Part I [Key Information](index=5&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines significant risks associated with the company's business, industry regulations, and securities ownership [Risk Factors](index=5&type=section&id=D.%20Risk%20Factors) The company faces substantial risks from telecommunications regulation, intense market competition, operational disruptions, and geopolitical factors - The company is subject to extensive regulation by the NCC under the Telecommunications Management Act (TMA), which limits flexibility, and as a dominant provider, faces **mandatory tariff reductions** that could adversely affect revenues[9](index=9&type=chunk)[10](index=10&type=chunk) - Intense competition from mobile and cable operators using **aggressive pricing and bundled services** could impact the company's market share and revenue[18](index=18&type=chunk)[19](index=19&type=chunk) - Operational disruptions are a key risk, with the **SJC2 submarine cable construction delayed by over two years** due to geopolitical conflicts, potentially impacting international bandwidth supply[23](index=23&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) - The ROC government is the largest stockholder with approximately **35.29% ownership**, giving it significant control over the board, business strategy, and dividend policy[44](index=44&type=chunk) - **Foreign ownership is capped at 49%** for direct holdings and 60% for total holdings, and violating these limits could result in fines or loss of network approval[69](index=69&type=chunk)[70](index=70&type=chunk) - The COVID-19 pandemic impacted **roaming revenue, handset supply chains, and project timelines**, potentially harming revenues from mobile and emerging services[56](index=56&type=chunk)[58](index=58&type=chunk) [Information on the Company](index=18&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides an overview of the company's history, business operations, competitive strengths, and strategic direction [History and Development of the Company](index=18&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) The company is Taiwan's largest integrated telecommunications provider, leveraging its brand and technology to maintain market leadership - Chunghwa Telecom is **Taiwan's largest integrated telecommunications service provider**, offering domestic fixed, mobile, internet, and international fixed communications services[84](index=84&type=chunk)[85](index=85&type=chunk) FY2021 Key Financials | Metric | Amount (NT$ billion) | Amount (US$ billion) | | :--- | :--- | :--- | | Revenues | 210.5 | 7.6 | | Consolidated Net Income | 37.0 | 1.3 | | Capital Expenditures | 35.3 | 1.3 | - Key competitive strengths include its position as an **integrated full-service provider, a premium brand with a broad customer base**, extensive network coverage, and strong capital resources[89](index=89&type=chunk)[90](index=90&type=chunk)[98](index=98&type=chunk) - The business strategy focuses on a **customer-centric transformation, expansion into new growth areas like ICT and IoT**, and forming strategic alliances[102](index=102&type=chunk)[103](index=103&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) [Business Overview](index=24&type=section&id=B.%20Business%20Overview) The company's operations are segmented by communications type, with the mobile segment being the largest revenue contributor Revenue by Business Segment (2019-2021) | Business Segment | 2019 Revenue (NT$ B) | 2020 Revenue (NT$ B) | 2021 Revenue (NT$ B) | | :--- | :--- | :--- | :--- | | Domestic Fixed Communications | 65.7 | 69.5 | 64.8 | | Mobile Communications | 95.5 | 90.2 | 95.2 | | Internet | 30.1 | 32.1 | 33.1 | | International Fixed Communications | 11.5 | 8.7 | 9.1 | | Others | 4.7 | 7.1 | 8.3 | - Domestic fixed communications revenue decreased to **NT$64.8 billion in 2021**, driven by declines in traditional voice services, though partially offset by growth in broadband and MOD services[128](index=128&type=chunk) - Mobile communications revenue increased to **NT$95.2 billion in 2021**, supported by 5G migration and handset sales, with the company remaining Taiwan's largest mobile operator[157](index=157&type=chunk)[159](index=159&type=chunk) - Internet business revenue grew to **NT$33.1 billion in 2021**, fueled by demand for broadband upgrades, IDC, cloud, and cybersecurity services[172](index=172&type=chunk)[174](index=174&type=chunk) - The company faces robust competition from four other mobile operators and multiple cable TV providers based on price, service quality, and network reliability[199](index=199&type=chunk)[200](index=200&type=chunk)[208](index=208&type=chunk) [Organizational Structure](index=49&type=section&id=C.%20Organizational%20Structure) The company's organizational structure is detailed in a diagram, with a list of subsidiaries provided in Exhibit 8.1 - A diagram of the company's organizational structure as of March 31, 2022 is provided, with a detailed list of subsidiaries available in **Exhibit 8.1**[299](index=299&type=chunk) [Property, Plant and Equipment](index=49&type=section&id=D.%20Property%2C%20Plant%20and%20Equipment) The company's assets primarily consist of telecommunications equipment, land, and buildings used for operations and investment - The company's main property, plant, and equipment are telecommunications equipment, land, and buildings in Taiwan, mostly for operational use[239](index=239&type=chunk) - In 2021, the company generated approximately **NT$863.7 million (US$31.1 million) in rental income** from its properties[241](index=241&type=chunk) - The company is developing new properties to **enhance asset value and support human resources**[241](index=241&type=chunk) [Operating and Financial Review and Prospects](index=49&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, key revenue drivers, capital expenditures, and critical accounting estimates [Operating Results](index=53&type=section&id=A.%20Operating%20Results) In 2021, total revenues and operating income increased, driven by growth in mobile communications and internet services Consolidated Financial Highlights (in NT$ billions) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Total Revenues | 207.5 | 207.6 | 210.5 | | Income from Operations | 40.7 | 42.4 | 44.9 | | Consolidated Net Income | 33.9 | 34.7 | 37.0 | | Net Income (Parent) | 32.9 | 33.4 | 35.6 | - In 2021, revenue growth was primarily driven by a **5.6% increase in mobile communications revenue** and a **3.0% increase in internet services revenue**[334](index=334&type=chunk)[337](index=337&type=chunk) - Domestic fixed communications revenue **decreased by 6.7% in 2021** to NT$64.8 billion, mainly due to lower ICT project revenue and declines in traditional voice services[327](index=327&type=chunk) - Operating costs and expenses **decreased by 1.0% in 2021** to NT$165.2 billion, primarily due to the completion of large ICT projects and lower personnel costs[345](index=345&type=chunk) - In 2020, revenues remained stable as growth in domestic fixed and internet services was offset by a **5.5% decline in mobile communications revenue** due to competition and COVID-19 impacts[360](index=360&type=chunk)[361](index=361&type=chunk)[366](index=366&type=chunk)[368](index=368&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily sourced from strong operating cash flow, which funds capital expenditures and dividends Summary of Cash Flows (in NT$ billions) | Cash Flow | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 72.4 | 74.5 | 74.9 | | Net cash used in investing activities | (27.1) | (68.3) | (31.2) | | Net cash used in financing activities | (38.9) | (9.8) | (34.3) | | Cash and cash equivalents at end of year | 34.1 | 30.4 | 39.8 | Capital Expenditures by Business (in NT$ billions) | Business Segment | 2019 | 2020 | 2021 | 2022 (Planned) | | :--- | :--- | :--- | :--- | :--- | | Mobile communications | 7.8 | 8.8 | 16.8 | 14.5 | | Domestic fixed communications | 12.1 | 11.5 | 13.3 | \* | | Internet | 1.4 | 1.4 | 2.9 | \* | | International fixed communications | 1.1 | 0.8 | 0.5 | \* | | Others | 1.8 | 1.0 | 1.8 | 22.3 (incl. others) | | **Total** | **24.2** | **23.5** | **35.3** | **36.8** | - As of December 31, 2021, the company had **NT$39.8 billion in cash and cash equivalents** and unused credit lines of NT$61.7 billion[398](index=398&type=chunk) - The company has commitments of **NT$21.6 billion for telecommunications equipment** and NT$0.6 billion for land and buildings as of year-end 2021[394](index=394&type=chunk) [Research and Development, Patents and Licenses](index=67&type=section&id=C.