CHP - Annual Report 2019 | 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

2019 ANNUAL REPORT

Publishing Date: May 4 ,2020

1. Spokesperson and Acting 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 Mill No.100, Guanghua St., Ji’an Township, Hualien County TEL ： +886-3-842-1175 Jiutang Mill No.112, Jiutang Rd., Dashu Dist., Kaohsiung City TEL ： +886-7-652-0024 Taitung Mill No.371, Sec. 4, Zhongxing Rd., Taitung City, Taitung County TEL ： +886-89-382-255 DingFung Mill 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.

Letter to Shareholders ............................................................................................ 5 Corporate Overview ................................................................................................ 8 2.1 Date of Incorporation ................................................................................................................................................. 8 2.2 Company History ........................................................................................................................................................ 8 Corporate Governance Report ............................................................................. 10 3.1 Organization ............................................................................................................................................................. 10 3.2 Directors and Management Team ........................................................................................................................... 11 3.3 Remuneration of Directors (include Independent Directors), President, and Vice Presidents ............................. 21 3.4 Implementation of Corporate Governance ............................................................................................................. 28 3.5 Audit Fee ................................................................................................................................................................... 70 3.6 Replacement of Certified Public Accountant (CPA): ............................................................................................... 70 3.7 The Chairman, President and Financial or Accounting Managerial Officer of the Company who had worked for the Independent CPA or the affiliate in the past year: ......................................................................................... 70 3.8 Shareholding Transferred or Pledged by Directors, Management, and Major Shareholders Who Holds 10% of The Company Shares or More: .............................................................................................................................. 71 3.9 Information disclosing the spouse, kinship within second degree, and relationship between any of the top ten shareholders: .......................................................................................................................................................... 72 3.10 Comprehensive Shareholding Information Relating to Company, Directors, Management, and Companies Affiliated through Direct and Indirect Investment: .............................................................................................. 73 Capital Overview ................................................................................................... 74 4.1 Source of capital ....................................................................................................................................................... 74 4.2 Shareholder Structure .............................................................................................................................................. 74 4.3 Shareholding Distribution ........................................................................................................................................ 75 4.4 Major Shareholders .................................................................................................................................................. 75

4.5 Share Price, Net Worth, Earnings, Dividends and Related Information ................................................................. 76 4.6 Dividend Policy and Implementation Status ........................................................................................................... 76 4.7 Impact of Stock Dividend Distribution on Business Performance and EPS: ........................................................... 77 4.8 Employees’ and Directors’ Remunerations ............................................................................................................. 77 4.9 Repurchases of Treasury Stock: ............................................................................................................................... 78 4.10 Corporate Bond Issuance: ...................................................................................................................................... 78 4.11 Preferred Stock Issuance: ....................................................................................................................................... 78 4.12 Global Depository Receipts Issuance: .................................................................................................................... 78 4.13 Employee Stock Options: ....................................................................................................................................... 79 4.14 New Restricted Employee Shares: ......................................................................................................................... 79 4.15 Shares Issued for Mergers and Acquisitions: ........................................................................................................ 79 4.16 Utilization of Funds: ............................................................................................................................................... 79 Business Overview ............................................................................................... 80 5.1 Scope of Business ..................................................................................................................................................... 80 5.2 Market and Sales Outlook ........................................................................................................................................ 82 5.3 Employee Information in the last two years and up to the print date of this annual report ............................... 85 5.4 Environmental Protection Expenditure ................................................................................................................... 85 5.5 Labor Relations ......................................................................................................................................................... 90 5.6 Major Contracts ........................................................................................................................................................ 95 Financial Overview ............................................................................................... 96 6.1 Five-Year Financial Summary ................................................................................................................................... 96 6.2 Five-Year Financial Analysis ................................................................................................................................... 100 6.3 Audit Committee’s Report for the Most Recent Year ........................................................................................... 102 6.4 Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018, and Independent Auditors’ Report ................................................................................................................................................... 103 6.5 Financial Statements for the Years Ended December 31, 2019 and 2018, and Independent Auditors’ Report . 180 6.6 Any financial difficulty and the impact on the Company's finance in last year and up ....................................... 249 to the print date of this annual report: ....................................................................................................................... 249

Review of Financial Conditions, Financial Performance, and Risk Management

............................................................................................................................. 250 7.1 Balance Sheet Analysis ........................................................................................................................................... 250 7.2 Statements of Comprehensive Income Analysis ................................................................................................... 251 7.3 Cash Flow Analysis ................................................................................................................................................. 252 7.4 Major Capital Expenditures and Impact on Financial Operations in last year ..................................................... 252 7.5 Reinvestment Policy, Reasons for Profit or Loss, Improvement Plans, and Investment Plans for Next Year .... 252 7.6 Risk Analysis and Assessment (in the most recent year and up to the print date of this annual report) .......... 253 7.7 Other Important Matters ....................................................................................................................................... 261 Special Disclosure .............................................................................................. 262 8.1 Summary of Affiliated Companies ......................................................................................................................... 262 8.2 Private Placement Securities in the Last Fiscal Year and Up to the Publishing Date of this Annual Report ...... 266 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 .................................................................................................................................. 266 8.4 Other Information Which Should be Disclosed ..................................................................................................... 266 8.5 Other Supplementary Information ........................................................................................................................ 267

Letter to Shareholders

Dear Shareholders, Ladies and Gentlemen,

According to the estimate released by the Chung-Hua Institution for Economic Research on December 18, 2019, the economic growth rate for 2019 is 2.54%, which is 0.21 percentage points lower than the 2.75% of 2018, and the economic growth rate of Taiwan is estimated to be about 2.44% for 2020. In 2019, subject to the continued stalemate of the US-China trade standoff as well as weak overseas demand, global economic growth momentum has clearly weakened. However, Taiwan has benefited from factors such as the transfer of trade orders, the increase in the return and investment of Taiwanese companies, and the expansion of semiconductor equipment investment, which have driven the growth in domestic demand. The annual real GDP growth rate reached 2.99% in Q3. Domestic consumption rebounded and investments increased. However, the global economic climate is full of uncertainty in 2020 due to the COVID-19 pandemic. International institutions such as the IMF, Fitch Ratings, S&P, and Goldman Sachs have lowered the global economic growth outlook for 2020. Among them, Fitch Ratings estimates 1.3% for this year's economic growth, which is about half, and is also the lowest since the financial crisis.

