Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results : Q4/2005 and FY 2005 OVERALL PERFORMANCE Central Pattana Plc., reported consolidated net profit in Q4/2005 of 381.9 MB, an increase of 64.0 MB., or 20.1% from Q4/2004. This came from the increase of rental income from The Offices at CentralWorld and from the official launch of Central Town Rattanathibet. Moreover, CPN also received property management fee and profit sharing of 33% from CPNRF in this quarter which was 50.9 MB. and 47.3 MB. respectively. The Company's net profit for the year 2005 was 3,294.5 MB., an increase of 1,946.8 MB., or 144.5% from year 2004. The majority of this growth came from the gain of 2,884.8 MB. ( 2,018.9 MB. net of tax ) 1 from financial lease2 of its building and utility system of Central Plaza Rama 2 and Rama 3 to CPNRF in August 2005. The other significant contribution came from the increase in rental income from The Offices at CentralWorld and Central Town Rattanathibet. In year 2005, the Company has reserved a provision for losses on impairment of its land for future development of 406.6 MB. (170.7 MB. net of tax and minority interest). Excluding these extra gain/loss items, CPN's net profit from normal operation totaled 1,446.3 MB., an increase of 98.6 MB. or 7.3% from year 2004. The gain was primary attribute to the increase of rental income from The Offices at CentralWorld and the official launch of Central Town Rattanathibet which added new retail space. Moreover, CPN also received property management fee and profit sharing from CPNRF (Company holds 33% of total fund) in this year of 61.9 MB. and 83.2 MB. respectively. The Company has continuously improved its existing projects. In early 2005, The Offices at CentralWorld was officially launched, with sale progress of more than 90% of total area at present. In the second quarter, the Company arranged a grand opening of Central World Plaza by inviting all 81 candidates of Miss Universe 2005 to join in a fashion show which responsed with warm welcome from our target tenants. In September, Central Town Rattanathibet was officially launched with a grand opening ceremony. Its interior and exterior has been renovated and modernized and new salable area of approximately 25,000 sq.m. has been added to accommodate the new cinema, restaurant, retail shops and Robinson department store. In addition, the Company has continuously searched for new investment opportunities to sustain company growth. The company purchased 2 new land plots, a beachfront land at Pattaya and another at Chaeng Wattana. Although these investments might incur the company to borrow more, but in this year company's source of fund was mainly came from cash proceeds from properties lease to CPNRF and cause net interest bearing debt to equity ratio in year 2005 to fall to only 0.4 times, lower than the company's policy of 1 time. On May, 2005 the Company paid dividend from net profit of 2004 to shareholders at Baht 0.25 per share, total amount of 544.7 MB., or 40% of net income. Revenues In Q4/2005, total rental & service and food & beverage revenues were 1,519.2 MB., an increase of 5.0 MB. or 0.3% from Q4/2004, although revenue of Central Plaza Rama 2 and Rama 3 were partially transferred to CPNRF. This was due to an increase of rental income from The Offices at CentralWorld, which saw strong take up in its occupancy rate from 17% in year 2004 to 74% at the end of year 2005, from strong rental rate growth from high demand of Grade-A office building in Bangkok, and due to the official launch of Central Town Rattanathibet which added new leasable retail space. In Q4/2005, other income amounted to 285.5 MB., an increase of 199.3 MB. or 231.2% from Q4/2004. This came from the additional gain from the properties leased to CPNRF of 118.1 MB. and property management fee from CPNRF of 50.9 MB. For the year 2005, total rental & service and food & beverage revenues were 6,421.7 MB., an increase of 587.7 MB. or 10.1% from year 2004, even with a decrease of income from the lease of assets from Central Plaza Rama 2 and Rama 3 to CPNRF since August 2005. This increase came from the increase of rental income from