the Company, operated under a Build-Transfer-Operate (BTO) concession with CAT to provide telecommunication services, had utilized the Company's network backbone, site, office space as both major shareholders of GCSV and the Company had a policy to reduce redundant investments. The Company charged GCSV at agreed service rate that was fair and reasonable. However, GCSV's concession license already expired since 5 June 2010, and its operation has been terminated. Therefore, GCSV discontinued the utilization of those facilities and no more Income from related company occurs since middle of the year 2010. Other Income Other Income in 2009 and 2010 were Baht 3.82 million and Baht 5.15 million respectively, derives from rebate of equipment from supplier, interest income, etc. Cost of Services and Sales Cost of Services and Sales in 2010 was Baht 179.69 million, comparing to the last year, increased by Baht 18.06 million or an increase of 11.18%, resulting from network coverage expansion and increasing number of clients. The increased amount of equipment & network investment resulted in increased amount of depreciation that was Baht 70.36 million in 2010, comparing to the last year, increased by Baht 23.99 million. Cost of Goods Sold in 2010 decreased by Baht 15.97 million, comparing to 2009 due to the equipment sold to a major ISP in 2009 as mentioned before. Other increase in Cost of Services and Sales were related to the increased revenue, for example, Universal Service Obligation (USO) fee at the rate of 4% of service income, initial fee to commercial buildings for in-building equipment installation, site rental, engineers' salary etc. Service Expenses Service Expenses in 2010 was Baht 25.68 million, comparing to the last year, increased by Baht 5.60 million due to commission paid to marketing partner, increased number of sales representatives, marketing expenses and a corporate magazine "Enjoy" for public relations purpose. Administrative expenses Administrative Expense in 2010 was Baht 75.59 million, comparing to the last year, increased by Baht 8.60 million resulting from extraordinary expenses in the amount of Baht 7.88 million, which comprised IPO-related expenses e.g. Financial Advisor Fee, Legal Advisor Fee, PR expenses, publication of prospectus, SET and SEC fees, HR Advisor Fee for employee benefit evaluation project, asset write-off due to the political chaos and office relocation. Other increase in administrative expenses were due to increase in office supplies and office rental as the previous office common facility system doesn't match the Company's requirement and couldn't expand the office space to serve business expansion. Administrative expenses that decreased were bad debt write-off, other operating expenses that has been controlled to a suitable level, management fee to a related company for utilization of common assets. Management benefit expenses Management benefit expenses in 2010 was Baht 20.76 million, comparing to the last year, increased by Baht 5.64 million resulting from increased number of managements and directors to achieve a proper management structure as a listed company. Management benefit expenses for the year 2010 was Baht 5.00 million, this expense has never been paid before. Finance cost Finance cost in 2010 was Baht 0.38 million, comparing to the last year, decreased by Baht 3.01 million due to decreased amount of loans and shorter period of borrowing. Gross Profit, Operating Profit and Net Profit In 2010, the Company recorded Gross Profit in the amount of Baht 397.74 million, or a gross profit margin of 68.88%, increased by Baht 14.20 million or 3.70% from 2009 which gross profit was Baht 383.54 million. The major factor that drove the profit was expansion of customer base and network coverage area, coupled with service quality control. The Company also gear up for new business opportunities which has lower price competition as well as implementing efficient cost control measure. Operating Profit in 2010 was Baht 275.71 million, or an operating profit margin of 47.75%, decreased by Baht 5.64 million or a decrease of 2.01% from last year that operating profit was Baht 281.35 million due to the extraordinary expenses in the amount of Baht 7.88 million, increased office rental and management benefit expenses in 2010. Corporate income tax in 2010 was Baht 77.01 million, decreased by Baht 8.71 million from last year due to the IPO underwriting fee which considered as a tax expense item while it has been recorded as net amount in share-premium in Balance Sheet. Net Profit in 2010 was Baht 198.31 