UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 or ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...

Financial Data and Key Metrics Changes - In Q4 2019, total revenues decreased by 0.5% year-over-year, while operating costs and expenses decreased by 0.6% [15] - Income from operations decreased by 2.4%, and net income decreased by 7.3% year-over-year [15] - EBITDA margin increased by 120 basis points to 34% from 32.8% in the same period of 2018 [15] Business Line Data and Key Metrics Changes - Mobile revenue and subscriber growth increased by 36.5% and 37.9% respectively, providing a solid foundation for 5G deployment [6] - Broadband business experienced a slight subscriber loss, but ARPU increased by 8% year-over-year due to migration to higher-speed services [10] - IPTV/MOD platform subscribers reached 2.08 million, with revenue growing by 10.6% year-over-year [11] - ICT revenue increased year-over-year due to new business deployments and project management capabilities [8] Market Data and Key Metrics Changes - The number of broadband subscribers decreased slightly year-over-year, but higher-speed service subscriptions increased significantly [10] - The number of users on plans with speeds of 100 Mbps or higher increased by 11.3% to 1.58 million [10] - The company plans to leverage popular events like the Tokyo Olympic Games to boost IPTV revenue [12] Company Strategy and Development Direction - The company intends to focus on 5G service launch in Q3 2020 and maintain strategies to migrate customers to higher-speed services [6][11] - Plans to enhance ICT project margins and expand in-house developed services, including cloud services and big data analysis [13] - The company is budgeting TWD30.7 billion for CapEx in 2020, primarily for 5G network deployment [18] Management Comments on Operating Environment and Future Outlook - Management acknowledged ongoing mobile Internet substitution and cable competition impacting broadband business [6] - The company expects a slight decline in ARPU in the first half of 2020 due to continued competition in the 4G market [36] - Future revenue growth is anticipated from enterprise ICT business and 5G service rollout [17] Other Important Information - The first phase of the 5G spectrum auction concluded with prices exceeding expectations, leading to a focus on 5G service launch [6] - The company plans to maintain a flexible approach to network sharing and collaboration with peers in the 5G era [52] Q&A Session Summary Question: Why did the auction pricing get so high? - Management refrained from commenting on the auction pricing dynamics [19] Question: Can you provide more guidance on the cost increase? - The increase in costs is primarily due to ICT project revenue requiring comparable costs [21] Question: What is the expected impact on margins from ICT projects? - Some government-related projects may have lower margins, but overall, the company expects to maintain profitability [23] Question: How much of the mobile CapEx is for 5G rollout? - Over 70% of the TWD9.8 billion mobile CapEx will be allocated to 5G network deployment [27] Question: What is the expected ARPU trend going into 2020? - A slight decline in ARPU is expected in the first half of 2020, with potential improvement post-5G rollout [36] Question: What is the timeline for 5G commercialization? - The company plans to deploy 5G services in the beginning of Q3 2020 [50] Question: How will the CapEx levels look beyond 2020? - CapEx for 2021 is expected to be similar to 2020, but no comments were made beyond that [50]

Chunghwa Telecom Co Ltd (NYSE:CHT) Q2 2019 Results Conference Call July 31, 2019 3:00 AM ET Company Participants Angela Tsai - Director of Investor Relations Harrison Kuo - President and Chief Financial Officer Fufu Shen - Assistant Vice President of Public Affairs Department Conference Call Participants Billy Lee - Credit Suisse Jack Hsu - Sinopac Security Neale Anderson - HSBC Amber Lee - Yuanta Operator Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company’s Se ...

