CHP - Annual Report 2018 | FinancialReports.eu

STOCK CODE 1905(TW) CHP annual report is available at MOPS.TWSE.COM.TW WWW.CHP.COM.TW

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Chung Hwa Pulp Corporation

ANNUAL REPORT

2018

Publishing Date: April 24 ,2019

1. Spokesperson and Action spokesperson:

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 ： +886-7-652-0024 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 Shiow-Ming Shue Deloitte and Touche Taiwan 11073 20F, No.100, Songren Rd., Taipei, Taiwan http://www.deloitte.com.tw +886-2-2725-9988

5. Overseas Securities Exchange: None

6. Company Website: Http://www.chp.com.tw

7. Stakeholders Contact: [email protected]

8. Investors Contact: [email protected]

Notice to readers

This annual report is a translation of the Chinese version and if there is any discrepancy between the English and Chinese versions, the Chinese version shall prevail.

Latter to Shareholders ............................................................................................ 5 Corporate Overview ................................................................................................ 7 2.1 Date of Incorporation ................................................................................................................................................. 7 2.2 Company History ........................................................................................................................................................ 7 Corporate Governance Report ............................................................................... 9 3.1 Organization ............................................................................................................................................................... 9 3.2 Directors and Management Team ........................................................................................................................... 10 3.3 Remuneration paid to the Board Directors and Management Team ..................................................................... 18 3.4 Implementation of Corporate Governance ............................................................................................................. 24 3.5 Audit Fee ................................................................................................................................................................... 57 3.6 Replacement of Certified Public Accountant (CPA) ................................................................................................ 58 3.7 The Chairman, President and Financial or Accounting Manager of the Company who had Worked for the CPA Firm or the Related Parties in The Last Year ......................................................................................................... 59 3.8 Shareholding Transferred or Pledged by Directors, Management, and Major Shareholders Who Holds 10% of The Company Shares or More ................................................................................................................................ 59 3.9 Information disclosing the spouse, kinship within second degree, and relationship between any of the top ten shareholders ........................................................................................................................................................... 61 3.10 Comprehensive Shareholding Information Relating to Company, Directors, Management, and Companies Affiliated through Direct and Indirect Investment ................................................................................................ 62 Capital Overview ................................................................................................... 63 4.1 Source of capital ....................................................................................................................................................... 63 4.2 Shareholder Structure .............................................................................................................................................. 63 4.3 Shareholding Distribution ........................................................................................................................................ 64 4.4 Major Shareholders .................................................................................................................................................. 64 4.5 Share Price, Net Worth, Earnings, Dividends and Related Information ................................................................. 65 4.6 Dividend Policy and Implementation Status ........................................................................................................... 65 4.7 Impact of Stock Dividend Distribution on Business Performance and EPS ............................................................ 66 4.8 Employees’ and Directors’ Compensations ............................................................................................................. 66

4.9 Buyback of Treasury Stock ....................................................................................................................................... 67 4.10 Corporate Bond Issuance ....................................................................................................................................... 67 4.11 Preferred Stock Issuance ........................................................................................................................................ 67 4.12 Global Depository Receipts Issuance ..................................................................................................................... 68 4.13 Employee Stock Options ........................................................................................................................................ 68 4.14 New Restricted Employee Shares .......................................................................................................................... 68 4.15 Shares Issued for Mergers and Acquisitions ......................................................................................................... 68 4.16 Utilization of Funds ................................................................................................................................................ 68 Business Overview ............................................................................................... 69 5.1 Scope of Business ..................................................................................................................................................... 69 5.2 Market and Sales Outlook ........................................................................................................................................ 72 5.3 Human Resources ..................................................................................................................................................... 74 5.4 Environmental Protection Expenditure ................................................................................................................... 74 5.5 Labor Relations ......................................................................................................................................................... 75 5.6 Major Contracts ........................................................................................................................................................ 79 Financial Overview ............................................................................................... 80 6.1 Five-Year Financial Summary ................................................................................................................................... 80 6.2 Five-Year Financial Analysis ..................................................................................................................................... 84 6.3 Audit Committee’s Report for the Most Recent Year ............................................................................................. 86 6.4 Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017, and Independent Auditors’ Report ..................................................................................................................................................... 87 6.5 Financial Statements for the Years Ended December 31, 2018 and 2017, and Independent Auditors’ Report . 169 6.6 Any Financial Difficulty and the Impact on CHP's Finance in the Last Fiscal Year and Up to the Publishing Date of this Annual Report ........................................................................................................................................... 242 Review of Financial Conditions, Financial Performance, and Risk Management ............................................................................................................................. 243 7.1 Balance Sheet Analysis ........................................................................................................................................... 243 7.2 Statements of Comprehensive Income Analysis ................................................................................................... 244 7.3 Cash Flow Analysis ................................................................................................................................................. 245

7.4 Analysis of Major Capex and its Impact on Finance and Operations ................................................................... 245 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year .............................................................................................................................................. 246 7.6 Analysis of Risk Management ................................................................................................................................ 246 7.7 Other Important Matters ....................................................................................................................................... 252 Special Disclosure .............................................................................................. 253 8.1 Summary of Affiliated Companies ......................................................................................................................... 253 8.2 Private Placement Securities in the Last Fiscal Year and Up to the Publishing Date of this Annual Report ...... 257 8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the last Fiscal Year and Up to the Publishing Date of this Annual Report .................................................................................................................................. 257 8.4 Other Information Which Should be Disclosed ..................................................................................................... 257 8.5 Other Supplementary Information ........................................................................................................................ 257

Latter to Shareholders

Dear Shareholders, Ladies and Gentlemen,

Latest forecast from Chung-Hua Institution Economic Research as of 19th December 2018 shows that the annual economic growth rate in Taiwan was 2.62% for 2018, a decrease of 0.46% from 3.08% for 2017, and that for 2019 is approximately 2.18%. Although the global economy has recovered in 2017, it has slowed down since 2018. The net foreign demand for 2018 was -0.22%, while that in the domestic market was 2.92%, showing that domestic consumption was vital for economic growth in 2018.

In pulp and paper industry, the price of pulp in 2018 fluctuated widely in the international market. Since the pulp price hike at the end of 2017, there has been a steady upward trend for NBKP and LBKP in the first half of 2018. However, in the second half of the year, due to US-China trade war and unstable international situation, the prices of raw material fluctuated and fell, leading to reduced market demand. China's ban on waste paper at the end of 2017 caused intense changes in waste paper market all over the world. At the same time, Taiwan's Environmental Protection Administration has also imposed restrictions on the import of certain categories of waste paper and plastic in the second half of 2018. A series of policy and market changes have posed challenges to the Company.

The Company's consolidated net operating income for 2018 was NT$ 24.02 billion, an increase of approximately NT$1.18 billion, or 5.1%, from NT$22.84 billion in 2017. The net profit after tax in 2018 was NT$530 million, a decrease of approximately NT$210 million from NT$740 million in 2017. The EPS was NT$ 0.4. In production and sales, the annual paper production in 2018 was 424,543 tons, a decrease of 20,346 tons, or 4.6%, from 444,889 tons in 2017; 241,268 tons were sold in the domestic market, and 221,135 tons through exports, totaling 462,403 tons. In paperboard, the annual production was 123,207 tons, an increase of 6,003 tons, or 5.1%, compared to 117,204 tons in 2017.

In 2019, the global economy will continue to be affected by uncertainties such as the US-China trade war, according to IMF report in October 2018. In the worst-case scenario, the global GDP will reduce by 0.8% in 2020. While this may benefit Taiwan's economy in the short term with transfer of orders or manufacturers' return of investment, it can have an impact in the long run on companies that depend on foreign trade. In addition, in raw materials, the price of crude oil started declining in October 2018, and that of pulp in the fourth quarter of 2018. All these factors have contributed

to uncertainties in the world. Under these circumstances, the Company will continue to improve its product innovation, strengthen its ability in managing raw materials supply, expand product portfolio and applications and local services to be competitive in the market.

The Company has been actively engaged in the transformation of the industry so that paper is used not only for writing and reading, but also in all aspects of daily life such as in food, clothing, housing, transportation, and thus become an indispensable part of people's lives. In response to the ban on plastic which will come into force in the second half of 2019, the Company has developed "Easy Straw Paper" that is truly plastic-free, non-fluorescent, recyclable and bio-degradable. It meets the market demand for environment-friendliness and food safety, opening up new business opportunities. Furthermore, starting from November 1st 2018, the Company has launched more environment-friendly products. An example is the production of non-fluorescent paper for reading and writing with higher whiteness, making the production process greener and environment- friendly.

While the Company aims to meet and growth targets, it will also strive hard to meet its corporate social responsibility in environmental protection and local charities. The Company has in place the R[3] management system for sustainable recycling to reduce waste, emission and carbon through 3R circular(Recycle/ Reclaim / Regenerate). In the past year, the Company has actively pursued circular economy and focused on sustainability with excellent results. In the 11th Taiwan Enterprise Sustainability Award (TCSA) held by the Taiwan Institute for Sustainable Energy, the Company not only won the Gold Award for "Corporate Sustainability Report" but also the "Performance Award for Single Item: Innovation and Growth" and "Top 50 Taiwan Sustainable Enterprise Award" by integrating upstream, mid-stream and downstream label paper suppliers and clients to create the recycling module for its label based paper.

Looking forward, the Company will continue to actively engage in fields of corporate governance, ecological environment and social responsibility, as well as continue to be committed to environmental friendliness to demonstrate the value of a sustainable business and generate reasonable profit for the shareholders.

Best regards,

Chairman Kirk Hwang

Corporate Overview

2.1 Date of Incorporation

July 5[th] 1968

2.2 Company History

1968	Officially established the Company; initiated the construction for the
	Hualien plant.
1969	Began trial at the Hualien plant.
1970	Started production at the Hualien plant.
1975	The company’s stock were listed
1976	Founded the invested company, PT Indah Kiat. Pulp & Paper.
1978	The production capacity of the Hualien plant was expanded to 120,000
	tons of bleach pulp annually. It was officially put in production in 1980.
1990	Founded CHP International (BVI) Corporation.
1994	Founded Hwa Fong Investment Co., Ltd.
1996	Certified by ISO 9002, an international quality assurance certification.
2000	Invested in Guangdong Dingfung Plup & Paper Co., Ltd.
2000	Certified by ISO 14001, an international quality assurance certification.
2006	Founded Zhaoqing Dingfung Forestry Co., Ltd. in Guangdong Province,
	China.
2008	Invested in EFFION Enertech Co., Ltd.
2009	Received the FSC-CoC certification for the cultural paper.
2010	Received the PEFC-CoC certification for the kraft hardwood bleached
	pulp and cultural paper.
2010	The Company's shares were fully converted into non-physical securities.
2010	Obtained Paper Star Carbon Footprint Certificate for printing paper.
2012	The Shareholders’ Meeting passed the decision to take over the paper and
	paperboard division of YFY Paper MFG. Co., Ltd. through demerger.
2013	The Director and Supervisor elections adopted the candidate nomination
	system and set up two seats for Independent Directors.
2014	The Taipei Office was relocated from the Tai Tsi Building to the YFY
	Hsin-Yi Building.
2014	The Guangdong Dingfung Pulp & Paper Co., Ltd. expanded the
	production line of household paper to 50,000 tons a year. It was put into
	production at the end of September, 2016.
2015	The Shareholders' Meeting passed the cash capital reduction of NT$1.2
	billion. The procedures were completed by October 2015, and the
	Company was re-listed for trading.
2016	The Company re-elected the 17th Board of Directors and Independent

Directors, and set up the first Audit Committee to enter a new era of corporate governance.
2017 The forestry land of a subsidiary, Zhaoqing Dingfung Forestry Co., Ltd., officially passed the SGS certification in China and obtained the FM/CoC certificate from the FSC (Forest Stewardship Council).
2018 Guangdong Dingfung Pulp & Paper Co., Ltd. received Shenzhen Systax Paper Co., Ltd. The non-fluorescent process was applied for all products. The Company successfully developed the Easy Straw Paper and non-fluorescent cultural paper.
2019 CHP International (BVI) Corporation received Syntax Communication (H.K.) Ltd.

Corporate Governance Report

3.1 Organization

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Shareholders`
Meeting
Audit Committee
Board of Directors
Chairman ,CEO
Remuneration
Committee
Auditing &
Compliance Office
Chairman Office
Dingfung Pulp and Paper
General Manager
Co., Ltd.
Dingfung Forestry Co., Ltd.
Shenzhen Systax Paper
Co., Ltd. General Manager
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 Department
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Operation Functions: Production of of Cultural Paper, Wrapping paper, Specialty paper, Paperboard, Pulp and Chemical ,and Sales of Fertilizer

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

3.2 Directors and Management Team

3.2.1 Directors

4/24/2019

Title	Nationality/ Place of	Name		Date Elected	Term	Date First	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee	Shareholding by Nominee	Experience	Other Position	Executives, Directors or Supervisors Who are Spouses or	Executives, Directors or Supervisors Who are Spouses or	Executives, Directors or Supervisors Who are Spouses or
	Incorporation		Gender		(Years)	Elected	Shares ％		Shares	％	Shares	％	Arrangement Shares ％		（Education）		within Tw Title	o Degrees of Kinship 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	CEO of CHP Director of CHP International (BVI) Corp. 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 1	-	-	-
Director	ROC	YFY Inc. Representative: Felix Ho	Male	3/16/2017	3	3/16/2017	-	-	-	-	-	-	-	-	Chairman, YFY Inc.	Note2	-	-	-
Director	ROC	YFY Inc. Representative: MelodyChiu	Female	6/24/2016	3	2/24/2006	-	-	-	-	-	-	-	-	CFO,YFY 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	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. Chairman of Hwafong 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	45	-	-	-	-	-	-	-	Vice President, CHP	Executive Vice President of CHP Other non-consolidated company positions please refer to the Note 6	-	-	-
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, and Director of NTU Innovation Incubation Co., Ltd..

Note2: Chairman of YFY INC., Director of SinoPac Holdings 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., Director of Shin-Yi Enterprise Co., Ltd. Director of E-ink Holdings Inc., Director of Fu Hwa Enterprise Co., Ltd., Director of Artone Investment (H.K.) Ltd., 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 of 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 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 : CFO of YFY Inc., Chairman of Shin Foong Specialty and Applied Materials Co., Ltd., Chairman of Taiwan Global Biofund Co., Ltd., Director of YFY Paper Mfg.(Jiangyin) Co., Ltd., Director of YFY Capital Holdings Corp., Chairman of YFY (Shanghai) Financial Services Co., Ltd., Director of Dongguan HEC TaiGen Biopharmaceuticals Co., Ltd., Director of TaiGen Biopharmaceuticals Co. (Beijing), Ltd., Director of TaiGen Biotechnology Holdings Limited, Director of Taiwan Genome Sciences Co., Ltd., Director of Ecotopia & Life Co., Ltd., Director of Fu-Ji Management Consulting Co., Ltd. and Supervisor of Janie Color Works Ltd..

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

Note6 : Director of Shenzhen Systax Paper Co., Ltd., Director of Union Paper Corp. and Director of Beautone Inc..

4/ 24/ 2019

Major shareholders of the institutional shareholders


Name of Institutional Shareholders	Major Shareholders

YFY INC.	S.C. Ho(10.16%), Hsin-Yi Foundation(5.66%), Shin-Yi Enterprise Co., Ltd.(4.69%), Cheng-Ting Ho(2.80%), YFY Inc. Labor Retirement Reserve Supervisory Committee(2.79%), Mei-Yu Ho(2.67%), NEW TALENT LIMITED(2.28%), Felix Ho(2.14%), Rong-Ting Ho(2.08%), Min-Ting Ho(2.07%)
Lotus Ecoscings & Engineering Co., Ltd	YFY INC.(100.0%)

Major shareholders of the Company’s major institutional shareholders

4/ 24/ 2019


Name of Institutional Shareholders	Major Shareholders

Shin-Yi Enterprise Co., Ltd.	S.C. Ho(27.84%), Jucheng Investment & Management Co., Ltd.(12.50%), BRILLIANT PRIDE LIMITED(12.50%), Gao Da Global Ltd.(12.50%), Mei-Yu Ho(12.50%), Guan Yu Investment Co., Ltd.(5.91%), Tsai-Hui-Shin Ho(2.48%), Richard Ho(2.18%), Jin Jie Investment Ltd.(1.52%), Hoss Educational Foundation(1.48%), Hoss Cultural Foundation (1.48%)
NEW TALENT LIMITED	Modern Victory Limited(100.0%)

4/24/2019

Professional qualifications and independence analysis of directors

	Meet One of the Following Professional Qualification Requirements, Together with at Least	Meet One of the Following Professional Qualification Requirements, Together with at Least	Meet One of the Following Professional Qualification Requirements, Together with at Least
				Independence Criteria(Note)
		Five Years Work Experience
														Number of
Criteria	An Instructor or Higher	A Judge, Public Prosecutor,	Have Work Experience in the											Other Public
	Position in a Department of	Attorney, Certified Public	Areas of Commerce, Law,											Companies in
	Commerce, Law, Finance,	Accountant, or Other	Finance, or Accounting, or											Which the
	Accounting, or Other Academic Department Related	Professional or Technical Specialist Who has Passed a	Otherwise Necessary for the Business of the Company											Individual is Concurrentl
	to the Business Needs of the Company in a Public or Private	National Examination and been Awarded a Certificate in a		1	2	3	4	5	6	7	8	9	10	y Serving as an Independent
Name	Junior College, College or	Profession Necessary for the												Director
	University	Business of the Company

Kirk Hwang			V			V	V			V	V	V
Felix Ho			V			V	V			V	V	V
MelodyChiu		V	V			V	V			V	V	V
Chih-ChengHuang			V			V	V			V	V	V
Guu-FongLin			V			V	V	V	V	V	V	V
RayChen			V			V	V	V	V	V	V	V
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.
Not an employee of the Company or any of its affiliates.
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 as appointed in accordance with the Act or with the laws of the country of the parent or subsidiary.
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.
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.
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.

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.
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“.
Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
Not been a person of any conditions defined in Article 30 of the Company Law.
Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

Overall capacity and diversification of the Board: All Directors have been evaluated to be equipped with the ability to make operational judgments, management skills, crisis management ability, international market insight, leadership and decision-making ability, and risk and knowledge management ability. Moreover, they are equipped with the following abilities:

Diversification Name		Accounting and financial analysis
					Material research and development
			Transnational operations	Paper industry		Legal Background
	Gender



Kirk Hwang	Male	V	V	V	V	-
Felix Ho	Male	V	V	V	V	-
MelodyChiu	Female	V	V	V	-	V
Chih-ChengHuang	Male	*	V	V	V	-
Guu-FongLin	Male	V	V	V	-	-
RayChen	Male	*	V	V	-	-
Donald Chang	Male	V	V	-	V	-
Shih-Lai Lu	Male	*	*	-	V	-

Note: * equip part of the ability.

4/24/2019

3.2.2 Management Team

					Shareholding	Shareholding					Experience
			Gender				Spouse & Minor Shhldi		Shareholding by Nominee				Managers who are Spouses or Within Two Degrees of
Title	Nationality	Name		Date Effective			areong		Arrangement		`（`Education`）`	Other Position		Kinship
					Shares	`％`	Shares	`％`	Shares	`％`			Title	Name	Relation
CEO	ROC	Kirk Hwang	Male	10/1/2012	55,737	-	-	-	-	-	CHP President	Director of CHP International (BVI) Corp. 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 1	-	-	-
President	ROC	Chih-Cheng Huang	Male	3/16/2017	-	-	-	-	-	-	CHP Executive Vice President	Director of Guangdong Dingfung pulp and paper Co., Ltd. Director of Zhaoqing Dingfung Forestry Co., Ltd. Chairman of Shenzhen Systax Paper Co., Ltd. Director of Hwafong Investment Co., Ltd. Other non-consolidated company positions please refer to the Note 2	-	-	-
CFO	ROC	Guu-Fong Lin	Male	9/1/2013	49,132	-	565	-	-	-	CHP COO	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. Chairman of Hwafong Investment Co., Ltd. Other non-consolidated company positions please refer to the Note 3	-	-	-
Executive Vice President	ROC	Ray Chen	Male	7/1/2016	45	-	-	-	-	-	Vice President	Director of Shenzhen Jinglun Paper Co., Ltd. non-consolidated company positions please refer to the Note 4	-	-	-
Executive Vice President	ROC	Rong-Ming Lin	Male	3/1/2018	-	-	-	-	-	-	CHP Factory Director	-	-	-	-
Vice President	ROC	Alex Chen	Male	7/1/2016	-	-	-	-	-	-	CHP Manager	-	-	-	-
Factory Director	ROC	Yen-Chang Hsieh	Male	5/15/2017	32,057	-	30,000	-	-	-	CHP Director	-	-	-	-
Factory Director (Note 5)	ROC	Shan-Shui Chen	Male	3/16/2017	-	-	-	-	-	-	CHP Director	non-consolidated company positions please refer to the Note 6	-	-	-
Factory Director	ROC	Yung-Shun Chen	Male	3/1/2018	-	-	-	-	-	-	CHP Director	-	-	-	-

Note1 : Director and CTO of YFY Inc., Director of Shin Foong Specialty and Applied Materials Co., Ltd., Director of Taiwan Global Biofund and Director of NTU Innovation Incubation Co., Ltd.

Note2: Southern Regional Director of R& D Center of YFY Inc. and Chairman of Hwa Fong Paper (Hong Kong) Co., Ltd.

Note3: Supervisor of Taiwan Global Biofund Co., Ltd. and Supervisor of EFFION Enertech Co., Ltd.

Note4: Director of Union Paper Corp., Director of Hwa Fong Paper (Hong Kong) Ltd. and Director of Beautone Inc. Note5: Retired on 1/22/2019

Note6: Director of Union Paper Corp.

3.3 Remuneration paid to the Board Directors and Management Team

3.3.1 Remuneration of Directors

12/31/2018, Unit: NT$ thousands


		Remuneration										Relevant Remuneration Received by Directors Who are Also Employees										Compensati
										Ratio of Total										Ratio of Total		on Paid to
		Base Compensation		Severance Pay		Directors		All D		Remuneration (A+B+C+D) to Net		Salary, Bonuses, and		S P F		El Ci G				Compensation (A+B+C+D+E+F+G)		Directors from an
Title	Name	(A)		(B)		Compensation(C)		ow	nces ()	Income (%)		Allowances (E)		everance ay ()		mpoyee ompensaton ()				to Net Income (%)		Invested Company

			Companies in		Companies in		Companies in		Companies in		Companies in		Companies in		Companies			Companies in the			Companies in	Other than
			the		the		the		the		the		the		in the	The company		consolidated			the	the
		The		The		The		The		The		The		The						The
		company	consolidated	company	consolidated	company	consolidated	company	consolidated	company	consolidated	company	consolidated	company	consolidate			financial s	tatements	company	consolidated	Company’s
			financial		financial		financial		financial		financial		financial		d financial	Cash	Stock	Cash	Stock		financial	Subsidiary
			statements		statements		statements		statements		statements		statements		statements						statements

Chairman	YFY Inc. Representative: Kirk Hwang	-	-	-	-	7,000	7,000	2,143	2,801	2.05	2.19	19,901	19,901	324	324	18	-	18	-	6.59	6.74	-
Director	YFY Inc. Representative: Felix Ho
Director	YFY Inc. Representative: MelodyChiu
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Chih-Cheng Huang
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Guu-FongLin
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: RayChen
Independent Director	Shi-Kuan Chen
Independent Director	Donald Chang
Independent Director	Shih-Lai Lu

Note 1: Ms. Shi-Kuan Chen accepted the position as the President of Chung-Hua Institution for Economic Research and resigned as the Company's Independent Director on 1/10/ 2019. Note 2: Number of resolutions passed by the Board of Directors on March 21st, 2019.

Note 3: Relevant expenses such as company car rental fees have been listed. The total expenses were approximately NT$1,094thousand.

Explanation of the correlation and reasonableness of changes in the Company's profit or loss and remuneration:

The Directors’ remuneration is calculated according to the Articles of Association passed by the Shareholders' Meeting on June 26th, 2018. After deducting accumulative losses from profit (namely profit before tax prior to the distribution of employees' compensation and Directors' remuneration), no more than 2% shall be allocated as Directors' remuneration. Therefore, NT$7,000thousand were recognized as Directors' remuneration for 2018.

	Name of	Name of	Directors	Directors

	Total of (A+B+C+D)		Total of (A+B+C+D+E+F+G)
Range of Remuneration
		Companies in the		Companies in the

	The company	consolidated financial	The company	consolidated financial
		statements		statements
Under NT$ 2,000,000	Kirk Hwang, Felix Ho, Melody Chiu, Chih-Cheng Huang, Guu-Fong Lin, Ray Chen, Shi-Kuan Chen , DonaldChang, Shih-Lai Lu	Kirk Hwang, Felix Ho, Melody Chiu, Chih-Cheng Huang, Guu-Fong Lin, Ray Chen, Shi-Kuan Chen , DonaldChang, Shih-Lai Lu	Felix Ho, Melody Chiu, Shi-Kuan Chen , Donald Chang, Shih-Lai Lu	Felix Ho, Melody Chiu, Shi-Kuan Chen , Donald Chang, Shih-Lai Lu
NT$2,000,001 ~ NT$5,000,000			Guu-FongLin, RayChen	Guu-FongLin, RayChen
NT$5,000,001 ~ NT$10,000,000			Kirk Hwang, Chih-Cheng Huang	Kirk Hwang, Chih-Cheng Huang
NT$10,000,001 ~ NT$15,000,000
NT$15,000,001 ~ NT$30,000,000
NT$30,000,001~ NT$50,000,000
NT$50,000,001 ~ NT$100,000,000
Over NT$100,000,000
Total	9	9	9	9

Note: Representative of YFY INC.: Kirk Hwang, Felix Ho, Melody Chiu; Representative of Lotus Ecoscings & Engineering Co., Ltd.: Chih-Cheng Huang, Guu-Fong Lin, Ray Chen

3.3.2 Remuneration of the President and Vice Presidents

12/31/2018, Unit: NT$ thousands

												Ratio of total compensation	Ratio of total compensation
				Severance Pay (B)		Bonuses and
		Salary(A)						Employee Compensation (D)				(A+B+C+D) to net income (%)		Compensation Paid to the
						Allowances (C)
														President and Vice
Title	Name		Companies		Companies		Companies in			Companies in the			Companies in the	Presidents from an Invested
		The	in the	The	in the	The	the	The company		consolidated			consolidated	Company Other than the
		company	consolidated		consolidated		consolidated			financial		The company	financial	Company’s Subsidiary
			financial	company	financial	company	financial			statements
													statements
			statements		statements		statements	Cash	Stock	Cash	Stock

CEO	Kirk Hwang	15,695	15,695	408	408	6,883	6,883	23	-	23	-	5.16	5.16	-
President	Chih-Cheng Huang
CFO	Guu-Fong Lin
Executive Vice President	Ray Chen
Executive Vice President	Rong-Ming Lin

Note 1: Relevant expenses such as company car rental fees have been listed. The total expenses were approximately NT$1,259 thousand. Note 2: Number of resolutions passed by the Board of Directors on 3/21/2019. Note 3: Appointed as Vice President on 3/1/2018

	Name of President and Vice Presidents	Name of President and Vice Presidents
Range of Remuneration		Companies in the consolidated
	The company	financial statements

Under NT$ 2,000,000
NT$2,000,001 ~ NT$5,000,000	Guu-Fong Lin, Ray Chen, Rong-MingLin	Guu-Fong Lin, Ray Chen, Rong-MingLin
NT$5,000,001 ~ NT$10,000,000	Kirk Hwang, Chih-ChengHuang	Kirk Hwang, Chih-ChengHuang
NT$10,000,001 ~ NT$15,000,000
NT$15,000,001 ~ NT$30,000,000
NT$30,000,001 ~ NT$50,000,000
NT$50,000,001 ~ NT$100,000,000
Over NT$100,000,000
Total	5	5

3.3.3 Names of Managers and the Distribution of Employee's Compensation

12/31/2018, Unit: NT$ thousands

			Employee Compensation
				Employee Compensation		Ratio of Total Amount
Title		Name	- in Stock		Total
				- in Cash		to Net Income (%)
			(Fair Market Value)

Executive Officers	CEO	Kirk Hwang	-	50	50	0
	President	Chih-Cheng Huang
	CFO	Guu-FongLin
	Executive Vice President	Ray Chen
	Executive Vice President	Rong-Ming Lin
	Vice President	Alex Chen
	Factory Director	Yen-Chang Hsieh
	Factory Director(Note)	Shan-Shui Chen
	Factory Director	Yung-Shun Chen
	Accounting Manager	Jung-Min Huang
	Finance Manager	David Lin

Note: Retired on 1/22/2019

3.3.4 Comparison of Remuneration for Directors, President and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, President and Vice Presidents

	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)	Ratio of total remunerationpaid to directors, president and vicepresidents to net income(%)
	2018		2017		Difference
		Companies in the consolidated financial statements		Companies in the consolidated financial statements		Companies in the consolidated financial statements
Item
	The company		The company		The company

Director	6.59	6.74	5.08	5.19	1.51	1.66
President and vice president	5.16	5.16	3.59	3.59	1.57	1.57

The policies, standards, and packages for the payment of remuneration, the procedures for determining remuneration, and the correlation with business performance and future risks.

A. Remuneration of Directors: Including travel expenses, earnings distribution as well as compensation received as the Company's employees. The standard for Directors' travel expenses is determined by reference to the industry standards. Directors' remuneration is dependent on the business performance and future risks, and shall be decided in accordance with the provisions in the Articles of Association.
B. President and Vice Presidents receive a monthly salary: Including regular compensation such as the monthly salary and allowances (such as job-related allowances, food allowance, etc.), as well as year-end bonuses and employee compensation. The remuneration standard is based on the agreed-upon terms during recruitment. Job-related allowances shall be given according to the position, while performance bonuses and other bonuses shall be adjusted based on the operation performance and their individual performance. The Remuneration Committee shall review all relevant information every year.

3.4 Implementation of Corporate Governance

3.4.1 Board of Directors

A total of 4 (A) meetings of the 17th Board of Directors were held in the previous period. The attendance of director and supervisor were as follows:

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

Chairman	Kirk Hwang	YFY Inc. Representative	4	0	100
Director	Felix Ho		4	0	100
Director	Melody Chiu		4	0	100
Director	Chih-Cheng Huang	Lotus Ecoscings & Engineering Co., Ltd Representative	4	0	100
Director	Guu-Fong Lin		4	0	100
Director	Ray Chen		4	0	100
Independent director	Shi-Kuan Chen		4	0	100	Due to accepted the position as the President of Chung-Hua Institution for Economic Research and resigned as the Company's Independent Director on 1/10/ 2019.
Independent director	Donald Chang		4	0	100
Independent director	Shih-Lai Lu		4	0	100

Other mentionable items:

If any of the following circumstances occur, the dates of the meetings, sessions, contents of motion, all independent directors’ opinions and the company’s response should be specified:
(1) Matters referred to in Article 14-3 of the Securities and Exchange Act.

Date March 22nd, 2018 (The 8th meeting of the 17th Board of Directors) May 11th, 2018 (The 9th meeting of the 17th Board of Directors) August 13th, 2018 (The 10th meeting of the 17th Board of Directors) November 8th, 2018 (The 11th meeting of the 17th Board of Directors)		A11 independent directors’ opinions and the company’s response
	Content of Proposals

	1. Approved the amendment to certain articles of the Company's "Articles of Incorporation" 2. Approved the amendment to certain articles of the "Procedure for Acquisition and Disposal of Assets." 3. Approved the amendment to certain articles of the "Procedures for Engaging in Derivatives Trading" 4. Approved the amendment to certain articles of the "Procedures for LendingFunds toOthers"	Approved by all Independent Directors
	1. The Board meeting did not discuss any matters referred to in Article 14-3 of the Securities and Exchange Act.	Not applicable.
	1. Approved the change of the Company's chief auditor.	Approved by all Independent Directors
	1. The Board meeting did not discuss any matters referred to in Article 14-3 of the Securities and Exchange Act.	Not applicable.

(2) Other matters involving objections or expressed reservations by independent directors that were recorded or stated in writing that require a resolution by the board of directors: None
If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified:
During the 10th meeting of the 17th Board of Directors on August 13th, the proposal regarding the transfer of 100% equity of Shenzhen Systax Paper Co., Ltd. to the subsidiary, Guangdong Dingfung Pulp & Paper Co., Ltd., was discussed. Directors Kirk Hwang and Chih-Chung Huang were concurrently serving as Directors of Hwa Fong Paper (Hong Kong) Ltd. Therefore, they recused themselves from the meeting due to conflict of interest. Director Guu-Fong Lin stepped in as Chairman.
Targets for strengthening the functions of Board of Directors in the current year and the most recent year, and relevant implementation assessment:
(1) The Company has an Audit Committee with three Independent Directors to replace the functions of supervisors. All matters referred to in Article 14-5 of the Securities and Exchange Act are submitted for resolution by the Audit Committee. The convener of the Audit Committee shall report all resolutions of the Committee to the Board of Directors during Board meetings.
(2) The Company discloses Directors' attendance, training records, and important resolutions of the Shareholders' Meeting and the Board of Directors in the Annual Report.
(3) The Company immediately discloses the important resolutions after the Shareholders' Meeting and Board meeting on the Company's website to enhance information transparency.
The opinions of Independent Directors on the Board's material proposals and the Company's handling of the Independent Directors' opinions:

	Content of Proposals		The Company's Handling of Opinions
Date		Independent Directors' Opinions

March 22nd, 2018 (The 8th meeting of the 17th Board of Directors)	Extempore Motion	Independent Director Lin-Han Chang suggested: The Company shall conduct a comprehensive review of the remuneration and incentive guidelines. The assessment of employee salaries and bonuses shall take factors of the external environment into consideration in order to reward employees' contribution so as to motivate the employees. Independent Director Shih-Lei Lu suggested: Rewards should not be individualistic, as a successful product is the result of team work. The employees can also be rewarded with public recognition in the place of monetary rewards.	The Company has formulated procedures for employee salaries, rewards and punishments as well as referencing the industry standards for adjustment. For employees with extraordinary performance, the unit supervisors can apply rewards as exceptional cases to motivate the employees.
May 11th, 2018 (The 9th meeting of the 17th Board of Directors)	Report on the Company's business and financial conditions for the first quarter of 2018.	Independent Director Lin-Han Chang suggested: The management team should develop targeted business strategies based on the market conditions. New products with the greatest return should be selected when operatingwith limited resources. In	The current management team constantly adjusts production, sales and product mix according to market conditions. The Company also stays updated with potential changes in regulations,

	Content of Proposals		The Company's Handling of Opinions
Date		Independent Directors' Opinions

		addition, as Taiwan frequently experiences earthquakes and typhoons, the Company should carefully review the relevant insurance in order to reduce the losses caused by force majeure. Independent Director Shih-Lei Lu suggested: The Company should plan new product developments as early as possible in order to make appropriate resource allocations and grasp opportunities for profits.	the environment and market demand in order to adjust product development planning, schedule and resources.
August 13th, 2018 (The 10th meeting of the 17th Board of Directors)	The Company's biannual business and financial conditions for the year 2018.	Independent Director Lin-Han Chang suggested: The Company should stay in touch with the insurance company about the progress on earthquake claim for the Hulian earthquake. The claims are hoped to be received before the end of the year to make up for some of the losses caused by the earthquake. In addition, the Company should quantify the estimated completion time and amount invested in each target in order to facilitate future review and tracking.	The Company has set up an insurance claim task force and regularly reports to the management. In the future, the Company will quantify business targets and capital expenditure when reporting to the Board of Directors.
November 8th, 2018 (The 11th meeting of the 17th Board of Directors)	Report on the Company's business and financial conditions for the third quarter of 2018.	Independent Director Shih-Lei Lu suggested: The Company has more technical competitive advantages, and transition is a good long-term objective. However, relevant measures such as investment in equipment and manpower still have room for improvement. Independent Director Lin-Han Chang suggested: The Company should re-evaluate the insurance policy to formulate different insurance strategies and policies based on the location of the factories. In addition, to second what Independent Director Ms. Lu has just said, the Company should make long-term plans in terms of relevant concepts, management culture and talent training besides focusingon core technologies.	The Company will invest in employee capacities through equipment investment, internal and external training as well as new recruits in accordance with development strategies. The Company has also established an insurance-related department to assess the terms of insurance for each plant in the coming years.
	Report on the Company's operational strategies for 2019.	Independent Director Shih-Lei Lu suggested: The future new product development is hoped to target on value-added products. That way, the Company is not easily affected by the fluctuations in the prices of raw materials, and it is beneficial for the operations and employee cohesion. Independent Director Lin-Han Chang suggested: The Company should adopt the IoT information system to help enhance and control the product quality and stability in order to achieve the goal of timelymanagement.	The Company regularly reviews market changes and development opportunities, continuously enhances product quality and utilization to strengthen the market competitiveness.

3.4.2 Audit Committee

The Company elected three Independent Directors at the Annual General Shareholders' Meeting on June 24th, 2016. The Audit Committee was set up to replace the supervisors in accordance with the Securities and Exchange Act. The first Audit Committee convened 4 times in 2018 (A). The attendance records of

Independent Directors are as follows:

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

Independent director	Shi-Kuan Chen	4	0	100	Due to accepted the position as the President of Chung-Hua Institution for Economic Research and resigned as the Company's Independent Director on 1/10/ 2019.
Independent director	Donald Chang	4	0	100
Independent director	Shih-Lai Lu	4	0	100

Other mentionable items:

If any of the following circumstances occur, the dates of meetings, sessions, contents of motion, resolutions of the Audit Committee and the Company’s response to the Audit Committee’s opinion should be specified:

(1) Matters referred to in Article 14-5 of the Securities and Exchange Act.

		All Independent Directors' opinions and the Company's handlingof opinions:
Date	Content of Proposals

March 16th, 2018 (The 7th meeting of the 1st Audit Committee)	1. Approval of the 2017 financial statements 2. Approval of the Statement of the Internal Control System for 2017 3. Approval of the amendment to some articles of the Company's " Procedures for Acquisition and Disposal of Assets" 4. Approval of the amendment to some articles of the "Procedures for Engaging in Derivatives Trading." 5. Approval of the amendment to some articles of the "Procedures for Lending of Funds to Others."	Approved by all Independent Directors
May 9th, 2018 (The 8th meeting of the 1st Audit Committee)	The Audit Committee has not been involved in any matters referred to in Article 14-5 of the Securities and Exchange Act.	Not applicable.
August 2nd, 2018 (The 9th meeting of the 1st Audit Committee)	1. Approval of the 2018 biannual financial report. 2. Approval of the change of the Company's Chief Auditor.	Approved by all Independent Directors.

		All Independent Directors' opinions and the Company's handlingof opinions:
Date	Content of Proposals

November 6th, 2018 (The 10th meeting of the 1st Audit Committee)	1. Approval of the Company's audit plan for 2019.	Approved by all Independent Directors.

(2) Other matters which were not approved by the Audit Committee but were approved by two-thirds or more of all directors: None
If there are independent directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: None
Communications between the independent directors, the Company's chief internal auditor and CPAs
(1) Communication methods of Independent Directors, the Company's chief internal auditor and CPAs:
- When a Board meeting or Audit Committee meeting is convened, the chief auditor and the CPAs are invited to attend and present the Company's quarterly audit results and financial reports to the Independent Directors. The chief auditor also submits an audit report to the Independent Directors by e-mail every month. When the Independent Directors deem it necessary, they may also convene meetings and invite the chief auditor and the CPAs for discussion.
(2) Communication summary of Independent Directors, the Company's chief internal auditor and CPAs:

Date	Attendees	Communication Topics	Results
2018.03.16 Audit Committee	Chief auditing, management, accounting, and financial managers as well as the CPAs	1. Report on the audit plan as of the 4th quarter of 2017 2. Statement of the Internal Control System for 2017 3. 2017 business report	Report to the Board for discussion after review.
2018.05.09 Audit Committee	Chief auditing, management, accounting, and financial managers as well as the CPAs	1. Report on the audit plan as of the 1st quarter of 2018 2. Financial Report for the 1st quarter of 2018	Report to the Board for discussion after review.
2018.08.02 Audit Committee	Chief auditing, management, accounting, and financial managers as well as the CPAs	1. Report on the audit plan as of the 2nd quarter of 2018 2. Financial Report for the first half of 2018	Report to the Board for discussion after review.
2018.11.06 Audit Committee	Chief auditing, accounting, and financial managers as well as the CPAs	1. Report on the audit plan as of the 3rd quarter of 2018 2. 2018 audit plan 3. Financial Report for the 3rd quarter of 2018	Report to the Board for discussion after review.

(3) According to Article 15 of the "Regulations Governing Establishment of Internal Control Systems by Public Companies," the report is submitted for review by the Independent Directors by the end of the following month of completion of the audit item.

