CHP - Annual Report 2017 | FinancialReports.eu

STOCK CODE 1905(TW) CHP annual report is available at MOPS.TWSE.COM.TW WWW.CHP.COM.TW Publishing Date: April 30 ,2018

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2017 ANNUAL REPORT

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Chung Hwa Pulp Corporation

1. Spokespersons:

Name	Title	Telephone	E-mail
Spokesperson Ray Chen	Executive Vice President	+886-2-2396-2998	[email protected]
Acting spokesperson David Lin	Finance Manager	+886-2-2396-2998	[email protected]

2. Headquarters, Branch office & Plant

Headquarters No.100, Guanghua St., Ji’an Township, Hualien County TEL ： +886-3-842-1175 Taipei Office 12F., No.51, Sec.2, Chungching South Rd. Taipei TEL ： +886-2-2396-2998 Taipei Branch 12F., No.51, Sec.2, Chungching South Rd. Taipei TEL ： +886-2-2396-2998 Taichung Branch 5F., No.188, Zhonggong 2nd Rd., Xitun Dist., Taichung City TEL ： +886-4-2359-3672 Tainan Branch 3F., No.502, Sec. 2, Yonghua Rd., Anping Dist., Tainan City TEL ： +886-6-297-3833 Hualien Plant No.100, Guanghua St., Ji’an Township, Hualien County TEL ： +886-3-842-1175 Jiutang Plant No.112, Jiutang Rd., Dashu Dist., Kaohsiung City TEL ： +886-7-651-8938 Taitung Plant No.371, Sec. 4, Zhongxing Rd., Taitung City, Taitung County TEL ： +886-89-382-255 DingFung Plant Shouyue, Nanjie, Guangning County Zhaoqing City/Guangdong TEL ： +86-758-865-9000 Province

3. Stock Administration

SinoPac Securities – Share Registration Services Department 3F, No. 17, Boai Road, Taipei, Taiwan http://www.sinotrade.com.tw +886-2-2381-6288

4. Auditor

Shu-Wan Lin and Lilac Shue Deloitte and Touche Taiwan 10596 12F., No.156, Sec. 3, Minsheng E. Rd., Taipei, Taiwan http://www.deloitte.com.tw +886-2-2545-9988

5. Company Website:

http://www.chp.com.tw

6. Stakeholders Contact:

[email protected]

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|||
|---|---|
|1. Latter to Shareholders|3|
|2. Corporate Overview|5|
|2.1. Date of Establishment|5|
|3. Corporate Governance|5|
|3.1. Organization Chart 5|
|3.2. Profiles of the Board Directors and Management Team 6|
|3.3. Remuneration Paid to the Board Directors and Management Team 11|
|3.4. The Attendance of the Board Directors|14|
|3.5. Information of the Remuneration Committee 14|
|3.6. Statement of Internal Control System 17|
|3.7. Major Resolutions of the Board 18|
|4. Capital Overview|20|
|4.1. The Top-10 Shareholders and Information of Related Parties 20|
|4.2. The Structure of Shareholders 21|
|4.3. Change in the Proportion of Shareholding Among the Directors, Managers, and Major|
|Shareholders 22|
|4.4. Consolidated Invested Number of Shares in the Subsidiaries Held by the Company,|
|Board Directors, Supervisors, Managers and the Percentage of the Holding Shares 23|
|4.5. Dividend Policy and Execution 23|
|5. Financial Information|24|
|5.1. CHP Affiliates Organization Chart|24|
|5.2. Financial Performance Overview of Affiliated Companies|24|
|5.3. Consolidate Financial Statements|25|

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Note: This annual report has been prepared in Mandarin and the English Annual Report is the translated version. In the event of any inconsistancy, the Chinese version shall be the dominate version and prevail.

1. Latter to Shareholders

Dear Shareholders,

According to the latest forecast published by Chung-Hua Institution for Economic Research (CIER), Taiwan delivered 2.86% annual economic growth in 2017, an increase of 1.45 percentage points from 1.41% in 2016, while the annual economic growth of 2018 is forecasted to be around 2%. In 2017, global economy rebounded. Performance in most countries was better than expected, promoting the growth of global commodity trade and affecting Taiwan’s performance as well. Net foreign demand in Taiwan contributed 1.36 percentage points in 2017, exceeding domestic demand of 1.17 percentage points. As a result, the domestic economy was highly affected by changes in global economy and trade, including the government of the U.S. led by Donald Trump and strict actions taken by China for environmental protection. Looking into 2018, the industry will continue to be variable due to significant fluctuations in prices of international crude oil, coal, and raw materials, especially increasing prices of wood and pulp, in addition to the Fed's rate increase period and the policies of major economies.

Since 2017, the global price of pulp has increased. The price of NBKP increased 55% from USD580/ton to USD900/ton; the price of LBKP also increased 60% from USD470/ton to USD760/ton. Such increase caused the production costs of the global paper industry continued to increase. As the environmental awareness rose internationally, many governments have responded. China has taken various actions, such as limited production, stricter emission standards, and import of waste paper. In the mainland's policy of restricting production, raising the permitting standards for waste discharge, and importing waste paper, the environmental protection green policy is expected to increase the price of waste paper in China in 2018, which will Increase the number of variables for industry operations.

CHP consolidated revenue in 2017 amounted to NTD 22.7 billions, increasing 0.707 billions from NTD 22.0 billions in 2016 with a growth 3.2%. CHP net profit after tax in 2017 amounted to NTD 0.62 billions, increasing 0.23 billions from NTD 0.39 billions in 2016 with a growth 59%. EPS is NT$ 0.56 per share with a growth 60%. CHP's paper production in 2017 amounted to 444,889 metric tons, increasing 3,065 metric tons from 441,824 metric tons in 2016; total sales amounted to 502,404 metric tons, including domestic sales of 265,692 and export of 236,712 metric tons. For paperboard, year-round production in 2017 amounted to 117,204 metric tons, decreasing by 5,822 metric tons compared to 123,026 metric tons in 2016. Faced with pressure from imported paper, we not only enhanced our product quality but also stabilized the source, price, and supply of raw materials. We continued to expand the application of our product and increase local services in order to lift our market share and competitiveness. The global price of pulp kept increasing. The price of pulp rose by 60%, but price of paper only rose slowly in 2017. We hope to reduce the pressure on the growth of pulp prices for the domestic cultural paper industry. Compared to the increase in cost, there is still a considerable gap in paper prices.

As the leader in the pulp and paper industry, CHP spares no effort in environmental protection and corporate social responsibility in addition to the development of Taiwan's cultural industry. With the core strategy of R[3] management (Recycle/Reclaim/Regenerate), CHP has strived to achieve the consistent production, from forests, pulp to paper products. In 2017, CHP participated in Taiwan Corporate Sustainability Awards organized by Taiwan Institute for Sustainable Energy for the first time and won Top 50 Corporate Sustainability Award - Traditional Manufacturing and a bronze award in CSR - Traditional Manufacturing. Taking into account both profitability and growth, CHP incorporated the idea of sustainable development into the business operation, starting from source procurement. CHP has won green procurement award for consecutive years. The pulp and paper industry has a high affinity with nature, where resources

can be recycled endlessly. Facing the increasing awareness of environmental protection and sustainable development worldwide, CHP responds actively and creates new niches based on green perspectives.

Pulp and paper industry has a high affinity with nature, resources can be recycled endlessly, it is a concrete manifestation of the circular economy. CHP responds positively to the rising international awareness of environmental conservation, uses green thinking to create a new industry niche, and regards sustainable development as the largest common denominator of company operations. Upholding the core values of “people-oriented” and the mission of “environmental and social balance symbiosis”.

Shown in the corporate governance, ecological environment, social responsibility and other major aspects. Efforts have been made to maximize the frequency of resource recycling and demonstrate the value of corporate sustainability. Creating reasonable profits for shareholders is the social responsibility and corporate goal that CHP continues to achieve.

Chairman Kirk Hwang

2. Corporate Overview

2.1. Date of Establishment ： July 5[th] 1968

3. Corporate Governance

3.1 Organization Chart

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Shareholders`
Meeting
Audit Committee
Board of Directors
Chairman ,CEO
Remuneration
Committee
Auditing &
Compliance Office
Chairman Office
General Manager
Dingfung Pulp and Paper
Co. General Manager
Dingfung Forestry Co. Office
Product Department Marketing & Sales Department CFO
CFO Office
Jiutang Taitung Hualian Paper & Specialty HR & General Affairs Finance &
Paperboard Paper Accounting
Plant Plant Plant Departmen Department Department Departmen
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Business:

Production of of Cultural Paper, Wrapping paper, Specialty paper, Paperboard, Pulp and Chemical ,and Sales of Fertilizer

Business:

Sales and Marketing of Cultural HR & General Affairs, Finance, Accounting Paper, Wrapping paper, Specialty paper, Paperboard, Pulp and Chemical

3.2. Profiles of the Board Directors and Management Team

3.2.1 Directors 4/30/2018

Title	Nationality/ Country of	Name	Gender	Date Elected			Shareholding when Elected	Shareholding when Elected							Experience	Other Position	Executives, Directors or	Executives, Directors or	Executives, Directors or
											Spouse and		Shareholding
					Term	Date First			Current shareholding		Minor Shareholding		by Nominee Arrangement				Supervisors who are spouses or within two degrees of kinship
	Origin				(years)	elected	Shares	%	Shares	%	Shares %		Shares %		(Education)		Title	Name	Relation

Director	ROC	YFY Inc.	-	6/24/2016	3	6/13/2007	627,827,989	56.93	627,827,989	56.93	-	-	-	-	-	-	-	-	-
Chairman	ROC	YFY Inc. Representative: Kirk Hwang	Male	6/24/2016	3	7/1/2011	55,737	-	55,737	-	-	-	-	-	President, CHP Co., Ltd.	CEO of CHP Director of CHP International (BVI) Corp. Chairmanof HwaFong Investment Co., Ltd. Director of Guangdong Dingfung pulp and paper Co., Ltd. Director of Zhaoqing Dingfeng Forestry Co., Ltd. Other non-consolidated company positions please refer to the Note 1	-	-	-
Director	ROC	YFY Inc. Representative: Felix Ho	Male	3/16/2017	3	3/16/2017	-	-	-	-	-	-	-	-	Chairman,Yuen Foong Yu Inc.	Note2	-	-	-
Director	ROC	YFY Inc. Representative: Melody Chiu	Female	6/24/2016	3	2/24/2006	-	-	-	-	-	-	-	-	CEO,Yuen Foong Yu Inc.	Note3	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd	-	6/24/2016	3	6/25/2013	117,247	0.01	117,247	0.01	-	-	-	-	-	-	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: Chih-Cheng Huang	Male	6/24/2016	3	6/14/2010	-	-	-	-	-	-	-	-	Executive Vice President, CHP Co., Ltd.	President of CHP Director of Guangdong Dingfung pulp and paper Co., Ltd. Director of Zhaoqing Dingfung Forestry Co., Ltd. Other non-consolidated company positions please refer to the Note 4	-	-	-

Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: Guu-Fong Lin	Male	6/24/2016	3	12/12/2007	49,132	-	49,132	-	565	-	-	-	COO, CHP Co.,Ltd.	CFO of CHP Director of CHP International (BVI) Corp. Chairman and GM of Guangdong Dingfung pulp and paper Co., Ltd. Chairman and GM of Zhaoqing Dingfung Forestry Co., Ltd. Director of Hwa-Fong Investment Co.,Ltd. Other non-consolidated company positions please refer to the Note 5	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: RayChen	Male	6/24/2016	3	6/24/2016	-	-	-	*-	-	-	-	-	Vice President	Executive Vice President of CHP Other non-consolidated company positions please refer to the Note 6	-	-	-
Independent Director	ROC	Shi-Kuan Chen	Female	6/24/2016	3	6/25/2013	-	-	-	-	-	-	-	-	Professor of NTU	Convenor of CHP. Remuneration Committee and Audit Committee Independent Director of momo.com Inc. Member, momo.com Inc.. Remuneration Committee Independent Director of SINBON Electronics Co., Ltd Independ Director of DBS (Taiwan) Bank Co.,Ltd.	-	-	-
Independent Director	ROC	Donald Chang	Male	6/24/2016	3	6/24/2016	-	-	-	-	-	-	-	-	President of Greater China of 3M	Member of CHP. Remuneration Committee and Audit Committee Director of Advantech Co.,Ltd.	-	-	-
Independent Director	ROC	Shih-Lai Lu	Male	6/24/2016	3	6/24/2016	-	-	-	-	-	-	-	-	Chief Scientist & Sr. R & D Manager of 3M	Member of CHP. Remuneration Committee and Audit Committee Professor of NTHU	-	-	-

Note1: Director and CTO of YFY Inc., Director of Shin Foong Specialty and Applied Materials Co., Ltd., Director of Taiwan Global Biofund, Director of Hwa Fong Paper (Hong Kong) Ltd.,Director of NTU Innovation Incubation Co., Ltd. Note2: Chairman, GM and CEO of YFY INC., Director of SinoPac Holdings Co., Ltd., Vice Chairman of Bank SinoPac Co., Ltd., Director of YFY Packaging Inc., Chairman of Yuen Foong Yu Consumer Products Co., Ltd., Chairman of YFY Holding Management Co., Ltd., Chairman of Yuen Foong Co., Ltd., Chairman of Yuen Foong Paper Co., Ltd., Chairman of Yuen Foong Shop Co., Ltd., Chairman of Ever Growing Agriculture Bio-tech Co., Ltd., Chairman of Shin-Yi Investment Co., Ltd., Chairman of Yuen Shin Yi Enterprise Co., Ltd., Director of Shin-Yi Enterprise Co., Ltd. Director of E-ink Holdings Inc., Director of Xing Yuen Investment Inc., Director of Fu Hwa Enterprise Co., Ltd., Director of Artone Investment (H.K.) Ltd., Director of Artone Specialties Co., Ltd., Director of eCrowd Media Inc., Director of Livebricks Inc. Director of Chen Yu Co., Ltd., Director of YFY RFID Co., Ltd., Chairman of E Inc Corporation, Chairman of Willpower Industries Ltd. Chairman of YFY Jupiter(BVI) Inc., Chairman, Yuen Foong Yu Paper Enterprise (Vietnam) Co., Ltd., Chairman of Arizon RFID Technology (Yangzhou) Co., Ltd., Chairman of YFY Packaging (Yangzhou) Investment Co., Ltd., Chairman of YFY Investment Co., Ltd., Chairman of YFY Cayman Co., Ltd., Director of Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd., Director of Jupiter Prestige Group Holding Ltd., Executive Director of Shanghai Yuen Foong Yu International Co., Ltd., Director of Yuen Foong International (Samoa) Ltd., Director of Yuen Foong Precision (Hong Kong) Ltd., Director of Yuen Foong Yu Consumer Products Investment Ltd., Director of Eihoyo Shoji Co., Ltd., Director of YFY Mauritius Corp., Director of The Eisenhower Fellows Association in the Republic of China, Chairman of Association of Corporate Patent Executives, Chairman of Taiwan Paper Industry Association, Director of Epoch Foundation, Director of Monte Jade Taiwan Science & Tech Association.
Note3: Director and CFO of YFY Inc., Director of TaiGen Biotechnology Co., Ltd., Director of TaiGen Biopharmaceuticals Holdings Ltd., Director of Yuen Foong Yu Consumer Products Co., Ltd., Chairman of YFY Paradigm Investment Co., Ltd., Chairman of YFY Venture Capital Investment Co., Ltd., Director of SinoPac Securities Co., Ltd., Chairman of Lotus Ecoscings & Engineering Co., Ltd., Director of Taiwan Genome Sciences Inc., Supervisor of Eihoyo Shoji Co., Ltd., Director of YFY Biopulp Technology Ltd., Director of San Ying Enterprise Co., Ltd., Director of YFY Capital Holdings Corp., Chairman of YFY (Shanghai) Financial Services Co., Ltd., Director of YFY Cayman Co., Ltd., Director of YFY Mauritius Corp., Director of Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd., Director of Fu-Ji Management Consulting Co., Ltd., Supervisor of Janie Color Works Ltd., Chairman of Taiwan Global Biofund Co., Ltd., Chairman of EFFION Enertech Co., Ltd., Chairman of Shin Foong Specialty and Applied Materials Co., Ltd., Director of Jiangyin Yuen Foong Yu Paper MFG. Co., Ltd., Director of Hwa Fong Paper (Hong Kong) Ltd., Director of Ecotopia & Life Co., Ltd., Director of Dongguan HEC TaiGen Biopharmaceuticals Co., Ltd.