In terms of the international paper industry, the pulp market in 2019 is in a process of continuous accumulation and destocking, and overall, peak periods are not prosperous and demand is weak. At the same time, due to factors such as the uncertainty of the international situation and the large fluctuations in exchange rates, many are in observation mode. However, since the pulp market fell from the high point in the Q3 of 2018, the supply of raw materials has been affected by the events of the Australian forest fires and the Finnish strike since the end of 2019. Pulp and paper prices are picking up and beginning to rise. Regarding waste paper, since China’s issuance of the waste restriction order in Q3 of 2017, the price of waste paper in China kept rising until 2019, when the prices fell due to industries moving out because of the China-US trade factors, which caused the reduced demand for packaging. In order to avoid the impact of China’s waste-restriction order on

Taiwan’s waste paper recycling system, the Taiwan government restricts the types and targets of waste paper imports and controls the purchase of foreign waste paper. Looking forward to 2020, the situation will continue to be affected by China’s waste-restriction order and the price of waste paper products is expected to start increasing.

CHP's consolidated operating income for 2019 amounted to approximately NT$20.69 billion, which is a decrease of approximately NT$3.34 billion or a decline of about 14%, from the consolidated operating income of NT$24.03 billion in 2018. The net loss after tax in 2019 was approximately NT$245 million, compared with the profit of NT$445 million in 2018, representing a decrease of about NT$690 million. Paper production in 2019 is 371,434 metric tons, which is a decrease of 53,109 metric tons from the 424,543 metric tons produced in 2018. Domestic paper sales amounted to 197,721 metric tons and export sales amounted to 218,289, totaling 416,010 metric tons. Cardboard production was 133,072 metric tons, which is an increase of 9,865 metric tons from the 123,207 metric tons produced in 2018. Facing many uncertainties in the international economy in 2020, CHP will continue to improve product quality, strengthen the stability of raw material sources, prices, and supply, expand product application markets, and strengthen services to enhance market competitiveness. The COVID-19 outbreak has impacted the market since the beginning of 2020, but it has also increased the demand for CHP's healthcare paper and healthcare paper and boxes. In addition to the increase of delivery services due to reduced outdoor activities, the development of food-safe paper is expected to accelerate.

Facing changes and challenges in the international market, CHP continues to develop environmentally friendly materials that use paper as a carrier and can be directly recycled to replace plastics, and specialty food-safe paper for food containers and packaging to lead the market in response to the worldwide trend to plastic restriction; among them, in terms of Easy Straw Paper, CHP also cooperated with international brand manufacturers at the end of 2019 to promote the Company’s paper

straws to the world. Moreover, the development of non-plastic paper cups and sealing paper are in the final stages of completion; these products will achieve the goal of being able to remove plastics from food containers, allowing them to be thrown into paper recycling bins.

Sustainable development is the greatest common denominator of CHP’s business. The core policy of CHP is to build a sustainable, circular management system, with Recycle/Reclaim/Regenerate as its core strategy, and actively achieve the consistent production of forests, pulp, and paper, and then promote it to the specialty materials industry. In the future, in the global industrial structure, CHP hopes that it can deepen its positioning and build a service connection platform, and adhere to the "ECO" business philosophy to continue communicating with stakeholders and implementing a new circular economy blueprint, one step at a time.

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 mill.
1969	Began trial at the Hualien mill.
1970	Started production at the Hualien mill.
1975	The company’s stock were listed
1976	Founded the invested company, PT Indah Kiat. Pulp & Paper.
1978	The production capacity of the Hualien mill 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 Jinglun 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 sferred to Syntax Communication (H.K.) Ltd. Subsidiary Guangdong Dingfung Pulp & Paper Co., Ltd. established Zhaoqing Xinchuan Green Technology Co., Ltd. to develop environmentally friendly processing technology for process waste.

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 Jinglun Paper
Co., Ltd. General Manager
Office
Product Department Marketing & Sales Department CFO
CFO Office
Jiutang Taitung Hualien Paper & Specialty HR & General Affairs Finance &
Paperboard Paper Accounting
Mill Mill Mill Department Department Department Department
Operation Functions: Operation Functions: Operation Functions:
Production of of Cultural Paper, Wrapping Sales and Marketing of Cultural HR & General Affairs, Finance, Accounting
paper, Specialty paper, Paperboard, Pulp Paper, Wrapping paper, Specialty
and Chemical ,and Sales of Fertilizer paper, Paperboard, Pulp and
Chemical
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5/4/2020

3.2 Directors and Management Team

3.2.1 Directors

																	Executives, Directors or	Executives, Directors or	Executives, Directors or
	Nationality/						Shareholding	when			Spouse & Minor		Shareholding by				Supervisors Who are Spouses
									C Shhldi				Nominee
Title	Place of	Name	Gender	Date Elected	Term	Date First	Elected		urrent areong		Shareholding		Arrangement		Experience	Other Position	or withi	n Two Degrees of		Note
					(Years)	Eld									Edi
	Incorporation					ecte									（ucaton）			Kinship

							Shares	％	Shares	％	Shares	％	Shares	％			Title	Name	Relation
Director	ROC	YFY INC.	-	6/21/2019	3	6/13/2007	627,827,989	56.93	627,827,989	56.93	-	-	-	-	-	-	-	-	-
Chairman	ROC	YFY Inc. Representative: Kirk Hwang	Male	6/21/2019	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	-	-	-	Note2
Director	ROC	YFY Inc. Representative: S. C. Ho	Male	6/21/2019	3	3/15/1977	1,223,071	0.11	1,223,071	0.11	-	-	-	-	Director, YFY Inc.	Note3	-	-	-	-
Director	ROC	YFY Inc. Representative: Felix Ho	Male	6/21/2019	3	3/16/2017	-	-	-	-	-	-	-	-	Chairman, YFY Inc.	Note4	-	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd	-	6/21/2019	3	6/25/2013	117,247	0.01	117,247	0.01	-	-	-	-	-	-	-	-	-	-

Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: Chih-Cheng Huang	Male	6/21/2019	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. Chairman of Shenzhen Jinglun paper Co., Ltd. Director of Syntax Communication (H.K.) Ltd. Other non-consolidated company positions please refer to the Note 5	-	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: Guu-Fong Lin	Male	6/21/2019	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 Zhaoqing Xinchuan Green Technology Co., Ltd. Chairman of Hwafong Investment Co.,Ltd. Other non-consolidated company positions please refer to the Note 6	-	-	-	-
Director	ROC	Lotus Ecoscings & Engineering Co., Ltd Representative: Ray Chen	Male	6/21/2019	3	6/24/2016	45	-	-	-	-	-	-	-	Vice President, CHP	Executive Vice President of CHP Director of Shenzhen Jinglun paper Co., Ltd. Other non-consolidated company positions please refer to the Note 7	-	-	-	-
Independent Director	ROC	Donald Chang	Male	6/21/2019	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	6/21/2019	3	6/24/2016	-	-	-	-	-	-	-	-	Chief Scientist & Sr. R & D Manager of 3M	Member of CHP. Remuneration Committee and Audit Committee Professor of NTHU	-	-	-	-
Independent Director	ROC	Yi Lee	Male	6/21/2019	3	6/21/2019	-	-	-	-	-	-	-	-	Chairman, E & E Recycling Development Inc.	Convener of Chung Hwa Pulp Corporation's Audit Committee and member of the Remuneration Committee	-	-	-	-

Note1: Director & CTO of YFY Inc., Director of Shin Foong Specialty and Applied Materials Co., Ltd., Director of NTU Innovation Incubation Co., Ltd., Director of Center for Corporate Sustainability Taiwan, Chairman of Industrial Committee of TwIChE .

Note2: The Chairman is an executive director of the Company and has set up an Audit Committee with 3 Independent Directors. The management of the Company has a President and Executive Vice Presidents established, so it is reasonable and appropriate.
Note3: Director of YFY INC., Director of YFY Packaging Inc., Director of YFY Consumer Products Co., Ltd., Director of E-ink Holdings Inc., Director of TaiGen Biotechnology Co., Ltd., Director of E Ink Corporation; Director of YFY Jupiter (BVI) Inc.; Director of San Ying Enterprise Co., Ltd.; Director of China Color Printing Co., Ltd.; Director of Cupid InfoTech Co., Ltd.; Director of Effion Enertech Co., Ltd.; Director of Yuen Foong Yu Biotech Co., Ltd., Director of YFY Paradigm Investment Co., Ltd., Director of YFY Venture Capital Investment Co., Ltd., Director of Lotus Ecoscings & Engineering Co., Ltd., Director of Shen's Art Printing Co., Ltd., Director of Sustainable Carbohydrate Innovation Company Limited, Director of YFY Biotech Management Company, Managing Director of China Investment and Development Co., Ltd., Director of Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd., Director of YFY Consumer Products Co., Ltd., Director of Yuen Foong International (Samoa) Ltd., Director of Eihoyo Shoji Co., Ltd., Director of Taigen Biopharmaceuticals Holdings Limited, Director of Artone Investment (H.K.) Ltd., Director of Artone Specialties Company Limited, Director of Hsinex International Corp., Director of Taitung Enterprise Corp., Director of Shin-Yi Enterprise Co., Ltd., Chairman of Shin-Yi Investment Co., Ltd., Director of Shin-Yi Recreation Co., Ltd., Director of Ru Yi Enterprise Co., Ltd., Director of Xing Yuan Investment Co., Ltd., Chairman of Yuen Foong Paper Co., Ltd., Chairman of Yuen Shin Yi Enterprise Co., Ltd., Director of Yong-An Leasing Co., Ltd., Director of Y F Chemical Corp., Director of SinoCell Technologies Co., Ltd, Chairman of Fu Hwa Enterprise Co., Ltd., Director of HuaDong Industrial Co., Ltd., Director of Synmax Biochemical Co., Ltd, Director of Ho Jei Lai Kosan Unlimited Company, Director of Hsin Yi Holding Company, Director of Hsin Yi Foundation, Legal representative of Pre-school Education Magazine of Hsin Yi Foundation, Chairman of Foundation of Fire Fighting Development, Director of Shang Shan Human Culture Foundation; Director of Liver Disease Prevention & Treatment Research Foundation, Director of The Eisenhower Fellows Association in the Republic of China, Standing Director of Yuan T. Lee Foundation Science Education for All, Director of Foundation for the Advancement of Outstanding Scholarship, Director of Chinese International Economic Cooperation Association.
Note4: Chairman of YFY INC., Director of SinoPac Holdings Co., Ltd., Director of YFY Packaging Inc., Chairman of Yuen Foong Yu Consumer Products Co., Ltd., Director of Yuen Foong Paper Co., Ltd. , Chairman of Yuen Foong Co., Ltd., Chairman of Yuen Foong Shop Co., Ltd., Chairman of Ever Growing Agriculture Bio-tech Co., Ltd., Chairman of Arizon RFID Technology Co., Ltd. , Director of Arizon Japan 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., Director of eCrowd Media Inc, Director of Livebricks Inc. Director of Chen Yu Co., Ltd., Director of YFY RFID Co., Ltd., Chairman of Willpower Industries Ltd. Chairman of YFY Jupiter(BVI) Inc., Director of YFY Biopulp Technology Ltd., Chairman of Yuen Foong Yu Paper Enterprise (Vietnam) 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., 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.
Note5 : Southern Regional Director of R& D Center of YFY Inc., and Director of Hwa Fong Paper (Hong Kong) Co., Ltd.. Note6 : Chairman of YFY Capital Co., Ltd. and Supervisor of Taiwan Global Biofund Co., Ltd..

Note7 : Director of Union Paper Corp., Director of Hwa Fong Paper (Hong Kong) Ltd. and Director of Beautone Inc.