3.4.3 Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
1. Does the company establish and disclose the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”?	V		The Company's Corporate Governance Principles were approved at the 11th Meeting of the 17th Board of Directors on November 8th, 2018 and have been disclosed in the corporate governance subsection of the investor relations section on the Company's website for reference.	Consistent
2. Shareholding structure & shareholders’ rights (1) Does the company establish an internal operating procedure to deal with shareholders’ suggestions, doubts, disputes and litigations, and implement based on the procedure? (2) Does the company possess the list of its major shareholders as well as the ultimate owners of those shares? (3) Does the company establish and execute the risk management and firewall system within its conglomerate structure? (4) Does the company establish internal rules against insiders trading with undisclosed information?	V V V V		To ensure shareholders’ interests, the spokesperson, stock affair unit and stock transfer agency are responsible for handling matters relevant to shareholders. The stockholders can make inquiries through the stock transfer agency to keep abreast of relevant matters. The Company's and its affiliated companies' employees, assets and financial management are clearly regulated and independent. The operating performance is also evaluated regularly. The Company has established the “Procedures for Prevention of Insider Trading” and sends to relevant personnel via e-mail to ask for strict compliance as needed.	Consistent Consistent Consistent Consistent

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
3. Composition and Responsibilities of the Board of Directors (1) Does the Board develop and implement a diversified policy for the composition of its members? (2) Does the company voluntarily establish other functional committees in addition to the Remuneration Committee and the Audit Committee? (3) Does the company establish a standard to measure the performance of the Board, and implement it annually? (4) Does the companyregularlyevaluate the	V V V	V	The Board of Directors passed the Corporate Governance Principles on November 8th, 2018. At present, there are seven male Directors and one female director (the other female director resigned on January 10th, 2019 due to her new career as a public servant). In addition to gender diversity, members of the Board include professors and directors of other listed companies who are experts in professional fields such as marketing, financial management, strategic investment, paper-making, materials innovation and development. The Company established the Corporate Sustainability Committee and relevant regulations on June 16th, 2016. The Chairman of the Board serves as the Chair of this Committee. The President, Chief Financial Officer and the head of each department serve as the Committee members. The relevant departments are collaborating. This will be gradually promoted in accordance with relevant laws and regulations. The Audit Committee and the Board assessed the	Consistent Consistent Gradual promotion Consistent

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
independence of CPAs?			independence and competence of the CPAs on November 6th and November 8th, 2018 respectively. The results were reported to the Board of Directors. The assessment procedures include: 1. Obtaining the declaration of independence from the CPAs; 2. Reviewing whether the CPAs have direct or indirect material interests in the Company or matters which could impair their independence; 3. Whether the CPAs have received any punishment or are involved in situations that could impair their professionalism or independence; 4. Whether the same CPAs have performed the service for more than seven consecutive years; 5. Whether the CPAs have good communications with the Company's management and the Audit Committee.
4. Does the company set up a corporate governance unit or appoint personnel responsible for corporate governance matters (including but not limited to providing information for directors and supervisors to perform their functions, handling work related to meetings of the board of directors and the shareholders' meetings, filing company registration and changes to company registration, and producing minutes of board meetings and shareholders’	V		The Company's CFO is currently responsible for corporate governance, and cooperates with members of the legal, shareholding and corporate social responsibility offices to handle relevant matters, including but not limited to matters regarding the Board of Directors and Shareholders' Meetings, assisting Directors in further education, providing the Directors' with information necessaryforperformingtheir	Consistent

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
meetings)?			duties, compliance, and other matters stipulated by the Company's Articles of Association or contracts.
5. Does the company establish a communication channel and build a designated section on its website for stakeholders (including but not limited to shareholders, employees, customers, and suppliers), as well as handle all the issues they care for in terms of corporate social responsibilities?	V		The Company has set up a stakeholders' section on the Company's website (http://www.chp.com.tw/responsibility/stakehold ers), as well as dividing the stakeholders into employees, customers, suppliers, shareholders and investors, and government agencies with corresponding communications channels in order to appropriatelyrespond to relevant issues.	Consistent
6. Does the company appoint a professional shareholder service agency to deal with shareholder affairs?	V		The Company has appointed the Stock Transfer Department of SinoPac Securities to handle matters regardingthe Shareholders' Meetings.	Consistent
7. Information Disclosure (1) Does the company have a corporate website to disclose both financial standings and the status of corporate governance? (2) Does the company have other information disclosure channels (e.g. building an English website, appointing designated people to handle information collection and disclosure, creating a spokesman system, webcasting investor conferences)?	V V		The Company has set up the official English and Chinese website (www.chp.com.tw) to disclose information on finance, business and corporate governance on a regular basis. The Company held four investors' conferences in 2018 as well as making the information available through press releases or on the Company's website for inquiry.	Consistent Consistent

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
8. Is there any other important information to facilitate a better understanding of the company’s corporate governance practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?	V		1. The Company has established the "Corporate Governance Best-Practice Principles" on November 8th, 2018. 2. In accordance with the Labor Standards Act, the Company has established working rules that offer better conditions as well as establishing the Employee Welfare Committee. Funds are allocated each month and labor-management meetings are convened regularly. Vocational training and proper recreational activities are also offered when possible. 3. Investors can communicate with the stock transfer agency or spokesperson. An investor relations mailbox is set up to maintain smooth communication channels. Suppliers can also keep in touch with corresponding units. 4. The Company obtained liability insurance for 2018 for the Directors, Supervisors' and important employees' of the Company and its subsidiaries through the parent company, YFY Inc. This was reported during the Board meeting on November 8th, 2018. In addition, the information of the Securities and Futures Association and the Corporate Governance	Consistent

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
			Association is provided on a regular basis for the Directors to serve as a reference for further studies. Regulations regarding the Directors are forwarded to the Directors. Directors are immediately notified when there is a change in regulations, and the Directors will also be informed during a Board meeting. 5. The Company requires suppliers to sign the "Commitment for Integrity and Honest Transactions" to promise that they will comply with the obligations of integrity, ethics, environmental protection, labor regulations, etc. when interacting with Company personnel. 6. The Company has set up a stakeholder section on the website to provide stakeholders with contact details as a channel for feedback and complaints.
9. Please explain the improvements which have been made in accordance with the results of the Corporate Governance Evaluation System released by the Corporate Governance Center, Taiwan Stock Exchange, and provide the priority enhancement measures. Evaluation Indicators Improvement Does the Company disclose the Corporate Governance Best-Practice Principles? The Audit Committee and the Board passed the Company’s Corporate Governance Principles on November 6th and November 8th, 2018 respectively as well as reporting to the Annual General Shareholders'Meeting (2019).

	Implementation Status~~1~~	Implementation Status~~1~~	Implementation Status~~1~~	Deviations from “the Corporate
				Governance Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and Reasons
Does the Company disclose its Ethical Corporate Management Best-Practice Principles and Corporate Social Responsibility Code of Practice?	The Audit Committee and the Board passed the Company’s Ethical Corporate Management Principles and Sustainability and Corporate Social Responsibility Principles on November 6th and November 8th, 2018 respectively as well as reporting to the Annual General Shareholders'Meeting (2019).

Directors’ training records:

Title		Assignment Date				Training Hours	Total Hours
	Name		Study Date	Sponsoring Organization	Course

Chairman	Kirk Hwang	2016/06/24	2018/07/26	Taiwan Institute for Sustainable Energy	The thirteenth CEO Lecture and Keynote Speech	2	6
			2018/07/16	Taiwan Listed Companies' Association	Innovation of Digital Economic Value and Taiwan's Industrial Key Initiatives and Practices	2
			2018/01/25	Taiwan Institute of Sustainable Energy	International Economic Trends and Financial Systems of 2018	2
Director	Felix Ho	2017/03/16	2018/10/29	Taiwan Corporate Governance Association	Anti-tax Avoidance Practice	3	9
			2018/10/29	Taiwan Corporate Governance Association	Response to the new law amendment—key points and practical discussions on the latest amendment of the CompanyAct	3
			2018/09/26	TWSE	2018 ESG Investment Forum	3
Director	Melody Chiu	2016/06/24	2018/07/27	Taiwan Corporate Governance Association	Tax issues before and after mergers and acquisitions	3	6

Title		Assignment Date				Training Hours	Total Hours
	Name		Study Date	Sponsoring Organization	Course

			2018/03/23	Taiwan Corporate Governance Association	Response to the Global and Cross-Strait Anti-tax Avoidance Policy and Measures	3
Director	Chih-Cheng Huang	2016/06/24	2018/11/22	Taiwan Institute for Sustainable Energy	GCSF Global Corporate Sustainability Forum	3	6
			2018/09/26	TWSE	2018 ESG Investment Forum	3
Director	Guu-Fong Lin	2016/06/24	2018/10/03	Securities & Futures Institute	Corporate Strategy and Key Performance Indicators	3	6
			2018/07/10	Securities & Futures Institute	Legal Compliance of Publicly-listed CompanyInsider EquityTrading	3
Director	Ray Chen	2016/06/24	2018/09/26	TWSE	2018 ESG Investment Forum	3	6
			2018/04/20	Securities & Futures Institute	2018 Prevention of Insider Trading Promotion	3
Independent Director	Shi-Kuan Chen	2016/06/24	2018/10/29	Taiwan Corporate Governance Association	Evaluation of the effectiveness of the Board	3	6
			2018/09/14	Taiwan Corporate Governance Association	Case study for corporate mergers and acquisitions	3
Independent Director	Donald Chang	2016/06/24	2018/07/03	Taiwan Institute of Directors	2018 Taiwan Institute of Directors Annual Meeting	3	6
			2018/04/20	Securities & Futures Institute	2018 Prevention of Insider Trading Promotion	3
Independent Director	Shih-Lai Lu	2016/06/24	2018/10/29	Taiwan Corporate Governance Association	Response to the new law amendment - key points and practical discussions on the latest amendment of the Company Act	3	6
			2018/09/10	TWSE, Taipei Bar Association	The New Version of the Corporate Governance Blueprint of the Financial Supervisory Commission—The Directors' "Responsibilities" and "Rights"	3

3.4.4 Composition, Responsibilities and Operations of the Remuneration Committee

A. Professional Qualifications and Independence Analysis of Remuneration Committee Members

		Meets One of the Following Professional Qualification	Meets One of the Following Professional Qualification	Meets One of the Following Professional Qualification
					Independence Criteria
		Requirements, Together with at Least Five Years’ Work
					(Note)
	Criteria	Experience

		An instructor or	A judge, public	Has work									Number of
		higher position in a	prosecutor, attorney,	experience in the									Other Public
		department of	Certified Public	areas of									Companies in
		commerce, law,	Accountant, or other	commerce, law,									Which the
		finance accounting	professional or	finance or									Individual is
Title		, , or other academic	technical specialist	, accounting, or									Concurrently	Remarks

		department related to	who has passed a	otherwise	1	2	3	4	5	6	7	8	Serving as an
		the business needs of	national examination	necessary for the									Remuneration
		the Company in a	and been awarded a	business of the									Committee
		public or private	certificate in a	Company									Member
		junior college,	profession necessary
	Name	college or university	for the business of the
			Company
Independent Director	Shi-Kuan Chen	V		V	V	V	V	V	V	V	V	V	1	Resigned on 1/10/2019
Independent Director	Donald Chang			V	V	V	V	V	V	V	V	V	0	As a convener on 1/10/2019
Independent Director	Shih-Lai Lu	V		V	V	V	V	V	V	V	V	V	0

Note:

Not an employee of the Company or any of its affiliates.
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 as appointed in accordance with the Act or with the laws of the country of the parent or subsidiary.
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.
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.
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.
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.

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.
Not a person of any conditions defined in Article 30 of the Company Law.

B. Scope of Responsibilities of the Remuneration Committee:

The Remuneration Committee shall exercise the attention of a prudent administrator to faithfully fulfill the following functions, as well as submitting recommendations to the Board for deliberation:

Formulate and regularly evaluate the performance and remuneration systems and structures of the Company's Directors and managers.

C. Attendance of Members at Remuneration Committee Meetings

(1) The Company's Remuneration Committee is composed of 3 members.
(2) The term of office of the current members: June 24th, 2016 to June 23rd, 2019. The

Remuneration Committee convened twice in the most recent year (2018) (A). The qualifications and attendance of the members are as follows:

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

Convener	Shi-Kuan Chen	2	-	100	Due to accepted the public office, resigned on 1/10/ 2019.
Committee Member	Donald Chang	2	-	100	As a convener on 1/10/2019
Committee Member	Shih-Lai Lu	2	-	100
Other mentionable items: None

(3) Summary of communications between the Company and the Remuneration Committee

		Resolutions and the Company's Handling of
Date	Major Issues
		the Committee's Opinions

March 16th, 2018 (the 4th meeting of the third Remuneration Committee)	1. Report on the annual salary adjustment for employees 2. Report on the key personnel salary adjustment 3. Report on the list of managers' after organizational adjustments 4. Distribution of Directors' remuneration for 2017 5. Distribution of employees' compensation for 2017 6. Adjustment for the compensation of new managers	Consent Consent Consent All members of the Committee present approval. It will then be submitted for resolution by the Board of Directors and reported to the Shareholders' Meeting. All members of the Committee present approval. It will then be submitted for resolution by the Board of Directors and reported to the Shareholders' Meeting. In compliance with the internal remuneration standards of the Company, all members of the Committee present approval. It will then be submitted for resolution by the Board of Directors.
November 6th, 2018 (the 5th Meeting of the 3rd Remuneration Committee)	1. Report on the recruitment plan 2. Report on the 2018 remuneration forecast and industry wage assessment 3. Report on the human resources training program	Committee's suggestion: When engaging in school-industry cooperation, outstanding interns could be asked to share their experience at school for competitive candidates to apply for an internship at the Company. Attempting to keep these outstanding interns will also generate excellent benefits in the long run. Committee's suggestion: To compare changes in remuneration, the Company can select around 20 companies as comparison modules to review the direction of changes from the Company's position and to verify whether the remuneration levels are too low. Committee's suggestion: The program is well-designed for helping the Company to cultivate talent. The results should be presented during the first quarter of the coming year.

3.4.5 Corporate Social Responsibility

				Deviations from “the
			Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
1. Corporate Governance Implementation (1) Does the company declare its corporate social responsibility policy and examine the results of the implementation? (2) Does the company provide educational training on corporate social responsibility on a regular basis? (3) Does the company establish exclusively (or concurrently) dedicated first-line managers authorized by the board to be in charge of proposing the corporate social responsibility policies and reportingto the board?	V V V		The Company has established the "Sustainable Development Committee" to be responsible for implementing corporate social responsibility. The Committee is composed of five teams, including product and customer service, environmental sustainability, corporate governance, occupational safety and health and social care. The Chairman serves as the committee chair, and the President and the head of each department serve as committee members and team conveners who are responsible for planning relevant strategies and systems, as well as reviewing and improving the results. The Company has incorporated corporate social responsibility in on-the-job training and internal training. The "Employee Code of Conduct" is formulated and sent to all employees to strengthen ethics and values. The Company has set up a CSR office with two dedicated staff members responsible for promoting corporate social responsibility, as well as regularly reporting the implementation to the Chairman and the Board of Directors when necessary.	Consistent Consistent Consistent

				Deviations from “the
			Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
(4) Does the company declare a reasonable salary remuneration policy, and integrate the employee performance appraisal system with its corporate social responsibility policy, as well as establish an effective reward and disciplinarysystem?		V	The Company regularly promotes and evaluates social responsibility through interviews to review employees' compliance with the Company's policies on corporate social responsibility, including but not limited to integrity and ethical management. The review is listed as one of the annual performance review items to give appropriate incentives or punishments.	Gradual promotion
2. Sustainable Environment Development (1) Does the company endeavor to utilize all resources more efficiently and use renewable materials which have low impact on the environment? (2) Does the company establish proper environmental management systems based on the characteristics of their industries? (3) Does the company monitor the impact of climate change on its operations	V V V		The Company invests capital expenditures each year in production equipment improvement in order to increase production capacity, reduce the use of petrochemical materials and waste. Furthermore, the Company adopts raw materials that meet the forest certification standards, and continues to strengthen the technology of waste recycling and reuse to reduce environmental impact. The Company received green procurement certification from the Environmental Protection Administration and Taipei City Government this year. Each production unit of the Company has obtained ISO 14001 and FSC certifications. Designated personnel have been set up to confirm the implementation of the environmental management system. To mitigate the impact of climate change and fulfill social responsibility, the Company is committed to promoting energy conservation and carbon reduction. In addition to continuingtopush the Company's factories inpassingISO50001 energymanagement	Consistent Consistent Consistent

				Deviations from “the
			Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
and conduct greenhouse gas inspections, as well as establish company strategies for energy conservation and carbon reduction?			system certification, the Company also strives to implement greenhouse gas inventory and energy saving measures. 1. GHG emissions inventory: In response to climate change and the trend of the global greenhouse gas control, the Company has kept management risks and opportunities regarding the relevant topics under control. Besides monitoring disclosure requirements for carbon emission and domestic regulation developments, the Company also requires all units to spontaneously complete the greenhouse gas emission inventory and log the information on the national greenhouse gas registration platform. 2. Energy Conservation and Carbon Reduction: The Company promotes the integration of internal energy resources and reuse. The plants audit each other every quarter and continue to promote energy-saving plans for the factories and offices, including the replacement of LED lighting and high-efficiency motors. The Company also organizes technical exchange meetings to promote the latest technologies in energy-saving. The factories are continuously assisted in improving energy efficiency and accomplishing energy conservation and environmental protection goals. The energy-saving targets are set at 1% annual reduction and 5% after 5 years, which have been effectively achieved during 2015-2018.
3. Preserving Public Welfare (1) Does the company formulate appropriate management policies and procedures according to relevant regulations and the International Bill of Human	V		The Company has signed the "Human Rights Declaration" and "The UN Global Compact." All management policies and procedures have been formulated in accordance with relevant laws and regulations as well as the International Human Rights Treaty.	Consistent

				Deviations from “the
	Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
Rights? (2) Has the company set up an employee hotline or grievance mechanism to handle complaints with appropriate solutions? (3) Does the company provide a healthy and safe working environment and organize training on health and safety for its employees on a regular basis? (4) Does the company setup a communication channel with employees on a regular basis, as well as reasonably inform employees of any significant changes in operations that may have an impact on them? (5) Does the company provide its employees with career development and training sessions? (6) Does the company establish any consumer protection	V V V V V		The Company has established the "Staff Appraisal Committee" and disclosed employee complaint hotline in the "Code of Conduct" as a channel of appeal. The Company has also set up a designated contact to handle employee problems. The Company has set up dedicated safety and health personnel to be responsible for formulating the occupational safety and health management plans, and promoting work environment and operational safety identification. All employees are required to receive at least three hours of safety and health training every three years. All plants in Taiwan have passed the OHSAS18001 certification. The Company's operational policies and relevant operations are communicated through the public letters, internal publications, public announcements, public notices, etc. The Company has organized professional skills courses in accordance with different positions and job levels, as well as commissioning external professional institutions to conduct professional competency evaluation and training programs for employees. The Company conducts customer satisfaction surveys on a regular basis to understand customer's opinions on product quality and after-sales services. The Company has	Consistent Consistent Consistent Consistent Consistent

				Deviations from “the
			Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
mechanisms and appealing procedures regarding research development, purchasing, producing, operating and service? (7) Does the company advertise and label its goods and services according to relevant regulations and international standards? (8) Does the company evaluate the records of suppliers’ impact on the environment and society before taking on business partnerships? (9) Do the contracts between the company and its major suppliers include termination clauses which come into force once the suppliers breach the corporate social responsibility policy and cause appreciable impact on the environment and society?	V V V		established a designated contact person for handling customer complaints through telephone, writing or e-mail. The marketing and labeling of the Company's products and services comply with relevant laws and international standards such as FSC, PEFC and ISO. Since 2013, the Company has requested all new suppliers and contractors to sign a Letter of Undertaking and Commitment to Integrity. The contents covers the commitment and specific practices of the supplier's corporate social responsibility, including the compliance with the integrity principles, environmental protection and labor laws, as well as the liability for the breach of contract. When signing a contract with a supplier, the Company has listed the environmental protection and labor law as necessary statement items as well as setting up a damages clause, requiring the contractor to commit to its corporate social responsibility. In the event of a breach of contract, the Company has the right to terminate and annul the contract.	Consistent Consistent Consistent

				Implementation Status	Deviations from “the Corporate Social
	Evaluation Item	Yes	No	Abstract Explanation	Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and
					Reasons
4. Enhancing Information
	Disclosure
	(1) Does the company disclose	V		The Company discloses relevant information on the Company's website	Consistent
	relevant and reliable			(www.chp.com.tw) from time to time, including but not limited to the operational
	information regarding its			conditions, Shareholders' Meetings and Board resolutions, charitable activities and
	corporate social			media exposure.
	responsibility on its website
	and the Market Observation
	Post System(MOPS)?

If the Company has established the corporate social responsibility principles based on “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the Principles and their implementation: The Company has established the “Sustainability and Corporate Social Responsibility Principles" after the Audit Committee and Board resolutions on November 6th and 8th 2018, respectively. The Company established the "Sustainable Development Committee" to review and improve the effectiveness of relevant strategies and systems after the planning, operation, or implementation, which is consistent with the Company's "Sustainability and Corporate Social Responsibility Principles."
Other important information to facilitate better understanding of the company’s corporate social responsibility practices ：
(I) Established an environmental protection team to implement all response measures and actively and spontaneously communicate and form a consensus with environmental stakeholders regarding environmental protection issues.
(II) Actively cooperate with local environmental protection bureaus, township (district) offices, representative meetings, environmental protection groups, government agencies, and schools to engage in plans and grow with the community.
(III) Actual performance:
1. The Company has received the "Procurement Benchmark" from the Environmental Protection Bureau of the Taipei City Government in 2018 for its green procurement policy. In addition, the Company also actively improved disclosure on corporate governance information and raised the importance of sustainable development, environmental friendliness and social welfare. The Company received the TCSA-Top50 Taiwan Enterprise Sustainability Award and the TCSA-Innovative Growth Award in collaboration with the special paper

				Deviations from “the
	Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
recycling system consisting of downstream clients, paper mills and paper recycling mills. In terms of social contribution, the Company cooperated with the CommonWealth Magazine team to develop the children's reader Everlasting Forest to promote knowledge regarding sustainable development of forest economy. The Company has also organized two promotional activities which attracted thousands of families about paper-making knowledge, hand-made paper experiment and paper recycling. 2. Jiutang Plant: The Company has been awarded the "Green Procurement Award" by the Environmental Protection Administration since 2011. Besides strictly completing environmental protection tasks, the Jiutang Plant also participates in various environmental protection activities and certifications, for example, ISO, FSC, greenhouse gas inventory and long-term assistance for environmental protection activities targeting Gaoping River, wetland conservation and concerts. 3. Hualien Plant: The Company cooperates with the Yuan T. Lee Foundation Science Education for All to organize science education for children in rural areas, in the hope of balancing teaching resources. In addition, the Hualien Plant has won the Air Quality Service Award from the Environmental Protection Administration. In 2018 Hualien Earthquake, the Company donated NT$10 million to the Hualien City Government to assist in disaster relief and emergency assistance. 4. Taitung Plant: In addition to the long-term donation of books to local primary and secondary schools in the county, the Company participates in the activities organized by the Taiwan Fund for Children and Families Center in Guanshan District. Since September 2015, the Company has accompanied 20 children from the Guanshan Office of Taitung Fund for Children and Families to study every Wednesday afternoon, in order to establish a long-term and stable partnership between volunteers and schoolchildren. Besides participating in local charity activities, the Company actively promotes a healthy working environment by voluntarily passing the tobacco hazard prevention certification. The promotion of scientific education in 2018 will be extended to the primary and secondary schools of Taitung for the first time. 5. The invested company, Zhaoqing Dingfung Forestry Co., Ltd., actively applied for forest certification from SGS in China and received the FM/CoC certificate from FSC. 6. In 2017, the Company added new declaration documents in line with the international sustainable business trend, including the "Green Procurement Declaration," "Procurement Declaration on Wood Chips and Pulp," "Human Rights Declaration" and "Support for UN Conventions" to enhance the Companyand its customers' supplychain management needs,and do their best in corporate social

recycling system consisting of downstream clients, paper mills and paper recycling mills. In terms of social contribution, the Company cooperated with the CommonWealth Magazine team to develop the children's reader Everlasting Forest to promote knowledge regarding sustainable development of forest economy. The Company has also organized two promotional activities which attracted thousands of families about paper-making knowledge, hand-made paper experiment and paper recycling.

				Deviations from “the
	Implementation Status
				Corporate Social

				Responsibility Best-Practice
Evaluation Item
				Principles for TWSE/TPEx
	Yes	No	Abstract Explanation
				Listed Companies” and

				Reasons
responsibility.
7. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: The Company's 2017 Corporate Social Responsibility Report has been commissioned to a third party of the British Standards Institution (BSI) to verify compliance with the AA1000AS and the GRI G4 guidelines. The results are in accordance with the AA1000 Type1 Medium Assurance Level and GRI G4 core disclosure requirements.

3.4.6 The Company's ethical corporate management and measures: All procurement and sales of the Company are conducted according to the contracts signed with customers. The Company's operations and material information are also announced on the website of the Taiwan Stock Exchange in order to achieve public disclosure and ethical management.

			ImplementationStatus	Deviations from “the
				Ethical Corporate
				Management Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and
				Reasons
1. Establishment of ethical corporate management policies and programs (1) Does the company declare its ethical corporate management policies and procedures in its guidelines and external documents, as well as the commitment from its board to implement the policies? (2) Does the company establish policies to prevent unethical conduct with clear statements regarding relevant procedures, guidelines of conduct, punishment for violation, rules of appeal, and the commitment to implement the policies?	V V		The Company has established the "Ethical Corporate Management Principles" to actively prevent unethical and conflict of interest, establish whistle-blowing channels and regulate relevant personnel's behaviors. The Company has set out the following measures for preventing dishonest behavior: 1. Precautions against dishonesty and prohibition of bribery: It is set out in Chapter 4 of the “Code of Service.” Punishment for the violation and grievance system have been defined in the working rules. 2. Intellectual Property Protection: This is achieved by signing the “Integrity, Confidentiality and Intellectual Property Agreement” and the employment contract with the employees. 3. "Code of Conduct": In order to implement the Company's core values, maintain a high degree of professional ethics, and enable the employees to follow the requirements of the Company's employee behavior standards,theCode ofConduct has been formulated to	Consistent Consistent

	ImplementationStatus	ImplementationStatus	ImplementationStatus	Deviations from “the
				Ethical Corporate
				Management Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and
				Reasons
(3) Does the company establish appropriate precautions against high-potential unethical conducts or listed activities stated in Article 2, Paragraph 7 of the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies?	V		maintain the Company's reputation as well as gaining respect from customers, manufacturers and other people. Before engaging in transactions with suppliers, the suppliers must sign the "Letter of Undertaking and Commitment of Integrity" that specifies the integrity and honesty principles and to prevent the Company's personnel from taking improper benefits and ensure ethical transactions.	Consistent
2. Fulfill operations integrity policy (1) Does the company evaluate business partners’ ethical records and include ethics-related clauses in business contracts? (2) Does the company establish an exclusively (or concurrently) dedicated unit supervised by the Board to be in charge of corporate integrity? (3) Does the company establish policies to prevent conflicts of interest and provide appropriate communication channels, and implement it? (4) Has the company established effective systems for both accountingand internal control to facilitate	V V V V		In the process of credit rating of transaction counterparties, the credit record is evaluated. At the same time, in terms of the purchasing contract and the "Letter of Undertaking and Commitment of Integrity,” it is strictly forbidden to give or receive bribes. The Company has established the Ethical Corporate Management group in accordance with the Ethical Corporate Management Principles. The group reports regularly to the Board. The internal audit unit regularly reviews the implementation and incorporates in the audit report to submit to the Board of Directors. The Directors of the Company recuse themselves from voting on proposals when there is conflict of interest. The Company's current accounting and internal control system responsibilities are divided. To eradicate	Consistent Consistent Consistent Consistent

	ImplementationStatus	ImplementationStatus	ImplementationStatus	Deviations from “the
				Ethical Corporate
				Management Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and
				Reasons
ethical corporate management, and are they audited by either internal auditors or CPAs on a regular basis? (5) Does the company regularly hold internal and external educational trainings on operational integrity?	V		dishonesty, internal auditors will include the integrity of personnel as the basis of relevant audits. The Company has arranged relevant courses in various internal training for promotion when needed.	Consistent
3. Operation of the integrity channel (1) Does the company establish both a reward/punishment system and an integrity hotline? Can the accused be reached by an appropriate person for follow-up? (2) Does the company establish standard operating procedures for confidential reporting on investigating accusation cases? (3) Does the company provide proper whistleblower protection?	V V V		The Company has diversified functional channels for whistleblowing. In addition to the "Personnel Review Committee" that investigates and punishes any reported incidents, the "Code of Conduct" has been put in place for compliance. There are reporting channels and dedicated staff for reporting irregularities. After the case is filed, the record shall be made and the relevant unit shall be instructed to conduct an investigation, and the result of the investigation shall be reported to the competent authority. If the investigation confirms the specific behavior is a breach of the integrity requirement, the employee shall be punished according to the “Employee Reward and Punishment Procedures." In serious cases, the labor contract could be terminated. The Company shall keep the identities of the employees or personnel who are involved in the incident or investigation confidential. Those who know the identities or details of the investigation due to their duties or business operations shall also adhere to the	Consistent Consistent Consistent

	ImplementationStatus	ImplementationStatus	ImplementationStatus	Deviations from “the
				Ethical Corporate
				Management Best-Practice
Evaluation Item
	Yes	No	Abstract Illustration	Principles for TWSE/TPEx

				Listed Companies” and
				Reasons
			confidentiality requirement. The Company also promises that the whistle-blower would not be treated unfairlydue to the reporting.
4. Strengthening information disclosure (1) Does the company disclose its ethical corporate management policies and the results of its implementation on the company’s website and MOPS?	V		The Company has disclosed the Ethical Corporate Management Principles on the Company's official website (www.chp.com.tw) and the Market Observation Post System (MOPS). The status and results of the implementation will be gradually disclosed in accordance with the schedule.	Consistent
5. If the company has established the ethical corporate management policies based on the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies, please describe any discrepancy between the policies and their implementation. The Audit Committee and the Board passed the Ethical Corporate Management Best-Practice Principles on November 6th and November 8th, 2018 respectively. So far,the Companyhas adhered to the Best-Practice Principles with no major discrepancies.
6. Other important information to facilitate a better understanding of the company’s ethical corporate management policies (e.g., review and amend its policies). (a) The Company requires suppliers to sign the "Commitment for Integrity and Honest Transactions" to promise that they will comply with the obligations of integrity. (b) The Chairman approved the "Code of Conduct" in 2016 to implement the core values of the Company. The employees are required to maintain a high degree of professional ethics and follow the requirements of the Company's employee behavior standards, maintain the Company's reputation, and gain the respect and trust of customers, manufacturers and others while performing their duties. (c) In 2017, the Board of Directors approved the "Procedures for the Prevention of Insider Trading" as principles the Directors and other staff members should follow when trading stocks. It has also been incorporated in the internal control system. The auditors regularly review the compliance in order to prevent insider trading. (d) The Company's Board of Directors passed the "Ethical Corporate Management Best-Practice Principles" in 2018 as the principles for maintaining the corporate culture of ethical corporate management and the comprehensive development of the Companyand its subsidiaries.

3.4.7 Corporate Governance Guidelines and Regulations

The Company has established the "Corporate Governance Best-Practice Principles," "Code of Conduct for Sustainability and Corporate Social Responsibility" and "Ethical Corporate Management Best-Practice Principles." Please refer to the Company's website (www.chp.com.tw) by going to the homepage > Investor Relations > Corporate Governance > Internal Rules.

3.4.8 Other Important Information Regarding Corporate Governance

A. All relevant laws and regulations are relayed to the Directors for reference.
B. Material information is timely disclosed and regular investor conferences are convened for briefing the operating results. Relevant information is disclosed on the Company's website (www.chp.com.tw) and the Market Observation Post System (MOPS).
C. The Company began preparing the corporate social responsibility report in 2015 as well as disclosing the report on the Company's website and the Market Observation Post System (MOPS).

3.4.9 Internal Control Systems

A. .Internal Control Statement

Chung Hwa Pulp Corporation

Statement of Internal Control System

Date ： March 21st 2019

Based on the findings of a self-assessment, CHP states the following with regard to its internal control system during the year 2018 ：
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 31st, 2018, 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 21st, 2019, where all of the eight attending directors express dissenting opinion and affirmed the content of this Statement.

Chung Hwa Pulp Corporation

B. Has the Company delegated CPAs to review its internal audit system and issued an audit report? None
3.4.10 Penalties issued on the Company and its personnel, punishment imposed by the Company on personnel in violation of internal control system regulations, major deficiencies and improvement measures taken during the current fiscal year up to the date of publication of the annual report:
None

3.4.11 Major Resolutions of Shareholders’ Meeting and Board Meetings

A. Major Resolutions of Shareholders’ Meeting (6/26/2018)

(1) Approved the 2017 Financial Statements of the Company
(2) Approved the proposal for the distribution of the 2017 profit
Implementation status: The Company has adopted July 25th, 2018 as the dividend distribution base date (cash dividend per share of NT$0.50), and the cash dividend distribution was completed on August 23rd, 2018.
(3) Approved the amendment to certain articles of the Company’s "Articles of Incorporation".
(4) Approved the amendment to certain articles of the Company’s" Procedures for Acquisition and Disposal of Assets"
(5) Approved the amendment to certain articles of the Company’s "Procedures for Engaging in Derivatives Trading".
(6) Approved the amendment to certain articles of the Company’s "Operational Procedures for Lending Funds to Others".

Implementation status: Items (3) to (6) are implemented in accordance with the resolutions of the Shareholders' Meeting after the Shareholders' Meeting.

B. Major Resolutions of Board Meetings

Summary of Major Resolutions of the 8th Board Meeting of the 17th Board of Directors on March 22nd, 2018:

(1) Approved the 2017 Financial Statements.
(2) Approved the 2017 earnings distribution.
(3) Approved the 2017 employees' compensation and Directors' remuneration.
(4) Approved the amendment to certain articles of the Company’s "Articles of Incorporation" and reported to the Shareholders' Meeting for discussion.
(5) Approved the location and relevant matters for the 2018 Annual General Shareholders' Meeting.
(6) Approved the 2017 Internal Control System Statement.
(7) Approved the amendment to certain articles of "Procedures for Acquisition and Disposal of Assets" and reported to the Shareholders' Meeting for discussion.
(8) Approved the amendment to certain articles of "Procedure for Engaging in Derivatives Trading" and reported to the Shareholders' Meeting for discussion.
(9) Approved the amendment to certain articles of "Operational Procedures for Lending Funds to Others" and reported to the Shareholders' Meeting for discussion.
(10) Approved the loan amount for bank transactions.
(11) Approved the proposal for acting as the joint drawer for the subsidiaries' loan applications.
(12) Approved the total amount of endorsements/guarantees made by the Company and its subsidiaries as of the fourth quarter of 2017.

Summary of Important Resolutions of the 9th meeting of the 17th Board of Directors on May 11th, 2018:

(1) Approved the loan amount for bank transactions.
(2) Approved the proposal for acting as the joint drawer for the subsidiaries' loan applications.
(3) Approved the total amount of endorsements/guarantees made by the Company and its subsidiaries as of the first quarter of 2018.

Summary of Important Resolutions of the 10th meeting of the 17th Board of Directors on August 13th, 2018:

(1) Approved the loan amount for bank transactions.
(2) Approved the proposal for acting as the joint drawer for the subsidiaries' loan applications.
(3) Approved the total amount of endorsements/guarantees made by the Company and its subsidiaries as of the second quarter of 2018.
(4) Approved the proposal for changing the Company’s chief auditor.

Summary of Important Resolutions of the 11th meeting of the 17th Board of Directors on November 8th, 2018:

(1) Approved the 2019 budget.
(2) Approved the 2019 audit plan.
(3) Approved the Company’s "Corporate Governance Principles".
(4) Approved the Company’s "Ethical Corporate Management Principles".
(5) Approved the Company’s "Sustainability and Corporate Social Responsibility Principles".
(6) Approved the loan amount for bank transactions.
(7) Approved the proposal for acting as the joint drawer for the subsidiaries' loan applications.
(8) Approved the total amount of endorsements/guarantees made by the Company and its subsidiaries as of the third quarter of 2018.

Summary of Important Resolutions of the 12th meeting of the 17th Board of Directors on March 21st, 2019:

(1) Approve the 2018 Financial Statements.
(2) Approved the distribution of 2018 earnings.
(3) Approve the 2018 employees' compensation and Directors' remuneration.
(4) Approved the 2018 Internal Control System Statement.
(5) Approved the amendment to certain articles of the Company’s "Articles of Incorporation" and reported to the Shareholders’ Meeting for discussion.
(6) Approved the amendment to certain articles of the Company’s "Procedures for Acquisition and Disposal of Assets" and reported to the Shareholders’ Meeting for discussion.
(7) Approved the amendment to certain articles of the Company’s "Procedures for Transactions with Related Parties" and submitted to the Shareholders’ Meeting for discussion.
(8) Approved the amendment to certain articles of the Company’s "Procedure for Engaging in Derivatives Trading" and reported to the Shareholders’ Meeting for discussion.
(9) Approved the amendment to certain articles of the Company’s "Operational Procedures for Lending Funds to Others" and reported to the Shareholders’ Meeting for discussion.

(10) Approved the amendment to certain articles of the Company’s "Operational Procedures for Making of Endorsement/ Guarantees" and reported to the Shareholders’ Meeting for discussion.
(11) Approved the proposal for electing the 18th Board of Directors and Independent Directors at the 2019 Annual General Meeting.
(12) Approved the submission of the list of candidates for the 18th Board of Directors and Independent Directors.
(13) Approved the submission of the proposal to lift the non-competition clause for newly appointed Directors and the judicial persons they represent to the Shareholders' Meeting.
(14) Approved the location and relevant matters of the 2019 Annual General Shareholders' Meeting.
(15) Approved the loan amount for bank transactions.
(16) Approved the proposal for acting as the joint drawer for the subsidiaries' loan applications.
(17) Approved the total amount of endorsements/guarantees made by the Company and its subsidiaries as of the fourth quarter of 2018.
(18) Approved the appointment of Mr. Yi Lee as a member of the Remuneration Committee.

3.4.12 Major Issues of Record or Written Statements Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors

None

3.4.13 Resignation or Dismissal of the Company’s Key Individuals, Including the

Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D

R&D
				Reasons for Resignation or Dismissal Resignation
		Date of Appointment	Date of Termination
Title	Name


Internal Auditor Officer	Claire Hou	8/8/2013	8/17/2018

3.4.14 Internal Audit Licenses

Certified Internal Auditor (CIA): 1 person in the Audit Department

3.5 Audit Fee

Unit: NT$ thousands

				Non-audit Fee	Non-audit Fee			Period

Accounting Firm	Name of	Audit	System of	Company	Human			Covered by	Remarks
	CPA	Fee
			Design	Registration	Resource	Others	Subtotal	CPA’sAudit

Deloitte & Touche	Shu-Wan Lin Shiow- Ming Shue	2,780	-	-	-	450 Note	450	1/1/2018~ 12/31/2018

Note: The fee for the English version of the financial report was NT$ 100thousand and the transfer pricing report was NT$ 350thousand.
If the non-audit fees paid to the CPAs, accounting firm and its affiliated companies reach one-fourth of the total amount of audit fees, the amount of audit and non-audit fees and the content of non-audit services shall be disclosed: None.
Where the Company's replacing accounting firm and audit fees paid for the year were less than that in the previous year before replacement: None.
Where the audit fees decreased by more than 15% compared to the previous year: None.

3.6 Replacement of Certified Public Accountant (CPA)

A. Regarding the former CPA

	From 4thQuarter, 2017	From 4thQuarter, 2017	From 4thQuarter, 2017	From 4thQuarter, 2017	From 4thQuarter, 2017
Replacement Date

Replacement reasons	Due to the internal rotation policy of accountants in Deloitte and Touche Taiwan, the accountant responsible for auditing was changed from Dank Kou accountant to Shu-Wan Lin accountant.
and explanations

	Parties Status			CPA	The Company
Describe whether the
Company terminated or
the CPA did not accept
	Termination of appointment			NA	NA
the appointment

	No longer accepted (continued) appointment			NA	NA
		None
Other issues (except for
unqualified issues) in
the audit reports within
the last two years

	Yes	-	Accounting principles orpractices
		-	Disclosure of Financial Statements
		-	Audit scope or steps
Differences with the		-	Others
company	None	V

	Remarks/specifydetails:
	None
Other Revealed
Matters

B. Regarding the successor CPA

Name of accounting firm Deloitte and Touche Taiwan Name of CPA Shu-Wan Lin and Shiow-Ming Shue Date of appointment 11/13/2017(From 4[th] Quarter 2017) Consultation results and opinions on accounting treatments or principles with respect to specified transactions NA and the company's financial reports that the CPA might issue prior to the engagement. Succeeding CPA’s written opinion of None disagreement toward the former CPA

C. The former CPA's reply to items in Article 10-6-1 and 10-6-2-3: None.

3.7 The Chairman, President and Financial or Accounting Manager of the Company who had Worked for the CPA Firm or the Related Parties in The Last Year

None.