Financial Data and Key Metrics Changes - Total revenues decreased by 4.3% year-over-year, with operating costs and expenses also decreasing by 4.0% [12] - Income from operations decreased by 5.0%, while net income decreased by 4.3% [12] - EBITDA margin increased to 37.3% from 35.3% in the same period of 2018, primarily due to the adoption of IFRS 16 [12] Business Line Data and Key Metrics Changes - Mobile service revenue decreased due to market competition and Voice Over IP substitution, despite maintaining a leading market position [5][12] - Broadband subscribers migrated to higher speed services, with users signing up for plans of 100 Mbps or higher growing by 10.5% year-over-year [8] - IPTV MOD platform subscribers reached over 2 million, a 20.2% increase year-over-year, with IPTV revenue growing by 15.7% [9][10] - ICT revenue increased year-over-year, with IDC revenue growing by 69%, IoT revenue by 68%, and information security revenue by 23.5% [10] Market Data and Key Metrics Changes - The overall market remained competitive, with peers rolling out low-price mobile data plans [5] - The company maintained its leading market position in mobile revenue and subscriber shares, with a slight increase in revenue share [5] Company Strategy and Development Direction - The company is focusing on a customer-centric transformation plan to enhance business growth, including strengthening core business areas and deploying emerging services [7] - Plans to invest in core business areas such as FTTx, 4G, IDC, and service platforms with a CapEx budget of T$29 billion for 2019 [14] Management Comments on Operating Environment and Future Outlook - Management noted the competitive landscape and the need to balance customer acquisition with retaining high-contribution customers [5][19] - Anticipated regulatory changes may increase competition and alter the market landscape, particularly with the upcoming 5G spectrum auction [15] Other Important Information - The company is preparing for a digital financial services initiative in collaboration with strategic partners, expecting long-term positive returns from investments [24] - The MOD subscriber target for 2019 is set at 2.2 million, with expectations of continued strong performance [26] Q&A Session Summary Question: Mobile performance and IPTV margins - Management indicated that mobile revenue impact is less severe due to a cautious approach to customer contributions, aiming to retain high-value customers [17][19] - IPTV is expected to reach breakeven in the coming years, with ongoing monitoring of market conditions [17] Question: Telecommunications Draft Act and market dominance - Management acknowledged that the regulatory changes aim to increase competition and provide flexibility for smaller operators [21] Question: Next commercial venture and MOD subscriber targets - The company is investing in a consortium for digital financial services and expects to be the largest shareholder [24] - The target for MOD subscribers in 2019 is 2.2 million, with confidence in achieving this goal [26]

Part I [ITEM 3. KEY INFORMATION](index=5&type=section&id=Item%203.%20Key%20Information) This section presents selected financial data from 2014-2018, showing declining revenues and income, alongside significant industry, operational, and ownership risks [A. Selected Financial Data](index=5&type=section&id=A.%20Selected%20Financial%20Data) Selected financial data from 2014-2018 shows a downward trend in revenues, operating income, and net income Consolidated Statements of Comprehensive Income Data (2014-2018) | Indicator | 2016 (NT$ billions) | 2017 (NT$ billions) | 2018 (NT$ billions) | 2018 (US$ billions) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | 230.0 | 227.5 | 215.5 | 7.0 | | **Income from operations** | 48.1 | 46.7 | 43.6 | 1.4 | | **Consolidated net income** | 41.6 | 40.2 | 38.6 | 1.2 | | **Attributable to Stockholders of the parent** | 40.5 | 39.0 | 37.6 | 1.2 | | **Basic Earnings per share (NT$)** | 5.22 | 5.03 | 4.84 | 0.16 | Consolidated Balance Sheets Data (As of Dec 31, 2016-2018) | Indicator | 2016 (NT$ billions) | 2017 (NT$ billions) | 2018 (NT$ billions) | 2018 (US$ billions) | | :--- | :--- | :--- | :--- | :--- | | **Total assets** | 446.9 | 450.9 | 467.1 | 15.3 | | **Total liabilities** | 79.9 | 81.5 | 82.5 | 2.7 | | **Equity attributable to stockholders of the parent** | 360.7 | 360.9 | 374.7 | 12.2 | Consolidated Cash Flows Data (2016-2018) | Indicator | 2016 (NT$ billions) | 2017 (NT$ billions) | 2018 (NT$ billions) | 2018 (US$ billions) | | :--- | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | 65.0 | 70.9 | 66.4 | 2.2 | | **Net cash used in investing activities** | (21.7) | (36.7) | (32.6) | (1.1) | | **Net cash used in financing activities** | (42.5) | (36.6) | (35.0) | (1.1) | - Cash dividends declared per share have **decreased from NT$4.9419 in 2016 to NT$4.479 in 2018**[15](index=15&type=chunk)[16](index=16&type=chunk) The 2018 dividend was approved by the board in March 2019 and is pending stockholder approval [D. Risk Factors](index=7&type=section&id=D.