Major shareholders of the institutional shareholders

5/4/2020


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(2.66%), NEW TALENT LIMITED(2.28%), Felix Ho(2.14%), Min-Ting Ho(2.07%), Hsinex International Corp. (1.87%)
Lotus Ecoscings & Engineering Co., Ltd	YFY INC.(100.0%)

Major shareholders of the Company’s major institutional shareholders

5/4/2020


Name of Institutional Shareholders	Major Shareholders

Shin-Yi Foundation	Founded in 1971, main donors: Chuan Ho, Shou-Shan Ho, S. C. Ho, Lin-Fu-Xiang Ho, Yeh Sun, YFY MFG (donated prior to becoming a listed company) and Shin-Yi Enterprise Co., Ltd.
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%)
Hsinex International Corp.	S. C. Ho(53.13%), Yi-Chia Ho(24.48%), Felix Ho(22.28%), Chen Yu Co., Ltd.(0.11%)

5/4/2020

Professional qualifications and independence analysis of directors

	Meet One of the Following Professional Qualification Requirements, Together with	Meet One of the Following Professional Qualification Requirements, Together with	Meet One of the Following Professional Qualification Requirements, Together with
							Independence			Criteria(Note)
	at Least Five Years Work Experience
																Number of
Criteria	An Instructor or Higher	A Judge, Public Prosecutor,	Have Work	1	2	3	4	5	6	7	8	9	10	11	12	Other Public
	Position in a Department of	Attorney, Certified Public	Experience in the													Companies
	Commerce, Law, Finance,	Accountant, or Other	Areas of Commerce,													in Which the
	Accounting, or Other Academic Department Related	Professional or Technical Specialist Who has Passed a	Law, Finance, or Accounting, or													Individual is Concurrently
	to the Business Needs of the Company in a Public or Private	National Examination and been Awarded a Certificate in a	Otherwise Necessary for the													Serving as an Independent
Name	Junior College, College or	Profession Necessary for the	Business of the													Director
	University	Business of the Company	Company

Kirk Hwang			V			V	V				V	V	V	V
S. C. Ho			V	V		V	V			V	V	V		V
Felix Ho			V	V		V	V			V	V	V		V
Chih-ChengHuang			V			V	V				V	V	V	V
Guu-FongLin			V			V	V	V	V	V	V	V	V	V
RayChen			V			V	V	V	V	V	V	V	V	V
Donald Chang			V	V	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	V	V
Yi Lee			V	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 apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
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 of one percent or more of the total number of issued 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 a managerial officer under subparagraph 1 or any of the persons in the preceding two subparagraphs.
Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company, or that ranks among the top five in shareholdings, or that designates its representative to serve as a director or supervisor of the company under Article 27, paragraph 1 or 2 of the Company Act. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
If a majority of the company's director seats or voting shares and those of any other company are controlled by the same person: not a director, supervisor, or employee of that other company. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
If the chairperson, general manager, or person holding an equivalent position of the company and a person in any of those positions at another company or institution are the same person or are spouses: not a director (or governor), supervisor, or employee of that other company or institution. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
Not a director, supervisor, officer, or shareholder holding five percent or more of the shares, of a specified company or institution that has a financial or business relationship with the company. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent, if the specified company or institution holds 20 percent or more and no more than 50 percent of the total number of issued shares of the public company.
Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides auditing services to the company or any affiliate of the company, or that provides commercial, legal,

financial, accounting or related services to the company or any affiliate of the company for which the provider in the past 2 years has received cumulative compensation exceeding NT$500,000, or a spouse thereof; provided, this restriction does not apply to a member of the remuneration committee, public tender offer review committee, or special committee for merger/consolidation and acquisition, who exercises powers pursuant to the Act or to the Business Mergers and Acquisitions Act or related laws or regulations.

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
	Gender



Kirk Hwang	Male	V	V	V	V
S. C. Ho	Male	V	V	V	V
Felix Ho	Male	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	-	-
Shih-Lai Lu	Male	*	*	-	V
Yi Lee	Male	V	V	-	-

Note: * equip part of the ability.

5/4/2020

3.2.2 Management Team

													Managers who are Spouses or	Managers who are Spouses or	Managers who are Spouses or
							Spouse & Minor		Shareholding
					Shareholding				by Nominee		Experience		Within Two Degrees of
Title	Nationality	Name		Date Effective			Shareholding		Arrangement							Note
			Gender								`（`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	-	-	-	Note2
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 Jinglun Paper Co., Ltd. Director of Syntax Communication (H.K.) Ltd. Director of Hwafong Investment Co., Ltd. Other non-consolidated company positions please refer to the Note 3	-	-	-	-
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 Zhaoqing Xinchuan Green Technology Co., Ltd. Chairman of Hwafong Investment Co., Ltd. Other non-consolidated company positions please refer to the Note 4	-	-	-	-
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 5	-	-	-	-
Executive Vice President	ROC	Rong-Ming Lin	Male	3/1/2018	-	-	-	-	-	-	CHP Factory Director	non-consolidated company positions please refer to the Note 6	-	-	-	-
Vice President	ROC	Alex Chen	Male	7/1/2016	-	-	-	-	-	-	CHP Manager	non-consolidated company positions please refer to the Note 7	-	-	-	-
Factory Director	ROC	Yen-Chang Hsieh	Male	5/15/2017	32,057	-	30,000	-	-	-	CHP Director	-	-	-	-	-

Factory Director	ROC	Yung-Shun Chen	Male	3/1/2018	-	-	-	-	-	-	CHP Director	-	-	-	-	-
Factory Director (Note 8)	ROC	Shan-Shui Chen	Male	3/16/2017	-	-	-	-	-	-	CHP Director	-	-	-	-	-
Accounting Manager	ROC	Jung-Min Huang	Male	3/17/2014	-	-	-	-	-	-	Manager	-	-	-	-	-
Financial Manager	ROC	David Lin	Male	1/1/2015	-	-	-	-	-	-	Manager	Supervisor of Hwafong Investment Co., Ltd. Director of Syntax Communication (H.K.) Ltd.	-	-	-	-
Audit Manager	ROC	Steven Chen	Male	8/17/2018	-	-	-	-	-	-	Manager	-	-	-	-	-