3.8 Shareholding Transferred or Pledged by Directors, Management, and Major Shareholders Who Holds 10% of The Company Shares or More

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

Director	YFY INC.	-	-	-	-
Chairman	Kirk Hwang	-	-	-	-
Director	Felix Ho	-	-	-	-
Director	Melody Chiu	-	-	-	-
Director	Lotus Ecoscings & EngineeringCo.,Ltd	-	-	-	-
Director	Chih-Cheng Huang	-	-	-	-

		2018	2018	As of Apr. 30,2018	As of Apr. 30,2018
			Pledged		Pledged
		Holding		Holding
Title	Name		Holding		Holding
		Increase		Increase
			Increase		Increase
		(Decrease)		(Decrease)
			(Decrease)		(Decrease)

Director	Guu-Fong Lin	-	-	-	-
Director	Ray Chen	-	-	-	-
Independent Director	Shi-Kuan Chen Note1	-	-	-	-
Independent Director	Donald Chang	-	-	-	-
Independent Director	Shih-Lai Lu	-	-	-	-
CEO	Kirk Hwang	-	-	-	-
President	Chih-Cheng Huang	-	-	-	-
CFO	Guu-Fong Lin	-	-	-	-
Executive Vice President	Ray Chen	-	-	-	-
Executive Vice President	Rong-Ming Lin Note2	-	-	-	-
Finance Manager	David Lin	-	-	-	-
Accounting Manager	Jung-Min Huang	-	-	-	-
Major shareholder	YFY INC.	-	-	-	-

Note1: Ms. Shi-Kuan Chen accepted the position as the President of Chung-Hua Institution for Economic Research and resigned as the Company's Independent Director on 1/10/ 2019. Note2: Promoted on March 1, 2018.

4/23/2019

3.9 Information disclosing the spouse, kinship within second degree, and relationship between any of the top ten shareholders


					Shareholding
	Current Shareholding		Spouse’s/minor’s		by Nominee		Name and Relationship Between th	e Company’s Top Ten
Name			Shareholding		Arrangement		Shareholders, or Spouses or Relativ	es Within Two Degrees	Remarks

	Shares	%	Shares	%	Shares	%	Name	Relationship
YFY INC. Representative: Felix Ho	627,827,989 -	56.93 -	- -	- -	- -	- -	YFY Paradigm Investment Co., Ltd. YFY Paradigm Investment Co., Ltd. Representative of Shin-Yi Enterprise Co., Ltd., Sing-Ju Chang Representative of Shin-Yi Investment Co., Ltd., S.C. Ho Representative of Yuen Shin Yi Enterprise Co.,Ltd.,S.C. Ho	juristic-person director juristic-person supervisor Mother and Son Father and Son Father and Son	- -
Shin-Yi Enterprise Co., Ltd. Representative: Sing-Ju Chang	50,149,248 -	4.55 -	- 1,223,071	- 0.11	- -	- -	YFY INC. Shin-Yi Investment Co., Ltd. Yuen Shin Yi Enterprise Co., Ltd. Representative of YFY INC., Felix Ho Representative of Shin-Yi Investment Co., Ltd., S.C. Ho Representative of Yuen Shin Yi Enterprise Co.,Ltd.,S.C. Ho	juristic-person director juristic-person director juristic-person director Mother and Son Spouse Spouse	- -
China Lift Insurance Co., Ltd. Representative: Alan Wang	28,086,228 -	2.55 -	- -	- -	- -	- -	- -	- -	- -
Shin-Yi Recreation Co., Ltd. Representative: Bao-Yu Hsieh	23,624,028 -	2.14 -	- -	- -	- -	- -	- -	- -	- -
Shin-Yi Investment Co., Ltd. Representative: S.C. Ho	21,090,110 1,223,071	1.91 0.11	- -	- -	- -	- -	Yuen Shin Yi Enterprise Co., Ltd. Representative of YFY INC., Felix Ho Representative of Shin-Yi Enterprise Co., Ltd., Sing-Ju Chang Representative of Yuen Shin Yi Enterprise Co.,Ltd.,S.C. Ho	juristic-person supervisor Father and Son Spouse Same Representative	- -
Polunin Emerging Markets Small Cap Fund. LLC	8,568,650	0.78	-	-	-	-	-	-	-
YFY paradigm Investment Co., Ltd K. T. Yin	7,635,485 -	0.69 -	- -	- -	- -	- -	- -	- -	- -
Yuen Shin Yi Enterprise Co., Ltd Representative: S.C. Ho	7,231,001 1,223,071	0.66 0.11	- -	- -	- -	- -	- Representative of YFY INC., Felix Ho Representative of Shin-Yi Enterprise Co., Ltd., Sing-Ju Chang Representative of Yuen Shin Yi Enterprise Co.,Ltd.,S.C. Ho	- Father and Son Spouse Same Representative	- -
Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	6,165,818	0.56	-	-	-	-	-	-	-
Emerging Markets Core Equity Portfolio of DFA Investment Dimensions Group Inc.	5,388,308	0.49	-	-	-	-	-	-	-

3.10 Comprehensive Shareholding Information Relating to Company, Directors, Management, and Companies Affiliated through Direct and Indirect Investment

Unit: shares/ %

			Direct or Indirect Ownershi b	Direct or Indirect Ownershi b
Affiliated	Ownership by the Company		p y Directors/Supervisors/Managers		Total Ownership
Enterprises
	Shares	%	Shares	%	Shares	%

CHP INT’L (BVI) CORP.	61,039,956	100	-	-	61,039,956	-
Hwa Fong Investment Co., Ltd	3,600,000	100	-	-	3,600,000	100
Guangdong Dingfung Pulp & Paper Co., Ltd.	-	-	-	100	-	100
Zhaoqing Dingfung Forestry Co., Ltd.	-	-	-	100	-	100
EFFION Enertech Co., Ltd.	34,300,000	49	35,700,000	51	70,000,000	100
Kuang Hwa Fertilizer Limited Company.	-	-	-	100	-	100
Shenzhen Systax Paper Co., Ltd	-	-	-	100	-	100
E Ink Holdings Inc.	20,000,000	1.75	174,766,635	15.33	194,766,635	17.08
Taiwan Global Biofund Co., Ltd.	6,000,000	4.44	36,325,500	26.91	42,325,500	31.35

Capital Overview

4.1 Source of capital


		Authorized Capital		Paid-in Capital			Remark


Month/	Par						Capital
			A		A
Year	Value		mount		mount		Increased by
	(NT$)	Shares	(NT$	Shares	(NT$	Sources of Capital		Other
							Assets Other
			thousands)		thousands)
							than Cash


8/2015	10	1,300,000,000	13,000,000,000	1,102,835,316	11,028,353,160	Undistributed Earnings	-	8/17/2015 FSC No.1040030024

Note: The company handles cash reduction of NTD$1,200,000,000 on August 17[th] 2015 and, the amount of paid-up capital after capital reduction to be NTD$ 11,028,353,160.

		Authorized Capital
Share Type				Remarks
	Issued Shares	Un-issued Shares	Total Shares

Common Stock	1,102,835,316	197,164,684	1,300,000,000	Listed stocks

4.2 Shareholder Structure

						4/23/2019

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


Number of Shareholders	-	11	94	47,181	140	47,426
Shareholding (shares)	-	28,175,989	753,842,506	273,434,194	47,382,627	1,102,835,316
Percentage	-	2.55	68.36	24.79	4.30	100.00

4/23/2019

4.3 Shareholding Distribution


Class of Shareholding	Number of
		Shareholding (Shares)	Percentage
(Unit: Share)	Shareholders


1 ~999	25,222	6,299,767	0.57
1,000 ~ 5,000	14,346	33,853,135	3.07
5,001 ~ 10,000	3665	29,696,090	2.69
10,001 ~ 15,000	1024	12,793,600	1.16
15,001 ~ 20,000	942	17,487,642	1.58
20,001 ~ 30,000	683	17,601,494	1.60
30,001 ~ 50,000	636	25,966,692	2.35
50,001 ~ 100,000	465	34,046,324	3.09
100,001 ~ 200,000	253	35,935,036	3.26
200,001 ~ 400,000	98	27,305,100	2.48
400,001 ~ 600,000	25	11,873,006	1.08
600,001 ~ 800,000	28	19,328,338	1.75
800,001 ~ 1,000,000	9	8,397,823	0.76
1,000,001 or over	30	822,251,269	74.56
Total	47,426	1,102,835,316	100.00

4.4 Major Shareholders

4/23/2019

	Shareholding	Shareholding
Shareholder's Name
	Shares	Percentage

YFY INC.	627,827,989	56.93
Shin-Yi Enterprise Co., Ltd.	50,149,248	4.55
China Lift Insurance Co., Ltd.	28,086,228	2.55
Shin-Yi Recreation Co., Ltd.	23,624,028	2.14
Shin-Yi Investment Co., Ltd.	21,090,110	1.91
Polunin Emerging Markets Small Cap Fund	8,568,650	0.78
YFYparadigm Investment Co., Ltd	7,635,485	0.69
Yuen Shin Yi Enterprise Co., Ltd	7,231,001	0.66
Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	6,165,818	0.56
Emerging Markets Core Equity Portfolio of DFA Investment Dimensions GroupInc.	5,388,308	0.49

4.5 Share Price, Net Worth, Earnings, Dividends and Related Information

			1/1/2019- 3/31/2019
Items	2017	2018

Market Price per Share
Highest Market Price	12.85	12.60	10.20
Lowest Market Price	9.16	8.80	9.42
Average Market Price	10.58	10.49	9.80
Net Worth per Share
Before Distribution	14.23	14.17	-
After Distribution	13.73	-	-
Earnings per Share
Weighted Average Shares	1,102,835,316	1,102,835,316	1,102,835,316
Diluted Earnings Per Share	0.56	0.40	-
Adjusted Diluted Earnings Per Share	0.56	-	-
Dividends per Share
Cash Dividends	0.50	0.35	-
Stock Dividends
 Dividends from Retained Earnings	-	-	-
 Dividends from Capital Surplus	-	-	-
Accumulated Undistributed Dividends	-	-	-
Return on Investment
Price / Earnings Ratio (Note 1)	18.89	26.23	-
Price / Dividend Ratio (Note 2)	21.16	29.97	-
Cash Dividend Yield Rate (Note 3)	4.7	3.3	-

Note 1: Price / Earnings Ratio = Average Market Price / Earnings per Share. Note 2: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share. Note 3: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price. Note 4: The cash dividend will be confirmed the amount after the AGM in the coming June.

4.6 Dividend Policy and Implementation Status

A. Dividend Policy

Article 31-1: Where the Company has earnings in a year, besides paying for income tax as required, any accumulative losses shall be covered. 10% of the remaining balance shall be set aside as legal reserve, and the amount required by law shall be set aside for special reserve. And when necessary, the remaining balance may be set aside as special reserve or retained earnings to its judgment, and the remainder shall be distributed as dividends of common shares and bonus according to total amount of shares.

Article 32: Considering the economy and long-term financial planning, and for the purpose of sustainable and stable development, the Company's dividend policy depends on its judgment on the budget for the coming years. Need for funds is first financed by means of retained earnings and then followed by necessary reserves for business operations. No less than 20% of remaining earnings is distributable as cash dividends, while the remainder is distributable as stock dividends. In case of need for capital expenditure, the aforementioned surplus earnings may be distributed in full by means of stock dividends.

B. Dividend distribution proposed at this shareholders` meeting:

The Shareholders' Meeting proposes to issue a cash dividend of NT$0.35 per share.

4.7 Impact of Stock Dividend Distribution on Business Performance and EPS

This Shareholder's Meeting did not resolve to distribute any stock dividends, so it is not applicable.

4.8 Employees’ and Directors’ Compensations

A. Information Relating to Compensation of Employees and Directors in the Articles of Incorporation

According to Article 31of the Articles of Association, if the Company has a profit for the year, no less than 1% of the profit shall be allocated as employees' compensation, while no more than 2% shall be allocated as Directors' remuneration. However, the Company's accumulated losses shall have been covered.

Compensation of Directors is distributed by cash. Compensation for employees, including employees of subsidiaries that meet certain requirements, is distributed by cash or stock. The Board is authorized to decide on such requirements. Directors' ratio of compensation, employees' compensation method and ratio shall be handled according to the resolution adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of Directors, as well as reporting to the Shareholders' Meeting.

In calculating employees and Directors' compensation, profit of the current year (i.e. pre-tax profit before the distribution of employees and Directors' compensation) shall first deduct accumulated deficit and the resulting balance is used for calculation of employees and Directors' compensation.

B. The basis for estimating the amount of employee and director compensation, for calculating the number of shares to be distributed as employee compensation, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period.

The estimated amount of employee and Director compensation is estimated in accordance to procedures and shall be recognized as expenses in the current year. At the date of the resolution of the Board of Directors, if the amount changes, it will be

treated according to the accounting estimates and will be adjusted as the annual profit and loss of the resolution of the Shareholders' Meeting. If the Board of Directors decides to issue employee compensation in the form of shares, the number of shares that will be distributed as a share-based compensation is determined by dividing the amount of the shares as resolution by the fair value of the shares. The fair value of the shares shall be the closing price of the shares on the day prior to the resolution of the Shareholders' Meeting, and the impact of the ex-dividend shall be the basis for calculation.

C. Distribution of Compensation of Employees and Directors for 2019 Approved in the Board of Directors Meeting

(1) Recommended Distribution of Compensation of Employees, Directors and Supervisors:

Employee Compensation NT$ 5,500Thousand Directors' Compensation NT$ 7,000Thousand

The above compensation is paid in cash. No share has been distributed, and the amount is consistent with the estimated expenses for 2018.

(2) The amount of any employee compensation distributed in stocks, and the size of that amount as a percentage of the sum of the after-tax net income stated in the parent company only financial reports or individual financial reports for the current period and total employee compensation.

Not applicable.

D. Information of 2017 Distribution of Compensation of Employees and Directors (with an indication of the number of shares, monetary amount, and stock price, of the shares distributed) and, if there is any discrepancy between the actual distribution and the recognized employee or director compensation, additionally the discrepancy, cause, and how it is treated.

NT$8 million was distributed to employees in 2018, and NT$ 7 million was distributed to the Directors. The actual distribution was aligned with the Board of Directors resolution.

4.9 Buyback of Treasury Stock

The Company did not buy back any treasury stock.

4.10 Corporate Bond Issuance

The Company does not issue any corporate bonds.

4.11 Preferred Stock Issuance

The Company does not issue preferred shares.

4.12 Global Depository Receipts Issuance

The Company did not issue any global depository receipts.

4.13 Employee Stock Options

The Company did not issue any employee stock options.

4.14 New Restricted Employee Shares

None

4.15 Shares Issued for Mergers and Acquisitions

None

4.16 Utilization of Funds

4.16.1 Plan: The Company does not have any specific financial plans.

4.16.2 Implementation: None

Business Overview

5.1 Scope of Business

5.1.1 Business Scope

A. Main areas of business operations

Manufacturing, sales and distribution of pulp, paper, paperboard, timber, chemical products and fertilizers.

B. Revenue distribution

venue distribution
		Unit:NT$thousands
Major Divisions	Total Sales in Year 2018	(%)of Total Sales
Forestry	85,511	0.35
Pulp	4,246,584	17.71
Paper	14,930,068	62.27
Paperboard	4,653,483	19.41
Other	61,827	0.26
Total	23,977,473	100.0

C. Main products

Timber, pulp (NBKP, LBKP), paper and paperboards (cultural paper, special paper, tissue paper), and other derivative products from the process such as chemicals and fertilizers.

D. New products development:

Develop various types of special paper

5.1.2 Industry Overview

A. Macroeconomic Environment

According to the forecast of IHS Markit in November, due to the weakening of global demand and the US-China trade war, the global economic growth rate was 3.2% in 2018, slightly lower than the 3.3% in 2017. The annual economic growth of Taiwan was approximately 2.82%, representing a slight decrease compared to the 3.08% in 2017. The National Bureau of Statistics of China announced on January 20th, 2019 that its 2018 economic growth rate was 6.6%, which completed its annual target of 6.5%.

It is expected that the global economy growth will be slower in the first half of 2019. Significant growth will only take place in the second half of the year. There are still many uncertainties in the overall global economy. IHS Markit predicts that the US-China trade war may reduce global economic growth from 3.2% in 2018 to 3.1% in 2019. The weakened Chinese economy will have a major impact on Taiwan's merchandise export. The recent decrease in crude oil price has caused fluctuations in the price of pulp for the paper industry, adding many variables to the overall economy.

B. Current Status and Future Development

The international pulp price in 2018 projected stable growth in the first half of 2018, but the price began to drop in December. The price of NBKP decreased by 17% from US$940 per ton to approximately US$780 per ton, and the price of LBKP decreased

from $770 per ton to approximately US$680 per ton, representing a decrease of over 10%.

In terms of paper, according to Taiwan Paper Association, the production volume of paper and paperboard in Taiwan in 2018 was 4.254 million tons, representing a growth of 5.7% from 2017. The import volume was 1.537 million tons, representing a decrease of 1.1%. The domestic sales volume amounted to 4.344 million tons, representing an increase of 4.4% from 2017. The export volume of was 1.446 tons, representing an increase of 2.1%.

C. Relationship with Up-, Middle- and Downstream Companies

==> picture [566 x 257] intentionally omitted <==

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

Manufacturing, sales and The publishing industry special
distribution of pulp, paper and material application in various
Imported paperboard industries
Pulp
CHP
CHP
Manufacturing, sales and
Wood In-house distribution of containerboard The paperboard and corrugated
chips Pulp and corrugated cartons industries
CHP CHP
Recycles paper,
recycled pulp
Manufacturing, sales and
distribution of household paper Consumers, distributors
products
CHP
Upstream Industries Upstream paper industry Downstream paper industry
Mid-stream paper industry
(Fiber raw material (Pulp plant + waste paper (The packaging industry and end
(Paper production plant)
plant) Industry) users)
----- End of picture text -----

D. Product Trends and Competition

In recent years, domestic manufacturers such as Cheng Loong Corporation and TAIWAN PULP & PAPER CORPORATION have stopped the production of cultural paper. The Company has put part of the production capacity into special paper as well. Therefore, part of the cultural paper supply relies on import.

In terms of demand, the demand for cultural paper has been dropping due to the changes in reading habits (electronic books) and the declining population. The growth in packaging paper is still stable due to the booming e-commerce. The development of other special paper still has a positive outlook due to Industry 4.0 and the Internet.

The international pulp prices have slightly increased in the third quarter of 2018 in comparison with the same period of 2017. However, the price of raw materials is still increasing, which means the Company faces pressure from the costs. However, the Company is intricately linked to the local cultural industry, and is well aware of the impact of digitalization on the domestic printing industry. Therefore, the Company only made minimal adjustments in paper price, hoping that the pressure on the growth of the pulp price will be mitigated for the domestic cultural paper industry. Compared with the increase in costs, there is still a considerable gap in the paper price

adjustment.

In the face of the international pulp price fluctuations, the Company continues to supply LBKP for all factories in the Group in order to mitigate the impact of market price fluctuations on loss and profit. Flexible production and sales strategies will be adopted in the cultural paper market the sales model will be expanded continually to maintain the Company's reasonable profits and market share. In addition, the Company also continues to develop and explore special paper markets with high added value as well as diversified applications.

5.1.3 Research and Development

A. Research and Development Expenses in the Past Year and as of the Published

Day: The R&D expenses invested for 2018 and up to the publication date of this Annual Report were approximately NT$166 million, and the relevant costs for other development applications are not included.

B. Research and Development Achievements of the Past Year:

a. Pulp products: The product research and development effort for pulp focus on reducing the costs of energy and improving production efficiency to reduce the burden of the increase in the raw material costs.
b. Paper products: New technologies are adopted to develop special papers with multiple uses for different fields in order to increase the products' added value.

5.1.4 Long-term and Short-term Development

A. Short-term Development

a. Improve the process and process management to enhance the product. Competitiveness.
b. Invest in environmental protection equipment and adopt high standards for self-assessment of emissions.
c. Strengthen niche product research and development to develop various plastic alternative applications, in order to become an important player in the environmentally-friendly product market.
d. Vertically integrate the supply chain, strengthen cooperation with downstream processing plants to increase the overall industry competitiveness.
e. Strengthen information integration and utilize big data analysis to enhance the efficiency of procurement, production and sales processes.
f. Provide creative cash flow and logistic services and strength market control power.

B. Long-term Development

a. Develop sustainable and high value-added products made from materials based on herbaceous plant fiber to continuously transform the product structure
b. Commit to sustainability by increasing material utilization through recycling, reclaim and reuse, in order to further promote product diversification.
c. Implement training plans to cultivate the next generation of management in order to become one of the world's leading materials companies

5.2 Market and Sales Outlook

5.2.1 Market Analysis

A. Sales of main products

In terms of pulp, the international pulp price was unstable in 2018. For the Company, the sales strategy of paper pulp mainly concentrates on the LBKP supply within the Group. Overall production efficiency is improved through the combination of pulp and reduction and adjustment of wet pulp. In 2018, the Company has affected by the environmental protection policy in Mainland China. However, the economic situation and demand for pulp have led to an oversupply of inventory, which causes the pulp price to drop. At the beginning of 2019, due to the rise in wood chips, the price of pulp in the first quarter continued to grow.

The development of special paper sales benefits from Taiwan's location in the core area of East Asia with convenient shipping, which increases the overall service advantages over European and American competitors. However, the rising price for NBKP during the first half of last year made things difficult for the Company. Special paper is mostly made with NBKP. As the Company uses mostly imported NBKP, the price and competition from other international manufactures resulted in a lot of struggles. In contrast, although demand for cultural paper has not significantly improved, the rising pulp price for the first half of last year was beneficial for the Company's LBKP. The Company also benefited from the toilet paper shortage in the beginning of the year and the earthquake in Hualien, which has resulted in the positive performance.

In 2018, the production volume and sales of printing paper and paperboards were stable. With the gradual decline of market demand and the closure of domestic paper mills, the production of paper products in 2018 was 548,000 tons. The domestic sales volume was 400,000 tons, which was 4.4% lower than that in 2017. The export volume was 299,000 tons, which was 0.6% lower than that in 2017. In terms of sales value, the domestic sales value of paper products in 2018 was NT$10.15 billion, representing a 1.9% growth compared to last year. The increase in the cost of raw materials was the main reason for the increase in paper prices. The export value for 2018 reached NT$9.43 billion, representing an increase of 8.0%.

The Company focuses on the development of special paper products, and gradually plans to transform the production mix from cultural paper to industrial special materials, in order to supply diverse needs such as packaging, food, and electronics industries. Advanced countries have increased demand for multi-functional paper, and the demand for emerging markets has increased. This is the source of revenue growth. Looking forward to 2019, we will continue to improve product quality, strengthen the supply and demand of raw materials and imported products, as well as expanding the application and improving local services.

B. Sources of raw materials, and sales regions of main products

a. Main sources of raw materials:

Pulp: Chile, Brazil, Canada, the United States, Russia, Finland and New Zealand.

Wood chips: Australia, Chile, Indonesia, Vietnam and Thailand.

b. Pulp export: Mainland China, Korea and Thailand.

c. Paper export: China, Japan, South Korea, Southeast Asia, Australia, India, South Africa, USA and South America.

5.2.2 Major applications and production procedures of main products

Pulp—Production of different pulps depends on the needs of the paper mills. Pulp is made through wood chips, steaming, cleansing, bleaching, pulping and drying.
Paper products—The main raw material is pulp, which is made into various types of paper through disintegration, mixing, filtering, forming, dehydration, drying, coiling and processing. If the surface is coated, it is suitable for printing color printing. (Such as cultural paper, coated paper, mold paper, etc) There are also special papers for commercial use. (Such as Glissine paper and masking paper).

5.2.3 Supply Status of Main Materials

In 2018, the Company imported wood chips for producing LBKP in Taiwan, mainly from Australian eucalyptus trees. The Company adjusts the purchase amount while taking the price fluctuations of wood chips, shipping time and product characteristics into consideration. The raw materials purchase will always be closely monitored with market supply and demand changes as well as the quality to stabilize the costs.

5.2.4 Major Suppliers and Clients

A. Major Suppliers in the Last Two Calendar Years

The company had no suppliers purchased more than 10% in the most recent 2 years and the 1st quarter.

B. Major Clients in the Last Two Calendar Years

The company had no clients sold more than 10% in the most recent 2 years and the 1st quarter.

5.2.5 Production in the Last Two Years

Unit: MT / NT$ thousands

	2017	2017	2018	2018
Year
Output	Quantity	Amount	Quantity	Amount
Main Products
Pulp	383,476	7,342,558	363,262	8,083,896
Paper	444,889	12,860,534	424,543	13,707,654
Paperboard	117,204	2,270,907	123,207	2,431,235

Note: Outputs include the total numbers of overseas subsidiaries.

5.2.6 Shipments and Sales in the Last Two Years

Unit: MT / NT$ thousands

Year	2017	2017	2017	2017	2018	2018	2018	2018
Shipments	Local		Export		Local		Export
& Sales
Major	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
Products
Pulp	104,777	1,995,769	100,085	1,926,800	104,010	2,351,966	86,817	1,894,618
Paper	265,692	7,006,976	236,712	7,516,161	241,268	7,045,191	221,135	7,884,877
Paperboard	151,773	2,962,285	63,968	1,217,843	158,014	3,109,657	77,810	1,543,826

Note: Shipments & Sales include the total numbers of overseas subsidiaries.

5.3 Human Resources

				Current year up to the publication date of this Annual Report
Year		2017	2018

Number of employees		2,630	2,678	2,635
Average age		41.98	41.23	41.62
Averageyear of services		15.39	15.20	15.34
Education distrib ratio %	Ph.D.	0.04	0.15	0.15
	Masters	5.59	5.75	5.62
	Bachelor's Degree	39.83	40.59	41.25
	Senior High School	45.43	46.15	49.03
ution	Below Senior High School	9.11	7.36	3.95

Note: The number of employees includes the total numbers of overseas subsidiaries.

5.4 Environmental Protection Expenditure

The loss or penalty caused by environmental pollution during the latest year and up to the printing date of this annual report:

Air pollution: NT$3.7 million Water pollution: NT$ 51.192 million Waste: NT$ 6,000 Total: 54.898 million

After obtaining the ISO14001 environmental management international certification, the Company continues to strengthen the operation management of existing processing equipment in addition to handling various by-products produced during the process in accordance with relevant environmental laws and regulations. The Company also continues to invest in equipment improvement following the standards. In 2018, the Hualien Plant was affected by the strong earthquake. The earthquakes resulted in equipment abnormalities in the plant area,

leading to sporadic unstable quality of effluent discharge. The Company has added multiple monitoring and control points in the pulping and papermaking processes of the Hualien Plant, which can address abnormalities immediately and strengthen monitoring in order to complete the effluent treatment program.

Environmental protection capital expenditure: In 2018, the Company's Taiwanese and mainland production units' environmental protection expenditure investment amounted to approximately NT$260 million, including NT$ 60 million in water resource treatment and NT$ 170 million in air quality control, as well as NT$ 30 million in the processing of the solid waste from processes.
In response to the expansion plan of the production line and the improvement of equipment operation stability, the Company expects to invest NT$520 million in environmental protection equipment in Taiwan and mainland China in the next three years. The main improvement projects are as follows:

Maintain and upgrade the electrostatic precipitator and boiler systems Water resource treatment system improvement Treatment of the process residual lime mud

5.5 Labor Relations

5.5.1 Current important labor agreements and implementation

 Employee Benefits:

Formulate working rules in accordance with the Labor Standards Act, set up the Employee Welfare Committees to allocate funds on a monthly basis, hold labor-management meetings on a regular basis to facilitate two-way communications.
Offer employees group accident insurance and medical insurance to further enhance protection.
In order to strengthen the living conditions of employees' families, we provide appropriate assistance for the families of disabled or dead employees.
Encourage and fund employee activities to improve the employees' leisure time quality and promote employee cohesion.
Encourage employees to organize clubs and beneficial activities, as well as providing subsidies for the purpose.
Offer regular employee health check-ups and organize various group activities to safeguard the physical and mental health of employees.

 Employee Retirement System:

The Company has established retirement pension plans in accordance with the Labor Standards Act and Labor Pension Act, and established Labor Pension Reserve Supervision Committee as well as allocating the monthly employee pension fund. Retirement reserves are regularly paid at a rate of 6% of the total salary for those who are under the previous system. The money is deposited in the Bank of Taiwan's retirement reserve account. In accordance with the implementation of the Labor Pension Act, the pension is levied at a rate of 6% of the total salary in accordance with the law to select for existing employees of the new system and the new employees to whom to new system applies. The money is

allocated to the personal pension account at the Bureau of Labor Insurance.

Labor-management Communication:

Regular labor-management meetings are held to facilitate communications in order to adjust various measures and reach mutual consensus.

Employee Training

In order to achieve sustainable development, the Company has to face the challenges of the market and the industrial environment, hold consensus meetings on talent strategy development at the management level, revise various training development regulations, and verify the capacities of employees on all levels. Through systematic and continuous talent cultivation programs, the Company wishes to encourage the employees to effectively develop their potential and improve their performance. At the same time, the Company also provides diverse learning resources in four categories (including new recruit training, management training, professional training, general knowledge training, etc.) to encourage employees to improve themselves:

New Recruit Training: The purpose of the new recruit training is to assist new employees to familiarize themselves with the working environment, understand the corporate vision, organizational structure, rules and regulations, and the operating status of each functional and business unit.
Management Training: To strengthen organizational management efficiency, the Group will cultivate and enhance the management skills and strategic thinking abilities of the supervisors.
Professional Training: The purpose of professional training is to enhance professional skills required for professional personnel in each department.
General Knowledge Training: To cultivate knowledge and skills related to employees' independent operations, workplace communication and work management in order to meet the Company's future business development needs and achieve long-term operational goals.

The Company organized various training programs for employees in 2018, with a total of 13,261 employees in internal and external training for 45,046 hours.

				Total Expenses (in thousand dollars)
	Number of Classes	Total Number of Employees
Course type			Total Hours


Professional Skills	529	12,845	41,941	2,346
Management and General Knowledge	7	285	900	96
New Recruits Familiarization	15	131	2,205	55

 Employee Safety and Health:

The Company is also responsible for protecting the health and safety of each member. In addition to passing the OHSAS 18001 occupational safety and health management system certification, each factory has clearly demonstrated the determination to

promote employee safety and the vision of establishing a corporate safety culture.

To implement occupational health and safety, the Company has established the Occupational Safety and Health Center. Based on the above-mentioned safety concepts, various proactive measures have been adopted:

(1) Responsible unit hierarchy: The first level is the head of the occupational safety and health center, and the occupational safety and health professionals are responsible for cross-unit coordination, directly supervising and managing the safety and security policies, management methods and practices of the factories. The second level is the factories. Each factory has set up a dedicated occupational safety and health department which reports to the plant supervisor. The supervisor is in turn responsible for establishing the safety and health work rules of each factory, as well as the counseling, supervising and auditing the security measures.
(2) Promoting safe operations: Through the safety education and the work safety system, the Company will strengthen the safety management functions of the supervisors at all levels, gradually establish the safety values and standards for all employees, and create the consensus to promote safe operations.
(3) Standardization: Formulate standard operating procedures and work safety analysis.
(4) Employee Health Management: Regular employee health checkups that are superior than the legal requirements are implemented regularly. Health promotion plans are formulated according to the health examination results.
(5) Personnel safety training: Employees and contractors must receive safety training when they are new recruits or have a new position. Each department shall also conduct occupational safety training and education courses on a regular basis to enhance all employees' safety awareness.
(6) Incident notification and investigation: In the event of an occupational accident, each plant's person in charge as well as the occupational safety and health center shall be notified within 24 hours. An investigation will be coordinated, and the improvement plan will be proposed within one week. In the meantime, the incident shall be announced to all staff members to prevent the recurrence of similar incidents.
(7) Work safety reviews and disaster-relief drills: Besides implementing various disaster prevention drills and convening a monthly occupational safety and health meeting, the Company will also strengthen the equipment safety inspection and actively improve the working environment and safety protection facilities.

 Code of Conduct or Ethics:

The Company has formulated the Employee Service Code in the work rules to provide clear principles for the employees. In 2013, in accordance with the amendment to the Trade Secrets Act, the company also formulated the employee integrity and confidentiality and intellectual property agreement in order to strengthen the protection of the company's trade secrets, business interests and maintain competitive

advantage. All new employees are required to sign this document.

In July 2016, the “Code of Conduct” was promulgated to further require the employees to keep their own behaviors in check in their daily life and at work. They should voluntarily avoid improper interests, properly handle official duties, and effectively use work resources and common property. The Code also has a reporting pipeline and an investigation process. Through regular education and training, employees are made aware of the Company's emphasis on employee ethics.

Other Important Agreements: None.

5.5.2 Social Responsibility

In accordance with the Labor Standards Act, the Company has formulated working rules and regularly holds labor-management meetings to facilitate two-way communications.
The Company has established employee grievance mechanisms and channels, as well as properly handling employee complaints.
The Company's factories in Taiwan have obtained OHSAS 18001 certification, and have dedicated safety and health units to actively promote related tasks, formulate standard operating procedures and work safety analysis for each operation, fully standardize the operations, and strengthen the safety management functions of the supervisors at all levels to gradually establish the safety values and standards of all employees, as well as formulating the consensus to promote safe operation. The personnel must receive safety training as new recruits or for job transfers. Each department regularly organizes occupational safety training and education courses for its employees to enhance the safety awareness. Training courses are regularly implemented to improve all safety and health issues. The Company also actively conducts safety inspections to improve the working environment and safety protection facilities.
The Company regularly organizes various training programs, including professional skills, management and knowledge, and new employees' culture formation and on-the-job training to provide employees with career development and training.

5.5.3 Measures to enhance employee benefits or benefits over the previous year

Adjusted the employee health examination items and frequency to provide employees with health examinations that are superior to the regulations.
Continue to increase diversified welfare product options to meet the different needs of our employees.
Regularly organize birthday celebrations, employee trips, volunteer activities, etc., and encourage employees to actively participate in activities that are beneficial to their wellbeing.

5.5.4 Losses arising from labor disputes in the most recent year up to the publication date of this Annual Report: None.

Estimated losses and response measures that may occur in the future: None.

5.6 Major Contracts

Agreement	Counterparty	Period	Major Contents	Restrictions
Long term loan contract	5 lead arrangers, i.e. Bank of Taiwan, Taipei Fubon Bank, First Bank, O-Bank and Mega International Commercial Bank and 5 participating banks.	6/30/2016~ 6/30/2021	5-year syndicated loan with 20% to be repaid on the fourth anniversary from the first day of activation and 80% on the fifth anniversary.	N/A

Financial Overview

6.1 Five-Year Financial Summary

6.1.1 Condensed Balance Sheet and Condensed Statement of Comprehensive Income

A. Condensed Balance Sheet – IFRSs (Consolidated)

Unit: NT$ thousands


Year		Financial Summary for The Last Five Years

					2017
Item
		2014	2015	2016	(Audited after	2018

					Restated)

Current assets		13,785,306	13,080,307	11,884,530	12,937,151	13,763,487
Property, Plant and Equipment		12,868,983	13,741,408	14,560,196	14,345,577	14,565,267
Long-Term Investment		1,813,589	1,861,526	1,803,660	1,602,555	1,600,194
Other assets		1,016,144	1,742,898	1,404,507	1,387,464	1,431,431
Total assets		29,484,022	30,426,139	29,652,893	30,272,747	31,360,379
Current liabilities	Before distribution	6,257,192	7,770,394	7,416,126	8,871,833	9,169,284
	After distribution	6,379,475	8,432,095	7,802,118	9,423,251	Note1
Non-current liabilities		3,274,549	3,553,031	4,177,440	3,219,365	4,140,427
Total liabilities	Before distribution	9,531,741	11,323,425	11,593,566	12,091,198	13,309,711
	After distribution	9,654,024	11,985,126	11,979,558	12,642,616	Note1
Equity attributable the parent	to shareholders of	17,347,281	16,509,457	15,713,957	15,688,969	15,621,710
Capital stock		12,228,353	11,028,353	11,028,353	11,028,353	11,028,353
Capital surplus		21,030	27,286	34,403	36,602	31,468
Retained earnings	Before distribution	3,824,483	4,507,038	4,186,649	4,398,747	4,273,971
	After distribution	3,702,200	3,845,337	3,800,657	3,847,329	Note1
Other equity interest		1,273,415	946,780	464,552	225,267	287,918
Treasury stock		-	-	-	-	-
Equity Attributable To Former Owner Of Business Combination Under Common Control		-	-	-	86,069	-
Non-controlling interest		2,605,000	2,593,257	2,345,370	2,406,511	2,428,958
Total equity	Before distribution	19,952,281	19,102,714	18,059,327	18,181,549	18,050,668
	After distribution	19,829,998	18,441,013	17,673,335	17,630,131	Note1

Note1: The distribution of dividends from 2018 has yet to be approved by the 2019 shareholders meeting.

B. Condensed Statement of Comprehensive Income – IFRSs (Consolidated)

Unit: NT$ thousands

	Financial Summary for The Last Five Years	Financial Summary for The Last Five Years	Financial Summary for The Last Five Years	Financial Summary for The Last Five Years	Financial Summary for The Last Five Years
Year
				2017
Item	2014	2015	2016	(Audited after	2018
				Restated)
Operatingrevenue	21,144,930	20,990,843	22,001,536	22,839,355	24,025,221
Grossprofit	1,425,770	2,271,179	1,876,095	2,383,345	2,340,238
Income from operations	(121,980)	779,508	385,108	817,915	587,577
Non-operating income & expenses	135,182	80,947	(51,988)	90,796	77,627
Income before tax	13,202	860,455	333,120	908,711	665,204
Net income(Loss)	11,677	845,778	349,718	744,953	529,235
Net income (Loss) from Discontinued Operations	-	-	-	-	-
Net income(Loss)in theperiod	11,677	845,778	349,718	744,953	529,235
Other comprehensive income (income after tax)	851,116	(379,152)	(742,077)	(302,896)	(46,269)
Total comprehensive income	862,793	466,626	(392,359)	442,057	482,966
Net income attributable to shareholders of theparent	27,496	779,717	391,114	618,582	445,663
Net income attributable to Former Owner Of Business Combination Under Common Control	-	-	-	18,738	18,989
Net income attributable to non-controllinginterest	(15,819)	66,061	(41,396)	107,633	64,583
Comprehensive income attributable to Shareholders of theparent	735,504	478,369	(144,472)	363,366	445,156
Comprehensive income attributable to Former Owner Of Business Combination Under Common Control	-	-	-	17,550	16,263
Comprehensive income attributable to non-controlling interest	127,289	(11,743)	(247,887)	61,141	21,547
Earningsper share	0.02	0.66	0.35	0.56	0.40

C. Condensed Balance Sheet – IFRS (Stand-Alone)

Unit: NT$ thousands


Year		Financial Summary for The Last Five Years

					2017
Item
		2014	2015	2016	(Audited after	2018

					Restated)

Current assets		6,793,373	7,087,286	6,505,215	7,164,802	7,971,014
Property, Plant and Equipment		11,676,041	11,814,617	11,893,495	11,873,321	12,255,178
Long-Term Investment		7,451,116	7,568,755	7,125,512	6,986,810	7,007,495
Other assets		430,853	590,795	815,469	857,262	802,133
Total assets		26,351,383	27,061,453	26,339,691	26,882,195	28,035,820
Current liabilities	Before distribution	5,731,000	7,022,419	6,395,036	7,974,144	8,474,607
	After distribution	5,853,283	7,684,120	6,781,028	8,525,562	Note1
Non-current liabilities		3,273,102	3,529,577	4,230,698	3,133,013	3,939,503
Total liabilities	Before distribution	9,004,102	10,551,996	10,625,734	11,107,157	12,414,110
	After distribution	9,126,385	11,213,697	11,011,726	11,658,575	Note1
Capital stock		12,228,353	11,028,353	11,028,353	11,028,353	11,028,353
Capital surplus		21,030	27,286	34,403	36,602	31,468
Retained earnings	Before distribution	3,824,483	4,507,038	4,186,649	4,398,747	4,273,971
	After distribution	3,702,200	3,845,337	3,800,657	3,847,329	Note1
Other equity interest		1,273,415	946,780	464,552	225,267	287,918
Treasury stock		-	-	-	-	--
Former Owner Of Business Combination Under Common Control		-	-	-	86,069	-
Total equity	Before distribution	17,347,281	16,509,457	15,713,957	15,775,038	15,621,710
	After distribution	17,224,998	15,847,756	15,327,965	15,223,620	Note1

Note1: The distribution of dividends from 2018 has yet to be approved by the 2019 shareholders meeting.

