11. Financial Position and Operating Performance

1.  Financial Statement

  11.1.1 Auditor’s report

  Auditor’s Reports were stated that the consolidated and company
  financial statements presented fairly, in all material respects, the
  consolidated and company financial position as at 31 December 2012,
  2011, and 2010, and the consolidated and company results of
  operations, and cash flows for the years then ended of Advanced Info
  Service Public Company Limited and its subsidiaries, and of Advanced
  Info Service Public Company Limited, respectively, in accordance with
  legally defined accounting principles.

  11.1.2 The Consolidated Financial Position

  ------------------------- --------------- -------- ------------ -------- ------------- --------
  Advanced Info Service                                                                  
  Public Company Limited                                                                 

  Consolidated - Financial                                                               
  Position                                                                               

  As at 31 December                                                                      

  Unit : Thousand Baht                                                                   

                            2010-Restated            2011                  2012          

                            Amount          %        Amount       %        Amount        %

  ASSETS                                                                                  

                                                                                         

  Current Assets                                                                          

  Cash and cash equivalents 10,451,398      10.74    18,360,810   21.18    19,833,022    19.64

  Specifically-used bank    2,166,365       2.23     3,526,166    4.07     3,697,851     3.66
  deposits                                                                               

  Current investments       4,219,392       4.33     726,544      0.84     1,340,248     1.33

  Trade accounts            5,659,773       5.81     7,037,320    8.12     8,065,059     7.99
  receivable, net                                                                        

  Other receivables         2,261,462       2.32     2,327,576    2.69     3,661,732     3.63

  Inventories               1,126,830       1.16     1,087,090    1.25     1,426,532     1.41

  Other current assets      67,978          0.07     112,353      0.13     78,964        0.08

  Total Current Assets      25,953,198      26.66    33,177,859   38.28    38,103,408    37.74

                                                                                         

  Non-Current Assets                                                                     

  Other long-term           106,329         0.11     106,427      0.12     107,218       0.11
  investments                                                                            

  Swap and forward          1,221,272       1.25     -            -        -             -
  contracts receivable                                                                   

  Property, plant and       7,089,206       7.28     7,616,337    8.79     11,139,838    11.03
  equipment                                                                              

  Assets under the          48,175,673      49.50    36,504,752   42.12    29,156,811    28.88
  Agreements for operations                                                              

  Goodwill                  1,576,929       1.62     34,931       0.04     34,931        0.03

  Licence for operation     -               -        -            -        14,576,886    14.44
  right in spectrum of                                                                   
  telecommunication                                                                      

  Intangible assets         2,764,376       2.84     2,275,009    2.62     2,032,637     2.01

  Deferred tax assets       9,932,808       10.20    6,421,928    7.41     5,314,463     5.26

  Other non-current assets  527,985         0.54     535,076      0.62     501,705       0.50

  Total Non-Current Assets  71,394,578      73.34    53,494,460   61.72    62,864,489    62.26

  Total Assets              97,347,776      100.00   86,672,319   100.00   100,967,897   100.00
  ------------------------- --------------- -------- ------------ -------- ------------- --------

[TABLE]