%20Risk%20Factors) The company faces significant regulatory, competitive, operational, cybersecurity, and political risks, alongside foreign ownership limitations - **Regulatory Risks:** As a dominant provider, the company is subject to extensive regulation by the National Communications Commission (NCC), which limits flexibility in setting tariffs and may mandate price reductions[19](index=19&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) For example, a new tariff reduction plan effective from April 2017 to March 2020 applies to wholesale IP peering, leased lines, and certain broadband services - **Competition Risks:** The company faces increasing competition from five mobile network operators offering aggressive promotions like unlimited low-priced data plans[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) It also competes with cable operators in the fixed broadband market and OTT video streaming providers, which could impact customer growth and profitability - **Operational & Technological Risks:** Business operations are vulnerable to disruptions from natural disasters like earthquakes and typhoons, for which the company does not carry insurance[32](index=32&type=chunk)[37](index=37&type=chunk)[44](index=44&type=chunk) Rapid technological changes may render current technologies obsolete, requiring substantial capital investments in new technologies like 5G, IoT, and AI, with no guarantee of commercial acceptance or return on investment - **Cybersecurity Risks:** As an internet service provider, the company is susceptible to cyber attacks[50](index=50&type=chunk) The Cyber Security Management Act, effective January 1, 2019, imposes new obligations on providers of critical infrastructure, which will likely include Chunghwa Telecom[51](index=51&type=chunk) - **Stockholder & Political Risks:** The ROC government, through the MOTC, is the largest shareholder with approximately **35.29% ownership**, giving it significant control over the company's business and strategy[53](index=53&type=chunk)[62](index=62&type=chunk) The company's operations are also subject to political risks associated with the tense relationship between the ROC and the People's Republic of China - **ADS & Ownership Risks:** Foreign ownership is limited by law (**49% direct, 55% total direct and indirect**)[73](index=73&type=chunk) The ability to deposit common shares into the ADS program is restricted by ROC law, which may affect liquidity and cause price differences between ADSs on the NYSE and common shares on the TWSE[76](index=76&type=chunk)[77](index=77&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=19&type=section&id=Item%204.%20Information%20on%20the%20Company) This section covers the company's history, business operations, competitive strengths, strategies, and the regulatory environment [A. History and Development of the Company](index=19&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Established in 1996 and privatized in 2005, the company is Taiwan's largest integrated telecom provider, leveraging strengths for strategic growth - Chunghwa Telecom is the largest integrated telecommunications service provider in Taiwan, offering domestic fixed, mobile, internet, and international fixed communications services[89](index=89&type=chunk) It was privatized on August 12, 2005, when the ROC government's ownership was reduced to less than **50%**[90](index=90&type=chunk) - Key competitive strengths include its position as an integrated, full-service provider, a premium brand reputation, broad network coverage (**FTTx coverage of 100 Mbps+ at 91.3%**), and strong capital structure for investment in new technologies like 5G and IoT[94](index=94&type=chunk)[96](index=96&type=chunk)[100](index=100&type=chunk) - The company's business strategy focuses on maintaining its core