D. Condensed Statement of Comprehensive Income – IFRSs (Stand-Alone)

Unit: NT$ thousands


	Financial Summary for The Last Five Years
Year
				2017
Item	2014	2015	2016	(Audited after	2018
				Restated)
Operatingrevenue	18,903,093	18,728,358	19,433,094	19,905,161	21,005,335
Grossprofit	1,338,377	1,965,139	1,866,437	1,900,672	1,765,932
Income from operations	(80,285)	604,896	493,268	497,495	291,560
Non-operating income & expenses	107,953	174,821	53,064	218,778	241,742
Income before tax	27,668	779,717	440,204	716,273	533,302
Netprofit for the currentperiod	27,496	779,717	391,114	637,320	464,652
Net income (Loss) from Discontinued Operations	-	-	-	-	-
Net income(Loss)	27,496	779,717	391,114	637,320	464,652
Other comprehensive income (income after tax)	708,008	(301,348)	(535,586)	(256,404)	(3,233)
Total comprehensive income	735,504	478,369	(144,472)	380,916	461,419
Earningsper share	0.02	0.66	0.35	0.56	0.40

6.1.2 Auditors’ Name and their Opinions

Year	CPA’s Name	Audit Opinion
2014	Shiow-MingShue, DennyKuo	A Modified Unqualified Opinion
2015	Shiow-MingShue, DennyKuo	An Unmodified Opinion
2016	Shiow-MingShue, DennyKuo	An Unmodified Opinion
2017	Shu-Wan Lin, Shiow-MingShue	An Unmodified Opinion
2018	Shu-Wan Lin, Shiow-Ming Shue	An Unmodified Opinion With Emphasis of Matterparagraph

6.2 Five-Year Financial Analysis

A. Consolidated Financial Analysis – IFRSs

	Year	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years

Item		2014	2015	2016	2017	2018
Financial Structure (%)	Debt Ratio	32	37.22	39.10	40.02	42.44
	Ratio of long-term capital to property, plant and equipment	160	143.31	136.61	131.81	135.68
Solvency (%)	Current ratio	220	168.34	160.25	144.97	150.10
	Quick ratio	149	111.91	113.15	105.04	99.94
	Interest earned ratio(times)	1	14.20	5.49	11.84	8.27
Operating Performance	Accounts receivable turnover (times)	6.52	6.13	5.50	6.36	6.86
	Average collectionperiod	55.98	59.54	66.36	57.39	53.21
	Inventoryturnover(times)	5.10	4.79	5.94	6.77	6.00
	Accountspayable turnover(times)	7.89	7.00	7.20	9.04	9.54
	Average days in sales	72	76.20	61.45	53.91	60.83
	Property, plant and equipment turnover(times)	1.64	1.53	1.51	1.58	1.65
	Total assets turnover(times)	0.72	0.69	0.74	0.75	0.77
Profitability	Return on total assets(%)	0.22	3.00	1.37	2.65	1.96
	Return on stockholders' equity (%)	0.16	4.61	2.17	4.63	3.38
	Pre-tax income to paid-in capital (%)	0.11	7.80	3.02	8.02	6.03
	Profit ratio(%)	0.06	4.03	1.59	3.20	2.20
	Earningsper share(NT$)	0.02	0.66	0.35	0.56	0.40
Cash Flow	Cash flow ratio (%)	11.73	20.07	27.59	21.45	5.39
	Cash flow adequacy ratio (%)	62.84	45.13	65.76	91.82	71.90
	Cash reinvestment ratio (%)	1.44	2.81	2.71	2.95	(0.11)
Leverage	Operating leverage	(6.70)	2.18	3.42	2.43	2.94
	Financial leverage	0.66	1.09	1.22	1.12	1.18
Analysis of financial ratio differences for the last two years.
1. Solvency: The decrease in net profit before income tax and interest compared to 2017 resulted in the i h i i
decrease n te nterest coverage rato. 2. Operation performance: Due to the impact of the global trade disputes in 2018, the market demand reduced.
To manage costs, the Company reduced the amount of unnecessary purchases, causing the accounts
payable turnover to drop. 3. Profitability: Due to the impact of international trade disputes in 2018, the product sales decreased and caused a decline in profit. 4. Cash flow: Due to the decrease in cash inflow from operating activities in 2018, the related ratio is also reduced.

Solvency: The decrease in net profit before income tax and interest compared to 2017 resulted in the decrease in the interest coverage ratio.
Operation performance: Due to the impact of the global trade disputes in 2018, the market demand reduced.
To manage costs, the Company reduced the amount of unnecessary purchases, causing the accounts payable turnover to drop.
1. Profitability: Due to the impact of international trade disputes in 2018, the product sales decreased and caused a decline in profit.
Cash flow: Due to the decrease in cash inflow from operating activities in 2018, the related ratio is also reduced.

B. Stand-Alone Financial Analysis – IFRSs

	Year	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years	Financial Analysis for the Last Five Years

Item		2014	2015	2016	2017	2018
Financial structure (%)	Debt Ratio	34	39	40	41	44
	Ratio of long-term capital to property, plant and equipment	177	166	167	159	160
Solvency (%)	Current ratio	119	101	100	90	94
	Quick ratio	60	45	57	50	49
	Interest earned ratio(times)	2	13	7	10	8
Operating performance	Accounts receivable turnover (times)	8.47	7.76	7.50	7.06	7.14
	Average collectionperiod	43	47	49	52	51
	Inventoryturnover(times)	5.91	5.15	5.82	6.72	5.98
	Accountspayable turnover(times)	9.79	9.10	9.66	9.03	9.49
	Average days in sales	62	71	63	54	61
	Property, plant and equipment turnover(times)	1.62	1.59	1.63	1.68	1.71
	Total assets turnover(times)	0.72	0.69	0.74	0.74	0.75
Profitability	Return on total assets(%)	0.29	3.11	1.69	2.56	1.91
	Return on stockholders' equity (%)	0.16	4.61	2.43	3.94	2.97
	Pre-tax income to paid-in capital (%)	0.23	7.07	3.99	6.32	4.84
	Profit ratio(%)	0.15	4.16	2.01	3.11	2.21
	Earningsper share(NT$)	0.02	0.66	0.35	0.56	0.40
Cash flow	Cash flow ratio (%)	9	12	31	12	3
	Cash flow adequacy ratio (%)	69.41	32.42	65.76	79.80	60.69
	Cash reinvestment ratio (%)	1.08	1.56	3.00	1.18	(0.61)
Leverage	Operating leverage	(8.86)	2.25	2.60	2.78	4.10
	Financial leverage	0.59	1.12	1.17	1.18	1.34
Analysis of financial ratio differences for the last two years
1. Solvency: The decrease in net profit before income tax and interest compared to 2017 resulted in the d i h i i
ecrease n te nterest coverage rato. 2. Operation performance: Due to the impact of the global trade disputes in 2018, the market demand reduced.
To manage costs, the Company reduced the amount of unnecessary purchases, causing the accounts
payable turnover to drop. 3. Profitability: Due to the impact of international trade disputes in 2018, the product sales decreased and caused a decline in profit. 4. Cash flow: Due to the decrease in cash inflow from operating activities in 2018, the related ratio is also reduced.

Solvency: The decrease in net profit before income tax and interest compared to 2017 resulted in the decrease in the interest coverage ratio.
Operation performance: Due to the impact of the global trade disputes in 2018, the market demand reduced. To manage costs, the Company reduced the amount of unnecessary purchases, causing the accounts payable turnover to drop.
Profitability: Due to the impact of international trade disputes in 2018, the product sales decreased and caused a decline in profit.
Cash flow: Due to the decrease in cash inflow from operating activities in 2018, the related ratio is also reduced.

Note:

Financial Structure

(1) Debt to asset ratio = Total liabilities / Total assets

(2) Long-term fund to PP&E ratio = (Shareholders’ equity + Long-term liabilities) / Net PP&E Solvency

(1) Current ratio = Current assets / Current liabilities

(2) Quick ratio = (Current assets – Inventory – Prepaid expenses) / Current liabilities

(3) Interest coverage ratio = Income before interest and taxes / Interest expense Operation Performance

(1) Accounts receivable turnover = Net revenue / Average accounts receivable
(2) Average collection days = 365 / AR turnover
(3) Inventory turnover = COGS / Average inventory
(4) Accounts payable turnover = COGS / Average accounts payable
(5) Average days sales = 365 / Inventory turnover
(6) PP&E turnover = Net revenue / Average net PP&E
(7) Total asset turnover = Net revenue / Average total assets
Profitability
(1) Return on assets = [Net income + Interest expense x (1 – Tax rate)] / Average assets
(2) Return on equity = Net income / Average equity
(3) Net income margin = Net income / Net sales
(4) EPS = (Net income – Preferred stock dividends) / Weighted average outstanding shares
Cash Flow

(1) Cash flow ratio = Cash flow from operating activities / Current liabilities

(2) Cash flow adequacy ratio = Net cash flow from operating activities for the past 5 years / (Capital expenditure + Increases in inventory + Cash dividends for the past 5 years)

(3) Cash reinvestment rate = (Cash flow from operating activities – Cash dividends) / (Gross PP&E + Long-term investments + Other assets + Working capital)

Leverage

(1) Operating leverage = (Net revenue – Variable operating costs and expenses) / Operating income

(2) Financial leverage = Operating income / (Operating income – Interest expense)

6.3 Audit Committee’s Report for the Most Recent Year

The Company’s 2018 business report, financial statements and proposal of

earnings distribution have been reviewed and determined to be correct and

accurate by the Audit Committee, so according to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act, we hereby submit this report to the 2019 Annual General Meeting of shareholders of the Company.

Chung Hwa Pulp Corporation Convener of the audit committee: Donald Chang March 21, 2019

6.4 Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017, and

Independent Auditors’ Report

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 (collectively referred to as the “Group”) which comprise the consolidated balance sheets as of December 31, 2018 and 2017, 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, 2018 and 2017, 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 Matter

Key audit matter is the matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. The matter was 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 the matter.

The description of key audit matter of the consolidated financial statements for the year ended December 31, 2018 is as follows:

Estimation of Expected Credit Loss Recognized on Accounts Receivable

The accounts receivable of the Group is material in amount. In consideration of the business volume, the recoverability of accounts receivable is not only subject to each customer’s financial condition but also management’s estimation and judgement. Therefore, the estimation of expected credit loss recognized on accounts receivables was identified as a key audit matter.

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

We analyzed the sufficiency of expected credit loss rates used based on the Group’s historical experience and existing market conditions, and assessed whether the provision policy for accounts receivable adopted by the Group was reasonable.
We tested sample items in the aging report to verify the completeness and accuracy of accounts receivable and evaluated the appropriateness of the amount of credit loss calculated by management.
We inquired if there was any customer with overdue receivables suffering from financial difficulties to ensure whether the management had adopted appropriate actions to secure such customers’ receivables, and performed sampling on the collection of outstanding overdue receivables after the balance sheet date.

Emphasis of Matter

As disclosed in Notes 17 and 27 to the accompanying consolidated financial statements, Guangdong Ding Fung Pulp & Paper Co., Ltd. acquired 100% equity of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary of YFY Inc. group in the fourth quarter of 2018. In compliance with the “Comments on IFRS” and Interpretation 2012-301 issued by the Accounting Research and Development Foundation, the acquisition resulted in a joint control restructuring. Therefore, in the preparation of comparative consolidated financial statements, the acquisition is disclosed as if it has occurred before January 1, 2017 and the Group’s consolidated financial statements as of and for the year ended December 31, 2017 are restated.

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, 2018 and 2017, on which we have issued an unmodified opinion with emphasis of matter paragraph and an unmodified opinion, respectively.

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 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 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 the matter that was of most significance in the audit of the consolidated financial statements for the year ended December 31, 2018, and is therefore the key audit matter. We describe the matter 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 21, 2019

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.

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (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 - current (Notes 4 and 9) Financial assets at fair value through other comprehensive income - current (Notes 4 and 8) Derivative financial assets for hedging - current (Notes 4 and 10) Financial assets for hedging - current (Notes 4 and 10) Financial assets at amortized cost - current (Notes 4 and 11) Debt investments with no active market - current (Notes 4 and 12) Notes and accounts receivable (Notes 4 and 14) Notes and accounts receivable from related parties (Notes 4 and 31) Other receivables from related parties (Notes 4 and 31) Inventories (Notes 4 and 15) Biological assets (Notes 4 and 16) Other current assets (Note 30) Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Notes 4 and 7) Financial assets at fair value through other comprehensive income - non-current (Notes 4 and 8) Available-for-sale financial assets - non-current (Notes 4 and 9) Financial assets at amortized cost - non-current (Note 11) Debt investments with no active market - non-current (Notes 4 and 11) Financial assets measured at cost - non-current (Notes 4 and 13) Investments accounted for using the equity method (Notes 4 and 18) Property, plant and equipment (Notes 4 and 19) Investment properties (Notes 4 and 20) Deferred tax assets (Notes 4 and 25) Prepayments for equipment Long-term prepayments for lease Other non-current assets (Note 30) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 21) Short-term bills payable (Note 21) Financial liabilities for hedging - current (Note 10) Notes and accounts payable Notes and accounts payable to related parties (Note 31) Other payables Other payables to related parties Current tax liabilities Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note 21) Deferred tax liabilities (Notes 4 and 25) Net defined benefit liabilities (Notes 4 and 22) Other non-current liabilities (Note 30) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 23) 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 EQUITY ATTRIBUTABLE TO FORMER OWNER OF BUSINESS COMBINATION UNDER COMMON CONTROL (Notes 4 and 7) NON-CONTROLLING INTERESTS Total equity TOTAL The accompanying notes are an integral part of the consolidated financial statements.		2018 Amount % $ 553,379 2 7,515 - - - 1,052,704 3 - - 50 - 5,900 - - - 2,681,907 9 775,390 3 769,379 2 4,196,216 13 3,317,475 11 403,572 1 13,763,487 44 171,035 1 560,484 2 - - 5,000 - - - - - 863,675 3 14,565,267 46 257,411 1 75,142 - 534,411 2 459,664 1 104,803 - 17,596,892 56 $ 31,360,379 100 $ 3,694,901 12 1,849,709 6 250 - 1,513,565 5 602,750 2 1,031,220 3 7,433 - 16,768 - 452,688 1 9,169,284 29 1,695,875 5 2,005,460 6 234,935 1 204,157 1 4,140,427 13 13,309,711 42 11,028,353 35 31,468 - 181,691 1 1,186,894 4 2,905,386 9 4,273,971 14 287,918 1 15,621,710 50 - - 2,428,958 8 18,050,668 58 $ 31,360,379 100	2017 (Audited after Restated)	2017 (Audited after Restated)
				Amount % $ 1,241,576 4 33,255 - 946,232 3 - - 1 - - - - - 209,752 1 2,732,262 9 801,271 3 94,618 - 3,076,608 10 3,280,878 11 520,698 2 12,937,151 43 - - - - 332,343 1 - - 175,000 1 239,402 1 855,810 3 14,345,577 47 257,678 1 112,551 - 403,421 1 480,073 2 133,741 - 17,335,596 57 $ 30,272,747 100 $ 3,324,328 11 1,949,268 6 - - 1,849,963 6 579,035 2 621,899 2 - - 17,889 - 529,451 2 8,871,833 29 914,075 3 1,991,427 7 224,695 1 89,168 - 3,219,365 11 12,091,198 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 86,069 - 2,406,511 8 18,181,549 60 $ 30,272,747 100

(With Deloitte & Touche auditors’ report dated March 21, 2019)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Note 31) Sales Sales returns and allowances Net sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 15, 24 and 31) Cost of goods sold Other operating cost Total operating costs LOSS FROM CHANGES IN FAIR VALUE LESS COSTS TO SELL OF BIOLOGICAL ASSETS (Note 16) GROSS PROFIT OPERATING EXPENSES (Notes 24 and 31) Selling and marketing General and administrative Research and development Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Finance costs (Note 24) Share of profit of associates (Note 18) Interest income (Note 31) Dividend income Other income		2018 Amount % $ 24,092,008 100 128,585 - 23,963,423 100 61,798 - 24,025,221 100 21,626,895 90 47,393 - 21,674,288 90 (10,695 ) - 2,340,238 10 1,217,822 5 387,470 1 147,369 1 1,752,661 7 587,577 3 (91,459) - 57,270 - 40,311 - 55,783 - 59,522 -		2017 (Audited after Restated)
				Amount % $ 22,942,001 101 156,528 1 22,785,473 100 53,882 - 22,839,355 100 20,426,879 89 21,020 - 20,447,899 89 (8,111 ) - 2,383,345 11 1,212,991 5 322,224 2 30,215 - 1,565,430 7 817,915 4 (81,667) - 20,906 - 28,635 - 32,609 - 70,713 - (Continued)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Gain (loss) on disposal of property, plant and equipment Gain (loss) on disposal of investments Loss (gain) on financial instruments at FVTPL Other losses Foreign exchange loss Total non-operating income and expenses PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 25) 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 Unrealized gain on investments in equity instruments at fair value through other comprehensive income Share of the 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 the financial statements of foreign operations Unrealized loss on available-for-sale financial assets Cash flow hedges Loss on hedging instruments Share of the other comprehensive loss of associates Other comprehensive loss for the year, net of income tax		2018 Amount % $ 8 - 12 - (24,159) - (5,063) - (14,598 ) - 77,627 - $ 665,204 3 135,969 1 529,235 2 (40,093) - 59,458 - (23,316) - 16,606 - (56,810) - - - - - (584) - (1,530 ) - (46,269 ) -		2017 (Audited after Restated)
				Amount % $ (6,796) - (1,120) - 47,815 - (5,654) - (14,645 ) - 90,796 - $ 908,711 4 163,758 1 744,953 3 (19,062) - - - (109) - 3,240 - (254,174) (1) (2,131) - 4,973 - - - (35,633 ) - (302,896 )(1 ) (Continued)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control Non-controlling interests EARNINGS PER SHARE (Note 26) Basic Diluted		2018 Amount % $ 482,966 2 $ 445,663 2 $ 529,235 2 $ 18,989 - 64,583 - $ 445,156 2 16,263 - 21,547 - $ 482,966 2 $ 0.40 $ 0.40		2017 (Audited after Restated)
				Amount % $ 442,057 2 $ 618,582 3 $ 744,953 3 $ 18,738 - 107,633 - $ 363,366 2 17,550 - 61,141 - $ 442,057 2 $ 0.56 $ 0.56
		$ $		$ $
		$		$
		$		$
		$		$

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

(With Deloitte & Touche auditors’ report dated March 21, 2019)

(Concluded)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

	Equity Attributable to O	wners of the Company (Notes 4and 22)	wners of the Company (Notes 4and 22)	wners of the Company (Notes 4and 22)
Share Capital Shares (In Thousands) Amount Capital Surplus 1,102,835 $ 11,028,353 $ 34,403 - - - - - - - - - - - 2,204 - - - - - - - - - - - (5 ) 1,102,835 11,028,353 36,602 - - - 1,102,835 11,028,353 36,602 - - - - - - - - 1,349 - - (6,467 ) - - - - - - - - - - - (16 ) 1,102,835 $ 11,028,353 $ 31,468	Retained Earnings	Total $ 4,186,649 - - (385,992 ) (4,561 ) 618,582 (15,931 ) 602,651 - 4,398,747 (3,719 ) 4,395,028 - (551,418 ) - 8,292 445,663 (23,594 ) 422,069 - $ 4,273,971		Other Equity		Loss on Hedging Instrument $ - - - - - - - - - - (6,377 ) (6,377 ) - - - - - (584 ) (584 ) - $ (6,961 )
			Exchange Differences on Translating the Financial Statements of Foreign Operations $ 131,549 - - - - - (218,984 ) (218,984 ) - (87,435 ) - (87,435 ) - - - - - (12,578 ) (12,578 ) - $ (100,013 )	Unrealized Gain (Loss) on Financial Unrealized Assets at Fair Gain (Loss) on Value Through Available-for- Other sale Financial Comprehensive Assets Income $ 344,353 $ - - - - - - - - - - - (25,274 ) - (25,274 ) - - - 319,079 - (319,079 ) 358,643 - 358,643 - - - - - - - - - - - 36,249 - 36,249 - - $ - $ 394,892	Cash Flow Hedges $ (11,350 ) - - - - - 4,973 4,973 - (6,377 ) 6,377 - - - - - - - - - $ -
Shares (In Thousands) 1,102,835 - - - - - - - - 1,102,835 - 1,102,835 - - - - - - - - 1,102,835	Unappropriated Legal Reserve Special Reserve Earnings $ 80,721 $ 1,186,894 $ 2,919,034 - - - 39,112 - (39,112 ) - - (385,992 ) - - (4,561 ) - - 618,582 - - (15,931 ) - - 602,651 - - - 119,833 1,186,894 3,092,020 - - (3,719 ) 119,833 1,186,894 3,088,301 61,858 - (61,858 ) - - (551,418 ) - - - - - 8,292 - - 445,663 - - (23,594 ) - - 422,069 - - - $ 181,691 $ 1,186,894 $ 2,905,386

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

(With Deloitte & Touche auditors’ report dated March 21, 2019)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (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
Expected credit loss recognized on accounts receivables
Net loss (profit) 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
(Gain) loss on disposal of property, plant and equipment
Net (gain) loss on disposal of investments
(Reversal of) write-downs 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
Decrease in financial assets held for trading
Decrease in financial assets mandatorily classified as at fair
value through profit or loss
Decrease in notes and accounts receivable
(Increase) decrease in notes and accounts receivable from
related parties
Increase in inventories

Increase in biological assets
Decrease in other current assets
Increase (decrease) in notes payable and accounts payable
Increase in notes and accounts payable to related parties
Increase (decrease) in other payables
Decrease in other current liabilities
Decrease in net defined benefit liabilities

Cash generated from operations
Interest received
Interest paid
Income tax paid

Net cash generated from operating activities

2018
2017
(Audited After
Restated)
$ 665,204
$ 908,711
1,141,585
1,135,648
-
3,065
4,376
-
24,159
(47,815)
91,459
81,667
(40,311)
(28,635)
(55,783)
(32,609)
(57,270)
(20,906)
(8)
6,796
(12)
1,120
(681)
3,712
(12,269)
(12,558)
10,695
8,111
-
23,457
208,726
-
30,089
16,041
20,327
(13,835)
(1,128,103)
(18,855)
(106,099)
(79,279)
114,972
32,590
(332,057)
304,797
58,901
32,268
58,283
(66,923)
(52,061)
(167,599)
(29,853
)
(80,916
)
614,269
1,988,053
39,484
28,462
(90,577)
(85,527)
(68,819
)
(13,268
)
494,357
1,917,720
(Continued)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

			2017
			(Audited After
		2018	Restated)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial assets at fair value through other
comprehensive income	$	(24,983)	$ -
Proceeds from capital reduction on financial assets at fair
value through other comprehensive income		18,655	-
Purchase of financial assets at amortized cost		(1,100)	-
Purchase of available-for-sale financial assets		-	(212,335)
Purchase of debt investments with no active market		-	(213,651)
Proceeds from the sale of debt investments with no active market		-	10,100
Proceeds from capital reduction on financial assets measured at
cost		-	22,500
Purchase of financial instruments for hedging		(9,645)	(443)
Proceeds from the sale of financial instruments for hedging		2,719	5,539
Disposal of investments accounted for by using the equity
method		-	1,128
Net cash outflow from acquisition of subsidiary under common
control		(100,083)	-
Payments for property, plant and equipment		(1,004,351)	(1,036,155)
Proceeds from the disposal of property, plant and equipment		9	127
(Increase) decrease in other receivables from related parties		(640,258)	202,821
Decrease (increase) in other non-current assets		3,835	(229,409)
(Increase) decrease in prepayments for equipment		(133,626)	155,100
Dividend received		88,583	72,275
Net cash used in investing activities		(1,800,245 )	(1,222,403 )
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings		363,820	1,493,448
Decrease in short-term bills payable		(99,559)	(50,091)
Proceeds from long-term borrowings		2,500,000	3,974,310
Repayments of long-term borrowings		(1,720,000)	(5,010,000)
Increase in other payables to related parties		7,433	-
Increase in other non-current liabilities		118,196	31,284
Cash dividends paid		(549,355 )	(387,909 )

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

Net cash generated from financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET (DECREASE) 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	2018 2017 (Audited After Restated) $ 620,535 $ 51,042 (2,844 ) (5,853 ) (688,197) 740,506 1,241,576 501,070 $ 553,379 $ 1,241,576

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

(With Deloitte & Touche auditors’ report dated March 21, 2019) (Concluded)

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

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

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 operations. 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, 2018 and 2017.

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 21, 2019.

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

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies:

1) IFRS 9 “Financial Instruments” and related amendments

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as of January 1, 2018, the Group has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Group’s financial assets and financial liabilities as of January 1, 2018.

Financial Assets
Cash and cash equivalents
Derivatives

Mutual funds

Structured deposits

Equity securities

Debt securities

Time deposits with
original maturities of
more than 3 months

Notes receivable,
accounts receivable and
other receivables

Refundable deposits

Financial Assets
FVTPL

Add: Reclassification from
available-for-sale (IAS 39)
Add: Reclassification from
loans and receivables
(IAS 39)

FVTOCI
Add: Reclassification from
available-for-sale (IAS 39)

Amortized cost
Add: Reclassification from
loans and receivables
(IAS 39)

Hedging Instruments Measurement Category
Carrying Amount
IAS 39
IFRS 9
IAS 39
IFRS 9
Remark
Loans and receivables
Amortized cost
$ 697,313 $ 697,313
b)
Held‑for‑trading
Mandatorily at fair value
through profit or loss
(i.e. FVTPL)
3,934
3,934
e)
Hedging instruments
Hedging instruments
1
1
Held‑for‑trading
Mandatorily at FVTPL
29,321
29,321
e)
Loans and receivables
Mandatorily at FVTPL
749,215
751,182
a)
Available‑for‑sale
Mandatorily at FVTPL
11,902
-
c)
Available‑for‑sale
Fair value through other
comprehensive income
(i.e. FVTOCI) - equity
instruments
1,506,075
1,547,401
c)
Loans and receivables
Mandatorily at FVTPL
170,000
171,035
d)
Loans and receivables
Amortized cost
9,800
9,800
b)
Loans and receivables
Amortized cost
3,751,452
3,748,450
b)
Loans and receivables
Amortized cost
18,159
18,159
b)
IAS 39
Carrying
Amount as of
January 1,
2018
Reclassifi-
cations
Remeasu-
rements
IFRS 9
Carrying
Amount as of
January 1,
2018
Retained
Earnings
Effect on
January 1,
2018
Other
Equity
Effect on
January 1,
2018
Remark
$ 33,255 $ - $ - $ 33,255 $ - $ -
-
11,902
(11,902 )
-
(11,902 )
-
c)

-

922,217

-

922,217

-

-
a), d)

33,255

934,119

(11,902
)
955,472

(11,902
)
-
-
-
-
-
-

-

1,506,075

41,326

1,547,401

-

41,326
c)

-

1,506,075

41,326

1,547,401

-

41,326
-
-
-
-
-
-

-

4,473,722

-

4,473,722

-

-
b)

-

4,473,722

-

4,473,722

-

-

1

-

-

1

-

-
$ 33,256
$ 6,913,916
$ 29,424
$ 6,976,596
$ (11,902
)$ 41,326

100

Carrying Amount as of December 31, 2017 (IAS 39) Adjustments Arising from Initial Application Carrying Amount as of January 1, 2018 (IFRS 9) Investments accounted for using the equity method $ 855,810 $ 1,322 $ 857,132	Retained Earnings Effect on January 1, 2018 Other Equity Effect on January 1, 2018 Note $ 3,084 $ (1,762 ) f)

a) Structured deposits were classified as loans and receivables under IAS 39 because they were hybrid instruments. They have been classified as mandatorily measured at FVTPL in their entirety under IFRS 9 since they contain host contracts that did not meet the contractual cash flows test.
b) Cash and cash equivalents, time deposits with original maturities of more than 3 months, notes and accounts receivable, other receivables, and refundable deposits that were previously classified as loans and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9.
c) The Group elected to designate all its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are not held for trading. As a result, the related other equity - unrealized gain on available-for-sale financial assets of $319,079 thousand was reclassified to other equity - unrealized gain on financial assets at FVTOCI.

Investments in unlisted shares previously measured at cost under IAS 39 have been classified at FVTPL/designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, a decrease of $11,902 thousand/an increase of $41,326 thousand was recognized in both financial assets at FVTPL and retained earnings/both financial assets at FVTOCI and other equity - unrealized gain on financial assets at FVTOCI on January 1, 2018.

d) Debt investments previously classified as loans and receivables and measured at amortized cost under IAS 39 did not meet the contractual cash flows test, so they were classified mandatorily as at FVTPL under IFRS 9.
e) Mutual funds and derivatives previously classified as held-for-trading under IAS 39 were classified mandatorily as at FVTPL under IFRS 9.
f) As a result of the retrospective application of IFRS 9 by associates, there was an increase in investments accounted for using the equity method of $1,322 thousand, a decrease in other equity - unrealized gain on financial assets at FVTOCI of $1,762 thousand, and an increase in retained earnings of $3,084 thousand on January 1, 2018.

Hedge accounting

On adoption of IFRS 9, the Group elected not to apply the treatment of hedging cost for forward contracts retrospectively. Furthermore, due to the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, all derivative and non-derivative financial assets and financial liabilities which are designated as hedging instruments are presented as financial assets and financial liabilities for hedging starting from January 1, 2018.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers

101

and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for related accounting policies.

As a result of the retrospective application of IFRS 15 by associates, there was an increase in investments accounted for using the equity method and retained earnings of $5,099 thousand on January 1, 2018. The application did not have any material impact on assets and liabilities as of January 1, 2018 and the comprehensive income and cash flows for the year then ended.

b. Amendments to the IFRSs endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations
(the “New IFRSs”)
Annual Improvements to IFRSs 2015-2017 Cycle

Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”

IFRS 16 “Leases”

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)
January 1, 2019
January 1, 2019 (Note 3)
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: 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 standards for lease recognition and lessor-lessee accounting that will supersede IAS 17 “Leases” and related interpretations such as IFRIC 4 “Determining whether an Arrangement contains a Lease”.

Definition of a lease

Upon initial application of IFRS 16, the Group will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

Upon initial application of IFRS 16, the Group will recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group will present the depreciation expense

102

charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights of land located in China are recognized as prepayments for leases. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows.

The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid lease payments. The Group will apply IAS 36 to all right-of-use assets.

The Group expects to apply the following practical expedients:

1) The Group will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
2) The Group will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.
3) The Group will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.
4) The Group will use hindsight, such as in determining lease terms, to measure lease liabilities.

Anticipated impact on assets, liabilities and equity

				Adjusted	Adjusted
	Carrying		Adjustments	Carrying
	Amount as of		Arising from	Amount as of
	December 31,		Initial	January 1,
		2018	Application		2019
Prepayments for leases - current	$	12,073	$ (12,073)	$	-
Prepayments for leases - non-current		459,664	(459,664)		-
Right-of-use assets		-	524,865		524,865
Total effect on assets	$	471,737	$ 53,218	$	524,865
Lease liabilities - current	$	-	$ 17,506	$	17,506
Lease liabilities - non-current		-	35,622		35,622
Total effect on liabilities	$	-	$ 53,218	$	53,218

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group determined that the application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

103

will not have a material impact 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

Effective Date Announced by IASB (Note New IFRSs 1)

Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of To be determined by IASB Assets between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

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 Group shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.
Note 3: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

As of the date the 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.

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 (“ROC”). 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 and issued into effect by the FSC.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for

104

financial instruments which are measured at fair value, biological assets which are measured at fair value less costs to sell, and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

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

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an 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 an asset or liability.
c. Basis of consolidation

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

Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate.

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.

See Note 17, Tables 7 and 8 for detailed information on subsidiaries (including percentages of ownership and main businesses).

d. Business combinations

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

Goodwill is measured as the excess of 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 equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Business combinations involving entities under common control are not accounted for by the acquisition method but are accounted for at the carrying amounts of the entities. Prior period comparative information in the consolidated financial statements is restated as if a business combination involving entities under common control had already occurred in that period. The acquirer is disclosed as if it has occurred before January 1, 2017, and the Group’s financial statements for the year are restated. The equity held by original shareholders is recorded as “equity attributable to former owner of business combination under common control” when preparing the comparative consolidated balance sheet. In the preparation of the consolidated statement of changes in equity, the profit or loss recognized by original shareholders is attributed to “former owners’ interests under common control”.

105

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (i.e. 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 in which they arise.

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 from 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 cases, 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 translated using the exchange rate at the date of the transaction.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the group entities (including subsidiaries and associates in other countries that use currencies which are different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate).

f. Inventories

Inventories consist of raw materials, supplies, finished goods and work in progress and 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. The 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 the weighted-average cost on the balance sheet date.

g. Investment in associates

An associate is an entity over which the Group has significant influence and which 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 the equity of associates.

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 Company subscribes for additional new shares of an associate at a percentage different

106

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 capital surplus from investments in associates accounted for using the equity method. If the Group’s ownership interest is reduced due to its additional subscription of the new shares of the 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 had the investee 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 using 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 using 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 an 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 not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. 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 the investment’s 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 had that associate 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’ consolidated financial statements only to the extent that interests in the associate are not related to the Group.

h. Property, plant and equipment

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

Property, plant and equipment in the course of construction are measured at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Freehold land is not depreciated.

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

107

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are initially measured 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.

j. 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 any 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.

The 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 for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

k. 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 issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) 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 FVTPL are recognized immediately in profit or loss.

1) Financial assets

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

a) Measurement category

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2018

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on such a financial asset.

ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

iii. Investments in equity instruments at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

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2017

Financial assets are classified into the following categories: Financial assets at FVTPL, available-for-sale financial assets, and loans and receivables.

i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is held for trading.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

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, held-to-maturity investments or financial assets at FVTPL.

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.

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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 3 months from the date of acquisition, which are 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.

b) Impairment of financial assets

2018

The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including accounts receivable).

The Group always recognizes lifetime expected credit losses (i.e. ECLs) for accounts receivable. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

Financial assets, other than those at FVTPL, 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 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.

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For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment loss is reversed does not exceed what the amortized cost would have been had the impairment loss not been recognized.

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 becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets 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. Any increase in fair value subsequent to the recognition of an impairment loss is recognized in other comprehensive income.

For financial assets measured 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 uncollectible, 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 uncollectible 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.

Before 2018, 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 which had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in an equity instrument at FVTOCI, the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

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2) Equity instruments

Equity instruments issued by a group entity are classified as 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.

The 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, issuance or cancellation of the Group’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except for financial liabilities at FVTPL, all financial liabilities are measured at amortized cost using the effective interest method.

Financial liabilities are classified as at FVTPL when such financial liabilities are held for trading.

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 30.

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 on which 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.

l. Hedge accounting

The Group designates certain hedging instruments as cash flow hedges to partially hedge its foreign exchange rate risks associated with certain highly probable forecast purchases. The effective portion of changes in the fair value of hedging instruments is recognized in other comprehensive income. When the forecast transactions actually take place, the associated gains or losses that were recognized in other comprehensive income are removed from equity and included in the initial cost

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of the hedged items. The gains or losses from hedging instruments relating to the ineffective portion are recognized immediately in profit or loss.

2018

The Group discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance, when the hedging instrument expires or is sold, terminated or exercised.

2017

Hedge accounting was discontinued prospectively when the Group revoked the designated hedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when the hedging instrument no longer met the criteria for hedge accounting.

m. 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.

n. Revenue recognition

2018

The Group identifies contracts with customers and recognizes revenue when performance obligations are satisfied.

Revenue from the sale of goods is recognized when the goods are delivered to the customer’s specific location and the performance obligation is satisfied because it is the time when customers have obtained control of the promised goods.

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable and reduced for estimated customer returns, rebates and other similar allowances. Estimated sales returns and allowances is generally made and adjusted based on historical experience and the consideration of varying contractual terms to recognize refund liabilities.

Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the group measures them at the original invoice amounts without discounting.

2017

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. Allowances for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and 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

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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
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.

Specifically, revenue from the sale of goods is recognized when the goods are delivered and the ownership of the goods is transferred to the customer.

2) Dividend and interest income

Dividend income from investments is recognized when a shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Group and that 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 with reference to the principal outstanding and at the applicable effective interest rate.

o. 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.

p. 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 that which is stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

q. 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 services.

2) Retirement benefits

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

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service

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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 in which 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 it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be 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.

r. 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 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 liabilities are settled or the assets are 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.

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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; in which case, the current and deferred taxes are also recognized in other comprehensive income.

s. Biological assets

Biological assets are 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 are incurred.

Agricultural produce harvested from biological assets is measured initially 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, estimations, 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 estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods.

a. Estimated impairment of financial assets - 2018

The provision for impairment of accounts receivable is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Note 14. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

b. Estimated impairment of notes and accounts receivable - 2017

When there is objective evidence of impairment loss of receivables, the Group takes into consideration the estimation of future cash flows of such assets. 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.

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
Cash on hand Checking accounts and demand deposits Cash equivalents	December 31
	2018 2017 $ 875 $ 859 552,504 370,879

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Time deposits with original maturities of less than three months	- $ 553,379	869,838
		$ 1,241,576

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
	2018 2017 0.001%-0.48% 0.001%-1.85% - 0.6%-4.27%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current Financial assets held for trading Mutual funds Foreign exchange forward contracts (a) Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts (a) Non-derivative financial assets Mutual funds Financial assets at FVTPL-non-current Non-derivative financial assets Domestic quoted shares (b)		December 31	December 31
		2018 $ - - - 3,166 4,349 7,515 $ 7,515 $ 171,035	2017 $ 29,321 3,934 33,255 - - - $ 33,255 $ -

a. 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, 2018 Sell USD:NTD 2019.01.09-2019.01.22 USD16,500/NTD506,798

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December 31, 2017

Sell USD:NTD 2018.01.10-2018.01.25 USD13,500/NTD401,760

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

b. 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 date but may be redeemed by Bank SinoPac after 5 years from issue date. The bonds were previously classified as investments in debt instrument without active market under IAS 39. Since the contract did not meet the cash flow test, the bonds were reclassified mandatorily as at FVTPL under IFRS 9. Refer to Note 3 and Note 12 for information relating to their reclassification and comparative information for 2017.
c. The Group entered into short-term structured time deposit contracts with banks. The structured time deposit contracts include embedded derivative instruments which are closely related to the contracts. The contracts were classified as debt investments with no active market under IAS 39. But under IFRS 9, the contracts did not meet the contractual cash flow test, therefore, the entire contracts are assessed and mandatorily classified as FVTPL. Refer to Note 3, Note 6 and Note 12 for information relating to their reclassification and comparative information for 2017.

8. INVESTMENT IN EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

	December 31,
	2018
Current
Domestic investments
Listed shares	$ 1,052,704
Non-current
Domestic investments
Listed shares	$ 260,361
Unlisted shares	300,123
	$ 560,484

These investments in equity instruments are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Note 3, Note 9 and Note 13 for information relating to their reclassification and comparative information for 2017.

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9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

10.

December 31,
2017
Current
Domestic investments
Listed shares
$ 946,232
Non-current
Domestic investments
Listed shares
$ 332,343
FINANCIAL INSTRUMENTS FOR HEDGING
2018
December 31,
2018
Financial assets under hedge accounting-current
Cash flow hedges - foreign exchange forward contracts
$ 50
Financial liabilities under hedge accounting-current
Cash flow hedges - foreign exchange forward contracts
$ 250

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

The Group determined that the value of the forward exchange contracts and the value of the corresponding hedged items will systematically move in the opposite direction in response to changes in the underlying exchange rates based on their relationship.

The source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group’s own credit risk on the fair value of the forward exchange contracts. No other sources of ineffectiveness are expected to emerge from these hedging relationships.

The decrease in value used for calculating hedge ineffectiveness in 2018 was $584 thousand. The following tables summarize the information relating to the hedges of foreign currency risk.

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			Notional Amount	Notional Amount
	Currency	Maturity Date	(In Thousands)
December 31, 2018
Buy	EUR:NTD	2019.03.05	EUR243/NTD8,554
Buy	EUR:NTD	2019.01.22-2019.01.29 EUR3,470/NTD122,144
			Decrease in
			Value Used for	Hedging Gains
			Calculating	(Losses)
			Hedge	Recognized in
			Ineffectiveness	OCI
Hedged item
Cash flow hedges
Forecast transactions	(capital expenditures)		$ (584 )	$ (6,961 )

Refer to Note 23(e) for information relating to gain (loss) arising on changes in the fair value of hedging instruments and the original carrying amount transferred to hedged items in 2018.

2017

The Group’s 2017 hedge strategy is the same as 2018. The financial instruments used for hedging were as follows:

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

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,	2018
Buy			EUR:NTD	2018.01.31	EUR383/NTD13,623

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11. FINANCIAL ASSETS AT AMORTIZED COST - 2018

	December 31,
	2018
Current
Domestic investments
Time deposits with original maturity between three months and a year	$ 5,900
Non-current
Domestic investments
Time deposits with original maturity of more than a year	$ 5,000

The interest rates for time deposits with original maturity between three months and a year and time deposits with original maturity of more than a year were 0.82% and 1.12% respectively, as at the end of the reporting period. The time deposits were classified as debt investments with no active market under IAS 39 originally. Refer to Note 3 and Note 12 for information relating to their reclassification and comparative information for 2017.

12. FINANCIAL ASSETS AT AMORTIZED COST - 2017

	December 31,
	2017
Current
Time deposits with original maturity between three months and a year (b)	$ 209,752
Non-current
Subordinated financial bonds of Bank SinoPac (a)	$ 170,000
Time deposits with original maturity of more than a year (b)	5,000
	$ 175,000

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 date but may be redeemed by Bank SinoPac after 5 years from issue date.
b. The market interest rate of the time deposits with original maturity between three months and a year and the time deposit with original maturity of more than a year were 0.58% - 3.6% and 1.12% per annum, as of December 31, 2017, respectively.