Note4: Southern Regional Director of R& D Center of YFY Inc., Chairman of Shenzhen Jinglun Paper Co., Ltd., Director of Hwa Fong Paper (Hong Kong) Co., Ltd. Note5: Supervisor of Taiwan Global Biofund Co., Ltd.,Supervisor of EFFION Enertech Co., Ltd.

Note6: Director of Shenzhen Jinglun Paper Co., Ltd., Director of Union Paper Corp.

Eligibility of Independent Status of the Board Directors

Criteria	Meet One of the Following Professional Qua Requirements, Together with at Least Five Y Experience An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other	Meet One of the Following Professional Qua Requirements, Together with at Least Five Y Experience An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other	lification ears Work Have Work Experience in the Areas of Commerce, Law, Finance,			Eligibility o	Eligibility o	f independent status(Note)	f independent status(Note)	f independent status(Note)	f independent status(Note)			Number of Other Public Companies in Which
Name	or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the	or Accounting, or Otherwise Necessary for the Business of the Company	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	the Individual is Concurrentl y Serving as an Independen t Director
		Business of the
		Company
Kirk Hwang			V			V	V			V	V	V
Felix Ho			V			V	V			V	V	V
Melody Chiu		V	V			V	V			V	V	V
Chih-Cheng Huang			V			V	V			V	V	V
Guu-Fong Lin			V			V	V	V	V	V	V	V
Ray Chen			V			V	V	V	V	V	V	V
Shi-Kuan Chen	V		V	V	V	V	V	V	V	V	V	V	V	3
Donald Chang			V	V	V	V	V	V	V	V	V	V	V
Shih-Lai Lu	V		V	V	V	V	V	V	V	V	V	V	V

Note ： Please tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during the term of office.

(1)Not an employee of the Company or any of its affiliates.

(2)Not a director or supervisor of the Company or any of its affiliates. Not applicable in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

(3)Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

(4)Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs.

(5)Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company or who holds shares ranking in the top five holdings.

(6)Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company.

(7) Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. These restrictions do not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx“.

(8)Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.

(9)Not been a person of any conditions defined in Article 30 of the Company Law.

(10)Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

3.2.2. Management Team

4/30/2018

Titl	Nationali	N	Gd	Date	shareholding	shareholding					Experience	Other position	Managers who are Spouses or Within Two Degrees of	Managers who are Spouses or Within Two Degrees of	Managers who are Spouses or Within Two Degrees of
							Spouse and Minor hrhldrin		Shareholding by Nominee Arrnmnt
e	ty	ame	ener	Effective	Shares	%	saeo Shares	eg %	ag Shares	e %	(Education)		Title	Kinship Name Relati on

CEO President President (Note 1) CFO Executive Vice President Executive Vice President Vice President Factory Director Factory Director (Note 2) Factory Director Factory Director Vice President (Note3)	ROC ROC ROC ROC ROC ROC ROC ROC ROC ROC ROC ROC	Kirk Hwang Chih-Cheng Huang Cheng-Yang Peng Guu-Fong Lin Ray Chen Rong-Ming Lin Alex Chen Yen-Chang Hsieh Kuo-Yuan Zeng Shan-Shui Chen Yung-Shun Chen Wei-Ying Mao	Male Male Male Male Male Male Male Male Male Male Male Male	10/1/2012 3/16/2017 10/1/2012 9/1/2013 7/1/2016 3/1/2018 7/1/2016 5/15/2017 7/7/2014 3/16/2017 3/1/2018 9/1/2013	55,737 - - 49,132 45 - - 32,057 9,077 - - -	- - - - - - - - - - - -	- - - 565 - - - 30,000 - - - 18,939	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -	CHP President CHP Executive Vice President YFY President CHP COO Vice President CHP Factory Director CHP Manager CHP Director CHP Vice President CHP Director CHP Director CHP Assistant Chief Engineer	Director of CHP International (BVI) Corp. Chairman of HwaFong Investment Co., Ltd. Director of Guangdong Dingfung Pulp and Paper Co., Ltd. Director of Zhaoqing Dingfung Forestry Co., Ltd. Other non-consolidated company positions please refer to the Note 4 Director of Guangdong Dingfung pulp and paper Co., Ltd. Director of Zhaoqing Dingfung Forestry Co., Ltd. Other non-consolidated company positions please refer to the Note 5 Director/Supervisor of YFY subsidiaries Director of CHP International (BVI) Corp. Chairman and GM of Guangdong Dingfung Pulp and Paper Co., Ltd. Chairman and GM of Zhaoqing Dingfung Forestry Co., Ltd. Director of Hwa-Fong Investment Co., Ltd. Other non-consolidated company positions please refer to the Note 6 non-consolidated company positions please refer to the Note 7 - - - - non-consolidated company positions please refer to the Note 8 - -	- - - - - - - - - - - -	- - - - - - - - - - - -	- - - - - - - - - - - -

Note1: Resigned on 3/16/2017, transferred as Chairman and GM of YFY Packageing Inc. .

Note2: Resigned on 5/18/2017

Note3: Retired on 3/31/2017

Note4: Director and CTO of YFY Inc., Director of Shin Foong Specialty and Applied Materials Co., Ltd., Director of Taiwan Global Biofund, Director of Hwa Fong Paper (Hong Kong) Ltd.,Director of NTU Innovation Incubation Co., Ltd.

Note5: Southern Regional Director of R& D Center of YFY Inc., Chairman of Shenzhen Jinglun Paper Co., Ltd., Director of Hwa Fong Paper (Hong Kong) Co., Ltd. Note6: Supervisor of Taiwan Global Biofund Co., Ltd., Supervisor of EFFION Enertech Co., Ltd.

Note7: Director of Shenzhen Jinglun Paper Co., Ltd., Director of Union Paper Corp.

Note8: Director of Union Paper Corp.

3.3. Remuneration Paid to the Board Directors and Management Team

3.3.1. Remuneration of Directors

12/31/2017, UNIT ： NTD Thousand


		Base Compensation		R Seve	emuneration rance Pay	to Directors Bonus to Directors (C)		Allowa	nce (D)
										Ratio of Total Remuneration (A+B+C+D) to		Salary, Bonuses, and		Severan	ce Pay (F)	Remuneration to employees Profit Sharing- Employee Bonus				Exercisable Employee		New Restricted		Ratio of Total Compensatio n (A+B+C+D+E +F+G) to Net		Compensa tion Paid to Directors from an Invested Company Other than the Company’s Subsidiary
Title	Name	( The	A) All compan ies in the consoli dated financia l stateme nts	The	(B) All	(Note1) The company All compan ies in the consoli dated financia l stateme nts		The	All compa nies in the consol idated financi al statem ents	Net In The	come (%) All	Allowances (E) (Note2) The company All compa nies in the consoli dated financi al statem ents		The	All	(G) The Company		(Note1) Conso	lidated	Stock Options(H) The com Con soli		Employee Shares (I) The com Consol		Incom The comp	e (%) Cons olidat
					companie s in the consolidat ed financial statement s						compani es in the consolid ated financial stateme nts				companie s in the consolida ted financial statement s
		company		company		company		company		company		company		company		Cash	Stock	Cash	Stock	pany	date d	pan y	idated	any	ed


Chairman	YFY Inc. Representative: Kirk Hwang	-	-	-	-	7,000	7,000	2,215	2,858	1.49	1.59	21,881	21,881	351	351	-	-	-	-	-	-	-	-	5.08	5.19	-
Director	YFY Inc. Representative: Felix Ho (3/16/2017 New assignmented)
Director	YFY Inc. Representative: MelodyChiu
Director	YFY Inc. Representative: Cheng-Yang Peng (3/16/2017 Dismissaled)
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Chih-ChengHuang
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Guu-FongLin
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Ray Chen
Independent Director	Shi-Kuan Chen
Independent Director	Donald Chang
Independent Director	Shih-Lai Lu

Note1: The remuneration amount has been determined by the Board on 3/22/2018. Note2: Includes car rental expenses NT$1,161 thousand

10 -

3.3.2. Remuneration of the CEO, President and Executive Vice President

12/31/2017, Unit `：` NTD Thousand

		Salaries(A)	Salaries(A)	Severance Pay (B)	Severance Pay (B)	Bonuses and All C	Bonuses and All C	Profit Sharing- Employee	Profit Sharing- Employee	Profit Sharing- Employee	Profit Sharing- Employee	Ratio of total compensation	Ratio of total compensation	Exercisable Emloee Stock	Exercisable Emloee Stock	New Restricted	New Restricted	Compensation paid to the President and Vice President from an Invested Company Other Than the Company’s Subsidiary
Title	Name	Companies in the			Companies in the	owances () (Note1) Companies in the		The Co	Bonus mpany	(D)(Note2) Consolidated		(A+B+C+D) to net income(%) The Companies in the		py Options The Companies in the		Employee Shares The Companies in the
		The company	consolidated financial statements	The company	consolidated financial statements	The company	consolidated financial statements	Cash	Stock	Cash	Stock	company	consolidated financial statements	company	consolidated financial statements	company	consolidated financial statements
CEO	Kirk Hwang	13,681	13,681	351	351	8,199	8,199	-	-	-	-	3.59	3.59	-	-	-	-	-
President	Chih-Cheng Huang
President Note3	Cheng-Yang Peng
CFO	Guu-Fong Lin
Executive Vice President	Ray Chen

Note1: Includes car rental expenses approximately NT$1,161 thousand.

Note2: The remuneration amount hass been determined by the Board on 3/22/2018.

Note3: Resigned on 3/16/2017, transferred as Chairman and GM of YFY Packageing Inc. .

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12/31/2017, Unit ： Thousand NTD

3.3.3. Remuneration Paid to the Management Team

					Percentage of net
Title	Name	Stock Value	Cash Amount	Total	income after
					tax(A+B+C)`（％）`
CEO	Kirk Hwang	-	29	29	0
President	Chih-Cheng Huang Note1
President	Cheng-Yang Peng Note2
CFO	Guu-Fong Lin
Executive Vice President	Ray Chen
Vice President	Alex Chen
Factory Director	Yen-Chang Hsieh
Factory Director	Kuo-Yuan Zeng
Factory Director	Rong-Ming Lin
Factory Director	Shan-Shui Chen
Vice President	Wei-Ying Mao
Accounting Manager	Jung-Min Huang
Finance Manager	David Lin

Note1: Assumed on 7/1/2017

Note2: Resigned on 7/1/2017, transferred as Chairman and GM of YFY Packageing Inc. Note3: Assumed on 5/15/2017 Note4: Resigned on 5/18/2017 Note5: Retired on 3/31/2017

3.3.4. The Percentage of the Total Remuneration Paid to the Board Directors, Supervisors,

Total Remuneration to Profit after Tax(%)	Total Remuneration to Profit after Tax(%)	Total Remuneration to Profit after Tax(%)	Total Remuneration to Profit after Tax(%)	Total Remuneration to Profit after Tax(%)	Total Remuneration to Profit after Tax(%)
2017		2016		Difference

The company	Consolidated	The company	Consolidated	The company	Consolidated

5.08	5.19	10.40	10.57	(5.32)	(5.38)
-	-	0.18	0.18	(0.18)	(0.18)
3.59	3.59	5.99	5.99	(2.40)	(2.40)

12 -

3.4. The Attendance of the Board Directors

3.4.1. Attendance of the Board Directors

The Board of Directors met five times (A) within the last fiscal year (2017), and the directors supervisors' attendance details are as follows:

					Attendance
			Attend in
Title	Name		Person (`Ｂ`)	By Proxy	Rate(%)	Remarks
					(B/A)

Chairman	Kirk Hwang	YFY Inc. Representative	5	-	100
Director	Felix Ho		5	-	100	3/16/2017 New assignmented
Director	Melody Chiu		5	-	100
Director	Cheng-Yang Peng		-	-	-	3/16/2017 Dismissaled
Director	Chih-Cheng Huang	Lotus Ecoscings & Engineering Co., Ltd. Representative	5	-	100
Director	Guu-Fong Lin		5	-	100
Director	Ray Chen		5	-	100
Independent Director	Shi-Kuan Chen		5	-	100
Independent Director	Donald Chang		5	-	100
Independent Director	Shih-Lai Lu		5	-	100

13 -

3.4.2. Attendance of the Audit Committee and Supervisors

There were 4 Board meetings held during the last fiscal year (2017), and the Independent Directors' attendance details are as follows:


		Attend in Person		Attendance Rate(%)
Title	Name		By Proxy		Remarks


Independent Director	Shi-Kuan Chen	4	-	100	-
Independent Director	Donald Chang	4	-	100	-
Independent Director	Shih-Lai Lu	4	-	100	-

3.5. Information of the Remuneration Committee `：`

3.5.1. Profiles of the Remuneration Committee

		Meets One of the Following Professional	Meets One of the Following Professional	Meets One of the Following Professional										Remarks
	Criteria	Qualification Requirements, Together with at			Eligibility of independent stat				us (Note2)
		Least Five Years’	Work Experience
													Number of
		An instructor or	A judge, public	Has work									Other
		higher position in a	prosecutor,	experience in									Public
		department of	attorney, Certified	the areas of									Companie
Title Identity		commerce, law,	Public Accountant,	commerce,									s in Which
		finance, accounting, or	or other professional or	law, finance, or									the Individual
`（`Note1`）`		other academic department related t th bi	technical specialist who has passed a til	accounting, or otherwise f									is Concurren
	Name	o e usness needs of the	naona examination and	necessary or the business	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	tly Serving as an
		Company in a	been awarded a	of the									Remunera
		public or private i ll	certificate in a fi	Company									tion
		junor coege, college or	proesson necessary for the										Committee Member
		university	business of the
			Company

Independent Director	Shi-Kuan Chen	V		V	V	V	V	V	V	V	V	V	1	-
Independent Director	Donald Chang			V	V	V	V	V	V	V	V	V	-	-
Independent Director	Shih-Lai Lu	V		V	V	V	V	V	V	V	V	V	-	-

Note1 ︰ Identity should be Director,Independent Director or other.

Note2 ：

（ 1 ） Not an employee of the Company or any of its affiliates.

（ 2 ） Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

（ 3 ） Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company, or ranking in the top 10 in holdings.
（ 4 ） Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three sub-paragraphs.
（ 5 ） Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who holds shares ranking in the top five holdings.
（ 6 ） Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company.
（ 7 ） Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
（ 8 ） Not a person of any conditions defined in Article 30 of the Company Law.

3.5.2. Attendance of Members at Remuneration Committee Meetings

(1)There are 3 members in the Remuneration Committee.