+------------------------------------+----------+----------+----------+
| Advanced Info Service Public       |          |          |          |
| Company Limited                    |          |          |          |
+------------------------------------+----------+----------+----------+
| Consolidated - Statement of Cash   |          |          |          |
| Flows                              |          |          |          |
+------------------------------------+----------+----------+----------+
| For the years ended 31 December    |          |          |          |
+------------------------------------+----------+----------+----------+
| Unit : Thousand Baht               |          |          |          |
+------------------------------------+----------+----------+----------+
| Consolidated - Cash flow           | 2010-    | 2011     | 2012     |
|                                    | Restated |          |          |
+------------------------------------+----------+----------+----------+
| Cash flows from operating          |          |          |          |
| activities:                        |          |          |          |
+------------------------------------+----------+----------+----------+
| Net profit                         | 20       | 22       | 34       |
|                                    | ,632,788 | ,344,424 | ,899,078 |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
| Adjusted by:                       |          |          |          |
+------------------------------------+----------+----------+----------+
| Depreciation                       | 2        | 2        | 2        |
|                                    | ,694,406 | ,510,885 | ,183,059 |
+------------------------------------+----------+----------+----------+
| Amortization of intangible assets  | 16       | 15       | 13       |
|                                    | ,365,882 | ,164,388 | ,446,818 |
+------------------------------------+----------+----------+----------+
| Impairment loss of assets          | 1        | 1        | -        |
|                                    | ,560,000 | ,541,998 |          |
+------------------------------------+----------+----------+----------+
| Interest income                    | (        | (        | (        |
|                                    | 376,789) | 632,771) | 773,624) |
+------------------------------------+----------+----------+----------+
| Finance costs                      | 1        | 1        | 1        |
|                                    | ,753,002 | ,665,627 | ,092,794 |
+------------------------------------+----------+----------+----------+
| Doubtful accounts and bad debts    | 589,118  | 611,379  | 542,520  |
| expenses                           |          |          |          |
+------------------------------------+----------+----------+----------+
|   Allowance for obsolete and       | (6,690)  | 8,099    | 22,791   |
|   write-off inventories            |          |          |          |
+------------------------------------+----------+----------+----------+
|   Allowance for obsolete assets    | -        | 27,182   | -        |
+------------------------------------+----------+----------+----------+
|   (Gain) loss on disposals and     | 84,169   | (2,835)  | 363,724  |
|   write off assets                 |          |          |          |
+------------------------------------+----------+----------+----------+
| Unrealised (gain) loss on foreign  | 3,580    | 1,173    | 78,725   |
| exchange rate                      |          |          |          |
+------------------------------------+----------+----------+----------+
| Income tax expense                 | 9        | 14       | 10       |
|                                    | ,353,031 | ,364,870 | ,714,506 |
+------------------------------------+----------+----------+----------+
| Cash provided by operation before  | 52       | 57       | 62       |
| changes in                         | ,652,497 | ,604,419 | ,570,391 |
| operating assets & liabilities     |          |          |          |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
| Changes in operating assets and    |          |          |          |
| liabilities                        |          |          |          |
+------------------------------------+----------+----------+----------+
| Specifically-used bank deposit     | (1,      | (1,      | (        |
|                                    | 260,444) | 359,801) | 171,685) |
+------------------------------------+----------+----------+----------+
| Trade accounts receivable          | (        | (1,      | (1,      |
|                                    | 664,718) | 973,664) | 564,470) |
+------------------------------------+----------+----------+----------+
| Other receivables                  | (        | 91,093   | (1,      |
|                                    | 312,480) |          | 003,064) |
+------------------------------------+----------+----------+----------+
| Inventories                        | (        | 31,641   | (        |
|                                    | 332,889) |          | 362,233) |
+------------------------------------+----------+----------+----------+
| Other current assets               | (63,427) | (44,373) | 33,389   |
+------------------------------------+----------+----------+----------+
| Other non-current assets           | 150,216  | (7,091)  | 33,372   |
+------------------------------------+----------+----------+----------+
| Trade accounts payable             | 951,225  | 813,001  | 1        |
|                                    |          |          | ,648,104 |
+------------------------------------+----------+----------+----------+
| Other payables                     | 698,210  | 757,651  | 1        |
|                                    |          |          | ,406,642 |
+------------------------------------+----------+----------+----------+
|   Accrued revenue sharing expenses | 257,975  | 1        | 262,089  |
|                                    |          | ,264,748 |          |
+------------------------------------+----------+----------+----------+
| Unearned income-mobile phone       | (        | (12,277) | (        |
| service                            | 474,831) |          | 664,270) |
+------------------------------------+----------+----------+----------+
| Advance received from customer     | 867,206  | 1        | 121,638  |
|                                    |          | ,153,216 |          |
+------------------------------------+----------+----------+----------+
| Swap and forward contracts payable | (4,456)  | 71,804   | (        |
|                                    |          |          | 110,798) |
+------------------------------------+----------+----------+----------+
| Other current liabilities          | 104,411  | 7,850    | (7,557)  |
+------------------------------------+----------+----------+----------+
| Other non-current liabilities      | 28,834   | 19,302   | 50,613   |
+------------------------------------+----------+----------+----------+
| Cash generated from (used in)      | 52       | 58       | 62       |
| operating activities               | ,597,329 | ,417,519 | ,242,161 |
+------------------------------------+----------+----------+----------+
| Income tax paid                    | (7,      | (10,     | (11,     |
|                                    | 732,401) | 201,076) | 109,515) |
+------------------------------------+----------+----------+----------+
| Net cash by operating activities   | 44       | 48       | 51       |
|                                    | ,864,928 | ,216,443 | ,132,646 |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
| Advanced Info Service Public       |          |          |          |
| Company Limited                    |          |          |          |
+------------------------------------+----------+----------+----------+
| Consolidated - Statement of Cash   |          |          |          |
| Flows (Continued)                  |          |          |          |
+------------------------------------+----------+----------+----------+
| For the years ended 31 December    |          |          |          |
+------------------------------------+----------+----------+----------+
| Unit : Thousand Baht               |          |          |          |
+------------------------------------+----------+----------+----------+
| Consolidated - Cash flow           | 2010-    | 2011     | 2012     |
|                                    | Restated |          |          |
+------------------------------------+----------+----------+----------+
| Cash flows from investing          |          |          |          |
| activities:                        |          |          |          |
+------------------------------------+----------+----------+----------+
| Interest received                  | 378,656  | 619,823  | 746,495  |
+------------------------------------+----------+----------+----------+
|   Purchase of property, plant and  | (2,      | (3,      | (5,      |
|   equipment and                    | 334,230) | 168,272) | 502,659) |
|   computer software                |          |          |          |
+------------------------------------+----------+----------+----------+
| Sales of property and equipment    | 26,686   | 12,543   | 27,620   |
+------------------------------------+----------+----------+----------+
| Purchase of assets under the       | (2,      | (2,      | (4,      |
| agreement for operations           | 489,223) | 538,991) | 095,461) |
+------------------------------------+----------+----------+----------+
| Payment of license for operation   | -        | -        | (7,      |
| right in spectrum of               |          |          | 321,292) |
| telecommunication                  |          |          |          |
+------------------------------------+----------+----------+----------+
| Net changes (increase) decrease in | (4,      | 3        | (        |
| current investments                | 021,586) | ,494,040 | 612,420) |
+------------------------------------+----------+----------+----------+
|   Net changes (increase) decrease  | 2        | (98)     | (791)    |
|   in other long-term investments   | ,999,471 |          |          |
+------------------------------------+----------+----------+----------+
| Net cash used in investing         | (5,      | (1,      | (16,     |
| activities                         | 440,226) | 580,955) | 758,508) |
+------------------------------------+----------+----------+----------+
| Cash flows from financing          |          |          |          |
| activities:                        |          |          |          |
+------------------------------------+----------+----------+----------+
| Interest paid                      | (1,      | (1,      | (1,      |
|                                    | 678,693) | 747,634) | 102,015) |
+------------------------------------+----------+----------+----------+
| Other finance costs paid           | (46,559) | (32,443) | (44,725) |
+------------------------------------+----------+----------+----------+
| Repayments of finance lease        | (24,977) | (22,286) | (26,471) |
| principal                          |          |          |          |
+------------------------------------+----------+----------+----------+
| Repayments of long-term borrowings | (        | (14,     | (5,      |
|                                    | 486,148) | 050,082) | 486,148) |
+------------------------------------+----------+----------+----------+
| Proceed from long-term borrowings  | -        | 1        | 3        |
|                                    |          | ,199,500 | ,998,876 |
+------------------------------------+----------+----------+----------+
| Proceeds from issue of ordinary    | 339,329  | 188,745  | -        |
| shares                             |          |          |          |
+------------------------------------+----------+----------+----------+
| Share capital reduction paid to    | -        | (        | -        |
| non-controlling interests          |          | 159,433) |          |
+------------------------------------+----------+----------+----------+
| Advanced receipts for share        | 13,848   | -        | -        |
| subscription                       |          |          |          |
+------------------------------------+----------+----------+----------+
| Dividend paid                      | (51,     | (24,     | (30,     |
|                                    | 351,353) | 102,492) | 241,245) |
+------------------------------------+----------+----------+----------+
| Net cash used in financing         | (53,     | (38,     | (32,     |
| activities                         | 234,553) | 726,125) | 901,728) |
+------------------------------------+----------+----------+----------+
| Net increase (decrease) in cash    | (13,     | 7        | 1        |
| and cash equivalents               | 809,851) | ,909,363 | ,472,409 |
+------------------------------------+----------+----------+----------+
| Cash and cash equivalents at 1     | 24       | 10       | 18       |
| January                            | ,261,229 | ,451,398 | ,360,810 |
+------------------------------------+----------+----------+----------+
|   Effect of exchange rate changes  | 20       | 49       | (197)    |
|   on balances held in              |          |          |          |
|   foreign currencies               |          |          |          |
+------------------------------------+----------+----------+----------+
| Cash and cash equivalents at 31    | 10       | 18       | 19       |
| December                           | ,451,398 | ,360,810 | ,833,022 |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+
|                                    |          |          |          |
+------------------------------------+----------+----------+----------+