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13. FINANCIAL ASSETS MEASURED AT COST - 2017

	December 31,
	2017
Domestic unlisted shares	$ 235,500
Foreign unlisted shares	3,902
Time deposits with original maturity between three months and a year (b)	$ 239,402
Classified according to financial asset measurement categories
Available-for-sale financial assets	$ 239,402

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

14. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable - operating Accounts receivable - operating Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2018 $ 593,550 2,128,828 2,722,378 (40,471 ) $ 2,681,907	2017 $ 587,955 2,178,207 2,766,162 (33,900 ) $ 2,732,262

2018

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 Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base.

The Group writes off a trade receivable when there is information indicating that the debtor is in severe

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financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

The following table details the loss allowance of trade receivables based on the Group’s provision matrix.

December 31, 2018

Not Past Due Gross carrying amount $ 2,595,344 Loss allowance (Lifetime ECL) (36,262 ) Amortized cost $ 2,559,082	Less than 90 Days $ 124,543 (1,718 ) $ 122,825	91 Days to A Year $ 1 (1 ) $ -	Over A Year $ 2,490 (2,490 ) $ -	Total $ 2,722,378 (40,471 ) $ 2,681,907

The movements of the loss allowance of trade receivables were as follows:

Balance at January 1, 2018 per IAS 39 and IFRS9 Net remeasurement of loss allowance Amounts written off Foreign exchange translation gains and losses Balance at December 31, 2018	2018 $ 33,900 4,376 (73) 2,268 $ 40,471

2017

The Group applied the same credit policy in 2018 and 2017.

The Group recognized an allowance for impairment loss on receivables based on the past default experience of the counterparties and an analysis of their current financial positions because according to historical experience, receivables that are past due beyond payment terms may be unrecoverable.

The aging of receivables was as follows:

	December 31,
	2017
Not past due	$ 2,627,764
Less than 90 days	136,279
91-180 days	-
181 days - 1 year	-
Over 1 year	2,119
	$ 2,766,162

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

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

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	December 31,
	2017
Less than 90 days	$ 127,962
91-180 days	-
181 days - 1 year	-
Over 1 year	1,640
	$ 129,602

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

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

	Collectively
	Assessed for
	Impairment
Balance at January 1, 2017	$ 30,868
Add: Impairment losses recognized on receivables	3,065
Foreign exchange translation gains and losses	(33 )
Balance at December 31, 2017	$ 33,900

15. INVENTORIES

Finished and purchased goods Work in process Materials		December 31	December 31
		2018 $ 2,373,492 416,128 1,406,596 $ 4,196,216	2017 $ 1,660,851 406,778 1,008,979 $ 3,076,608

The cost of goods sold for the years ended December 31, 2018 and 2017 included reversals of inventory write-downs of $681 thousand and inventory write-downs of $3,712 thousand, respectively.

125

16. 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
		2018 $ 3,280,878 262,717 (10,695) (156,618) (58,807 ) $ 3,317,475	2017 $ 3,275,503 194,119 (8,111) (114,840) (65,793 ) $ 3,280,878

The biological assets and their fair values measured on a recurring basis (before deducting costs to sell) were 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 Foreign exchange translation gains and losses Ending balance	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,396,946 $ 3,380,533 292,628 (11,912) (174,448) (89,855 ) $ 3,396,946	2017 $ 3,380,533 $ 3,370,430 212,082 (8,861) (125,467) (67651 ) $ 3,380,533

The financial risks related to biological assets arose from the estimation of eucalyptus volume since the method used in estimation is highly uncertain.

126

17. 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 Fung Pulp &
Paper Co., Ltd.
Pulp and paper production, trading
and forestry business
Zhaoqing Ding Fung 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 Fung
Pulp & Paper Co., Ltd.
Zhaoqing Ding Fung Forestry Ltd.
Seedling cultivation and sales,
reforestation, sales-cum-forest
logging and other forestry,
processing and transportation
Shenzhen Systax Paper Co., Ltd.
(Note)
Paper trading, cargo and technic
Import and export business

% of Ownership

December 31

2018
2017
100.00
100.00
100.00
100.00
60.00
60.00
20.20
20.20
100.00
100.00
66.30
66.30
100.00
-

The financial statements of Kuang Hwa Fertilizer Limited Company have not been audited; as of December 31, 2018 and 2017, the assets were about 0.04% ($12,779 thousand) and 0.05% ($15,101 thousand) of total consolidated assets, respectively; the liabilities were about 0.04% ($5,803 thousand) and 0.02% ($2,500 thousand) of total consolidated liabilities, respectively; for the years ended December 31, 2018 and 2017, net sales were about 0.06% ($15,334 thousand) and 0.07% ($15,773 thousand) of total consolidated net sales, respectively; the net loss was about 0.06% ($340 thousand) and the net income was about 0.79% ($5,873 thousand) of total consolidated net income, respectively. Management believes the amounts will not have material differences even if the financial statements are audited.

Note: On August 13, 2018, the Group’s board of directors decided to acquire all equity of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary of YFY Inc. group through Guangdong Ding Fung Pulp & Paper Co., Ltd. by RMB22,560 thousand. The transaction was completed in the fourth quarter of 2018. In compliance with the “Comments on IFRS” and Interpretation 2012-301 issued by Accounting Research and Development Foundation, the acquisition resulted in a joint control restructuring. Therefore, in preparing comparative consolidated financial statements, the acquisition is disclosed as if it has occurred before January 1, 2017 and the Group’s consolidated financial statements as of and for the year ended December 31, 2017 are restated. The related equity adjustments are recognized as equity attributable to former owner of business combination under common control.

18. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Associates that are not individually material		December 31	December 31
		2018 $ 863,675	2017 $ 855,810

Aggregate information of associates that are not individually material were as follows:

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The Group’s share of: Profit from continuing operations Other comprehensive loss Total comprehensive loss for the year		December	31
		2018 $ 52,270 (24,846 ) $(32,424 )	2017 $ 20,906 (35,742 ) $(14,836 )

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%. 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% of their voting rights. Thus, the Group uses the equity method to account for its investments in these associates.

19. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2017 Additions Disposals Effect of foreign currency exchange differences Reclassified as held for sale Other reclassifications Balance at December 31, 2017 Accumulated depreciation and impairment Balance at January 1, 2017 Disposals Depreciation expenses Effect of foreign currency exchange differences Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Disposals Effect of foreign currency exchange differences Reclassified as held for sale Balance at December 31, 2018 Accumulated depreciation and impairment Balance at January 1, 2018 Disposals Depreciation expenses Effect of foreign currency exchange differences Balance at December 31, 2018 Carrying amounts at December 31, 2018	Freehold Land $ 6,637,258 - - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258 $ 6,637,258 - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258	Buildings $ 3,682,040 21,498 (2,171 ) (14,611 ) 85,283 - $ 3,772,039 $ 2,608,107 (21,171 ) 103,351 (3,200 ) $ 2,706,087 $ 1,065,952 $ 3,772,039 24,997 - (13,067 ) 31,967 $ 3,815,936 $ 2,706,087 - 103,595 (3,949 ) $ 2,805,733 $ 1,010,203	Machinery $ 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 $ 28,487,324 137,540 (19,315 ) (74,115 ) 418,832 $ 28,950,226 $ 23,283,026 (19,315 ) 781,648 (45,266 ) $ 24,000,093 $ 4,950,173	Electric Equipment $ 2,807,307 26,895 (1,118 ) - 79,807 - $ 2,912,891 $ 2,284,269 (1,118 ) 74,008 - $ 2,357,159 $ 555,732 $ 2,912,891 16,216 (1,586 ) - 39,465 $ 2,966,986 $ 2,357,159 (1,586 ) 73,811 - $ 2,429,384 $ 537,602	Tools $ 1,481,199 41,619 (5,969 ) - 96,620 - $ 1,613,469 $ 1,253,960 (5,944 ) 88,721 - $ 1,336,737 $ 276,732 $ 1,613,469 36,618 (999 ) - 73,478 $ 1,722,566 $ 1,336,737 (999 ) 100,986 - $ 1,436,724 $ 285,842	Miscellaneous Equipment $ 734,466 14,359 (8,740 ) (3,556 ) 16,921 - $ 753,450 $ 537,363 (8,740 ) 40,671 (594 ) $ 568,700 $ 184,750 $ 753,450 11,747 (7,824 ) (3,032 ) 11,183 $ 765,524 $ 568,700 (7,823 ) 43,144 (1,378 ) $ 602,643 $ 162,881	Property in Construction $ 679,697 689,963 - (4,127 ) (876,624 ) (68,054 ) $ 420,855 $ - - - - $ - $ 420,855 $ 420,855 1,136,485 - (1,107 ) (574,925 ) $ 981,308 $ - - - - $ - $ 981,308	Total $ 43,828,060 1,036,155 (94,340 ) (104,535 ) - (68,054 ) $ 44,597,286 $ 29,267,861 (86,454 ) 1,119,122 (48,820 ) $ 30,251,709 $ 14,345,577 $ 44,597,286 1,363,603 (29,724 ) (91,321 ) - $ 45,839,844 $ 30,251,709 (29,723 ) 1,103,184 (50,593 ) $ 31,274,577 $ 14,565,267

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

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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20. INVESTMENT PROPERTIES

Cost Opening balance Ending balance Accumulated depreciation and impairment Opening balance Depreciation expenses Ending balance Ending carrying amounts	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 272,334 $ 272,334 $ (14,656) (267 ) $ (19,423 ) $ 257,411	2017 $ 272,334 $ 272,334 $ (14,326) (330 ) $ (14,656 ) $ 257,678

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 evidence of transaction prices for similar properties. The fair values of the investment properties owned by the Group were as follows:

Fair value		December 31	December 31
		2018 $ 341,731	2017 $ 341,731

21. BORROWINGS

a. Short-term borrowings

Bank credit loans Letter of credit loans		December 31	December 31
		2018 $ 3,601,000 93,901 $ 3,694,901	2017 $ 2,762,000 562,328 $ 3,324,328

As of December 31, 2018 and 2017, the interest rates of short-term borrowings were 0.91%-3.89% per annum and 0.91%-2.81% per annum, respectively.

129

b. Short-term bills payable

Commercial paper Less: Unamortized discounts on bills payable		December 31	December 31
		2018 $ 1,850,000 (291 ) $ 1,849,709	2017 $ 1,950,000 (732 ) $ 1,949,268

Short-term bills payable are commercial papers due within one year. Interest rates on these bills payable were 0.91%-1.12% and 0.91%-1.00% as of December 31, 2018 and 2017, respectively.

c. Long-term borrowings

December 31 2018 2017 Unsecured bank loans $ 1,700,000 $ 920,000 Less: Loan management fees (4,125 ) (5,925 ) Long-term bank loans $ 1,695,875 $ 914,075 Interest December 31 Due Date Article Rate 2018 2017 Taiwan Bank Credit loan A 2021.06.30 The credit can be revolved within 60 months from the first drawdown date of the loan. 1.80% $ 1,700,000 $ 800,000 KGI Bank Credit loan 2019.12.12 The credit can be revolved during the contract period. Principal was fully repaid in advance in 2018. 1.19% - 120,000 $ 1,700,000 $ 920,000		December 31	December 31	December 31	December 31

				2018 $ 1,700,000 - $ 1,700,000	2017 $ 800,000 120,000 $ 920,000

22. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company, Hwa Fong Investment Co., Ltd. and Kuang Hwa Fertilizer Limited Company of the

130

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.

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 plans

The defined benefit plan adopted by the Group in accordance with the Labor Standards Law is operated by the government of the Republic of China. 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 plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability		December 31	December 31
		2018 $ 602,251 (367,316 ) $ 234,935	2017 $ 624,763 (400,068 ) $ 224,695

Movements in net defined benefit liability were as follows:

	Present Value
	of the Defined	Fair Value of	Net Defined
	Benefit	the Plan	Benefit
	Obligation	Assets	Liability
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

131

Contributions from the employer Benefits paid Balance at December 31, 2017 Balance at January 1, 2018 Service cost Current service cost Net interest expense (income) Recognized in profit or loss Remeasurement Return on plan assets (excluding amounts included in net interest) Actuarial loss - experience adjustments Actuarial loss - changes in financial assumptions Actuarial loss - changes in other assumptions Recognized in other comprehensive income Contributions from the employer Benefits paid Balance at December 31, 2018	- (69,978 ) $ 624,763 $ 624,763 19,143 10,434 29,577 - 37,863 9,101 310 47,424 - (99,363 ) $ 602,251	(105,613) 69,978 $(400,068 ) $(400,068 ) - (8,905 ) (8,905 ) (7,181) - - - (7,181 ) (50,525) 99,363 $(367,316 )	(105,613) - $ 224,695 $ 224,695 19,143 1,529 20,672 (7,181) 37,863 9,101 310 40,093 (50,525) - $ 234,935

Through the defined benefit plans 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.
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
	2018 2017 1.50% 1.75% 1.50% 1.50% 1.00% 1.00%

132

If possible reasonable changes 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
		2018 $ (4,602 ) $ 4,668 $ 4,686 $ (4,631 )	2017 $ (5,119 ) $ 5,198 $ 5,231 $ (5,164 )

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 plans for the next year The average duration of the defined benefit obligation		December	31
		2018 $ 47,156 7.2 years	2017 $ 50,525 12 years

23. EQUITY

a. Ordinary shares

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued Fully paid ordinary shares, which have a par value of $10, carry dividends. Capital surplus May be used to offset a deficit, distributed as cash dividends, or transferred to share capital* Arising from treasury share transactions The difference between consideration paid and the carrying amount of the subsidiary’s net assets during actual		December 31
	2018 2017 1,300,000 1,300,000 $ 13,000,000 $ 13,000,000 1,102,835 1,102,835 $ 11,028,353 $ 11,028,353 one vote per share and a right to December 31
	2017 2017 $ 20,817 $ 20,817 1,349 -

b. Capital surplus

133

acquisition

May be used to offset a deficit only Arising from share of changes in capital surplus of associates	9,302 $ 31,468	15,785 $ 36,602

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 dividends policy

Under the dividends 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 the distribution of employees’ compensation and remuneration of directors and supervisors after the amendment, refer to employees’ compensation and remuneration of directors and supervisors in Note 24.

In making its dividends 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.

An appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficits. 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 by the FSC and in 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.

The appropriations of earnings for 2017 and 2016 approved in the shareholders’ meetings on June 26, 2018, and June 19, 2017, respectively, were as follows:

Legal reserve	Appropriation of Earnings For the Year Ended December 31 2017 2016 $ 61,858 $ 39,112	Dividends Per Share (NT$)
		For the Year Ended December 31
		2017 2016

134

551,418 385,992 $0.50 $0.35

Cash dividends

The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 21, 2019. The appropriations and dividends per share were as follows:

	Appropriation	Dividends Per
	of Earnings	Share (NT$)
Legal reserve	$ 44,556
Cash dividends	385,992	$0.35

The appropriations of earnings for 2018 are subject to the resolution of the shareholders in their meeting to be held in 2019.

d. Special reserves

Special reserves	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,186,894	2017 $ 1,186,894

The Company appropriated a special reserve in an amount equal to the unrealized revaluation increment, which was already transferred to retained earnings. e. Others equity items

Exchange
Differences
Arising on
Translating
the Foreign
Operations
Unrealized
Gain (Loss)
on Financial
Assets at
FVTOCI
Gain (Loss)
on Hedging
Instruments
2018
Balance at January 1 (IAS
39)
$ (87,435) $ -
$ -

Applying IFRS 9
retrospectively with the
cumulative effect of the
initial application of this
standard.

-
358,643

(6,377
)
Balance at January 1 (IFRS
9)
(87,435) 358,643
(6,377)
Unrealized gain (loss) on fair
value through other
comprehensive income or
loss financial asset.
-
59,458
-
Exchange differences arising
on translating the foreign
operation
$ (11,048) $ -
$ -

Loss arising on changes in
-
-
(584)

Total
$ (87,435)
352,266
264,831
59,458
$ (11,048)

(584)

135

the fair value of hedging instrument Share of other comprehensive loss of associates Balance at December 31 2017 Balance at January 1 Unrealized gain on available- for-sale financial assets Exchange differences arising on translating the foreign operation Cash flow hedge Share of other comprehensive loss of associates Balance at December 31	(1,530 ) $(100,013 ) $ 131,549 - (206,494) - (12,490 ) $ (87,435 )	(23,209 ) $ 394,892 $ 344,353 (2,131) - - (23,143 ) $ 319,079	- $ (6,961 ) $ (11,350) - - 4,937 - $ (6,377 )	(24,739 ) $ 287,918 $ 464,552 (2,131) (206,494) 4,973 (35,633 ) $ 225,267

f. Non-controlling interests

Balance at January 1 Attributable to non-controlling interests: Share of profit for the year Exchange difference arising on translation of foreign entities Business combination under common control Balance at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 2,406,511 64,583 (43,036) 900 $ 2,428,958	2017 $ 2,345,370 107,633 (46,492) - $ 2,406,511

24. NET PROFIT FROM CONTINUING OPERATIONS

a. Finance costs

Interest on bank loans Less: Amounts included in the cost of qualifying assets	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 92,016 (557 )	2017 $ 82,576 (909 )

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$ 91,459 $ 81,667

Information about capitalized interest was as follows:

Capitalization rate b. Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses 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 2017 2016 0.99%-1.22% 1.02%-1.25% For the Year Ended December 31 2018 2017 $ 1,095,360 $ 1,113,018 8,091 6,434 $ 1,103,451 $ 1,119,452 $ 12,487 $ 7,162 25,647 9,034 $ 38,134 $ 16,196 For the Year Ended December 31 2018 2017 $ 67,589 $ 66,938 20,672 24,697 88,261 91,635 1,855,591 1,800,847 $ 1,943,852 $ 1,892,482 $ 1,726,330 $ 1,716,533 217,522 175,949 $ 1,943,852 $ 1,892,482	For the Year Ended December 31 2017 2016 0.99%-1.22% 1.02%-1.25% For the Year Ended December 31 2018 2017 $ 1,095,360 $ 1,113,018 8,091 6,434 $ 1,103,451 $ 1,119,452 $ 12,487 $ 7,162 25,647 9,034 $ 38,134 $ 16,196 For the Year Ended December 31 2018 2017 $ 67,589 $ 66,938 20,672 24,697 88,261 91,635 1,855,591 1,800,847 $ 1,943,852 $ 1,892,482 $ 1,726,330 $ 1,716,533 217,522 175,949 $ 1,943,852 $ 1,892,482	For the Year Ended December 31 2017 2016 0.99%-1.22% 1.02%-1.25% For the Year Ended December 31 2018 2017 $ 1,095,360 $ 1,113,018 8,091 6,434 $ 1,103,451 $ 1,119,452 $ 12,487 $ 7,162 25,647 9,034 $ 38,134 $ 16,196 For the Year Ended December 31 2018 2017 $ 67,589 $ 66,938 20,672 24,697 88,261 91,635 1,855,591 1,800,847 $ 1,943,852 $ 1,892,482 $ 1,726,330 $ 1,716,533 217,522 175,949 $ 1,943,852 $ 1,892,482	For the Year Ended December 31 2017 2016 0.99%-1.22% 1.02%-1.25% For the Year Ended December 31 2018 2017 $ 1,095,360 $ 1,113,018 8,091 6,434 $ 1,103,451 $ 1,119,452 $ 12,487 $ 7,162 25,647 9,034 $ 38,134 $ 16,196 For the Year Ended December 31 2018 2017 $ 67,589 $ 66,938 20,672 24,697 88,261 91,635 1,855,591 1,800,847 $ 1,943,852 $ 1,892,482 $ 1,726,330 $ 1,716,533 217,522 175,949 $ 1,943,852 $ 1,892,482
		2018 2017 $ 1,095,360 $ 1,113,018 8,091 6,434 $ 1,103,451 $ 1,119,452 $ 12,487 $ 7,162 25,647 9,034 $ 38,134 $ 16,196 For the Year Ended December 31
			2018 $ 67,589 20,672 88,261 1,855,591 $ 1,943,852 $ 1,726,330 217,522 $ 1,943,852	2017 $ 66,938 24,697 91,635 1,800,847 $ 1,892,482 $ 1,716,533 175,949 $ 1,892,482

As of December 31, 2018 and 2017, the Group had 2,678 and 2,647 employees, respectively. The calculation basis is consistent with the employee benefits.

137

According to the Articles of Incorporation of the Company, the Company accrued compensation of employees and remuneration of directors and supervisors at the rates of no less than 1% and no higher than 2%, respectively, of net profit before income tax, compensation of employees, and remuneration of directors and supervisors. The compensation of employees and remuneration of directors and supervisors for the years ended December 31, 2018 and 2017, which were approved by the Company’s board of directors on March 21, 2019, and March 22, 2018, respectively, are as follows:

Amount

Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2018 Cash $ 5,500 7,000	2017
		Cash $ 8,000 7,000

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

There was no difference between the actual amounts of the compensation and remuneration proposed in 2017 and 2016, and the amounts recognized in the consolidated financial statements for the years ended December 31, 2017 and 2016.

Information on the compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors in 2018 and 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

Current tax In respect of the current year Adjustments for prior years Deferred tax In respect of the current year Effect of change in tax rate Adjustments for prior years Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 61,543 6,418 67,961 65,634 747 1,627 68,008 $ 135,969	2017 $ 24,263 7 24,270 136,782 - 2,706 139,488 $ 163,758

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

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Permanent differences Unrecognized loss carryforwards Adjustments for prior years Effect of change in tax rate Effect of different tax rates of group entities operating in other jurisdictions Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 665,204 $ 133,041 (18,906) 16 8,045 747 13,026 $ 135,969	2017 $ 908,711 $ 154,481 (20,586) - 2,713 - 27,150 $ 163,758

In 2017, the applicable corporate income tax rate used by the group entities in the ROC is 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax Effect of change in tax rate Remeasurement on defined benefit plan Total income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 8,587 8,019 $ 16,606	2017 $ - 3,240 $ 3,240

c. Deferred tax assets and liabilities

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

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For the year ended December 31, 2018

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance $ 38,198 61,721 12,632 $ 112,551 $ 1,924,940 66,487 $ 1,991,427	Recognized in Profit or Loss $ (7,817) (51,825) 5,667 $ (53,975 ) $ - 14,033 $ 14,033	Recognized in Other Compre- hensive Income $ 16,606 - - $ 16,606 $ - - $ -	Exchange Differences $ - - (40 ) $ (40 ) $ - - $ -	Closing Balance $ 46,987 9,896 18,259
					$ 75,142
					$ 1,924,940 80,520
					$ 2,005,460

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 $ 48,714 169,929 31,610 $ 250,253 $ 1,924,940 66,678 $ 1,991,618	Recognized in Profit or Loss $ (13,756) (106,766) (19,157 ) $ (139,679 ) $ - (191 ) $ (191 )	Recognized in Other Compre- hensive Income $ 3,240 - - $ 3,240 $ - - $ -	Exchange Differences $ - (1,442) 179 $ (1,263 ) $ - - $ -	Closing Balance $ 38,198 61,721 12,632
					$ 112,511
					$ 1,924,940 66,487
					$ 1,991,427

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d. 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 Expiry in 2028 Loss carryforwards as of December 31, 2018 comprised: The Company Unused Amount $ 49,480 Hwa Fong Investments Co., Ltd. Unused Amount $ 82		December	31
		2018 2017 $ - $ 43,628 82 - $ 82 $ 43,628 Expiry Year 2024 Expiry Year 2028

e. Loss carryforwards as of December 31, 2018 comprised:
f. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized

As of December 31, 2018 and 2017, the taxable temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized were $663,452 thousand and $525,489 thousand, respectively.

g. Income tax assessments

The Company Hwa Fong Investments Co., Ltd. Kuang Hwa Fertilizer Limited Company	Latest Approved Year
	2016 2017 2016

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26. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	For 31	the Year Ended December	the Year Ended December
		2018 $ 0.40 $ 0.40	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

For the Year Ended December 31 2018 2017 Profit for the year attributable to owners of the Company $ 445,663 $ 618,582 Weighted average number of ordinary shares outstanding (in thousands of shares):	For the Year Ended December 31 2018 2017 Profit for the year attributable to owners of the Company $ 445,663 $ 618,582 Weighted average number of ordinary shares outstanding (in thousands of shares):	For the Year Ended December 31 2018 2017 Profit for the year attributable to owners of the Company $ 445,663 $ 618,582 Weighted average number of ordinary shares outstanding (in thousands of shares):
	2018 $ 445,663 shares):	2017 $ 618,582

Weighted average number of ordinary shares used in the computation of basic earnings per share Effect of potentially dilutive ordinary shares: Bonuses issued 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
		2018 1,102,835 719 1,103,554	2017 1,102,835 792 1,103,627

If the Group offered to settle compensation or bonuses paid to employees in cash or shares, the Group assumed the entire amount of the compensation or bonuses will 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 number of shares to be distributed to employees is resolved in the following year.

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27. BUSINESS COMBINATIONS

a. Subsidiaries acquired

			Proportion of
			Voting Equity
	Principal	Date of	Interests	Consideration
Subsidiary	Activity	Reorganization	Acquired (%)	Transferred
Shenzhen Systax	Note 17	The fourth	100	$ 100,083
Paper Co., Ltd.		season, 2018

Shenzhen Systax Paper Co., Ltd. were acquired in order to continue the expansion of the Group’s activities in China.

b. Consideration transferred

	Shenzhen
	Systax Paper
	Co., Ltd.
Cash	$ 100,083

The Group paid RMB22,560 thousand to the related party in exchange for the equity of Shenzhen Systax Paper Co., Ltd., and the amount of investment held by the related party was measured at the book value of RMB23,062 thousand by using the equity method at the time of acquisition.

c. Assets acquired and liabilities assumed at the date of acquisition

	Shenzhen	Shenzhen
	Systax Paper
	Co., Ltd.
Current assets
Cash and cash equivalents	$	675
Trade and other receivables		416,256
Inventories		66,625
Other current assets		28,235
Non-current assets		1,917
Current liabilities
Trade and other payables	(401,830)
Other current liabilities		(9,546 )
	$	102,332

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d. The difference between consideration paid and the carrying amount of the subsidiaries’ net assets during actual acquisition

	Shenzhen	Shenzhen
	Systax Paper
	Co., Ltd.
Consideration transferred	$	100,083
Less: Book value of identifiable net assets acquired	(102,332)
		(2,249)
Equity attributable to former owner due to business combination under
common control
Capitals surplus		1,349
Non-controlling interests		900
	$	-

28. OPERATING LEASE ARRANGEMENTS

The Group as Lessor

Operating lease relates to the leasing of 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 leases were as follows:

Not later than 1 year Later than 1 year and not later than 5 years	For the Year Ended 31	For the Year Ended 31	December
		2018 $ 7,080 3,540 $ 10,620	2017 $ 7,080 10,620 $ 17,700

29. 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.

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30. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments

1) Fair value of financial instruments not carried at fair value

The management of the Group considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements to approximate their fair values.

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

December 31, 2018 Financial assets at FVTPL Mutual funds Derivative financial assets - foreign exchange forward contracts (not under hedge accounting) Bank debentures in the ROC Financial assets at FVTOCI Securities listed in the ROC Domestic unlisted shares Hedging financial assets Derivative financial assets - foreign exchange forward contracts Hedging financial liabilities Derivative financial liabilities - foreign exchange forward contracts	Level 1 $ 4,349 - - $ 4,349 $ 1,313,065 - $ 1,313,065 $ - $ -	Level 2 $ - 3,166 171,035 $ 174,201 $ - - $ - $ 50 $ 250	Level 3 $ - - - $ - $ - 300,123 $ 300,123 $ - $ -	Total $ 4,349 3,166 171,035 $ 178,550 $ 1,313,065 300,123 $ 1,613,188 $ 50 $ 250

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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 the ROC Equity securities	Level 1 $ 29,321 - $ 29,321 $ - $ 1,278,575	Level 2 $ - 3,934 $ 3,934 $ 1 $ -	Level 3 $ - - $ - $ - $ -	Total $ 29,321 3,934 $ 33,255 $ 1 $ 1,278,575

There were no transfers between Levels 1 and 2 for the years ended December 31, 2018 and 2017.

3) Reconciliation of Level 3 fair value measurements of financial assets

	Financial
	Assets of
	Equity
	Securities at
Financial Assets	FVTOCI
Balance at January 1, 2018	$ 268,826
Proceeds from capital reduction	(18,655)
Recognized in other comprehensive income	49,952
Balance at December 31, 2018	$ 300,123

4) Valuation techniques and inputs applied for Level 2 fair value measurement

Financial Instruments Derivatives - foreign exchange forward contracts	Valuation Techniques and Inputs
	Discounted cash flow. Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

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Bank debentures in the ROC Discounted cash flow. Future cash flows are discounted at a rate that reflects current borrowing interest rates of the debenture issuers at the end of the reporting period.

5) Valuation techniques and inputs applied for Level 3 fair value measurement

The fair values of unlisted equity securities - ROC were determined using the assets approach. The total value of individual assets and individual liabilities reflects the overall value of the investment. The significant unobservable inputs used are listed in the table below. A decrease in discount for lack of marketability used in isolation would result in increases in fair value.

December 31, 2018 Discount for lack of marketability 15% If the inputs to the valuation model were changed to reflect reasonably possible alternative assumptions while all the other variables were held constant, the fair value of the shares would increase (decrease) as follows: December 31, 2018 Discount for lack of marketability 2.5% increase $ (8,827 ) 2.5% decrease $ 8,827 Categories of financial instruments December 31 2018 2017 Financial assets Fair value through profit or loss (FVTPL) Held for trading $ - $ 33,255 Mandatorily classified as at FVTPL 178,550 - Financial assets for hedging 50 1 Loans and receivables (1) - 5,395,939 Available-for-sale financial assets (2) - 1,517,977 Financial assets at amortized cost (3) 4,892,134 - Financial assets at FVTOCI 1,613,188 - Financial liabilities Financial liabilities at amortized cost (4) 10,599,610 9,327,736 Financial liabilities for hedging 250 -	December 31, 2018 Discount for lack of marketability 15% If the inputs to the valuation model were changed to reflect reasonably possible alternative assumptions while all the other variables were held constant, the fair value of the shares would increase (decrease) as follows: December 31, 2018 Discount for lack of marketability 2.5% increase $ (8,827 ) 2.5% decrease $ 8,827 Categories of financial instruments December 31 2018 2017 Financial assets Fair value through profit or loss (FVTPL) Held for trading $ - $ 33,255 Mandatorily classified as at FVTPL 178,550 - Financial assets for hedging 50 1 Loans and receivables (1) - 5,395,939 Available-for-sale financial assets (2) - 1,517,977 Financial assets at amortized cost (3) 4,892,134 - Financial assets at FVTOCI 1,613,188 - Financial liabilities Financial liabilities at amortized cost (4) 10,599,610 9,327,736 Financial liabilities for hedging 250 -	December 31, 2018 Discount for lack of marketability 15% If the inputs to the valuation model were changed to reflect reasonably possible alternative assumptions while all the other variables were held constant, the fair value of the shares would increase (decrease) as follows: December 31, 2018 Discount for lack of marketability 2.5% increase $ (8,827 ) 2.5% decrease $ 8,827 Categories of financial instruments December 31 2018 2017 Financial assets Fair value through profit or loss (FVTPL) Held for trading $ - $ 33,255 Mandatorily classified as at FVTPL 178,550 - Financial assets for hedging 50 1 Loans and receivables (1) - 5,395,939 Available-for-sale financial assets (2) - 1,517,977 Financial assets at amortized cost (3) 4,892,134 - Financial assets at FVTOCI 1,613,188 - Financial liabilities Financial liabilities at amortized cost (4) 10,599,610 9,327,736 Financial liabilities for hedging 250 -
	2018 $ - $ 178,550 50 - - 4,892,134 1,613,188 10,599,610 250	2017 33,255 - 1 5,395,939 1,517,977 - - 9,327,736 -

b. Categories of financial instruments
1) The balances include loans and receivables measured at amortized cost, which comprise cash

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and cash equivalents, debt investments with no active market, notes and accounts receivable, notes and accounts receivable from related parties, other receivables from related parties, other receivables and refundable deposits.

2) The balances include the carrying amount of available-for-sale financial assets and financial assets measured at cost.
3) The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, notes and accounts receivable from related parties, other receivables, other receivables from related parties and refundable deposits.
4) The balances include 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 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 activities (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 non-derivative 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 provide written principles on foreign exchange risk, interest rate risk, credit risk, derivative and non-derivative 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, including 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 contracts that was in effect.

The Group is 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 currencies. For a 5% weakening of the New Taiwan dollar against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

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For the Year Ended December

	For the Year Ended December
Influence to profit or loss at 5% variance USD RMB	31
	2018 2017 $(46,730) $(67,126) 30,491 28,916

b) Interest rate risk

The carrying amounts 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
	2018 2017 $ 951,314 $ 1,349,208 3,553,017 2,863,343 552,504 370,879 3,694,901 3,324,328

Due to the close and long-term relationship with banks, the Group obtained better and flexible interest rates from banks. The impact of changing in interest rates 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, 2018 and 2017 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
		2018 $ 3,142	2017 $ 2,953

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

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at the end of the reporting period.

If equity prices had been 5% higher/lower, the Group’s comprehensive income for the years ended December 31, 2018 and 2017 would increase/decrease as follows:

Profit before tax Increase/decrease Other comprehensive income Increase/decrease	For the Year Ended December 31
	2018 2017 $ 217 $ 1,466 65,653 63,929

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 the failure of the counterparty to discharge its obligation is at the level of the carrying amounts of the 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 are done with a large number of unrelated customers and various industries. The Group continuously evaluates 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 required by business operation and to ensure the Group has sufficient financial flexibility.

31. 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, 2018 and 2017.

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.

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Related Party Category

a. Related party name and category

Related Party Name

YFY Consumer Products Co., Ltd. YFY Packaging Inc. YFY International BVI Corp. Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd. YFY Family Care (Kunshan) Co., Ltd. YFY Family Paper (Beijing) Co., Ltd. YFY Capital Co., Ltd. Union Paper Corp. Shin Foong Specialty & Applied Materials Co., Ltd. Eihoyo Shoji Co., Ltd. YFY Investment Co., Ltd. Pek Crown Paper Co., Ltd. China Color Printing Co., Ltd. Cupid InfoTech Co., Ltd. YFY Holding Management Co., Ltd. YFY Paradigm Investment Co., Ltd. Jiangyin Yuen Foong Yu Paper MFG. Co., Ltd. YFY Jupiter Ltd. Yuen Foong Yu Blue Economy Natural Resource (Yangzhou) Co., Ltd. Ever Growing Agriculture Biotech Co., Ltd. YFY Biotechnology Co., Ltd. E Ink Holdings Inc. Beautone Co., Ltd. Shin-Yi Foundation Shin-Yi Enterprise Co., Ltd. Yuen Foong Paper Co., Ltd. SinoPac Leasing Co., Ltd. SinoPac Securities Co., Ltd.

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 Fellow subsidiaries

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

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b. Sales of goods

Related Party Type Fellow subsidiaries YFY Investment Co., Ltd. Union Paper Corp. YFY Capital Co., Ltd. YFY Consumer Products Co., Ltd. Others Parent company Substantial related-party	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,213,140 1,208,652 1,016,608 869,939 662,903 4,971,242 164 354,677 $ 5,326,083	2017 $ 1,136,356 1,104,645 964,918 791,937 703,601 4,701,457 261 34,411 $ 4,736,129

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 Party Type Fellow subsidiaries YFY Packaging Inc. Eihoyo Shoji Co., Ltd. Shin Foong Specialty & Applied Materials Co., Ltd. Others Substantial related-party Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,889,510 485,250 290,198 438,710 3,103,668 3,600 479 $ 3,107,747	2017 $ 1,700,550 406,320 356,673 373,439 2,836,982 640 728 $ 2,838,350

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

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d. Receivables from related parties

Related Party Type Fellow subsidiaries YFY Consumer Products Co., Ltd. YFY Packaging Inc. Union Paper Corp. YFY Investment Co., Ltd. Others Substantial related-party Parent company		December 31	December 31
		2018 $ 261,088 114,679 112,940 106,240 115,736 710,683 64,699 8 $ 775,390	2017 $ 259,515 98,021 61,114 177,814 199,338 795,802 5,041 428 $ 801,271

The outstanding accounts receivable from related parties are unsecured. No bad debt was recognized for the years ended December 31, 2018 and 2017 for allowance of impaired accounts receivable from related parties.

e. Payables to related parties

Related Party Type Fellow subsidiaries YFY Packaging Inc. Shin Foong Specialty & Applied Materials Co., Ltd. YFY Capital Co., Ltd. Others Substantial related-party Parent company Associates		December 31	December 31
		2018 $ 346,869 132,512 65,315 55,643 600,339 2,152 259 - $ 602,750	2017 $ 320,716 112,184 65,738 75,691 574,329 969 3,675 62 $ 579,035

The outstanding accounts payable to related parties are unsecured.

f. Loan to related parties (interest receivable included)

Related Party Type Fellow subsidiaries Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd. YFY International BVI Corp.		December 31	December 31
		2018 $ 460,215 309,164 $ 769,379	2017 $ 94,618 - $ 94,618

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

For the years ended December 31, 2018 and 2017, the interest income from the loans to related parties amounted to $3,256 thousand and $9,860 thousand, respectively.

g. Loans from related parties

Related Party Type Fellow subsidiaries Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd.		December 31	December 31
		2018 $ 7,433	2017 $ -

The Group obtained loans at rates comparable to market interest rates for the loans from related parties.

For the years ended December 31, 2018, the interest expense from the loans to related parties amounted to $3 thousand.

h. Other transactions with related parties

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

Related Party Type Fellow subsidiaries YFY Consumer Products Co., Ltd.	Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)
	For the Year Ended December 31
		2018 $ 1,543	2017 $ 1,543

Related Party Type Substantial related-party Shin-Yi Enterprise Co., Ltd. SinoPac Leasing Co., Ltd. Parent company	Rental Expenses (Accounted as Operating Expenses)	Rental Expenses (Accounted as Operating Expenses)	Rental Expenses (Accounted as Operating Expenses)
	For the Year Ended December 31
		2018 $ 7,045 46 7,091 10,885 $ 17,976	2017 $ 6,594 - 6,594 6,623 $ 13,217

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Related Party Type Fellow subsidiaries YFY Holding Management Co., Ltd.	Management Fee (Accounted as Operating Expenses)	Management Fee (Accounted as Operating Expenses)	Management Fee (Accounted as Operating Expenses)
	For the Year Ended December 31
		2018 $ 81,377	2017 $ 50,312

The amount of management fee was depended on the agreements, rental income and expenses which 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
		2018 $ 30,030 3,132 $ 33,162	2017 $ 25,601 3,558 $ 29,159

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

32. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2018 and 2017, unused letters of credit for purchases of raw materials and machinery and equipment amounted to approximately $447,769 thousand and $269,716 thousand, respectively.

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

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

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Financial assets Monetary items USD RMB Non-monetary items Derivative instruments USD EUR Financial liabilities Monetary items USD Non-monetary items Derivative instruments EUR Financial assets Monetary items USD RMB Non-monetary items Derivative instruments USD EUR Financial liabilities Monetary items USD	December 31, 2018
	Foreign Currency (In Thousands) Exchange Rate New Taiwan Dollars $ 37,977 30,715 $ 1,166,463 136,271 4.475 609,813 16,500 30.715 506,798 243 35.20 8,554 51,905 30.715 1,594,262 3,470 35.20 122,144 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 13,500 29.76 401,760 383 35.57 13,623 72,239 29.76 2,149,822

For the years ended December 31, 2018 and 2017, realized and unrealized foreign exchange losses were $14,598 thousand and $14,645 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.

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34. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:
1) Financing provided to others (Table 1)
2) Endorsements/guarantees provided (Table 2)
3) Marketable securities held (Table 3)
4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the paid-in capital (Table 4)
5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital (None)
6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital (None)
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 5)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 6)
9) Trading in derivative instruments (Notes 7 and 9)
10) Intercompany relationships and significant intercompany transactions (Table 9)
11) Information on investees (Table 7)
b. Information on investments in mainland China:
1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area (Table 8)
2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses (None):
- a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period
- b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period
- c) The amount of property transactions and the amount of the resultant gains or losses
- d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes
- e) The highest balance, the end of period balance, the interest rate range, and total current

157

period interest with respect to financing of funds

f) Other transactions that have a material effect on the profit or loss for the year or on the financial position, such as the rendering or receipt of services

35. 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, 2018 Revenue from external customers Revenue from other internal operating segments Segment profit or loss For the year ended December 31, 2017 Revenue from external customers Revenue from other internal operating segments Segment profit or loss	Business Unit of Pulp and Fine Paper $ 23,877,912 $ 977,486 $ 524,432 $ 22,757,042 $ 891,740 $ 689,182	Business Unit of Forestry $ 85,511 $ 255,061 $ 515 $ 28,431 $ 272,421 $ 40,455	Other Segment $ 61,798 $ 7,290 $ 4,288 $ 53,882 $ 9,444 $ 15,316	Adjustment and Elimination $ - ($ 1,239,837 ) $ - $ - ($ 1,173,605 ) $ -	Total $ 24,025,221
					$ -
					$ 529,235
					$ 22,839,355
					$ -
					$ 744,953

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.