%20Research%20and%20Development%2C%20Patents%20and%20Licenses) The company's R&D focuses on next-generation networks and emerging technologies, resulting in 161 patent filings in 2021 - Key R&D achievements in 2021 include advancements in **5G Standalone (SA) networks, 5G edge computing, multi-cloud management**, and AIoT applications[415](index=415&type=chunk) - The company is developing innovative applications in **smart transportation, digital convergence, AI, and cybersecurity**[416](index=416&type=chunk) - In 2021, the company **filed for 161 patents and was granted 167 patents**, reflecting its R&D output[416](index=416&type=chunk) [Critical Accounting Estimates](index=68&type=section&id=E.%20Critical%20Accounting%20Estimates) This section details key accounting judgments, including revenue recognition, impairment of assets, and pension benefit calculations - **Revenue recognition requires significant judgment**, especially in allocating transaction prices for bundled offerings and determining principal versus agent roles[421](index=421&type=chunk)[425](index=425&type=chunk)[429](index=429&type=chunk) - The company assesses impairment of trade receivables using an **expected credit loss (ECL) model**, which relies on assumptions about default risk and loss rates[451](index=451&type=chunk)[452](index=452&type=chunk) - Estimating the useful lives and assessing impairment of **long-lived assets involves subjective judgments** about technology, market conditions, and future cash flows[456](index=456&type=chunk)[457](index=457&type=chunk) - In 2021, the company recognized an **impairment loss of NT$420 million** on certain right-of-use assets and a NT$29 million impairment loss on goodwill[464](index=464&type=chunk)[467](index=467&type=chunk) - **Pension benefit calculations rely on actuarial assumptions** such as discount rates, employee turnover, and future salary increases[469](index=469&type=chunk) [Directors, Senior Management and Employees](index=74&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, compensation, board structure, and workforce [Directors and Senior Management](index=74&type=section&id=A.%20Directors%20and%20Senior%20Management) The company is led by an experienced board and executive team, with non-independent directors representing the MOTC - The Board of Directors consists of **13 members, including 5 independent directors**, with all non-independent directors representing the MOTC[478](index=478&type=chunk)[516](index=516&type=chunk) - Chi-Mau Sheih serves as the **Chairman and Chief Executive Officer**, and Shui-Yi Kuo serves as the President[479](index=479&type=chunk)[480](index=480&type=chunk) [Compensation](index=78&type=section&id=B.%20Compensation) Aggregate compensation for directors and executives was NT$106.5 million in 2021, overseen by the compensation committee Aggregate Compensation (2019-2021) | Year | Aggregate Compensation (NT$) | | :--- | :--- | | 2019 | 115,079,161 | | 2020 | 117,485,681 | | 2021 | 106,456,778 | - The 2021 aggregate compensation of **NT$106.5 million** includes NT$63.2 million in salary and NT$43.3 million in bonuses[509](index=509&type=chunk) - Bonuses for non-independent directors, amounting to **NT$35.8 million in 2021**, were paid directly to the MOTC as these directors are its legal representatives[510](index=510&type=chunk) [Board Practices](index=80&type=section&id=C.%20Board%20Practices) The board includes five independent directors and operates with Audit, Corporate Strategy, and Compensation committees - The company has a **13-member board of directors**, including five independent directors, with terms lasting until June 20, 2022[516](index=516&type=chunk) - An **Audit Committee, composed of all five independent directors**, was established to replace supervisors, with Lo-Yu Yen designated as the financial expert[518](index=518&type=chunk)[523](index=523&type=chunk) - A **Compensation Committee**, composed of three independent directors, is responsible for reviewing compensation policies for directors and managers[525](index=525&type=chunk) - A **Corporate Strategy Committee**, with eight director members, advises on long-term goals and major investments[524](index=524&type=chunk) [Employees](index=81&type=section&id=D.%20Employees) The company had 31,812 employees on a consolidated basis in 2021, with a highly educated workforce and strong union membership Consolidated Employee Headcount (2019-2021) | Category | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Technical | 15,633 | 16,352 | 16,150 | | Operations | 14,513 | 14,031 | 13,852 | | Administrative | 1,746 | 1,835 | 1,810 | | **Total** | **31,892** | **32,218** | **31,812** | - As of December 31, 2021, **85.8% of employees at the parent company** held bachelor, master, or doctoral degrees[530](index=530&type=chunk) - Approximately **99% of employees on a non-consolidated basis** are members of the principal labor union, and the company maintains good relations with them[531](index=531&type=chunk) - Employees are entitled to **1.7% to 4.3% of distributable earnings** as compensation, with NT$1.2 billion distributed in Q3 2021[532](index=532&type=chunk) [Share Ownership](index=82&type=section&id=E.%20Share%20Ownership) Directors and executives hold a negligible percentage of shares, while several subsidiaries have employee stock option plans - As of February 28, 2022, directors and executive officers beneficially owned an aggregate of 381,182 common shares, representing approximately **0.005% of total outstanding shares**[533](index=533&type=chunk) - The company's consolidated subsidiaries, including CHIEF, CHTSC, and CLPT, have **active employee stock option plans**[536](index=536&type=chunk)[537](index=537&type=chunk)[540](index=540&type=chunk) [Major Stockholders and Related Party Transactions](index=84&type=section&id=ITEM%207.%20MAJOR%20STOCKHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) The MOTC is the largest stockholder, and the company engages in significant arm's-length transactions with its subsidiaries [Major Stockholders](index=84&type=section&id=A.%20Major%20Stockholders) The Ministry of Transportation and Communications (MOTC) is the largest stockholder with a 35.29% holding Major Stockholders' Ownership Percentage | Stockholder | As of Feb 28, 2022 (%) | | :--- | :--- | | The MOTC | 35.29% | | Shin Kong Life Insurance Co., Ltd | 6.36% | - As of February 28, 2022, 20,602,198 ADSs were held by 30 record holders, representing about **2.7% of total outstanding common shares**[543](index=543&type=chunk) [Related Party Transactions](index=84&type=section&id=B.