  ---------------------------------- --------------- ------------ -----------
  Advanced Info Service Public                                    
  Company Limited                                                 

  Consolidated - Financial ratio                                  

  For the years ended 31 December                                 

  Consolidated financial statements  2010-Restated   2011         2012

  Liquidity Ratio                                                  

  Current Ratio (time)               0.74            1.12         1.05

  Quick Ratio (time)                 0.58            0.88         0.81

  Operating cash flow to current     1.27            1.62         1.41
  liability (time)                                                

  A/R turnover (time)                18.10           18.05        17.17

  Collection period (day)            20              20           21

  Inventory turnover (time)          8.33            10.49        12.90

  Day sales period (day)             43              34           28

  A/P turnover (time)                22.07           17.27        10.38

  Payment period (day)               16              21           35

  Cash Cycle (day)                   47              33           14

  Profitability Ratio                                             

  Gross profit margin ratio (%)      38.24%          39.72%       40.69%

  Operation income ratio (%)         29.40%          30.92%       32.24%

  Other operating income ratio (%)   0.61%           0.70%        0.79%

  Free cash flow to EBIT (%)         120.43%         119.27%      75.32%

  Net profit margin (%)              18.42%          17.57%       24.64%

  Return to Equity (%) Average       39.07%          65.96%       84.05%

  Return to Equity (%) As at end     53.59%          67.40%       80.11%

  Efficiency Ratio                                                

  Return on total assets (%)         18.48%          24.15%       37.18%

  Return on fixed assets (%)         80.83%          110.57%      140.22%

  Total assets turnover (time)       1.00            1.37         1.51

  Financial Policy Ratio                                          

  Debt to equity ratio (time)        1.36            1.20         1.32

  Interest coverage ratio (time)     19.18           23.94        43.55

  Debt service ratio (Cash Basis)    0.77            1.06         0.95
  (time)                                                          

  Dividend payout ratio (excl.       100.10%         112.63%      92.90%
  special dividend) (%)                                           

  Dividend payout ratio (incl.       186.88%         112.63%      92.90%
  special dividend) (%)                                           

  Data on per Share Capital                                       

  Net book value per share (Baht)    13.88           13.28        14.65

  Net Profit per share (Baht)        6.91            7.48         11.73

  Dividend per share (excl. special  6.92            8.43         10.90
  dividend) (Baht)                                                

  Dividend per share (incl. special  12.92           8.43         10.90
  dividend) (Baht)                                                

  Percentage Growth on                                            

  Total Assets (%)                   (21.91%)        (10.97%)     16.49%

  Total Liabilities (%)              6.26%           (15.93%)     21.64%

  Revenue from services & sales (%)  8.67%           13.56%       11.97%

  Selling & admin. expenses (%)      (2.06%)         12.99%       7.56%

  Net Profit (%)                     20.28%          8.31%        57.01%
  ---------------------------------- --------------- ------------ -----------

2.  Management’s Discussion and Analysis

  11.2.1 Executive Summary

2012 was an outstanding year for mobile data services in the Thai
telecom market, thanks to a wider availability of affordable smart
devices and increased social network usage. Because there was a long
delay in the allocation of the 2.1GHz frequency, AIS re-farmed a portion
of its limited bandwidth on 900MHz to deploy 3G in major cities and
capture the data growth market. In 2012, we achieved a further 4.5
million 3G subscriptions with our coverage of 3,500 sites in 18 key
strategic cities. This drove our non-voice revenue in 2012 to grow 33%,
slightly above our guidance of 30%, and drove revenue contribution to
24% compared to 20% in 2011. Meanwhile, voice services continued to grow
5% from 2011, but at a slower rate as mobile penetration reached 120%,
reflecting narrower voice penetration. With our “Quality DNAs” concept,
AIS mobile data services grew well, despite the constraints of our
900MHz capacity. AIS outperformed industry competitors in the voice
market due to our strong nationwide network coverage. Therefore, AIS
total revenue increased 12%. Despite more investment to upgrade network
technology and enhance capacity, AIS retained tight cost management and
achieved an EBITDA growth of 8.5% and net profit growth of 57%.