(2)Term from 6/24/2016 to 6/23/2019, and a total of 2 (A) Remuneration Committee meetings were held in the previous period. The attendance record of the Remuneration Committee members was as follows: ：

14 -


		Attend in Person(`Ｂ`)		Attendance Rate(%)(`Ｂ`/`Ａ`)
Tilte	Name		By Proxy		Remarks


Convener	Shi-Kuan Chen	2	-	100%
Committee member	Donald Chang	2	-	100%
Committee member	Shih-Lai Lu	2	-	100%
Other statutory information: None

15 -

3.6. Statement of Internal Control System `：`

Chung Hwa Pulp Corporation

Statement of Internal Control System

Date ： March 22 2018

Based on the findings of a self-assessment, CHP states the following with regard to its internal control system during the year 2016 ：

CHP's Board of Directors and Management are responsible for establishing, implementing, and maintaining an adequate internal control system. Our internal control is a process designed to provide reasonable assurance over the effectiveness and efficiency of our operations (including profitability, performance, and safeguarding of assets), reliability of our financial reporting, and compliance with applicable laws and regulations.
An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing its stated objectives. Moreover, the effectiveness of an internal control system may be subject to changes due to extenuating circumstances beyond our control. Nevertheless, our internal control system contains self-monitoring mechanisms, and YFY takes immediate remedial actions in response to any identified deficiencies.
CHP evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “ Regulations”). The criteria adopted by the Regulations identify five key components of managerial internal control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.
CHP has evaluated the design and operating effectiveness of its internal control system according to the aforesaid Regulations.
Based on the findings of such evaluation, CHP believes that on December 31, 2015, it has maintained, in all material respects an effective internal control system (that includes the supervision and management of our subsidiaries) to provide reasonable assurance over our operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regulations.
This Statement will be an integral part of CHP’s Annual Report for the year 2016 and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law.
This Statement has been passed by the Board of Directors in their meeting held on March 22, 2018, where all of the nine attending directors express dissenting opinion and affirmed the content of this Statement.
16 -

3.7. Major Resolutions of the Board `：`

Major resolutions of the 3rd meeting of the 17th term's board (March 16, 2017) (abstract) ：
(1) Approval of the CHP's 2016 financial statements.
(2) Approval of the CHP's 2016 earnings distribution.
(3) Approval of the CHP's 2016 remunerations for employees, directors and supervisor.
(4) Approval of the resolution which determined the time, location, and other relevant matters regarding the 2017 shareholders meeting.
(5) Approval of the resolution to approve CHP's 2016 Statement on the Internal Control System.
(6) Amendment to the Disposition Procedures of Acquisition of Disposal of Assets.
(7) Amendment to the Disposition Procedures of Related Party Transactions.
(8) Amendment to the Disposition Procedures of Engaging in Derivatives Trading.
(9) Amendment to the Disposition Procedures of Procedures of Mergers and Consolidations, Splits, Acquisitions and Assignment of Shares.
(10) Approval of CHP's application of loan credit line with correspondent banks.
(11) Approved of subsidiary`s application of loan credit line with correspondent banks and join guarantee.
(12) Approved the 4th quarter endorsements and guarantees to CHP and subsiduries.
(13) Approved of the change of spokesperson.
(14) Approved of the organizational changes and personnel adjustments.
2.Major resolutions of the 4th meeting of the 17th term's board (May 12, 2017) (abstract) ：
(1) Approval of CHP's application of loan credit line with correspondent banks.
(2) Approved the 1st quarter endorsements and guarantees to CHP and subsiduries.
(3) Approved for releasing the prohibition of directors from participating in competitive business and submit for discussing in shareholders meeting.
(4) Approved for releasing the prohibition of General Manager from participating in competitive business.
Major resolutions of the 5th meeting of the 17th term's board (August 11, 2017) (abstract) ：
(1) Approval of the amendment of CHP's Articles of Incorporation and submits for discussing in shareholders meeting.
(2) Amendment to the Electronic Computer Circulation Method in the Internal Control System.
(3) Amendment to the Approval Authorization table.
(4) Amendment to the Formulate insider trading management operation procedures
(5) Approval of CHP's application of loan credit line with correspondent banks.
(6) Approved of subsidiary`s application of loan credit line with correspondent banks and join guarantee.
(7) Approved the 2nd quarter endorsements and guarantees to CHP and subsiduries.
17 -
Major resolutions of the 6th meeting of the 17th term's board (November 13, 2017) (abstract) ：
(1) Approved the CHP's 2018 audit planing.
(2) Amendment to the Rules of Procedure for Board of Director Meetings.
(3) Amendment to the Audit Committee Organization Procedures.
(4) Approved the change of CHP's visa accountant to be Shu-Wan Lin and Lilac Shue
(5) Approved appointing Deloitte accounting firm , Accountant Shu-Wan Lin and Accountant Lilac Shue ,as CHP’s visa accountant and deciding their remuneration.
(6) Approval of CHP's application of loan credit line with correspondent banks.
(7) Approved the 3rd quarter endorsements and guarantees to CHP and subsiduries.
Major resolutions of the 7th meeting of the 17th term's board (December 15, 2017) (abstract) ：
(1) Approved the CHP's 2018 annual operational budget.
(2) Approval of CHP's application of loan credit line with correspondent banks.
Major resolutions of the 8th meeting of the 17th term's board (March 22, 2018) (abstract) ：
(1) Approval of the CHP's 2017 financial statements.
(2) Approval of the CHP's 2017 earnings distribution.
(3) Approval of the CHP's 2017 remunerations for employees and directors.
(4) Approval of the amendment of CHP's Articles of Incorporation and submits for discussing in shareholders meeting.
(5) Approval of the resolution which determined the time, location, and other relevant matters regarding the 2018 shareholders meeting.
(6) Approval of the resolution to approve CHP's 2015 Statement on the Internal Control System.
(7) Amendment to the Disposition Procedures for Acquisition of Disposal of Assets.
(8) Amendment to the Disposition Procedures for Engaging in Derivatives Trading.
(9) Amendment to the Operational Procedures for Loaning Funds to Others.
(10) Approval of CHP's application of loan credit line with correspondent banks.
(11) Approved of subsidiary`s application of loan credit line with correspondent banks and join guarantee.
(12) Approved the 4th quarter endorsements and guarantees to CHP and subsiduries.
18 -

4. Capital Overview

4.1. The Top-10 Shareholders and Information of Related Parties

April 28,2018

	Current Shareholding		Spouse’s/minor’s Shareholding	Spouse’s/minor’s Shareholding	Shareholding by Nominee	Shareholding by Nominee	Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives	Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives	R e m a r k s
Name					Arrangement		Within Two Degrees
	Shares	(%)	Shares	(%)	Shares	(%)	Name	Relationship

YFY Inc. Representative: Felix Ho	627,827,989 -	56.93 -	- -	- -	- -	- -	YFY Paradigm Investment Co., Ltd. Hsin-YiEnterprise Co., Ltd. Representative Sing-Ju Chang Hsin-Yi Investment Co., Ltd. Representative:SC Ho Yuen-Hsin-Yi Enterprise Co., Ltd. Representative SCHo	Director & Supervisor Mother & Son Father & Son Father & Son	- -
Hsin-Yi Enterprise Co., Ltd. Representative: Sing-Ju Chang	50,149,248 -	4.55 -	- 1,223,071	- 0.11%	- -	- -	YFY Inc. Hsin-Yi Investment Co., Ltd. Yuen-Hsin-Yi Enterprise Co., Ltd. YFY Inc. Representative:Felix Ho, Hsin-Yi Investment Co., Ltd. Representative: SC Ho Yuen-Hsin-Yi Enterprise Co., Ltd. Representative:SCHo	Director Director Director Mother & Son Spouse Spouse	- -
China Life Insurance Co., Ltd. Representative: Alan Wang	28,598,228 -	2.59 -	- -	- -	- -	- -	- -	- -	- -
Hsin-Ye Golf Course Co., Ltd. Representative: Bao-Yu Hsieh	23,624,028 -	2.14 -	- -	- -	- -	- -	- -	- -	- -
Hsin-Yi Investment Co.,Ltd. Representative: SC Ho	21,090,110 1,223,071	1.91 0.11	- -	- -	- -	- -	Yuen-Hsin-Yi Enterprise Co., Ltd. YFY Inc. Representative:Felix Ho, Hsin-YiEnterprise Co., Ltd. Representative Sing-Ju Chang, Yuen-Hsin-Yi Enterprise Co., Ltd. Representative:SCHo	Supervisor Father & Son Mother & Son Same representative	- -
Polunin Emerging Markets Small Cap Fund	8,174,650	0.74	-	-	-	-	-	-	-
YFY paradigm Investment Co., Ltd Representative: Melody Chiu	7,635,485 -	0.69 -	- -	- -	- -	- -	- -	- -	- -
Yuen-Hsin-Yi Enterprise Co., Ltd. Representative: SC Ho	7,231,001 1,223,071	0.66 0.11	- -	- -	- -	- -	- YFY Inc. Representative:Felix Ho, Hsin-YiEnterprise Co., Ltd. Representative Sing-Ju Chang Yuen-Hsin-Yi Enterprise Co., Ltd. Representative:SCHo	- Father & Son Spouse Same representative	- -
Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	6,321,712	0.57	-	-	-	-	-	-	-
Dimensional Emerging Markets Value Fund	5,495,353	0.50	-	-	-	-	-	-	-

19 -

4/28/2018

4.2. The Structure of Shareholders

					Foreign
				Domestic
	Government	Financial	Other Juridical		Institutions &
Item				Natural		Total
	Agencies	Institutions	Persons		Natural
				Persons
					Persons

Number of Shareholders	1	11	100	47,203	140	47,679
Shareholding (shares)	2,100,000	28,811,989	753,788,601	261,503,912	56,630,814	1,102,835,316
Percentage	0.19	2.61	68.35	23.71	5.14	100.00

Shareholding Distribution Status

4/28/2018


Shareholder Ownership	Number of	Ownership	Ownership
(Unit: Share)	Shareholders	(Shares)	Percentage(%)

1 – 999	26,018	6,617,519	0.60
1,000 – 5,000	14,045	33,157,990	3.01
5,001 – 10,000	3,515	28,384,367	2.57
10,001 – 15,000	950	11,753,391	1.07
15,001 – 20,000	861	15,922,648	1.44
20,001 – 30,000	588	15,018,597	1.36
30,001 – 50,000	612	25,003,136	2.27
50,001 – 100,000	414	30,329,861	2.75
100,001 – 200,000	252	35,967,223	3.26
200,001 – 400,000	94	26,483,269	2.40
400,001 – 600,000	39	19,010,047	1.72
600,001 – 800,000	22	14,903,641	1.35
800,001 – 1,000,000	12	10,992,790	1.00
Over 1,000,001	33	829,290,837	75.20
Total	47,455	1,102,835,316	100.00

20 -

4.3. Change in the Proportion of Shareholding Among the Directors, Managers, and Major Shareholders

					Unit:Shares	Unit:Shares
			2017		As of Apr.30, 2018
				Pledged		Pledged
					Holding
Title	Name		Holding Increase	Holding		Holding
					Increase
			(Decrease)Note2	Increase		Increase
					(Decrease)
				(Decrease)		(Decrease)

Director	YFY Inc.		-	-	-	-
Chairman	Kirk Hwang	YFY Inc. Representative	-	-	-	-
Director	Felix Ho Note1		-	-	-	-
Director	Melody Chiu		-	-	-	-
Director	Cheng-Yang PengNote2		-	-	-	-
Director	Lotus Ecoscings & Engineering Co., Ltd Representative		-	-	-	-
Director	Chin-Cheng Huang	Lotus Ecoscings & Engineering Co., Ltd Representative	-	-	-	-
Director	Guu-Fong Lin		-	-	-	-
Director	Ray Chen		-	-	-	-
Independent Director	Shi-Kuan Chen		-	-	-	-
Independent Director	Donald Chang		-	-	-	-
Independent Director	Shih-Lai Lu		-	-	-	-
CEO	Kirk Hwang		-	-	-	-
President	Chih-Cheng Huang Note3		-	-	-	-
President	Cheng-Yang Peng Note4		-	-	-	-
CFO	Guu-Fong Lin		-	-	-	-
Executive Vice President	Ray Chen		-	-	-	-
Executive Vice President	Rong-Ming Lin Note5		-	-	-	-
Finance Manager	David Lin		-	-	-	-
Accounting Manager	Jung-Min Huang		-	-	-	-
Major shareholders	YFY Inc.		-	-	-	-

Note1: Assumeed on 3/16/2017 by juristic-person director Note3: Resigned on 3/16/2017 by juristic-person director Note4: Appointed on 3/16/2017 Note5: Resigned on 3/16/2017 and transferred as Chairman & GM of YFY Packaging Inc. Note6: Appointed on 3/1/2018

21 -

4.4. Consolidated Invested Number of Shares in the Subsidiaries Held by the Company,

Board Directors, Supervisors, Managers and the Percentage of the Holding Shares

			Direct or Indirect Ownership by	Direct or Indirect Ownership by
	Ownership by the
			Directors Supervisors		Total Ownership
Affiliated	Company		, Managers	,
Enterprises

	Shares	%	Shares	%	Shares	%

CHP INT’L (BVI) CORP. Hwa Fong Investment Co.,Ltd.	61,039,956 3,600,000 - - 34,300,000 - 20,000,000 6,000,000	100 100 - - 49 - 1.75 4.44	- - - - 35,700,000 - 174,499,635 36,325,500	- - 100 100 51 100 15.30 26.91	61,039,956 3,600,000 - - 70,000,000 - 194,499,635 42,325,500	100 100 100 100 100 100 17.05 31.35
Guangdong DingFeng Paper and Pulp
Co.,Ltd.

Zhaoqing DingFeng Forestry Co.,Ltd.
Effion Enertech Co.,Ltd KuangHwa Fertilizer Limited Company E Ink Holdings Inc. Taiwan Global Biofund Co., Ltd.

4.5. Dividend Policy and Execution

(1) Dividend policy:

The Company's dividend policy is based on future capital expenditures and working capital requirements. Based on this policy, dividends shall be distributed in a way such that at least twenty percent is distributed as cash dividends and the remainder as stock dividends. However, for the purpose of meeting other capital expenditure requirements, the company may distribute the aforementioned remaining surplus in the form of stock dividends only.

(2) Dividend distribution proposed at this shareholders` meeting:

The shareholders` meeting plan to approved the dividend distribution for cash dividends NT$0.50 per share.

22 -

5 Financial Information

5.1. CHP Affiliates Organization Chart

==> picture [488 x 276] intentionally omitted <==

----- Start of picture text -----

CHP
100% 100%
HwaFong Investment Co., CHP (BVI) INTERNATIONAL
Ltd. CORP.
100%
60% 20.24%
Kuang Hwa GuangDong 66.27% ZhaoQing
Fertilizer Ltd. DingFung Pulp DingFung Forestry
and Paper Co., Co., Ltd.
Ltd.
----- End of picture text -----

5.2. Financial Performance Overview of Affiliated Companies

Unit: Thuosand Dollor


								Net	EPS
			Total	Total			Operating	Income	`（`Dollar`）`
Company Name	Currencey	Capital	Assets	liabilities	Net value	Revenue	profit	`（`After	`（`After

								Taxes`）`	Taxes`）`

CHP INTERNATIONAL (BVI) CORP.	USD	61,040	176,779	2	176,777	-	(49)	6,069	-
HwaFong Investment Co., Ltd.	NTD	36,000	49,274	175	49,099	-	(173)	5,767	1.60
Kuang Hwa Fertilizer Ltd.	NTD	5,000	15,102	2,500	12,602	15,773	7,002	5,873	-
GuangDong DingFung Pulp and Paper Co.,Ltd.	CNY	648,482	1,461,768	362,942	1,098,826	614,444	54,061	56,697	-
ZhaoQing DingFung Foresty Co.,Ltd.	CNY	178,162	851,069	192,515	658,554	66,778	8,980	8,980	-

23 -

5.3. Consolidate Financial Statements

Chung Hwa Pulp Corporation and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 and Independent Auditors’ Report

24 -

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2017 are the same as the companies required to be included in the consolidated financial statements of parent company and its subsidiaries as provided in International Financial Reporting Standard 10 “Consolidated Financial Statements.” Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent company and its subsidiaries. Hence, we have not prepared a separate set of consolidated financial statements of affiliates for the year ended December 31, 2017.