158

Revenue from External

	Revenue from External
Taiwan Mainland China	Customers For the Year Ended December 31 2018 2017 $ 20,036,279 $ 19,019,750 3,988,942 3,819,605 $ 24,025,221 $ 22,839,355	Non-current Assets

		December 31
	2018 $ 20,036,279 3,988,942 $ 24,025,221	2018 $ 12,984,416 2,937,140 $ 15,921,556	2017 $ 12,619,685 3,000,805 $ 15,620,490

Information about Major Customers

No other single customers contributed 10% or more to the Group’s revenue for both 2018 and 2017.

159

TABLE 1

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

							Actual						Collateral	Collateral	Financing Limit
					Highest Balance											Aggregate
						Ending Balance	Borrowing								for Each
					for the Period											Financing Limit
						(Foreign	Amount			Business	Reasons for	Allowance for			Borrower
No.			Financial Statement	Related	(Foreign			Interest Rate	Nature of							(Foreign
	Lender	Borrower				Currencies in	(Foreign			Transaction	Short-term	Impairment			Fi
(Note 1)			Account	Party	Currencies in			(%)	Financing				Item	Value	(oregn	Currencies in
						Thousands)	Currencies in			Amount	Financing	Loss			Ci i
					Thousands)										urrences n	Thousands)
						(Notes 2 and 4)	Thousands)								Thousands)
					(Notes 2 and 4)											(Notes 3 and 4)
							(Note 4)								(Notes 3 and 4)

1	Guangdong Ding Fung Pulp & Paper Co., Ltd.	Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd	Other receivables from related parties	Yes	$ 513,160 ( RMB 114,673 )	$ 491,760 ( RMB 109,891 )	$ 458,792 ( RMB 102,523 )	3.25	Short-term financing	$ -	Operating capital	$ -	-	-	$ 491,760 ( RMB 109,891 )	$ 1,967,039 ( RMB 439,562 )
2	CHP International (BVI) Corporation	YFY International BVI Corp. Guangdong Ding Fung Pulp & Paper Co., Ltd. Zhaoqing Ding Fung Forestry Ltd.	Other receivables from related parties Other receivables from related parties Other receivables from related parties	Yes Yes Yes	309,550 ( US$ 10,078 ) 1,021,525 ( US$ 33,258 ) 371,460 ( US$ 12,094 )	307,150 ( US$ 10,000 ) 1,013,595 ( US$ 33,000 ) 368,580 ( US$ 12,000 )	307,150 ( US$ 10,000 ) 1,013,595 ( US$ 33,000 ) 368,580 ( US$ 12,000 )	2.50 2.50 2.50	Short-term financing Short-term financing Short-term financing	- - -	Operating capital Operating capital Operating capital	- - -	- - -	- - -	542,970 ( US$ 17,678 ) 2,171,880 (US$ 70,711 ) 2,171,880 (US$ 70,711 )	2,171,880 (US$ 70,711 ) 2,171,880 (US$ 70,711 ) 2,171,880 (US$ 70,711 )
3	Zhaoqing Ding Fung Forestry Ltd.	Guangdong Ding Fung Pulp & Paper Co., Ltd.	Other receivables from related parties	Yes	93,401 ( RMB 20,872 )	89,506 ( RMB 20,001 )	89,506 ( RMB 20,001 )	3.25	Short-term financing	-	Operating capital	-	-	-	1,178,895 ( RMB 263,440 )	1,178,895 ( RMB 263,440 )
4	Shenzhen Systax Paper Co., Ltd.	Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd	Other receivables from related parties	Yes	176,506 ( RMB 39,443 )	8,457 ( RMB 1,890 )	- ( RMB - )	3.25	Short-term financing	-	Operating capital	-	-	-	8,457 (RMB 1,890 )	33,829 (RMB 7,560 )

Note 1: The number column of financing provided to others by Chung Hwa Pulp Corporation and subsidiaries is illustrated as follows:
a. The company is numbered 0.
b. The subsidiaries of the Company are sequentially numbered from 1 based on their investment structures.
Note 2: The balances are the approved amount that could be financed to others, including those not actually borrowed.
Note 3: a. Limitation of financing provided to the Company:

b. Limitation of financing provided to Guangdong Ding Fung Pulp & Paper Co., Ltd:

Total loans should not exceed 40% of the lender’s net equity of the prior year, and individual loans should not exceed 40%. Contributions to the cash pool to be used for lending purposes should not exceed 10% of the lender’s net equity of the prior year.

c. Limitation of financing provided to CHP International (BVI) Corporation:

Total loans should not exceed 40% of the lender’s net equity of the prior year, and individual loans should not exceed 40%. Short-term financing to individuals should not exceed 40% of the lender’s net equity of the prior year. Financing to YFY International BVI Corporation is for revolving credit facility purposes, and the financing amount should not exceed 10% of the lender’s net equity of the prior year.

d. Limitation of financing provided to Zhaoqing Ding Fung Forestry Ltd.:

e. Limitation of financing provided to Shenzhen Systax Paper Co., Ltd.:

Note 4: The exchange rates are US$1=NT$30.715 or RMB1=NT$4.475 as of December 31, 2018.

160

TABLE 2

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

		Endorsee/Guarantee	Endorsee/Guarantee		Maximum
						Outstanding			Ratio of
					Amount
						Endorsement/			Accumulated		Endorsement/		Endorsement/
				Limit on	Endorsed/							Endorsement/
						Guarantee at the		Amount	Endorsement/	Aggregate	Guarantee Given		Guarantee Given
				Endorsement/	Guaranteed							Guarantee Given
No.													on Behalf of
	Endorser/Guarantor			i	i i	End of the Period	Actual Borrowing	Endorsed/	Guarantee to Net	Endorsement/	by Parent on	iii
(Note 1)		Name	Relationship	Guarantee Gven	Durng the Perod							by Subsdares on	Companies in
						(Foreign	Amount (Note 6)	Guaranteed by	Equity in Latest	Guarantee Limit	Behalf of
			(Note 2)	on Behalf of Each	(Foreign	Currencies in		Collateral	Financial	(Note 3)	Subsidiaries	Behalf of Parent	Mainland China
				Party (Note 3)	Currencies in							(Note 7)
						Thousands)			Statements		(Note 7)		(Note 7)
					Thousands)
						(Note 5)			(%)
					(Note 4)

0	Chung Hwa Pulp Corporation	CHP International (BVI) Corporation Guangdong Ding Fung Pulp & Paper Co., Ltd.	b. c.	$ 23,533,454 23,533,454	$ 598,943 (US$ 19,500) 186,767 (RMB 41,736)	$ 598,943 (US$ 19,500) 179,013 (RMB 40,003)	$ - -	$ - -	3.83 1.15	$ 31,377,938 31,377,938	Note 8 Note 8	N N	N Note 8

Note 1: The number column is illustrated as follows:
a. The company is numbered 0.
b. The subsidiaries of the company are sequentially numbered from 1 based on their investment structure.
Note 2: The 7 different relationships between endorsee and guarantee are as follows:
a. The companies with which it has business relations.
b. Subsidiaries in which it holds more than 50% of its total outstanding common shares.
c. Companies in which it holds more than 50% of its total outstanding common shares.
d. Companies in which it holds more than 90% of its total outstanding common shares.
e. Companies in same type of business and providing mutual endorsements/guarantees in favor of each other in accordance with the contractual obligations in order to fulfill the needs of the construction project.
f. Shareholders making endorsements/guarantees for their mutually invested companies in proportion to their shareholding percentages.
g. Companies in the same industry provide among themselves joint and several security for a performance guarantee of a sales contract for pre-construction homes pursuant to the Consumer Protection Act for each other.

Note 3: Limit on endorsement/guarantee given on behalf of Chung Hwa Pulp Corporation to a single entity is 150% of the net equity of the prior year. Limit on endorsement/guarantee is 200% of the net equity of the prior year.

Note 4: The balance is the maximum amount endorsed/guaranteed to others during the period.

Note 5: The balance is the amount approved by the board of directors. If the chairman is authorized by the board of directors to make the endorsement/guarantee decisions based on the guidelines for lending of capital, endorsements and guarantees by Public Companies Art. 12.8, the balance is the amount approved by the chairman.

Note 6: The balance is the actual borrowing amount determined by the endorsee/guarantee within the limit.
Note 7: Endorsement/guarantee given by parent on behalf of subsidiaries, endorsement/guarantee given by subsidiaries on behalf of parent, and endorsement/guarantee given on behalf of companies in mainland China should be Y.

Note 8: The endorsee and guarantee jointly issued promissory notes in consideration of the line of credit of financial institutions.

161

TABLE 3

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

					December	31, 2018
		Relationship with the Holding				Percentage of
Holding Company Name	Type and Name of Marketable Securities		Financial Statement Account				Fair Value
		Company		Number of Shares	Carrying Amount	Ownership
							(Note 1)
						(%)

Chung Hwa Pulp Corporation Hwa Fong Investment Co., Ltd. Kuang Hwa Fertilizer Limited Company	Ordinary shares SinoPac Holdings Co., Ltd. NTU Innovation & Incubation Co., Ltd. Groundhog Technologies Inc. KHL IB Venture Capital Co., Ltd. TaiGen Biopharmaceuticals Holdings Ltd. Subordinated bank debentures Bank SinoPac 3rd unsecured perpetual non-cumulative subordinated financial debentures issue in 2015 Ordinary shares Caihui Technology Co., Ltd. SinoPac Holdings Co., Ltd. Beneficiary certificates SinoPac TWD Money Market Fund	- The investor is the member of the investee’s board of directors. - - - - - - -	Financial assets at fair value through other comprehensive income - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - current Financial assets at fair value through profit or loss - current	99,809,327 800,000 275,000 20,884,500 15,315,356 - 150,000 2,394,960 312,798	$ 1,028,036 - - 300,123 260,361 171,035 - 24,668 4,349	0.9 6.3 1.0 14.9 2.1 - 0.2 - -	$ 1,028,036 - - 300,123 260,361 171,035 - 24,668 4,349

Note 1: The securities mentioned in the table above are those classified as financial instruments under IFRS 9, including shares, bonds, beneficiary certificates, and all other securities derived from those items.

Note 2: Refer to Table 7 and Table 8 for information on investments in subsidiaries and associates.

162

TABLE 4

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

					Beginning Balance	Beginning Balance	Acquisition	Acquisition		Disposal	Disposal		Ending	Balance

Company	Type and Name	Financial	Counterpart		Number of		Number of		Number of				Number of
	of Marketable			Relationship							Carrying	Gain (Loss)
Name		Statement Account	y		Thousand	Amount	Thousand	Amount	Thousand	Amount			Thousand	Amount
	Security										Amount	on Disposal
					Shares		Shares		Shares				Shares

Chung Hwa Pulp Corporation	Mutual fund SinoPac TWD Money Market Fund	Financial assets at fair value through profit or loss - current	-	-	1,589	$ 22,000	25,964	$ 360,000	27,553	$ 382,016	$ 382,000	$ 16 (Note)	-	$ -

Note: The amount was recognized in gain (loss) on financial assets at fair value through profit or loss.

163

TABLE 5

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

									Notes/Accounts	Notes/Accounts
				Ti Dil			Al Ti
		Relationship		ransacton etas			bnorma ransacton		Receivable (Payable)		Unrealized
Buyer/Seller	Related Party
		(Note 1)	Purchase/		% of			Payment	Ending	% of	Gain (Loss)
				Amount		Payment Terms	Unit Price
			Sale		Total			Terms	Balance	Total

Chung Hwa Pulp Corporation Zhaoqing Ding Fung Forestry Ltd. Guangdong Ding Fung Pulp & Paper Co., Ltd. Shenzhen Systax Paper Co., Ltd.	YFY Capital Co., Ltd. Shenzhen Systax Paper Co., Ltd. YFY Consumer Products Co., Ltd. China Color Printing Co., Ltd. YFY Packaging Inc. YFY Packaging Inc. Union Paper Corp. Union Paper Corp. Shin Foong Specialty and Applied Materials Co., Ltd. Eihoyo Shoji Co., Ltd. Beautone Co., Ltd. Guangdong Ding Fung Pulp & Paper Co., Ltd. Zhaoqing Ding Fung Forestry Ltd. YFY Investment Co., Ltd. YFY Investment Co., Ltd. YFY Family Paper (Beijing) Co., Ltd. Chung Hwa Pulp Corporation	a. b. a. a. a. a. a. a. a. a. c. b. b. a. a. a. b.	Sale Sale Sale Sale Sale Purchase Sale Purchase Purchase Purchase Sale Sale Purchase Purchase Sale Sale Purchase	$(1,016,608) (977,100) (Note 2) (869,939) (114,853) (383,884) 1,889,510 (1,208,652) 208,775 290,198 485,250 (312,629) (255,061) (Note 2) 255,061 (Note 2) 224,839 (1,213,140) (146,021) 977,100 (Note 2)	(5) (5) (4) (1) (2) 10 (6) 1 2 3 (1) (75) 11 10 (43) (5) 100	0.5 month after transaction month 5 months after transaction month 2 months after transaction month 2 months after transaction month 2 months after transaction month 2 months after transaction month 1 month after transaction month 1 month after transaction month 4 months after transaction month In agreed terms 1 month after transaction month In agreed terms In agreed terms 2 months after transaction month 2 months after transaction month In agreed terms 5 months after transaction month	$ - - - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - - - -	$ 54,726 610,542 261,088 26,045 114,679 (346,869) 112,940 (11,022) (132,512) - 60,002 215,981 (215,981) (29,040) 106,240 26,636 (610,542)	2 21 9 1 4 (18) 4 (1) (7) - 2 94 (48) (6) 17 4 (99)	$ - 1,050 - - - - - - - - - 168 - - - - -

Note 1: a. Fellow subsidiaries.

b. Parent company and subsidiary.

c. Related party in substance

Note 2: In preparing the consolidated financial statements, the transaction has been eliminated.

164

TABLE 6

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

					Overdue	Overdue	Amounts
								Allowance for
			Ending				Received in
Company Name	Related Party	Relationship		Turnover Rate				Impairment
			Balance		Amount	Actions Taken	Subsequent
								Loss
							Period

Chung Hwa Pulp Corporation Zhaoqing Ding Fung Forestry Ltd. Guangdong Ding Fung Pulp & Paper Co., Ltd.	YFY Consumer Products Co., Ltd. Shenzhen Systax Paper Co., Ltd. YFY Packaging Inc. Union Paper Corp. Guangdong Ding Fung Pulp & Paper Co., Ltd. YFY Investment Co., Ltd.	Fellow subsidiaries Parent company and subsidiary Fellow subsidiaries Fellow subsidiaries Parent company and subsidiary Fellow subsidiaries	$ 261,088 610,542 (Note) 114,679 112,940 215,981 (Note) 106,240	3.34 1.70 3.61 13.89 1.17 8.54	$ - - - - - -	- - - - - -	$ 95,168 112,843 31,140 112,940 15,227 47,029	$ - - - - - -

Note: In preparing the consolidated financial statements, the transaction has been eliminated.

165

TABLE 7

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

				Investment Amount	Investment Amount	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Net Income
Investor
	Investee Company	Location	Main Businesses and Products	December 31,	December 31,	Number of		Carrying	(Loss) of the	Share of	Note
Company
				2018	2017	Shares	%	Amount	Investee	Profits (Loss)

Chung Hwa Pulp Corporation Hwa Fong Investment Co., Ltd.	CHP International (BVI) Corporation E Ink Holdings Inc. Effion Enertech Co., Ltd. Taiwan Global BioFund Co., Ltd. Hwa Fong Investment Co., Ltd. Effion Enertech Co., Ltd. Kuang Hwa Fertilizer Limited Company	British Virgin Island Hsinchu, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Hualien, Taiwan	Investment and holding To research, develop, produce and sale of thin-film transistor liquid crystal display To operate cogeneration and provide power technology Biotechnology and biopharmaceutical business investment Investment and holding To operate cogeneration and provide power technology To produce fertilizer	$ 1,747,085 329,000 343,000 60,000 36,000 7,000 5,000	$ 1,747,085 329,000 343,000 60,000 36,000 7,000 5,000	61,039,956 20,000,000 34,300,000 6,000,000 3,600,000 700,000 -	100.0 1.8 49.0 4.4 100.0 1.0 100.0	$ 5,374,748 400,116 337,007 119,674 44,431 6,878 6,976	$ 143,608 2,613,673 13,959 88,103 891 13,959 (340)	$ 142,558 46,374 6,840 3,916 891 140 (340)	a. b. b. b. a. b. a.

Note: a. Subsidiaries.

b. Investments accounted for using the equity method.

c. Refer to Table 8 for information on investments in mainland China.

166

TABLE 8

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

					Remittance of Funds	Remittance of Funds	Accumulated
				Accumulated
							Outward
				Outward
							Remittance for
				Remittance for								Accumulated
		Paid-in Capital					Investment from
				Investment from							Carrying	Repatriation of
		(Foreign					Taiwan as of		% Ownership of
				Taiwan as of				Net Income (Loss)		Investment	Amount as of	Investment
Investee Company	Main Businesses and Products	Currencies in	Method of Investment
				January 1, 2018	Outward	Inward	December 31,	of the Investee	Direct or Indirect	Gain (Loss)	December 31,	Income as of
		Thousand)
				(Foreign			2017		Investment		2018	December 31,
		(Note 1)					(Foreign
				Currencies in								2018
							Currencies in
				Thousand)
							Thousand)
				(Note 1)
							(Note 1)

Guangdong Ding Fung Pulp & Paper Co., Ltd. Shenzhen Systax Paper Co., Ltd. Zhaoqing Ding Fung Forestry Ltd.	Pulp and paper production, trading and forestry business. Sale of paper merchandise and import/export business. Export factoring, domestic factoring, business factoring and related consulting services, develop credit risk management platform.	$ 2,630,125 (US$ 85,630) (Note 3) 14,320 (RMB 3,200) 672,044 (US$ 21,880)	Investment in mainland China through companies set up in another country. (Note 5) Investment in mainland China through companies set up in another country.	$ 405,438 (US$ 13,200) (Note 5) 136,006 (US$ 4,428)	$ - - -	$ - - -	$ 405,438 (US$ 13,200) (Note 5) 136,006 (US$ 4,428)	$ 180,273 (Note 2,b.) 20,460 (Note 2,b.) 515 (Note 2,b.)	60.0 100.0 (Note 5) 86.5 (Note 4)	$ 115,759 (Note 2,b.) 11,226 (Note 2,b.) 445 (Note 2,b.)	$ 3,046,882 104,563 2,550,039	$ - - -

Accumulated Investment in Mainland China as of Investment Amounts Authorized by Upper Limit on Investment December 31, 2018 Investment Commission, MOEA $541,444 $1,308,643 $9,373,026 (Note 1) (Note 1)

Note 1: The exchange rates are US$1=NT$30.715 or RMB1=NT$4.475 as of December 31, 2018.
Note 2: The recognition basis for investment gain (loss) are as follows:
a. Financial statements audited by an international CPA firm with the cooperation of the ROC CPA firm. b. Financial statements audited by the ROC CPA firm.
c. Others.

Note 3: Guangdong Ding Fung Pulp & Paper Co., Ltd. increased its capital by retained earnings in an amount of US$41,630 thousand from 2004 to 2007, and increased its capital by retained earnings from 2007 and 2008 in an amount of US$22,000 thousand in July, 2015. The paid-in-capital after the capital increase was US$85,630 thousand.

Note 4: Ownership percentage of investment for CHP International (BVI) Corporation and Guangdong Ding Fung Pulp & Paper Co., Ltd. are 20.2% and 66.3%, respectively.

Note 5: Guangdong Ding Fung Pulp & Paper Co., Ltd. acquired shares of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary, Hwa Fong Paper (Hong Kong) Limited, in 2018.

167

TABLE 9

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2018 (Amounts in In Thousands of New Taiwan Dollars)

						Transaction Details
							% of
No.	Investee Company	Counterparty	Relationship	Financial
					Amount	Payment Terms	Total Sales or
				Statement Account
							Assets

1	Chung Hwa Pulp Corporation	Shenzhen Systax Paper Co., Ltd.	Subsidiary	Accounts receivable Sales	$ 610,542 977,100	5 months after transaction month By market price	2.0 4.0
2	Zhaoqing Ding Fung Forestry Ltd.	Guangdong Ding Fung Pulp & Paper Co., Ltd.	Parent company	Accounts receivable Sales	215,981 255,061	In agreed terms By market price	0.7 1.1
3	Kuang Hwa Fertilizer Limited Company	Chung Hwa Pulp Corporation	Parent company	Accounts receivable Sales	725 7,262	In agreed terms By market price	- -

Note: In preparing the consolidated financial statements, the transaction has been eliminated.

168

6.5 Financial Statements for the Years Ended December 31, 2018 and 2017, and Independent

Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Shareholders Chung Hwa Pulp Corporation

Opinion

We have audited the accompanying financial statements of Chung Hwa Pulp Corporation (the Company) which comprise the balance sheets as of December 31, 2018 and 2017, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

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 Financial Statements section of our report. We are independent of the Company 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 Matter

Key audit matter is the matter that, in our professional judgment, was of most significance in our audit of the financial statements for the year ended December 31, 2018. The matter was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on the matter.

169

The description of key audit matter of the financial statements for the year ended December 31, 2018 is as follows:

Estimation of Expected Credit Loss Recognized on Accounts Receivable

The accounts receivable of the Company and its subsidiaries (collectively referred to as the “Group”) is material in amount. In consideration of the business volume, the recoverability of accounts receivable is not only subject to each customer’s financial condition but also management’s estimation and judgement. Therefore, the estimation of expected credit loss recognized on accounts receivables was identified as a key audit matter.

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

We analyzed the sufficiency of expected credit loss rates used based on the Group’s historical experience and existing market conditions, and assessed whether the provision policy for accounts receivable adopted by the Group was reasonable.
We tested sample items in the aging report to verify the completeness and accuracy of accounts receivable and evaluated the appropriateness of the amount of credit loss calculated by management.
We inquired if there was any customer with overdue receivables suffering from financial difficulties to ensure whether the management had adopted appropriate actions to secure such customers’ receivables, and performed sampling on the collection of outstanding overdue receivables after the balance sheet date.

Emphasis of Matter

As disclosed in Notes 4 and 15 to the accompanying financial statements, the Company’s subsidiary Guangdong Ding Fung Pulp & Paper Co., Ltd. acquired 100% equity of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary of YFY Inc. group in the fourth quarter of 2018. In compliance with the “Comments on IFRS” and Interpretation 2012-301 issued by the Accounting Research and Development Foundation, the acquisition resulted in a joint control restructuring. Therefore, in the preparation of comparative financial statements, the acquisition is disclosed as if it has occurred before January 1, 2017 and the Company’s financial statements as of and for the year ended December 31, 2017 are restated.

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

Management is responsible for the preparation and fair presentation of financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities

170

Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’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 Company 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 Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 financial statements.

Identify and assess the risks of material misstatement of the 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 Company’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

171

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 Company’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 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 Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the 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 or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

From the matters communicated with those charged with governance, we determine the matter that was of most significance in the audit of the financial statements for the year ended December 31, 2018, and is therefore the key audit matter. We describe the matter 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.

172

Deloitte & Touche Taipei, Taiwan Republic of China

March 21, 2019

Notice to Readers

The accompanying financial statements are intended only to present the 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 financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying 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 financial statements shall prevail.

173

CHUNG HWA PULP CORPORATION

BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4 and 7) Financial assets at fair value through other comprehensive income - current (Notes 4 and 8) Available-for-sale financial assets (Notes 4 and 9) Derivative financial assets for hedging - current (Notes 4 and 10) Financial assets for hedging - current (Notes 4 and 10) Notes and accounts receivable (Notes 4 and 13) Accounts receivable from related parties (Notes 4 and 27) Inventories (Notes 4 and 14) Other current assets (Note 26) Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss - non-current (Notes 4 and 7) Financial assets at fair value through other comprehensive income - non-current (Notes 4 and 8) Available-for-sale financial assets - non-current (Notes 4 and 9) Financial assets measured at cost - non-current (Notes 4 and 12) Debt investments with no active market - non-current (Notes 4 and 11) Investments accounted for using the equity method (Notes 4 and 15) Property, plant and equipment (Notes 4 and 16) Investment properties (Notes 4 and 17) Deferred tax assets (Notes 4 and 22) Prepayments for equipment Other non-current assets Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 18) Short-term bills payable (Note 18) Financial liabilities for hedging - current (Notes 4 and 10) Notes and accounts payable Accounts payable to related parties (Note 27) Other payables Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note18) Deferred tax liabilities (Notes 4 and 22) Net defined benefit liabilities (Notes 4 and 19) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 20) Share capital Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity EQUITY ATTRIBUTABLE TO FORMER OWNER OF BUSINESS COMBINATION UNDER COMMON CONTROL Total equity TOTAL		2018 Amount % $ 87,168 - 3,166 - 1,028,036 4 - - - - 50 - 1,752,398 6 1,245,106 4 3,635,394 13 219,696 1 7,971,014 28 171,035 1 560,484 2 - - - - - - 6,275,976 23 12,255,178 44 257,411 1 72,902 - 375,823 1 95,997 - 20,064,806 72 $ 28,035,820 100 $ 3,694,901 13 1,849,709 7 250 - 1,273,787 5 574,317 2 946,630 3 135,013 - 8,474,607 30 1,695,875 6 2,005,460 7 234,935 1 3,233 - 3,939,503 14 12,414,110 44 11,028,353 40 31,468 - 181,691 1 1,186,894 4 2,905,386 10 4,273,971 15 287,918 1 - - 15,621,710 56 $ 28,035,820 100	2017 (Audited after Restated)	2017 (Audited after Restated)
				Amount % $ 140,738 1 25,934 - - - 946,232 4 1 - - - 1,841,974 7 1,045,605 4 2,799,593 10 364,725 1 7,164,802 27 - - - - 332,343 1 239,402 1 170,000 1 6,245,065 23 11,873,321 44 257,678 1 110,913 - 366,959 1 121,712 1 19,717,393 73 $ 26,882,195 100 $ 3,324,328 12 1,949,268 7 - - 1,673,985 6 530,920 2 377,425 2 118,218 1 7,974,144 30 914,075 3 1,991,427 7 224,695 1 2,816 - 3,133,013 11 11,107,157 41 11,028,353 41 36,602 - 119,833 1 1,186,894 4 3,092,020 12 4,398,747 17 225,267 1 86,069 - 15,775,038 59 $ 26,882,195 100

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

(With Deloitte & Touche auditors’ report dated March 21, 2019)

174

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4 and 27) Sales Sales returns and allowances Net sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 4, 14, 21, and 27) Cost of goods sold Other operating cost Total operating costs GROSS PROFIT OPERATING EXPENSES (Notes 4, 21, and 27) Selling and marketing General and administrative Research and development Total operating expenses PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Finance costs (Note 21) Share of profit of subsidiaries and associates (Notes 4 and 15) Interest income Dividend income Other income (Note 27) Gain (loss) on disposal of investments Foreign exchange gain (loss) (Note 4) Loss (gain) on financial instruments at FVTPL Other losses Total non-operating income and expenses		2018 Amount % $ 21,080,167 100 128,586 - 20,951,581 100 53,754 - 21,005,335 100 19,197,893 92 41,510 - 19,239,403 92 1,765,932 8 1,197,300 6 245,551 1 31,521 - 1,474,372 7 291,560 1 (74,741) - 200,579 1 2,066 - 54,609 - 60,918 - 12 - 34,734 - (31,784) - (4,651 ) - 241,742 1		2017 (Audited after Restated)
				Amount % $ 20,014,137 101 156,528 1 19,857,609 100 47,552 - 19,905,161 100 17,987,590 91 16,899 - 18,004,489 91 1,900,672 9 1,176,963 6 195,999 1 30,215 - 1,403,177 7 497,495 2 (75,531) - 230,212 1 7,869 - 32,609 - 49,017 - (1,120) - (71,772) - 47,800 - (306 ) - 218,778 1 (Continued)

175

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 22) 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 (Note 19) Unrealized gain on investments in equity instruments at fair value through other comprehensive income Share of the other comprehensive loss of subsidiaries and associates Tax effect of items that will not be reclassified (Note 22) Items that may be reclassified subsequently to profit or loss: Unrealized loss on available-for-sale financial assets (Note 20) Cash flow hedges (Note 20) Loss on hedging instruments (Note 20) Share of the other comprehensive loss of subsidiaries and associates (Note 20) Other comprehensive loss for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control		2018 Amount % $ 533,302 2 68,650 - 464,652 2 (40,093) - 59,774 - (23,632) - 16,606 - - - - - (584) - (15,304 ) - (3,233 ) - $ 461,419 2 $ 445,663 2 18,989 - $ 464,652 2		2017 (Audited after Restated)
				Amount % $ 716,273 3 78,953 - 637,320 3 (19,062) - - - (109) - 3,240 - (2,131) - 4,973 - - - (243,315 )(1 ) (256,404 )(1 ) $ 380,916 2 $ 618,582 3 18,738 - $ 637,320 3 (Continued)

176

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control EARNINGS PER SHARE (Note 23) Basic Diluted		2018 Amount % $ 445,156 2 16,263 - $ 461,419 2 $ 0.40 $ 0.40		2017 (Audited after Restated)
				Amount % $ 363,366 2 17,550 - $ 380,916 2 $ 0.56 $ 0.56
		$		$

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

(With Deloitte & Touche auditors’ report dated March 21, 2019)

(Concluded)

177

CHUNG HWA PULP CORPORATION

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

	Share Capital ares (Thousands) Amount Capital Surplus 1,102,835 $ 11,028,353 $ 34,403 - - - - - - - - - - - 2,204 - - - - - - - - - - - (5 ) 1,102,835 11,028,353 36,602 - - - 1,102,835 11,028,353 36,602 - - - - - - - - (6,467 ) - - - - - - - - - - - (16 ) - - 1,349 1,102,835 $ 11,028,353 $ 31,468	Retained Earnings		Other Equity
			Exchange Differences on Translating U the Financial Statements of A Foreign Operations $ 131,549 - - - - - (218,984 ) (218,984 ) - (87,435 ) - (87,435 ) - - - (12,578 ) (12,578 ) - - $ (100,013 )	Unrealized Gain (Loss) on Financial Assets at Fair nrealized Gain Value Through (Loss) on Other vailable-for sale Comprehensive Financial Assets Income C $ 344,353 $ - - - - - - - - - - - (25,274 ) - (25,274 ) - - - 319,079 - (319,079 ) 358,643 - 358,643 - - - - - - - - - 36,249 - 36,249 - - - - $ - $ 394,892	ash Flow Hedges $ (11,350 ) - - - - - 4,973 4,973 - (6,377 ) 6,377 - - - - - - - - $ -
		Unappropriated Legal Reserve Special Reserve Earnings $ 80,721 $ 1,186,894 $ 2,919,034 - - - 39,112 - (39,112 ) - - (385,992 ) - - (4,561 ) - - 618,582 - - (15,931 ) - - 602,651 - - - 119,833 1,186,894 3,092,020 - - (3,719 ) 119,833 1,186,894 3,088,301 61,858 - (61,858 ) - - (551,418 ) - - 8,292 - - 445,663 - - (23,594 ) - - 422,069 - - - - - - $ 181,691 $ 1,186,894 $ 2,905,386
Sh	ares (Thousands) 1,102,835 - - - - - - - - 1,102,835 - 1,102,835 - - - - - - - - 1,102,835

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

(With Deloitte & Touche auditors’ report dated March 21, 2019)

178

CHUNG HWA PULP CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax

Adjustments for:
Depreciation and amortization expenses
Expected credit loss recognized on accounts receivables
Loss (gain) on financial instruments at FVTPL
Finance costs
Interest income
Dividend income
Share of profit of subsidiaries and associates
Net (gain) loss on disposal of investments
(Reversal of) write-downs of inventories
Net unrealized gain on foreign currency exchange
Changes in operating assets and liabilities
Decrease in financial assets held for trading
Increase in financial assets mandatorily classified as at fair
value through profit or loss
(Increase) decrease in notes and accounts receivable
Increase in notes and accounts receivable from related parties
Increase in inventories
(Increase) decrease in other current assets
Increase (decrease) in notes payable and accounts payable
Increase in notes and accounts payable to related parties
Increase (decrease) in other payables
Increase (decrease) in other current liabilities
Decrease in 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
Proceeds from capital reduction on financial assets at fair value
through other comprehensive income
Purchase of available-for-sale financial assets

2018
2017
(Audited after
Restated)
$ 533,302
$ 716,273
904,012
886,783
2,330
-
31,784
(47,800)
74,741
75,531
(2,066)
(7,869)
(54,609)
(32,609)
(200,579)
(230,212)
(12)
1,120
(1,275)
3,712
(12,269)
(12,558)
-
28,457
(9,016)
-
86,087
(116,626)

(199,868)
(18,384)
(834,526)
(242,344)
144,172
(89,183)
(400,206)
415,105
43,397
8,376
220,140
(217,763)
36,984
(33,877)
(29,853
)
(80,916
)
332,670
1,005,216
3,101
7,869
(77,592)
(79,392)
(846
)
(6,531
)
257,333

927,162
18,655
-
-
(212,335)
(Continued)

179 -

CHUNG HWA PULP CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

				2017
			(Audited after
		2018	Restated)
Proceeds from capital reduction on financial assets measured at
cost	$	-	$	22,500
Purchase of financial instruments for hedging		(9,645)		(443)
Proceeds from the sale of financial instruments for hedging		2,719		5,540
Disposal of investments accounted for by using equity method		-		1,128
Payments for property, plant and equipment		(901,638)		(856,331)
Proceeds from the disposal of property, plant and equipment		-		25
Increase in other non-current assets		(53)		(52,223)
Increase in prepayments for equipment		(8,864)		(75,776)
Dividend received		92,600		75,015
Net cash used in investing activities		(806,226 )	(1,092,900 )
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings		363,820		1,493,448
Decrease in short-term bills payable		(99,559)		(50,091)
Proceeds from long-term borrowings		2,500,000		3,974,310
Repayments of long-term borrowings	(1,720,000)		(5,010,000)
Increase in other non-current liabilities		417		50
Cash dividends paid		(549,355 )		(387,909 )
Net cash generated from financing activities		495,323		19,808
NET DECREASE IN CASH		(53,570)		(145,930)
CASH AT THE BEGINNING OF THE YEAR		140,738		286,668
CASH AT THE END OF THE YEAR	$	87,168	$	140,738
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche auditors’ report dated March 21, 2019)				(Concluded)

180 -

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

CHUNG HWA PULP CORPORATION

1. GENERAL INFORMATION

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

YFY Inc. and its subsidiaries held 57.7% of ordinary shares of the Company as of December 31, 2018 and 2017.

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

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 21, 2019.

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.

1) IFRS 9 “Financial Instruments” and related amendments

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as of January 1, 2018, the Company has

181 -

performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Company’s financial assets and financial liabilities as of January 1, 2018.

Financial Assets
Cash and cash equivalents
Derivatives

Mutual funds

Equity securities

Debt securities

Notes receivable,
accounts receivable and
other receivables

Refundable deposits

Financial Assets
FVTPL

Add: Reclassification from
available-for-sale (IAS 39)
Add: Reclassification from
loans and receivables
(IAS 39)

FVTOCI
Add: Reclassification from
available-for-sale (IAS 39)

Amortized cost
Add: Reclassification from
loans and receivables
(IAS 39)

Hedging Instruments

Investments accounted for
using the equity method MeasurementCategory
Carrying Amount
IAS 39
IFRS 9
IAS 39
IFRS 9
Remark
Loans and receivables
Amortized cost
$ 140,738 $ 140,738
a)
Held‑for‑trading
Mandatorily at fair value
through profit or loss (i.e.
FVTPL)
3,934
3,934
d)
Hedging instruments
Hedging instruments
1
1
Held‑for‑trading
Mandatorily at FVTPL
22,000
22,000
d)
Available‑for‑sale
Mandatorily at FVTPL
11,902
-
b)
Available‑for‑sale
Fair value through other
comprehensive income
(i.e. FVTOCI) - equity
instruments
1,506,075
1,547,401
b)
Loans and receivables
Mandatorily at FVTPL
170,000
171,035
c)
Loans and receivables
Amortized cost
2,939,637
2,938,602
a)
Loans and receivables
Amortized cost
8,581
8,581
a)
IAS 39
Carrying
Amount as of
January 1,
2018
Reclassifi-
cations
Remeasu-
rements
IFRS 9
Carrying
Amount as of
January 1,
2018
Retained
Earnings
Effect on
January 1,
2018
Other
Equity
Effect on
January 1,
2018
Remark
$ 25,934 $ - $ - $ 25,934 $ - $ -
-
11,902
(11,902 )
-
(11,902 )
-
b)

-

171,035

-

171,035

-

-
c)

25,934

182,937

(11,902
)
196,969

(11,902
)
-
-
-
-
-
-

-

1,506,075

41,326

1,547,401

-

41,326
b)

-

1,506,075

41,326

1,547,401

-

41,326
-
-
-
-
-
-

-

3,087,921

-

3,087,921

-

-
a)

-

3,087,921

-

3,087,921

-

-

1

-

-

1

-

-
$ 25,935
$ 4,776,933
$ 29,424
$ 4,832,292
$ (11,902
)$ 41,326
IAS 39
Carrying
Amount as of
January 1,
2018
Adjustments
Arising from
Initial
Application
IFRS 9
Carrying
Amount as of
January 1,
2018
Retained
Earnings
Effect on
January 1,
2018
Other
Equity
Effect on
January 1,
2018
Remark
$ 6,245,065
$ 1,332
$ 6,246,387
$ 3,084
$ (1,762
)
e)

a) Cash and cash equivalents, notes and accounts receivable, other receivables, and refundable deposits that were previously classified as loans and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9.
182 -
b) The Company elected to designate all its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are not held for trading. As a result, the related other equity - unrealized gain on available-for-sale financial assets of $319,079 thousand was reclassified to other equity - unrealized gain on financial assets at FVTOCI.

c) Debt investments previously classified as loans and receivables and measured at amortized cost under IAS 39 did not meet the contractual cash flow test, so they were classified mandatorily as at FVTPL under IFRS 9.
d) Mutual funds and derivatives previously classified as held-for-trading under IAS 39 were classified mandatorily as at FVTPL under IFRS 9.
e) As a result of the retrospective application of IFRS 9 by associates, there was an increase in investments accounted for using the equity method of $1,322 thousand, a decrease in other equity - unrealized gain on financial assets at FVTOCI of $1,762 thousand, and an increase in retained earnings of $3,084 thousand on January 1, 2018.

Hedge Accounting

On adoption of IFRS 9, the Company elected not to apply the treatment of hedging cost for forward contracts retrospectively. Furthermore, due to the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, all derivative and non-derivative financial assets and financial liabilities which are designated as hedging instruments are presented as financial assets and financial liabilities for hedging starting from January 1, 2018.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for related accounting policies.

183 -
b. Amendments to the IFRSs endorsed by the FSC for application starting from 2019

Effective Date
Announced by IASB (Note
1)

January 1, 2019
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019 (Note 3)
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: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

IFRS 16 “Leases”

Definition of a lease

Upon initial application of IFRS 16, the Company will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Company as lessee

Upon initial application of IFRS 16, the Company will recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are

184 -

recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights of land located in China are recognized as prepayments for leases. Cash flows for operating leases are classified within operating activities on the statements of cash flows.

The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid lease payments. The Company will apply IAS 36 to all right-of-use assets.

The Company expects to apply the following practical expedients:

1) The Company will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.
2) The Company will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.
3) The Company will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.
4) The Company will use hindsight, such as in determining lease terms, to measure lease liabilities.

Anticipated impact on assets, liabilities and equity

					Adjusted
	Carrying			Adjustments	Carrying
	Amount as of			Arising from	Amount as of
	December		31,	Initial	January 1,
		2018		Application	2019
Right-of-use assets	$		-	$ 50,142	$ 50,142
Total effect on assets	$		-	$ 50,142	$ 50,142
Lease liabilities - current	$		-	$ 16,646	$ 16,646
Lease liabilities - non-current			-	33,496	33,496
Total effect on liabilities	$		-	$ 50,142	$ 50,142

Except for the above impact, as of the date the financial statements were authorized for issue, the Company determined that the application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will not have a material impact on the Company’s financial position and financial performance.

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

Effective Date Announced by IASB (Note New IFRSs 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of To be determined by IASB Assets between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

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 Company shall apply these amendments to business combinations for which

the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 3: The Company shall apply these amendments prospectively for annual reporting

periods beginning on or after January 1, 2020.

As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China (“ROC”). 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 financial statements shall prevail.

a. Statement of compliance

The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

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1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an 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 an 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 12 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 12 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 financial statements are authorized for issue; and
3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

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

d. Foreign currencies

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

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

For the purpose of presenting financial statements, the assets and liabilities of the Company’s foreign operations (including subsidiaries and associates in other countries that use currencies which are different from currency of the Company) are translated into the New Taiwan dollar 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. The resulting exchange differences, if any, are recognized in other comprehensive income and accumulated in equity.

e. 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

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estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the weighted-average cost on the balance sheet date.

f. Investments in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

A subsidiary is an entity that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of subsidiaries.