A key milestone in 2012, that will bring a structural shift to AIS’
business model, was the issuing of the 2.1GHz license in December 2012.
Advanced Wireless Network (AWN), a wholly owned subsidiary of AIS, was
granted a 15-year license to operate 2x15MHz bandwidth on 2.1GHz. This
new license allows AIS to break away from over 20 years of a Thai
telecom concession based business model, resulting in a reduced
regulatory fee burden, a fully owned asset ownership and fairer terms
and conditions for all industry players. AIS plans to invest Bt70bn from
2013 to 2015, inclusive, in the new 3G-2.1GHz network, while maintaining
its existing 900MHz network. AIS expects service revenue to grow 6-8% in
2013, driven mainly by mobile data growth while voice growth tends to
slowdown. Operating expenses are expected to increase due to rising
marketing expense and additional revenue share incurred on roaming and
rental charges from utilizing existing 900MHz network, thus our EBITDA
margin is expected to be 41-42%. Our strong cash flow from operation and
new debt (if needed) will be used to fund the investment and will
continue to support our financial position and maintain our current
dividend policy.

SIGNIFICANT EVENT

  Impairment loss of investment in DPC in the separate financial
  statements

  In 4Q12, the Company reviewed the carrying amount of investment in
  DPC, a subsidiary operating mobile service on GSM 1800MHz, by
  comparing net book value with the recoverable net present value of
  future cash generation, assuming that the Build-Transfer-Operate (BTO)
  contract of the 1800MHz will expire on 15 September 2013. As a result,
  the Company recorded a non-cash loss from impairment of Bt2,475mn,
  which impacted on the net income, but only in the separate financial
  statements. Based on the projected future cash flow and outstanding
  net cash on hand in DPC, the recoverable amount of investment in DPC
  remains at Bt4,479mn on the separate financial statements (Note 11 of
  the Financial Statement 2012).

  Adjustment of employee benefit obligations

  The Company adjusted actuarial assumptions for the calculation of
  employee benefit obligations, such as discount rate and future salary
  increase, to reflect the current situation. Because of the adjustment,
  the Company recorded actuarial losses on the comprehensive income of
  Bt723mn in the consolidated financial statements and Bt417mn in the
  separate financial statements. (Note 21 of the Financial Statement
  2012).

  Write-off obsolete equipment

  In 4Q12, the Company wrote-off obsolete equipment with a value of
  Bt377mn, and recorded the write-off in administrative expenses.
  Equipment availability and functionality is checked regularly, and if
  it is found to be obsolete or not functional, it is written off.  

RESULTS

Operational summary

AIS registered 35.7mn subscribers, which grew from 33.5mn last year and
represented a 2.3mn net addition in 2012. The subscriber growth came
from multiple SIMs users, in response to higher demand for mobile
internet, as well as some organic growth from provincial markets. AIS
continued to focus on quality subscribers, which resulted in a stable
churn rate of 1.5% and 4.3% for the postpaid and prepaid segments,
respectively. The trend of using mobile data expanded in both the
prepaid and postpaid segments. Prepaid average revenue per user (ARPU)
increased to Bt219, an increase of 7.4% YoY, while minutes of use (MOU)
increased 2.2% YoY to 330 minutes, as prepaid subscribers continued to
use voice while also starting to consume more data. However, in the
postpaid segment, ARPU stayed flat at Bt682, while MOU declined 8% YoY
to 538 minutes because of high mobile usage during the flood crisis at
that time. Excluding the high usage in 4Q11, postpaid ARPU gradually
rose for the first three quarters in 2012 with an average of Bt673
compared to Bt645 in 2011.

Revenue

In 2012, AIS generated total revenue of Bt141,568mn, an increase of 12%
YoY, underpinned by both strong mobile usage and device sales. Service
revenue, excluding IC, reached Bt108,355mn and increased 11% YoY, above
our 2012 guidance, from continued growth momentum from both voice and
data services. Device sales expanded to Bt17,695mn, an increase of 34%
YoY, supported by growing demand for smart devices. Particularly in
4Q12, device sales increased sharply 85% YoY due to the arrival of
iPhone 5.

Voice Revenue

In 2012, the competition in voice market remained stable. Due to our
strong nationwide network coverage and segmentation strategy, voice
revenue stood at Bt74,742mn, an increase of 5.4% YoY, supported by both
postpaid and prepaid segments. Prepaid voice revenue recorded a decent
growth of 4.6% YoY mainly from regional users. Meanwhile, postpaid voice
revenue grew 7.6% YoY because of strong demand for postpaid
subscriptions with smartphone packages. The overall voice growth
somewhat decelerated from a 2011 growth of 8%, reflecting limited room
for further voice penetration.

Non-voice revenue

Non-voice growth momentum continued in 2012 supported by higher demand
for mobile internet, smart device adoption and social media
applications. Non-voice revenue stood at Bt26,197mn, an increase of 33%
YoY, supported by a strong mobile data revenue of 65% YoY. Data users
increased to 12.2mn, with 4.5mn 3G-900MHz subscriptions, and represented
34% of total subscribers compared to 27% last year. During the year,
smart device adoption expanded due to more affordable devices, starting
at less than Bt4,000, with a total of 17% of all subscribers using smart
devices. In response to increased data user and usage, AIS enhanced
customer data experience through improved data capacity on 3G-900MHz
coupled with a range of innovative applications, for example, AIS
Guide&Go, AIS MusicStore and, AIS BookStore to match customers’ digital
lifestyles.

International and other revenue

Revenue from international call and other business was Bt4,611mn and
increased 9.5% YoY because of higher usage and more subscribers using
IDD services, encouraged by several marketing campaigns. International
roaming (IR) revenue declined 7% YoY due to falling revenue from
visitors roaming in Thailand (inbound), partly offset by growing revenue
generated from AIS subscribers roaming internationally (outbound),
particularly with data roaming. In response to the demand for mobile
data, AIS launched several new roaming applications and services in
2012, focusing on international data roaming experience, for example,
easy-to-activate roaming packages, bill shock prevention solutions and
SMS alerts to prevent excessive and unwanted data roaming usage.

Handset sales

Sales revenue was Bt17,695mn, an increase of 34%YoY due to higher
smartphone sales and increased customer demand for mobile data,
particularly following the launch of iPhone5 in 4Q12. AIS offered
affordable smart devices bundled with a range of customized, attractive
tariffs and valued added services, such as AIS Bookstore, and targeted
specific customer lifestyles and segments. However, handset pricing
competition drove the sales margin lower to 8.3% from 11.9% last year.