Note1: Director & CTO of YFY Inc., Director of Shin Foong Specialty and Applied Materials Co., Ltd., Director of NTU Innovation Incubation Co., Ltd., Director of Center for Corporate Sustainability Taiwan, Chairman of Industrial Committee of TwIChE . Note2: The Chairman is an executive director of the Company and has set up an Audit Committee with 3 Independent Directors. The

management of the Company has a President and Executive Vice Presidents established, so it is reasonable and appropriate. Note3: Southern Regional Director of R& D Center of YFY Inc. and Chairman of Hwa Fong Paper (Hong Kong) Co., Ltd. Note4: Chairman of RAY FOONG ENTERPRISE Co., Ltd. and Supervisor of Taiwan Global BioFund Co., Ltd. Note5: Director of Union Paper Corp., Director of Hwa Fong Paper (Hong Kong) Ltd. and Director of Beautone Inc. Note6: Director of Union Paper Corp. Note7: Director of Union Paper Corp. Note8: Retired on 1/22/2019

12/31/2019, Unit: NT$ thousands

3.3 Remuneration of Directors (include Independent Directors), President, and Vice Presidents

3.3.1 Remuneration of Directors and Independent Directors


		Remuneration								Ratio of Total		Relevant Remuneration Received by Directors Who are Also Employees								Ratio of Total
										Remuneration										Compensation		Remunerat
		B Cti A		Severance Pay		Directors		All D		(A+B+C+D) to Net Income (%)		Salary, Bonuses, and		S P F		El Cti G				(A+B+C+D+E+F+G) to Net Income (%)		ion from ventures
Title	Name	ase ompensaon ()		(B)		Compensation(C)		owances ()				Allowances (E)		everance ay ()		mpoyee ompensaon ()						other than subsidiarie
			Companies in		Companies in		Companies in		Companies in		Companies in		Companies in		Companies in			Companies in the			Companies in	s or from
			the		the		the		the		the		the		the	The company		consolidated financial			the	the parent
		The company	consolidated	The company	consolidated	The company	consolidated	The company	consolidated	The company	consolidated	The company	consolidated	The company	consolidated			statements		The company	consolidated	company
			financial		financial		financial		financial		financial		financial		financial						financial
																Cash	Stock	Cash	Stock
			statements		statements		statements		statements		statements		statements		statements						statements

Chairman	YFY Inc. Representative: Kirk Hwang	0	0	0	0	0	0	278	450	(0.1)	(0.2)	7,220	7,220	0	0	0	0	0	0	(3.1)	(3.1)	17,790
Director	YFY Inc. Representative: S. C. Ho (succeeded on June 21,2019)	0	0	0	0	0	0	119	119	(0.0)	(0.0)	0	0	0	0	0	0	0	0	(0.0)	(0.0)
Director	YFY Inc. Representative: Felix Ho	0	0	0	0	0	0	226	226	(0.1)	(0.1)	0	0	0	0	0	0	0	0	(0.1)	(0.1)
Director	YFY Inc. Representative: Melody Chiu (dismissed on June 21, 2019)	0	0	0	0	0	0	113	113	(0.0)	(0.0)	0	0	0	0	0	0	0	0	(0.0)	(0.0)
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Chih-ChengHuang	0	0	0	0	0	0	226	226	(0.1)	(0.2)	5,481	5,481	108	108	0	0	0	0	(2.4)	(2.4)
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: Guu-FongLin	0	0	0	0	0	0	226	226	(0.1)	(0.2)	4,285	5,100	108	108	0	0	0	0	(1.9)	(2.3)
Director	Lotus Ecoscings & Engineering Co., Ltd Representative: RayChen	0	0	0	0	0	0	226	226	(0.1)	(0.1)	3,144	3,144	108	108	0	0	0	0	(1.4)	(1.4)
Independent Director	Donald Chang	1,000	1,000	0	0	0	0	270	270	(0.5)	(0.5)	0	0	0	0	0	0	0	0	(0.5)	(0.5)
Independent Director	Shih-Lai Lu	1,000	1,000	0	0	0	0	270	270	(0.5)	(0.5)	0	0	0	0	0	0	0	0	(0.5)	(0.5)
Independent Director	Yi Lee (succeeded on June 21, 2019)	500	500	0	0	0	0	141	141	(0.3)	(0.3)	0	0	0	0	0	0	0	0	(0.3)	(0.3)
Independent Director	Shi-Kuan Chen (dismissed on January10, 2019)	0	0	0	0	0	0	5	5	(0.0)	(0.0)	0	0	0	0	0	0	0	0	(0.0)	(0.0)

Note1: Independent Directors' remuneration policy, system, standards, and structure, and description of the relevance to the amount of remuneration according to the responsibilities, risks, and time investment: The remuneration of the Independent Dire of the Company was drawn up with reference to the academic experience and social status of the Independent Directors, and market salary surveys and industry standards, and is based on the principle of meeting the general market standards and establi after considering the Company's operating results and the contribution of the Independent Directors in terms of their responsibilities. The remuneration must be reported to the Board of Directors for resolution. The Company will continue to review Independent Directors' remuneration policy in a timely manner depending on the operating conditions and legal requirements to pursue reasonable remuneration and sustainable operations. Note 2: 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 3: Number of resolutions passed by the Board of Directors on March 23, 2020.

Note 3: Relevant expenses such as company car rental fees have been listed. The total expenses were approximately NT$811 thousand.

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

The remuneration of the Directors of the Company is handled in accordance with the Articles of Incorporation approved by the shareholders' meeting on June 21, 2019. No more than 2% of the profit for the year (i.e., the profit before employee and director remunerations is deducted from profit before tax) less the cumulative losses is allocated as the remuneration of the Directors. Because of the loss in 2019, the Board of Directors decided on March 23, 2020 not to pay remuneration to the Directors, so Directors' remuneration is not estimated.