Very truly yours,

CHUNG HWA PULP CORPORATION

By:

March 22, 2018

25 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Shareholders Chung Hwa Pulp Corporation

Opinion

We have audited the accompanying consolidated financial statements of Chung Hwa Pulp Corporation and its subsidiaries (the Group) which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC) and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The descriptions of the key audit matters of the consolidated financial statements for the year ended December 31, 2017 are as follows:

Volume Estimation of Biological Assets

The Group’s biological assets are eucalyptus trees planted in areas located in Guangdong

26 -

Province, Zhaoqing City. The eucalyptus trees are mainly grown for the manufacture of paper products. The fair value of biological assets is based on the volume of eucalyptus trees and market price per ton. The volume of eucalyptus trees provided in the annual forest growth investigation report is estimated based on the reckoning of samples of measurement areas and growth differences, weather conditions, and insect infestations. Since measuring the volume of biological assets involves significant estimation uncertainty, it has been identified as a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

We obtained a copy of annual forest growth investigation report and verified the data against supporting documents.
We validated the consistency of the measurement adopted for estimating the volume of the biological assets and confirmed the authorized management’ s approval of the measurement.
We attended the annual inventory counts of the biological assets and performed sample counts.

Provision for Receivables

The notes and accounts receivables of the Group are material in amount. In consideration of the business volume and client condition, the recoverability of receivables is subject to management’s judgement. Therefore, the provision for receivables has been identified as a key audit matter.

Our key audit procedures performed in respect of the above area included the following:

We assessed the reasonableness of the assumptions used by the management in estimating provision for receivables. We evaluated the clients’ financial position and historical payment records, particularly on those with significant outstanding receivables and longer days of turnover.
We inquired if there is any client with significant amount of outstanding receivables that are known as having financial difficulties, and whether the management has adopted appropriate response to secure its receivables.
We assessed the collections of past due receivables and the adequacy of provision for bad debts.

Other Matter

We have also audited the parent company only financial statements of Chung Hwa Pulp Corporation as of and for the years ended December 31, 2017 and 2016, on which we have issued unqualified report.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial

27 -

statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including the audit committee) are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
28 -

or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with statements that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017, and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Shu-Wan Lin and Shiow-Ming Shue.

Deloitte & Touche Taipei, Taiwan Republic of China

March 22, 2018

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail. Also, as stated in Note 32 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

29 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss (Notes 4 and 7) Available-for-sale financial assets (Notes 4 and 8) Derivative financial assets for hedging - current (Notes 4 and 9) Debt investments with no active market - current (Notes 4 and 10) Notes and accounts receivable (Notes 4 and 13) Notes and accounts receivable from related parties (Notes 4 and 29) Other receivables from related parties (Notes 4 and 29) Inventories (Notes 4 and 14) Biological assets (Notes 4 and 15) Other current assets (Note 28) Total current assets NON-CURRENT ASSETS Available-for-sale financial assets (Notes 4 and 8) Debt investments with no active market - non-current (Notes 4 and 11) Financial assets measured at cost (Notes 4 and 12) Investments accounted for using the equity method (Notes 4 and 17) Property, plant and equipment (Notes 4 and 18) Investment properties (Notes 4 and 19) Deferred tax assets (Notes 4 and 24) Prepayment for equipment Long-term prepayments for lease Other non-current assets (Note 28) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 20) Short-term bills payable (Note 20) Financial liabilities at fair value through profit or loss (Notes 4 and 7) Derivative financial liabilities for hedging - current (Notes 4 and 9) Notes and accounts payable Notes and accounts payable to related parties (Note 29) Other payables Current tax liabilities Current portion of long-term borrowings (Note 20) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note 20) Deferred tax liabilities (Notes 4 and 24) Net defined benefit liabilities (Notes 4 and 21) Other non-current liabilities (Note 28) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 22) Share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Total equity attributable to owners of the Company NON-CONTROLLING INTERESTS Total equity TOTAL		2017 Amount % $ 1,219,207 4 33,255 - 946,232 3 1 - 209,752 1 2,276,378 8 1,268,156 4 64,448 - 3,029,425 10 3,280,878 11 505,080 2 12,832,812 43 332,343 1 175,000 1 239,402 1 855,810 3 14,345,577 47 257,678 1 110,913 - 403,421 1 480,073 2 133,721 - 17,333,938 57 $30,166,750 100 $ 3,324,328 11 1,949,268 6 - - - - 1,848,039 6 579,035 2 619,089 2 16,915 - - - 515,231 2 8,851,905 29 914,075 3 1,991,427 7 224,695 1 89,168 - 3,219,365 11 12,071,270 40 11,028,353 36 36,602 - 119,833 1 1,186,894 4 3,092,020 10 4,398,747 15 225,267 1 15,688,969 52 2,406,511 8 18,095,480 60 $30,166,750 100		2016
				Amount % $ 496,230 2 16,958 - 651,792 2 567 - 10,100 - 2,428,447 8 1,166,810 4 344,705 1 2,989,561 10 3,275,503 11 503,857 2 11,884,530 40 416,578 1 170,000 1 261,902 1 955,180 3 14,560,196 49 258,008 1 250,253 1 562,494 2 217,530 1 116,222 - 17,768,363 60 $29,652,893 100 $ 1,838,000 6 1,999,359 7 8,317 - 443 - 1,539,072 5 543,253 2 672,529 2 5,904 - 108,000 - 701,249 3 7,416,126 25 1,841,765 6 1,991,618 7 286,549 1 57,508 - 4,177,440 14 11,593,566 39 11,028,353 37 34,403 - 80,721 - 1,186,894 4 2,919,034 10 4,186,649 14 464,552 2 15,713,957 53 2,345,370 8 18,059,327 61 $29,652,893 100

The accompanying notes are an integral part of the consolidated financial statements.

30 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Note 29) Sales Sales returns and allowances Net sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 14, 23 and 29) Cost of goods sold Other operating cost Total operating costs LOSS FROM CHANGES IN FAIR VALUE LESS COSTS TO SELL OF BIOLOGICAL ASSETS (Note 15) GROSS PROFIT OPERATING EXPENSES (Notes 23 and 29) Selling and marketing General and administrative Research and development Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Finance costs (Note 23) Share of profit of associates (Note 17) Interest income (Note 29) Dividend income Other income Gain (loss) on financial instruments at FVTPL Other losses Loss on disposal of property, plant and equipment (Loss) gain on disposal of investments Foreign exchange loss Total non-operating income and expenses		2017 Amount % $ 22,810,794 101 156,528 1 22,654,266 100 53,882 - 22,708,148 100 20,367,244 90 21,020 - 20,388,264 90 (8,111 ) - 2,311,773 10 1,200,319 5 289,184 1 30,215 - 1,519,718 6 792,055 4 (81,667) - 20,906 - 27,894 - 32,609 - 70,498 - 47,815 - (5,287) - (6,796) - (1,120) - (12,019 ) - 92,833 -		2016 Adjusted (Note 3)
				Amount % $ 22,256,138 101 314,893 1 21,941,245 100 60,291 - 22,001,536 100 20,074,078 92 38,104 - 20,112,182 92 (13,295 ) - 1,876,059 8 1,180,237 6 285,819 1 24,895 - 1,490,951 7 385,108 1 (74,222) - 44,714 - 33,792 - 30,393 - 43,341 - (13,692) - (12,402) - (1,604) - 85 - (102,393 ) - (51,988 ) - (Continued)

31 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (BENEFIT) (Notes 4 and 24) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans Share of other comprehensive loss of associates Tax effect of items that will not be reclassified Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized loss on available-for-sale financial assets Cash flow hedges Share of other comprehensive loss of associates Other comprehensive loss for the year, net of income tax TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR NET PROFIT (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Company Non-controlling interests		2017 Amount % $ 884,888 4 158,673 1 726,215 3 (19,062) - (109) - 3,240 - (252,986) (1) (2,131) - 4,973 - (35,633 ) - (301,708 ) (1 ) $ 424,507 2 $ 618,582 3 107,633 - $ 726,215 3 $ 363,366 2 61,141 - $ 424,507 2		2016 Adjusted (Note 3)
				Amount % $ 333,120 1 (16,598 ) - 349,718 1 (64,092) - (162) - 10,896 - (547,348) (3) (71,620) - (14,388) - (55,363 ) - (742,077 )(3 ) $ (392,359 )(2 ) $ 391,114 2 (41,396 ) - $ 349,718 2 $ (144,472) (1) (247,887 )(1 ) $ (392,359 )(2 ) (Continued)

32 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

EARNINGS PER SHARE (Note 25) Basic Diluted	2017 Amount % $ 0.56 $ 0.56	2016 Adjusted (Note 3)
		Amount % $ 0.35 $ 0.35

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

33 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

		Equity Attributable to Owners of the Company (Notes 4	Equity Attributable to Owners of the Company (Notes 4	Equity Attributable to Owners of the Company (Notes 4	and 22)
Shares Shares (Thousands) Amount 1,102,835 $11,028,353 - - - - - - - - - - - - 1,102,835 11,028,353 - - - - - - - - - - - - - - 1,102,835 $11,028,353	Capital Surplus $ 27,286 - - 7,117 - - - 34,403 - - 2,204 - - - (5 ) $ 36,602		Retained Earnings	Total $ 4,507,038 - (661,701) 3,556 391,114 (53,358 ) 337,756 4,186,649 - (385,992) (4,561) 618,582 (15,931 ) 602,651 - $ 4,398,747	Other Equity	Cash Flow Hedges $ 3,038 - - - - (14,388 ) (14,388 ) (11,350) - - - - 4,973 4,973 - $ (6,377 )
					Exchange Unrealized Differences (Loss) Gain on on Translating Available-for- Foreign sale Financial Operations Assets $ 497,630 $ 446,112 - - - - - - - - (366,081 ) (101,759 ) (366,081 ) (101,759 ) 131,549 344,353 - - - - - - - - (218,984 ) (25,274 ) (218,984 ) (25,274 ) - - $ (87,435 )$ 319,079
Shares (Thousands) 1,102,835 - - - - - - 1,102,835 - - - - - - - 1,102,835		Legal Reserve $ 2,750 77,971 - - - - - 80,721 39,112 - - - - - - $ 119,833	Special Unappropriate d Reserve Earnings $ 1,186,894 $ 3,317,394 - (77,971) - (661,701) - 3,556 - 391,114 - (53,358 ) - 337,756 1,186,894 2,919,034 - (39,112) - (385,992) - (4,561) - 618,582 - (15,931 ) - 602,651 - - $ 1,186,894 $ 3,092,020

The accompanying notes are an integral part of the consolidated financial statements.

34 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization expenses Impairment loss recognized on accounts receivable Net (profit) loss on fair value change of financial instruments at fair value through profit or loss Finance costs Interest income Dividend income Share of profit of associates Loss on disposal of property, plant and equipment Net loss (gain) on disposal of investments Write-down (reversal of write-down) of inventories Net unrealized gain on foreign currency exchange Loss on changes in fair value less cost to sell of biological assets Changes in operating assets and liabilities Notes and accounts receivable Notes and accounts receivable from related parties Inventories Biological assets Other current assets Notes payable and accounts payable Notes and accounts payable to related parties Other payables Other current liabilities Net defined benefit liabilities Cash generated from operations Interest received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial instruments at fair value through profit or loss Proceeds of the sale of financial instruments at fair value through profit or loss Purchase of available-for-sale financial assets Purchase of debt investments with no active market Proceeds of the sale of debt investments with no active market Proceeds of capital reduction on financial assets measured at cost Purchase of financial instruments for hedging Proceeds of the sale of financial instruments for hedging Disposal of investments accounted for by using equity method	2017 $ 884,888 1,135,608 - (47,815) 81,667 (27,894) (32,609) (20,906) 6,796 1,120 3,712 (12,558) 8,111 140,389 (105,753) (48,989) (79,279) 69,887 305,605 32,268 (68,889) (180,334) (80,916 ) 1,964,109 27,722 (85,527) (7,905 ) 1,898,399 (1,773,000) 1,796,457 (212,335) (213,651) 10,100 22,500 (443) 5,539 1,128	2016 $ 333,120 964,535 2,860 13,692 74,222 (33,792) (30,393) (44,714) 1,604 (85) (5,038) (17,617) 13,295 (108,568) (194,941) 763,309 44,985 82,095 82,950 71,457 (52,190) 197,623 (69,476 ) 2,088,933 35,008 (76,257) (1,501 ) 2,046,183 (1,915,779) 1,891,516 (48,023) (20,100) 32,400 50 (16,112) 2,884 - (Continued)

35 -

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

Payments for property, plant and equipment Proceeds of the disposal of property, plant and equipment Decrease in other receivables from related parties Increase in other non-current assets Decrease in prepayments for equipment Dividend received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term borrowings (Decrease) increase in short-term bills payable Proceeds of long-term borrowings Repayments of long-term borrowings Increase in other non-current liabilities Cash dividends paid Net cash generated from (used in) financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2017 $(1,036,155) 127 212,579 (229,411) 155,100 39,666 (1,221,799 ) 1,493,448 (50,091) 3,974,310 (5,010,000) 31,284 (387,909 ) 51,042 (4,665 ) 722,977 496,230 $ 1,219,207	2016 $(1,971,325) - 295,203 (10,761) 306,060 53,261 (1,400,726 ) (558,667) 1,685 3,259,765 (2,550,000) 29,608 (660,279 ) (477,888 ) (16,654 ) 150,915 345,315 $ 496,230

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

36 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

1. GENERAL INFORMATION

Chung Hwa Pulp Corporation (the Company), is engaged in production and sale of pulp and paper. The Company’s shares have been listed on the Taiwan Stock Exchange (TSE).

In line with the Company’s operating strategy to carry out vertical integration, in the meetings of the board of directors on March 21, 2012 and of the shareholders on June 27, 2012, the Company decided to issue new shares in exchange for YFY Inc.’s paper and cardboard business unit’s assets, liabilities and operation. After this transaction, the Company became a subsidiary of YFY Inc.

YFY Inc. and its subsidiaries held 57.7% of ordinary shares of the Company as of December 31, 2017 and 2016.

The consolidated financial statements are presented in the Company’s functional currency, the New Taiwan dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 22, 2018.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC

The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers did not have any material impact on the Group’s accounting policies, except for the following:

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by the FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include an emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

37 -

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president of the Group, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group, are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationships with whom the Group has significant transactions. If the transaction amount or balance with a specific related party is 10% or more of the Group’s respective total transaction amount or balance, such transactions should be separately disclosed by the name of each related party.

The amendments also require additional disclosure if there is a significant difference between the actual operation conditions after a business combination and the expected benefits at the acquisition date.

When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party transactions and impairment of goodwill are enhanced. Refer to Note 29 for the related disclosures.

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2018.