Changes in the Company’s ownership interest in a subsidiary that do not result in the Company losing control of the subsidiary are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

When the Company’s share of losses of a subsidiary exceeds its interest in that subsidiary (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary 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 Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the investee’s financial statements as a whole. If the recoverable amount of the investment subsequently increases, the Company recognizes a reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides this, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with the subsidiaries are recognized in the Company’s financial statements only to the extent of interests in the subsidiaries that are not owned by the Company.

g. Investment in associates

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

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The Company 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 Company’s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes the changes in the Company’s share of the equity of associates.

Any excess of the cost of acquisition over the Company’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 Company’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 Company 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 Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Company’s share of equity of associates. If the Company’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 Company’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 using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

The Company 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 the investment’s 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 Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required had that associate 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 Company continues to apply the equity method and does not remeasure the retained interest.

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

h. Property, plant and equipment
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Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment loss.

Freehold land is not depreciated.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

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.

j. Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered any 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 Company 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.

k. Financial instruments

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

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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

2018

Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

i. Financial assets at FVTPL

ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

iii. Investments in equity instruments at FVTOCI
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On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading.

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following categories: Financial assets at FVTPL, available-for-sale financial assets, and loans and receivables.

i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is held for trading.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

ii. Available-for-sale financial assets

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

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iii. Loans and receivables

b) Impairment of financial assets

2018

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including accounts receivable).

The Company always recognizes lifetime expected credit losses (i.e. ECLs) for accounts receivable. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

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 Company’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 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

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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.

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

c) Derecognition of financial assets

The Company 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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2) Equity instruments

Equity instruments issued by the Company are classified as 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 the Company are recognized at the proceeds received, net of direct issue costs.

The repurchase of the Company’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, issuance or cancellation of the Company’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except for financial liabilities at FVTPL, all financial liabilities are measured at amortized cost using the effective interest method.

Financial liabilities are classified as at FVTPL when such financial liabilities are held for trading.

b) Derecognition of financial liabilities

4) Derivative financial instruments

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

l. Hedge accounting

The Company designates certain hedging instruments as cash flow hedges to partially hedge its foreign exchange rate risks associated with certain highly probable forecast purchases. The effective portion of changes in the fair value of hedging instruments is recognized in other comprehensive income. When the forecast transactions actually take place, the associated gains or losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the hedged items. The gains or losses from hedging instruments relating to the ineffective portion

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are recognized immediately in profit or loss.

2018

The Company discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance, when the hedging instrument expires or is sold, terminated or exercised.

2017

Hedge accounting was discontinued prospectively when the Company revoked the designated hedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when the hedging instrument no longer met the criteria for hedge accounting.

m. Provisions

n. Revenue recognition

2018

The Company identifies contracts with customers and recognizes revenue when performance obligations are satisfied.

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable and reduced for estimated customer returns, rebates and other similar allowances. Estimated sales returns and allowances are generally made and adjusted based on historical experience and the consideration of varying contractual terms to recognize refund liabilities.

Due to the short term nature of the receivables from sale of goods with the immaterial discounted effect, the Company measures them at the original invoice amounts without discounting.

2017

1) Sale of goods

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

a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
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b) The Company 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 Company; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Company 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.

Specifically, revenue from the sale of goods is recognized when the goods are delivered and the ownership of the goods is transferred to the customer.

2) Dividend and interest income

Dividend income from investments is recognized when a shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Company and that 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 Company and the amount of income can be measured reliably. Interest income is accrued on a time basis with reference to the principal outstanding and at the applicable effective interest rate.

o. Leasing

p. Borrowing costs

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

q. 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 services.

2) Retirement benefits

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

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Defined benefit costs (including service cost, net interest and remeasurement) under 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 in which 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 it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’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.

r. 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 earnings.

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

2) Deferred tax

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint arrangements, except where the Company 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.

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follow from the manner in which the Company 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

s. Business combinations

Business combinations involving entities under common control are accounted for at the carrying amounts of the entities. Prior period comparative information in the financial statements is restated as if a business combination involving entities under common control had already occurred in that period. The equity held by original shareholders is recorded as “equity attributable to former owner of business combination under common control” when preparing the comparative balance sheet. In the preparation of the statement of changes in equity, the profit or loss recognized by original shareholders is attributed to “former owners’ interests under common control”.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimations, 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.

a. Estimated impairment of financial assets - 2018

The provision for impairment of accounts receivable is based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Note 13. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

b. Estimated impairment of notes and accounts receivable - 2017

When there is objective evidence of impairment loss of receivables, the Company takes into consideration the estimation of future cash flows of such assets. 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.

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6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits		December 31	December 31
		2018 $ 658 86,510 $ 87,168	2017 $ 481 140,257 $ 140,738

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

Bank balance	December 31
	2018 2017 0.001%-0.48% 0.001%-0.35%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current Financial assets held for trading Mutual funds Foreign exchange forward contracts (a) Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts (a) Financial assets at FVTPL-non-current Non-derivative financial assets Domestic quoted shares (b)		December 31	December 31
		2018 $ - - - 3,166 $ 3,166 $ 171,035	2017 $ 22,000 3,934 25,934 - $ 25,934 $ -

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a. 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, 2018 Sell USD:NTD 2019.01.09-2019.01.22 USD16,500/NTD506,798 December 31, 2017 Sell USD:NTD 2018.01.10-2018.01.15 USD13,500/NTD401,760

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

b. In 2015, the Company 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 date but may be redeemed by Bank SinoPac after 5 years from issue date.

The bonds were previously classified as investments in debt instrument without active market under IAS 39. Since the contract did not meet the cash flow test, the bonds were reclassified mandatorily as at FVTPL under IFRS 9. Refer to Note 3 and Note 11 for information relating to their reclassification and comparative information for 2017.

8. INVESTMENT IN EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

	December 31,
	2018
Current
Domestic investments
Listed shares	$ 1,028,036
Non-current
Domestic investments
Listed shares	$ 260,361
Unlisted shares	300,123
	$ 560,484

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long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Note 3, Note 9 and Note 12 for information relating to their reclassification and comparative information for 2017.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

	December 31,
	2017
Current
Domestic investments
Listed shares	$ 946,232
Non-current
Domestic investments
Listed shares	$ 332,343

10.	DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING 2018 December 31, 2018 Derivative financial assets under hedge accounting-current Cash flow hedges - foreign exchange forward contracts $ 50 Derivative financial liabilities under hedge accounting-current Cash flow hedges - foreign exchange forward contracts $ 250

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

The Company determined that the value of the forward contracts and the value of the corresponding hedged items will systematically move in the opposite direction in response to changes in the underlying exchange rates based on their relationship.

The source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Company’s own credit risk on the fair value of the forward exchange contracts. No other sources of ineffectiveness are expected to emerge from these hedging relationships.

The decrease in value used for calculating hedge ineffectiveness in 2018 was $584 thousand. The following tables summarize the information relating to the hedges of foreign currency risk.

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			Notional Amount	Notional Amount
	Currency	Maturity Date	(In Thousands)
December 31, 2018
Buy	EUR:NTD	2019.03.05	EUR243/NTD8,554
Buy	EUR:NTD	2019.01.22-2019.01.29 EUR3,470/NTD122,144
			Decrease in
			Value Used for	Hedging Gains
			Calculating	(Losses)
			Hedge	Recognized in
			Ineffectiveness	OCI
Hedged item
Cash flow hedges
Forecast transactions	(capital expenditures)		$ (584 )	$ (6,961 )

Refer to Note 20(e) for information relating to gain (loss) arising on changes in the fair value of hedging instruments and the original carrying amount transferred to hedged items in 2018.

2017

The Company’s 2017 hedge strategy is same as 2018. The financial instruments used for hedging were as follows:

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

Notional Amount Currency Maturity Date (In Thousands) December 31, 2018 Buy EUR:NTD 2018.01.31 EUR383/NTD13,623

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11. DEBT INVESTMENTS WITH NO ACTIVE MARKET - 2017

		December 31,
		2017
Non-current
Subordinated	financial bonds of Bank SinoPac	$ 170,000

In 2015, the Company 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 date but may be redeemed by Bank SinoPac after 5 years from issue date.

12. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT - 2017

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

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

13. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable - operating Accounts receivable - operating Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2018 $ 22,080 1,760,234 1,782,314 (29,916 ) $ 1,752,398	2017 $ 15,187 1,854,373 1,869,560 (27,586 ) $ 1,841,974

2018

The Company’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 Company 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 Company held adequate collaterals or other

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credit enhancements for these receivables. In addition, the Company also did not have offset right for the receivables against the payables of the same parties.

The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s different customer base.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

The following table details the loss allowance of trade receivables based on the Company’s provision matrix.

December 31, 2018

Not Past Due Gross carrying amount $ 1,782,237 Loss allowance (Lifetime ECL) (29,839 ) Amortized cost $ 1,752,398	Less than 90 Days $ 1 (1 ) $ -	91 Days to A Year $ - - $ -	Over A Year $ 76 (76 ) $ -	Total $ 1,782,314 (29,916 ) $ 1,752,398

The movements of the loss allowance of trade receivables were as follows:

Balance at January 1, 2018 per IAS 39 and IFRS 9 Net remeasurement of loss allowance Balance at December 31, 2018 2017	2018 $ 27,586 2,330
	$ 29,916

The Company applied the same credit policy in 2018 and 2017.

The Company recognized an allowance for impairment loss on receivables based on the past default experience of the counterparties and an analysis of their current financial positions because according to historical experience, receivables that are past due beyond payment terms may be unrecoverable.

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The aging of receivables was as follows:

	December 31,
	2017
Not past due	$ 1,867,078
Less than 90 days	2,482
91-180 days	-
181 days - 1 year	-
Over 1 year	-
	$ 1,869,560

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

There was no movement of the loss allowance of accounts and trade receivables from January 1, 2017 to December 31, 2017.

14. INVENTORIES

Finished and purchased goods Work in process Materials		December 31	December 31
		2018 $ 2,135,217 379,465 1,120,712 $ 3,635,394	2017 $ 1,575,977 383,705 839,911 $ 2,799,593

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 were $19,197,893 thousand and $17,987,590 thousand, respectively.

The cost of goods sold for the years ended December 31, 2018 and 2017 included reversals of inventory write-downs of $1,275 thousand and inventory write-downs of $3,712 thousand, respectively.

15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2018 $ 5,419,179 856,797 $ 6,275,976	2017 $ 5,396,047 849,018 $ 6,245,065

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a. Investments in subsidiaries

CHP International (BVI) Corporation Hwa Fong Investment Co., Ltd.		December 31	December 31
		2018 $ 5,374,748 44,431 $ 5,419,179	2017 $ 5,346,948 49,099 $ 5,396,047

The Company’s proportion of ownership and voting rights of its associates as of the balance sheet date were as follows:

Name of Associate CHP International (BVI) Corporation Hwa Fong Investment Co., Ltd.	Proportion of Ownership and Voting Rights
	December 31
	2018 2017 100% 100% 100% 100%

The Company’s share of profit (loss) and other comprehensive income (loss) from subsidiaries using the equity method was recognized based on each subsidiary’s audited financial statements.

On August 13, 2018, the Company’s board of directors decided to acquire all equity of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary of YFY Inc. group through Guangdong Ding Fung Pulp & Paper Co., Ltd. by RMB $22,560 thousand dollars. The transaction was completed in the fourth quarter of 2018. In compliance with the “Comments on IFRS” and Interpretation 2012-301 issued by Accounting Research and Development Foundation, the acquisition resulted in a joint control restructuring. Therefore, in preparing comparative financial statements, the acquisition is disclosed as if it has occurred before January 1, 2017 and the Company’s financial statements as of and for the year ended December 31, 2017 are restated. The related equity adjustments are recognized as equity attributable to former owner of business combination under common control.

b. Investments in associates

Associates that are not individually material		December 31	December 31
		2018 $ 856,797	2017 $ 849,018

Aggregate information of associates that are not individually material were as follows ：

The Company’s share of: Profit for the year 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
		2018 $ 57,130 (24,792 ) $ 32,338	2017 $ 21,014 (35,677 ) $(14,663 )

207 -

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

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

16. PROPERTY, PLANT AND EQUIPMENT

									Electric			Miscellaneous	Miscellaneous	Property in	Property in
	Freehold		Land		Buildings	Machinery		Equipment			Tools	Equipment		Construction			Total
Cost
Balance at January 1, 2017	$	6,637,258		$	2,953,521	$	23,677,557	$	2,807,307	$	1,481,199	$	558,212	$	532,490		$ 38,647,544
Additions			-		16,335		184,933		26,894		41,619		9,782		576,768		856,331
Disposals			-		(2,171 )		(35,385 )		(1,118 )		(5,969 )		(6,902 )		-		(51,545 )
Reclassify			-		72,416		461,656		79,808		96,620		17,286		(727,786	)	-
Balance at December 31, 2017	$	6,637,258		$	3,040,101	$	24,288,761	$	2,912,891	$	1,613,469	$	578,378	$	381,472		$ 39,452,330
Accumulated depreciation and impairment
Balance at January 1, 2017	$		-	$	2,435,880	$	20,282,488	$	2,284,269	$	1,253,960	$	497,452	$	-		$ 26,754,049
Disposals			-		(21,171 )		(35,385 )		(1,118 )		(5,944 )		(6,902 )		-		(51,520 )
Depreciation expense			-		75,783		619,020		74,009		88,720		18,948		-		876,480
Balance at December 31, 2017	$		-	$	2,509,492	$	20,886,123	$	2,357,160	$	1,336,736	$	509,498	$	-		$ 27,579,009
Carrying amounts at December 31, 2017	$	6,637,258		$	530,609	$	3,422,638	$	555,731	$	276,733	$	68,880	$	381,472		$ 11,873,321
Cost
Balance at January 1, 2018	$	6,637,258		$	3,040,101	$	24,288,761	$	2,912,891	$	1,613,469	$	578,378	$	381,472		$ 39,452,330
Additions			-		6,598		77,225		16,216		36,618		9,439		1,113,738		1,259,834
Disposals			-		-		(19,315 )		(1,586 )		(999 )		(5,096 )		-		(26,996 )
Reclassify			-		31,966		418,832		39,466		73,478		11,183		(574,925	)	-
Balance at December 31, 2018	$	6,637,258		$	3,078,665	$	24,765,503	$	2,966,987	$	1,722,566	$	593,904	$	920,285		$ 40,685,168
Accumulated depreciation and impairment
Balance at January 1, 2018	$		-	$	2,509,492	$	20,866,123	$	2,357,160	$	1,336,736	$	509,498	$	-		$ 27,579,009
Disposals			-		-		(19,315 )		(1,586 )		(999 )		(5,096 )		-		(26,996 )
Depreciation expense			-		74,969		606,786		73,811		100,987		21,424		-		877,977
Balance at December 31, 2018	$		-	$	2,584,461	$	21,453,594	$	2,429,385	$	1,436,724	$	525,826	$	-		$ 28,429,990
Carrying amounts at December 31, 2018	$	6,637,258		$	494,204	$	3,311,909	$	537,602	$	285,842	$	68,078	$	920,285		$ 12,255,178
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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17. INVESTMENT PROPERTIES

Cost Opening balance Ending balance Accumulated depreciation and impairment Opening balance Depreciation expense Ending balance Ending carrying amount	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 272,334 $ 272,334 $ (14,656) (267 ) $ (14,923 ) $ 257,411	2017 $ 272,334 $ 272,334 $ (14,326) (330 ) $ (14,656 ) $ 257,678

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

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

Fair value		December 31	December 31
		2018 $ 341,731	2017 $ 341,731

18. BORROWINGS

a. Short-term borrowings

Bank credit loans Letter of credit loans		December 31	December 31
		2018 $ 3,601,000 93,901 $ 3,694,901	2017 $ 2,762,000 562,328 $ 3,324,328

As of December 31, 2018 and 2017, the interest rates of short-term borrowings were 0.96%-3.89% per annum and 0.91%-2.81% per annum, respectively.

b. Short-term bills payable

December 31 2018 2017

209 -

Commercial paper Less: Unamortized discount on bills payable	$ 1,850,000 (291 ) $ 1,849,709	$ 1,950,000 (732 ) $ 1,949,268

Short-term bills payable are commercial papers due within one year. Interest rates on these bills payable were 0.96%-1.12% and 0.91%-1.00% as of December 31, 2018 and 2017, respectively.

c. Long-term borrowings

December 31 2018 2017 Unsecured bank loans $ 1,700,000 $ 920,000 Less: Current portions Loan management fees (4,125 ) (5,925 ) Long-term bank loans $ 1,695,875 $ 914,075 Interest December 31 Due Date Article Rate 2018 2017 Taiwan Bank Credit loan A 2021.06.30 The credit can be revolved within 60 months from the first drawdown date of the loan. 1.80% $ 1,700,000 $ 800,000 KGI Bank Credit loan 2019.12.12 The credit can be revolved during the contract period. Principal was fully repaid in advance in 2018. 1.19% - 120,000 $ 1,700,000 $ 920,000		December 31	December 31	December 31	December 31

				2018 $ 1,700,000 - $ 1,700,000	2017 $ 800,000 120,000 $ 920,000

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company 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.

b. Defined benefit plans

The defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government of the Republic of China. Pension benefits are calculated on the basis of the length of service and average monthly salary of the six months before retirement. The Company 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 Company 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 Company 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

210 -

Bureau”); the Company has no right to influence the investment policy and strategy.

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

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability Movements in net defined benefit liability were as follows: Present Value of the Defined Benefit Obligation Balance at January 1, 2017 $ 647,298 Service cost Current service cost 22,924 Net interest expense (income) 10,778 Recognized in profit or loss 33,702 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial loss - changes in financial assumptions 13,741 Recognized in other comprehensive income 13,741 Contributions from the employer - Benefits paid (69,978 ) Balance at December 31, 2017 $ 624,763 Balance at January 1, 2018 $ 624,763 Service cost Current service cost 19,143 Net interest expense (income) 10,434 Recognized in profit or loss 29,577 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial loss - experience adjustments 37,863 Actuarial loss - changes in financial assumptions 9,101 Actuarial loss - changes in other assumptions 310 Recognized in other comprehensive 47,274		December 31
	2018 2017 $ 602,251 $ 624,763 (367,316 ) (400,068 ) $ 234,935 $ 224,695 Fair Value of the Plan Assets Net Defined Benefit Liability $(360,749 )$ 286,549 - 22,924 (9,005 ) 1,773 (9,005 ) 24,697 5,321 5,321 - 13,741 5,321 19,062 (105,613) (105,613) 69,978 - $(400,068 )$ 224,695 $(400,068 )$ 224,695 - 19,143 (8,905 ) 1,529 (8,905 ) 20,672 (7,181) (7,181) - 37,863 - 9,101 - 310 (7,181 ) 40,093

211 -

	Present Value
	of the Defined	Fair Value of	Net Defined
	Benefit	the Plan	Benefit
	Obligation	Assets	Liability
income
Contributions from the employer	$ -	$ (50,525)	(50,525)
Benefits paid	(99,363 )	99,363	-
Balance at December 31, 2018	$ 602,251	$(367,316 )	$ 234,935

Through the defined benefit plans under the Labor Standards Law, the Company 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.
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.

Discount rates Expected rates of salary increase - less than 16 years Expected rates of salary increase - more than 16 years	December 31
	2018 2017 1.50% 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
		2018 $ (4,602 ) $ 4,668 $ 4,686 $ (4,631 )	2017 $ (5,119 ) $ 5,198 $ 5,231 $ (5,164 )

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The expected contributions to the plans for the next year The average duration of the defined benefit obligation		December	31
		2018 $ 47,156 7.2 years	2017 $ 50,525 12 years

20. EQUITY

a. Ordinary shares

b.	Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued Fully paid ordinary shares, which have a par value of $10, carry dividends. Capital surplus May be used to offset a deficit, distributed as cash dividends, or transferred to share capital* Arising from treasury share transactions The difference between consideration paid and the carrying amount of the subsidiary’s net assets during actual acquisition May be used to offset a deficit only Arising from share of changes in capital surplus of subsidiaries and associates

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.
213 -

c. Retained earnings and dividends policy

Under the dividends 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 employee benefits expense in Note 21.

In making its dividends 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.

The appropriations of earnings for 2017 and 2016 approved in the shareholders’ meetings on June 26, 2018 and June 19, 2017, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2017 2016 $ 61,858 $ 39,112 551,418 385,992	Dividends Per Share (NT$)
		For the Year Ended December 31
		2017 2016 $0.50 $0.35

The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 21, 2019. The appropriations and dividends per share were as follows:

	Appropriation	Dividends Per
	of Earnings	Share (NT$)
Legal reserve	$ 44,556
Cash dividends	385,992	$0.35

214 -

The appropriations of earnings for 2018 are subject to the resolution of the shareholders in their meeting to be held in 2019.

d. Special reserves

Special reserves	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,186,894	2017 $ 1,186,894

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

e. Others equity items

Exchange
Differences
Arising on
Translating
the Foreign
Operations
Unrealized
Gain (Loss)
on Financial
Assets at
FVTOCI
Gain (Loss)
on Hedging
Instruments
2018
Balance at January 1 (IAS
39)
$ (87,435) $ -
$ -

Applying IFRS 9
retrospectively with the
cumulative effect of the
initial application of this
standard.

-
358,643

(6,377
)
Balance at January 1 (IFRS
9)
(87,435) 358,643
(6,377)
Unrealized gain on fair value
through other
comprehensive income or
loss financial asset.
-
59,774
-
Gain (loss) arising on
changes in the fair value of
hedging instrument
-
-
(584)
Share of other
comprehensive loss of
subsidiaries and associates(12,578
) (23,525
)
-

Balance at December 31
$(100,013
) $ 394,892
$ (6,961
)

Total
$ (87,435)
352,266
264,831
59,774

(584)
(36,103
)
$ 287,918

215 -

Exchange
Differences
Arising on
Translating
the Foreign
Operations
Unrealized
Gain (Loss)
on Financial
Assets at
FVTOCI
Gain (Loss)
on Hedging
Instruments
2017
Balance at January 1
$ 131,549
$ 344,353
$ (11,350)
Unrealized loss on
available-for-sale financial
assets
-
(2,131)
-
Cash flow hedge
-
-
4,937
Share of other
comprehensive loss of
subsidiaries and associates(218,984
) (23,143
)
-

Balance at December 31
$ (87,435
) $ 319,079
$ (6,377
)

Total
$ 464,552
(2,131)
4,973
(242,127
)
$ 225,267

21. NET PROFIT FROM CONTINUING OPERATIONS

a. Finance costs

Interest on bank loans Less: Amounts included in the cost of qualifying assets Information about capitalized interest was as follows: Capitalization rate b. Depreciation and amortization An analysis of depreciation by function Operating costs Operating expenses	For the Year Ended December 31 2018 2017 $ 75,298 $ 76,440 (557 ) (909 ) $ 74,741 $ 75,531 For the Year Ended December 31 2018 2017 0.99%-1.22% 1.02%-1.25% For the Year Ended December 31 2018 2017 $ 876,766 $ 875,326 1,478 1,484	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
			2018 $ 876,766 1,478	2017 $ 875,326 1,484

216 -

For the Year Ended December

An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses		31
		2018 $ 876,766 1,478 $ 878,244 $ 186 25,582 $ 25,768	2017 $ 875,326 1,484 $ 876,810 $ 976 8,997 $ 9,973

c. Employee benefit expense

Salary expense Insurance expense Post-employment benefit Defined contribution plan Defined benefit plan Director’s remuneration Other employee benefit Total employee benefit expense			2018	Total $ 1,468,742 130,361 55,131 20,672 9,143 84,297 $ 1,768,346			2017
		Operating Costs $ 1,322,105 120,527 49,806 19,471 - 75,185 $ 1,587,094	Operating Expenses $ 146,637 9,834 5,325 1,201 9,143 9,112 $ 181,252			Operating Costs $ 1,305,232 116,492 47,087 23,269 - 69,305 $ 1,561,385	Operating Expenses $ 109,927 9,695 5,327 1,428 9,143 3,612 $ 139,132	Total $ 1,415,159 126,187 52,414 24,697 9,143 72,917 $ 1,700,517

As of December 31, 2018 and 2017, the Company had 2,000 and 1,946 employees, respectively, and 4 board of directors who were also classified as employees for both years. The calculation basis is consistent with the employee benefits.

According to the Articles of Incorporation of the Company the Company accrued compensation of employees and remuneration of directors and supervisors at the rates of no less than 1% and no higher than 2%, respectively, of net profit before income tax, compensation of employees, and remuneration of directors and supervisors. The compensation of employees and remuneration of directors and supervisors for the years ended December 31, 2018 and 2017, which were approved by the Company’s board of directors on March 21, 2019, and March 22, 2018, respectively, are as follows:

Amount

Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2018 Cash $ 5,500 7,000	2017
		Cash $ 8,000 7,000

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

217 -

There was no difference between the actual amounts of the compensation and remuneration proposed in 2017 and 2016, and the amounts recognized in the financial statements for the years ended December 31, 2017 and 2016.

22. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Income tax recognized in profit or loss

The major components of income tax expense were as follows:

Current tax Adjustments for prior years Deferred tax In respect of the current year Effect of change in tax rate Adjustments for prior years Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ - 66,276 747 1,627 $ 68,650	2017 $ 1 78,119 - 833 $ 78,953

A reconciliation of accounting profit and income tax expense is as follows:

Profit before tax from continuing operations Income tax expense calculated at the statutory rate Tax-exempt income Non-deductible expenses in determining taxable income Adjustments for prior years Effect of change in tax rate Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 533,302 $ 106,660 (51,043) 10,659 1,627 747 $ 68,650	2017 $ 716,273 $ 121,766 (44,489) 842 834 - $ 78,953

As the status of the 2019 appropriation of earnings is uncertain, the potential income tax

218 -

consequences of the 2018 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax Effect of change in tax rate Remeasurement on defined benefit plan Total income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 8,587 8,019 $ 16,606	2017 $ - 3,240 $ 3,240

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, 2018

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance $ 38,198 61,721 10,994 $ 110,913 $ 1,924,940 66,487 $ 1,991,427	Recognized in Profit or Loss $ (7,817) (51,825) 5,025 $ (54,617 ) $ - 14,033 $ 14,033	Recognized in Other Com- prehensive Income $ 16,606 - - $ 16,606 $ - - $ -	Closing Balance $ 46,987 9,896 16,019 $ 72,902 $ 1,924,940 80,520 $ 2,005,460

219 -

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 $ 48,714 123,296 14,806 $ 186,816 Opening Balance $ 1,924,940 66,678 $ 1,991,618	Recognized in Profit or Loss $ (13,756) (61,575) (3,812 ) $ (79,143 ) Recognized in Profit or Loss $ - (191 ) $ (191 )	Recognized in Other Com- prehensive Income Closing Balance $ 3,240 $ 38,198 - 61,721 - 10,994 $ 3,240 $ 110,913 (Continued) Recognized in Other Com- prehensive Income Closing Balance $ - $ 1,924,940 - 66,487 $ - $ 1,991,427 (Concluded)

d. Loss carryforwards as of December 31, 2018 comprised:

The Company
Unused
Amount	Expiry Year
$ 49,480	2024

e. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized.

220 -

f. Income tax assessments

The Company	Latest Approved Year
	2016

23. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	For the Year Ended 31	For the Year Ended 31	December
		2018 $ 0.40 $ 0.40	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

For the Year Ended December 31 2018 2017 Profit for the year attributable to owners of the Company $ 445,663 $ 618,582 Weighted average number of ordinary shares outstanding (in thousands of shares):	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 445,663 shares):	2017 $ 618,582

Weighted average number of ordinary shares used in the 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
		2018 1,102,835 719 1,103,554	2017 1,102,835 792 1,103,627

If the Company offered to settle compensation or bonuses paid to employees in cash or shares, the Company assumed the entire amount of the compensation or bonuses will 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 number of shares to be distributed to employees is resolved in the following year.

221 -

24. OPERATING LEASE ARRANGEMENTS

The Company as Lessor

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

Not later than 1 year Later than 1 year and not later than 5 years	For the Year Ended 31	For the Year Ended 31	December
		2018 $ 7,080 3,540 $ 10,620	2017 $ 7,080 10,620 $ 17,700

25. CAPITAL MANAGEMENT

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

Key management personnel of the Company 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 Company may adjust the amount of new debt issued or existing debt redeemed.

26. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments

1) Fair value of financial instruments not carried at fair value

The management of the Company considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements to approximate their fair values.

2) Fair value of financial instruments measured at fair value on a recurring basis
222 -

December 31, 2018

Financial assets at FVTPL Derivative financial assets - foreign exchange forward contracts (not under hedge accounting) Bank debentures in the ROC Financial Assets at FVTOCI Securities listed in the ROC Domestic unlisted shares Hedging financial assets Derivative financial assets - foreign exchange forward contracts Hedging financial liabilities Derivative financial liabilities - foreign exchange forward contracts December 31, 2017 Financial assets at FVTPL Mutual funds Derivative financial assets - foreign exchange forward contracts	Level 1 $ - - $ - $ 1,288,397 - $ 1,288,397 $ - $ - Level 1 $ 22,000 - $ 22,000	Level 2 $ 3,166 171,035 $ 174,201 $ - - $ - $ 50 $ 250 Level 2 $ - 3,934 $ 3,934	Level 3 $ - - $ - $ - 300,123 $ 300,123 $ - $ - Level 3 $ - - $ -	Total $ 3,166 171,035 $ 174,201 $ 1,288,397 300,123 $ 1,588,520 $ 50 $ 250 Total $ 22,000 3,934 $ 25,934

(Continued)

223 -

Financial assets held for hedging Derivative financial assets - foreign exchange forward contracts Available-for-sale financial assets Securities listed in the ROC	Level 1 $ - $ 1,278,575	Level 2 $ 1 $ -	Level 3 Total $ - $ 1 $ - $ 1,278,575 (Concluded)	Total $ 1
				$ 1,278,575

There were no transfers between Levels 1 and 2 for the years ended December 31, 2018 and 2017.

3) Reconciliation of Level 3 fair value measurements of financial assets

	Financial
	Assets of
	Equity
	Securities at
Financial Assets	FVTOCI
Balance at January 1, 2018	$ 268,826
Proceed from capital reduction	(18,655)
Recognized in other comprehensive income	49,952
Balance at December 31, 2018	$ 300,123

4) Valuation techniques and inputs applied for Level 2 fair value measurement

Financial Instruments
Derivatives - foreign
exchange forward
contracts
Bank debentures in the ROC

Valuation Techniques and Inputs

Discounted cash flow.
Future cash flows are estimated based on observable
forward exchange rates at the end of the reporting period
and contract forward rates, discounted at a rate that
reflects the credit risk of various counterparties.
Discounted cash flow.
Future cash flows are discounted at a rate that reflects
current borrowing interest rates of the debenture issuers
at the end of the reporting period.

5) Valuation techniques and inputs applied for Level 3 fair value measurement
224 -

The fair values of unlisted equity securities - ROC were determined using the assets approach. The total value of individual assets and individual liabilities reflects the overall value of the investment target. The significant unobservable inputs used are listed in the table below. A decrease in discount for lack of marketability used in isolation would result in increases in fair value.

	December	31,
	2018
Discount for lack of marketability	15%

If the inputs to the valuation model were changed to reflect reasonably possible alternative assumptions while all the other variables were held constant, the fair value of the shares would increase (decrease) as follows:

Discount for lack of marketability
2.5% increase
2.5% decrease
Categories of financial instruments
Financial assets
Fair value through profit or loss (FVTPL)
Held for trading

Mandatorily classified as at FVTPL
Financial assets for hedging
Loans and receivables (1)
Available-for-sale financial assets (2)
Financial assets at amortized cost (3)

Financial assets at FVTOCI

Financial liabilities
Financial liabilities at amortized cost (4)

Financial liabilities for hedging

December 31,
2018
$ (8,827
)
$ 8,827
**December 31 **

2018
2017
$ -
$ 25,934
174,201
-
50
1
-
3,258,956
-
1,517,977
3,186,657
-
1,588,520
-
10,032,998
8,772,817
250
-

b. Categories of financial instruments
1) The balances include loans and receivables measured at amortized cost, which comprise cash, debt investments with no active market, notes and accounts receivable, notes and accounts receivable from related parties, other receivables, and refundable deposits.
2) The balances include the carrying amount of available-for-sale financial assets and financial assets measured at cost.
3) The balances include financial assets at amortized cost, which comprise cash, notes and accounts
225 -

receivable, accounts receivable from related parties, other receivables, and refundable deposits.

4) The balances include 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 Company’s main target in financial risk management is to manage the market risk related to operating activities (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 Company’s financial performance, the Company is devoted to identify, estimate and hedge the uncertainties of the market.

The Company 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 Company’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 Company did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

1) Market risk
a) Foreign currency risk

The Company had foreign currency sales and purchases, which exposed the Company to foreign currency risk. The Company 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 Company’s income.

Sensitivity analysis

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

The Company was mainly exposed to the USD and RMB.

The following table details the Company’s sensitivity to a 5% increase in the functional currency against the relevant foreign currencies. For a 5% weakening of the New Taiwan dollar 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 b) Interest rate risk	For the Year Ended December 31
	2018 2017 $ 27,590 $ 11,602 30,491 28,916

226 -

The carrying amounts of the Company’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
	2018 2017 $ 171,035 $ 170,000 3,545,584 2,863,343 86,510 140,257 3,694,901 3,324,328

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

Sensitivity analysis

For the Company’s floating interest rate financial liabilities, if interest rates had been 0.1% higher/lower and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2018 and 2017 would decrease/increase as follows:

Decrease/increase c) Other price risk	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,608	2017 $ 3,184

The Company was exposed to equity price risk through its investments in listed equity securities and mutual fund.

To prevent significant price risk, the Company 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/lower, the Company’s comprehensive income for the years ended December 31, 2018 and 2017 would increase/decrease as follows:

Profit before tax Increase/decrease Other comprehensive income Increase/decrease	For the Year Ended December 31
	2018 2017 $ - $ 1,100 64,420 63,929

2) Credit risk

227 -

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to the failure of counterparty to discharge its obligation is at the level of the carrying amounts of the respective recognized financial assets which comprise receivables from operating activities and financial assets from investing activities as stated in the balance sheets.

The Company’s transactions are done with a large number of unrelated customers and various industries. The Company continuously evaluates the financial conditions of those customers.

To maintain the quality of the accounts receivable, the Company 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 Company’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

27. TRANSACTIONS WITH RELATED PARTIES

a. Related party name and category

Related Party Name Related Party Category

YFY Inc. Parent company Kuang Hwa Fertilizer Limited Company Subsidiaries Shenzhen Systax Paper Co., Ltd. Subsidiaries YFY Consumer Products Co., Ltd. Fellow subsidiaries YFY Packaging Inc. Fellow subsidiaries YFY International BVI Corp. Fellow subsidiaries Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd. Fellow subsidiaries YFY Capital Co., Ltd. Fellow subsidiaries Union Paper Corp. Fellow subsidiaries Shin Foong Specialty & Applied Materials Co., Ltd. Fellow subsidiaries YFY Investment Co., Ltd. Fellow subsidiaries Yuen Foong Shop Co., Ltd. Fellow subsidiaries China Color Printing Co., Ltd. Fellow subsidiaries Cupid InfoTech Co., Ltd. Fellow subsidiaries YFY Holding Management Co., Ltd. Fellow subsidiaries Yuen Foong Yu Blue Economy Natural Resource Fellow subsidiaries (Yangzhou) Co., Ltd. Ever Growing Agriculture Biotech Co., Ltd. Fellow subsidiaries YFY Jupiter Ltd. Fellow subsidiaries

Fellow subsidiaries Fellow subsidiaries Related Party Category

Related Party Name

228 -

Eihoyo Shoji Co., Ltd. Fellow subsidiaries YFY Biotechnology Co., Ltd. Associates E Ink Holdings Inc. Associates Shin-Yi Foundation Substantial related-party Beautone Co., Ltd. Substantial related-party Shin-Yi Enterprise Co., Ltd. Substantial related-party Yuen Foong Paper Co., Ltd. Substantial related-party SinoPac Leasing Co., Ltd. Substantial related-party SinoPac Securities Co., Ltd. Substantial related-party

b. Sales of goods

Related Party Type Fellow subsidiaries Subsidiaries Substantial related-party Parent company	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,595,465 977,100 354,677 164 $ 4,927,406	2017 $ 3,392,454 891,435 34,411 261 $ 4,318,561

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 Party Type Fellow subsidiaries YFY Packaging Inc. Others Substantial related-party Associates Subsidiaries	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 1,889,510 989,319 2,878,829 3,600 479 - $ 2,882,908	2017 $ 1,700,550 965,495 2,666,045 640 728 9,618 $ 2,677,031

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

December 31

229 -

Related Party Type Fellow subsidiaries YFY Consumer Products Co., Ltd. Others Subsidiaries Shenzhen Systax Paper Co., Ltd. Others Substantial related-party Parent company	2018 $ 261,088 308,402 569,490 610,542 367 610,909 64,699 8 $ 1,245,106	2017 $ 259,515 237,908 497,423 542,346 367 542,713 5,041 428 $ 1,045,605

e. Payables to related parties

Related Party Type Fellow subsidiaries YFY Packaging Inc. Shin Foong Specialty & Applied Materials Co., Ltd. YFY Capital Co., Ltd. Others Substantial related-party Subsidiaries Parent company Associates		December 31	December 31
		2018 $ 346,869 132,512 65,315 26,485 571,181 2,152 725 259 - $ 574,317	2017 $ 320,716 112,184 65,738 26,701 525,339 969 875 3,675 62 $ 530,920

The outstanding accounts payable to related parties are unsecured.

f. Other transactions with related parties

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

Rental Income (Accounted as Other Income) For the Year Ended December

230 -

	31
2018 2017 $ 1,543 $ 1,543 Rental Expenses (Accounted as Operating Expenses)
For the Year Ended December 31
2018 2017 $ 7,091 $ 6,594 10,885 6,623 $ 17,976 $ 13,217 Management Fee (Accounted as Operating Expenses)
For the Year Ended December 31
	2018 $ 81,377	2017 $ 50,312

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

g. 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
		2018 $ 30,030 3,132 $ 33,162	2017 $ 25,601 3,558 $ 29,159

The remuneration of directors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

28. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2018 and 2017, unused letters of credit for purchases of raw materials and machinery and equipment amounted to approximately $447,769 thousand and $269,716 thousand, respectively.

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

231 -

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

Financial assets Monetary items USD RMB Investments accounted for using the equity method USD Non-monetary items Derivative instruments USD EUR Financial liabilities Monetary items USD Non-monetary items Derivative instruments EUR Financial assets Monetary items USD RMB Investments accounted for using the equity method USD Non-monetary items Derivative instruments	December 31, 2018
	Foreign Currency (In thousands) Exchange Rate New Taiwan Dollars $ 37,886 30.715 $ 1,163,668 136,271 4.475 609,813 174,988 30.715 5,374,748 16,500 30.715 506,798 243 35.20 8,554 3,421 30.715 105,061 3,470 35.20 122,144 December 31, 2017
	Foreign Currency (In thousands) Exchange Rate New Taiwan Dollars $ 40,536 29.76 $ 1,206,351 126,993 4.554 578,326 176,777 29.76 5,260,879 December 31, 2017 Foreign Currency Exchange Rate New Taiwan Dollars

232 -

	(In	thousands)
USD	$	13,500	29.76	$	401,760
EUR		383	35.57		13,623
Financial liabilities
Monetary items
USD		19,239	29.76		572,553

30. SEPARATELY DISCLOSURED ITEMS

a. Information about significant transactions and investees:
1) Financing provided to others (None)
2) Endorsements/guarantees provided (Table 1)
3) Marketable securities held (Table 2)
4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the paid-in capital (Table 3)
5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital (None)
6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital (None)
7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 4)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 5)
9) Trading in derivative instruments (Notes 7 and 10)
10) Information of investee (Table 6)
b. Information on investments in mainland China:
1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area (Table 7)
2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses (None):
- a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period
233 -
b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period
c) The amount of property transactions and the amount of the resultant gains or losses
d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes
e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds
f) Other transactions that have a material effect on the profit or loss for the year or on the financial position, such as the rendering or receipt of services.
234 -

TABLE 1

CHUNG HWA PULP CORPORATION

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

		Endorsee/Guarantee	Endorsee/Guarantee		Maximum
						Outstanding			Ratio of
					Amount
						Endorsement/			Accumulated		Endorsement/		Endorsement/
				Limit on	Endorsed/							Endorsement/
						Guarantee at the		Amount	Endorsement/	Aggregate	Guarantee Given		Guarantee Given
				Endorsement/	Guaranteed		Actual Borrowing					Guarantee Given
No.													on Behalf of
	Endorser/Guarantor					End of the Period		Endorsed/	Guarantee to Net	Endorsement/	by Parent on
(Note 1)		Name	Relationship	Guarantee Given	During the Period		Amount					by Subsidiaries on	Companies in
						(Foreign		Guaranteed by	Equity in Latest	Guarantee Limit	Behalf of
			(Note 2)	on Behalf of Each	(Foreign	Currencies in	(Note 6)	Collateral	Financial	(Note 3)	Subsidiaries	Behalf of Parent	Mainland China
				Party (Note 3)	Currencies in							(Note 7)
						Thousands)			Statements		(Note 7)		(Note 7)
					Thousands)
						(Note 5)			(%)
					(Note 4)

0	Chung Hwa Pulp Corporation	CHP International (BVI) Corporation Guangdong Ding Fung Pulp & Paper Co., Ltd.	b. c.	$ 23,533,454 23,533,454	$ 598,943 (US$ 19,500) 186,767 (RMB 41,736)	$ 598,943 (US$ 19,500) 179,013 (RMB 40,003)	$ - -	$ - -	3.83 1.15	$ 31,377,938 31,377,938	Note 8 Note 8	N N	N Note 8

Note 1: The number column is illustrated as follows:
a. The company is numbered 0.
b. The subsidiaries of the company are sequentially numbered from 1 based on their investment structure.
Note 2: The 7 different relationships between endorsee and guarantee are as follows:
a. The companies with which it has business relations.
b. Subsidiaries in which it holds more than 50% of its total outstanding common shares.
c. Companies in which it holds more than 50% of its total outstanding common shares.
d. Companies in which it holds more than 90% of its total outstanding common shares.
e. Companies in same type of business and providing mutual endorsements/guarantees in favor of each other in accordance with the contractual obligations in order to fulfill the needs of the construction project.
f. Shareholders making endorsements/guarantees for their mutually invested companies in proportion to their shareholding percentages.
g. Companies in the same industry provide among themselves joint and several security for a performance guarantee of a sales contract for pre-construction homes pursuant to the Consumer Protection Act for each other.