%20Related%20Party%20Transactions) The company engages in significant arm's-length transactions with related parties, primarily its subsidiaries - The company has an exclusive agreement with its subsidiary SENAO for mobile handset distribution, from which SENAO received **NT$6.0 billion** in 2021[547](index=547&type=chunk) - In 2021, Chunghwa paid its subsidiary Honghwa approximately **NT$6.3 billion** for on-site sales and equipment installation services[549](index=549&type=chunk) - The company purchased network equipment and supplies worth approximately **NT$1.5 billion** from its subsidiary Chunghwa System Integration in 2021[549](index=549&type=chunk) - **No loans, credit, or guarantees** for borrowings have been provided to any directors or executive officers[545](index=545&type=chunk) [Financial Information](index=85&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section covers the company's dividend policy and legal proceedings, highlighting a proposed dividend of NT$4.608 per share for 2021 Annual Dividends per Common Share (2017-2021) | Year Ended | Dividend per Share (NT$) | | :--- | :--- | | Dec 31, 2017 | 4.7960 | | Dec 31, 2018 | 4.4790 | | Dec 31, 2019 | 4.2260 | | Dec 31, 2020 | 4.3060 | | Dec 31, 2021 | 4.6080 | - The dividend for 2021, proposed at **NT$4.608 per share**, is subject to approval and represents a payout ratio of 99.98%[554](index=554&type=chunk) - The company is **not currently involved in any material litigation** or other proceedings that would have a significant effect on its financial position[553](index=553&type=chunk) [The Offer and Listing](index=86&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) The company's common shares are listed on the TWSE and its ADSs are listed on the NYSE - Common shares are listed on the **Taiwan Stock Exchange (TWSE)** under code "2412"[558](index=558&type=chunk) - American Depositary Shares (ADSs) are listed on the **New York Stock Exchange (NYSE)** under the symbol "CHT", with each ADS representing ten common shares[558](index=558&type=chunk) Closing Prices on April 6, 2022 | Security | Exchange | Closing Price | | :--- | :--- | :--- | | Common Shares | TWSE | NT$127 | | ADSs | NYSE | US$44.5 | [Additional Information](index=86&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers the articles of incorporation, exchange controls, and tax implications for investors [Memorandum and Articles of Incorporation](index=87&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Incorporation) The articles of incorporation specify authorized capital, board structure, dividend policy, and shareholder rights - The company's authorized capital is **NT$120 billion**, divided into 12 billion common shares[564](index=564&type=chunk) - The dividend policy mandates that **at least 50% of distributable net income** be distributed as dividends, with at least 50% of that in cash[573](index=573&type=chunk) - When issuing new shares for cash, **10% to 15% must be reserved for employees**, and existing shareholders have preemptive rights for the remainder[578](index=578&type=chunk) - Major corporate actions like amending the Articles of Incorporation require approval by **at least two-thirds of shares represented** at a meeting[583](index=583&type=chunk)[584](index=584&type=chunk) [Exchange Controls](index=93&type=section&id=D.%20Exchange%20Controls) Taiwan's exchange controls require registration for foreign investors and have annual remittance limits - Foreign exchange transactions must be handled by designated banks, with annual non-trade remittance limits of **US$50 million for companies** and US$5 million for individuals[623](index=623&type=chunk)[624](index=624&type=chunk) - Foreign investors must **register with the TWSE** to invest in Taiwan's securities market, and direct investment in telecommunications requires specific approval[611](index=611&type=chunk)[615](index=615&type=chunk) - ADS holders can convert proceeds into foreign currency, but withdrawing underlying shares requires the holder to **register as a foreign investor in Taiwan**[618](index=618&type=chunk)[621](index=621&type=chunk) [Taxation](index=96&type=section&id=E.%20Taxation) This section outlines ROC and U.S. tax implications for investors, including withholding tax on dividends - **ROC Taxation:** Dividends distributed to non-resident holders are subject to a **21% withholding tax**, while capital gains from share sales are exempt from income tax[629](index=629&type=chunk)[632](index=632&type=chunk) - **ROC Taxation:** A **securities transaction tax of 0.3%** is payable by the seller on the sale of common shares in Taiwan, but not on transfers of ADSs[637](index=637&type=chunk) - **U.S. Federal Income Tax:** For U.S. holders, distributions are generally treated as dividend income and may be eligible for **reduced "qualified dividend income" tax rates**[646](index=646&type=chunk)[648](index=648&type=chunk) - **U.S. Federal Income Tax:** The company believes it was **not a Passive Foreign Investment Company (PFIC)** for the 2021 taxable year[656](index=656&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=101&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to interest rate, foreign currency, and equity price risks, which are actively managed - The company's primary market risks are **interest rate, foreign currency, and equity price risk**[666](index=666&type=chunk) - A **0.25% change in interest rates** would impact 2021 pre-tax profit by approximately NT$31.3 million[669](index=669&type=chunk) - Foreign currency risk is managed through **forward exchange contracts** to hedge against fluctuations, particularly for Euro-denominated purchases[670](index=670&type=chunk)[671](index=671&type=chunk) - A **5% change in equity prices** would impact 2021 pre-tax profit by NT$46 million and other comprehensive income by NT$181 million[674](index=674&type=chunk) [Description of Securities Other than Equity Securities](index=102&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section details the fees and charges associated with the company's American Depositary Shares (ADSs) ADS Depositary Service Fees | Service | Fee | | :--- | :--- | | Issuance of ADSs | Up to US$5.00 per 100 ADSs issued | | Cancellation of ADSs | Up to US$5.00 per 100 ADSs cancelled | | Distribution of cash dividends | Up to US$2.00 per 100 ADSs held | | Distribution of stock dividends/rights | Up to US$5.00 per 100 ADSs held | - In 2021, the company received **US$0.6 million in net payments** from the depositary, JPMorgan Chase Bank, N.A., to cover expenses related to the ADR program[683](index=683&type=chunk) Part II [Controls and Procedures](index=105&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2021 - Management concluded that the company's **disclosure controls and procedures were effective** as of the end of the period covered by the annual report[686](index=686&type=chunk) - Management's annual report on internal control over financial reporting concluded that the **internal controls were effective** as of December 31, 2021[687](index=687&type=chunk)[690](index=690&type=chunk) - The independent auditor, Deloitte & Touche, issued an **unqualified opinion on the effectiveness** of the company's internal control over financial reporting[691](index=691&type=chunk)[694](index=694&type=chunk) - There were **no material changes** in internal control over financial reporting during the year ended December 31, 2021[701](index=701&type=chunk) [Audit Committee Financial Expert](index=107&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT) The company has designated Lo-Yu Yen, an independent director, as its audit committee financial expert - **Lo-Yu Yen**, an independent director, is designated as the audit committee financial expert[702](index=702&type=chunk) [Code of Ethics](index=107&type=section&id=ITEM%2016B.