The Offices at CentralWorld and Central Town Rattanathibet which added new leasable retail space. In addition, higher rental rate and higher rental income from common area from the increase of promotion activities throughout the year also helped to increase revenue in 2005. In 2005, total other income was 3,306.9 MB.,an increase of 2,983.4 MB. or 922.2% from year 2004. This came from the gain of 2,884.8 MB. from financial lease contract with CPNRF and also from property management fee 61.9 MB from CPNRF. In addition, the company has profit sharing of investment in CPNRF of 47.3 MB. in Q4/2005 and 83.2 MB. in year 2005. Cost and Administrative expenses In Q4/2005, cost of rental & service and food & beverage were 877.3 MB., an increase of 35.9 MB. or 4.3% from Q4/2004. This was due to increased operating costs and depreciation of The Offices at CentralWorld and additional leasable area of Central Town Rattanathibet, land lease fee of Central World Project and increased utility cost especially from cost of electricity. In year 2005, cost of rental & service and food & beverage were 3,500.7 MB., an increase of 345.0 MB. or 10.9% from year 2004. However, according to property lease contract with CPNRF a portion of operating cost and depreciation of Central Plaza Rama 2 and Rama 3 which amounted to 113.9 MB. were transferred to CPNRF. Selling and administrative expenses in Q4/2005 was 320.7 MB, an increase of 0.8 MB, or 0.3% from the same period of last year. This mainly came from the full operating expense of The Offices at CentralWorld, expenses related to additional leasable area of Central Town Rattanathibet and higher advertising and promotion expenses. However, there were some selling and administrative expense that decreased due to the transfer of lease properties to CPNRF. Selling and administrative expenses in 2005 was 1,405.6 MB, an increase of 559.2 MB, or 66.1% from year 2004. The increase mainly came from the provision for losses on impairment of its land for future development of 406.6 MB. and higher advertising and promotion expenses such as the grand opening of The Offices at CentralWorld, the official launch of Central Town Rattanathibet and the 10th anniversary celebration of Central Plaza Pinklao. Financial Position as at December 31, 2005 * Assets As at December 31, 2005, the consolidated assets were 33,376.3 MB., an increase of 6,272.0 MB, or 23.1% from December 31, 2004. The increase came mainly from the cash proceeds from leasing properties of Central Plaza Rama 2 and Rama 3 to CPNRF at a higher value than book value of these assets and from the operating lease of land. The increase also came from an increase in property and equipment from the construction and renovation of Central World Plaza, Central Town Rattanathibet and the purchase of land for new projects. * Liabilities As at December 31, 2005, the consolidated liabilities were 21,587.2 MB, an increase of 3,226.1 MB, or 17.6% from December 31, 2004 due to the issuance of unsecured bond with the amount of 1,000 MB. on April 2005 for renovation and new project development and due to capital increase by unitholders amount 2,425 MB. in the Thai Business Fund 4 to fund the Central World Project renovation. This increase also came from the deferred income tax from the gain associated with the transactions with CPNRF and an increase in unearned rental income from operating lease of land to CPNRF. The Company also repaid loan of Central Pattana Rama 2 and Rama 3 of 1,157 MB. * Shareholders' Equity Shareholders' equity as at December 31, 2005 was 11,789.1 MB, higher than December 31, 2004 by 3,045.9 MB, or 34.8%. The increase resulted from the positive net income in year 2005 which amounted to 3,294.5 MB. and from the increase in minority interest which amounted to 297.7 MB. which mainly came from investment in subsidiaries of minority shareholder. However, there was also a decrease in equity due to dividend payment of 544.7 MB. for the year 2004. In Q2/2005, the number of common shares increased by 178,571,000 shares from converting preferred share to common share, according to the agreement with Thailand Equity Fund, with a conversion