Chunghwa's CEO Discusses Q1 2011 Results - Earnings Call Transcript

Chunghwa Telecom Co. Ltd. (CHT)

Q1 2011 Earnings Call

April 28, 2011 8:00 AM ET

Executives

Fu-fu Shen – Director, Investor Relations

Shyue-Ching Lu – Chairman and CEO

Shaio-Tung Chang – President

Yeh Shu – Chief Financial Officer

Analysts

May Lin – Yuanta

Ravi Sarathy – Citi

Joseph Quinn – Macquarie

Leping Huang – Nomura

Presentation

Operator

Good evening, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the Company Q1 2011 Operating Result. During the presentation all lines will be in listen-only mode. When the briefing is finished direction for submitting your questions will be given in the question-and-answer section.

For your information, this conference call is now being broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cht.com.tw/ir under the Investor section.

Now, I would like to turn it over to Fu-fu Shen, the Director of Investor Relations. Thank you, Ms. Shen, please go ahead.

Fu-fu Shen

Thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa Telecom. Welcome to our first quarter 2011 results conference call. Joining me today are – joining me on the call today are Dr. Lu, Chairman and CEO; Mr. Chang, President; and Dr. Yeh, CFO.

During today’s call management will discuss business operational and financial highlights for the first quarter 2011. This will be followed by Q&A. Before we continue, please note our Safe Harbor statement on slide one.

Now, I would like to turn the call over to Chairman, Lu.

Shyue-Ching Lu

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our first quarter 2011 earnings results conference call. On slide number two, total consolidated revenue for the first quarter of 2011 amounted to NT$5.2 billion.

In addition to the increased fixed line revenue resulting from the shift in the pricing right of a fixed-to-mobile call from mobile operators to fixed Line operator, mobile VAS and handset sales were remaining as our key revenue drivers.

During the first quarter of 2011 we enjoyed persistent growth in our traditional telecom service business and continued to win additional ICT contracts. During the quarter we also continued to offer customers configured cloud computing services and to consolidate and repackage solutions.

Moving on to number -- slide number three, we remain committed to our shareholders, as you can see from this slide, which shows our cash return over the last several years. The NT$5.5243 cash dividend per share for 2010 operations results were approved by the board meeting in March and are subject to the final approval in the Annual General Shareholders Meeting scheduled for June 24 this year.

Total dividend payment is expected to be NT$42.9 billion. I would like to restate our commitment to maintaining our stable dividend payout policy.

Now, I will hand over to Dr. Yeh for our financial results.

Yeh Shu

Thank you, Chairman Lu, and good day, everyone. Thanks for joining us today. I will review our financial results in detail beginning with slide number five. Slide number five shows our income statement on a consolidated basis and provides a comparison on a year-over-year basis.

Our total revenue for the first quarter 2011 was NT$52.5 billion, a 5.8% increase, compared to 2010, primarily due to an increase of fixed line revenue resulting from the shift in the pricing right of a fixed-to-mobile call from mobile operators to fixed network operators.

Additionally, mobile VAS and the handset sales were areas of growth. Operating costs and expenses grew 10.9% to NT$38.5 billion, resulting a 6.1% decrease of income from operations to NT$13.9 billion.

Net income for the first quarter 2011 decreased 1.9% to NT$11.8 billion. EBITDA For the first quarter 2011 decreased 6.6% to NT$22 billion, mainly as a result of the negative impact on income from operations resulting from the shift in the pricing right of fixed-to-mobile call. The increase in costs of handsets sold and the early retirement expense.

Slide number six shows our revenue for each business segment for the first quarter of 2011. In the domestic fixed line business, local revenues increased by 24.3% year-over-year, mainly due to the shift of pricing right for fixed-to-mobile calls.

The 13.2% decline in DLD revenue was due to mobile and VoIP substitution, as well as reflecting the mandated tariff reduction.

Broadband access revenue, including ADSL and FTTx increased by 3% year-over-year, although ADSL access revenue decreased as more ADSL subscribers migrated to fiber solutions, the decrease was fully offset by growth in FTTx access revenue.

Mobile revenue increased by 2.8% year-over-year, mainly due to growth in mobile VAS revenue related to our smartphone promotion and handset sales.

Internet revenue rose by 3.6%, mainly due to Internet service growth, which was driven by the increase in broadband subscribers and the migration of ADSL subscriber to fiber solutions.

International fixed line revenue decreased by 4.5%, mainly due to the decrease in leased line revenue and satellite service revenue resulting from the expiration of ST-1 contract at the end of January 2011.

Slide seven shows the breakdown of operating costs and expenses. The increase in operating costs and expenses in the first quarter 2011 was mainly due to the increase in interconnection costs and transition fee resulting from the shift in the pricing right of fixed-to-mobile calls, the higher cost of handsets sold and the early retirement expenses.

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