market position while expanding into new growth areas like IoT platforms, MOD/OTT services, and ICT services[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) Key initiatives include upgrading FTTx customers to higher speeds, maintaining 4G network quality, and developing an IoT ecosystem - Strategic expansion is pursued through alliances and investments[116](index=116&type=chunk) Recent activities include establishing CHT Security Co., Ltd., investing in e-sports platform 4Gamers, and forming a preparatory office for an internet-only bank license application[119](index=119&type=chunk)[122](index=122&type=chunk) [B. Business Overview](index=24&type=section&id=B.%20Business%20Overview) This section details business segments, competitive landscape, extensive network infrastructure, and the comprehensive regulatory environment Revenue by Business Segment (2016-2018) | Business Segment | 2016 Revenue (NT$ B) | 2017 Revenue (NT$ B) | 2018 Revenue (NT$ B) | | :--- | :--- | :--- | :--- | | Domestic Fixed Communications | 72.8 | 71.1 | 66.8 | | Mobile Communications | 78.8 (Services) + Handset Sales | 75.8 (Services) + Handset Sales | 63.9 (Services) + Handset Sales | | Internet Business | 28.1 | 28.9 | 29.8 | | International Fixed Communications | 14.4 | 13.6 | 13.4 | - The company faces significant competition from five mobile operators all offering 4G services, leading to aggressive promotions like unlimited data plans[189](index=189&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) In broadband, major competitors are multiple-system operators (MSOs) and other fiber providers MOD services compete with cable TV MSOs and OTT providers - The company's network infrastructure is extensive, featuring approximately **9.7 million fiber kilometers** of local loop fiber optic cable, **9.1 million FTTx ports**, and an international network connected via **21 submarine cables**[199](index=199&type=chunk)[200](index=200&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) The mobile network utilizes spectrum in the 900MHz, 1800MHz, 2100MHz, and 2600MHz bands - Operations are heavily regulated by the National Communications Commission (NCC) under the Telecommunications Act[235](index=235&type=chunk) As a dominant provider in fixed-line services, Chunghwa is subject to stricter tariff controls, interconnection obligations, and accounting separation requirements[260](index=260&type=chunk) Foreign ownership is capped at **49% for direct holdings** and **55% for total direct and indirect holdings**[286](index=286&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=55&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) This section analyzes financial performance, liquidity, capital resources, R&D, and accounting policies, highlighting revenue declines due to competition [A. Operating Results](index=66&type=section&id=A.%20Operating%20Results) Total revenues decreased by 5.3% in 2018 to NT$215.5 billion, driven by mobile and fixed-line declines, leading to a 6.5% drop in operating income Financial Performance Summary (2016-2018) | Metric | 2016 (NT$ B) | 2017 (NT$ B) | 2018 (NT$ B) | | :--- | :--- | :--- | :--- | | **Total Revenues** | 230.0 | 227.5 | 215.5 | | **Operating Costs** | 147.6 | 146.8 | 139.6 | | **Operating Expenses** | 33.8 | 33.9 | 32.4 | | **Income from Operations** | 48.1 | 46.7 | 43.6 | | **Consolidated Net Income** | 41.6 | 40.2 | 38.6 | - **2018 vs. 2017 Performance:** - **Total Revenue:** Decreased by **5.3%** primarily due to a **7.7% drop in mobile communications revenue** and a **6.2% decline in domestic fixed communications revenue**[377](index=377&type=chunk)[378](index=378&type=chunk) - **Mobile Services Revenue:** Decreased by **15.7%** due to market competition, voice traffic decline, and the adoption of IFRS 15[381](index=381&type=chunk) - **Domestic Fixed Revenue:** Decreased due to declines in local/long-distance calls and ICT projects, partially offset by a **27.7% increase in MOD revenue**[383](index=383&type=chunk)[384](index=384&type=chunk) - **Operating Costs:** Decreased by **5.0%** mainly due to lower cost of goods sold and interconnection costs[390](index=390&type=chunk) - **Income from Operations:** Decreased by **6.5% to NT$43.6 billion** - **2017 vs. 2016 Performance:** - **Total Revenue:** Decreased by **1.1%** due to declines in mobile and domestic fixed communications[410](index=410&type=chunk) - **Mobile Services Revenue:** Decreased by **2.6%** due to a