Chunghwa Telecom Reports Operating Results for 1H 2008

TAIPEI, Taiwan, Aug. 28 /Xinhua-PRNewswire-FirstCall/ -- Chunghwa Telecom Co., Ltd (TAIEX: 2412; NYSE: CHT) ("Chunghwa" or "the Company"), today reported its consolidated operating results for the first six months of 2008. All figures were prepared in accordance with ROC GAAP.

    (Logo: http://www.xprn.com/xprn/sa/200707261428.JPG )
    (Comparisons, unless otherwise stated, are with the prior year period)
    Financial Highlights for 1H08:

    -- Total consolidated revenue increased by 5.4% to NT$100.9 billion
    -- Internet and data revenue grew by 1.8%; ADSL & FTTB revenue increased
       by 0.8%
    -- Mobile revenue decreased by 1.2%; Mobile VAS revenue increased by 31.7%
    -- Net income totaled NT$23.2 billion, a decrease of 5.6%
    -- Basic earnings per share (EPS) increased by 5.2% to NT$2.43

    Financial Highlights for 2Q08:

    -- Total consolidated revenue decreased by 0.6% to NT$50.0 billion
    -- Internet and data revenue grew by 0.8%; ADSL & FTTB revenue decreased
       by 0.7%
    -- Mobile revenue decreased by 2.7%; Mobile VAS revenue increased by 28.3%
    -- Net income totaled NT$12.5 billion, an increase of 0.1%
    -- Basic earnings per share (EPS) increased by 12.0% to NT$1.31

Revenues

Chunghwa's total consolidated revenue for the first half of 2008 increased by 5.4% year-on-year to NT$100.9 billion, of which 28.5% was from fixed-line services, 35.9% was from mobile services, 24.6% was from Internet and data services, and the remaining 11.0% was from other revenues, including handset sales of Chunghwa and SENAO. Revenue growth for the full six month period in 1H 2008 was mainly due to the consolidation of the Senao subsidiary, as only 2.5 months of Senao's operational results were included in CHT's consolidated 1H 2007 financials. In addition, the Internet and data businesses were a positive contribution. At NT$24.8 billion, Internet and data revenue in 1H 2008 was 1.8% higher than in 1H 2007. This was driven by the continued total broadband subscriber base growth and broadband speed upgrades, and was partly offset by an ADSL tariff adjustment that took effect on April 1, 2008. Mobile revenue decreased by 1.2% in the first half of 2008 to NT$36.3 billion. This was mainly due to the decrease in traffic and the tariff cuts imposed by the NCC. Fixed-line revenues decreased by 3.1% to NT$28.7 billion in the first half of this year. Local revenues decreased by 2.3% year-on-year due to broadband, mobile and VoIP substitution. Mobile and VoIP substitution was largely responsible for a 5.6% domestic long distance revenue decrease. In addition, International long distance revenue declined 3.2% year-on-year primarily due to increased competition for calling card services posed by our competitors' prepaid card service and the decrease in settlement income resulting from the appreciation of newTaiwan dollars.

For the second quarter of 2008, total consolidated revenue was NT$50.0 billion, a 0.6% decrease from the same period last year. Of this, 28.7% was from fixed-line services, 36.3% was from mobile services and 24.5% was from Internet and data services, and over half of the remainder 10.5% were mainly attributed to the consolidation of revenue from SENAO.

Costs and expenses

For 1H 2008, total operating costs and expenses increased year-on-year by 4.9% to NT$68.6 billion, due primarily to the operating costs and expenses from subsidiaries, especially SENAO. For the parent company, total operating costs and expenses decreased by NT$0.42 billion, representing a year-over-year decrease of 0.7%. The decrease was primarily from decreased personnel and depreciation expenses.

For the second quarter of 2008, total operating costs and expenses decreased by 2.7%, mainly from declines in personnel expenses and depreciation, since the Company has not provided an early retirement program this year up to now and therefore incurred no related expenses.

Income tax

Income taxes for 1H 2008 were NT$7.0 billion, an increase of 8.8% compared to NT$6.4 billion for 1H 2007. This was mainly due to the higher effective tax rate for the 1H 2008 consolidated financials as compared to 1H 2007, resulting from a lower investment tax credits in 1H 2008.

EBITDA and net income

EBITDA for 1H 2008 increased 2.6% year-on-year to NT$51.5 billion. Due to the 2Q 2007 acquisition of SENAO, which has a lower EBITDA margin than Chunghwa, the Company's EBITDA margin in 1H 2008 was 51.1%, down from 52.5% in 1H 2007. Net income for 1H 2008 was NT$23.2 billion, a decrease of 5.6%. The decrease in net income was due to the unrealized mark-to-market loss stemming from the foreign exchange derivative contract.

Capex

Capital expenditures totaled NT$11.3 billon for 1H 2008, of which 73.6% was for wire line equipment (including fixed-line and Internet and data), 12.7% was for wireless equipment, and the remainder was for other expenditures. Total capital expenditures increased due to a NT$1.2 billion purchase of state-owned land in 1Q 2008, where one of Chunghwa's outlets is located.

Cash Flow

Net cash flow from operations increased by 27% to NT$41.5 billion, as compared to NT$32.7 billion in 1H 2007. This was primarily due to a decrease in other financial assets, an increase in accounts payable and taxes payable. As of June 30, 2008, the Company's cash and cash equivalents totaled NT$95.3 billion, an increase of 15.8% year-on-year despite the capital reduction cash payment of NT$9.6 billion in January this year.