	Name of	Name of	Directors	Directors

	Total of (A+B+C+D)		Total of (A+B+C+D+E+F+G)
Range of Remuneration
		Parent company and all		Parent company and all
	The company		The company
		investment businesses group		investment businesses group


Less thanNT$ 1,000,000	Kirk Hwang, S. C. Ho Felix Ho, Melody Chiu Chih-Cheng Huang, Guu-Fong Lin, Ray Chen Yi Lee, Shi-KuanChen	Kirk Hwang, S. C. Ho Felix Ho, Melody Chiu Chih-Cheng Huang, Guu-Fong Lin, Ray Chen Yi Lee, Shi-KuanChen	S. C. Ho, Felix Ho Melody Chiu, Yi Lee Shi-Kuan Chen	S. C. Ho, Yi Lee Shi-Kuan Chen
NT$1,000,000 ~ NT$1,999,999	Donald Chang, Shih-Lai Lu	Donald Chang, Shih-Lai Lu	Donald Chang, Shih-Lai Lu	Donald Chang, Shih-Lai Lu
NT$2,000,000 ~ NT$3,499,999			RayChen	RayChen
NT$3,500,000 ~ NT$4,999,999			Guu-FongLin	MelodyChiu
NT$5,000,000 ~ NT$9,999,999			Kirk Hwang, Chih-Cheng Huang	Chih-Cheng Huang, Guu-FongLin
NT$10,000,000 ~ NT$14,999,999				Kirk Hwang,Felix Ho
NT$15,000,000 ~ NT$29,999,999
NT$30,000,000 ~ NT$49,999,999
NT$50,000,000 ~ NT$99,999,999
Greater than or equal to NT$100,000,000
Total	11	11	11	11

Note1: Representative of YFY INC.: Kirk Hwang, S. C. Ho, Felix Ho, Melody Chiu; Representative of Lotus Ecoscings & Engineering Co., Ltd.:

Chih-Cheng Huang, Guu-Fong Lin, Ray Chen

Note2: Director Melody Chiu resigned after the reelection on June 21, 2019; Independent Director Shi-Kuan Chen resigned on January 10, 2019 for holding public office.

3.3.2 Remuneration of the President and Vice Presidents

12/31/2019, Unit: NT$ thousands

						d	d					Ratio of total compensation	Ratio of total compensation	Remuneration from
				Severance Pay (B)		Bonuses an		Employee Compensation (D) (Note2)
		Salary(A)				Allowances (C) (Note1)						(A+B+C+D) to net income (%)
		Companies		Companies		Companies in				Companies in the				ventures other than
Title	Name		in the		in the		the			consolidated			Companies in the	subsidiaries or from the
		The		The		The		The company		financial		The company	consolidated	parent company
		company	consolidated		consolidated		consolidated						financial
			financial	company	financial	company	financial			statements
													statements
			statements		statements		statements	Cash	Stock	Cash	Stock

CEO	Kirk Hwang	5,348	5,348	0	0	1,871	1,871	0	0	0	0	(2.9)	(2.9)	2,912
President	Chih-Cheng Huang	3,420	3,420	108	108	2,062	2,062	0	0	0	0	(2.3)	(2.3)
CFO	Guu-Fong Lin	2,472	3,010	108	108	1,813	2,090	0	0	0	0	(1.8)	(2.1)
Executive Vice President	Ray Chen	2,208	2,208	108	108	936	936	0	0	0	0	(1.3)	(1.3)
Executive Vice President	Rong-Ming Lin	2,319	2,319	96	96	855	855	0	0	0	0	(1.3)	(1.3)

Note 1: Relevant expenses such as company car rental fees have been listed. The total expenses were approximately NT$811 thousand. Note 2: Number of resolutions passed by the Board of Directors on 3/23/2020.

	Name of President and Vice Presidents	Name of President and Vice Presidents
Range of Remuneration		Parent company and all investment
	The company	businessesgroup

Less thanNT$ 1,000,000	-	-
NT$1,000,000 ~ NT$1,999,999	-	-
NT$2,000,000 ~ NT$3,499,999	RayChen, Rong-MingLin	RayChen, Rong-MingLin
NT$3,500,000 ~ NT$4,999,999	Guu-FongLin	-
NT$5,000,000 ~ NT$9,999,999	Kirk Hwang, Chih-ChengHuang	Chih-ChengHuang, Guu-FongLin,
NT$10,000,000 ~ NT$14,999,999	-	Kirk Hwang
NT$15,000,000 ~ NT$29,999,999	-	-
NT$30,000,000 ~ NT$49,999,999	-	-
NT$50,000,000 ~ NT$99,999,999	-	-
Greater than or equal to NT$100,000,000	-	-
Total	5	5

3.3.3 Managerial officers with the top five highest remuneration

12/31/2019, Unit: NT$ thousands

						d	d					Ratio of total compensation	Ratio of total compensation	Remuneration from
				Severance Pay (B)		Bonuses an		Employee Compensation (D) (Note2)
		Salary(A)				Allowances (C) (Note1)						(A+B+C+D) to net income (%)
		Companies		Companies		Companies in				Companies in the				ventures other than
Title	Name		in the		in the		the			consolidated			Companies in the	subsidiaries or from the
		The		The		The		The company		financial		The company	consolidated	parent company
		company	consolidated		consolidated		consolidated						financial
			financial	company	financial	company	financial			statements
													statements
			statements		statements		statements	Cash	Stock	Cash	Stock

CEO	Kirk Hwang	5,348	5348	0	0	1,871	1,871	0	0	0	0	(2.9)	(2.9)	2,912
President	Chih-Cheng Huang	3,420	3,420	108	108	2,062	2,062	0	0	0	0	(2.3)	(2.3)
CFO	Guu-Fong Lin	2,472	3,010	108	108	1,813	2,090	0	0	0	0	(1.8)	(2.1)
Executive Vice President	Ray Chen	2,208	2,208	108	108	936	936	0	0	0	0	(1.3)	(1.3)
Executive Vice President	Rong-Ming Lin	2,319	2,319	96	96	855	855	0	0	0	0	(1.3)	(1.3)

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

12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen	12/31/2019, Unit: NT$ thousands Title Name Employee Compensation - in Stock (Fair Market Value) Employee Compensation - in Cash Total Ratio of Total Amount to Net Income (%) Executive Officers CEO Kirk Hwang 0 0 0 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 Yung-Shun Chen Accounting Manager Jung-Min Huang Finance Manager David Lin Audit Manager Steven Chen
			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	0	0	0	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	Yung-Shun Chen
	Accounting Manager	Jung-Min Huang
	Finance Manager	David Lin
	Audit Manager	Steven Chen