%20CODE%20OF%20ETHICS) The company has adopted a Code of Ethics applicable to all directors, managers, and employees - A **Code of Ethics** and Ethical Corporate Management Best Practice Principles has been adopted for all directors, managers, and employees[703](index=703&type=chunk) [Principal Accountant Fees and Services](index=107&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Total fees paid to the principal accountant, Deloitte & Touche, amounted to NT$49.6 million in 2021 Accountant Fees (in NT$ millions) | Fee Category | 2020 | 2021 | | :--- | :--- | :--- | | Audit fees | 43.4 | 49.3 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | 0.4 | 0.3 | - All audit and non-audit services provided by the principal accountant were **pre-approved by the company's audit committee**[708](index=708&type=chunk) [Corporate Governance](index=108&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) The company follows ROC corporate governance practices, which differ in some respects from NYSE standards for domestic issuers - The company follows **ROC corporate governance practices**, which differ from NYSE standards, particularly regarding director independence and committee structure[710](index=710&type=chunk)[712](index=712&type=chunk) - Unlike NYSE rules, ROC law does not require a majority of independent directors; the company has **five independent directors on its thirteen-member board**[713](index=713&type=chunk) - The company has an **Audit Committee and a Compensation Committee** composed of independent directors, complying with both ROC and applicable NYSE rules[718](index=718&type=chunk)[723](index=723&type=chunk) - The company **does not have a dedicated nominating/corporate governance committee**; instead, directors are elected by stockholders[719](index=719&type=chunk)[720](index=720&type=chunk) Part III [Financial Statements](index=111&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section lists the consolidated financial statements and the independent auditor's report included in the annual report - The report includes the **consolidated financial statements** and the report of the independent registered public accounting firm[732](index=732&type=chunk) Consolidated Financial Statements [Report of Independent Registered Public Accounting Firm](index=115&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche issued unqualified opinions on the financial statements and internal controls, identifying mobile service revenue recognition as a critical audit matter - The auditor, Deloitte & Touche, expressed an **unqualified opinion** on the consolidated financial statements for the years ended December 31, 2019, 2020, and 2021[738](index=738&type=chunk) - An **unqualified opinion** was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[739](index=739&type=chunk) - A **Critical Audit Matter** was identified concerning Revenue Recognition on Mobile Service, highlighting the complexity of auditing highly automated systems[741](index=741&type=chunk)[742](index=742&type=chunk)[743](index=743&type=chunk) [Consolidated Financial Statements Tables](index=117&type=section&id=Consolidated%20Financial%20Statements%20Tables) The financial statements show asset growth to NT$512.9 billion and net income growth to NT$37.0 billion in 2021 Consolidated Balance Sheet Highlights (as of Dec 31) | (In NT$ Millions) | 2020 | 2021 | | :--- | :--- | :--- | | **Total Current Assets** | 81,803 | 91,021 | | **Total Noncurrent Assets** | 424,377 | 421,854 | | **Total Assets** | **506,180** | **512,875** | | **Total Current Liabilities** | 73,223 | 66,229 | | **Total Noncurrent Liabilities** | 45,684 | 57,516 | | **Total Liabilities** | **118,907** | **123,745** | | **Total Equity** | **387,273** | **389,130** | Consolidated Statement of Comprehensive Income Highlights | (In NT$ Millions) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Revenues** | 207,520 | 207,609 | 210,478 | | **Gross Profit** | 71,567 | 70,580 | 75,367 | | **Income from Operations** | 40,646 | 42,361 | 44,930 | | **Net Income** | 33,921 | 34,704 | 37,047 | | **Total Comprehensive Income** | 35,249 | 35,994 | 36,081 | Consolidated Statement of Cash Flows Highlights | (In NT$ Millions) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | 72,427 | 74,456 | 74,858 | | **Net cash used in investing activities** | (27,127) | (68,254) | (31,172) | | **Net cash used in financing activities** | (38,934) | (9,802) | (34,314) | | **Net increase (decrease) in cash** | 6,405 | (3,630) | 9,359 | [Notes to Consolidated Financial Statements](index=127&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies, segment information, and specific financial statement items - The financial statements are prepared in conformity with **International Financial Reporting Standards (IFRSs)** as issued by the IASB[773](index=773&type=chunk) - Revenue from bundled contracts is allocated based on **relative standalone selling prices**, while project business revenue is recognized over time or upon completion[844](index=844&type=chunk)[847](index=847&type=chunk) - The company acquired a controlling interest in **International Integrated Systems, Inc. (IISI)** on July 1, 2020, which is accounted for as a business combination[940](index=940&type=chunk) - In February 2020, the company paid **NT$48,373 million to acquire 5G mobile broadband licenses**, which are recorded as intangible assets[1005](index=1005&type=chunk) - The company has both defined contribution and defined benefit retirement plans, with the **net defined benefit liability at NT$2,288 million** as of year-end 2021[1040](index=1040&type=chunk)[1044](index=1044&type=chunk)

[Chunghwa Telecom Form 6-K Filing (April 15, 2022)](index=1&type=section&id=Chunghwa%20Telecom%20Form%206-K%20Filing%20(April%2015%2C%202022)) [Reconciliation of 2021 Financial Statements (Taiwan-IFRSs vs. IFRSs)](index=3&type=section&id=Reconciliation%20of%202021%20Financial%20Statements%20(Taiwan-IFRSs%20vs.%20IFRSs)) The report reconciles 2021 financial statements under Taiwan-IFRSs and IFRSs, highlighting differences in income tax and historical revenue recognition [Financial Results under Taiwan-IFRSs (Year 2021)](index=3&type=section&id=Financial%20Results%20under%20Taiwan-IFRSs%20(Year%202021)) The company reported a consolidated net income of NT$37,195 million and total equity of NT$391,262 million under Taiwan-IFRSs for 2021 Financial Metrics (Taiwan-IFRSs) | Financial Metric | Amount (NT$ thousands) | | :--- | :--- | | Consolidated Net Income | 37,194,879 | | Net Income Attributable to Parent | 35,753,579 | | Basic Earnings Per Share | NT$4.61 | | Total Consolidated Assets | 513,070,360 | | Total Consolidated Liabilities | 121,807,910 | | Total Consolidated Equity | 391,262,450 | [Financial Results under IFRSs (Year 2021)](index=4&type=section&id=Financial%20Results%20under%20IFRSs%20(Year%202021)) The company reported a consolidated net income of NT$37,047 million and total equity of NT$389,130 million under IFRSs for 2021 Financial Metrics (IFRSs) | Financial Metric | Amount (NT$ millions) | | :--- | :--- | | Consolidated Net Income | 37,047 | | Net Income Attributable to Parent | 35,616 | | Basic Earnings Per Share | NT$4.59 | | Total Consolidated Assets | 512,875 | | Total Consolidated Liabilities | 123,745 | | Total Consolidated Equity | 389,130 | [Explanation of Differences](index=4&type=section&id=Explanation%20of%20Differences) Discrepancies between standards stem from the timing of income tax recognition and historical revenue recognition methods - The main difference stems from the timing of recognizing income tax on unappropriated earnings[5](index=5&type=chunk) - Historical differences in revenue recognition for fixed-line connection fees and prepaid phone cards prior to incorporation also contribute, though this reclassification **did not affect total equity**[5](index=5&type=chunk) [Basis for Earnings Distribution](index=4&type=section&id=Basis%20for%20Earnings%20Distribution) Earnings distribution and equity matters are governed by financial statements prepared under Taiwan-IFRSs - Chunghwa Telecom's earnings distribution and stockholders' equity matters are determined in accordance with **Taiwan-IFRSs**[6](index=6&type=chunk)

Chunghwa Telecom Co Ltd (NYSE:CHT) Q4 2021 Earnings Conference Call January 26, 2021 2:00 AM ET Company Participants Angela Tsai - Director of IR Harrison Kuo - President & Director Vincent Chen - Senior EVP, Finance & CFO Conference Call Participants Neale Anderson - HSBC Sara Wang - UBS Investment Bank Peter Milliken - Deutsche Bank Operator Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Fourth Quarter 2021 Operating Results. [Operator Instructions]. Fo ...

Chunghwa Telecom Co., Ltd. (NYSE:CHT) Q3 2021 Earnings Conference Call November 1, 2021 3:00 AM ET Company Participants Angela Tsai - Director of Investor Relations Harrison Kuo - President Vincent Chen - Chief Financial Officer Conference Call Participants Neale Anderson - HSBC Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. ...