New IFRSs Annual Improvements to IFRSs 2014-2016 Cycle Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	Effective Date Announced by IASB (Note 1)
	Note 2 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

New IFRSs
Annual Improvements to IFRSs 2014-2016 Cycle

Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”

IFRS 9 “Financial Instruments”

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date
of IFRS 9 and Transition Disclosures”

IFRS 15 “Revenue from Contracts with Customers”

Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue
from Contracts with Customers”

Amendment to IAS 7 “Disclosure Initiative”

Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”

Amendments to IAS 40 “Transfers of Investment Property”

IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

Effective Date
Announced by IASB (Note
1)

Note 2
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

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 IFRS 9 “Financial Instruments” and related amendments

Classification, measurement and impairment of financial assets

With regard to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

For debt instruments, if they are held within a business model whose objective is to collect contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with any impairment loss recognized in profit or loss. Interest revenue is recognized in profit or loss by using the effective interest method.

The Group analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of financial assets. Under IFRS 9:

a) Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will be designated as at fair value through other comprehensive income and the fair value gains or losses accumulated in other equity will be transferred directly to retained earnings instead of being reclassified to profit or loss on disposal. Besides this, unlisted shares measured at cost will be measured at fair value instead;
b) Debt investments classified as debt investments with no active market and measured at amortized cost will be classified as measured at amortized cost under IFRS 9 because, on initial recognition, the contractual cash flows that are solely payments of principal and interest on the principal outstanding and these investments are not solely payments of principal and interest will be classified as at fair value through profit or loss, because, on initial recognition, the contractual cash flows are not solely payments of principal and interest on the principal outstanding.

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. A loss allowance is required for financial assets measured at amortized cost, investments in debt instruments measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full-lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

The Group has performed a preliminary assessment in which it will apply the simplified approach to recognize full-lifetime expected credit losses for trade receivables, contract assets and lease receivables. In relation to debt instrument investments and financial

39 -

guarantee contracts, the Group will assess whether there has been a significant increase in credit risk to determine whether to recognize 12-month or full-lifetime expected credit losses. In general, the Group anticipates that the application of the expected credit losses model of IFRS 9 will result in an earlier recognition of credit losses for financial assets.

The Group will elects not to restate prior reporting periods when applying the requirements for the classification, measurement and impairment of financial assets under IFRS 9, but will recognize the cumulative effect of the initial application at the date of initial application and will provide the disclosures related to the classification and the adjustment information upon initial application of IFRS 9.

The anticipated impact on assets, liabilities and equity of retrospective application of the requirements for the classification, measurement and impairment of financial assets as of January 1, 2018 is set out below:

Carrying
Amount as of
December 31,
2017
Impact on assets, liabilities and equity

Cash and cash equivalents
$ 1,219,207

Debt investments with no active
market - current
209,752
Financial assets measured at
amortized cost - current
-
Financial assets at fair value through
profit or loss - current
33,255
Financial assets at fair value through
other comprehensive income -
current
-
Available-for-sale financial assets -
current
946,232
Other current assets
505,080
Financial assets at fair value through
profit or loss - non-current
-
Financial assets at fair value through
other comprehensive income -
non-current
-
Available-for-sale financial assets -
non-current
332,343
Debt investments with no active
market - non-current
175,000
Financial assets measured at
amortized cost - non-current
-
Financial assets measured at
amortized cost - non-current
239,402
Investments accounted for using the
equity method

855,810

Total effect on assets
$ 4,516,081

Retained earnings
$ 4,398,747

Other equity

225,267

Total effect on equity
$ 4,624,014

Adjustments
Arising from
Initial
Application
Adjusted
Carrying
Amount as of
January 1, 2018

$ (544,263) $ 674,944
(209,752)
-
4,800
4,800
751,182
784,437
946,232
946,232
(946,232)
-
(3,002)
502,078
171,035
171,035
601,169
601,169
(332,343)
-
(175,000)
-
5,000
5,000
(239,402)
-
1,872

857,682
$ 31,296
$ 4,547,377
$ (8,818) $ 4,389,929
40,114

265,381
$ 31,296
$ 4,655,310

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Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect an entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will not have on the Group’s financial position and financial performance.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 16 “Leases” IFRS 17 “Insurance Contracts” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty Over Income Tax Treatments”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 January 1, 2019 (Note 2) To be determined by IASB January 1, 2019 (Note 3) January 1, 2021 January 1, 2019 (Note 4) January 1, 2019 January 1, 2019

New IFRSs
Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of
Assets between an Investor and its Associate or Joint
Venture”

IFRS 16 “Leases”

IFRS 17 “Insurance Contracts”

Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”

Amendments to IAS 28 “Long-term Interests in Associates and
Joint Ventures”

IFRIC 23 “Uncertainty Over Income Tax Treatments”

Effective Date
Announced by IASB (Note
1)

January 1, 2019
January 1, 2019 (Note 2)
To be determined by IASB
January 1, 2019 (Note 3)
January 1, 2021
January 1, 2019 (Note 4)
January 1, 2019
January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.
Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.
Note 4: The Group shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Group may elect to apply the accounting method similar to the accounting for

41 -

operating leases under IAS 17 to low-value and short-term leases. On the consolidated statements of comprehensive income, the Group should present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed by using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor.

When IFRS 16 becomes effective, the Group may elect to apply this standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this standard recognized at the date of initial application

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed

d. Reclassification

The management of the Group considers the presentation within gross profit of the gain (loss) arising from the initial recognition of biological assets and agricultural produce and the gain (loss) arising from changes in the fair value less costs to sell of the biological assets to be more appropriate and, therefore, has changed the presentation of the consolidated statements of comprehensive income in 2017. Comparative information for the year ended December 31, 2016 were reclassified to conform to the current period’s presentation.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language consolidated financial statements shall prevail.

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed by the FSC with the effective dates.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments and biological assets which are measured at fair value.

The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in their entirety, which are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
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2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3) Level 3 inputs are unobservable inputs for the asset or liability.
c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;
2) Assets expected to be realized within twelve months after the reporting period; and
3) Cash and cash equivalents.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;
2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and
3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

The Group engages in the forestry business, which has an operating cycle of over one year; the normal operating cycle of over one year is observed in the classification of the Group’s forestry-related assets and liabilities.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

e. Business combinations

Acquisition of business is accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of

43 -

any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree, the excess is recognized immediately in profit or loss as a bargain purchase gain.

f. Foreign currencies

In preparing the financial statements of each individual Group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including of the subsidiaries and associates operating in other countries or currencies used are different from the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period.

g. Inventories

Inventories consist of raw materials, supplies, work-in-process, finished goods and merchandise. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average cost on the balance sheet date.

h. Investment in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The Group uses the equity method to account for its investments in associates.

Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of equity of associates.

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Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

When the Group subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Group’s share of equity of associates. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is deducted from investment and the carrying amount of investment is net of impairment loss. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasure the retained interest.

When a Group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

i. Property, plant and equipment

Property, plant and equipment are stated at cost, less recognized accumulated depreciation and accumulated impairment loss.

Property in the course of construction for production, supply or administrative purposes is carried at cost, less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such property is depreciated and classified to the appropriate category of property, plant and equipment when completed and ready for intended use.

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Freehold land is not depreciated.

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

j. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss.

k. Impairment of tangible and intangible assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized on the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

l. Financial instruments

Financial assets and financial liabilities are recognized when a Group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

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1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

a) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables.

i. Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is held for trading.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Fair value is determined in the manner described in Note 28.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables or financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in other comprehensive income on financial assets. Any impairment loss is recognized in profit and loss.

iii. Loans and receivables

Loans and receivables (including notes and accounts receivable, cash and cash equivalent, debt investments with no active market, etc.) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalent includes time deposits with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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b) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Financial assets carried at amortized cost, such as notes and accounts receivable, are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it is becoming probable that the borrower will enter bankruptcy or financial re-organization, or disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of notes and accounts receivable where the carrying amount is reduced through the use of an allowance account. When notes and accounts receivable are considered uncollectable, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectable notes and accounts receivable that are written off against the allowance account.

c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

2) Equity instruments

Debt and equity instruments issued by a Group entity are classified as either financial liabilities or equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by a Group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Group’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except for financial liabilities at fair value through profit or loss, all financial liabilities are measured at amortized cost using the effective interest method:

Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or designated as at fair value through profit or loss.

Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 28.

b) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

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m. Hedge accounting

The Group designates certain hedging instruments as cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and are included in the initial cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

n. Provisions

Provisions, including those arising from the contractual obligation, are stated at the best estimate of the discounted cash flow of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

o. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Sales returns are recognized at the time of sale provided the seller can reliably estimate future returns and recognizes a liability for returns based on past experience and other relevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
b) The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
c) The amount of revenue can be measured reliably;
d) It is probable that the economic benefits associated with the transaction will flow to the Group; and
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e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

p. Leasing

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and amortized on a straight-line basis over the lease term.

q. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Other than as stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

r. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur, or when the plan amendment or curtailment occurs. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be

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reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

s. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income.

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t. Biological assets

Biological assets are measured at cost plus transaction costs on initial recognition, and subsequently measured at fair value less costs to sell. The gains and losses arising from the change in fair value less costs to sell are recognized in profit or loss when they occur.

Agricultural produce harvested from biological assets is initially measured at fair value less costs to sell at the point of harvest, and subsequently transferred to inventory and accounted for accordingly.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Estimated impairment of notes and accounts receivable

When there is objective evidence of impairment loss, the Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

b. Volume estimation of biological assets

The Group’s biological assets are eucalyptus trees planted for production of pulp and paper. The value of biological assets is based on the volume of eucalyptus trees and fair value per ton less costs to sell at the end of each reporting period. The volume of eucalyptus trees is estimated taking into consideration growth differences, weather conditions, and insect infestations. Therefore, measurement of the volume of biological assets involves significant estimation uncertainty. Actual results may differ from these estimates.

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6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalents Time deposits with original maturities less than three months		December 31	December 31
		2017 $ 749 348,620 869,838 $ 1,219,207	2016 $ 883 469,047 26,300 $ 496,230

The market rate intervals of cash in bank (excluding checking accounts) at the end of the reporting period were as follows:

Bank balance Cash equivalents	December 31
	2017 2016 0.001%-1.85% 0.001%-0.6% 0.6%-4.27% 0.56%-1.17%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets held for trading Mutual funds Foreign exchange forward contracts Financial liabilities held for trading Foreign exchange forward contracts		December	31
		2017 $ 29,321 3,934 $ 33,255 $ -	2016 $ 15,307 1,651 $ 16,958 $ 8,317

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2017
Sell			USD:NTD	2018.01.10-2018.01.25	USD13,500/NTD401,760
December	31,	2016
					USD33,000/NTD1,064,2
Sell			USD:NTD	2017.01.09-2017.01.26	50
Sell			JPY:NTD	2017.01.23	JPY50,000/NTD13,780
Sell			RMB:NTD	2017.01.06-2017.02.24	RMB52,600/NTD244,537

The Group entered into foreign exchange forward contracts to manage exposures to exchange

54 -

rate fluctuations of foreign currency denominated assets and liabilities. The above foreign exchange forward contracts held by the Group did not meet hedge effectiveness, so they are not applicable for hedge accounting.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Current Domestic investments Listed shares and emerging market shares Non-current Domestic investments Listed shares and emerging market shares		December 31	December 31
		2017 $ 946,232 $ 332,343	2016 $ 651,792 $ 416,578

9. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

Derivative financial assets under hedge accounting-current Cash flow hedges - foreign exchange forward contracts Derivative financial liabilities under hedge accounting-current Cash flow hedges - foreign exchange forward contracts		December	31
		2017 $ 1 $ -	2016 $ 567 $ 443

The Group’s hedge strategy is to enter foreign exchange forward contracts to avoid its foreign currency exposure to certain foreign currency receipts and payments and to manage its foreign currency exposure in relation to foreign currency forecast sales and purchases. When forecast sales and purchases actually take place, the carrying amounts of the non-financial hedged items will be adjusted accordingly.

The terms of the foreign exchange forward contracts were negotiated to match the terms of the respective designated hedged items. The outstanding foreign exchange forward contracts at the end of the reporting period were as follows:

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2017
Buy			EUR:NTD	2018.01.31	EUR383/NTD13,623
December	31,	2016
Buy			EUR:NTD	2017.01.23-2017.01.25	EUR808/NTD27,391
Buy			JPY:NTD	2017.01.23-2017.01.26	JPY334,282/NTD92,12
					8

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10. DEBT INVESTMENTS WITH NO ACTIVE MARKET - CURRENT

Time deposits with original maturity between 3 months to 1 year. The market rate intervals		December 31
	2017 2016 $ 209,752 $ 10,100 0.58%-3.6% 0.63%-1.07%

11. DEBT INVESTMENTS WITH NO ACTIVE MARKET - NON-CURRENT

Domestic investment Subordinated financial bonds of Bank SinoPac (a) Time deposits with original maturity more than 1 year (b)		December 31	December 31
		2017 $ 170,000 5,000 $ 175,000	2016 $ 170,000 - $ 170,000

a. In 2015, the Group bought subordinated financial bonds issued by Bank SinoPac with a coupon rate of 3.9% at par value of $170,000 thousand. The bonds have no maturity but may be redeemed by Bank SinoPac after 5 years from issue date.
b. The market interest rate of the time deposit with original maturity more than 1 year was 1.12% per annum, as of December 31,2017

12. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT

Domestic unlisted shares Foreign unlisted shares Classified according to financial asset measurement categories Available-for-sale financial assets		December 31	December 31
		2017 $ 235,500 3,902 $ 239,402 $ 239,402	2016 $ 258,000 3,902 $ 261,902 $ 261,902

Management believed that the fair value of the above unlisted equity investments held by the Group cannot be reliably measured due to the very significant range of reasonable fair value estimates; therefore, they were measured at cost less impairment at the end of reporting period.

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13. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable - operating Accounts receivable - operating Less: Allowance for impairment loss		December 31	December 31
		2017 $ 286,462 2,017,502 2,303,964 (27,586 ) $ 2,276,378	2016 $ 539,548 1,916,485 2,456,033 (27,586 ) $ 2,428,447

The Group’s customers are a large number of unrelated customers that did not create concentration of credit risk.

For the accounts receivable that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss because there was no significant change in credit quality and the amounts were still considered recoverable. The Group held adequate collaterals or other credit enhancements for these receivables. In addition, the Group also did not have offset right for the receivables against the payables of the same parties.

The aging of receivables was as follows:

Not past due Less than 90 days 91-180 days 181 days - 1 year Over 1 year		December 31	December 31
		2017 $ 2,195,148 107,177 - - 1,640 $ 2,303,965	2016 $ 2,305,614 142,388 4,031 - 4,000 $ 2,456,033

The above aging schedule was based on the past due days.

The aging of receivables that were past due but not impaired was as follows:

Less than 90 days 91-180 days 181 days - 1 year Over 1 year		December 31	December 31
		2017 $ 104,695 - - 1,640 $ 106,335	2016 $ 115,450 4,030 - 3,859 $ 123,339

The above aging of receivable before deducting the allowance for impairment was presented based on the past due days.

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The movements of the allowance for doubtful accounts receivable were as follows:

	Collectively
	Assessed for
	Impairment
Balance at January 1, 2016	$ 24,726
Add: Impairment loss recognized on receivables	2,860
Balance at December 31, 2016	$ 27,586
Balance at January 1, 2017	$ 27,586
Balance at December 31, 2017	$ 27,586

14. INVENTORIES

Finished and purchased goods Work in process Materials		December 31	December 31
		2017 $ 1,613,888 406,778 1,008,759 $ 3,029,425	2016 $ 1,610,827 336,482 1,042,252 $ 2,989,561

The cost of goods sold for the years ended December 31, 2017 and 2016 included write-downs of inventory $3,712 thousand and reversal of write-downs of inventory $5,038 thousand, respectively. Previous write-downs were reversed as a result of increased selling prices.

