2005 Annual Report
Total Page:16
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Spokesperson: Alison Kao, Director of Public Relations TEL: +886-2-8793-5689 e-mail: [email protected] Deputy Spokesperson: Yvonne Li, Executive Vice President of Finance and Administration Division TEL: +886-2-8793-5000 e-mail: [email protected] Stock Title Transfer: Oriental Securities Corporation ADD: 3F, 86, Chung Ching South Road, Sec. 1, Taipei, Taiwan TEL: +886-2-2361-8608 Website: www.osc.com.tw Independent Auditors: Annie Lin, CPA, and Benjamin Shih, CPA. Auditing Firm: Deloitte & Touche ADD: 12F, Hung Tai Century Tower, 156 Min Sheng East Road, Sec. 3, Taipei, Taiwan TEL: +886-2-2545-9988 Website: www.deloitte.com.tw Listing of Foreign Securities: Luxemburg Stock Exchange Disclosed information can be found at www.bourse.lu Contents I Letter to Shareholders 3 II Company Highlights 6 1. Company Profile 7 2. Organization 10 3. Capital and Shares 21 4. Issuance of Corporate Bonds (Including ECB) 26 5. Preferred Shares 27 6. Issuance of Depository Receipt 27 7. Employee Stock Options 27 8. Share Issued for Merge or Acquisition 28 III Operational Highlights 30 1. Business Activities 31 2. Market and Sales Overview 39 3. Employee Information in the Recent 2 Years 43 4. Environmental Protection Expenditure 43 5. Employee Relations 44 6. Major Contracts 46 IV Fund Utilization Plans and Status 49 V Financial Information 51 1. Condensed Financial Statement for the Recent 5 Years 52 2. Financial Analysis for the Recent 5 Years 54 3. 2005 Supervisors' Report-Not Consolidated 56 4. 2005 Independent Auditors' Report, Financial Statements and Notes 57 5. 2005 Supervisors' Consolidated Report 97 6. 2005 Independent Auditors' Report, Consolidated Financial Statements and Notes 98 VI Review and Analysis of the Financial Condition, Operating Performance and Risk Management 151 1. Financial Condition 152 2. Operating Performance 153 3. Cash Flow 154 4. Key Performance Indicator, KPI 155 5. Major Capital Expenditure and Sources of Capital Analysis 155 6. Investment Policies, Reasons for Profit/Loss, Plans for Improvement, and 2006 Investment Plan 156 7. Risk Management 157 8. Other 162 VII Corporate Governance 163 VIII Public Expenses of CPA 171 1. Information Related to Public Expenses 172 2. Information for Change of CPA 172 IX Special Notes 174 1. Affiliates Information 175 2. Internal Control System Execution Status 184 3. Dissenting Comments on Major BOD Resolutions from Directors and Supervisors 186 4. Private Placement Securities 186 5. The Company's Shares Held or Disposed by Subsidiaries 186 6. Major Resolutions of the Shareholders' Meetings and Board Meetings 187 7. Violation of Internal Control Policies by Employees 188 8. Other Supplementary Information 188 9. Material Event Impact on Shareholders' Equity or Share Price 188 I Letter to Shareholders FAREASTONE 23ANNUAL REPORT 2005 1. Letter to Shareholders Dear Shareholders, The mobile communications industry has in recent years become a driving force behind global economic growth. Taiwan's mobile communications industry has also entered a new era of great development in 2005. With 3G technology, mobile services are no longer limited to voice and simple messages, but can now also provide more exciting and diverse multimedia services and high-speed data transmissions, enriching the mobile lifestyle of subscribers. In addition, Mobile Number Portability (MNP) is now available across the board, so subscribers can switch to operators without changing numbers. This marks a new milestone in the liberalization of Taiwan's telecommunications. On the other hand, the mobile communications market is facing several challenges. Pre-paid product is an important mobile service but has in recent years become a tool for criminals to engage in extortion and fraud. As a result, government regulators have imposed a strict policy on prepaid subscriptions, and this has seriously affected the prepaid market in terms of total revenue and number of subscribers. Facing rapid changes in the market, FET continued to be very competitive and profitable. In 2005, with the fully consolidated revenues of FET, KGT, Arcoa and other subsidiaries, the audited total revenue and total service revenue reached NT$71,912 million and NT$63,531 million respectively. Service EBITDA margin and net income achieved financial target at 50.9% and NT$14,717 million, respectively. EPS was NT$3.8. Furthermore, FET was officially listed on the Taiwan Stock Exchange as an electronics share in August, 2005. After its public listing, FET was included in the Taiwan 50 Index. In addition, the October issue of Asian Business Week included FET in its ranking of "The Top 150" company performance rankings. FET was the only Taiwanese telecommunications company to make the list. 