ข่าวแจ้งตลาดหลักทรัพย์

Tor8/2547 30 June 2004 Re : Clarification on non-compliance with Accounting Standards To : President The Stock Exchange of Thailand References : (1) SEC's Letter No. Kor Lor Tor. Chor. 821/2547 dated 16 June 2004 (2) Loxley Public Company Limited (the "Company")'s letter dated 17 June 2004 In furtherance to the referred letter in (1), the Securities and Exchange Commissions ("SEC") asked that the Company amend the financial statements ending as of 31 December 2003 and the financial statements of the first quarter ending 31 March 2004 due to non-compliance with the Accounting Standards, the details of which were well aware of and the Company, by the referred letter in (2), provided preliminary clarification as well as met with the SEC's officials to give clarification in person occasionally. From consultations between the Company and Loxbit Public Company Limited ("Loxbit"), the Company's susbsidiary, the Company in the capacity of Loxbit's parent company, would like to clarify to the SEC as follows: 1. As for the SEC's opinion that the recording of investment value of 10,000 shares in Loxley Information Services Co., Ltd. ("LoxServe") at the price of Baht 255 Million (being Baht 25,500 per share, when the par value is Baht 10 per share) did not represent the fair value, since before capital increase, LoxServe incurred capital deficit as high as Baht 320 Million, and that this was a restructuring of troubled debt transaction which required compliance with Accounting Standards No. 34, the Company would like to deny that such transaction was not a debt restructuring transaction, but one of the processes for merger, details of which were elaborated as follows: (a) As for the SEC's opinion that the investment value of 10,000 shares in LoxServe at Baht 255 Million being Baht 25,500 per share, the Company would like to clarify that the investment value in LoxServe under Point Asia Dot Com (Thailand) Ltd. ("PointAsia")'s accounting records is for 991,593 shares at Baht 255 Million, being at the cost of Baht 257 per share which was averaged cost per share. (b) As for the SEC's opinion that LoxServe is a financially troubled company in light of the fact that LoxServe had accounting accumulated loss of Baht 320 Million, the Company would like to clarify that LoxServe is not a financially troubled company as it is a leading company in providing internet services and captured over 25% of overall's market share's income. Also, LoxServe can provide services covering 76 provinces nationwide. The reason which LoxServe incurred accumulated loss was that it has substantial expenses in the form of depreciation of operating tools and equipment which required intensive investment at the initial operating stage. Besides, LoxServe's past operation generated net profit of Baht 111.71 Million in 2003 and Baht 32.40 Million in the first quarter of 2004 and significantly reduced the accumulated loss. Moreover, LoxServe has sufficient liquidity and cashflow. Also, LoxServe is equipped with lines of financial facilities without recourses from various financial institutions. Most important is that LoxServe has never been in breach of any payment. Details of operating result and past cashflow from year 2001 up to present are shown in Appendix (1). Consequently, from the above- mentioned facts, the Company would like to reaffirm that LoxServe is not a financial troubled company and is not a company which is in need of debt restructuring and thus, does not fall under the definition of accounting records pursuant to Accounting Standards No. 34 re: restructuring of troubled debts as comprehended by the SEC. (c) As for the investment net book value at Baht 255 Million, the Company would like to state that such investment net book value was properly recorded according to the acquired investment's price. The Company is of the opinion that such investment properly presents a fair value as of the year end and there is no indication of any impairment. This is because LoxServe's operating result generated better profit as mentioned in 1(b). Ones may have different opinion whether or not there is an impairment of investment. It can be seen that after the merger in March 2003, LoxServe's operating results significantly improved. This reflected a totally different operating result from that in the past. This was due to the significantly reduced present and future operating costs as a result of costs saving deriving from the merger, for instance, lease line cost and marketing cost and the needless additional tools and equipment as well as the strength of business goodwill synergy. Also, telecommunications liberalization in 2006 will be positive for the expansion of market and growth rate of the internet services subscribers, which are factors for increasing value of LoxServe in the future. From these internal and external factors which are subject to change, the Management of PointAsia is not able to estimate appropriate value of the business immediately after the merger. However, the Company procured an independent financial advisor to estimate fair market value of the investment as suggested by the SEC. The financial advisor's preliminary opinion, as shown in the referred document (2), was that the estimation of the business immediately after the merger would not be able to reflect the true fair value. Therefore, the Company would like to inform that it have the financial advisor estimate business value of the investment in 2004. If there appears information indicating impairment or the appreciation of the value, the Company shall record investment value to reflect the true fair