15. BIOLOGICAL ASSETS

Balance at January 1 Increases due to planting Loss from changes in fair value less costs to sell Decreases due to harvest Net exchange differences Balance at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 3,275,503 194,119 (8,111) (114,840) (65,793 ) $ 3,280,878	2016 $ 3,622,184 229,253 (13,295) (274,238) (288,401 ) $ 3,275,503

The Group’s biological assets are eucalyptus trees planted in areas located in Guangdong Province, Zhaoqing city. The eucalyptus trees are mainly grown for paper manufacturing.

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The fair value of biological assets (before deducting partial costs to sell) was arrived at as follows:

Eucalyptus (Level 3) Opening balance Increases due to planting Loss from changes in fair value less costs to sell - unrealized Decreases due to harvest Exchange differences on translating foreign operations recognized in other comprehensive income Ending balance	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 3,380,533 $ 3,730,430 212,082 (8,861) (125,467) (67,651 ) $ 3,380,533	2016 $ 3,370,430 $ 3,730,495 248,511 (14,412) (297,275) (296,889 ) $ 3,370,430

16. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements:

Investor Investee Main Business The Company CHP International (BVI) Corporation Investment and holding Hwa Fong Investment Co., Ltd. Investment and holding CHP International (BVI) Corporation Guangdong Ding Feng Pulp & Paper Co., Ltd. Pulp and paper production, trading and forestry business Zhaoqing Ding Feng Forestry Ltd. Seedling cultivation and sales, reforestation, sales-cum-forest logging and other forestry, processing and transportation Hwa Fong Investment Co., Ltd. Kuang Hwa Fertilizer Limited Company To produce fertilizer Guangdong Ding Feng Pulp & Paper Co., Ltd. Zhaoqing Ding Feng Forestry Ltd. Seedling cultivation and sales, reforestation, sales-cum-forest logging and other forestry, processing and transportation	% of Ownership
	December 31
	2017 2016 100.00 100.00 100.00 100.00 60.00 60.00 20.20 20.20 100.00 100.00 66.30 66.30

Investor
Investee
Main Business
The Company
CHP International (BVI)
Corporation
Investment and holding
Hwa Fong Investment Co., Ltd.
Investment and holding
CHP International (BVI)
Corporation
Guangdong Ding Feng Pulp &
Paper Co., Ltd.
Pulp and paper production,
trading and forestry business
Zhaoqing Ding Feng Forestry
Ltd.
Seedling cultivation and sales,
reforestation, sales-cum-forest
logging and other forestry,
processing and transportation
Hwa Fong Investment
Co., Ltd.
Kuang Hwa Fertilizer Limited
Company
To produce fertilizer
Guangdong Ding Feng
Pulp & Paper Co.,
Ltd.
Zhaoqing Ding Feng Forestry
Ltd.
Seedling cultivation and sales,
reforestation, sales-cum-forest
logging and other forestry,
processing and transportation

% of Ownership

December 31

2017
2016
100.00
100.00
100.00
100.00
60.00
60.00
20.20
20.20
100.00
100.00
66.30
66.30

The financial statements of Kuang Hwa Fertilizer Limited Company have not been audited; as of December 31, 2017 and 2016, the assets were about 0.05% ($15,101 thousand) and 0.04% ($10,971 thousand) of total consolidated assets, respectively; the liabilities were about 0.02% ($2,500 thousand) and 0.01% ($1,570 thousand) of total consolidated liabilities, respectively; for the years ended December 31, 2017 and 2016, net sales were about 0.07% ($15,773 thousand) and 0.05% ($10,011 thousand) of total consolidated net sales, respectively; the net income were about 0.80% ($5,873thousand) and 0.85% ($2,969 thousand) of total consolidated net income, respectively. Management believes the amounts will not have material differences even if the financial statements were audited.

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17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

December 31 2017 2016 Associates that are not individually material $ 855,810 $ 955,180 Aggregate information of associates that are not individually material were as follows`：`		December 31

The Group’s share of: Profit from continuing operations Other comprehensive loss Total comprehensive loss for the year	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 20,906 (35,742 ) $(14,836 )	2016 $ 44,714 (55,525 ) $(10,811 )

The combined ownership held by the Group and its parent company, YFY Inc., in some associates that are not individually material was more than 20 per cent. Thus, the Group used the equity method to account for its investments in these associates.

The Group is able to exercise significant influence over some associates that are not individually material even if it holds less than 20 per cent of their voting rights. Thus, the Group uses the equity method to account for its investments in these associates.

Except for some associates that are not individually material, investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have been audited. Management believes there is no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income even if the financial statements of some associates that are not individually material were audited.

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18. PROPERTY, PLANT AND EQUIPMENT

C	ost alance at January 1, 2016 dditions isposals ffect of foreign currency exchange differences eclassify alance at December 31, 2016 ccumulated depreciation and impairment alance at January 1, 2016 isposals epreciation expense ffect of foreign currency exchange differences alance at December 31, 2016 arrying amounts at December 31, 2016 ost alance at January 1, 2017 dditions isposals ffect of foreign currency exchange differences eclassify ther reclassify alance at December 31, 2017 ccumulated depreciation and impairment alance at January 1, 2017 isposals epreciation expense ffect of foreign currency exchange differences alance at December 31, 2017 arrying amounts at December 31, 2016	Freehold Land $ 6,637,258 - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258 $ 6,637,258 - - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258	Buildings $ 3,397,474 5,723 (5,691 ) (51,465 ) 335,999 $ 3,682,040 $ 2,538,543 (4,087 ) 87,978 (14,327 ) $ 2,608,107 $ 1,073,933 $ 3,682,040 21,498 (2,171 ) (14,611 ) 85,283 - $ 3,772,039 $ 2,608107 (21,171 ) 103,351 (3,200 ) $ 2,706,087 $ 1,065,952	Machinery $ 25,975,001 52,836 (32,267 ) (305,109 ) 2,115,632 $ 27,806,093 $ 22,102,789 (32,267 ) 708,821 (195,181 ) $ 22,584,162 $ 5,221,931 $ 27,806,093 241,821 (76,342 ) (82,241 ) 597,993 - $ 28,487,324 $ 22,584,162 (68,481 ) 812,371 (45,026 ) $ 23,283,026 $ 5,204,298	Electric Equipment $ 2,691,316 27,569 (3,637 ) - 92,059 $ 2,807,307 $ 2,222,244 (3,637 ) 65,662 - $ 2,284,269 $ 523,038 $ 2,807,307 26,895 (1,118 ) - 79,807 - $ 2,912,891 $ 2,284,269 (1,118 ) 74,008 - $ 2,357,159 $ 555,732	Tools $ 1,346,742 108,761 (18,975 ) - 44,671 $ 1,481,199 $ 1,204,525 (18,975 ) 68,410 - $ 1,253,960 $ 227,239 $ 1,481,199 41,619 (5,969 ) - 96,620 - $ 1,613,469 $ 1,253,960 (5,944 ) 88,721 - $ 1,336,737 $ 276,732	Miscellaneous Equipment $ 579,879 9,720 (3,812 ) (9,811 ) 158,200 $ 734,176 $ 519,053 (3,812 ) 24,941 (3,106 ) $ 537,076 $ 197,100 $ 734,176 14,359 (8,740 ) (3,550 ) 16,921 - $ 753,166 $ 537,076 (8,740 ) 40,668 (588 ) $ 568,416 $ 184,750	Property in Construction $ 1,700,892 1,766,716 - (41,350 ) (2,746,561 ) $ 679,697 $ - - - - $ - $ 679,697 $ 679,697 689,963 - (4,127 ) (876,624 ) (68,054 ) $ 420,855 $ - - - - $ - $ 420,855	Total $ 42,328,562 1,971,325 (64,382 ) (407,735 ) - $ 43,827,770 $ 28,587,154 (62,778 ) 955,812 (212,614 ) $ 29,267,574 $ 14,560,196 $ 43,827,770 1,036,155 (94,340 ) (104,529 ) - (68,054 ) $ 44,597,002 $ 29,267,574 (86,454 ) 1,119,119 (48,814 ) $ 30,251,425 $ 14,345,577
B A D E R B A
B D D E B C C
B A D E R O B A
B D D E B C

The above items of property, plant and equipment are depreciated on a straight-line basis over the estimated useful life of the asset:

Buildings
Main buildings	15-35 years
Others	3-44 years
Machinery	3-15 years
Electric equipment	5-15 years
Tools	3-5 years
Miscellaneous equipment	3-20 years

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19. INVESTMENT PROPERTIES

Cost Opening balance Ending balance Accumulated depreciation and impairment Opening balance Depreciation expense Ending balance Opening carrying amount Ending carrying amount	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 272,334 $ 272,334 $ (14,326) (330 ) $ (14,656 ) $ 258,008 $ 257,678	2016 $ 272,334 $ 272,334 $ (13,936) (390 ) $ (14,326 ) $ 258,398 $ 258,008

The investment properties held by the Group are depreciated over their estimated useful life of 55 years, using the straight-line method.

The valuation was done by the Group using market transaction prices for similar properties. The fair value of the investment properties owned by the Group were as follows:

Fair value		December 31	December 31
		2017 $ 341,731	2016 $ 341,731

20. BORROWINGS

a. Short-term borrowings

Bank credit loans Letter of credit loans		December 31	December 31
		2017 $ 2,762,000 562,328 $ 3,324,328	2016 $ 1,838,000 - $ 1,838,000

As of December 31, 2017 and 2016, the interest rates of short-term borrowings were 0.91%-2.81% per annum and 0.90%-0.98% per annum, respectively.

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b. Short-term bills payable

Commercial paper Less: Unamortized discount on bills payable		December 31	December 31
		2017 $ 1,950,000 (732 ) $ 1,949,268	2016 $ 2,000,000 (641 ) $ 1,999,359

Short-term bills payable are commercial papers due within one year. Interest rates on these bills payable were 0.43%-0.82% and 0.40%-0.75% as of December 31, 2017 and 2016, respectively.

c. Long-term borrowings

December 31 2017 2016 Unsecured bank loans $ 920,000 $ 1,960,000 Less: Current portions - (108,000) Loan management fees (5,925 ) (10,235 ) Long-term bank loans $ 914,075 $ 1,841,765 Interest December 31 Due Date Article Rate 2017 2016 Taipei Fubon Bank - Credit loan A 2018.11.25 The credit can be revolved within 60 months from first loan drawdown. Principal was fully repaid in 2017. 1.63% $ - $ 1,500,000 Taipei Fubon Bank - Credit loan B 2018.11.25 Interest is paid monthly and the principal will be repaid 30% on 2017.11.25 and 70% on due date. Principal was fully repaid in 2017. 1.93% - 360,000 Taiwan Bank Credit loan 2021.06.30 The credit can be revolved within 60 months from first loan drawdown. 1.80% 800,000 100,000 KGI Bank Credit loan 2019.12.12 The credit can be revolved during the contract period. 1.19% 120,000 - $ 920,000 $ 1,960,000		December 31	December 31	December 31	December 31

				2017 $ - - 800,000 120,000 $ 920,000	2016 $ 1,500,000 360,000 100,000 - $ 1,960,000

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company, Hwa Fong Investment Co., Ltd. and Kuang Hwa Fertilizer Limited Company of the Group adopted a pension plan under the Labor Pension Act (the LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

63 -

The employees of the Group’s subsidiary in mainland China are members of a state-managed retirement benefit plan operated by the government of mainland China. The subsidiary is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit plan is to make the specified contributions.

b. Defined benefit plan

The defined benefit plan adopted by the Group in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salary of the six months before retirement. The Group contributes specific percentage of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the Bureau); the Group has no right to influence the investment policy and strategy.

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plan were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability		December 31	December 31
		2017 $ 624,763 (400,068 ) $ 224,695	2016 $ 647,298 (360,749 ) $ 286,549

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Movements in net defined benefit liability were as follows:

	Present Value	Present Value
	of the Defined		Fair Value of		Net Defined
	Benefit		the Plan		Benefit
	Obligation		Assets		Liability
Balance at January 1, 2016	$	620,106	$(328,173 )		$	291,933
Service cost
Current service cost		25,573		-		25,573
Net interest expense (income)		10,467		(8,615 )		1,852
Recognized in profit or loss		36,040		(8,615 )		27,425
Remeasurement
Return on plan assets (excluding
amounts included in net interest)		-		6,250		6,250
Actuarial loss - changes in financial
assumptions		57,842		-		57,842
Recognized in other comprehensive
income		57,842		6,250		64,092
Contributions from the employer		-		(90,387)		(90,387)
Benefits paid		(66,690 )		60,176		(6,514 )
Balance at December 31, 2016	$	647,298	$(360,749 )		$	286,549
Balance at January 1, 2017	$	647,298	$(360,749 )		$	286,549
Service cost
Current service cost		22,924		-		22,924
Net interest expense (income)		10,778		(9,005 )		1,773
Recognized in profit or loss		33,702		(9,005 )		24,697
Remeasurement
Return on plan assets (excluding
amounts included in net interest)	$	-	$	5,321	$	5,321
Actuarial loss - changes in financial
assumptions		13,741		-		13,741
Recognized in other comprehensive
income		13,741		5,321		19,062
Contributions from the employer		-	(105,613)		(105,613)
Benefits paid		(69,978 )		69,978		-
Balance at December 31, 2017	$	624,763	$(400,068 )		$ 224,695 (Concluded)

Through the defined benefit plan under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.
2) Interest risk: A decrease in the government and corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.
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3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rates Expected rates of salary increase - less than 16 years Expected rates of salary increase - more than 16 years	December 31
	2017 2016 1.75% 1.75% 1.50% 1.50% 1.00% 1.00%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rates 0.125% increase 0.125% decrease Expected rates of salary increase 0.125% increase 0.125% decrease		December	31
		2017 $ (5,119 ) $ 5,198 $ 5,231 $ (5,164 )	2016 $ (5,606 ) $ 5,694 $ 5,731 $ (5,655 )

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		December 31	December 31
		2017 $ 274,639 12 years	2016 $ 105,613 12 years

22. EQUITY

a. Ordinary shares

Number of shares authorized (in thousand) Shares authorized Number of shares issued and fully paid (in thousand) Shares issued		December 31	December 31
		2017 1,300,000 $ 13,000,000 1,102,835 $ 11,028,353	2016 1,300,000 $ 13,000,000 1,102,835 $ 11,028,353

Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right to dividends.

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b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital* Arising from treasury share transactions May be used to offset a deficit only Arising from share of changes in capital surplus of associates		December	31
		2016 $ 20,817 15,785 $ 36,602	2016 $ 20,817 13,586 $ 34,403

Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital.

c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on June 24, 2016, and, in that meeting, had resolved amendments to the Company’s Articles of Incorporation (the Articles), particularly the amendment to the policy on dividend distribution and the addition of the policy on distribution of employees’ compensation.

Under the dividend policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, and setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders. For the policies on distribution of the compensation of employees and remuneration of directors and supervisors before and after amendment, refer to c. employee benefits expense in Note 23.

In making its dividend policy, the Company takes into account future capital expenditures and working capital requirements. Based on this policy, dividends should be distributed as follows:

1) At least 20% as cash dividends; and
2) Remainder, as stock dividends. If there is a requirement for capital expenditure, the Company may distribute only stock dividends.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Under Order No. 1010012865 and Order No. 1010047490 and Order NO. 1030006415 issued

67 -

by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”, the Company should appropriate to or reverse from a special reserve. Any special reserve appropriated may be reversed to the extent that the net debit balance reverses and thereafter distributed.