Financial Data and Key Metrics Changes - Total revenues increased by 3.8% year-over-year in Q2 2021, driven by higher handset sales, mobile service revenue, and fixed broadband revenue [14][15] - Operating costs and expenses rose by 3.2% year-over-year, primarily due to increased depreciation, amortization, and marketing expenses [15][16] - Net income increased by 4.1%, and EBITDA margin improved to 41.9% from 40.5% in the same period of 2020 [14][15] Business Line Data and Key Metrics Changes - Mobile business maintained a revenue market share of 48.8% and a subscriber market share of 36% [8] - Postpaid ARPU turned positive year-over-year, with customers adopting 5G services contributing an average uplift of 21% to their monthly fees [5][6] - Broadband ARPU increased by 3% year-over-year, with a 52% year-over-year increase in subscribers migrating to higher-speed services [9][10] Market Data and Key Metrics Changes - The number of 5G sign-ups exceeded 1 million by the end of Q2 2021, with expectations to reach 2 million by year-end [5] - Demand for fixed broadband services surged due to COVID-19, resulting in positive net adds for subscribers year-over-year [6][7] - The number of home Wi-Fi devices increased by 650% year-over-year, reflecting the rise in home-centric applications [7] Company Strategy and Development Direction - The company aims to maintain its leading position in Taiwan's mobile market by enhancing 5G services and expanding its base station deployment to approximately 12,000 by year-end [6][8] - Continued investment in ICT and cloud services, with ICT project revenue increasing by 10% year-over-year [12][13] - Focus on integrating video services with fixed broadband and 5G to drive home-centric business performance [12] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining revenue generation streams despite potential turbulence in the second half of the year due to the pandemic [25][26] - The company plans to keep its full-year revenue and profit guidance conservative due to ongoing uncertainties [26] - Management anticipates continued growth momentum in 5G revenue and mobile services [35] Other Important Information - Cash flows from operating activities increased by 36.1% year-over-year, attributed to improved collection of accounts receivable [16] - The company budgeted $43.1 billion in CapEx for 2021, focusing on 5G network construction and related infrastructure [17] Q&A Session Summary Question: 5G base station target increase - Management confirmed the target for 5G base stations has been increased from 10,000 to approximately 12,000 by year-end due to accelerated construction [20][21][23] Question: Outlook for Q3 and Q4 - Management expects to maintain revenue momentum in the second half of the year despite pandemic challenges [25] Question: Changes in full-year revenue or profit guidance - Management maintains its full-year revenue and profit guidance, remaining conservative due to pandemic uncertainties [26] Question: CapEx structure with increased 5G base station target - Management clarified that while the number of base stations increased, the CapEx budget remains unchanged due to lower equipment costs and more efficient deployment [26] Question: ICT revenue growth outlook - Management indicated that ICT revenue is expected to grow, with contributions increasing in the coming years despite a lower percentage this year due to large projects last year [28][29]

Financial Data and Key Metrics Changes - Total revenues increased by 4.1% year-over-year in Q1 2021, driven by ICT project revenue and handset sales [12] - Operating costs and expenses rose by 3.7% year-over-year, primarily due to higher ICT project costs [13] - Net income increased by 6.4%, and EBITDA margin improved to 41.09% from 40.18% in the same period of 2020 [12][14] Business Line Data and Key Metrics Changes - Mobile business maintained a revenue market share of 39% and subscriber share of approximately 60% [7] - Broadband ARPU increased by 3% year-over-year, with a 58% year-over-year increase in subscribers adopting speeds of 300 Mbps or higher [8][9] - ICT project revenue grew by 20% year-over-year, with IDC revenue increasing by 40% and cybersecurity revenue up by 31% [11] Market Data and Key Metrics Changes - 5G subscriber growth exceeded internal targets, with a goal of 2 million subscribers by year-end [5] - Taiwan ranked first in 5G upload speeds and second in download speeds globally according to Opensignal [6] Company Strategy and Development Direction - The company aims to enhance 5G deployment and user experience, with a focus on expanding its ICT capabilities [6][11] - Plans to roll out higher-speed broadband services to further increase ARPU and solidify market leadership [9] Management Comments on Operating Environment and Future Outlook - Management remains optimistic about year-over-year growth in mobile service revenue despite challenges from COVID-19 [8] - The company expects to maintain an upward trend in broadband business and is focused on enhancing ICT project profit margins [11][18] Other Important Information - The company budgeted $43.1 billion in CapEx for 2021, focusing on 5G network construction, IDC, and submarine cables [14] - Cash and cash equivalents increased by 81.4% year-over-year to $30.06 billion, primarily due to corporate bond issuance [13][14] Q&A Session Summary Question: What is the ARPU lift for 5G adopters compared to 4G? - Management noted that postpaid mobile subscribers are seeing an upsell, with 5G users adopting higher price plans [17] Question: What is the fiber-to-the-home penetration rate? - The fiber-to-the-home penetration rate is approximately 85% [17] Question: What industries are the major customers for ICT projects? - Major customers include government agencies and research institutions, with a focus on increasing project profit margins [18] Question: What is the average data usage for 5G subscribers compared to 4G? - Average 5G users consume about 33 GB, compared to 24 GB for average mobile data users [23] Question: What is the expected return on investment for the ICT business? - Management aims to increase profit margins and has been selective in choosing ICT projects [26] Question: What is the reason for the increase in CapEx for 2021? - The increase is primarily due to the acceleration of 5G network deployment and demand for IDC and cloud services [36] Question: How many 5G base stations have been deployed so far? - Over 6,300 5G base stations have been completed, with a target of more than 10,000 by year-end [42] Question: How will government subsidies affect the income statement? - Government subsidies will be recorded as deferred revenue and amortized over the useful life of the 5G base stations [44]

Financial Performance - Q1 2021 - Revenues reached NT$50.10 billion, a 4.1% increase compared to Q1 2020's NT$48.15 billion[31] - Net income was NT$8.82 billion, up 6.4% from NT$8.28 billion in Q1 2020[31] - EPS increased by 6.4% to NT$1.14, compared to NT$1.07 in Q1 2020[31] - EBITDA grew by 6.4% to NT$20.58 billion, from NT$19.35 billion in Q1 2020, with an EBITDA margin of 41.09% versus 40.18%[31] Segment Revenue Performance - Q1 2021 - Domestic Fixed revenue increased by 4.8%[32] - Mobile revenue increased by 4.0%[32] - ICT and Other Services revenue increased significantly by 54.0%[32] - Internet revenue increased by 1.6%[32] Financial Position - Net cash flow from operating activities decreased by 25.8% to NT$9.88 billion[35] - Capital expenditure increased by 19.1% to NT$4.44 billion[35] - Free cash flow decreased by 43.3% to NT$5.44 billion[35] - Cash and cash equivalents at the end of the period stood at NT$30.06 billion, an 81.4% increase[35] Outlook - The company budgeted NT$43.1 billion for capital expenditure in 2021[41]