value in accordance with the financial advisor's opinion within 2004 fiscal year. 2. On the issue that the SEC viewed that Loxbit prepared a consolidated financial statements by recording and reversal of capital deficit from Baht 320 Million investment in LoxServe, of which such recording and reversal to income would be permitted only if Loxbit has recorded the capital deficit from such investment and that the SEC did not find that Loxbit ever regcognized capital deficit from such investment, the Company would like to clarify that Loxbit recorded the capital deficit from such investment. Loxbit recorded the capital deficit from investment through accounting records which recognized net equity profit from investment in PointAsia, which is LoxServe's parent company and which Loxbit holds 41.16% of PointAsia's shares, prior to the closing of the merger. Such transaction recording and reversal mainly stemmed from PointAsia's loan to LoxServe - PointAsia as the parent company with sufficient cashflow provided financial support to LoxServe at the initial stage for use in expansion of network equipment for internet services. Since LoxServe had operating loss, PointAsia accounted for such transaction by deducting the same from principal amount in its past financial statements. However, after restructuring of funding structure and LoxServe's increase of registered capital and LoxServe's repayment of loan to PointAsia, PointAsia thus recorded such reversal by netting off such loan extended to LoxServe in PointAsia' s financial statements in 2003. From the above mentioned fact, PoinstAsia was not required to take LoxServe's financial statements in preparing consolidated financial statements, nor is it required to recognize profit and loss pursuant to equity method. This is due to the fact that PointAsia reduced its shareholding percentage by holding shares at only approximately 4% which, in turn, makes LoxServe no longer PointAsia's subsidiary. As a result, PointAsia does not need to maintain the transaction to recognize LoxServe's loss which it used to record in the past and it, thus, reversed such transaction in 2003. At the end, Loxbit recorded such above-mentioned transaction through recognition of net equity profit from investment from PointAsia's financial statements after adjustment of accounting transactions in LoxServe pursuant to the above-mentioned facts by equity method after Loxbit's holding of 99% in PointAsia. We would appreciate if you could consider our clarification and lifted all signs posted on "Loxley's" shares. However, if the SEC could not consider this in time stipulated by law, we would request that the SEC grant relaxation to release the prohibition of trading Loxley's shares until the SEC's consideration be completed. Yours sincerely, Loxley Public Company Limited (Mr. Dhongchai Lamsam) President Attachment (1) Loxley Information Service Company Limited Table of Revenues, Operating Performance, and Cash Position as at December 31 (Baht Million) 2001 2002 2003 2004 (Jan-Mar) ("Audited") ("Audited") ("Audited") ("Unaudited" "Reviewed") - Revenue 613.34 681.25 744.88 172.16 - EBITDA (6.08) 86.88 185.20 54.38 - Net profit (loss) (105.44) (13.57) 111.71 32.40 - Cash Flow from Operating (5.32) 48.95 241.88 79.81 Activities - Cash on hand and at banks 11.69 39.31 157.81 240.15 Point Asia Dot Com (Thailand) Company Limited Khun Vasant Chatikavanij, Chairman 971, 973 President Tower Ploenchit Road, Pathumwan Bangkok 10110 June 29, 2004 Dear Khun Vasant, Pursuant to our mandate dated June 25, 2004 to provide opinion on the valuation of Loxley Information Services Company Limited (LoxServe), please find the following conclusion: Some of the most widely used methods to evaluate high tech companies such as internet service provider are 1) price earning ratio and 2) discounted cash flow model. During the past several years we see extreme volatility affecting both P/E and cash flow projection of companies in the high tech sector. Consensus of valuation is becoming more difficult as various pricing models yield range of significant magnitude, as seen in the present exercise of Google's IPO in the United States. Current P/E range of high tech companies in Thailand is approximately 20-40 times. Comparable companies such as Pacific Internet and Wanadoo have P/E ratio of 26.74 and 79.44 times (as of June 25, 2004). We also see some companies commanding premium on shares with negative earnings as well as current negative cash flow. The prices of bio-med and high tech related companies defy conventional valuation methods. The high risk, high return nature has prompted many fund managers to revisit their pricing models. Important events such as market liberalization, changing consumer behavior, computer literacy and penetration rate play significant roles in the way analysts assign assumptions to the valuation models. Each will defend his/her model with conviction however time will be required to prove and justify such assumptions. LoxServe's own operation is also going through transformation via the merge. Presumed synergy in the areas of cost saving, wider market reach, strengthening of management, lesser competition / cannibalization is being tested and realized. Similar to the external factors affecting the valuation, performance of LoxServe itself is difficult to evaluate due to short track record (after the consolidation of operations). It would be logical to allow 6 months to a year to monitor the progress. At that time, we will re-evaluate the various factors and should be able to provide a more accurate valuation. Sincerely, Sila Tsanthaiwo Managing Director