Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated September 10, 2018. The report covers operating results and specific corporate events for August 2018, including responses to media reports regarding employee misconduct and land development projects.
Key Financial Metrics (August 2018)
- Net Sales: NT$ 17.78 billion (August 2018) vs. NT$ 18.37 billion (August 2017).
- Operating Costs and Expenses: NT$ 14.47 billion.
- Operating Income: NT$ 3.3 billion.
- Income Before Tax: NT$ 3.5 billion.
- Net Income (Parent Company): NT$ 2.72 billion.
- Earnings Per Share (EPS): NT$ 0.35.
- YTD Net Sales (Jan-Aug): NT$ 142.21 billion.
- Funds Lent: NT$ 0 to parent company or subsidiaries.
- Guarantees: Accumulated limited amount for subsidiaries is NT$ 2,821,590 thousand.
Material Changes vs. Prior Period
- Revenue Decline: August 2018 net sales decreased by 3.2% year-over-year. YTD sales (Jan-Aug) decreased by 3.39%.
- Profitability Decline: Operating income fell 18.3%, income before tax dropped 12.9%, and net income decreased 16.6% compared to the prior year.
- Cost Increases: Operating costs and expenses rose 1.0% year-over-year, driven by higher international interconnection expenses.
- Revenue Drivers: The revenue decline was attributed to VoIP substitution reducing voice revenue and market competition impacting mobile service revenue, which offset gains in international fixed communication and MOD revenue.
Management Commentary, Risks, and Unusual Items
- Employee Misconduct Allegations: The company addressed media reports alleging fraudulent loans masked as business transactions. Management stated that a few employees violated company rules, expressed regret, and pledged full cooperation with law enforcement authorities while emphasizing internal controls.
- Land Development Clarification: The company clarified reports regarding its subsidiary, Light Era Development Co., Ltd., and a potential NT$ 20 billion investment in smart office buildings. The company stated it follows internal evaluation processes and will make official announcements upon completion of procedures.
- Financial Derivatives: The company reported outstanding forward contracts for non-trading purposes with a total contract amount of NT$ 412,923 thousand (non-hedge) and NT$ 88,583 thousand (hedge accounting). Realized losses were recognized for both categories.
Investor Verification Checklist
- Verify the status of the law enforcement investigation regarding the alleged fraudulent loans and employee misconduct.
- Monitor official announcements regarding the Light Era Development Co., Ltd. land development projects and the NT$ 20 billion investment.
- Assess the sustainability of the revenue decline due to VoIP substitution and mobile market competition.
- Review the impact of rising international interconnection expenses on future operating margins.
- Confirm the exposure and risk management strategies related to the reported financial derivative positions.