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) |

Financial Data and Key Metrics Changes - In Q4 2020, total revenues increased by 7.7% year-over-year, while operating costs and expenses rose by 11.3% [12][13] - Income from operations increased by 5.7%, and net income rose by 5.8% [12] - EBITDA margin decreased to 33.44% from 33.94% in the prior year [12] Business Line Data and Key Metrics Changes - Mobile services maintained a leading market share of 36% in subscribers and 38.4% in revenue [7] - Broadband ARPU increased by 3% year-over-year, with a 69% increase in subscribers opting for 300 Mbps or higher [8][9] - ICT project revenue surged by 49.9% year-over-year, with IDC revenue up by 75.6% [10][11] Market Data and Key Metrics Changes - The number of 5G base stations exceeded 4,500 by the end of 2020, with expectations to surpass 10,000 by the end of 2021 [5][6] - 88% of iPhone 12 subscribers chose plans priced at TWD999 or above, indicating a shift towards higher-priced plans [5] Company Strategy and Development Direction - The company aims to accelerate 5G network development to enhance speed and quality, targeting 2 million 5G subscribers in 2021 [17] - Focus on expanding ICT ecosystems through partnerships and new service development, particularly in cybersecurity and cloud computing [17][18] - Plans to invest in submarine cable construction to establish a regional hub in the Asia Pacific [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about mobile performance and revenue growth in 2021, despite challenges from market competition [5][17] - The company anticipates a slight revenue increase of 0.8% to 1% in 2021, driven by mobile communications and internet services [15] Other Important Information - CapEx for 2020 was TWD23.3 billion, lower than the budgeted TWD30.7 billion, with a projected increase to TWD43.1 billion for 2021 [16] - The company received validations as an Azure Expert Managed Services Provider and AWS Managed Services Provider, enhancing its cloud service capabilities [19] Q&A Session Summary Question: Details on ICT revenue contribution and margin trends - Management indicated that ICT project margins average around 15% but can vary based on project size [21][23] Question: CapEx expectations for 2021 - CapEx is expected to peak in 2021 at TWD43.1 billion, with a decrease anticipated in subsequent years [23][28] Question: 5G subscriber numbers and targets - The company confirmed it aims to accumulate over 2 million 5G subscribers by the end of 2021 [28] Question: Mobile ARPU and its components - Mobile ARPU uplift is attributed to the migration from 4G to 5G, with 90% of 5G customers coming from 4G [32][45] Question: Specific projects driving increased CapEx in the internet sector - The increase in internet CapEx is primarily for IDC and FTTx projects, with expectations of revenue growth from these investments [54][56]

Financial Performance - Q4 2020 & Full Year 2020 - Consolidated revenues for Q4 2020 increased by 7.7% to NT$59.48 billion compared to NT$55.23 billion in Q4 2019[30], while full-year 2020 revenues remained relatively flat at NT$207.61 billion compared to NT$207.52 billion in 2019[30] - Net income attributable to owners of the parent for Q4 2020 increased by 5.8% to NT$8.23 billion compared to NT$7.77 billion in Q4 2019[30], and for the full year 2020, net income increased by 1.9% to NT$33.42 billion compared to NT$32.79 billion in 2019[30] - EPS for Q4 2020 increased by 5.8% to NT$1.06 compared to NT$1.00 in Q4 2019[30], and for the full year 2020, EPS increased by 1.9% to NT$4.31 compared to NT$4.23 in 2019[30] - EBITDA for Q4 2020 increased by 6.1% to NT$19.89 billion compared to NT$18.75 billion in Q4 2019[30], and for the full year 2020, EBITDA increased by 3.8% to NT$78.70 billion compared to NT$75.82 billion in 2019[30] - EBITDA margin for Q4 2020 was 33.44%[30], and for the full year 2020, the EBITDA margin was 37.91%[30] Business Segment Performance - Q4 2020 - Domestic Fixed revenue increased by 10.2%[31], Mobile revenue increased by 2.0%[31], Internet revenue increased by 18.3%[31], and Application VAS revenue increased significantly by 66.2%[31] - International Fixed revenue decreased by 18.5%[31], with ILD experiencing a substantial decrease of 70.2%[31] Costs and Expenses - Q4 2020 - Operating costs increased by 13.8% to NT$42.33 billion[33], while operating expenses decreased slightly by 0.5% to NT$7.97 billion[33] Cash Flow - Q4 2020 - Net cash flow from operating activities increased by 16.2% to NT$27.40 billion[34], and free cash flow increased by 14.9% to NT$18.12 billion[34] - Cash and cash equivalents at the end of the period decreased by 10.6% to NT$30.44 billion[34] 2021 Forecast - The company forecasts revenue between NT$209.26 billion and NT$209.72 billion, representing a growth of 0.8% to 1.0%[36] - The company forecasts EBITDA between NT$79.90 billion and NT$80.65 billion, representing a growth of 1.5% to 2.5%[36]

Chunghwa Telecom Co., Ltd. (NYSE:CHT) Q3 2020 Earnings Conference Call October 30, 2020 3:00 AM ET Company Participants Angela Tsai - Senior Manager, Investor Relations Vincent Chen - Senior Executive Vice President and Chief Financial Officer Shui Kuo - President and Director Conference Call Participants Neale Anderson - HSBC Jack Hsu - SinoPac Securities Sara Wang - Morgan Stanley Kang Ma - Fidelity Ryan Chen - UBS Eddie Liu - Citi Operator Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom ...