Interconnection charges (IC)

Net interconnection revenue stood at Bt565mn and improved from Bt451
last year. This was underpinned by higher IC receipts as more
all-networks promotions were promoted from peers while IC cost was
stable.

Expenses

Cost of services excluding IC

In 2012, total cost of service, excluding IC, was stable at Bt25,219mn,
due to network amortization that decreased 12%YoY to Bt14,907mn from
fully amortized assets under the Build-Operate-Transfer contracts. The
declined amortization was offset by rising network operating expense and
other cost of service. Network operating expense increased 21%YoY to
Bt5,393mn due to 3G-900MHz network expansion and an increase of voice
and data capacity. Other cost of service increased 31%YoY due to the
network expansion and amortization of the 2.1GHz license cost and
started in December 2012 after the license was officially awarded.

Selling and general administrative expenses (SG&A)

SG&A was Bt11,958mn, an increase of 7.6%YoY, mainly from higher
administrative cost as we wrote off obsolete equipment with a value of
Bt377mn. To build AIS-3G awareness and customer relations activities,
marketing expense slightly increased 2.3%YoY to Bt2,890mn. However, the
marketing expense dropped to 2.0% of total revenue, compared to 2.2% in
2011. Bad debt decreased 11% to Bt543mn or 2.0% of postpaid revenue,
compared to 2.5% in 2011. The lower bad debt indicated a quality
subscriber base and an effective customer relations program.

Profit

Strong service revenue growth drove EBITDA to Bt61,436mn, an increase of
8.5%YoY in 2012, despite an increase of cash operating expense to serve
mobile data demand. As a result of smartphone popularity, which caused
the low-margin handset sales business to contribute more to the revenue
mix, as well as the maintenance of 900MHz network quality, EBITDA margin
declined to 43.4% from 44.8% in 2011. In 2012, net income was
Bt34,883mn, increasing 57%YoY, due to a higher EBITDA, lower network
amortization, lower finance cost (after repayment of Bt5.5bn interest
bearing debt in 2012), reduced corporate tax (from 30% to 23%) and no
special items as in 2011; namely, the DPC goodwill impairment of
Bt1,542mn and the deferred tax adjustment of Bt2,840mn. Net profit
margin increased to 24.6% from 17.6% due to lower amortization, finance
cost and corporate tax, in spite of lower EBITDA margin. Excluding the
special items in 2011, normalized net income was 34,883mn and increased
31%YoY.

Financial Position and cash flow

At the end of 2012, total assets increased to Bt100,968mn from
Bt86,672mn in 2011, due to the acquisition of the 2.1GHz spectrum
license and an increase in current assets, including cash and trade
receivable. The 2.1GHz license of Bt14,625mn was recorded as a
non-current asset and will be fully amortized in 15 years in accordance
with its license period. Cash was Bt23,531mn and increased from
Bt21,887mn in 2011. Network under Build-Transfer-Operate (BTO) contracts
continued to decrease as the contracts are approaching expiration,
despite an increased CAPEX in 2012.

Interest bearing debt was Bt20,915mn and decreased from Bt22,415mn in
2011, as AIS repaid Bt5.5bn while drawing down new loans of Bt4bn in
2012. Liquidity, represented by current ratio, was 1.05 and was slightly
lower from 1.12 in 2011. AIS still maintained a net cash position even
though the Company paid Bt7,321mn for the first installment of the
2.1GHz license cost. Consolidated equities were Bt43,542mn and increased
from Bt39,464mn in 2011 due to net income growth.

In 2012, AIS had a cash flow from operation of Bt51,133mn, an increase
of 6%YoY, due to the higher EBITDA. CAPEX was Bt9,598mn and increased
from Bt5,707mn in 2011 due to the 3G-900MHz project and network capacity
expansion. The CAPEX was higher than the 2012 guidance of Bt8,000mn
because investment on 3G-2.1GHz started after obtaining the license.
Free cash flow (EBITDA-CAPEX) was Bt51,838mn and grew

1.8% YOY.

FINANCIAL RESULTS

  ------------------- -------- -------- --------- -------- ---------- ------- --
  Table 1 – Revenue                                                           
  (Bt million) / (%                                                           
  to total service                                                            
  revenue excluded                                                            
  IC)                                                                         

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Voice revenue       70,944   72.5%    74,742    69.0%    3,798      5.4%    

  Postpaid (voice)    17,374   17.7%    18,698    17.3%    1,324      7.6%    

  Prepaid (voice)     53,570   54.7%    56,044    51.7%    2,474      4.6%    

  Non-voice revenue   19,736   20.2%    26,197    24.2%    6,461      33%     

  International       3,019    3.1%     2,805     2.6%     -214       -7.1%   
  roaming                                                                     

  Others (IDD, other  4,212    4.3%     4,611     4.3%     398        9.5%    
  fees)                                                                       

  Service revenue     97,911   100.0%   108,355   100.0%   10,444     11%     
  excluding IC                                                                

  Table 2 – Sales (Bt                                                         
  million) / (% to                                                            
  total revenue)                                                              

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Sales revenue       13,180   10.4%    17,695    12.5%    4,515      34%     

  Cost of sales       11,613   9.2%     16,218    11.5%    4,605      40%     

  Net sales           1,567    1.2%     1,477     1.0%     -90        -5.8%   

  Sales Margin (%)    11.9%             8.3%                                  

  Table 3 –                                                                   
  Interconnection                                                             
  (IC) (Bt million) /                                                         
  (% to total                                                                 
  revenue)                                                                    

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Interconnection     15,346   12.1%    15,518    11.0%    172        1.1%    
  revenue                                                                     

  Interconnection     14,895   11.8%    14,953    10.6%    58         0.4%    
  cost                                                                        

  Net interconnection 451      0.4%     565       0.4%     114        25%     

  Table 4 – Cost of                                                           
  services ex IC (Bt                                                          
  million) / (% to                                                            
  total revenue)                                                              

