Letter to shareholders

The threat of COVID-19 loomed over the world throughout 2021. It brought about shortages in shipping containers, port congestion, unexpected surges in energy and raw material prices, and it disrupted the global supply chain – not to mention the disruption of daily life. The pandemic severely tested the ability of companies to adapt, and our teams rose to the occasion. With the agile guidance of our leadership and the efforts of all our staff we delivered outstanding results. In 2021, our consolidated income totaled 85.299 billion NTD, an annual increase of 16.47%, while net profit attributable to shareholders was 5.204 billion NTD, an EPS of 3.13 NTD.

In 2021, the three major global risks were the pandemic, inflation, and climate change. The emergence of new COVID-19 variants forced countries to sporadically reinstate measures to limit travel and transport.  Raw material prices and supply chains are still affected today. In January, the US Consumer Price Index (CPI) jumped by an annual rate of 7.5%, the fastest pace in 40 years; last December, the eurozone’s annual inflation rate rose by 5%, marking six straight months of increases; last October, China’s Producer Price Index (PPI) surged by 13.5% year-on-year; and from August last year, Taiwan’s CPI exceeded the central bank’s alert level of 2% for five consecutive months, with the annual rate reaching 2.63% in December. To combat soaring inflationary pressures, the US Federal Reserve is expected to tighten monetary policy in 2022 by ending QE, raising interest rates, and shrinking the balance sheet. On the climate change front, carbon border taxes and carbon neutrality goals continue to create operational challenges for businesses.

To address this upheaval, our teams drew on YFY’s core practices of innovation, circular economy and sustainability– set forth by second generation founder, Show-Chung Ho (S.C. Ho). We have a long history of transformation and we are well aware of the risk that comes with change. Since our founding we have embraced upheaval and created our own rewards. Here is a brief overview of our 2021 highlights and outlook:

• Investment and Incubation: Corporate venture capital (CVC) and subsidiary incubation are the focus of our business model since YFY restructured to become an investment management and holding company in 2012. We devote the necessary time and we recoup our investment as each business matures. The latest example is Yuen Foong Yu Consumer Products Co., Ltd. (6790.TW), which went public on the Taiwan Stock Exchange in September 2021, joining our other listed portfolio investments E Ink Holdings Inc. (8069TW), TaiGen Biotechnology Co., Ltd. (4157.TW), and Shin Foong Specialty and Applied Materials Co., Ltd. (6582.TW).
• Environmental, Social, and Governance (ESG): YFY has officially established the Sustainable Development Committee to further transform our ESG goals into tangible, meaningful action. The committee actively manages issues of corporate governance, environmental sustainability, employee relations, supply chain responsibility, stakeholder management, and social engagement. One of our major achievements of 2021 was YFY Packaging Inc.’s syndicated green loan, recognized by The Asset as Taiwan’s first green loan in compliance with Asia Pacific Loan Market Association’s principles and certified by an independent third party. Our Five Cycles of Circular Economy garnered many national awards, including three Taiwan Corporate Sustainability Awards and the 18th National Innovation Award for Corporate Innovation.
• Innovation: Spurred by the global challenge of net zero emissions by 2050, YFY Academy was founded to serve as a platform to connect global experts in science, technology, and industries for novel sustainable solutions. Due to YFY’s origin as an agricultural enterprise, with YFY’s Five Cycles of Circular Economy already in place, our next goal is to turn saccharides into a game-changer for carbon neutrality. This untapped natural resource will provide clean energy and an eco-friendly new material to replace plastics.

As YFY approaches its centenary, we endeavor to realize our vision of a low-carbon, low-energy, de-fossiled future. Moving forward, the company’s strategy will be underpinned by five main directives:

• Create Green Energy: YFY will continue to devise smart procedures that reclaim resources and reduce energy consumption. To this end, CHP’s Taitung mill has added biogas power generation and pelletization equipment, while YFY Paper Manufacturing ( Yangzhou) Co., Ltd. has introduced a new waste heat recovery system and biogas reburning. Moreover, YFY Packaging’s Xinwu mill has already begun operating Taiwan’s first industrial zero coal-burning SRF (Solid Recovered Fuel) cogeneration boiler, which was designed with sufficient capacity to process SRF from other industries. Taking advantage of group synergies, YFY Consumer Products will diversify sources of SRF and increase the proportion of SRF co-firing. These investments in state-of-the-art technologies will gradually reduce coal usage and carbon emissions, as well as drive up the production rate of renewable energy.
• Harness AI: YFY is continuing to employ intelligent systems that improve processes and operations. For instance, IIoT (Industrial Internet of Things) technology is forming upstream and downstream eco-industrial chains for each entity under the YFY umbrella. AIoT (Artificial Intelligence of Things) is deepening smart manufacturing, and practical blockchain technology is being applied to bolster overall security, verifiability and efficiency of the supply chain process. Informed by the Six Sigma method for process improvement, these systems will maximize production, improve customer satisfaction, and reduce operating costs.
• Close Loops: While practicing a circular economy in our own operations, we are actively looking for the opportunity in other fields. Our “waste-to-resource” technology can facilitate the creation of biogas through anaerobic digestion or other new technologies that can generate electricity for self-use. This will not only improve the autonomy of renewable energy, but also reduce waste for a cleaner environment. YFY’s tried-and-true approach will be a model for the world’s industries.
• Originate Green Materials: Through the international and multidisciplinary platform on glycoscience, the YFY Academy aims to further the advancement of saccharide technology to develop functional materials that are totally recyclable or degradable in an eco-friendly manner. Our vision is to build a “saccharide economy” where plant-based materials will be an economical option as to petrochemical products.
• Recognize Promise - Nurture Potential: YFY’s business incubation has proven to empower previously emerging technologies. We will continue to cultivate portfolio companies while seeking investment opportunities of tomorrow technologies /applications. Looking forward, YFY’s once-fledgling packaging business is expected to apply for listing in Taiwan through the entity YFY Packaging Inc. Arizon RFID Technology Co., Ltd. is also planning to list with the Taiwan Stock Exchange.

With the impact of COVID-19 still reverberating through the global economy in 2022, YFY remains committed to a core philosophy anchored by stable operations and steady growth. As we march forward in these uncertain and rapidly changing times, we shall continue to prudently assess risks as they arise. Whatever the challenge, we hold steadfast to the company’s core principals. We will relentlessly pursue innovation and transformation, foster our corporate environment, strive for sustained ESG excellence, and generate reliable long-term returns for our shareholders.

Wishing you all good health and prosperity!