Financial Data and Key Metrics Changes - Total revenues decreased by 4.6% year-over-year in Q2 2020, while operating costs decreased by 6.6% [16] - Income from operations increased by 3%, and net income remained the same year-over-year [16] - EBITDA margin increased to 40.5% from 38.1% in the same period of 2019 [16] Business Line Data and Key Metrics Changes - Mobile service revenue experienced a small decrease quarter-over-quarter, primarily due to efforts to guide subscribers to adopt higher-priced plans [9] - Broadband migration to 300 megabits per second increased more than 30% year-over-year, with at Home WiFi subscriptions increasing 120% year-over-year [6][7] - IPTV and multi-platform services maintained over 2.08 million subscribers, with MOD revenue increasing 2.1% year-over-year [12] - ICT project revenue increased by 3.8% year-over-year, driven by large project revenue recognition [13] Market Data and Key Metrics Changes - The company saw growth in fixed broadband, cloud, and ICT services due to increased demand from remote work and study [8] - Digital channel assets and transactions increased by 92% year-over-year [8] - International mobile enrollment revenue continued to be affected by ongoing lockdowns [8] Company Strategy and Development Direction - The company launched its 5G service on June 30, 2020, aiming to innovate and provide services beyond standard offerings [6] - Plans to acquire more than one million 5G subscribers over the next year, leveraging its large enterprise customer base [9][10] - Focus on enhancing ICT training revenue contribution to stabilize overall performance [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of COVID-19 on overall business but noted resilience in core business areas [8] - The company expects the mobile competition to remain stable, with no significant changes observed in the quarter [23] - Management remains optimistic about the potential for ARPU uplift as 5G adoption increases [26] Other Important Information - Cash flow from operating activities decreased by TWD 2.78 billion or 17.5% compared to the same period of 2019 [17] - The company plans to budget TWD 30.7 billion for CapEx in 2020, focusing on 5G-related expenditures [18] Q&A Session Summary Question: Cost outlook related to 5G launch - Management indicated that marketing expenses will increase as 5G services are promoted, but they will also look to offset costs [20][21] Question: Update on mobile competition - Management noted that competition remains stable, with no significant changes in pricing observed [23] Question: ARPU increase for 5G plans - Management confirmed that they are seeing an uplift in ARPU for customers adopting 5G plans [25] Question: CapEx outlook for 2021 - Management indicated that CapEx will likely increase due to the expansion of base stations, but specific figures were not disclosed [28][30] Question: Initial adoption rate of 5G plans - Management did not disclose specific numbers regarding the initial adoption rate of 5G subscribers [31] Question: Reason for net profit exceeding expectations - Management attributed the higher-than-expected net profit to a decrease in low-margin revenue, which helped improve margins [34][36] Question: Comparison of payments between new 5G subscribers and original payments - Management confirmed that they see an uplift in payments from new 5G subscribers compared to their previous 4G plans [42] Question: Impact of competition on MOD business - Management acknowledged that the MOD subscriber base has remained stable, but competition from OTT services has had some impact [43]

Financial Data and Key Metrics Changes - In Q1 2020, total revenues decreased by 6.2% year-over-year, while operating costs and expenses decreased by 8.1% [12][13] - Income from operations increased by 1.2%, and net income decreased by 0.4% year-over-year [12] - EBITDA margin increased to 40.19% from 37.33% in the same period of 2019 [12] Business Line Data and Key Metrics Changes - Mobile revenue and subscriber market share grew to 38.3% and 37.2%, respectively, providing a solid foundation for the upcoming 5G service launch [6] - Broadband business saw ARPU growth, with subscribers migrating to higher speed services; users on plans with speeds of 100 Mbps or higher increased by 11.4% year-over-year [9] - IPTV MOD platform maintained over 2.08 million subscribers, with revenue increasing by 2.9% year-over-year [10] - ICT revenue decreased year-over-year due to a higher baseline in Q1 2019, but streaming revenue contribution increased [7][11] Market Data and Key Metrics Changes - The COVID-19 pandemic impacted enterprise business and international roaming revenue due to social distancing and lockdowns [5] - Increased demand for cloud services and enterprise conferencing was noted, indicating potential growth opportunities [5] Company Strategy and Development Direction - The company aims to leverage its leading spectrum resources and ICT technology to respond to future competition and business development [5] - Focus on migrating subscribers to higher speed services and enhancing content offerings for IPTV to maintain growth trajectory [10] Management's Comments on Operating Environment and Future Outlook - Management expects mobile service revenue to decline in 2020 due to limited initial 5G subscriber adoption [53] - The company anticipates that most ICT revenue will be recognized in the second half of 2020, with a focus on improving margins through in-house solutions [11][19] Other Important Information - The company is budgeting capex of TWD 30.7 billion for 2020, focusing on growing and emerging businesses [15] - Cash and cash equivalents decreased by TWD 20.64 billion or 55.4% compared to the same period of 2019, mainly due to 5G frequency spectrum auction payments [14] Q&A Session Summary Question: What percentage of service revenue is made up of roaming revenue? - Management indicated that while the percentage is not high, international roaming revenue has been impacted due to lockdowns [16] Question: Are there plans to reduce costs in the retail distribution channel? - The company aims to enhance customer experience through digital shops, which may involve cost adjustments [17] Question: How does ICT profitability compare to traditional telecom business? - ICT profitability is generally lower than traditional telecom, but efforts are being made to improve margins through in-house solutions [19][24] Question: Will the company be ready to launch 5G by Q3 2020? - Management confirmed that the 5G service launch is still scheduled for Q3 2020, with no changes due to the pandemic [41] Question: What are the goals for 5G subscribers by the end of 2020 and 2021? - Specific subscriber goals for 2020 were not provided, but management expects limited initial adoption [28] Question: Why is there a decline in operating costs and marketing expenses? - The decline is attributed to lower-than-expected revenue, particularly in ICT, leading to reduced costs [31][32] Question: Is the handset sales business generating negative margins? - Handset sales typically have negative margins due to subsidies, impacting overall profitability [54][56]