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Network             17,017   13.5%    14,907    10.5%    -2,110     -12%    
  amortization                                                                

  Network operating   4,468    3.5%     5,393     3.8%     924        21%     
  expenses                                                                    

  Base station rental 2,984    2.4%     3,575     2.5%     591        20%     
  & utility                                                                   

  Maintenance         1,484    1.2%     1,818     1.3%     333        22%     

  Other cost of       3,758    3.0%     4,919     3.5%     1,161      31%     
  services                                                                    

  Cost of services    25,243   20.0%    25,219    17.8%    -25        -0.1%   
  ex. IC                                                                      

  Revenue sharing     24,469   19.4%    27,580    19.5%    3,111      13%     
  expense                                                                     

  Table 5 – SG&A (Bt                                                          
  million) / (% to                                                            
  total revenue)                                                              

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Marketing expense   2,826    2.2%     2,890     2.0%     64         2.3%    

  General             7,476    5.9%     8,324     5.9%     847        11%     
  administrative &                                                            
  staff cost                                                                  

  Bad debt provision  611      0.5%     543       0.4%     -69        -11%    

  Depreciation        203      0.2%     201       0.1%     -2         -1.1%   

  Total SG&A          11,118   8.8%     11,958    8.4%     840        7.6%    

  % Bad debt to       2.5%              2.0%                                  
  postpaid revenue                                                            

  Table 6 – EBITDA                                                            
  (Bt million) / (%                                                           
  to total revenue)                                                           

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Operating Profit    39,100   30.9%    45,640    32.2%    6,540      17%     

  Depreciation of PPE 2,511    2.0%     2,183     1.5%     -328       -13%    

  Amortization        15,164   12.0%    13,447    9.5%     -1,717     -11%    

  (Gain)/Loss on      -3       0.0%     364       0.3%     367                
  disposal of PPE                                                             

  Management Benefit  -116     -0.1%    -153      -0.1%    -37        32%     

  Other financial     -32      0.0%     -45       0.0%     -12        38%     
  cost                                                                        

  EBITDA              56,623   44.8%    61,436    43.4%    4,813      8.5%    

  Table 7 – Financial                                                         
  cost (Bt million) /                                                         
  (% to total                                                                 
  revenue)                                                                    

                      2011              2012               YoY        YoY (%) 
                                                           (Amount)           

  Total financial     1,666    1.3%     1,093     0.8%     1,666      -34%    
  cost                                                                        
  ------------------- -------- -------- --------- -------- ---------- ------- --

  -------------------- ------------- -------- -------- ---------- --------
  Table 8 -            Where         2011     2012     YoY        YoY (%)
  Consolidated (Bt                                     (Amount)   
  million)                                                        

  Net income                         22,218   34,883   12,666     57%

  Add:Impairment of    Impairment    1,542    0                   
  DPC goodwill         loss                                       

  Add:Adjustment of    Income tax    2,840    0                   
  deferred tax asset   expenses                                   

  Normalized net                     26,600   34,883   8,283      31%
  income                                                          
  -------------------- ------------- -------- -------- ---------- --------

+------------------------+----------+----------+---+----------+----------+
| Table 9 – Financial    |          |          |   |          |          |
| Position (Bt Million)  |          |          |   |          |          |
| / (% to total asset)   |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+
|                        |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+
|                        | 2011     |          |   | 2012     |          |
+------------------------+----------+----------+---+----------+----------+
|   Cash                 | 21,887   | 25.3%    |   | 23,531   | 23.3%    |
+------------------------+----------+----------+---+----------+----------+
|   ST investment        | 727      | 0.8%     |   | 1,340    | 1.3%     |
+------------------------+----------+----------+---+----------+----------+
|   Trade receivable     | 7,037    | 8.1%     |   | 8,065    | 8.0%     |
+------------------------+----------+----------+---+----------+----------+
|   Inventories          | 1,087    | 1.3%     |   | 1,427    | 1.4%     |
+------------------------+----------+----------+---+----------+----------+
|   Others               | 2,440    | 2.8%     |   | 3,741    | 3.7%     |
+------------------------+----------+----------+---+----------+----------+
|   Current Asset        | 33,178   | 38.3%    |   | 38,103   | 37.7%    |
+------------------------+----------+----------+---+----------+----------+
|   License for Telecom  | -        | 0.0%     |   | 14,577   | 14.4%    |
+------------------------+----------+----------+---+----------+----------+
|   Networks and PPE     | 44,121   | 50.9%    |   | 40,297   | 39.9%    |
+------------------------+----------+----------+---+----------+----------+
|   Intangible asset     | 2,275    | 2.6%     |   | 2,033    | 2.0%     |
+------------------------+----------+----------+---+----------+----------+
|   Defer tax asset      | 6,422    | 7.4%     |   | 5,314    | 5.3%     |
+------------------------+----------+----------+---+----------+----------+
|   Others               | 676      | 0.8%     |   | 644      | 0.6%     |
+------------------------+----------+----------+---+----------+----------+
|   Total Assets         | 86,672   | 100.0%   |   | 100,968  | 100.0%   |
+------------------------+----------+----------+---+----------+----------+
|   Trade accounts       | 3,520    | 4.1%     |   | 7,341    | 7.3%     |
|   payable              |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+
|   CP of LT loans       | 5,469    | 6.3%     |   | 8,462    | 8.4%     |
+------------------------+----------+----------+---+----------+----------+
|   Accrued R/S expense  | 4,593    | 5.3%     |   | 4,855    | 4.8%     |
+------------------------+----------+----------+---+----------+----------+
|   Others               | 16,152   | 18.6%    |   | 15,630   | 15.5%    |
+------------------------+----------+----------+---+----------+----------+
|   Current Liabilities  | 29,734   | 34.3%    |   | 36,288   | 35.9%    |
+------------------------+----------+----------+---+----------+----------+
|   Total                | 22,415   | 25.9%    |   | 20,915   | 20.7%    |
|   interest-bearing     |          |          |   |          |          |
|   debt                 |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+
|   Total Liabilities    | 47,209   | 54.5%    |   | 57,426   | 56.9%    |
+------------------------+----------+----------+---+----------+----------+
|   Unappropriated       | 13,246   | 15.3%    |   | 17,344   | 17.2%    |
|   retained earning     |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+
|   Total Equity         | 39,464   | 45.5%    |   | 43,542   | 43.1%    |
+------------------------+----------+----------+---+----------+----------+
|                        |          |          |   |          |          |
+------------------------+----------+----------+---+----------+----------+