Part I [Key Information](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents Chunghwa Telecom's selected financial data and significant risk factors, including regulatory pressures, market competition, and operational disruptions, impacting its business and financial performance [Selected Financial Data](index=6&type=section&id=A.%20Selected%20Financial%20Data) Chunghwa Telecom's financial performance from 2018 to 2020 shows stable revenues around NT$207.6 billion, with net income reaching NT$34.7 billion and total assets increasing to NT$506.2 billion Consolidated Statements of Comprehensive Income Data (2018-2020) | Indicator | 2018 (NT$ billions) | 2019 (NT$ billions) | 2020 (NT$ billions) | 2020 (US$ billions) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | 215.5 | 207.5 | 207.6 | 7.4 | | **Gross profit** | 75.9 | 71.6 | 70.6 | 2.5 | | **Income from operations** | 43.6 | 40.7 | 42.4 | 1.5 | | **Consolidated net income** | 38.6 | 33.9 | 34.7 | 1.2 | | **Basic EPS (NT$)** | 4.84 | 4.25 | 4.31 | 0.15 | Consolidated Balance Sheets Data (As of Dec 31, 2018-2020) | Indicator | 2018 (NT$ billions) | 2019 (NT$ billions) | 2020 (NT$ billions) | 2020 (US$ billions) | | :--- | :--- | :--- | :--- | :--- | | **Total assets** | 467.1 | 477.1 | 506.2 | 18.0 | | **Total liabilities** | 82.5 | 92.8 | 118.9 | 4.2 | | **Equity attributable to stockholders** | 374.7 | 374.2 | 376.1 | 13.4 | Consolidated Cash Flows and Other Financial Data (2018-2020) | Indicator | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities (NT$ billions)** | 66.4 | 72.4 | 74.5 | | **Net cash used in investing activities (NT$ billions)** | (32.6) | (27.1) | (68.3) | | **Capital expenditures (NT$ billions)** | 28.6 | 24.2 | 23.5 | | **Gross margin** | 35% | 34% | 34% | | **Operating margin** | 20% | 20% | 20% | | **Cash dividends declared per share (NT$)** | 4.479 | 4.226 | 4.306 | [Risk Factors](index=8&type=section&id=D.%20Risk%20Factors) The company faces substantial risks from extensive regulation, intense market competition, operational disruptions, cybersecurity threats, geopolitical tensions, and the significant influence of its largest stockholder, the ROC government - The company is subject to extensive regulation by the National Communications Commission (NCC), which imposes tariff reduction plans that could decrease revenues, with a new round effective from April 1, 2020, to March 31, 2024[18](index=18&type=chunk)[20](index=20&type=chunk) - Intense market competition exists from five mobile network operators offering aggressive promotional programs, such as unlimited low-priced data plans, and cable operators bundling high-speed internet and TV services at discounted prices[29](index=29&type=chunk)[30](index=30&type=chunk) - Operational disruptions are a key risk, stemming from system failures, network shutdowns, or natural disasters like earthquakes and typhoons, with submarine cables broken four times in 2020 causing service suspensions, and geopolitical conflicts causing delays in new submarine cable construction[33](index=33&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) - The ROC government, through the MOTC, is the largest stockholder with approximately **35.29% ownership**, giving it significant control over the company's board, business strategy, and dividend policy[55](index=55&type=chunk) - The company faces substantial political risks due to the tense relationship between the ROC and the PRC, which could adversely affect financial conditions and operations, and the COVID-19 pandemic has negatively impacted roaming revenue and handset sales[65](index=65&type=chunk)[67](index=67&type=chunk) - Foreign ownership of the company's common shares is limited by the Telecommunications Management Act (TMA) to **49%** for direct holdings and **60%** for total direct and indirect holdings, with violations potentially leading to sanctions[77](index=77&type=chunk) [Information on the Company](index=21&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details Chunghwa Telecom's history, competitive strengths, and business strategies, focusing on customer-centric transformation, expanding core and emerging services, and improving operational efficiency [History, Development, Strengths, and Strategies](index=21&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Chunghwa Telecom, Taiwan's largest integrated telecommunications provider, leverages its full-service offerings and strong network to pursue a customer-centric transformation, expanding into emerging technologies and strategic alliances - Chunghwa Telecom is the largest telecommunications service provider in Taiwan, leading in fixed communications, mobile communications, broadband access, and IPTV services, with **NT$207.6 billion** in revenues and **NT$34.7 billion** in net income in 2020[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Key competitive strengths include its position as an integrated, full-service provider, a premium brand with a broad customer base, extensive FTTx and mobile network coverage, and strong capital resources for investment in new technologies like 5G[98](index=98&type=chunk)[99](index=99&type=chunk)[106](index=106&type=chunk) - The company's strategic transformation plan, "Together, We Rise in 2021", focuses on four areas: core business, emerging businesses, cost optimization, and core competencies improvement, guided by customer-centric value creation[110](index=110&type=chunk) - Growth strategies involve expanding broadband services by encouraging upgrades to higher speeds (**300Mbps-1Gbps**), enhancing 5G penetration, enriching MOD/OTT content, and growing ICT services like IDC, cloud, and cybersecurity[112](index=112&type=chunk)[114](index=114&type=chunk)[116](index=116&type=chunk) - The company is expanding its business through strategic alliances with major tech firms like Google Cloud, AWS, and Microsoft, and through investments and acquisitions, such as increasing ownership in IISI for FinTech and investing in the internet-only bank NCB[126](index=126&type=chunk)[127](index=127&type=chunk)[130](index=130&type=chunk) [Business Overview](index=27&type=section&id=B.%20Business%20Overview) Chunghwa Telecom's operations are segmented into domestic fixed, mobile, internet, and international fixed communications, facing intense competition and operating under a transitioning regulatory framework - The business is divided into four core segments: Domestic Fixed Communications, Mobile Communications, Internet, and International Fixed Communications[134](index=134&type=chunk) - The company faces competition in all business aspects, including from other fixed-line operators, mobile operators offering low-priced data plans, cable TV MSOs, OTT service providers, and system integration service providers[207](index=207&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk) - The regulatory environment is transitioning from the Telecommunications Act to the Telecommunications Management Act (TMA), passed in 2019, which aims to reduce market entry barriers and loosen restrictions, though the company may still be designated as having a significant market position[270](index=270&type=chunk) - The company's operations are also subject to the Fair Trade Act (FTA), which prohibits anti-competitive conduct such as cartels, price squeezing, and cross-subsidies, with the Fair Trade Commission (FTC) having authority to investigate and impose fines for violations[25](index=25&type=chunk)[283](index=283&type=chunk) [Principal Lines of Business](index=27&type=section&id=Principal%20Lines%20of%20Business) In 2020, Domestic Fixed Communications and Internet services grew, while Mobile Communications and International Fixed Communications saw revenue declines due to competition and strategic adjustments Domestic Fixed Communications Revenue (2018-2020) | Service | 2018 (NT$ billions) | 2019 (NT$ billions) | 2020 (NT$ billions) | | :--- | :--- | :--- | :--- | | **Total Revenue** | 66.8 | 65.7 | 69.5 | | Local Telephone | 27.6 | 25.7 | 24.5 | | Broadband Access | 18.3 | 18.0 | 18.1 | | MOD Services | 3.3 | 3.6 | 3.64 | Mobile Communications Revenue (2018-2020) | Service | 2018 (NT$ billions) | 2019 (NT$ billions) | 2020 (NT$ billions) | | :--- | :--- | :--- | :--- | | Mobile Services | 63.9 | 58.7 | 56.7 | | Handset Sales | 35.7 | 35.5 | 32.1 | - Internet business revenue increased, representing **15.5%** of total revenues in 2020, up from **13.8%** in 2018, driven by services such as IDC, cloud, IoT, and cybersecurity[179](index=179&type=chunk) - International fixed communications revenue decreased to **4.2%** of total revenue in 2020, down from **6.2%** in 2018, primarily due to a strategic decision to reduce low-margin wholesale International Long Distance (ILD) traffic[185](index=185&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk) [Network Infrastructure](index=38&type=section&id=Network%20Infrastructure) The company's network infrastructure features extensive fiber optics, 5G mobile network launched in June 2020, and a robust HiNet internet backbone with significant international connectivity - As of December 31, 2020, the transmission network consisted of approximately **2.7 million fiber kilometers** for trunking and **10.7 million** for local loop, with **10.3 million FTTx ports** offering speeds up to **1 Gbps**[221](index=221&type=chunk)[223](index=223&type=chunk) - In February 2020, the company acquired 5G spectrum with **90MHz bandwidth** in the 3.5GHz band and **600MHz** in the 28GHz band, launching 5G services on June 30, 2020[169](index=169&type=chunk)[236](index=236&type=chunk) - The HiNet internet service provider has the largest access network in Taiwan, with a backbone bandwidth of approximately **12,232 Gbps** and total international connection bandwidth of **2,212 Gbps** as of year-end 2020[238](index=238&type=chunk)[240](index=240&type=chunk) - The company has invested in **27 submarine cables**, **12** of which land in Taiwan, increasing its total aggregate international capacity to **18,718 Gbps** in 2020 from **17,256 Gbps** in 2019[231](index=231&type=chunk) [Operating and Financial Review and Prospects](index=51&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, highlighting stable revenues, strong liquidity from operating cash flow, significant capital expenditures on 5G and FTTx, and key contractual obligations [Operating Results](index=61&type=section&id=A.