decline in voice revenue, partially offset by growth in mobile VAS[415](index=415&type=chunk) - **Domestic Fixed Revenue:** Decreased by **2.3%** due to declines in local/long-distance calls, partially offset by growth in ICT and MOD revenues[433](index=433&type=chunk) - **Income from Operations:** Decreased by **2.9% to NT$46.7 billion** [B. Liquidity and Capital Resources](index=76&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) Operating cash flow of NT$66.4 billion in 2018 funds capital expenditures and dividends, supported by NT$27.6 billion cash and NT$47.6 billion unused credit Summary of Cash Flows (2016-2018) | Cash Flow Activity | 2016 (NT$ B) | 2017 (NT$ B) | 2018 (NT$ B) | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | 65.0 | 70.9 | 66.4 | | **Net cash used in investing activities** | (21.7) | (36.7) | (32.6) | | **Net cash used in financing activities** | (42.5) | (36.6) | (35.0) | - Net cash from operating activities decreased in 2018 to **NT$66.4 billion** from **NT$70.9 billion in 2017**, primarily due to increased cash outflows for inventories and income tax paid[439](index=439&type=chunk) Capital Expenditures by Business Segment (2016-2019 Plan) | Business Segment | 2017 (NT$ B) | 2018 (NT$ B) | 2019 Plan (NT$ B) | | :--- | :--- | :--- | :--- | | Domestic fixed communications | 11.7 | 12.7 | 13.6 | | Mobile communications | 9.7 | 10.7 | 7.6 | | Internet business | 2.8 | 2.7 | 3.2 | | International fixed communications | 1.6 | 1.4 | 1.5 | | Others | 1.1 | 1.1 | 3.1 | | **Total** | **26.9** | **28.6** | **29.0** | - As of December 31, 2018, the company had **NT$27.6 billion in cash and cash equivalents**, along with unused unsecured and secured bank loan facilities totaling **NT$47.6 billion**[445](index=445&type=chunk) [C. Research and Development, Patents and Licenses](index=79&type=section&id=C.%20Research%20and%20Development,%20Patents%20and%20Licenses) R&D expenses were NT$3.7 billion in 2018, with 2,483 researchers focused on 5G, AI, and IoT, holding 189 domestic and 14 foreign patents - R&D expenses were **NT$3.8 billion (1.6% of revenue) in 2016**, **NT$3.9 billion (1.7%) in 2017**, and **NT$3.7 billion (1.7%) in 2018**[457](index=457&type=chunk) - As of March 31, 2019, the company had **2,483 researchers** focusing on strategic areas such as[457](index=457&type=chunk)[459](index=459&type=chunk]: - Intelligent Broadband Networking (5G, MEC, SDN) - Cloud Computing - Artificial Intelligence and Big Data - Internet of Things (IoT) - Information Security - As of December 31, 2018, the company has been granted **189 domestic patents** and **14 foreign patents**[460](index=460&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=81&type=section&id=Item%206.%20Directors,%20Senior%20Management%20and%20Employees) This section details leadership, compensation (NT$131.5 million in 2018), board structure, and the 32,709-strong employee base, largely unionized [A. Directors and Senior Management](index=81&type=section&id=A.%20Directors%20and%20Senior%20Management) Leadership includes Chairman Chi-Mau Sheih, with non-independent directors representing MOTC, and key executive officers overseeing various functions - As of April 22, 2019, Chi-Mau Sheih serves as the **Chairman, Chief Executive Officer, and President**[469](index=469&type=chunk)[471](index=471&type=chunk) - All non-independent directors on the board are representatives of the Ministry of Transportation and Communications (MOTC), the company's largest shareholder[469](index=469&type=chunk) - Key executive officers as of March 31, 2019 include Shui-Yi Kuo (CFO), Kuo-Feng Lin (SEVP of Technology), Tian-Tsair Su (SEVP of Administration), and Hong-Chan Ma (SEVP of Business)[480](index=480&type=chunk) [B. Compensation](index=85&type=section&id=B.%20Compensation) Aggregate compensation for directors and executive officers was NT$131.5 million in 2018, with non-independent director bonuses paid to MOTC Aggregate Compensation to Directors and Executive Officers | Year | Aggregate Compensation (NT$) | | :--- | :--- | | 2016 | 145,980,825 | | 2017 | 142,259,543 | | 2018 | 131,525,410 (US$4,296,811.8) | - In 2018, the bonus amount of **NT$40,750,052** for non-independent directors was paid directly to the MOTC, as they are legal representatives of the government entity[497](index=497&type=chunk) [C. Board Practices](index=86&type=section&id=C.