  ----------------------------- -------- -- --- ------------------- -- --------------------- -------- --
  Table 12 – Source and use of                                         (Bt. Million)                  
  fund : 2012                                                                                         

  Source of Fund                                Use of Fund                                           

  Operating CF before change in 62,570          Dividend payment                             30,241   
  working capital                                                                                     

  Proceeds of long-term         3,999           Income tax paid                              11,110   
  borrowings                                                                                          

  Interest received             746             CAPEX & Fixed                                9,598    
                                                assets                                                

  Sale of property and          28              Payment of license                           7,321    
  equipment                                     fee for                                               
                                                telecommunication                                     

                                                Debt repayment                               5,486    

                                                Cash increased                               1,472    

                                                Finance cost and                             1,173    
                                                finance lease paid                                    

                                                Net change in                                613      
                                                current/long                                          
                                                investments                                           

                                                Changes in working                           328      
                                                capital                                               

  Total                         67,343          Total                                        67,343   
  ----------------------------- -------- -- --- ------------------- -- --------------------- -------- --

FY2013 MANAGEMENT OUTLOOK & STRATEGY

+---------------------------+--------------------+---------------------+
|   Service revenue growth  | 6-8% YoY           |                     |
+---------------------------+--------------------+---------------------+
|   Non-voice revenue       | 25-30% YoY         |                     |
|   growth                  |                    |                     |
+---------------------------+--------------------+---------------------+
|   EBITDA margin           | 41-42%             |                     |
+---------------------------+--------------------+---------------------+
|   CAPEX                   | Bt70bn in 3 years  |                     |
|                           | (10% allocated for |                     |
|                           | 2G maintenance)    |                     |
+---------------------------+--------------------+---------------------+
|   3G-2.1GHz network       | -   97% population |                     |
|   coverage                |     coverage,      |                     |
|                           |     equivalent to  |                     |
|                           |     current 900MHz |                     |
|                           |     network        |                     |
|                           |                    |                     |
|                           | -   Service launch |                     |
|                           |     in all 77      |                     |
|                           |     provinces in   |                     |
|                           |     Thailand since |                     |
|                           |     the first year |                     |
|                           |                    |                     |
|                           | -   Approximately  |                     |
|                           |     20,000 of      |                     |
|                           |     3G-2.1GHz      |                     |
|                           |     sites          |                     |
+---------------------------+--------------------+---------------------+
|   3G-2.1GHz subscribers   | 8-10 million (40%  |                     |
|                           | using 3G devices)  |                     |
+---------------------------+--------------------+---------------------+

New license on 2.1GHz

The long awaited 3G licensing in Thailand was finally pushed through and
the National Broadcasting and Telecommunications Commission (NBTC)
granted the first 2.1GHz license in December 2012. Advanced Wireless
Network (AWN), a wholly-own subsidiary of AIS, is among one of three
that receives a 15-year 2.1GHz license (2x15MHz bandwidth), at the
bidding cost of Bt14,625mn. The licensing of new spectrum on 2.1GHz
allows AIS to unleash capacity issue and provide full scale 3G service
nationwide on a different cost structure from the existing
900MHz/1800MHz BTO (Build-Transfer-Operate) contract scheme. On the
license scheme, revenues are subjected to annual license fee of 5.75%
and network ownership belongs to AWN. On BTO contracts, revenues are
subjected to revenue share of 20-30% paid to TOT/CAT (state-owned
enterprises) and network ownership is also transferred to them. The
2.1GHz license is valid for 15 years while BTO contract on 900MHz
expires in 2015 and 1800MHz contract in 2013. Meanwhile, we will
continue to operate 900/1800MHz (2G network) in parallel with 2.1GHz (3G
network) and will optimize both networks to deliver better quality
service to our subscribers. Before an expiration of BTO contract, we
expect NBTC to announce direction for spectrum reallocation. We intend
to operate 900/1800MHz in the long term.

Investment plan: Bt70bn in the next three years

To maintain the leader position in Thai mobile market and prepare for
expiration of the 900/1800MHz contract in 2015/2013, we plan to roll-out
3G-2.1GHz network ahead of NBTC schedule requirement. We intend to build
97% population coverage in 3 years versus the license coverage
requirement of 80% within 4 years. Our 2.1GHz network will cover all 77
provinces in Thailand in the first year. By 2015, we intend to have
approximately 20,000 sites of 2.1GHz with coverage equivalent to the
existing 900MHz network and capacity of the new network matched actual
demand. To achieve this roll-out plan, we estimate the consolidated
capital expenditure (CAPEX) of Bt70bn in the next three years, provided
that 90% of the CAPEX is for rolling out 2.1GHz network and the
remaining is for maintaining 900/1800MHz networks that AIS retains
rights to operate until 2015/2013. This Bt70bn will cover investment in
radio equipment, core network, partial passive infrastructure i.e.
towers and transmission, and IT system/equipment.

Network sharing with 2G infrastructure

Under the Bt70bn investment budget, we intend to build a new 3G-2.1GHz
network as stand-alone due to the lack of asset ownership on the
existing 2G network beyond 2015. Nevertheless, we also consider the
competitive advantage of fast network rollout thus some of 2.1GHz
equipment will be placed on 900MHz facilities/towers and will also share
parts of transmission. Some new towers are also required as 2.1GHz
coverage is naturally smaller than 900/1800MHz.
Tower/facility/transmission rental will be based on rental agreement
between AWN, the 2.1GHz-license company, and AIS who owns operating
right of existing network infrastructure until 2015. The rental revenue
of AIS is subjected to revenue share to TOT according to the BTO
contract. Beyond 2015, a new agreement will need to be sought out
between AWN and TOT, the owner of 900MHz asset. We expect to conclude a
business deal before expiration of the 900MHz BTO contract.

