Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. covers events and financial updates occurring between April 11, 2019, and May 10, 2019. The filing primarily details significant executive leadership changes, related-party asset acquisitions by subsidiaries, and operating results for April 2019. It also discloses variances between financial statements prepared under Taiwan-IFRSs and international IFRSs for the first quarter of 2019 and the full year 2018.
Key Financial Metrics
April 2019 Operating Results
- Net Sales: NT$16.53 billion (April 2019) vs. NT$17.31 billion (April 2018), a decrease of 4.49%.
- Operating Costs and Expenses: NT$13.03 billion.
- Operating Income: NT$3.50 billion.
- Income Before Tax: NT$3.62 billion.
- Net Income Attributable to Parent: NT$2.87 billion.
- Earnings Per Share (EPS): NT$0.37.
First Quarter 2019 Financial Position (QTD Jan-April)
- Net Sales (Jan-April): NT$67.86 billion, down 4.34% year-over-year.
- Q1 2019 Net Income (Taiwan-IFRSs): NT$8.53 billion (Consolidated); NT$8.36 billion (Attributable to parent).
- Q1 2019 Net Income (IFRSs): NT$8.09 billion (Consolidated); NT$7.93 billion (Attributable to parent).
- Total Assets (Q1 2019): Approximately NT$480 billion (Taiwan-IFRSs) vs. NT$479.8 billion (IFRSs).
- Total Liabilities (Q1 2019): Approximately NT$85.1 billion (Taiwan-IFRSs) vs. NT$87.4 billion (IFRSs).
Related Party Transactions
Subsidiaries acquired right-of-use assets (office premises and retail stores) from the parent company and business groups. Notable transactions include:
- Light Era Development: Acquired office space for NT$6.24 million (2-year term).
- CHYP Multimedia: Acquired office space for NT$11.84 million (2-year term) and multiple retail locations for NT$431,268 annually.
- Honghwa Co., Ltd.: Acquired 47 rental stores for a total transaction amount of NT$58.95 million (monthly payment of NT$2.95 million).
Material Changes and Leadership Transitions
The filing reports a significant restructuring of the company's top executive team effective April and May 2019:
- Chairman: Yu Cheng was discharged as Chairman on April 22, 2019. Chi-Mau Sheih was appointed as the new Chairman.
- CEO/President: Yu Cheng was dismissed as CEO on April 22, 2019. Chi-Mau Sheih acted as President until May 8, 2019, when Shui-Yi Kuo (formerly CFO) was appointed as the new President.
- Board Representation: Shui-Yi Kuo was appointed as the Representative of the Juristic Person Director for the Ministry of Transportation and Communications on April 26, 2019.
- Chief Audit Executive: Fu-Kuei Chung retired, replaced by Min-Gume Cheng effective June 30, 2019.
Revenue declined in April 2019 due to a higher base period in the prior year, continued market competition, and a lengthier handset replacement cycle affecting mobile sales. These declines were partially offset by increases in International Long Distance, MOD, and Internet VAS revenue.
Accounting Differences and Risks
The filing highlights material differences between financial statements prepared under Taiwan-IFRSs and international IFRSs. The primary cause is the timing of income tax recognition on unappropriated earnings and the treatment of revenue from fixed-line connection fees and prepaid phone cards. Under IFRSs, this revenue is deferred and recognized over time, whereas Taiwan-IFRSs recognized it differently upon incorporation. This results in higher reported net income under Taiwan-IFRSs compared to IFRSs for both 2018 and Q1 2019.
Financial derivative transactions for non-trading purposes showed a net unrealized loss of NT$3,385 thousand (combined non-hedge and hedge accounting) and a realized loss of NT$4,958 thousand for the period ending April 2019.
Investor Verification Checklist
- Verify the strategic rationale behind the simultaneous dismissal of the Chairman and CEO and the appointment of Chi-Mau Sheih and Shui-Yi Kuo to top roles.
- Confirm the sustainability of the 4.49% revenue decline in April 2019 and the impact of the handset replacement cycle on future mobile sales.
- Review the specific accounting adjustments required to reconcile Taiwan-IFRSs and IFRSs figures, particularly regarding deferred revenue and tax recognition.
- Assess the financial impact of the related-party asset acquisitions, specifically the NT$58.95 million lease commitment by Honghwa Co., Ltd.
- Monitor the performance of the new executive team in addressing market competition and revenue growth challenges.