%20Board%20Practices) The board has 12 directors, including five independent directors, with an audit and compensation committee, noting differences from NYSE governance standards - The board comprises **12 directors, including five independent directors**[500](index=500&type=chunk) The term for current directors is set to end on June 23, 2019 - An audit committee, composed of all five independent directors, was established to comply with both ROC Securities and Exchange Act and NYSE rules[503](index=503&type=chunk)[505](index=505&type=chunk) It is responsible for overseeing internal controls, financial reporting, and auditor appointments - A compensation committee, composed of three independent directors, is responsible for reviewing and recommending compensation for directors and managers to the board[508](index=508&type=chunk) [D. Employees](index=88&type=section&id=D.%20Employees) As of December 31, 2018, the company had 32,709 employees, primarily in ROC, with 99% belonging to the Chunghwa Telecom Workers' Union Employee Breakdown (Consolidated) | Category | 2016 | 2017 | 2018 | | :--- | :--- | :--- | :--- | | Technical | 15,760 | 16,010 | 15,760 | | Operations | 15,417 | 15,468 | 15,096 | | Administrative | 1,679 | 1,833 | 1,755 | | **Total** | **32,856** | **33,311** | **32,611** | - As of December 31, 2018, approximately **99% of employees** on a non-consolidated basis were members of the Chunghwa Telecom Workers' Union[512](index=512&type=chunk) - Employees are entitled to **1.7% to 4.3% of distributable earnings** as compensation[514](index=514&type=chunk) In the third quarter of 2018, **NT$1.5 billion** was distributed to employees [ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS](index=90&type=section&id=Item%207.%20Major%20Stockholders%20and%20Related%20Party%20Transactions) This section details the ownership structure, with MOTC as the largest shareholder (35.29%), and significant related party transactions [A. Major Stockholders](index=90&type=section&id=A.%20Major%20Stockholders) MOTC is the largest stockholder with 35.29% ownership, contributing to the ROC government's 42.13% total stake Major Stockholders as of March 31, 2019 | Stockholder | Number of Shares | Ownership % | | :--- | :--- | :--- | | The MOTC | 2,737,718,976 | 35.29% | | The ROC government (Total) | 3,268,238,684 | 42.13% | | Shin Kong Life Insurance Co., Ltd | 543,451,184 | 7.01% | - As of March 31, 2019, **23,503,659 ADSs** were held by 30 record holders, representing approximately **3.0% of total outstanding common shares**[520](index=520&type=chunk) [B. Related Party Transactions](index=90&type=section&id=B.%20Related%20Party%20Transactions) Significant related party transactions include NT$6.6 billion paid to Senao for distribution and NT$5.4 billion to Honghwa for services in 2018 - Senao acts as the exclusive distributor of mobile handsets to Chunghwa's retail outlets[525](index=525&type=chunk) In 2018, Senao received **NT$6.6 billion** from Chunghwa for commissions, subsidies, and warranties - Honghwa provides on-site sales and equipment installation services for Chunghwa's customers, for which Chunghwa paid approximately **NT$5.4 billion in 2018**[525](index=525&type=chunk) - Chunghwa purchased network equipment and supplies from its subsidiary Chunghwa System Integration for approximately **NT$1.3 billion in 2018**[526](index=526&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=91&type=section&id=Item%208.%20Financial%20Information) This section references consolidated financial statements and details the company's sustainable dividend policy, with a 97.9% payout ratio for 2018 Dividends Declared per Common Share (2014-2018) | Year Ended | Dividends Per Share (NT$) | Total Dividends (NT$ billions) | | :--- | :--- | :--- | | Dec 31, 2014 | 4.8564 | 37.7 | | Dec 31, 2015 | 5.4852 | 42.6 | | Dec 31, 2016 | 4.9419 | 38.3 | | Dec 31, 2017 | 4.7960 | 37.2 | | Dec 31, 2018 | 4.4790 | 34.7 | - The dividend for 2018 was approved by the board in March 2019 and is expected to be declared at the annual stockholders' meeting on June 21, 2019[528](index=528&type=chunk) The payout ratio for 2018 was **97.9%** after adjusting for unappropriated earnings [ITEM 9. THE OFFER AND LISTING](index=92&type=section&id=Item%209.