    Businesses Performance Highlights:
    Internet and Data Services
    -- Total HiNet subscribers increased to 4.1 million as of June 30, 2008.
       HiNet broadband subscribers including HiNet ADSL and HiNet FTTx
       increased by 23,000 to 3.5 million quarter-on-quarter.
    -- ADSL subscribers decreased by 126,000 to 3.5 million quarter-on-quarter.
       This decline was offset by strong growth in FTTB subscriptions, with
       148,000 net additions to around 0.8 million over the course of the
       second quarter of 2008, bringing the total number of broadband
       subscribers to 4.3 million on June 30, 2008, a 3.4% increase compared
       to the same period of last year. By the end of June 2008, the number of
       ADSL and FTTx subscriptions with a service speed of greater than 8 Mbps
       reached 1.38 million, representing 32.1% of total broadband subscribers.
    -- At the end of June 2008, Chunghwa had 508,000 MOD subscribers, with
       73,000 new subscriptions added during the second quarter.

    Mobile Services
    -- As of June 30, 2008, Chunghwa had 8.8 million mobile subscribers,
       slightly up quarter-on-quarter by 0.63% compared to 8.7 million on
       March 31, 2008.
    -- Chunghwa remained the leading mobile operator in Taiwan. According to
       statistics published by the NCC, at the end of June 2008, the Company's
       total subscriber market share (including 2G, 3G and PHS) was 35.6%,
       while its revenue share was 33.6%.
    -- Chunghwa had 306,000 net additions to its 3G subscriber base during the
       second quarter, recording a 11.8% rise in the total number of 3G
       subscribers to 2.9 million on June 30, 2008.
    -- Mobile VAS revenue for 1H 2008 was NT$3.4 billion, a 31.7% year-on-year
       increase, with SMS revenue up 24.9% and mobile Internet revenue up
       58.2%.

    Fixed-line Services
    -- At the end of June 2008, the Company maintained its leading fixed-line
       market position, with fixed-line subscribers totaling 12.9 million.

    2008 Olympic Games on New Media
    -- The Company broadcasted the 2008 Olympic Games across its MOD, emome
       and hiChannel platforms in August. According to its internal statistics,
       during the Olympic Games, from August 8 until August 24, the highest
       number of view household for MOD was up to 1.6 times compared to before
       the game.
    -- HiChannel visitors were 3.3 times and the page views amounted to 11.3
       times compared to before the Games.
    -- Number of video clips viewed, page views and traffic over our mobile
       portal "emome" were 15.8, 10 and 10 times respectively, as compared to
       the period before the Games.

Financial Statements

Financial statements and additional operational data can be found on the Company's website at http://www.cht.com.tw/ir/filedownload .

Note Concerning Forward-looking Statements

Except for statements in respect of historical matters, the statements made in this press release contain "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of Chunghwa to be materially different from what may be implied by such forward- looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, among other things: extensive regulation of telecom industry; the intensely competitive telecom industry; our relationship with our labor union; general economic and political conditions, including those related to the telecom industry; possible disruptions in commercial activities caused by natural and human induced events and disasters, including terrorist activity, armed conflict and highly contagious diseases, such as SARS; and those risks identified in the section entitled "Risk Factors" in Chunghwa's annual reports on Form F-20 filed with the SEC.

The forward-looking statements in this press release reflect the current belief of Chunghwa as of the date of this press release and we undertake no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such date.

SPECIAL NOTE REGARDING NON-GAAP FINANCIAL MEASURES

A body of generally accepted accounting principles is commonly referred to as "GAAP". A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable U.S. GAAP measure. We disclose in this report certain non-GAAP financial measures, including EBITDA. EBITDA for any period is defined as consolidated net income (loss) excluding (i) depreciation and amortization, (ii) total net comprehensive financing cost (which is comprised of net interest expense, exchange gain or loss, monetary position gain or loss and other financing costs and derivative transactions), (iii) other expenses, net, (iv) income tax, (v) cumulative effect of change in accounting principle, net of tax and (vi) (income) loss from discontinued operations.

In managing our business we rely on EBITDA as a means of assessing our operating performance. We believe that EBITDA can be useful to facilitate comparisons of operating performance between periods and with other companies because it excludes the effect of (i) depreciation and amortization, which represents a non-cash charge to earnings, (ii) certain financing costs, which are significantly affected by external factors, including interest rates, foreign currency exchange rates and inflation rates, which have little or no bearing on our operating performance, (iii) income tax and tax on assets and statutory employee profit sharing, which is similar to a tax on income and (iv) other expenses or income not related to the operation of the business. EBITDA is also a useful basis of comparing our results with those of other companies because it presents operating results on a basis unaffected by capital structure and taxes.

EBITDA is not a measure of financial performance under U.S. GAAP or ROC GAAP. EBITDA should not be considered as an alternate measure of net income or operating income, as determined on a consolidated basis using amounts derived from statements of operations prepared in accordance with ROC GAAP, as an indicator of operating performance or as cash flows from operating activity or as a measure of liquidity. EBITDA has material limitations that impair its value as a measure of a company's overall profitability since it does not address certain ongoing costs of our business that could significantly affect profitability such as financial expenses and income taxes, depreciation, pension plan reserves or capital expenditures and associated charges. The EBITDA presented herein relates to ROC GAAP, which we use to prepare our consolidated financial statements.

About Chunghwa Telecom

Chunghwa Telecom (TAIEX 2412; NYSE: CHT) is the leading telecom service provider inTaiwan. Chunghwa Telecom provides fixed-line, mobile and Internet and data services to residential and business customers inTaiwan.

If you have any questions in connection with the change of accounting policy, please contact the following person:

     Ms. Fu-fu Shen
     Tel:      +886-2-2344-5488
     Fax:      +886-2-3393-8188
     Email:    ffshen@cht.com.tw
     Address:  CHUNGHWA TELECOM CO., LTD.
               21-3 Hsinyi Road, Section 1,
               Taipei, Taiwan,
               Republic of China

SOURCE Chunghwa Telecom

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