2005 Operational Highlights and Results ▲ Increased Revenue and Market Share-2005 service revenue reached NT$63,531 million, or 32% of overall market service revenue. This made FET the second largest mobile operator in the market. Furthermore, FET continued to hold the leading position in mobile data services. In 2005, FET outperformed its peers, and the non-voice revenue accounted for 44.5% share of total data market revenue. FET's non-voice revenue grew 32.4% YoY and accounted for 8.5% of total service revenue, which was above industry average of 6.1%. ▲▲ Launched 3G Technology and Services-FET's 3G technology and services were officially launched in July 2005, making FET the first 3G/WCDMA provider in Taiwan. The 3G wireless broadband network allows subscribers to make video calls to major regions around the world and offers low cost access to a variety of exciting multimedia video services. Enhanced Sales Distribution-FET has been the leader in re-shaping Taiwan's telecom distribution channels. As we enter a new multimedia era, service providers must quickly respond to changes in the market and satisfy customer demand. In order to further develop multimedia services, improved training for front line customer service representatives is crucial. These customer service representatives are our customer interface and play an important role in providing comprehensive information and professional consultation to our end users. ▲ Developed Corporate Solutions-FET's Enterprise Solution team offered the "Mailgene Plus" service. This solution combines push e-mail and mobile forms into an innovative automatic e-mail receiving service. With this service, corporate users can now enjoy real-time information access and improved work efficiency, no matter where they are. FET's Enterprise Solution opens up abundant business opportunities. As we enter 2006, major domestic research organizations indicate that Taiwan's economic growth will be around 4%. Domestic consumption is projected to grow by approximately 3% with improving employment and low inflation. As domestic consumption continues to grow, there is more room for growth in the telecommunications industry. However, Taiwan's telecommunications industry also faces some major challenges this year, with possible factors such as misunderstanding of electromagnetic fields health risks in the eyes of the general public, leading to widespread protests against radio base stations. Consequently, operators are forced to slow down construction of Letter to Shareholders to Shareholders Letter telecommunications infrastructure and suffer from increasing capital outlay and poorer service quality. At the same time, competition for customers will intensify with a new entrant in the market and MNP launch. Overall revenue Highlights Company performance will be affected as result of VoIP phenomenon and tariff reduction by fixed line operators. FET is prepared to meet these challenges, and will maintain business growth by providing a broad range of quality services through its advantages in resources and competitiveness. Operational Highlights Operational 2006 Current Status and Future Strategic Planning ▲▲ Maintain Steady Revenue Growth-FET will continue strengthening its leadership in non-voice service. Non-voice services are expected to grow significantly in comparison with that in previous years. For future revenue growth, FET will provide competitive rate plans to retain existing customers and to acquire new comers. Strengthen Distribution-With the launch of 3G services, distribution channels are becoming more important to Fund Utilization Plans and Status customers. After its acquisition of ARCOA in early 2005, FET is integrating distribution channels to target specific markets and consumers. ARCOA is reshaping its focus on becoming a "Neighborhood Store". Together the two companies control 770 outlets throughout Taiwan, and FET will continue to dominate distribution channels in the market. ▲▲ Develop Full-range Multimedia Services-3G mobile communication is not expected to show rapid growth. FET is therefore adopting a practical roll-out plan to focus on 3G service development and provide innovative multimedia services. FET's 3G coverage expansion will focus on freeways and the East Coast. Financial Information Develop ODM handsets and Widen Product Portfolio on Accessories-Penetration of mobile service is closely related to the development of advanced devices. FET will continue to develop ODM handsets for data services and special corporate identification adjusted devices for new business initiatives. Moreover, FET will widen product portfolio on accessories and companion products. This will open up new opportunities, expand product R eview and Analysis of the Financial Condition, Operating Performance and Risk Management