%20The%20Offer%20and%20Listing) The company's common shares are listed on TWSE (2412), and ADSs are listed on NYSE (CHT), with each ADS representing ten common shares - The company's common shares are listed on the Taiwan Stock Exchange (TWSE) under the ticker "**2412**"[532](index=532&type=chunk) - The company's American Depositary Shares (ADSs) are listed on the New York Stock Exchange (NYSE) under the ticker "**CHT**", with each ADS representing **ten common shares**[533](index=533&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=93&type=section&id=Item%2010.%20Additional%20Information) This section covers articles of incorporation, exchange controls, and taxation, including dividend policy, foreign investment rules, and tax implications [B. Memorandum and Articles of Incorporation](index=93&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Incorporation) This subsection outlines articles of incorporation, detailing dividend policy (at least 50% distributable earnings, 50% cash), shareholder rights, and voting procedures - The company's dividend policy requires at least **50% of distributable net income** to be distributed as dividends, with at least **50% of that distribution being in cash**[545](index=545&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[550](index=550&type=chunk) - The election of directors utilizes a cumulative voting system[553](index=553&type=chunk) Major corporate actions, such as amending the Articles of Incorporation or approving a merger, require a supermajority vote at a shareholders' meeting[555](index=555&type=chunk) [D. Exchange Controls](index=99&type=section&id=D.%20Exchange%20Controls) This subsection details Taiwan's foreign investment and exchange control regulations, including TWSE registration, industry-specific approvals, and remittance rules for ADS holders - Foreign investors must register with the Taiwan Stock Exchange (TWSE) to invest in Taiwan's securities market[580](index=580&type=chunk) The previous "qualified foreign institutional investor" (QFII) system has been replaced by a registration-based system - ADS holders can convert NT dollar proceeds from the sale of underlying shares, cash dividends, and other distributions into foreign currencies and remit them out of Taiwan without requiring separate approval from the Central Bank of the ROC (Taiwan)[589](index=589&type=chunk) - Taiwan companies and residents have annual foreign exchange remittance limits of **US$50 million** and **US$5 million**, respectively, for transactions involving conversion between NT dollars and foreign currencies[592](index=592&type=chunk) [E. Taxation](index=102&type=section&id=E.%20Taxation) This subsection details ROC tax implications for non-residents (21% dividend withholding, capital gains exempt) and U.S. federal income tax considerations for U.S. holders - **ROC Taxation:** - **Dividends:** Subject to a **21% withholding tax** for non-resident holders[595](index=595&type=chunk) - **Capital Gains:** Gains from the sale of common shares are exempt from ROC income tax, effective January 1, 2016[599](index=599&type=chunk) Gains from the sale of ADSs are not subject to ROC tax[601](index=601&type=chunk) - **Securities Transaction Tax:** A **0.3% tax** is levied on the sale of common shares in Taiwan, but not on the transfer of ADSs - **U.S. Federal Income Tax Considerations (for U.S. Holders):** - **Dividends:** Treated as ordinary dividend income[612](index=612&type=chunk) Dividends may be eligible for reduced tax rates as "qualified dividend income" since the ADSs are listed on the NYSE[613](index=613&type=chunk) - **Capital Gains:** Gain or loss from the sale of shares or ADSs is generally treated as U.S. source capital gain or loss[620](index=620&type=chunk) - **PFIC Status:** The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2018 tax year[622](index=622&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=107&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rates, foreign currency (hedged by forwards), and equity prices, with sensitivity analysis showing potential impacts - **Interest Rate Risk:** Considered immaterial[629](index=629&type=chunk) A **0.25% change in interest rates** would impact 2018 profit before tax by approximately **NT$18.7 million**[630](index=630&type=chunk) - **Foreign Currency Risk:** The company is exposed to foreign currency risk from equipment purchases and international settlements[631](index=631&type=chunk) It uses forward exchange contracts to hedge this exposure - **Equity Price Risk:** A **5% change in equity prices** would have impacted 2018 profit before tax by **NT$26 million** and other comprehensive income by **NT$347 million**[636](index=636&type=chunk) [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=109&type=section&id=Item%2012.