Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. is dated June 11, 2018. The report summarizes material events, regulatory fines, and operating results for May 2018, alongside year-to-date sales data through May 2018.
Key Financial Metrics
May 2018 Operating Results (IFRS 15 Basis)
- Consolidated Revenue: NT$19.51 billion
- Operating Costs and Expenses: NT$14.98 billion
- Operating Income: NT$4.52 billion
- Pretax Income: NT$4.56 billion
- Net Income (Parent): NT$3.56 billion
- Earnings Per Share (EPS): NT$0.46
Year-to-Date Sales (Jan-May 2018)
- Net Sales: NT$90.45 billion (Decrease of 1.16% vs. prior year)
Other Financial Data
- Securities Disposal: Sold 400,000 shares of Chunghwa Precision Test Tech. Co., Ltd. for NT$304.14 million.
- Financial Derivatives: Outstanding forward contracts totaled NT$880.98 million (combined non-trading positions) with a total fair value loss of NT$17.34 million.
- Guarantees: Accumulated limited amount for subsidiaries is NT$3.04 billion.
Material Changes and Accounting Adjustments
The filing highlights a significant accounting change due to the adoption of IFRS 15 effective January 1, 2018. Under the modified retrospective method, May 2018 reported figures were adjusted downward compared to the pre-IFRS 15 basis:
- Revenue: Decreased by NT$1.37 billion (Pre-IFRS 15 revenue was NT$20.88 billion).
- Operating Income: Decreased by NT$1.65 billion (Pre-IFRS 15 operating income was NT$6.17 billion).
- Pretax Income: Decreased by NT$1.65 billion (Pre-IFRS 15 pretax income was NT$6.21 billion).
- Net Income: Decreased by NT$1.33 billion (Pre-IFRS 15 net income was NT$4.89 billion).
On a pre-IFRS 15 basis, May 2018 results showed strong year-over-year growth: Revenue increased 13.3%, Operating Income increased 62.5%, and Net Income increased 59.4%.
Guidance, Risks, and Contingencies
Management Commentary and Outlook
Management noted that reported May 2018 operating income, pretax income, and EPS fell within previously announced guidance ranges. Growth in mobile communications revenue (pre-IFRS 15 basis) was attributed to increased subscriber sign-ups for promotional plans. Internet revenue increased, though local revenue continued to decline due to VoIP substitution.
Regulatory Fines and Contingencies
The company reported multiple fines imposed between May and June 2018:
- Labor Standards Act Violations: Multiple bureaus (Taipei, Kaohsiung, Yilan, Taoyuan, Lianjiang, New Taipei, Taichung, Tainan) imposed fines totaling approximately NT$7.08 million for violations regarding employee working hours (Article 32, Section 2).
- Mobile Broadband Regulations: The National Communications Commission (NCC) imposed a NT$2 million fine for service quality degradation during a Mother's Day 4G promotion.
The company stated it will consider administrative remedies for labor violations and implement measures to improve store handling capacity for future promotions.
Investor Verification Checklist
- Verify the specific impact of IFRS 15 adoption on future quarterly comparisons, as it significantly reduced reported revenue and income for May 2018.
- Confirm the trend of labor law compliance violations, as multiple fines were issued in a short period across different jurisdictions.
- Review the details of the NCC fine regarding service quality during high-volume promotions to assess operational risk.
- Monitor the year-to-date sales decline of 1.16% despite strong May growth on a pre-IFRS 15 basis.
- Check the status of the equity transaction regarding Chunghwa Precision Test Tech. Co., Ltd. and its impact on consolidated financial statements.