3.3.5 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(%)
	2019		2018		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	(10.22)	(10.81)	6.59	6.74	(16.81)	(17.55)
President and vice president	(9.68)	(10.01)	5.16	5.16	(14.84)	(15.17)

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 the Company’s Directors: includes travel allowances, surplus earning distribution, and salary as an employee of the Company. Travel allowance standards for Directors are based on industry standards; Directors’ remuneration is based on operating performance and future risks, and is handled in proportion to the Company's Articles of Incorporation.
B. Remuneration of the President and Executive Vice Presidents is paid on a monthly basis: includes a monthly salary, allowances (e.g., additional duty payments and meal expenses), and other regular compensation. The annual bonuses and employee remuneration are paid separately. The salary standards are handled according to the agreement at the beginning of employment, while additional duty payments are determined by the position; performance bonus and other bonuses are based on business performance and personal performance. The information is consolidated each year and sent to the Remuneration Committee for review.
C. Due to the loss in 2019, the remuneration of Directors, the President, and Executive Vice Presidents accounted for changes in the income after tax. If the amount of Director and employee remuneration in the previous year was not included, the actual remuneration paid to Directors, the President, and Executive Vice Presidents in 2019 is approximately equivalent to that in 2018.

3.4 Implementation of Corporate Governance

3.4.1 Board of Directors

In the recent year (2019), the 17th Board of Directors met 2 times and the 18th Board of Directors (appointed on June 21, 2019) met 3 times; the Directors' attendance is as follows:

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

Chairman	Kirk Hwang	YFY Inc. Representative		2	0	100	17th
Director	Felix Ho			2	0	100	17th
Director	Melody Chiu			2	0	100	17th
Director	Chih-Cheng Huang	Lotus Ecoscings & Engineering Co., Ltd Representative		2	0	100	17th
Director	Guu-Fong Lin			2	0	100	17th
Director	Ray Chen			2	0	100	17th
Independent Director	Shi-Kuan Chen			0	0	N/A	17th, 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			2	0	100	17th
Independent Director	Shih-Lai Lu			2	0	100	17th
Chairman	Kirk Hwang		YFY Inc. Representative	3	0	100	18th
Director	S. C. Ho			3	0	100	18th
Director	Felix Ho			3	0	100	18th
Director	Chih-Cheng Huang		Lotus Ecoscings & Engineering Co., Ltd Representative	3	0	100	18th
Director	Guu-Fong Lin			3	0	100	18th
Director	Ray Chen			3	0	100	18th
Independent Director	Donald Chang			3	0	100	18th
Independent Director	Shih-Lai Lu			3	0	100	18th
Independent Director	Yi Lee			3	0	100	18th

Other mentionable items:

If any of the following circumstances have occurred amid operations of the Board of Directors, the date, period, agenda content, the opinions of all Independent Directors, and the handling of the

opinions of the Independent Directors by the Company shall be specified: (1) Matters prescribed under Article 14-3 of the Securities and Exchange Act:

		A11 independent directors’ opinions and the company’s response
Date	Agenda item

March 21, 2019 (17th-term 12th time)	1. Approved the amendment of the Company’s Articles of Incorporation. 2. Approved the amendment of the Asset Acquisition and Disposal Procedure. 3. Approved the amendment of the Procedure for Transactions with Related Parties. 4. Approved the amendment of the Procedure for Processing Derivative Transactions. 5. Approved the amendment of the Procedure for Lending Funds to Other Parties. 6. Approved the amendment of the Procedures of Making of Endorsement and Guarantees. 7. Approved the resolution to elect the 18th Board of Directors and Independent Directors during the 2019 shareholders’ meeting. The Board of Directors shall present the list of candidates for Directors and Independent Directors to the Company. 8. Approved the appointment of Mr. Yi Lee as a member of the RemunerationCommittee.	Independent Directors Donald Chang and Shih-Lai Lu had an interest in the list of candidates for Independent Directors in item 7 and recused themselves from the discussion and voting. The remaining matters were approved by all Independent Directors.
May 14th, 2019 (17th-term 13th time)	1. Approved a resolution to add articles to the internal control system. 2. Approved the establishment of a Corporate Governance Manager.	All matters were approved by all Independent Directors.
June 21th, 2019 (1st special meeting of the 18th Board of Directors)	1. Elected the 18th Chairman. 2. Approved a resolution to appoint the Company’s 2nd-term Audit Committee members. 3. Approved a resolution to appoint the Company’s 4th-term Remuneration Committee members.	Independent Directors Donald Chang, Shih-Lai Lu, and Yi Lee had an interest in the in items 2 and 3 and recused themselves from the discussion and voting. The remaining matters were approved by all Independent Directors.
August 13th, 2019 (18th-term 2nd time)	1. No matters prescribed under Article 14-3 of the Securities and Exchange Act were included in this Board meeting.	Not applicable.
November 13th, 2019 (18th-term 3rd time)	1. No matters prescribed under Article 14-3 of the Securities and Exchange Act were included in this Board meeting.	Not applicable.

(2) Aside from the above matters, other resolutions adopted by the Board of Directors with regard to which an Independent Director had a dissenting or qualified opinion that is on record or stated in a written statement: None.

Any Directors who had to recus from a proposal to prevent conflicts of interest:

In the 17th-term 12th Board meeting on March 21, 2019regarding a proposal to review the list of Director and Independent Director candidates for the 18th-term that was proposed by the Board of Directors to the Company, the Board first reviewed the 6 Director nominees. Nominated candidates Mr. Kirk Huang, Mr. Felix Ho, Mr. Chin-Cheng Huang, Mr. Guu-Fong Lin, and Mr. Ray Chen were representatives appointed by current institutional directors. Because the proposal contained matters in which they were interested parties, they recused themselves from discussing and voting. Independent Director Donald Chang presided over the discussion and voting procedures. For the review of the 3 Independent Director candidates, nominated candidates Mr. Donald Chang and Mr. Shih-Lai Lu were current independent directors. Because the proposal contained matters in which the Independent Directors were interested parties, they explained the content in which they had an interest and recused themselves from discussing and voting on this proposal.