Roaming between 2G and 3G

For best customers’ experience, 2.1GHz subscribers will seamlessly roam
on nationwide 900MHz network in the areas where 2.1GHz coverage is
unavailable at the beginning and when customers are not using 3G
devices, hence this will incur roaming cost. Similar to the network
rental above, the roaming cost is as well subjected to revenue share
paid to TOT during the BTO contract period. After that, roaming charges
will be subjected to

negotiation with TOT. The major factors that will drive roaming cost are
roaming rate and roaming traffic. Roaming rate is expected to be in-line
with the NBTC’s guided reference interconnection rate of Bt0.45/minute.
Roaming traffic will largely depends on 3G network coverage and 3G
device adoption. As 3G coverage and device adoption expands, the roaming
traffic will be smaller.

Mobile growth toward data centric segment

Mobile service revenue growth is expected between 6-8% in 2013, driven
mainly by mobile data growth while voice growth tends to slowdown. With
the new spectrum on 2.1GHz, AIS is ready to deliver a better data
experience to customers and better serve the pent-up demand for mobile
internet in wider area. The 3G on 2.1GHz will essentially answers mass
data connectivity for Thailand where fixed broadband infrastructure is
limited and fixed line penetration is merely 10%. While overall mobile
penetration today is 118%, data penetration remains low everywhere,
urban or rural. We believe that nationwide 3G coverage will expand
overall mobile penetration further and data penetration to be more
comparable to regional peers driven by the new data-centric segment,
namely smartphone and tablet. Non-voice revenue (including mobile data,
messaging, contents, and other value added services) is projected to
grow 25-30% in 2013.

Meanwhile, voice growth is expected to slowdown from the past few years
as market is highly penetrated, and estimated around 2-3% in 2013. We
believe there is some room for voice growth in low-end segment and rural
penetration while their mobile data usages also increase.

Attracting customers to 3G service

To strengthen our leadership in the new market environment, “Quality
DNAs” (device, network, application, and service), our commitment to
excellence, continue to be our core value to customers. Leading with our
network quality, we will deploy marketing campaigns to attract
subscribers to the better 3G services on 2.1GHz spectrum. Through our
solid nationwide distribution channels, we will push more affordable 3G
devices from leading handset manufacturers bundling with segmented price
plans and applications/service innovation. Moving to 3G technology,
overall pricing is moving toward more bundling and data pricing is
moving to volume base pricing with fair usage policy, the scheme that is
more suitable to the always-on/always-connect behavior. We target to
achieve around 8-10 million 3G subscribers in 2013. However, not all
customers on 3G subscription will be using 3G handsets and we expect 3G
device penetration to be 40% of all 3G subscription.

New cost structure

The new 2.1GHz operation will change our cost structure in many aspects
as customers move from the existing 2G subscription on BTO contracts to
the new 3G subscription on licensing scheme.

1.  The revenue share (20-30%) on BTO contracts will gradually be
    replaced by annual license fee (5.75%) from increasing number of
    2.1GHz subscribers with 3G devices.

2.  Operating expense will increase from expansion of 2.1GHz sites while
    running operation on 900/1800MHz network in parallel. Marketing
    campaigns will be launched to achieve the 2.1GHz subscriber target
    and increase 3G handset penetration. Marketing spending is expected
    around 2.5% of total revenue.

3.  As mentioned earlier, 3G service will rely on the existing 2G
    infrastructure in terms of network rental and roaming service. Both
    rental and roaming charges will be incurred on 2.1GHz company and
    paid to AIS, and subsequently subjected to revenue share paid to TOT
    during the BTO contract period. Revenue share on network rental is
    expected to rise as we expand 3G sites while revenue share on
    roaming depends on 3G handset penetration and network coverage. The
    larger the number of 3G handsets and network coverage, the smaller
    roaming charges.

4.  Amortization of 2.1GHz license is based on 15-year straight line
    basis while 2.1GHz network equipment will depreciated according to
    its useful life. Asset under the 900/1800MHz Build-Transfer-Operate
    (BTO) contract will be fully amortized by 2015/2013.

In 2013, EBITDA margin is expected to decline to 41-42% as rising
marketing expense and additional revenue share incurred on roaming and
rental charges from utilizing existing 900MHz network.

Capital management: 100% dividend payout

The company aims to maintain the same dividend policy that commits 100%
payout ratio and pays dividend twice a year. The dividend payout ratio
is based on consolidated earnings and subjected to the availability of
retain earnings on the separated financial statement. This commitment is
supported by our strong cash flow from operation and the low debt level.
The CAPEX and license payment will be funded by internal cash flow and
additional borrowings if required. Given that the company is currently
in net cash position and has strong financial credit rating (A- by S&P),
the management is comfortable to raise gearing. If and when there is new
business opportunities or significant changes that may impact future
operation and investment and hence capital structure, the company will
be prompt to discuss our new direction with the investment community.

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.

OPERATIONAL DATA

[TABLE]

11.3 Financial Covenants Compliance

Pursuance to the Terms and Conditions of the debentures of Advanced Info
Service Plc.; AIS134A, AIS139A and AIS141A, the Company is required to
maintain debt to equity ratio at not more than 2:1. This ratio will be
calculated from a consolidated financial statement of the Company on
semi-annually basis. The Company is, in addition, required to report a
default on any debt obligation if there is any.

As at 31 December 2012, the debt to equity ratio was 0.48 times and the
Company was not in default of any debt obligation. The Company is
completely complied with the conditions set forth in the Terms and
Conditions of the above debentures.

11.4 Audit and non-audit fees

In 2012, the Company had the audit fee and quarterly review fee of total
Baht 5.4 million and the audit fee and quarterly review fee of its
subsidiaries was Baht 3.7 million.

The Company had a non-audit fee of total Baht 50,000.