Central Pattana Public Company Limited Management's Discussion and Analysis Consolidated Financial Results: 1Q07 Overall Performance In 1Q07 Central Pattana Public Company Limited ("CPN") registered a 2.2% q-o-q increase in total revenue with a 13.8% q-o-q growth in net profit. On a y-o-y basis, total revenue grew 15.3% with an increase in EBITDA of 18.3% whilst net profit decreased 9.0%, reflecting a lower margin at the initial stage of the newly opened CentralWorld. Amidst the sluggish economy, office and retail spaces were managed to reach 91% and 95% occupancy rates. Starting from January 1, 2007, accounting policy for investments in subsidiaries has changed to the "Cost Method" from the previous "Equity Method". The effect resulted in differences between consolidated financial statements and the Company's financial statements. Such change has no impact on consolidated financial statements and dividend policy. Net Profit: - CPN reported 1Q07 net profit of 415.8 MB, a growth of 13.8% q-o-q, mainly attributed to higher rental and service income, in addition to lower PR & promotion expense. - On y-o-y basis, net profit decreased 9.0% y-o-y, reflecting lower margin at the initial stage of the newly opened CentralWorld. Total Revenue (Rental & Service Income and F & B Sales): - Total revenue in 1Q07 grew 2.2% q-o-q to 1,838.1 MB, mainly due to escalating occupancy rate at CentralWorld. - On y-o-y basis, total revenue grew 15.3% y-o-y, attributed to the openings of CentralWorld and the new office at Pinklao Tower B, continuous increase in rental rates at all properties, and higher common area and air-conditioning service income after rate adjustment in August 2006. Table 1: Consolidated Result 1Q07 Summary Consolidated Result 1Q07 1Q07 YoY QoQ (Bt mil) % Chg % Chg Rental & Service Income and F&B sales 1,838.1 15.3% 2.2% Gross profit 770.1 4.9% 6.0% EBITDA 1,033.2 18.3% (2.4%) Net profit 415.8 (9.0%) 13.8% EPS (Bt) 0.19 (9.0%) 16.2% Financial Performance Summary Total Revenue CPN reported 1Q07 consolidated income from rental & service and food & beverage of 1,838.1 MB, representing a growth of 15.3% y-o-y. Rental & service income stood at 1,745.4 MB, up 16.9% y-o-y, primarily due to the openings of CentralWorld in August 2006 and the new office at Pinklao Tower B in March 2006. There were also higher common area and air-conditioning service income after rate adjustment in August 2006, in addition to continuous increase in rental rates achieved at all properties. Food & beverage sales dropped 8.8% y-o-y on closure of food courts at CentralWorld and Central Plaza Ratchada-Rama 3 for renovation. Compared to the previous quarter, 1Q07 income from rental & service and food & beverage grew 2.2%, driven by increased rental & service income, which was up 2.3% q-o-q. This increase was primarily due to the openings of the renovation phase at Central Plaza Ramindra and new retail space at Central Plaza Rattanathibet, in addition to higher occupancy rate at CentralWorld, which grew from 81% in 4Q06 to 88% in 1Q07. Food & beverage sales amounted to 92.7 MB, flat q-o-q. Other income in 1Q07 stood at 133.2 MB, flat y-o-y, but down 14.1% q-o-q, primarily due to lower management fee from CPN Retail Growth Fund ("CPNRF") and development fee from Thai Business Fund 4 for the construction management of the renovation phase of CentralWorld. Total Cost Total cost of rental & service and food & beverage include utilities, depreciation and amortization on rented properties, on-site personnel, repair & maintenance and property tax. In 1Q07 total cost amounted to 1,068.0 MB, representing a flat q-o-q, but a growth of 24.1% y-o-y on increased cost of rental & service. 1Q07 CPN incurred 998.7 MB of cost of rental & service, which was up 27.5% y-o-y, primarily as a result of additional depreciation of the renovation phase of CentralWorld launched in August 2006 and the new parking building and retail space at Rattanathibet completed in December 2006. Cost of food & beverage stood at 69.3 MB, down 10.3% y-o-y and in line with the decreased in food & beverage sales, as a result of the closure of food courts at Central Plaza Ratchada-Rama 3 for renovation and CentralWorld. Total Operating and Administration Expenses Total operating and administration expenses include expenses on personnel, advertising and promotion, office supplies, professional fees, depreciation and amortization on office