WorldReginfo - 4c8ae075-0ac6-4414-bae4-e528127e7d60 Address 12F, No. 88, Yanchang Rd., Xinyi District, Taipei Telephone (02) 6638-6888 Taiwan Mobile Customer Service 0809-000-852 Website www.taiwanmobile.com Address 8F, No.111, Sec. 1, Dunhua S. Rd., Da-An District, Taipei Taiwan Mobile System Integration Branch Office Telephone (02) 6638-6888 Name Rosie Yu Title Executive Vice President and Chief Financial Officer Spokesperson Telephone (02) 6635-1880 Email [email protected] Name Iris Liu Title Vice President Deputy Spokesperson Telephone (02) 6636-6979 Email [email protected] IR Contact Email [email protected] Audit Committee Email [email protected] Transfer Agency and Registry Department Name of Fubon Securities Co., Ltd. Address 2F, No. 17, Xuchang St., Zhongzheng District, Taipei Stock Transfer Agent Telephone (02) 2361-1300 Website www.fubon.com.tw Deloitte & Touche Li-wen Kuo, CPA, and Kwan-chuang Lai, CPA 12F, No. 156, Sec. 3, Minsheng E. Rd., Songshan District, Address Independent Auditor Taipei Telephone (02) 2545-9988 Website www.deloitte.com.tw Listing of Foreign Securities None Disclaimer Please note that this English annual report is not a word-for-word translation of the Chinese version. In the event of any variance, the Chinese text shall prevail. WorldReginfo - 4c8ae075-0ac6-4414-bae4-e528127e7d60 Contents 【Letter to Shareholders】 -------------------------------------------------------------------------------------------------------- 1 【Chapter 1. Company Highlights】 -------------------------------------------------------------------------------------------- 6 VISION ----------------------------------------------------------------------------------------------------------------------------- 6 CORE COMPETENCY -------------------------------------------------------------------------------------------------------------- 6 BRAND IMAGE--------------------------------------------------------------------------------------------------------------------- 6 DATE OF INCORPORATION ------------------------------------------------------------------------------------------------------ 7 MILESTONES ---------------------------------------------------------------------------------------------------------------------- 7 【Chapter 2. Organization and Corporate Governance】 -------------------------------------------------------------- 12 ORGANIZATION ------------------------------------------------------------------------------------------------------------------ 12 BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT ----------------------------------------------------------------- 16 COMPENSATION TO DIRECTORS AND MANAGEMENT EXECUTIVES ----------------------------------------------------- 30 CORPORATE GOVERNANCE ---------------------------------------------------------------------------------------------------- 35 CERTIFIED PUBLIC ACCOUNTANT (CPA) INFORMATION ----------------------------------------------------------------- 58 DIRECT AND INDIRECT INVESTMENTS IN AFFILIATED COMPANIES ---------------------------------------------------- 60 CHANGES IN SHAREHOLDINGS OF DIRECTORS, MANAGERS AND MAJOR SHAREHOLDERS ----------------------- 62 【Chapter 3. Financial Information】 ----------------------------------------------------------------------------------------- 68 CAPITAL AND SHARES ---------------------------------------------------------------------------------------------------------- 68 CORPORATE BOND ISSUANCE------------------------------------------------------------------------------------------------- 72 PREFERRED SHARES ------------------------------------------------------------------------------------------------------------ 73 DEPOSITARY RECEIPT ISSUANCE --------------------------------------------------------------------------------------------- 73 EMPLOYEE STOCK OPTIONS AND NEW RESTRICTED EMPLOYEE SHARES ----------------------------------------------- 73 SHARES ISSUED FOR MERGERS AND ACQUISITIONS ------------------------------------------------------------------- 73 USE OF PROCEEDS FROM RIGHTS ISSUE ----------------------------------------------------------------------------------- 73 【Chapter 4. Operational Highlights】---------------------------------------------------------------------------------------- 74 PERFORMANCE BY DIVISION -------------------------------------------------------------------------------------------------- 74 SCOPE OF BUSINESS ----------------------------------------------------------------------------------------------------------- 74 MARKET AND SALES OVERVIEW ---------------------------------------------------------------------------------------------- 87 HUMAN RESOURCES ------------------------------------------------------------------------------------------------------------ 