%20Description%20of%20Securities%20Other%20Than%20Equity%20Securities) This section details fees for American Depositary Shares (ADSs), including issuance, cancellation, and distribution fees, and the company's net payment from the depositary ADS Depositary Service Fees | Service | Fees | | :--- | :--- | | 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 ADSs (stock dividends, etc.) | Up to US$5.00 per 100 ADSs held | - In 2018, the company received **US$0.5 million** in net payments from the depositary bank to cover ADR program-related expenses such as investor relations, legal fees, and listing fees[644](index=644&type=chunk) Part II [ITEM 15. CONTROLS AND PROCEDURES](index=111&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with auditor concurrence and IFRS 15-related changes - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the annual report[647](index=647&type=chunk) - Based on the criteria in the Internal Control-Integrated Framework (2013) by COSO, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[649](index=649&type=chunk)[650](index=650&type=chunk) - The independent auditor, Deloitte & Touche, issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[653](index=653&type=chunk) - Changes to internal control over financial reporting in 2018 were mainly to implement new systems and processes for the adoption of IFRS 15 (Revenue from Contracts with Customers)[661](index=661&type=chunk) [ITEM 16. Corporate Governance and Other Information](index=113&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Other%20Information) This section covers corporate governance, including the audit committee financial expert, Code of Ethics, auditor fees, and differences from NYSE standards - The board has identified Lo-Yu Yen as the audit committee financial expert[663](index=663&type=chunk) - The company has adopted a Code of Ethics and Ethical Corporate Management Best Practice Principles, which are available on its website[663](index=663&type=chunk) Principal Accountant Fees (Deloitte & Touche) | Fee Category | 2017 (NT$ millions) | 2018 (NT$ millions) | | :--- | :--- | :--- | | Audit fees | 38.2 | 39.4 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | — | — | - Significant differences between the company's corporate governance and NYSE standards for domestic issuers include[670](index=670&type=chunk): - **Director Independence:** The board is not required to have a majority of independent directors under ROC law - **Committees:** The company does not have a dedicated nominating/corporate governance committee as required by NYSE for domestic issuers[676](index=676&type=chunk) - **Equity Compensation:** The board has authority to approve employee stock option plans, whereas NYSE rules require stockholder approval[682](index=682&type=chunk) Part III [ITEM 18. FINANCIAL STATEMENTS](index=117&type=section&id=Item%2018.%20Financial%20Statements) This section presents audited consolidated financial statements for 2016-2018, prepared under IFRS, including auditor's report and notes - The independent auditor, Deloitte & Touche, issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2016, 2017, and 2018[697](index=697&type=chunk) - The company changed its method of accounting for financial instruments and revenue from contracts with customers in 2018 due to the adoption of IFRS 9 and IFRS 15, respectively[699](index=699&type=chunk) [ITEM 19. EXHIBITS](index=119&type=section&id=Item%2019.%20Exhibits) This section lists exhibits filed with the annual report, including Articles of Incorporation, ADS Deposit Agreement, and SOX certifications - Key exhibits filed with the report include[692](index=692&type=chunk): - Articles of Incorporation (Exhibit 1.1) - Form of Amended and Restated Deposit Agreement (Exhibit 2.1) - List of Subsidiaries (Exhibit 8.1) - CEO and CFO Certifications pursuant to Sarbanes-Oxley Act (Exhibits 12.1, 12.2, 13.1, 13.2)

Chunghwa Telecom Co Ltd (NYSE:CHT) Q4 2018 Earnings Conference Call January 30, 2019 2:00 AM ET Company Participants Fu-Fu Shen - Assistant VP & Director of IR Chi-Mau Sheih - President & Director Shui-Yi Kuo - CFO & Senior EVP, Finance Conference Call Participants Neale Anderson - HSBC Jack Hsu - SinoPac Securities Peter Milliken - Deutsche Bank Amber Lee - Yuanta Securities Varun Ahuja - Crédit Suisse Operator Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the compan ...