equipments. In 1Q07, CPN recorded operating and administration expenses of 297.0 MB, up 40.6% y-o-y, reflecting a significant increase in advertising and promotion spending after the opening of CentralWorld and higher personnel expense from organization restructuring, salary base adjustment and increase in personnel to support business expansion. Compared to the previous quarter, total operating and administration expenses declined 20.8%, as there were significant advertising and promotion spending for Christmas and New Year season and extra personnel expense (bonus) in 4Q06. Net Profit In 1Q07, CPN recorded net profit of 415.8 MB, down 9.0% y-o-y on lower margin at the initial stage of the newly opened CentralWorld, but gained 13.8% q-o-q mainly on increase in total revenue and decline in operating and administration expenses as previously mentioned. Profitability Gross Profit Margin 1Q07 gross profit margin was 41.9%, down from 46.0% in 1Q06. The drop was mainly due to the decrease in gross profit margin at CentralWorld, driven by additional depreciation of the renovation phase and higher advertising and promotion expense after the opening in August 2006, in addition to rental discounts given to tenants which is considered as a normal business for the initial stage of newly open malls. Gross profit margin slightly increased from 40.4% in 4Q06 to 41.9% in 1Q07, primarily due to higher margin at CentralWorld upon the escalation of its occupancy rate. Net Profit Margin 1Q07 net profit decreased to 20.8% from 26.1% in 1Q06, due to CentralWorld's lower gross profit margin, in addition to increased advertising and promotion expense after the opening of CentralWorld, and higher interest expense incurred from the issuance of 1,500 MB debentures in June 2006. Net profit margin increased from 18.2% in 4Q06 to 20.8% in 1Q07, mainly due to higher gross profit margin contributed from all of properties and significant drop in operating and administration expenses as previously mentioned. Financial Position as at March 31, 2007 Assets As at March 31, 2007, the consolidated assets amounted to 34,320.0 MB, a slight decrease of 16.4 MB from that of the previous quarter. Total current assets grew by 281.4 MB, or 6.3% q-o-q on higher net cash flow. Decline in net property and equipment as a result of depreciation and usage of withholding tax contributed to decrease of 297.9 MB, or 1.0% q-o-q in non-current assets. Liabilities CPN recorded consolidated liabilities of 21,330.7 MB, a decrease of 431.6 MB, or 2.0% q-o-q on decline in current liabilities by 420.9 MB, or 8.7% q-o-q. The decrease was mainly due to payment of contractor payable on construction and renovation of CentralWorld and assets enhancement projects. Long-term interest bearing debt declined from 8,875.5 MB in 4Q06 to 8,651.4 MB in 1Q07, or a decrease of 2.5% q-o-q. At the end of 1Q07, total interest bearing debt stood at 10,831.7 MB, accounting for 50.8% of total liabilities. Shareholders' Equity Shareholders' equity registered at 12,989.3 MB, an increase of 415.1 MB, or 3.3% q-o-q, solely attributed to 1Q07 net income. Capital Structure At the end of 1Q07, net interest bearing debt to equity stood at 0.6 times, reflecting a solid financial position. Compared to the end of FY2006, the ratio remained unchanged, given that there was a slight increase in net interest bearing debt due to the reduction of cash and cash equivalent used to purchase fixed income instruments and payment of contractor payable, whilst equity grew slightly on 1Q07 net income. Interest coverage ratio was 7.6 times, decrease from 9.7 times in 4Q06. The change was due to lower cash generate from operation, primarily attributed by payment of contractor payable, and a slight increase in interest expense of 7.3 MB, given that weighted average interest rate grew from 5.6% per annum in 4Q06 to 5.7% per annum in 1Q07. Obligation recovery service increased from 0.8 times in 4Q06 to 2.3 times in 1Q07, mainly driven by a decrease in capital expenditure from 1,756.6 MB in 4Q06 to 267.1 MB in 1Q07. In 1Q07, CPN repaid long-term borrowings of 274.0 MB, mainly by the Thai Business Fund 2 and 4 and for the project finance of CentralPlaza Chiangmai Airport. As of March 31, 2007, interest-bearing debt comprised of 56% fixed and 44% floating interest rate with weighted average interest of 5.7% per annum. Table 2: Key Financial Ratios Key Financial Ratios 1Q06 