Note 4: The balance is the maximum amount endorsed/guaranteed to others during the period.

Note 6: The balance is the actual borrowing amount determined by the endorsee/guarantee within the limit.
Note 7: Endorsement/guarantee given by parent on behalf of subsidiaries, endorsement/guarantee given by subsidiaries on behalf of parent, and endorsement/guarantee given on behalf of companies in mainland China should be Y.

Note 8: The endorsee and guarantee jointly issued promissory notes in consideration of the line of credit of financial institutions.

235 -

TABLE 2

CHUNG HWA PULP CORPORATION

MARKETABLE SECURITIES HELD DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

					December	31, 2018
		Relationship with the Holding				Percentage of
Holding Company Name	Type and Name of Marketable Securities		Financial Statement Account				Fair Value
		Company		Number of Shares	Carrying Amount	Ownership
							(Note 1)
						(%)

Chung Hwa Pulp Corporation	Ordinary shares SinoPac Holdings Co., Ltd. NTU Innovation & Incubation Co., Ltd. Groundhog Technologies Inc. KHL IB Venture Capital Co., Ltd. TaiGen Biopharmaceuticals Holdings Ltd. Subordinated bank debentures Bank SinoPac 3rd unsecured perpetual non-cumulative subordinated financial debentures issue in 2015	- The investor is the member of the investee’s board of directors. - - - -	Financial assets at fair value through other comprehensive income - current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through profit or loss - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current	99,809,327 800,000 275,000 20,884,500 15,315,356 -	$ 1,028,036 - - 300,123 260,361 171,035	0.9 6.3 1.0 14.9 2.1 -	$ 1,028,036 - - 300,123 260,361 171,035

Note 2: Refer to Table 6 and Table 7 for information on investments in subsidiaries and associates.

236 -

TABLE 3

CHUNG HWA PULP CORPORATION

MARKETABLE SECURITIES ACQUIRED AND DISPOSED AT COSTS OR PRICES OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

					Beginning Balance	Beginning Balance	Acquisition	Acquisition		Disposal	Disposal		Ending	Balance

Company	Type and Name	Financial	Counterpart		Number of		Number of		Number of				Number of
	of Marketable			Relationship							Carrying	Gain (Loss)
Name		Statement Account	y		Thousand	Amount	Thousand	Amount	Thousand	Amount			Thousand	Amount
	Security										Amount	on Disposal
					Shares		Shares		Shares				Shares

Chung Hwa Pulp Corporation	Mutual fund SinoPac TWD Money Market Fund	Financial assets at fair value through profit or loss - current	-	-	1,589	$ 22,000	25,964	$ 360,000	27,553	$ 382,016	$ 382,000	$ 16 (Note)	-	$ -

Note: The amount was recognized in gain (loss) on financial assets at fair value through profit or loss.

237 -

TABLE 4

CHUNG HWA PULP CORPORATION

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(Amounts in Thousands of New Taiwan Dollars)

									Notes/Accounts	Notes/Accounts
				i i			A i
		Relationship		Transacton Detals			bnormal Transacton		Receivable (Payable)		Unrealized
Buyer/Seller	Related Party
		(Note 1)	Purchase/		% of			Payment	Ending	% of	Gain (Loss)
				Amount		Payment Terms	Unit Price
			Sale		Total			Terms	Balance	Total

Chung Hwa Pulp Corporation	YFY Capital Co., Ltd. Shenzhen Systax Paper Co., Ltd. YFY Consumer Products Co., Ltd. China Color Printing Co., Ltd. YFY Packaging Inc. YFY Packaging Inc. Union Paper Corp. Union Paper Corp. Shin Foong Specialty and Applied Materials Co., Ltd. Eihoyo Shoji Co., Ltd. Beautone Co., Ltd.	a. b. a. a. a. a. a. a. a. a. c.	Sale Sale Sale Sale Sale Purchase Sale Purchase Purchase Purchase Sale	$(1,016,608) (977,100) (869,939) (114,853) (383,884) 1,889,510 (1,208,652) 208,775 290,198 485,250 (312,629)	(5) (5) (4) (1) (2) 10 (6) 1 2 3 (1)	0.5 month after transaction month 5 months after transaction month 2 months after transaction month 2 months after transaction month 2 months after transaction month 2 months after transaction month 1 month after transaction month 1 month after transaction month 4 months after transaction month In agreed terms 1 month after transaction month	$ - - - - - - - - - - -	- - - - - - - - - - -	$ 54,726 610,542 261,088 26,045 114,679 (346,869) 112,940 (11,022) (132,512) - 60,002	2 21 9 1 4 (18) 4 (1) (7) - 2	$ - 1,050 - - - - - - - - -

Note 1: a. Fellow subsidiaries.

b. Parent company and subsidiary.

c. Substantial related-party.

238 -

TABLE 5

CHUNG HWA PULP CORPORATION

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

					Overdue	Overdue	Amounts
								Allowance for
			Ending				Received in
Company Name	Related Party	Relationship		Turnover Rate				Impairment
			Balance		Amount	Actions Taken	Subsequent
								Loss
							Period

Chung Hwa Pulp Corporation	YFY Consumer Products Co., Ltd. Shenzhen Systax Paper Co., Ltd. YFY Packaging Inc. Union Paper Corp.	Fellow subsidiaries Parent company and subsidiary Fellow subsidiaries Fellow subsidiaries	$ 261,088 610,542 114,679 112,940	3.34 1.70 3.61 13.89	$ - - - -	- - - -	$ 95,168 112,843 31,140 112,940	$ - - - -

239 -

TABLE 6

CHUNG HWA PULP CORPORATION

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

				Investment Amount	Investment Amount	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Net Income
Investor
	Investee Company	Location	Main Businesses and Products	December 31,	December 31,	Number of		Carrying	(Loss) of the	Share of	Note
Company
				2018	2017	Shares	%	Amount	Investee	Profits (Loss)

Chung Hwa Pulp Corporation	CHP International (BVI) Corporation E Ink Holdings Inc. Effion Enertech Co., Ltd. Taiwan Global BioFund Co., Ltd. Hwa Fong Investment Co., Ltd.	British Virgin Island Hsinchu, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan	Investment and holding To research, develop, produce and sale of thin-film transistor liquid crystal display. To operate cogeneration and provide power technology. Biotechnology and biopharmaceutical business investment. Investment and holding	$ 1,747,085 329,000 343,000 60,000 36,000	$ 1,747,085 329,000 343,000 60,000 36,000	61,039,956 20,000,000 34,300,000 6,000,000 3,600,000	100.0 1.8 49.0 4.4 100.0	$ 5,374,748 400,116 337,007 119,674 44,431	$ 143,608 2,613,673 13,959 88,103 891	$ 142,558 46,374 6,840 3,916 891	a. b. b. b. a.

Note: a. Subsidiaries.

b. Investments accounted for using the equity method.

240 -

TABLE 7

CHUNG HWA PULP CORPORATION

INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

					Remittance of Funds	Remittance of Funds	Accumulated
				Accumulated
							Outward
				Outward
							Remittance for
				Remittance for								Accumulated
		Paid-in Capital					Investment from
				Investment from							Carrying	Repatriation of
		(Foreign					Taiwan as of		% Ownership of
				Taiwan as of				Net Income (Loss)		Investment	Amount as of	Investment
Investee Company	Main Businesses and Products	Currencies in	Method of Investment
				January 1, 2018	Outward	Inward	December 31,	of the Investee	Direct or Indirect	Gain (Loss)	December 31,	Income as of
		Thousands)
				(Foreign			2017		Investment		2018	December 31,
		(Note 1)					(Foreign
				Currencies in								2018
							Currencies in
				Thousands)
							Thousands)
				(Note 1)
							(Note 1)

Guangdong Ding Fung Pulp & Paper Co., Ltd. Shenzhen Systax Paper Co., Ltd. Zhaoqing Ding Fung Forestry Ltd.	Pulp and paper production, trading and forestry business. Sale of paper merchandise and import/export business. Export factoring, domestic factoring, business factoring and related consulting services, develop credit risk management platform.	$ 2,630,125 (US$ 85,630) (Note 3) 14,320 (RMB 3,200) 672,044 (US$ 21,880)	Investment in mainland China through companies set up in another country. (Note 5) Investment in mainland China through companies set up in another country.	$ 405,438 (US$ 13,200) (Note 5) 136,006 (US$ 4,428)	$ - - -	$ - - -	$ 405,438 (US$ 13,200) (Note 5) 136,006 (US$ 4,428)	$ 180,273 (Note 2,b.) 20,460 (Note 2,b.) 515 (Note 2,b.)	60.0 100.0 (Note 5) 86.5 (Note 4)	$ 115,759 (Note 2,b.) 11,226 (Note 2,b.) 445 (Note 2,b.)	$ 3,046,882 104,563 2,550,039	$ - - -

Accumulated Investment in Mainland China as of Investment Amounts Authorized by December 31, 2018 Investment Commission, MOEA

Upper Limit on Investment

$541,444 $1,308,643 $9,373,026 (Note 1) (Note 1)

Note 1: The exchange rates are US$1=NT$30.715 or RMB1=NT$4.475 as of December 31, 2018.
Note 2: The recognition basis for investment gain (loss) are as follows:
a. Financial statements audited by an international CPA firm with the cooperation of a ROC CPA firm. b. Financial statements audited by a ROC CPA firm. c. Others.

Note 3: Guangdong Ding Fung Pulp & Paper Co., Ltd. increased its capital by retained earnings in an amount of US$41,630 thousand from 2004 to 2007, and increased its capital by retained earnings from 2007 and 2008 in an amount of US$22,000 thousand in July 2015. The paid-in-capital after the capital increase was US$85,630 thousand.

Note 4: Ownership percentage of investment for CHP International (BVI) Corporation and Guangdong Ding Fung Pulp & Paper Co., Ltd. are 20.2% and 66.3%, respectively.
Note 5: Guangdong Ding Fung Pulp & Paper Co., Ltd. acquired shares of Shenzhen Systax Paper Co., Ltd. from a fellow subsidiary, Hwa Fong Paper (Hong Kong) Limited, in 2018.
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6.6 Any Financial Difficulty and the Impact on CHP's Finance in the Last Fiscal Year and Up to the Publishing Date of this Annual Report

None

242 -

Review of Financial Conditions, Financial Performance, and Risk Management

7.1 Balance Sheet Analysis

Unit: NT$ thousands

Year			Difference	Difference

	2018	2017
Item		(Audited after Restated)	Amount	%


Current Assets	13,763,487	12,937,151	826,336	6
Fixed Assets	14,565,267	14,345,577	219,690	2
Other Assets	3,031,625	2,990,019	41,606	1
Total Assets	31,360,379	30,272,747	1,087,632	4
Current Liabilities	9,169,284	8,871,833	297,451	3
Long-term Liabilities	4,140,427	3,219,365	921,062	29
Total Liabilities	13,309,711	12,091,198	1,218,513	10
Capital stock	11,028,353	11,028,353	-	-
Capital surplus	31,468	36,602	(5,134)	(14)
Retained Earnings	4,273,971	4,398,747	(124,776)	(3)
Other Adjustments	287,918	225,267	62,651	28
Equity Attributable To Former Owner Of Business Combination Under Common Control	-	86,069	-	-
Non-controllinginterests	2,428,958	2,406,511	22,447	1
Total Stockholders' Equity	18,050,668	18,181,549	(130,881)	(1)

Analysis of changes in financial ratios:

(1) Non-current liabilities: Mainly due to the increase in long-term borrowings. (2) Other equity: Mainly due to the impact of the IFRS 9 application in the financial assets that are measured at fair value through other comprehensive income.

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7.2 Statements of Comprehensive Income Analysis

A. Statements of Comprehensive Income Analysis of Operation Results

Unit: NT$ thousands

Year		2017	Difference	Difference
Item	2018	(Audited after Restated:	Amount	%
		Note)
Net Sales	24,025,221	22,839,355	1,185,866	5
Cost of Sales	21,674,288	20,447,899	1,226,389	6
Changes in Biological Assets	(10,695)	(8,111)	(2,584)	32
Gross Profit	2,340,238	2,383,345	(43,107)	(2)
OperatingExpenses	1,752,661	1,565,430	187,231	12
OperatingIncome	587,577	817,915	(230,338)	(28)
Non-operatingGains and Losses	77,627	90,796	(13,169)	(15)
Income Before Tax	665,204	908,711	(243,507)	(27)
Tax Benefit(Expense)	135,969	163,758	(27,789)	(17)
Net income	529,235	744,953	(215,718)	(29)

Note: The Company merged with Shenzhen Systex Paper Co., Ltd. in the fourth quarter of 2018. After referencing the IFRS frequently asked questions published by the Accounting Research and Development Foundation and the official letter (101)301, the 2017 statement was revised.

Analysis of changes in financial ratios:

(1) Loss from the change in fair value less costs to sell of biological assets: Mainly due to the decrease in the fair value of biological assets.
(2) Net operating profit: In order to be qualified as a national high-tech enterprise, the subsidiary Guangdong Dingfung Pulp and Paper Co., Ltd. increased the investment in R&D expenses, causing the increase in operating expense and the decrease in net operating profit.
(3) Net income before tax: Please refer to (2).
(4) Income tax expense: Due to the decrease in profit for 2018, the recognized income tax expenses also decreased.
(5) Net profit: Please refer to (2).

B. Expected sales Volume in 2019

Expected growth in the sales of pulp in 2019 is approximately 0.3% and 0.5% to 1.5% for paper and cardboard. The overall revenue growth will be approximately 1%-2%.

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7.3 Cash Flow Analysis

Cash Flow Analysis for the Current Year

Unit: NT$ thousands

	Net Cash
Cash and Cash	Flow from	Cash	Cash Surplus	Leverage of Cash Deficit
Equivalents,	Operating	Outflow	(Deficit)
Beginning of Year	Activities			Investment Plans	FinancingPlans

1,241,576	494,357	(1,182,554)	553,379	-	-

A. Cash Flow Analysis for 2018
Operating activities: Net cash flow from operating activities decreased compared to the previous period. The main reasons included the increase in raw material inventory resulted from expected increase in raw material prices and the impact of the US-China trade disputes in the fourth quarter, and the customers were more conservative. The overall inventory increased compared to the previous period.
Investment activities: The decrease in net cash flow from investing activities compared to the previous period was mainly due to the increase in loans to affiliated companies and investment in large-scale equipment.
Financing activities: Net cash flow from financing activities increased compared to the previous period due to the increase in cash dividends for 2018.
B. Remedy for Cash Deficit and Liquidity Analysis: None
C. Cash Flow Analysis for the Coming Year:
Business activities: The industry is expected to remain stable, and revenue and profit are expected to increase. The Company can maintain a stable operating cash flow.
Investment activities: Mainly for replacing and repairing equipment.
Financing activities: The Company will arrange financing from financial institutions or repayment depending on the overall operations and investment activities.

7.4 Analysis of Major Capex and its Impact on Finance and Operations

The Company's recent major capital expenditures were for the updates and construction of environmental protection equipment. The relevant information is as follows:

Renovation of the wet lap system in the Hualien plant: The energy consumption and production costs were reduced in the production process through equipment renovation, which is expected to enhance product competitiveness.
Construction of electrostatic precipitators in the Hualien plant and the odor control system in the Dingfung plant: The odor during the pulp production process can be improved through setting up and updating the equipment.
Improvement of the electrical and mechanical equipment in the Dingfung plant: The installation of the new coal boiler will optimize, strengthen and improve the process after being put into operation.

The aforementioned capital expenditure mainly comes from the Company's own

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funds and bank loans. The interest expense for the year was comparable to that of the previous year, and therefore had no significant impact on the financial position.

7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses,

Improvement Plans and Investment Plans for the Coming Year

A. The Company's investment is in line with the long-term development strategy. By focusing on the areas such as afforestation, pulping and paper-making, the Company can achieve one-stop paper production.

B. With the price fluctuations of paper products worldwide, it has been difficult to adjust product prices, and the growth momentum has slowed down. The Company has formulated improvement plans of launching new products such as paper for paper straws and developing more environmentally-friendly non-fluorescent paper to establish product differentiation. The Company will invest further in the research and development of new products to explore different market aspects in the future. In the meantime, the Company will increase the investment in environmental protection equipment to reduce the impact of the by-product during the production process on the environment and the Earth.

7.6 Analysis of Risk Management

7.6.1 Effects of Changes in Interest Rate, Exchange Rate, and Inflation on the Company's Finances, and Future Response Measures

Interest rate: The US economy maintained a stable recovery in 2018, and the monetary policy trend was gradually normalized. The Federal Reserve System increased the interest rate four times in 2018 and gradually reduced the scale of the balance sheet. The European Central Bank has maintained a prudent approach in the exit from the accommodative monetary policy. Although quantitative easing ended at the end of 2018, the European Central Bank is still committed to providing stimulus for the European economy when needed. Japan and most emerging markets maintain a relatively accommodative monetary policy to maintain economic growth. In the first half of 2018, the domestic economy continued to show a positive trend. However, the US-China trade war in the second half of the year and the US interest hike caused the global capital to concentrate in the United States. The emerging markets and the financial markets in developing countries became increasingly volatile, causing enterprises and financial markets to become more conservative with regard to the prospects for the medium and long-term investment. With the uncertainty in international politics and economy, the Central Bank of Taiwan has maintained the rediscount rate for ten consecutive quarters in order to maintain domestic economic stability.
Countermeasures: Looking forward to 2019, the possibility of the US-China trade war will continue or evolve into a full-scale technology war increases the uncertainty of the global economic, as well as resulting in the Fed officials maintaining an open attitude in subsequent interest rate hike. Considering the mild domestic inflation pressure and the negative impact of the US-China trade war on the domestic economy, the Central Bank is expected to maintain a moderately accommodative currency policy to benefit Taiwan's economic growth. The Company will regularly evaluate the liability positions and financing policy in order to effectively reduce the Company's interest expenses.
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Foreign exchange rates: The US economy's continuous recovery in 2018, the Fed's interest rate increase, and the reduction in the balance sheet have led to the liquidity crunch in US dollars and the eventual rise of US dollars. RMB has suffered a significant depreciation from the medium-term and long-term factors such as strengthening US dollars, the US-China trade war and the narrowing interest rate differential between China and the US. The New Taiwan Dollars equally suffered from a significant depreciation in 2018 due to the large foreign exchange remittance and the strengthening of the US dollar. The main exchange rate risk positions of the Company are the foreign currency loans in USD outside of Mainland China. The Company continued to adjust the RMB-denominated hedging ratio in 2018 and adopted measures to adjust the hedging costs so as to reduce fluctuations in the overall exchange rate profit and loss.
Countermeasures: Looking forward to 2019, as there is a high uncertainty in the development of the US monetary policy as well as political risks of the development of the US-China trade war, the international economic outlook is extremely uncertain, and the fluctuations in the relevant foreign currency exchange rates are full of variables. The Company will take exchange rate risks and hedging costs into consideration and adopt appropriate financial and hedging strategies to reduce the adverse impact of exchange rate fluctuations on the Company's operations.
Inflation: The significant fluctuations in the international oil prices in the first half of 2018 as well as the depreciation of NTD to USD led to input inflation. However, the falling oil prices in the second half of the year and the stable utility and transportation fees allowed the domestic inflation to stay mild. The overall CPI and core CPI (excluding energy, vegetables and fruit) for 2018 were1.35% and 1.22% respectively, and the prices were stable.
Countermeasures: Looking forward to 2019, the Central Bank expects the international oil price to drop and the input inflation to ease. The domestic demand is mild and the effect of the tobacco tax increase will be eliminated. The Central Bank estimates annual CPI growth and the annual core CIP growth to be a moderate of 1.05% and 0.93% respectively, which means the inflation outlook is mild. As of the publication date of this Annual Report, inflation has not caused significant impact on the Company. However, China's tightening environmental protection supervision measures, the supply chain migration, and the US-China trade war still cause risks in raw material price fluctuations; the Company has to monitor changes in raw material prices and derivative risks brought by the US-China trade war.

7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or

Endorsement Guarantees, and Derivatives Transactions

The Company has not engaged in high-risk and highly-leveraged investment activities. If short-term idle funds are available, they are mainly used for buying back ticket (debt) vouchers and subscribing to money market funds. The Company's derivative trading transactions are conducted in accordance with the procedures for derivative trading. The purpose of each transaction is clearly defined and mainly for hedging purposes.

247 -

The Company's operations for loaning funds to others and making endorsements/guarantees are handled in accordance with the Operational Procedures Governing Loaning of Funds and Making of Endorsements/Guarantees. As a principle, the counterparties are affiliated companies, subsidiaries or the parent company based on the Company's financial and business needs.

The Company's derivatives trading transactions are conducted in accordance with the procedures for derivative trading. The purpose of each transaction is clearly defined and mainly for hedging purposes. The purpose of the Company's 2018 derivative trading was mainly for avoiding exchange rate risks in USD and RMB. Both the hedging costs of derivative trading and exchange rate fluctuations were taken into consideration for adjusting the hedging ratio in order to reduce the impact of the fluctuations in the USD and RMB exchange rates.

7.6.3 Future Research & Development Projects and Corresponding Budget

A. Future Research & Development Projects

Specialty paper development project

Specialty chemical material development project

B. Corresponding Budget

The total R&D expenses of the Company are around NT$110 to NT$130 million.

7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to

Corporate Finance and Sales

In order to manage overall legal risks, the Company has engaged external legal advisers besides signing legal service contracts with the legal department of YFY Inc. to assist the Company in managing the risks of changes in laws and regulations.

If any changes in important domestic and foreign policies and laws could have an impact on the Company's finance or business, the Legal Department will jointly formulate the Company's response measures with relevant departments. If the Company's internal rules and procedures are not in compliance with the government's new laws and regulations, relevant departments are required to amend accordingly to effectively manage and reduce the Company's legal risks.

In order to comply with the amendments to the Labor Standards Act, in addition to revising the relevant regulations and work rules, the Company has convened labor-management meetings to discuss various countermeasures, including the adjustment of the Company's shift hours and scheduling. The employees receive paid leave as well as monetary compensation for unused paid leave in accordance with relevant regulations.

The business income tax rate has been adjusted from 17% to 20% since 2018, which will increase the Company's business income tax expenses. However, the surtax on unappropriated retained earnings reduced from 10% to 5%, which reduced the Company's expenses caused by undistributed earnings. The changes in laws and regulations must be complied with but are not expected to have a significant impact on the Company.

7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales

248 -

Technological innovation has always been indispensable for the operations, and it is the main niche for the Company's competitiveness. The Company is committed to industrial innovation while evaluating its impact on the finances and business in order to adopt countermeasures to pursue sustainable development.

7.6.6 The Impact of Changes in Corporate Image on Corporate Risk

Management, and the Company’s Response Measures

Various aspects of risks exist for a business, including work safety, finance, products, marketing and information security. In this age and time where the media, social network, and self-media have significant influence, any events or fabricated news spread by ill-meaning parties might evolve into major crises that are hard to solve. The Company believes that corporate image cannot be shaped purely from the outside. It should be built from the inside for a positive projection.

The Company was founded more than 5 decades ago in 1968. Corporate governance is an ideal the Company has always adhered to, and it is the principle the Company adopts for employee training, social and community welfare activities, and giving back to local communities. The management team stays true to the mission of sustainable development by focusing on three main focus areas, namely employees, community and the environment. The Company makes adjustments to the internal structure which contribute to changes in the corporate image through practical actions. In terms of employee social participation, employees are encouraged to build awareness of environmental protection and green issues, share the goal and vision of the Company as well as participating in environmental protection, culture and charity activities. In terms of supply chain management, environmental protection and labor safety requirements are incorporated into various work procedure specifications and contracts for compliance.

To protect labor rights, the Company continues to improve the working environment to care for employee health and safety. In the meantime, the Company will increase the standards for safety, health, social responsibility and sustainable development. Through internal communications, corporate vision, brand value and material issues are internalized for the employees. From the employees to management, everyone clearly understands how to address and respond to relevant issues, so that the chances of various work safety and environmental protection crisis can be significantly lowered. The actual results will contribute to the enhancement of corporate image. For the Company, the change in corporate image and the management of corporate crisis is two sides of the same coin, and they are aligned in terms of goal. It is also a material operation direction we have been moving toward in order to respond to societal needs and global trends.

7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans: None

7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans

The Company only has improvement or renovation plans for the production equipment and no plant expansion plan. Therefore, no countermeasure for relevant risks has been formulated.

249 -

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing

Sources and Excessive Customer Concentration

A. Purchase: The main raw material procurement strategy takes factors such as the quality of the suppliers, price, delivery time, and future raw material shortage in the international market into consideration to select suitable suppliers and make flexible adjustments for the provision. In addition, the Company maintains two or more suppliers with long-term cooperation for all raw materials. The Company currently does not have any risks for concentrated procurement.
B. Sales: The Company has not yet experienced highly-concentrated sales. The percentage of sales to a single customer in the past three years has stayed below 10%. The Company has maintained long-term cooperation with existing customers while being committed to developing new customers so as to expand and diversify the source of business. Therefore, there should be no risks associated with sales concentration.

7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%

The composition of the Company’s Directors or major shareholders holding more than 10% of the shares and the shareholding ratio has remained stable. As of the publication date of this Annual Report, there has been no significant transfer. Equity transfer or swap is part of the shareholders' normal financial management strategies with no significant impact on the Company. The Company has maintained functional and open communication channels with its Directors and major shareholders.

7.6.11 Effects of, Risks Relating to and Response to the Changes in Management

Rights

The Company has no risks of change in ownership.

7.6.12 Litigation or Non-litigation Matters

None

7.6.13 Other Major Risks

(1) Impact of major information security incidents and countermeasures.

The Company did not suffer from any significant cyber attacks or similar events in 2018 as of the publication date of this Annual Report, nor has it been involved in any legal cases or investigations related to this matter.

The Company’s information security management is done through the dedicated platform and team, which allows the Company and its subsidiaries to use resources in the best manner, adopt centralized management appropriately, and upgrade and update existing equipment and mechanisms related to information security for the protection to stay updated.

250 -

Information Security Policy and Specific Management Plan

The Company's information security policy focuses on the use of technology and information security management. Through the balance and cooperation between people, machines, software and hardware, a safe management network has been established. All policies are implemented through the establishment of firewalls, the management of the equipment room, users and on-site information security. The Company regularly discusses information security issues, trends and relevant strengthening measures with information management personnel stationed at each plant each year. The maintenance of information security and raising risk awareness among employees in all plants are also optimized through education and training.

Professional IT management and service platform are responsible for the implementation of information security governance, planning, supervision and policy of the Company and its subsidiaries. Potential risks are evaluated and filtered for timely countermeasures to be planned. External consultants will be employed when necessary to respond to and follow up on various IT needs. The Company regularly presents information security risk management reports as well as reviewing relevant information security policies and action plans every six months. The Company also conducts information security inspection and training at production plants when necessary to achieve comprehensive information security protection and enhance information security awareness.

Comprehensive information security operation and audit system: The audit departments of the Company and its subsidiaries regularly conduct information security audits in compliance with regulations to ensure that the system is complete and relevant policies have been implemented. The results of such audits are also reported to senior managers in accordance with the regulations.

In addition to complying with the government's relevant information security policies and the internal regulations, the Company will fulfill its duties and responsibilities in the management of information security on a daily basis to lower IT-related risks to the minimum for the Company and its subsidiaries.

(2) Other significant risks:

The Company has formulated regulations in accordance with relevant laws, as well as setting up rules for relevant units depending on management needs. Operational risks are managed by each department according to its functions. The Auditing Department reviews department's regulations, system, procedures and compliance regularly and as a project.

(3) Other market risk:

The US-China trade war has created trade barriers, and both supply and demand have experienced significant fluctuations and restructuring. The raw materials in the Company's manufacturing process are mainly imported, and the procurement is not excessively concentrated. In response to international trade disputes, the Company continues to develop new products, such as special paper and non-fluorescent paper to create market segments. The Company also actively develops new overseas markets to reduce the impact of market risks on the Company's operations.

251 -

(4)The organizational structure for risk management countermeasures:

Unit	Operation (function)	Corresponding Risks
Production Department	Production of paper for daily, cultural and special uses, cardboard, pulp and chemical products	Production, labor safety and labor
Marketing Department	Marketing of paper for daily, cultural and special uses, cardboard, pulp and chemical products	Operation, marketing and laws
Human Resources Department	Human resources management, human resources and organizational development	Laws, policies and organization
Financial and Accounting Department	Information analysis of investment targets, financial management, fund operation management and accounting	Interest rates, exchange rates, inflation, investment, merger and acquisition, laws, equity and policy
Auditing Office	Inspection and research of internal control plans and system	Laws and policies

7.7 Other Important Matters

None

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Special Disclosure

8.1 Summary of Affiliated Companies

8.1.1 Relationship Report

(1). Relationship between subordinate company and control company

Control Company		Holdingor Pledged of Shares	Holdingor Pledged of Shares	Holdingor Pledged of Shares	Served Position	Served Position
	Cl N
	ontro ame	Shares	Percentage	Pledged	Title	Name

YFY INC.	Obtained ~~m~~ore than hal~~f~~ of Directors' seats	627,827,989	56.93	-	Chairman(CEO) Director Director	Kirk Hwang Felix Ho Melody Chiu

(2). Transactions

A. Sales and purchase

a. Percentage of (sales) purchase and sales amount in total purchase (sales) amount

Import/Sale	Amount(thousand)	Ratio of Import(Sale)	Gross Margin(thousand)
Sale	164	-	16

b. Transaction terms and comparison with general transaction terms: equivalent c. Accounts receivable (payable), balance of bills receivable (payable) and the ratio of each item at the end of the period:

Notes and accounts receivable/payable		Percentages of the Ending balance
	Ending balance

Notes and accounts receivable	8	-
Notes and accountspayable	259	-

d. When accounts receivable were overdue during the year, the amount, handling method and provision for bad debts: None.

e. Advanced receipts (prepayments): None.

B. Property transaction: None

C. Bank accommodation: None

D. Asset leasing:

Unit: NT$ thousands

			Collection	Comparison		Other
Transactio	Nature of				Total current
		Rental decisions	(payment)	with general		agreed
n type	lease				rent
			method	rental levels		items

Lessee	Operating leases	Reference to general local standards	Monthly payment	Equivalent	17,976	None

E. Other important transactions: None.

(3). Endorsements/Guarantees: None.

253 -

(4). Other matters that have a significant impact on the financial and business activities: None.

8.1.2 Relationship business merger business report

A. Affiliates’ Highlights

(1). Affiliates’ Structure

==> picture [474 x 284] intentionally omitted <==

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

Chung Hwa Pulp
Corporation
100% 100%
Hwa Fung CHP International
Investment Co., Ltd. (BVI) Corp.
100% 60% 20.24%
Kuang Hwa Fertilizer Guangdong Dingfung 66.27% Zhaoqing Dingfung
Limited Company Pulp & Paper Co., Ltd. Forestry Co., Ltd.
100%
Shenzhen Systax Paper
Co., Ltd.
----- End of picture text -----

(2). Affiliates’ profile

	Date of Incorporation		Paid-in Capital (Thousand)
Name		Address		Main Business

CHP International (BVI)Corp.	3/15/1990	Citco Building, P.O. BOX 662, Road Town,Tortola,British Virgin Islands	US$ 61,040	Investment and holding
Hwa Fung Investment Co.,Ltd	2/4/1994	12F, 51, Sec. 2, Chung Ching S. Rd., Taipei,Taiwan	NTD$ 36,000	Investment and holding
Kuang Hwa Fertilizer Limited Company	8/30/2010	No.100, Guanghua St., Ji’an Township, Hualien County,Taiwan	NTD$ 5,000	To produce fertilizer
Guangdong Dingfung Pulp & Paper Co., Ltd.	8/18/2000	Shouyue, Nanjie, Guangning County, Zhaoqing City, Guangdong Province, PROC	US$ 85,630	Pulp and paper production, trading and forestrybusiness
Zhaoqing Dingfung Forestry Co., Ltd.	4/1/2006	Shouyue, Nanjie, Guangning County, Zhaoqing City, Guangdong Province, PROC	US$ 21,880	Seedling cultivation and sales, reforestation, sales-cum-forest logging and other forestry, processing and transportation
Shenzhen Systax Paper Co., Ltd.	6/24/2008	Room 1705B, Tongxin Building, No. 5020, Binhe Avenue, Futian Dist. Shenzhen City,GuangdongProvince	CNY$ 3,200	Paper trading, cargo and technic Import and export business

254 -
(3). Industry covered by the overall Affiliates
a. Production and Sales of Pulp and Paper Product.
b. Production and Sales of Afforestation, Nursery and Forestry
c. Investment Business
d. Steam and Electricity Symbiosis Industry
e. Manufacturing and Retailing of Fertilizer
(4). Directors, Supervisors and GM of all Affiliates

Unit: Share;%

			Shareholding	Shareholding
Company Name	Title	Name of Representative
			Shares	%

CHP International (BVI)Corp.	Director Director	Kirk Hwang: Representative of CHP Guu-FongLin: Representative of CHP	61,039,956	100.0
Hwa Fong Investment Co., Ltd	Chairman Director Director Supervisor	Guu-Fong Lin: Representative of CHP Chih-Cheng Huang: Representative of CHP K. T. Yin: Representative of CHP David Lin: Representative of CHP	3,600,000	100.0
Kuang Hwa Fertilizer Limited Company	Director	Li-Pong Lu: Representative of Hwa Fong Investment Co., Ltd.	-	100.0
Guangdong Dingfung Pulp & Paper Co., Ltd.	Chairman and President Director Director Supervisor	Guu-Fong Lin: Representative of CHP International (BVI) Corp. Chih-Cheng Huang: Representative of CHP International (BVI) Corp. Kirk Hwang: Representative of YFY International BVI Corp. K. T. Yin: Representative of YFY International BVI Corp.	- - -	60.0 40.0 40.0
Zhaoqing Dingfung Forestry Co., Ltd.	Chairman and President Director Director Supervisor	Guu-Fong Lin: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Kirk Hwang: Representative of CHP International (BVI) Corp. Chih-Cheng Huang: Representative of YFY International BVI Corp. K. T. Yin: Representative of YFY International BVI Corp.	- - - -	66.27 20.24 13.49 13.49
Shenzhen Systax Paper Co., Ltd	Chairman Director Director Supervisor President	Chih-Cheng Huang: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Ray Chen: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Wayne Liu: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Shun-Xiang Zhan: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Wayne Liu	- - - -	100.0 100.0 100.0 100.0

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B. Affiliates’ operating highlights

Unit:Thousand

		Paid-in Capital	Total Assets	Total Liabilities	Net Worth	Operating Revenue	Operating Income	Net Income
Company Name	Currency								EPS

CHP International (BVI)Corp.	USD	61,040	175,024	2	175,022	-	(97)	4,133	0.07
Hwa Fong Investment Co., Ltd	NTD	36,000	44,606	175	44,431	-	(170)	892	0.25
Kuang Hwa Fertilizer Limited Company	NTD	5,000	12,779	5,803	6,976	15,334	494	340	-
Guangdong Dingfung Pulp & Paper Co.,Ltd.	CNY	648,482	1,527,231	392,533	1,134,698	625,781	56,537	35,370	-
Zhaoqing Dingfung Forestry Co.,Ltd.	CNY	178,162	863,776	205,109	658,667	74,688	113	113	-
Shenzhen Systax Paper Co.,Ltd	CNY	3,200	141,608	118,223	23,385	230,334	5,952	4,487	-

8.1.3 Consolidated of financial statements of affiliated:

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, 2018 are all 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, 2018.

Very truly yours,

CHUNG HWA PULP CORPORATION

By:

March 21, 2019

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8.2 Private Placement Securities in the Last Fiscal Year and Up to the Publishing

Date of this Annual Report

None

8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the last

Fiscal Year and Up to the Publishing Date of this Annual Report

None

8.4 Other Information Which Should be Disclosed

None

8.5 Other Supplementary Information

Matters according to the Article 36.3.2 of the Securities and Exchange Act of Taiwan in the most recent year and up to the date of printing of this Annual Report which have significant impact to Shareholders’ Equity or stock price: None

257 -

AI assistant

CHP — Annual Report 2018

51933_rns_2019-07-02_39a8c29a-4529-4d3d-8ee0-870576f06190.pdf

ANNUAL REPORT

2018

1. Spokesperson and Action spokesperson:

2. Headquarters, Branch office & Plant

3. Stock Administration

4. Auditor

5. Overseas Securities Exchange: None

Notice to readers

Contents

Dear Shareholders, Ladies and Gentlemen,

Corporate Overview

2.1 Date of Incorporation

2.2 Company History

Corporate Governance Report

3.1 Organization

3.2 Directors and Management Team

3.2.1 Directors

Major shareholders of the institutional shareholders

Professional qualifications and independence analysis of 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 President and Vice Presidents

3.3.3 Names of Managers and the Distribution of Employee's Compensation

3.3.4 Comparison of Remuneration for Directors, President and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, President and Vice Presidents

3.4 Implementation of Corporate Governance

3.4.1 Board of Directors

3.4.2 Audit Committee

(1) Matters referred to in Article 14-5 of the Securities and Exchange Act.

Directors’ training records:

3.4.4 Composition, Responsibilities and Operations of the Remuneration Committee

A. Professional Qualifications and Independence Analysis of Remuneration Committee Members

B. Scope of Responsibilities of the Remuneration Committee:

C. Attendance of Members at Remuneration Committee Meetings

3.4.5 Corporate Social Responsibility

3.4.7 Corporate Governance Guidelines and Regulations

3.4.8 Other Important Information Regarding Corporate Governance

3.4.9 Internal Control Systems

Chung Hwa Pulp Corporation

Statement of Internal Control System

3.4.11 Major Resolutions of Shareholders’ Meeting and Board Meetings

A. Major Resolutions of Shareholders’ Meeting (6/26/2018)

B. Major Resolutions of Board Meetings

Summary of Major Resolutions of the 8th Board Meeting of the 17th Board of Directors on March 22nd, 2018:

Summary of Important Resolutions of the 9th meeting of the 17th Board of Directors on May 11th, 2018:

Summary of Important Resolutions of the 10th meeting of the 17th Board of Directors on August 13th, 2018:

Summary of Important Resolutions of the 11th meeting of the 17th Board of Directors on November 8th, 2018:

Summary of Important Resolutions of the 12th meeting of the 17th Board of Directors on March 21st, 2019:

3.4.12 Major Issues of Record or Written Statements Made by Any Director Dissenting to Important Resolutions Passed by the Board of Directors

3.4.13 Resignation or Dismissal of the Company’s Key Individuals, Including the

3.4.14 Internal Audit Licenses

3.5 Audit Fee

3.6 Replacement of Certified Public Accountant (CPA)

A. Regarding the former CPA

B. Regarding the successor CPA

C. The former CPA's reply to items in Article 10-6-1 and 10-6-2-3: None.

3.8 Shareholding Transferred or Pledged by Directors, Management, and Major Shareholders Who Holds 10% of The Company Shares or More

3.9 Information disclosing the spouse, kinship within second degree, and relationship between any of the top ten shareholders

3.10 Comprehensive Shareholding Information Relating to Company, Directors, Management, and Companies Affiliated through Direct and Indirect Investment

4.1 Source of capital

4.2 Shareholder Structure

4.3 Shareholding Distribution

4.4 Major Shareholders

4.5 Share Price, Net Worth, Earnings, Dividends and Related Information

4.6 Dividend Policy and Implementation Status

A. Dividend Policy

B. Dividend distribution proposed at this shareholders` meeting:

4.7 Impact of Stock Dividend Distribution on Business Performance and EPS

4.8 Employees’ and Directors’ Compensations

A. Information Relating to Compensation of Employees and Directors in the Articles of Incorporation

C. Distribution of Compensation of Employees and Directors for 2019 Approved in the Board of Directors Meeting

4.9 Buyback of Treasury Stock

4.10 Corporate Bond Issuance

4.11 Preferred Stock Issuance

4.12 Global Depository Receipts Issuance

4.13 Employee Stock Options

4.14 New Restricted Employee Shares

CHP Annual Report 2018