million or a net profit margin of 34.34%, increased by Baht 6.07 million or an increase of 3.16% from last year which net profit was Baht 192.23 million. Financial Position Asset Total assets at the end of 2010 was totaled Baht 1,259.16 million, increased by Baht 773.25 million from the end of last year that total assets was Baht 485.91 million. The major reason was resulting from the amount of proceeds from increased capital totaled Baht 623.76 million. Current Assets - Cash and Cash Equivalents and Short-term Investments : the proceeds from ESOP & IPO that is not yet invested in network expansion, the Company has invested in form of short-term bills of exchange. At the end of 2010 the Company recorded Cash and Cash Equivalents and Short-term Investments in totaled amount of Baht 652.47 million Baht, increased by Baht 643.89 million from the end of 2009. - Accounts Receivable, accrued income - net : at the end of 2010, the total amount was Baht 69.80 million, increased by Baht 5.28 million from at the end of last year, which is in line with increased revenue. Fixed Assets - Network Equipment and Equipment - net : the Company used the proceeds from capital increase and operating cash flow to invest in network expansion, therefore, Network Equipment and Equipment - net, at the end of 2010, was Baht 503.05 million increased by Baht 112.53 million from the end of 2009, which Network Equipment and Equipment - net was Baht 390.52 million. The Company has expanded network backbone to 6 industrial estates and plans to cover other 5 industrial estates within 2013, and expanded Ready Ethernet services to 30 hi-rise building and plans to add more 53 buildings within 2011. Liabilities and Shareholders' Equity Liabilities Total Liabilities at the end of 2010 was totaled Baht 146.96 million, increased by Baht 13.16 million from the end of last year that total Liabilities was Baht 133.90 million. The whole amount of liabilities was current liabilities, mainly account payable, advance from customers and tax payable. The Company doesn't have any interest bearing debt or loan outstanding. Shareholders' Equity Shareholders' Equity at the end of 2010 was totaled Baht 1,112.20 million, increased by Baht 760.19 million from the end of last year that total Shareholders' Equity was Baht 352.00 million, due to following reasons: - The Share Capital Increase by offering of new shares to employees (ESOP) at the price of Baht 3.50 per share, for 3 million shares, and the initial public offering (IPO) at the price of Baht 8.80 per share, for 72 million shares, therefore, the registered capital increased by Baht 75 million to Baht 300.00 million, and the Company recorded share premium in the amount of Baht 548.76 million according to the offering price over par value. - Dividend Payment for 2009 Operating Results : Board of Directors had a resolution on 16 March 2010 for dividend payment to shareholders at the rate of Baht 2.75 per share, totaled Baht 61.88 million. - Operating Profit : The Company recorded net profit for the year 2010 in the amount of Baht 198.31 million, after increasing in legal reserve in the amount of Baht 7.50 million, the appropriated retain earning at the end of 2010 recorded at Baht 30.00 million, un-appropriated retained earning recorded at Baht 233.44 million, increased by Baht 128.93 million from the end of last year. Statement of Cashflow At the end of 2010, the Company's cash and cash equivalent was Baht 351.46 million, increased by Baht 342.89 million from at the end of last year, mainly due to Net cash flows from operating activities in the amount of Baht 264.91 million. Cash paid for investing activities was Baht 484.20 million, resulting from investment for network expansion totaled Baht 175.60 million and short-term investment in Financial Institution's bill of exchange with duration not longer than 1 year in the amount of Baht 301.00 million. The net cash flow from financing activities was Baht 561.89 million which mainly resulting from the proceeds from capital increase totaled Baht 623.76 million and the dividend payment in the amount of Baht 61.88 million. The Company generated strong cash flow from operation, coupled with proceeds from the capital increase, the Company has strong financial position and ready to expand service network to high potential areas. Nevertheless, the Company will prudently invest in order to achieve sustainable growth Please be informed accordingly. Yours faithfully, Bussakorn Jaruwachirathanakul Executive Vice President ______________________________________________________________________