CHUNGHWA TELECOM CO LTD | CIK:0001132924 |

Filed: 4/27/2018

Entity registrant name: CHUNGHWA TELECOM CO LTD (CIK: 0001132924)

Generator: Donnelley Financial Solutions

SEC filing page: http://www.sec.gov/Archives/edgar/data/1132924/000156459018009423/0001564590-18-009423-index.htm

XBRL Instance: http://www.sec.gov/Archives/edgar/data/1132924/000156459018009423/cht-20171231.xml

XBRL Cloud Viewer: Click to open XBRL Cloud Viewer

EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001132924

Open this page in separate window: Click

Categories of Financial Instruments

 

 

Financial Risk Management Objectives

The main financial instruments of the Company include equity and debt investments, accounts receivable, accounts payable and loans.  The Company’s Finance Department provides services to its business units, co-ordinates access to domestic and international capital markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks.  These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.

The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures.  The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors.  Those derivatives are used to hedge the risks of exchange rate fluctuation arising from operating or investment activities.  Compliance with policies and risk exposure limits is reviewed by the Company’s Finance Department on a continuous basis.  The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Chunghwa reports the significant risk exposures and related action plans timely and actively to the audit committee and to the Board of Directors if needed.

The Company is exposed to market risks of changes in foreign currency exchange rates and interest rates.  The Company uses forward exchange contracts to hedge the exchange rate risk arising from assets and liabilities denominated in foreign currencies.

There were no changes to the Company’s exposure to market risks or the manner in which these risks are managed and measured.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:

 

 

The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the balance sheet dates were as follows:

 

 

Foreign currency sensitivity analysis

The Company is mainly exposed to the fluctuations of the currencies listed above.  

The following table details the Company’s sensitivity to a 5% increase and decrease in the functional currency against the relevant foreign currencies.  5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible changes in foreign exchange rates.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and forward exchange contracts.  A positive number below indicates an increase in pre-tax profit or equity where the functional currency weakens 5% against the relevant currency.  

 

 

For a 5% strengthening of the functional currency against the relevant currencies, it would have the equal but opposite effect on the pre-tax profit or equity for the amounts shown above.

The carrying amounts of the Company’s exposures to interest rates on financial assets and financial liabilities at the balance sheet dates were as follows:

 

 

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period.  A 25 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Company’s pre-tax income would increase/decrease by $12 million, $12 million and $13 million for the years ended December 31, 2015, 2016 and 2017, respectively.  This is mainly attributable to the Company’s exposure to floating interest rates on its financial assets and short-term and long-term loan.

The Company is exposed to equity price risks arising from listed equity investments.  Equity investments are held for strategic rather than trading purposes.  The management managed the risk through holding various risk portfolios.  Further, the Company assigned finance and investment departments to monitor the price risk.

Equity price sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices of listed equity securities had been 5% higher/lower, other comprehensive income would have increased/decreased by $162 million, $126 million and $156 million as a result of the changes in fair value of available-for-sale assets for the years ended December 31, 2015, 2016 and 2017, respectively.

Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company.  The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance sheet date.

The Company has large trade receivables outstanding with its customers.  A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance.  The Company has implemented ongoing measures including enhancing credit assessments and strengthening overall risk management to reduce its credit risk.  While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses.  This risk is heightened during periods when economic conditions worsen.

As the Company serves a large number of unrelated consumers, the concentration of credit risk was limited.

The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.

The following tables detailed the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods.  The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.

 

 

The following table detailed the Company’s liquidity analysis for its derivative financial instruments.  The table had been drawn up based on the undiscounted gross inflows and outflows on those derivatives that require gross settlement.