Letter to shareholders

Dear Shareholders,

2020 was a year of massive disruptions. COVID pandemic drastically altered what we consider “ordinary” in everyday life and business. Border-closing, lock-down, and the resulting disruption in supply chain tested every company’s ability to adapt and change. Working hand-in-hand, our teams overcame difficulties and seized opportunities, netting a fruitful 2020. Consolidated income was 73.235 billion NTD, while net profit attributable to shareholders was 5.209 billion NTD, or 3.14 NTD per share, up 127.9% compared to 2019.

Looking forward, 2021 remains a year of risks and opportunities. Resurgence of the pandemic continues to impact economic recovery; trade and technology dispute between United States and China persists after Joe Biden’s inauguration; all the while, inflationary pressure builds. At the same time, pent-up demand built-up in early 2020 has driven significant business growth across the globe starting 4Q20, while the launch of COVID vaccines sheds light of hope for global normalcy. Compared to a frigid 2020, institutions predict a strong rebound in 2021: The IMF projects 5.5% global economic growth, with China’s economy returning to an expected growth of 8.1%. Taiwan’s DGBAS projects a 3.83% economic growth for Taiwan.

Upholding YFY’s heritage of trail-blazing innovation, we made significant changes in strategy and improved operations at our portfolio companies over the last 6 years. In an incredibly challenging 2020, YFY’s portfolio demonstrated our resilience and reaffirmed the soundness of our investment philosophy. Some highlights from our 2020 operations:

1.   Multidisciplinary Investment

YFY restructured to become an investment management and holding company in 2012. Likewise, our business model transformed into investment and incubation. We take time to nurture each business, and as they mature, recoup our investment from capital market to invest and incubate new businesses. Since 2012, businesses such as TaiGen Biotechnology (4157TW) and Shin Foong Specialty and Applied Materials (6582TW) were listed on the Taiwan Stock Exchange. Our Consumer Product Business Group, YFYCPG (6790) obtained Emerging Stock Market registration in October, 2020, and is expected to file formal listing application for in 2021. In June 2020, Arizon RFID Technology filed applications with Shanghai Stock Exchange for main board listing; the application is currently under review by Shanghai Stock Exchange and China Securities Regulatory Commission.

2.    Circular Economy

YFY Packaging and CHP redoubled efforts in circular economy. Xinwu mill finished construction of Taiwan’s first 100% SRF (Solid Recovered Fuel) industrial boiler. This zero coal, pioneering undertaking turns byproducts from paper recycling into renewable energy and resources, significantly reduce carbon emission. Slated to formally start up in early 2021, its designed capacity will also allow YFY to help process SRF from other sources. Yangzhou mill and CHP Hualien mill committed additional investments to improve process efficiency and reduce energy use. Shin Foong Specialty and Applied Materials is expanding in Pingtung with plans to build a new green-building plant with accompanying green-building certified living quarters for employees, which reuses factory affluents after treatment and sanitization.

3.    Innovation

CHP, collaborating with YFY portfolio company Sustainable Carbohydrate Innovation, makes steady advance in developing bio-based products and food packaging paper to replace single-use plastics. Taking a large step towards its transformation into a specialty materials company, CHP reorganized existing pulp and paper businesses into Cellulose Division and inaugurated new Specialty Materials Division, which will incorporate recently acquired material development and production base in Guanyin Township, Taoyuan in 2021 to further enhance CHP’s vision to replace single-use plastics with cellulose based, compostable, recyclable products. Answering global consumers’ call for sustainable products with minimal plastic packaging, YFY Consumer Products launched “Orange House 5-in-1 Laundry Detergent Pod” - the world’s first zero-water laundry capsule. Nicked named “golden balls”, this new product incorporates zero liquid and utilizes paper packaging to minimize transportation space, weight, carbon footprint, and use 95% less plastics than comparable liquid detergent products.

 “Professionalism, Innovation, Circularity, and Sustainability” has long been part of YFY’s mission, championed by former Chairman and current Senior Board Director S. C. Ho, who is serving his 50th year on the YFY Board of Director. With his foresight, YFY has focused on long-term value creation, as well as sustainability and ESG in our operations and investment portfolio since his tenure as President of the company. Keeping with this mission and S. C. Ho’s vision, management team set forth the company’s strategy:

1.   Incubation and Portfolio Management

YFY Packaging Inc. (YFYPack), which includes all parts of our Containerboard and Packaging Business Group outside of mainland China, is planning to list in Taiwan. Throughout 2020, YFYPack has been diligently preparing for listing application. YFYPack plans to expand internationally, primarily in South East Asia, and extend its operations through digital technology and automation. YFY will continue to cultivate portfolio companies and be on the look out for new investment and incubation opportunities.

2.   “Zero Waste” “Net Zero Emissions”

YFY’s Circular Economy heritage began more than 70 years ago, when we used sugarcane bagasse to produce insulation boards and typewriter paper. Our home base of Taiwan, an island with little natural resources, mandated YFY to find ways to turn waste into energy and resources through innovation long before Circular Economy became global consensus. YFY will diligently cultivate portfolio companies to continuously find ways to reduce waste and turn by-products into energy and products, with hope that YFY’s successful experience in Taiwan will lead the way for circular practices around the globe.

3.   Digital Platform

In 2020, YFY portfolio companies Fidelis IT Solutions, CHP, and YFYPack came together to build a blockchain-based supply chain finance platform, integrating data exchanges among CHP, YFYPack, and their suppliers, distributors, and financial institutions. Blockchain technology ensures security for all data exchanges from material purchasing, order, shipping, to account receivables management on a verifiable collaborative platform. With 3 leading Taiwanese banks already committed, this platform will reduce document and credit review time for accounts receivable financing and supplier loan, bringing business value to all platform participants.

4.   Enhance Asset Utilization

Approved by YFY board of directors, wholly owned subsidiaries “YFY Capital Co., Ltd.” and “YFY Venture Capital Investment Co., Ltd.” consolidated to form “YFY Development Corp.” YFY Development will house YFY’s real estate development team, serving as the forefront to create more value from YFY’s real estate and land portfolio. Starting with more mature and smaller projects, YFY Development Corp. will assess related resources and set forth action plans to generate long-term value and sustainable cashflow for YFY Inc.

As always, YFY will continue our unrelenting efforts to optimize asset allocation, invest and incubate, create portfolio synergies and build alliances when appropriate, cultivate next generation of management talents, and seek to define the future through innovation. “Do the right thing and do it better,” we stand on the rock-solid foundation built by our forebearers to support the next generation of exceptional colleagues who will carry the torch through the challenges of our next centennial. With YFY standing 97-years strong, senior director S.C. Ho and I will pass the torch to the next generation at the end of our current term. As YFY marches boldly toward centennial, YFY will continue to foster our employees, bring positive impact to our society, minimize our footprint on the environment, and generate reasonable long term value for our shareholders – just like when we started 97 years ago.

Wishing you all great health and prosperity.