%20Operating%20Results) In 2020, total revenues remained stable at NT$207.6 billion, with growth in domestic fixed and internet services offsetting declines in mobile and international fixed communications, leading to increased operating and net income Revenues by Business Segment (2018-2020) | Segment | 2018 (NT$ billions) | 2019 (NT$ billions) | 2020 (NT$ billions) | | :--- | :--- | :--- | :--- | | Domestic Fixed Communications | 66.8 | 65.7 | 69.5 | | Mobile Communications | 100.9 | 95.5 | 90.2 | | Internet | 29.8 | 30.1 | 32.1 | | International Fixed Communications | 13.4 | 11.5 | 8.7 | | Others | 4.6 | 4.7 | 7.1 | | **Total Revenues** | **215.5** | **207.5** | **207.6** | - **2020 vs. 2019:** Total revenues were stable, Domestic fixed communications revenue increased **5.7%** to **NT$69.5 billion**, driven by ICT and broadband growth, Mobile communications revenue decreased **5.5%** to **NT$90.2 billion** due to lower handset sales and reduced roaming from COVID-19, Internet revenue grew **6.7%** to **NT$32.1 billion**, and Income from operations increased **4.2%** to **NT$42.4 billion**[391](index=391&type=chunk)[392](index=392&type=chunk)[398](index=398&type=chunk)[419](index=419&type=chunk) - **2019 vs. 2018:** Total revenues decreased **3.7%** to **NT$207.5 billion**, Mobile communications revenue fell **5.4%** due to market competition, Domestic fixed communications revenue decreased **1.5%** as declines in traditional phone services offset growth in ICT and MOD, International fixed communications revenue dropped **14.5%** due to a strategy to reduce low-margin wholesale traffic, and Income from operations decreased **6.9%** to **NT$40.7 billion**[425](index=425&type=chunk)[429](index=429&type=chunk)[433](index=433&type=chunk)[449](index=449&type=chunk) [Liquidity and Capital Resources](index=72&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with NT$74.5 billion in operating cash flow in 2020, covering capital expenditures and dividends, despite a significant NT$47.4 billion payment for 5G spectrum Summary of Cash Flows (2018-2020) | Cash Flow Item (NT$ billions) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 66.4 | 72.4 | 74.5 | | Net cash used in investing activities | (32.6) | (27.1) | (68.3) | | Net cash used in financing activities | (35.0) | (38.9) | (9.8) | | **Cash and cash equivalents at end of year** | **27.6** | **34.1** | **30.4** | - The significant increase in net cash used in investing activities in 2020 was primarily due to a payment of **NT$47.4 billion** for acquiring the 5G mobile broadband spectrum[462](index=462&type=chunk) Capital Expenditures by Business Segment (2018-2020) | Segment (NT$ billions) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Domestic fixed communications | 12.7 | 12.1 | 11.5 | | Mobile communications | 10.7 | 7.8 | 8.8 | | Internet | 2.7 | 1.4 | 1.4 | | **Total capital expenditures** | **28.6** | **24.2** | **23.5** | - Total capital expenditures are planned to increase to approximately **NT$43.1 billion** in 2021, with a focus on 4G/5G network deployment, FTTx network expansion, and IDC construction[477](index=477&type=chunk) [Research and Development, Patents and Licenses](index=75&type=section&id=C.%20Research%20and%20Development,%20Patents%20and%20Licenses) In 2020, R&D focused on 5G, AI, IoT, and smart city solutions, resulting in 161 patent applications and 177 certified patents, aligning with the company's strategic transformation - R&D efforts in 2020 were aligned with the company's transformation plan, focusing on core business technologies like 5G and high-speed broadband, as well as emerging businesses such as AI, IoT, blockchain, and smart city solutions[484](index=484&type=chunk)[485](index=485&type=chunk) - In 2020, the company applied for **161 patents** and had **177 patents** certified (including those from previous years), demonstrating a continued focus on innovation[486](index=486&type=chunk) [Contractual Obligations](index=76&type=section&id=F.%20Tabular%20Disclosure%20of%20Contractual%20Obligations) As of year-end 2020, total contractual obligations were NT$38.4 billion, including NT$20.0 billion in bonds payable and NT$9.7 billion in lease liabilities, plus NT$26.8 billion in non-cancelable commitments Contractual Obligations by Period (as of Dec 31, 2020) | Obligation (NT$ billions) | Total | Less than 1 Year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Short-term loans & bills | 7.1 | 7.1 | - | - | - | | Current portion of long-term loans | 1.6 | 1.6 | - | - | - | | Bonds payable | 20.0 | - | - | 8.8 | 11.2 | | Lease liabilities | 9.7 | 3.4 | 4.2 | 1.7 | 0.4 | | **Total** | **38.4** | **12.1** | **4.2** | **10.5** | **11.6** | - As of December 31, 2020, the company had remaining non-cancelable contract commitments of **NT$26.8 billion** for the acquisition of telecommunications-related inventory and equipment[491](index=491&type=chunk) [Directors, Senior Management and Employees](index=77&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, including its 13-member board with five independent directors, aggregate compensation of NT$117.5 million in 2020, and its 32,218 employees as of year-end 2020 - The Board of Directors consists of **13 members**, including **5 independent directors**, with all non-independent directors being representatives of the Ministry of Transportation and Communications (MOTC)[494](index=494&type=chunk)[533](index=533&type=chunk) - The aggregate compensation for directors and executive officers was **NT$117.5 million** (US$4.2 million) in 2020, which includes salaries, pensions, and bonuses[528](index=528&type=chunk) - The company has an audit committee composed of all five independent directors and a compensation committee composed of three independent directors, in compliance with both ROC and NYSE requirements[535](index=535&type=chunk)[541](index=541&type=chunk) Employee Headcount (Consolidated) | Category | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Technical | 15,760 | 15,633 | 16,352 | | Operations | 15,096 | 14,513 | 14,031 | | Administrative | 1,755 | 1,746 | 1,835 | | **Total** | **32,611** | **31,892** | **32,218** | [Major Stockholders and Related Party Transactions](index=86&type=section&id=ITEM%207.