4Q06 1Q07 YoY QoQ Chg% Chg% Liquidity Ratio Current ratio (times) 1.6 0.9 1.1 (34%) 16% Quick ratio (times) 1.5 0.8 0.9 (37%) 16% Cash generate from operation ratio (times) 0.6 1.4 1.1 71% (20%) Days account receivable(days) 7.2 11.3 12.9 80% 14% Profitability ratio Gross profit margin (%) 46.0% 40.4% 41.9% (9%) 4% Operating profit margin (%) 38.1% 27.2% 29.2% (23%) 8% Net profit margin (%) 26.1% 18.2% 20.8% (20%) 14% Return on equity (%) 16.0% 12.4% 13.6% (15%) 10% Efficiency ratio Return on assets (%) 5.5% 4.3% 4.8% (12%) 12% Return on fixed assets (%) 7.9% 5.7% 6.3% (20%) 11% Assets turnover (times) 0.2 0.2 0.2 10% (2%) Financial policy ratio Obligation recovery service/1 (times) 0.7 0.8 2.3 220% 201% Net debt to equity (times) 0.4 0.6 0.6 54% (2%) Interest coverage/1 (times) 5.6 9.7 7.6 37% (21%) Note : /1 cash generate from operation excludes payment of endorsed promissory note Change in Accounting Policy With the implementation of revised Thai Accounting Standard No.44 (TAS No.44) "Consolidated Financial Statements and Accounting for Investments in Subsidiaries", starting from January 1, 2007, the accounting for investments in subsidiaries has been changed to the "Cost Method" from the previous "Equity Method". The effect resulted in differences between consolidated financial statements and the Company's financial statements and are highlighted as follows: Statement of Income for 1Q07 1Q07 net profit for the Company's Income Statement was 433.6 MB, representing a difference of 17.9 MB from the 415.8 MB (Baht 0.01 per share) for the Consolidated Income Statement. Statement of Income for 1Q06 1Q06 net profit for the Company's Income Statement was 437.2 MB, representing a difference of 19.7 MB (Baht 0.01 per share) from the 457.0 MB for the Consolidated Income Statement. Balance Sheet as at December 31, 2006 Retained earnings was increased by 712.8 MB to 8,222.2 MB with a removal of 112.6 MB of Negative goodwill and an increase of 516.5 MB in Investment in subsidiaries and/or associates to 16,753.7 MB. Deferred tax asset was increased by 83.8 MB to 293.0 MB. Note that the change has no effect on the consolidated financial statements and dividend policy.(see notes to the interim financial statements for the three-month period ended 31 March 2007 no.14) Operations As at March 31, 2007 total leasable area stood at 843,577 sqm, which includes 691,695 sqm of retail space, 145,509 sqm of office space and another 6,373 sqm of residential space. Total retail leasable area increased by 7,357 sqm or 1.1% q-o-q. The increase was mainly due to the completion of renovation phase at Central Plaza Ramindra, which added 4,300 sqm of new leasable area, and the completion of conversion of 2,880-sqm common space to leasable space at Central Plaza Chiangmai Airport. The leasable area mentioned above also includes leasable area of Central Plaza Rama 2 and Central Plaza Ratchada-Rama 3 of which performance has been transferred to CPNRF but CPN acts as the property manager. Average occupancy for retail malls increased from 92% in 4Q06 to 95% in 1Q07. This was attributed largely to the renovation work at CentralWorld and the asset enhancement project at Central Plaza Ramindra. Occupancy rate at CentralWorld increased from 81% in 4Q06 to 88% in 1Q07, as a result of continuous openings of food & beverage and retail fashion outlets. Average occupancy rate for CPN's offices increased from 89% in 4Q06 to 91% in 1Q07. The main contributors were the take up rates at the office at Pinklao's Tower B and The Offices at CentralWorld which increased to 66% and 91%, respectively. Table 3: Operational Statistics Retail Malls Format Net leaseable Occupancy (%) Area (sq.m) 1Q07 4Q06 1Q06 Ladprao Plaza 55,553 99% 100% 100% Ramindra Plaza 17,943 89% 76% 94% Pinklao Plaza 55,638 98% 98% 99% Pattaya Festival 15,227 96% 100% 100% Ratchada-Rama 3 Plaza 54,026 98% 96% 97% Chiangmai Plaza 76,654 99% 99% 96% Bangna Plaza 57,721 99% 99% 98% Rama 2 Plaza 96,795 99% 99% 97% Rattanathibet Plaza 76,287 92% 90% 99% CentralWorld World 185,851 88% 81% 67% Total 691,695 95% 92% 91% Offices Net leaseable Occupancy (%) Area (sq.m) 1Q07 4Q06 1Q06 Ladprao 18,134 100% 100% 99% Pinklao A 22,560 92% 92% 97% Pinklao B/1 11,335 66% 60% 24% Bangna 9,796 97% 97% 99% CentralWorld 83,684 92% 90% 82% Total 145,509 91% 89% 83% Note : /1 Pinklao Tower B completed its conversion of apartment building into office building in 1Q06.