96 ENVIRONMENTAL PROTECTION EXPENDITURE ----------------------------------------------------------------------------- 96 EMPLOYEE RELATIONS ---------------------------------------------------------------------------------------------------------- 96 MAJOR CONTRACTS ----------------------------------------------------------------------------------------------------------- 101 【Chapter 5. Financial Highlights】 ----------------------------------------------------------------------------------------- 103 CONDENSED BALANCE SHEETS AND STATEMENTS OF COMPREHENSIVE INCOME -------------------------------- 103 FINANCIAL ANALYSIS --------------------------------------------------------------------------------------------------------- 109 AUDIT COMMITTEE REPORT ------------------------------------------------------------------------------------------------- 113 2016 CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------------------------------------ 113 FINANCIAL DIFFICULTIES FOR THE COMPANY AND ITS AFFILIATES -------------------------------------------------- 113 【Chapter 6. Review and Analysis of Financial Conditions, Operating Results and Risk Management】 ------------------------------------------------------------------------------------------------------------------------------------ 114 BALANCE SHEET ANALYSIS -------------------------------------------------------------------------------------------------- 114 STATEMENTS OF COMPREHENSIVE INCOME ANALYSIS ----------------------------------------------------------------- 116 CASH FLOW ANALYSIS ------------------------------------------------------------------------------------------------------- 117 ANALYSIS OF MAJOR CAPEX AND ITS IMPACT ON FINANCE AND OPERATIONS ------------------------------------ 118 INVESTMENT POLICIES, REASONS FOR PROFIT/LOSS, PLANS FOR IMPROVEMENT AND FUTURE INVESTMENT PLAN ------------------------------------------------------------------------------------------------------ 118 RISK MANAGEMENT ----------------------------------------------------------------------------------------------------------- 119 【Chapter 7. Special Notes】 -------------------------------------------------------------------------------------------------- 126 AFFILIATES --------------------------------------------------------------------------------------------------------------------- 126 PRIVATE PLACEMENT OF COMPANY SHARES ----------------------------------------------------------------------------- 131 TWM SHARES HELD / SOLD BY SUBSIDIARIES ------------------------------------------------------------------------ 131 OTHER SUPPLEMENTARY INFORMATION ----------------------------------------------------------------------------------- 131 OTHER SIGNIFICANT EVENTS AFFECTING SHAREHOLDERS’ EQUITY OR STOCK PRICE ------------------------- 131 WorldReginfo - 4c8ae075-0ac6-4414-bae4-e528127e7d60 Letter to Shareholders Dear Shareholders, In 2016, thanks to an all-out effort by employees, Taiwan Mobile (“TWM” or “the Company) saw its 4G business grow, with consolidated sales hitting a new record, while EBIT, EBITDA and free cash flow rose to their highest levels since the service’s launch in 2014. This can be attributed to the Company’s: 1) superior 4G network quality, which was recognized and affirmed by consumers, 2) an improving operating leverage due to expanding economies of scale, and 3) cost-effective investments in 4G spectrum and infrastructure. All these achievements demonstrate TWM’s commitment to maximizing shareholders’ interests. Taiwan Mobile reported a 2016 consolidated revenue of NT$116.6bn. Its EBITDA of NT$33.9bn and EBIT of NT$20bn rose 5% and 7% YoY, respectively. Net income and EPS came in at NT$15.3bn and NT$5.63, respectively, both surpassing the Company’s guidance by 9%. Earnings grew briskly on the back of a better-than-expected performance from its 4G operations and steady profit contribution from its e-commerce business. As a result, the Company again outperformed its peers in delivering the highest EPS in 2016 for the fifth consecutive year. As the Company steadily expanded its core business, it continued to gain recognition for its commitment to enhancing corporate value, which included: 1. World-class corporate governance Taiwan Mobile is committed to maintaining integrity as its core value and promoting corporate governance. The Company’s compliance with global standards has won not only the trust of investors, but also numerous awards and recognitions from domestic and international rating institutions. Last year, for the second year in a row, TWM ranked among the top 5% listed companies on the Taiwan Stock Exchange and the Taipei Exchange’s “Corporate Governance Assessment.” TWM was also selected for the fifth