%20MAJOR%20STOCKHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) The ROC government is the largest stockholder with 35.29% ownership, alongside Shin Kong Life Insurance Co., Ltd., and the company engages in significant related party transactions with its subsidiary SENAO Major Stockholders' Ownership | Name | 2019 (%) | 2020 (%) | Feb 2021 (%) | | :--- | :--- | :--- | :--- | | The MOTC | 35.29 | 35.29 | 35.29 | | Shin Kong Life Insurance Co., Ltd | 7.01 | 7.47 | 8.16 | - As of February 28, 2021, approximately **3.0%** of total outstanding common shares were held in the form of ADSs[562](index=562&type=chunk) - The company has a significant business relationship with its subsidiary SENAO, which serves as the exclusive distributor of mobile handsets to Chunghwa's retail outlets, with SENAO receiving **NT$5.8 billion** from Chunghwa for services and Chunghwa selling **NT$3.0 billion** worth of handsets to SENAO in 2020[566](index=566&type=chunk)[567](index=567&type=chunk) [Financial Information](index=87&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the full consolidated financial statements are under Item 18 and details the company's dividend policy, with a 99.99% payout ratio and NT$4.306 per share declared for 2020 Dividends Declared (2016-2020) | Year Ended Dec 31 | Dividends Per Common Share (NT$) | Total Dividends (NT$ billions) | | :--- | :--- | :--- | | 2016 | 4.9419 | 38.3 | | 2017 | 4.7960 | 37.2 | | 2018 | 4.4790 | 34.7 | | 2019 | 4.2260 | 32.8 | | 2020 | 4.3060 | 33.4 | - The dividend for 2020 was approved by the board in February 2021 and is scheduled for declaration at the stockholders' meeting on May 28, 2021, with a payout ratio of **99.99%** in 2020 after adjusting for unappropriated earnings[573](index=573&type=chunk) [The Offer and Listing](index=88&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) Chunghwa Telecom's common shares are listed on the Taiwan Stock Exchange (TWSE) and its American Depositary Shares (ADSs) trade on the New York Stock Exchange (NYSE) under the symbol "CHT" - The company's common shares trade on the Taiwan Stock Exchange (TWSE) under the code "**2412**"[577](index=577&type=chunk) - The company's American Depositary Shares (ADSs) trade on the New York Stock Exchange (NYSE) under the symbol "**CHT**", with each ADS representing **ten common shares**[578](index=578&type=chunk) [Additional Information](index=89&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section details the company's corporate governance, including dividend policy, preemptive rights, Taiwan's exchange controls, and applicable ROC and U.S. federal income tax considerations for shareholders - The company's dividend policy stipulates that at least **50%** of net income, after reserves, must be distributed as dividends, with at least **50%** of that distribution being in cash[594](index=594&type=chunk) - When issuing new shares for cash, employees have preemptive rights to subscribe for **10% to 15%** of the new issue, and existing shareholders have pro-rata subscription rights for the remainder[599](index=599&type=chunk) - Taiwan's exchange control regulations allow foreign investors to remit capital and repatriate profits, dividends, and capital gains, subject to certain procedures and limits, such as resident individuals remitting up to **US$5 million** per year[633](index=633&type=chunk)[643](index=643&type=chunk) - For non-ROC resident investors, dividends are subject to a **21%** withholding tax, while capital gains from the sale of common shares are no longer subject to capital gains tax as of January 1, 2016, and sales of ADSs are not subject to ROC income tax[648](index=648&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk) - For U.S. holders, distributions are generally treated as dividend income, and dividends on ADSs may be subject to reduced tax rates as they are considered paid by a qualified foreign corporation[665](index=665&type=chunk)[667](index=667&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=103&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks including interest rate, foreign currency, and equity price fluctuations, with sensitivity analyses indicating potential impacts on pre-tax profit and comprehensive income from these changes - Interest rate risk is considered immaterial, with a hypothetical **0.25%** change in interest rates affecting the 2020 profit before tax by approximately **NT$19 million** (US$0.7 million)[687](index=687&type=chunk)[688](index=688&type=chunk) - The company is exposed to foreign currency risk from overseas equipment purchases and international settlements, which is managed through the use of forward exchange contracts[689](index=689&type=chunk)[691](index=691&type=chunk) - Equity price risk exists due to holdings in other companies, with a hypothetical **5%** change in equity prices impacting 2020 pre-tax profit by **NT$34 million** and other comprehensive income by **NT$360 million**[692](index=692&type=chunk)[1205](index=1205&type=chunk) Part II [Controls and Procedures](index=107&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by an unqualified attestation report from Deloitte & Touche - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the annual report[705](index=705&type=chunk) - Management assessed the internal control over financial reporting using the COSO framework and concluded that it was effective as of December 31, 2020[708](index=708&type=chunk)[709](index=709&type=chunk) - The independent registered public accounting firm, Deloitte & Touche, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[710](index=710&type=chunk)[713](index=713&type=chunk) [Corporate Governance](index=110&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, Chunghwa Telecom follows ROC corporate governance practices, which differ from NYSE standards in areas like independent director majority and committee structure, while maintaining audit and compensation committees - The company follows its home country (ROC) corporate governance practices, which are permitted for foreign private issuers, in lieu of certain NYSE standards[729](index=729&type=chunk)[730](index=730&type=chunk) - A significant difference from NYSE standards is that the board does not have a majority of independent directors; it has **5 independent directors** on its **13-member board**, which complies with ROC law[732](index=732&type=chunk) - The company has an audit committee composed entirely of its five independent directors, which replaces the role of supervisors and complies with both ROC Securities and Exchange Act and NYSE rules[735](index=735&type=chunk)[737](index=737&type=chunk) - Unlike NYSE requirements for U.S. companies, Chunghwa Telecom does not have a separate nominating/corporate governance committee; these functions are performed by the full board of directors[738](index=738&type=chunk) Part III [Financial Statements](index=113&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the complete audited consolidated financial statements for 2018-2020, prepared under IFRS, including balance sheets, income statements, and cash flows, with an unqualified opinion from Deloitte & Touche [Report of Independent Registered Public Accounting Firm](index=117&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche issued an unqualified opinion on Chunghwa Telecom's consolidated financial statements and internal control over financial reporting, identifying mobile service revenue recognition as a critical audit matter - The independent auditor, Deloitte & Touche, issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position and results of operations in conformity with IFRS[757](index=757&type=chunk) - The auditor also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[759](index=759&type=chunk) - A Critical Audit Matter was identified related to "Revenue Recognition on Mobile Service" due to the complexity and high automation of the systems used to process a significant volume of low-dollar transactions[763](index=763&type=chunk)[765](index=765&type=chunk) [Consolidated Financial Statements](index=119&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for 2019-2020 show total assets grew to NT$506.2 billion, total liabilities increased to NT$118.9 billion, and 2020 revenue was NT$207.6 billion with NT$74.5 billion in operating cash flow Consolidated Balance Sheet Highlights (As of Dec 31) | Account (NT$ millions) | 2019 | 2020 | | :--- | :--- | :--- | | **Total current assets** | 94,072 | 81,803 | | **Total noncurrent assets** | 383,056 | 424,377 | | **Total Assets** | **477,128** | **506,180** | | **Total current liabilities** | 66,143 | 73,223 | | **Total noncurrent liabilities** | 26,713 | 45,684 | | **Total Liabilities** | **92,856** | **118,907** | | **Total Equity** | **384,272** | **387,273** | Consolidated Statement of Comprehensive Income Highlights (Year Ended Dec 31) | Account (NT$ millions) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | **Revenues** | 215,483 | 207,520 | 207,609 | | **Gross Profit** | 75,938 | 71,567 | 70,580 | | **Income from Operations** | 43,644 | 40,646 | 42,361 | | **Net Income** | 38,581 | 33,921 | 34,704 | | **Net Income Attributable to Parent** | 37,557 | 32,947 | 33,419 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Account (NT$ millions) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 66,366 | 72,427 | 74,456 | | Net cash used in investing activities | (32,614) | (27,127) | (68,254) | | Net cash used in financing activities | (35,035) | (38,934) | (9,802) |