ratio of 1 convertible preferred share for 1 common share. The total number of common shares after completing the capital increase procedures was 2,178,816,000 shares up from the previous amount of 2,000,245,000 shares. The new total number of common shares was effective from May 10, 2005 onward. However, this transaction has not affected the issued and paid-up share capital amount. Financial Ratio Analysis * Profitability In Q4/2005 gross profit margin was 42.3%, a slight decrease from the same period of last year at 44.4%. This came from a decrease in revenue and cost of Central Plaza Rama 2 and Rama 3 which were partially transferred to CPNRF according to the properties leased contract. Including these revenue and cost of Central Plaza Rama 2 and Rama 3, the gross profit margin at Q4/2005 would be 46.8%. In year 2005, gross profit margin was 45.5%, a slight decrease from year 2004 at 45.9%. In the case of including back the partial revenue and cost of Central Plaza Rama 2 and Rama 3 which were transferred to CPNRF, the gross profit margin of year 2005 would be 46.6%. Net profit margin in Q4/2005 was 20.7% a slight increase from Q4/2004 at 20.1%. Whereas net profit margin of year 2005 was 33.7%, a sharp increase from year 2004 at 21.8%. This was due to the gain from financial lease of building and utility system of Central Plaza Rama 2 and Rama 3 to CPNRF. Excluding this gain from financial lease and the provision for losses on impairment as mentioned, net profit margin in year 2005 would be 21.0%. Return on equity (ROE) in Q4/2005 was 13.6%, a decrease from Q4/2004 at 15.0%. This came from the partial transfer of profit of Central Plaza Rama 2 and Rama 3 to CPNRF and from an increase in shareholders' equity from the gain on the lease transaction with CPNRF. Return on equity (ROE) in year 2005 was 29.4%, an increase from year 2004 at 15.9% due to gain from financial lease of building and utility system of Central Plaza Rama 2 and Rama 3 to CPNRF in Q3/2005. * Financial Policy* In Q4/2005, interest coverage ratio was 3.7 times, a decrease from 13.8 times at Q4/2004. This was due to an increase in interest expense from higher borrowing for project renovation and new project development and from a decrease in cash from operation due to the transfer of Central Plaza Rama 2 and Rama 3 to CPNRF. Another reason for the decrease was because in Q4/2004 the company receive deposit from The Offices at CentralWorld. For the same reason, interest coverage ratio in year 2005 was 5.9 times, a decrease from 7.6 times in year 2004. Net interest bearing debt to equity ratio decreased from 0.9 times in year 2004 to 0.4 times in year 2005. This mainly came from cash proceeds from financial lease and operating lease with CPNRF, repayment of debt in Rama 2 and Rama 3 and an increase in shareholders' equity due to huge net profit of this year. As at December 31, 2005, interest bearing debt comprised of 93% fixed and 7% floating interest rate with weighted average interest rate at 4.8%. Key Ratio Q4/2005 Q4/2004 FY 2005 FY 2004 LIQUIDITY RATIO Current Assets/ Current Liabilities (Times) 1.61 0.60 1.61 0.60 Accounts Receivable Turnover (Days) 8 6 4 6 PROFITABILITY RATIO Gross Profit Margin (%) 42.3% 44.4% 45.5% 45.9% Net Profit Margin (%) 20.7% 20.1% 33.7% 21.8% Return on Equity (%) 13.6% 15.0% 29.4% 15.9% EFFICIENCY RATIO Return on Assets (%) 4.6% 4.7% 9.9% 5.0% FINANCIAL POLICY RATIO Net Interest Bearing Debt to Equity (Times) 0.4 0.9 0.4 0.9 Interest Coverage (Times) 3.7 13.8 5.9 7.6 1 Income tax on gain from the financial lease with CPNRF and the impairment provision : CPN recorded income tax on such transactions according to deferred income tax principle which specified that income tax of 30% on these transactions were recorded in this year. Tax on the gain from financial lease was 865.9 MB and tax on the impairment provision was (122.0) MB. 2 Two types of leasing contract are as follow; 1. Financial Lease : realise gain from the lease of building and utility system to CPNRF one time on the agreement date. 2. Operating Lease : amortize revenue from the lease/sublease of land to CPNRF throughout the period of lease agreement.