Business Context and Reporting Period
This Form 6-K filing by Chunghwa Telecom Co., Ltd. covers material events and financial updates occurring between August 13, 2009, and September 11, 2009. The company operates in the telecommunications sector in Taiwan, providing fixed-line, mobile, and internet services. During this period, the company redefined its financial reporting segments effective September 1, 2009, consolidating seven previous segments into five: domestic fixed communications, mobile communications, internet business, international fixed communications, and others.
Key Financial Metrics
Revenue and Profit (Unaudited):
- August 2009: Net sales were NT$15.46 billion, a 1.8% year-over-year decrease. Operating income was NT$4.68 billion, and net income was NT$3.50 billion (EPS NT$0.33).
- First Eight Months 2009: Net sales totaled NT$120.95 billion, down 2.9% year-over-year. Operating income was NT$37.83 billion, and net income was NT$29.50 billion (EPS NT$2.77).
- First Half 2009 (GAAP Comparison): Under US GAAP, net income attributable to shareholders was NT$24.947 billion (EPS NT$2.34). Under ROC GAAP, net income was NT$22.261 billion (EPS NT$2.09).
Capital and Liquidity:
- Working capital as of the most recent financial statement was approximately NT$41.93 billion.
- Shareholders' equity (US GAAP) as of June 30, 2009, was NT$291.489 billion.
Material Transactions:
- Acquisitions: Purchased 40% of Chunghwa Investment Co., Ltd. from Yang Ming Marine Transport Corp. for NT$758.7 million. Acquired real estate via subsidiary for NT$610 million.
- Procurement: Committed to purchasing 3G system equipment for NT$3.13 billion, VDSL2 broadband equipment for NT$586 million, and optical cables for NT$621.2 million.
- Investment: Disposed of Fidelity International Bond Fund units for NT$348 million, realizing a loss of NT$15.5 million.
Material Changes and Operational Updates
Revenue Trends: The company reported a contraction in revenue for both the month of August and the first eight months of 2009 compared to the prior year, with net sales declining by 1.8% and 2.9% respectively.
Segment Redefinition: Effective September 1, 2009, the company aligned its operating segments with international telecommunications trends, moving from a seven-segment structure to a five-segment structure to improve performance assessment.
Strategic Alliances and Contracts:
- Formed an alliance with Tsann Kuen Enterprise to expand consumer electronics channels.
- Won a bid to provide a dedicated transmission network for the Taipei City Police Department, expected to generate approximately NT$1.188 billion in revenue between 2010 and 2013.
Management Changes: The Board appointed Jen-Hung Lin as Senior Vice President and Mu-Piao Shih as Executive Vice President and President of the Mobile Business Group.
Outlook, Risks, and Contingencies
Natural Disaster Impact: Typhoon Morakot caused damage to several undersea cables off southeast Taiwan in August 2009. The company stated this did not cause a material impact on finance or business, with services recovered via alternative cables. Estimated loss and repair expenses are NT$280 million.
Investment Strategy: The company is actively expanding its 3G and broadband infrastructure (VDSL2) and increasing its stake in Chunghwa Investment to facilitate strategic planning for emerging and overseas markets.
Accounting Differences: Significant differences between ROC GAAP and US GAAP for the first half of 2009 were attributed to depreciation expenses, gains on sales of fixed assets, and provisions for undistributed retained earnings tax.
Key Facts for Investor Verification
- Verify the impact of the 1.8% to 2.9% year-over-year revenue decline on full-year 2009 guidance.
- Confirm the integration timeline and financial impact of the newly defined five operating segments.
- Monitor the execution of the NT$3.13 billion 3G equipment procurement and its effect on capital expenditure.
- Assess the long-term revenue contribution from the Taipei City Police Department contract (NT$1.188 billion over 2010-2013).
- Review the strategic rationale and expected returns from the increased 40% stake in Chunghwa Investment Co., Ltd.