「Sustainable」, 「Altruistic」 & 「Environmentally-Friendly」
have always been YFY's guiding beliefs.

Chairman's talk 
 
The year 2006 represented a milestone in Yuen Foong Yu Paper Manufacturing Co., Ltd.’s (YFY) mainland expansion.  In the fourth quarter of last year, YFY’s paper mill in Yangzhou successfully commenced operations. This is the largest Taiwanese-invested paper mill in China and is a key step in our objective of becoming the largest packaging company in the Greater China area.  YFY’s containerboard mill in Vietnam also started production last year and was profitable in its first year of operation, with revenue growth ranking first among all our production bases.  YFY’s Shanghai unit further expanded its operation scale to meet fast-rising demand and, by networking with the Fuzhou base, has formed a comprehensive platform to better serve the group as a whole.  In the consumer product sector, YFY’s focus on urban markets has been a rewarding and successful venture.

 YFY, including YFY Industrial Paper Co., Ltd., achieved total revenues and net profit of NT$28.24 billion and NT$1.11 billion, respectively, last year.  Revenues rose 5% from NT$26.78 billion in 2005.  However, rising raw material and energy costs, as well as a sluggish Taiwan equity market, caused a slight drop in net profits.  Earnings per share were NT$0.72.

Recognizing the market potential of radio-frequency identification (RFID) technology and the key role that the Company’s packaging plays in the cargo-trace and tracking system, YFY set up Yeon Technologies in 2006 with the aid of technology transferred from the Industrial Technology Research Institute.  Yeon is currently the only Accredited Performance Test Center for EPC Global in Taiwan.  As globalization spreads, logistics has become a cross-border challenge.  In the same manner that world retail giant Wal-Mart has been pushing its top suppliers to implement RFID tagging, other industry players are also moving toward this trend.  Yeon is well positioned to lead YFY’s business partners and customers into the next generation of global supply chain management.  

According to the UN’s World Economic Situation and Prospects 2007 report, Asia’s emerging economies will continue to post robust growth this year.  China is forecast to maintain an annual growth rate of 9%, even as the government is taking macroeconomic measures to curb excessive investment growth, while India is expected to post a growth rate of 8%. Together, they will stimulate economic performance in East Asia and South Asia.  

Taiwan’s total consumption of paper and paperboard in 2006 was 4.67 million tonnes, representing a 4.1% decrease from 2005, while paper and paperboard production was 4.65 million tonnes, a 0.3% decrease from 2005, figures released by the Taiwan Paper Industry Association showed.   Total sales reached 4.66 million tonnes, representing 0.2% growth, with domestic sales accounting for 3.25 million tonnes, a decrease of 2.8%, and international sales accounting for 1.41 million tonnes, an increase of 7.7%. Imports were 1.53 million tonnes, a 4.8% decrease. 

YFY’s vision of becoming the market leader in the paper industry entails vigorous work in 2007.  Domestic demand in the mainland will continue to rise, not only for YFY’s paper products but also its consumer products, which are growing at double-digit annual growth rates in Beijing, Shanghai and Nanjing.  YFY also faces challenges from other Asian counterparts that are aggressively moving into this sizzling market.  With new applications of paper and paperboard crossing over from stationary paper to electronic paper and household products, YFY is extending papermaking technology into these growth markets.  We are therefore confident that YFY can cross the NT$50 billion mark in 2007, creating the highest growth record ever in the Company’s history.

YFY is continuing its financial restructuring to complete its transformation into a holding company.  We have completed the spinoff of the industrial paper division, which has seen growth in both turnover and profit.  This has created for us a platform for international alliances, and we expect to reach an accord with a major partner in 2007. Our next phase of restructuring will be in the household product division, with plans to spin off this unit likely to be completed before the end of the year.

Environmental awareness and protection have always been a part of YFY’s mission.  Our principle has always been to reduce environmental damage through biochemical processes.  We actively employ wastepaper recycling methods in our production of industrial and stationary paper.  In fact, we are a proud proponent and contributor to Taiwan’s standing as the No. 3 wastepaper recycler in the world.  This year, we aim to further collaborate with city governments as well as large corporations in promoting the use of recycled paper and actively participate in raising awareness about wastepaper recycling through different community activities to protect our planet’s future.

To address the worldwide problem of decreasing fiber resources, YFY is conducting research and development of non-wood based paper production. We expect to achieve major breakthroughs in new technologies this year. 

The year 2007 promises to be a year of challenges, but should also be marked by a great leap forward for YFY.  We are committed to the R&D of new technologies, strengthening our competitive edges, transforming into a holding company, and speeding up the independent operations of new entities.  We are confident that these objectives will help enhance our overall performance and generate maximum investment returns for our shareholders.

Thank you for your unqualified support and I look forward to another year of excellent operating performance and sustained increase in shareholder value.

Taiwan's papermaking and environmental