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriations of earnings for 2016 and 2015 approved in the shareholders’ meetings on June19, 2017, and June 24, 2016, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2016 2015 $ 39,112 $ 77,971 385,992 661,701	Dividends Per Share (NT$)
		For the Year Ended December 31
		2016 2015 $0.35 $0.6

The appropriations of earnings for 2017 had been proposed by the Company’s board of directors on March 22, 2018. The appropriations and dividends per share were as follows:

	Appropriation	Dividends Per
	of Earnings	Share (NT$)
Legal reserve	$ 61,858
Cash dividends	551,418	$0.5

The appropriations of earnings for 2017 are subject to the resolution of the shareholders in their meeting to be held in 2018.

d. Special reserves

Special reserves	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 1,186,894	2016 $ 1,186,894

The Company provided a special reserve in an amount equal to the unrealized revaluation increment, which was already transferred to retained earnings.

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e. Others equity items

f.	Exchange Differences Arising on Translating the Foreign Operations Unrealized Gain (Loss) on Available-for- sale Financial Assets Cash Flow Hedge Total 2016 Balance at January 1 $ 497,630 $ 446,112 $ 3,038 $ 946,780 Unrealized gain on available- for-sale financial assets - (71,620) - (71,620) Exchange differences arising on translating the foreign operation (340,857) - - (340,857) Cash flow hedge - - (14,388) (14,388) Share of associates accounted for using the equity method (25,224 ) (30,139 ) - (55,363 ) Balance at December 31 $ 131,549 $ 344,353 $ (11,350 )$ 464,552 2017 Balance at January 1 $ 131,549 $ 344,353 $ (11,350) $ 464,552 Unrealized gain on available- for-sale financial assets - (2,131) - (2,131) Exchange differences arising on translating the foreign operation (206,494) - - (206,494) Cash flow hedge - - 4,937 4,973 Share of associates accounted for using the equity method (12,490 ) (23,143 ) - (35,633 ) Balance at December 31 $ (87,435 ) $ 319,079 $ (6,377 )$ 225,267 Non-controlling interests For the Year Ended December 31 2017 2016 Balance at January 1 $ 2,345,370 $ 2,593,257 Attributable to non-controlling interests: Share of profit (loss) for the year 107,633 (41,396) Exchange difference arising on translation of foreign entities (46,492 ) (206,491 ) Balance at December 31 $ 2,406,511 $ 2,345,370	Exchange Differences Arising on Translating the Foreign Operations Unrealized Gain (Loss) on Available-for- sale Financial Assets Cash Flow Hedge Total 2016 Balance at January 1 $ 497,630 $ 446,112 $ 3,038 $ 946,780 Unrealized gain on available- for-sale financial assets - (71,620) - (71,620) Exchange differences arising on translating the foreign operation (340,857) - - (340,857) Cash flow hedge - - (14,388) (14,388) Share of associates accounted for using the equity method (25,224 ) (30,139 ) - (55,363 ) Balance at December 31 $ 131,549 $ 344,353 $ (11,350 )$ 464,552 2017 Balance at January 1 $ 131,549 $ 344,353 $ (11,350) $ 464,552 Unrealized gain on available- for-sale financial assets - (2,131) - (2,131) Exchange differences arising on translating the foreign operation (206,494) - - (206,494) Cash flow hedge - - 4,937 4,973 Share of associates accounted for using the equity method (12,490 ) (23,143 ) - (35,633 ) Balance at December 31 $ (87,435 ) $ 319,079 $ (6,377 )$ 225,267 Non-controlling interests For the Year Ended December 31 2017 2016 Balance at January 1 $ 2,345,370 $ 2,593,257 Attributable to non-controlling interests: Share of profit (loss) for the year 107,633 (41,396) Exchange difference arising on translation of foreign entities (46,492 ) (206,491 ) Balance at December 31 $ 2,406,511 $ 2,345,370	Exchange Differences Arising on Translating the Foreign Operations Unrealized Gain (Loss) on Available-for- sale Financial Assets Cash Flow Hedge Total 2016 Balance at January 1 $ 497,630 $ 446,112 $ 3,038 $ 946,780 Unrealized gain on available- for-sale financial assets - (71,620) - (71,620) Exchange differences arising on translating the foreign operation (340,857) - - (340,857) Cash flow hedge - - (14,388) (14,388) Share of associates accounted for using the equity method (25,224 ) (30,139 ) - (55,363 ) Balance at December 31 $ 131,549 $ 344,353 $ (11,350 )$ 464,552 2017 Balance at January 1 $ 131,549 $ 344,353 $ (11,350) $ 464,552 Unrealized gain on available- for-sale financial assets - (2,131) - (2,131) Exchange differences arising on translating the foreign operation (206,494) - - (206,494) Cash flow hedge - - 4,937 4,973 Share of associates accounted for using the equity method (12,490 ) (23,143 ) - (35,633 ) Balance at December 31 $ (87,435 ) $ 319,079 $ (6,377 )$ 225,267 Non-controlling interests For the Year Ended December 31 2017 2016 Balance at January 1 $ 2,345,370 $ 2,593,257 Attributable to non-controlling interests: Share of profit (loss) for the year 107,633 (41,396) Exchange difference arising on translation of foreign entities (46,492 ) (206,491 ) Balance at December 31 $ 2,406,511 $ 2,345,370	Exchange Differences Arising on Translating the Foreign Operations Unrealized Gain (Loss) on Available-for- sale Financial Assets Cash Flow Hedge Total 2016 Balance at January 1 $ 497,630 $ 446,112 $ 3,038 $ 946,780 Unrealized gain on available- for-sale financial assets - (71,620) - (71,620) Exchange differences arising on translating the foreign operation (340,857) - - (340,857) Cash flow hedge - - (14,388) (14,388) Share of associates accounted for using the equity method (25,224 ) (30,139 ) - (55,363 ) Balance at December 31 $ 131,549 $ 344,353 $ (11,350 )$ 464,552 2017 Balance at January 1 $ 131,549 $ 344,353 $ (11,350) $ 464,552 Unrealized gain on available- for-sale financial assets - (2,131) - (2,131) Exchange differences arising on translating the foreign operation (206,494) - - (206,494) Cash flow hedge - - 4,937 4,973 Share of associates accounted for using the equity method (12,490 ) (23,143 ) - (35,633 ) Balance at December 31 $ (87,435 ) $ 319,079 $ (6,377 )$ 225,267 Non-controlling interests For the Year Ended December 31 2017 2016 Balance at January 1 $ 2,345,370 $ 2,593,257 Attributable to non-controlling interests: Share of profit (loss) for the year 107,633 (41,396) Exchange difference arising on translation of foreign entities (46,492 ) (206,491 ) Balance at December 31 $ 2,406,511 $ 2,345,370
			2017 $ 2,345,370 107,633 (46,492 ) $ 2,406,511	2016 $ 2,593,257 (41,396) (206,491 ) $ 2,345,370

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23. NET PROFIT

a. Finance costs

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2017 2016 $ 82,576 $ 91,353 (909 ) (17,131 ) $ 81,667 $ 74,222 For the Year Ended December 31
2017 2016 1.02%-1.25% 1.00%-2.25% For the Year Ended December 31
	2017 $ 1,113,018 6,431 $ 1,119,449 $ 7,162 8,997 $ 16,159	2016 $ 949,476 6,726 $ 956,202 $ 7,542 791 $ 8,333

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c. Employee benefit expense

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits Total employee benefit expense An analysis of employee benefit expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 66,285 24,697 90,982 1,788,816 $ 1,879,798 $ 1,703,849 175,949 $ 1,879,798	2016 $ 64,263 27,425 91,688 1,801,820 $ 1,893,508 $ 1,681,118 212,390 $ 1,893,508

As of December 31, 2017 and 2016, the Group had 2,630 and 2,657 employees, respectively. The calculation basis is consistent with the employee benefits.

 Compensation of employees and remuneration of directors and supervisors of 2016 and 2015

To comply with the Company Act amended in May 2015, the Company proposed an amendment to its Articles of Incorporation that stipulates to distribute compensation of employees and remuneration of directors and supervisors at the rates no less than 1% and no higher than 2%, respectively, of net profit before income tax, compensation of employees, and remuneration to directors and supervisors. The compensation of employees and remuneration of directors and supervisors for the years ended December 31, 2017 and 2016, which have been approved by the Company’s board of directors on March 22, 2018, and March 16, 2017, respectively, were as follows:

Amount

Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2017 Cash $ 8,000 7,000	2016
		Cash $ 4,600 7,000

If there is a change in the proposed amounts after the consolidated financial statements of the fiscal year were authorized for issue, the differences are recorded as a change in accounting estimate.

There was no difference between the actual amounts of the compensation and remuneration proposed in 2016 and 2015, and the amounts recognized in the consolidated financial statements for the years ended December 31,2016 and 2015.

Information on the compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors in 2017 and 2016 bonus of employees is available on the Market Observation Post System website of the Taiwan Stock Exchange.

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24. INCOME TAXES

a. Income tax recognized in profit or loss

The major components of tax (benefit) expense were as follows:

Current tax In respect of the current year Adjustments for prior years Income tax on unappropriated earnings Deferred tax In respect of the current year Adjustments for prior years Income tax expense (benefit) recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 18,238 7 - 18,245 137,722 2,706 140,428 $ 158,673	2016 $ 610 19 6,517 7,146 (11,372) (12,372 ) (23,744 ) $ (16,598 )

A reconciliation of accounting profit and income tax (benefit) expenses is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate (17%) Permanent differences Unrecognized loss carryforwards Adjustments for prior years Income tax on unappropriated earnings Effect of different tax rate of group entities operating in other jurisdictions Income tax expense (benefit) recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 884,888 $ 150,431 (21,113) - 2,713 - 26,642 $ 158,673	2016 $ 333,120 $ 56,630 (19,541) (33,669) (12,353) 6,517 (14,182 ) $ (16,598 )

The tax rate used by the Group entities in the ROC is the corporate tax rate of 17%. Tax rates used by other Group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to be adjusted and would increase by $19,572 thousand and $11,731 thousand, respectively, in 2018.

As the status of 2018 appropriations of earnings is uncertain, the potential income tax consequences of 2017 unappropriated earnings were not reliably determinable.

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b. Income tax recognized in other comprehensive income

Deferred tax Remeasurement on defined benefit plan	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 3,240	2015 $ 10,896

c. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2017

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehen- sive Income $ 48,714 $ (13,756) $ 3,240 169,929 (106,766) - 31,610 (20,097 ) - $ 250,253 $ (140,619 ) $ 3,240 $ 1,924,940 $ - $ - 66,678 (191 ) - $ 1,991,618 $ (191 ) $ -	Exchange Differences $ - (1,442) (519 ) $ (1,961 ) $ - - $ -	Closing Balance $ 38,198 61,721 10,994 $ 110,913 $ 1,924,940 66,487 $ 1,991,427

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For the year ended December 31, 2016

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehen- sive Income $ 49,629 $ (11,811) $ 10,896 154,117 17,916 - 12,965 19,403 - $ 216,711 $ 25,508 $ 10,896 $ 1,924,940 $ - $ - 64,914 1,764 - $ 1,989,854 $ 1,764 $ -	Exchange Differences $ - (2,104) (758 ) $ (2,862 ) $ - - $ -	Closing Balance $ 48,714 169,929 31,610 $ 250,253 $ 1,924,940 66,678 $ 1,991,618

d. Deductible temporary differences, unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets

Hwa Fong Investments Co., Ltd.

Loss carryforwards Expiry in 2018 Loss carryforwards as of December 31, 2017 comprised: The Company Unused Amount $ 268,509 94,555 $ 363,064 Hwa Fong Investments Co., Ltd. Unused Amount $ 43,628		December	31
		2017 2016 $ 43,628 $ 43,631 Expiry Year 2023 2024 Expiry Year 2018

e. Loss carryforwards as of December 31, 2017 comprised:
f. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized
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As of December 31, 2017 and 2016, the taxable temporary differences associated with investment in subsidiaries for which deferred tax liabilities have not been recognized were $525,489 thousand and $536,182 thousand, respectively.

g. Integrated income tax

Unappropriated earnings Generated after January 1, 1998 Shareholder-imputed credits account Creditable ratio for distribution of earnings		December 31
	2017 2016 $ 3,092,020 $ 2,919,034 $ 58,288 $ 56,281 For the Year Ended December 31
	2017 2016 Note 2.2%

Note: Since the amended Income Tax Act announced in February 2018 abolished the imputation tax system, related information for 2017 is not applicable.

h. Income tax assessments

The Company Hwa Fong Investments Co., Ltd. Kuang Hwa Fertilizer Limited Company	Latest Approved Year
	2015 (except 2014) 2015 2015

25. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	For 31	the Year Ended	December 2016 $ 0.35 $ 0.35
		2017 $ 0.56 $ 0.56

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share from continuing operations were as follows:

Net Profit for the Year

Profit for the year attributable to owners of the Company	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 618,582	2016 $ 391,114

Weighted average number of ordinary shares outstanding (in thousand shares):

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Weighted average number of ordinary shares in computation of basic earnings per share Effect of potentially dilutive ordinary shares: Bonus issue to employees Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 1,102,835 792 1,103,627	2016 1,102,835 728 1,103,563

Since the Group offered to settle bonuses paid to employees in cash or shares, the Group assumed the entire amount of the bonus would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

26. OPERATING LEASE ARRANGEMENTS

The Group as Lessor

Operating lease relates to the leasing of the investment property with lease period from May 1, 2015 to June 30, 2020. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period.

The future minimum lease payments of non-cancellable operating lease were as follows:

Not later than 1 year Later than 1 year and not later than 5 years	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2016 $ 7,080,000 10,620,000 $ 17,700,000	2016 $ 7,080,000 17,700,000 $ 24,780,000

27. CAPITAL MANAGEMENT

The capital structure of the Group consists of debt and equity of the Group (comprising issued capital, reserves, retained earnings and other equity).

Key management personnel of the Group review the capital structure on a regular basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. In order to balance the overall capital structure, the Group may adjust the amount of new debt issued or existing debt redeemed.

28. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments
1) Fair value of financial instruments not carried at fair value
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The management of the Group considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate fair values.

2) Fair value of financial instruments measured at fair value on a recurring basis

December 31, 2017 Financial assets at FVTPL Mutual funds Derivative financial assets - foreign exchange forward contracts Financial assets held for hedging Derivative financial assets - foreign exchange forward contracts Available-for-sale financial assets Securities listed in ROC Equity securities December 31, 2016 Financial assets at FVTPL Mutual funds Derivative financial assets - foreign exchange forward contracts Financial assets held for hedging Derivative financial assets - foreign exchange forward contracts Available-for-sale financial assets Securities listed in ROC Equity securities Financial liabilities at FVTPL Derivative financial liabilities - foreign exchange	Level 1 $ 29,321 - $ 29,321 $ - $ 1,278,575 Level 1 $ 15,307 - $ 15,307 $ - $ 1,068,370 $ -	Level 2 $ - 3,934 $ 3,934 $ 1 $ - Level 2 $ - 1,651 $ 1,651 $ 567 $ - $ 8,317	Level 3 $ - - $ - $ - $ - Level 3 $ - - $ - $ - $ - $ -	Total $ 29,321 3,934 $ 33,255 $ 1 $ 1,278,575 Total $ 15,307 1,651 $ 16,958 $ 567 $ 1,068,370 $ 8,317

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forward contracts

Financial liabilities held for hedging Derivative financial liabilities - foreign exchange forward contracts $ - $ 443 $ - $ 443

There were no transfers between Levels 1 and 2 for the years ended December 31, 2017and 2016.

