Letter to shareholders

The global economy has started to make a slow recovery from the pandemic, war, and inflation crisis. Geopolitical and regional tensions remain high. The International Monetary Fund (IMF) forecasted that the global economy will grow about 3.0% in 2023 and slow down slightly to 2.9% in 2024. Nonetheless, we maintain a cautiously optimistic outlook on future economic growth and are actively fortifying the foundation of our business in anticipation of further expansion.

For 2023, YFY Inc. (YFY) reported consolidated revenue of NT$73.867 billion. Income after tax attribute to the parent company amounted to NT$1.827 billion and earnings per share were NT$1.10. Despite a challenging macro environment during 2023, our affiliated companies under the equity method such as E Ink contributed NT$1.265 billion and SinoPac Holdings contributed majority of cash dividends of approximately NT$857 million.

YFY is recognized as a pioneer in circular economy and green technology, providing solutions to address climate change. Ongoing efforts in sustainability and the five strategic directions continue to enhance the company’s operational resilience and competitiveness:

1.        Renewable Energy and Energy Management

          The Carbontech & Management Group (CMG) focuses on Smart Energy and Circular Economy, providing innovative energy systems and transforming waste into useful resources and biomass energy. CMG assists clients’ energy planning and carbon reduction strategies through a carbon management platform, which helps clients establish carbon accounts, monitor emissions, and execute carbon reduction measures.

The papermaking process stands out for its unique characteristics in the field of circular economy when compared to other manufacturing industries. By converting production waste and residues into renewable energy and materials, YFY has embraced these advantages and is dedicated to developing low-carbon energy sources such as lignin biofuel, biogas, and solid recovered fuel (SRF). YFY has implemented energy generation and storage systems to create smart energy solutions, including the establishment of Taiwan's first co-generation post-meter energy storage system. The system integrates various functions including energy creation, storage, utilization, and adjustment, ultimately enhancing the energy efficiency of our factory. By reducing our reliance on Taipower during peak hours, we are able to lower electricity bills without placing additional strain on the public grid. Furthermore, it facilitates our cogeneration systems, allowing us to participate in Taipower's power trading platform and explore new business opportunities in the energy sector. By doing so, we contribute to enhancing the resilience of Taiwan's power grid.

In partnership with the Taoyuan City government, we have spearheaded the transformation of the Guishan Water Resource Recycling Center into Taiwan's green energy hub, operating under the Rehabilitate-Operate-Transfer (ROT) model. The center processes approximately 35,000 tons of domestic sewage and industrial wastewater daily, converting it into biogas energy. This initiative yields an annual generation of around 5MWh of electricity while also making a significant contribution to the environment by reducing 2,500 tons of CO2 emissions per year.

In 2024, YFY will continue to provide green solutions with a focus on Smart Energy and Circular Economy initiatives. We intend to promote virtual power plants based on the post-meter energy storage solutions. This will involve the aggregation of electricity, micro-grid, and renewable electricity trading, all as essential elements of our strategy.

2.        Industry 4.1 and Creation of an Up/Downstream Industry Ecosystem

Chung Hwa Pulp Corporation (CHP), a subsidiary of YFY, has introduced "Automatic Virtual Metrology" into its production workflow. This cutting-edge system incorporates big data and AI into the papermaking process, particularly during coating, to create a visual detection system. By identifying potential issues, improving quality, and increasing yield, this system has led to a 2.16% boost in productivity and 6,000 tons of carbon emissions reduction annually. These achievements were honored with the "Smart Manufacturing Leader Award" and the "ESG Special Award" from Harvard Business Review’s Digital Transformation Award. We will expand these experiences to other papermaking processes, and promote smart automation in collaboration with our value chain partners. We also provide training to employees on AI technology and sharing these experiences with other business divisions. The company has outlined key strategies focusing on automation, smart manufacturing, and low carbon transition.

3.        Continuous Development of Circular Economy

YFY has been at the forefront of circular economy, producing paper products made from plant fibers, maximizing the value of saccharide material and circular resources. Carbon is stored throughout the complete paper lifecycle.

Within the YFY group, subsidiaries such as YFY Packaging, Chung Hwa Pulp Corporation and YFY Consumer Products have completed ISO 14067 carbon footprint certification. Fidelis IT Solutions Co., Ltd., has developed a carbon tracking platform to automate the measurement process. Genovella Renewables Inc., another YFY affiliate, repurposes factory waste into recycled Eco bricks (building materials), ensuring that all functional tests comply with the Taiwan CNS13295 standard. Other waste materials and sawdust from papermaking are processed into natural organic fertilizer.

Chung Hwa Pulp Corporation has established carbon sink experiment sites in Hualien and Taitung. These facilities continue their research in relevant methodologies and various measures to increase carbon sequestration.

4.        The Saccharide Economy and New Materials Development

Wood is the primary material used in pulp and paper industry, with forests serving as crucial carbon sinks. Carbon is stored in the wood fibers and continues to be stored in the harvested wood products.  Mr. Show-Chung Ho, President of the YFY Academy, proposed the differentiation between fossil-based carbon and biogenic carbon, and the consideration of “Green Carbon” at the 7th Asian Pulp and Paper Industry Conference. “Green Carbon” measurement is a more comprehensive method of measuring carbon as it includes the biogenic carbon stored in wood-based products and the carbon emissions generated during production. The proposed measurement is to subtract carbon emissions from biogenic carbon stored in products to obtain an accurate carbon assessment and disclosure. This approach underscores the dual function of the pulp and paper sector as a source of bio-materials and biogenic carbon pools. As the global community seeks viable options to reduce plastic use and carbon emissions, the pulp and paper industry has a unique role to play to contribute positively to climate change.

For a century, YFY has been a leader in the pulp and paper industry, dedicated to researching and developing renewable, low-carbon, and eco-friendly materials. Fong Tian Agricultural Paper is designed to replace plastic bags in farming. It is free from heavy metals and can be directly integrated into the soil to enhance the organic content of the farmland. CircuWell PE-free paper food containers have been developed as an alternative to traditional plastic coating containers. The PKT Series Tape is made from FSC-certified paper with special adhesives, making it biodegradable and an eco-friendly alternative to OPP/PVC-based plastic tapes. These tapes provide sustainable choices for the expanding e-commerce and packaging industries. Overall these products represent significant breakthroughs in replacing petrochemicals with saccharide-based materials.

5.        Invest and Grow on New Business

In 2012, YFY underwent a name change and transitioned into a holding company. Since then, the company has been actively diversifying its business by expanding beyond its core papermaking operations. We have strategically supported our subsidiaries in their IPOs, with the funds raised being reinvested to nurture promising new entities, fostering a culture of sustainable value creation.

Subsidiaries such as TaiGen Biopharmaceuticals Holdings (4157.TW), Shin Foong Specialty and Applied Materials (6582.TW), Yuen Foong Yu Consumer Products (6790.TW), and Arizon RFID Technology (6863.TW) have all been successfully listed on the Taiwan Stock Exchange. In 2023, YFY acquired a substantial stake in FS-Tech, a startup in digital technologies, as part of our strategy in fields like digital transformation, AI, and smart manufacturing. Moving forward, YFY will continue to explore additional M&A opportunities.

As YFY celebrates its centennial in 2024, our commitment to business growth and corporate responsibility endures. In a future where opportunities and challenges are intertwined, the YFY management team is dedicated to maintaining agility and resilience. By harnessing digital technologies, advancing materials science, and implementing robust ESG strategies, we are poised to meet diverse challenges head-on and create enduring value for our shareholders.    

Wishing you good health and prosperity!