3) Valuation techniques and assumptions applied for the purpose of measuring fair value

The fair values of financial assets and financial liabilities were determined as follows:

a) The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active liquid markets were determined by reference to quoted market prices;
b) The fair values of derivative instruments were calculated using quoted prices. If market price is not available, non-option derivatives use the discounted cash flow analysis of duration’s yield curve to compute fair value, and option-based derivatives use option pricing model to compute fair value. The estimates and assumptions used by the Group were consistent with those that market participants would use in setting a price for the financial instrument;
c) The fair values of other financial assets and financial liabilities (excluding those described above) were determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
b. Categories of financial instruments

Financial assets Fair value through profit or loss (FVTPL) Held for trading Derivative instruments in designated hedge accounting relationships Loans and receivables (1) Available-for-sale financial assets (2) Financial liabilities Fair value through profit or loss (FVTPL) Held for trading Amortized cost (3) Derivative instruments in designated hedge accounting relationships	December 31
	2017 2016 $ 33,255 $ 16,958 1 567 5,179,401 4,520,825 1,517,977 1,330,272 - 8,317 9,323,002 8,599,486 - 443

1) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt investments with no active market, notes and accounts receivable, notes and accounts receivable from related parties, other receivables and refundable deposits.
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2) The balances included the carrying amount of available-for-sale financial assets and financial assets measured at cost.
3) The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, short-term bills payable, notes and accounts payable, notes and accounts payable to related parties, other payables, long-term borrowings and deposits received.
c. Financial risk management objectives and policies

The Group’s main target in financial risk management is to manage the market risk related to operating activity (including foreign currency risk, interest rate risk and other price risk), credit risk and liquidity risk. To reduce the potential and detrimental influence of the fluctuations in market on the Group’s financial performance, the Group is devoted to identify, estimate and hedge the uncertainties of the market.

The Group sought to minimize the effects of these risks by using both derivative and nonderivative financial instruments to avoid risk exposures. The use of financial instruments is governed by the Group’s policies approved by the board of directors, which provides written principles on foreign exchange risk, interest rate risk, credit risk, derivative and nonderivative financial instruments, and investment of excess liquidity. Compliance with policies and exposure limits is being reviewed by the internal auditors on a regular basis. The Group did not enter into or trade financial instruments, derivative financial instruments, for speculative purposes.

1) Market risk

a) Foreign currency risk

The Group had foreign currency sales and purchases, which exposed the Group to foreign currency risk. The Group used foreign exchange forward contracts to eliminate currency exposure. These foreign exchange forward contracts could reduce the influence of the exchange rate fluctuations on the Group’s income.

Sensitivity analysis

For the position of financial assets and liabilities that had significant influence on the Group, the risk was measured by considering the net position of foreign currency forward contract that was in force.

The Group was mainly exposed to the USD and RMB.

The following table details the Group’s sensitivity to a 5% increase in the functional currency against the relevant foreign currency. For a 5% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

Influence to profit or loss at 5% variance USD RMB	For the Year Ended December 31
	2017 2016 $(67,126) $(55,692) 28,916 8,747

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b) Interest rate risk

The carrying amount of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2017 2016 $ 1,319,038 $ 551,105 2,863,343 3,949,124 348,620 469,047 3,324,328 1,838,000

Due to the close and long-term relationship with banks, the Group obtained better and flexible interest rate from banks. The impact of changing in interest rate is not significant to the Group.

Sensitivity analysis

For the Group’s floating interest rate financial liabilities, if interest rates had been 0.1% higher/lower and all other variables were held constant, the Group’s pre-tax profit for the years ended December 31, 2017 and 2016 would decrease/increase as follows:

Decrease/increase	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 2,976	2016 $ 1,369

c) Other price risk

The Group was exposed to equity price risk through its investments in listed equity securities.

To prevent significant price risk, the Group has built an immediate control system.

Sensitivity analysis

The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher, pre-tax profit for years ended December 31, 2017 and 2016 would have increased by $1,466 thousand and $765 thousand, respectively, as a result of the changes in fair value of mutual funds, and the other comprehensive income for the years ended December 31, 2017 and 2016 would increase by $63,929 thousand and $53,419 thousand, respectively, as a result of the changes in fair value of available-for-sale shares.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is at the level of the carrying amount of the

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respective recognized financial assets which comprise receivables from operating activities and financial assets from investing activities as stated in the consolidated balance sheets.

The Group’s transactions were done with a large number of unrelated customers and various industries. The Group continuously evaluated the financial conditions of those customers.

To maintain the quality of the accounts receivable, the Group has developed a credit risk management procedure to reduce the credit risk from specific customer. The credit evaluation of individual customer includes considering factors that will affect its payment ability such as financial condition, past transaction records and current economic conditions. Credit risk of bank deposits, fixed-income investments and other financial instruments with banks is evaluated and monitored by the Group’s financial department. Since the counterparties are creditworthy banks and financial institutions with good credit rating, there was no significant credit risk.

3) Liquidity risk

The objective of liquidity risk management is to maintain adequate cash and cash equivalents with high liquidity and sufficient bank facilities that business operation requires and to ensure the Group has sufficient financial flexibility.

29. TRANSACTIONS WITH RELATED PARTIES

The Company’s parent is YFY Inc. Company, which held 56.9% of the ordinary shares of the Company as of December 31, 2017 and 2016.

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Related Party Category

Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Fellow subsidiaries
Substantial related-party
Substantial related-party

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SinoPac Leasing Corp. SinoPac Securities Co., Ltd.

Substantial related-party Substantial related-party

b. Sales of goods

Related Parties Types Fellow subsidiaries Parent company	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 5,627,608 261 $ 5,627,869	2016 $ 4,900,625 200 $ 4,900,825

For sales of goods to related parties, the prices and terms of receivables approximate to those with non-related parties.

c. Purchases of goods

Related Parties Types Fellow subsidiaries	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 2,838,350	2016 $ 2,387,706

For purchases of goods from related parties, the prices and terms of payables approximate to those with non-related parties.

d. Receivables from related parties

Related Parties Types Fellow subsidiaries Shenzhen Jinglun Paper Co., Ltd. Others Parent company		December 31	December 31
		2017 $ 542,346 725,382 1,267,728 428 $ 1,268,156	2016 $ 438,420 728,390 1,166,810 - $ 1,166,810

The outstanding accounts receivable from related parties are unsecured. No bad debt was recognized for the years ended December 31, 2017 and 2016 for allowance of impaired accounts receivable from related parties.

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e. Payables to related parties

Related Parties Types Fellow subsidiaries YFY Packaging Inc. Others Parent company		December 31	December 31
		2017 $ 320,716 254,644 575,360 3,675 $ 579,035	2016 $ 276,766 266,487 543,253 - $ 543,253

The outstanding accounts payable to related parties are unsecured.

f. Acquisition of property, plant and equipment from related parties

Related Parties Types Fellow subsidiaries Loan to related parties (interest receivable included) Related Parties Types Fellow subsidiaries Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd. YFY International BVI Corp.		December 31	December 31
		2017 2016 $ - $ 9,446 December 31
		2017 $ 64,448 - $ 64,448	2016 $ 52,290 292,415 $ 344,705

g. Loan to related parties (interest receivable included)

The Group provided fellow subsidiaries with short-term loans at rates comparable to the market rate of interest.

For the years ended December 31, 2017 and 2016, the interest income from the loans to related parties amounted to $9,127 thousand and $5,623 thousand, respectively.

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h. Others

The parent company provides management services to the Group. The management fee was $39,035 thousand and $38,266 thousand for the years ended December 31, 2017 and 2016, respectively, and being appropriately apportioned to the relevant management departments.

Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)
For the Year Ended December 31
2017 2016 $ 1,543 $ 1,543 Rental Expenses (Accounted as Operating Expenses)
For the Year Ended December 31
2017 2016 $ 6,594 $ 6,523 6,623 3,154 $ 13,217 $ 9,677 Management Fee (Accounted as Operating Expenses)
For the Year Ended December 31
	2017 $ 50,312	2016 $ 48,426

The amount of management fee was depended on the agreements, rental income and expenses were received or paid monthly.

i. Compensation of key management personnel

Salaries and benefits Executive fees	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 25,601 3,585 $ 29,159	2016 $ 27,430 3,835 $ 31,265

The remuneration of directors and key executives was determined by the remuneration committee having regard to the performance of individuals and market trends.

30. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2017 and 2016, unused letters of credit for purchases of raw materials and machinery and equipment amounted to approximately $269,716 thousand and $296,087 thousand, respectively.

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31. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following is information on the foreign currency other than the functional currencies of the Group entities and the exchange rates between the foreign currency and respective functional currencies. The significant assets and liabilities denominated in foreign currencies were as follows:

Financial assets Monetary items USD RMB Financial liabilities Monetary items USD Financial assets Monetary items USD RMB Financial liabilities Monetary items USD	December 31, 2017
	Foreign Currency (In thousands) Exchange Rate New Taiwan Dollars $ 40,627 29.76 $ 1,209,060 126,993 4.554 578,326 72,239 29.76 2,149,822 December 31, 2016
	Foreign Currency (In thousands) Exchange Rate New Taiwan Dollars $ 43,823 32.25 $ 1,413,290 90,231 4.649 419,483 45,361 32.25 1,462,879

For the years ended December 31, 2017 and 2016, realized and unrealized foreign exchange losses were $12,019 thousand and $102,393 thousand, respectively. It is impractical to disclose net foreign exchange gains by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

32. ADDITIONAL DISCLOSURES (OMITTED)

Disclosures in the Chinese version of the financial statements that are not required under generally accepted accounting principles were not translated into English.

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33. SEGMENT INFORMATION

The following is an analysis of the Group’s revenue and results from continuing operations by reportable segment.

For the year ended December 31, 2017 Revenue from external customers Revenue from other internal operating segments Segment profit or loss For the year ended December 31, 2016 Revenue from external customers Revenue from other internal operating segments Segment profit or loss	Business Unit of Pulp and Fine Paper $22,625,835 $ - $ 670,444 $21,840,084 $ - $ 329,045	Business Unit of Forestry $ 28,431 $ 272,421 $ 40,455 $ 101,161 $ 473,854 $ 22,193	Other Segment $ 53,882 $ 9,444 $ 15,316 $ 60,291 $ 6,702 $ (1,520 )	Adjustment and Elimination $ - $ (281,865 ) $ - $ - $ (480,556 ) $ -	Total $22,708,148 $ - $ 726,215 $22,001,536 $ - $ 349,718

The Group classifies its products into two segments in accordance with their characteristics, as follows:

a. Pulp and fine paper segment

Manufacture and sale of cardboard, paper and pulp.

b. Forestry segment

Seedling cultivation and reforestation.

The accounting policies of each segment are the same as those accounting policies stated in Note 4. The performance of segments is measured by income after tax. Revenue and profit between segments have been adjusted; these adjustments include the elimination of inter-segment transactions to reconcile the segment information with that reported for the Group as a whole.

Geographical Information

The Group operates in two principal geographical areas - Taiwan and mainland China.

The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below.

Taiwan Mainland China		Revenue from External Customers For the Year Ended December 31 2017 2016 $ 19,911,490 $ 19,436,403 2,796,658 2,565,133 $ 22,708,148 $ 22,001,536		Non-current Assets	Non-current Assets
				December 31
		2017 $ 19,911,490 2,796,658 $ 22,708,148		2017 $ 12,619,685 3,000,785 $ 15,620,470	2016 $ 12,458,712 3,255,738 $ 15,714,450

86 -

Information about Major Customers

No single customer contributed 10% or more of the Group’s revenue for both 2017 and 2016.

87 -

December 31 2017 2016 Unsecured bank loans $ 920,000 $ 1,960,000 Less: Current portions - (108,000) Loan management fees (5,925 ) (10,235 ) Long-term bank loans $ 914,075 $ 1,841,765 Interest December 31 Due Date Article Rate 2017 2016 Taipei Fubon Bank - Credit loan A 2018.11.25 The credit can be revolved within 60 months from first loan drawdown. Principal was fully repaid in 2017. 1.63% $ - $ 1,500,000 Taipei Fubon Bank - Credit loan B 2018.11.25 Interest is paid monthly and the principal will be repaid 30% on 2017.11.25 and 70% on due date. Principal was fully repaid in 2017. 1.93% - 360,000 Taiwan Bank Credit loan 2021.06.30 The credit can be revolved within 60 months from first loan drawdown. 1.80% 800,000 100,000 KGI Bank Credit loan 2019.12.12 The credit can be revolved during the contract period. 1.19% 120,000 - $ 920,000 $ 1,960,000		December 31	December 31	December 31	December 31

				2017 $ - - 800,000 120,000 $ 920,000	2016 $ 1,500,000 360,000 100,000 - $ 1,960,000

For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
2017 2016 $ 82,576 $ 91,353 (909 ) (17,131 ) $ 81,667 $ 74,222 For the Year Ended December 31
2017 2016 1.02%-1.25% 1.00%-2.25% For the Year Ended December 31
	2017 $ 1,113,018 6,431 $ 1,119,449 $ 7,162 8,997 $ 16,159	2016 $ 949,476 6,726 $ 956,202 $ 7,542 791 $ 8,333

AI assistant

CHP — Annual Report 2017

51933_rns_2018-07-03_1aeed4b2-158b-48ff-8394-fa417eb02e6f.pdf

2017 ANNUAL REPORT

1. Spokespersons:

2. Headquarters, Branch office & Plant

3. Stock Administration

4. Auditor

5. Company Website:

6. Stakeholders Contact:

Table of Contents

Dear Shareholders,

Chairman Kirk Hwang

3.1 Organization Chart

Business:

3.2. Profiles of the Board Directors and Management Team

Eligibility of Independent Status of the Board Directors

3.2.2. Management Team

3.3. Remuneration Paid to the Board Directors and Management Team

3.3.1. Remuneration of Directors

3.3.2. Remuneration of the CEO, President and Executive Vice President

12/31/2017, Unit ： NTD Thousand

3.3.3. Remuneration Paid to the Management Team

3.3.4. The Percentage of the Total Remuneration Paid to the Board Directors, Supervisors,

3.4. The Attendance of the Board Directors

3.4.1. Attendance of the Board Directors

3.4.2. Attendance of the Audit Committee and Supervisors

3.5. Information of the Remuneration Committee ：

3.5.1. Profiles of the Remuneration Committee

3.5.2. Attendance of Members at Remuneration Committee Meetings

3.6. Statement of Internal Control System ：

Chung Hwa Pulp Corporation

Statement of Internal Control System

3.7. Major Resolutions of the Board ：

4. Capital Overview

4.1. The Top-10 Shareholders and Information of Related Parties

4.2. The Structure of Shareholders

Shareholding Distribution Status

4.3. Change in the Proportion of Shareholding Among the Directors, Managers, and Major Shareholders

4.4. Consolidated Invested Number of Shares in the Subsidiaries Held by the Company,

Board Directors, Supervisors, Managers and the Percentage of the Holding Shares

4.5. Dividend Policy and Execution

(1) Dividend policy:

(2) Dividend distribution proposed at this shareholders` meeting:

5.1. CHP Affiliates Organization Chart

5.2. Financial Performance Overview of Affiliated Companies

Unit: Thuosand Dollor

Chung Hwa Pulp Corporation and Subsidiaries

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

INDEPENDENT AUDITORS’ REPORT

Opinion

Basis for Opinion

Key Audit Matters

Volume Estimation of Biological Assets

Provision for Receivables

Other Matter

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Notice to Readers

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

1. GENERAL INFORMATION

2. APPROVAL OF FINANCIAL STATEMENTS

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

Hedge accounting

IFRS 16 “Leases”

d. Reclassification

CHP Annual Report 2017

12/31/2017, Unit `：` NTD Thousand

3.5. Information of the Remuneration Committee `：`

3.6. Statement of Internal Control System `：`

3.7. Major Resolutions of the Board `：`