The first interim Board meeting of the 18th-term was conducted on June 21, 2019 to discuss the appointment of members of the Company’s 2nd Audit Committee and 4th Remuneration Committee. A conflict of interest existed for Independent Directors Donald Chang, Shih-Lai Lu, and Yi Lee on this matter; therefore, they recused themselves from discussing and voting on this proposal.

Information about the Board's self (or peer) evaluation:

The Company approved the Board of Directors Performance Assessment Guidelines in the 18th-term, 3rd Board meeting on November 13, 2019. The guidelines will be officially implemented in 2020. The relevant assessment guidelines are explained as follows:

(1) Evaluation cycle: conducted once a year, and at least once every three years by an independent external agency or a team of experts/scholars to perform evaluations.
(2) Evaluation period: assess the full-year performance of the Board of Directors.
(3) Scope of assessment: including performance evaluation of the Board of Directors as a whole, individual Board members, and functional committees.
(4) Assessment method: including internal self-evaluation of the Board of Directors, self-evaluation of members of the Board, peer evaluation, and appointment of external professional institutions, experts, or other appropriate methods.
(5) Assessment content:
A. Board of Directors performance evaluation: including the understanding of and recommendations for Company operations, improving the quality of Board decisions, Board composition and structure, appointment of Directors and their continued development, and internal controls.
B. Board members performance evaluation: including familiarity with the goals and missions of the Company, understanding of Director's responsibilities, understanding of and recommendations for Company operations, internal relationship management and communication, and professional and continuous education of Directors.
C. Functional committee performance evaluation: Including understanding of and recommendations for Company operations, understanding of the roles and responsibilities of

the functional committee, improvement of the quality of committee decisions, composition of the functional committee and the selection of its members, and internal control.

Evaluation of targets and performance of the Board’s functions for current year and past year:
(1) Three Independent Directors form the Company’s Audit Committee in substitution of Supervisors. Matters prescribed under Article 14-5 of the Securities and Exchange Act are submitted to the Audit Committee for discussion and resolution. The convener of the Audit Committee is responsible for reporting resolutions passed by the Audit Committee to the Board of Directors.
(2) The Company discloses information regarding attendance to Board/shareholders’ meetings, Director continuing education, and important resolutions passed during Board meetings and shareholders’ meetings.
(3) To increase information transparency, the Company posts all important resolutions passed during Board/shareholders’ meetings on the Company website immediately following such meetings.
(4) In consideration of legal risks faced by Directors, the Company and its subsidiaries have purchased director liability insurance for all Directors.

3.4.2 Audit Committee

The Company elected three Independent Directors at the shareholders meeting on June 12, 2019 and established an Audit Committee in substitution of Supervisors in accordance with the Securities and Exchange Act. The Committee’s purpose is to verify the fair presentation of the Company’s financial statements; hiring or dismissal of CPAs, their independence and performance; effectiveness regarding implementation of the Company's internal control system; compliance with relevant regulations and rules; and the Company’s control of existing or latent risks.

A total of 2 meetings of the 1st Audit Committee and 2 meetings of the 2nd Audit Committee (appointed on June 21, 2019) were held in 2019. Key focuses for the year are described below:

Review financial reports

The Board of Directors prepared and submitted the 2019 business report, financial statements, and earnings distribution proposal. The financial statements were audited by Deloitte & Touche, and an audit report was submitted. The Company’s Audit Committee reviewed the said business report, financial statements, and the earnings distribution proposal and did not find any instances of noncompliance.

Assess internal control system effectiveness
The Company’s Audit Committee assessed the effectiveness of policies and procedures of the Company’s internal control system (including finance, operations, risk management, information security, legal compliance, and other control measures) and audited the Company’s Auditing Department and CPA, as well as regular reports by managers, including risk management and compliance.
Evaluate the independence and competence of CPAs
The Company’s Audit Committee evaluated and found that the CPAs did not have direct or indirect interest in the Company that would compromise their independence; established a suitable method to communicate with the Company and its Audit Committee; and fulfill the independence and competence requirements of the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies.
Amendment to Article 36-1 of the Securities and Exchange Act, the procedures for handling financial or business activities of a material nature In accordance with the orders of the Financial Supervisory Commission, the Company’s Audit Committee made amendments to the Asset Acquisition and Disposal Procedure, Procedure for Transactions with Related Parties, Procedure for Processing Derivative Transactions, Procedure for Lending Funds to Other Parties, and Procedures of Endorsement and Guarantees.

In 2019, the 1st and 2nd Audit Committee has convened 4 meetings (A), and the records of attendance of the Independent Directors are as follows:

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

Independent Director	Shi-Kuan Chen	0	0	N/A	In the 1st term, the convener resigned since January 10, 2019 due to transferring to the position of President of the Chung-Hua Institution for Economic Research
Independent Director	Yi Lee	2	0	100	In the 2nd term, the new convener was elected on 2019/6/21
Independent Director	Donald Chang	4	0	100	Reelected on 6/21/2019
Independent Director	Shih-Lai Lu	4	0	100	Reelected on 6/21/2019

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 prescribed under Article 14-5 of the Securities and Exchange Act:

		All Independent Directors’ opinions and actions taken by the Company in response to Independent Directors’ opinions
Date	Agenda item

March 19, 2019 (1st-term 11th time)	1. Approved the 2018 business report and financial statements. 2. Approved the Company’s 2018 profit distribution proposal. 3. Approved the2018 Statement of Internal Control System. 4. Approved the amendment of the Company's Asset Acquisition and Disposal Procedure. 5. Approved the amendment of the Company's Procedure for Transactions with Related Parties. 6. Approved the amendment of the Company's Procedure for Processing Derivative Transactions. 7. Approved the amendment of the Company's Procedure for Lending Funds to Other Parties. 8. Approved the amendment of the Company's Procedures of Makingof Endorsement andGuarantees.	Approved by all Independent Directors and in the 2019/3/21 Board meeting. Except for the third proposal which shall be announced according to the regulations, all were approved or ratified by the 2019 shareholders' meeting.
May 9, 2019 (1st-term 12th time)	1. Approved a resolution to add articles to the Company's internal control system.	Approved by all Independent Directors and in the 2019/5/13 Board meeting.
August 8, 2019 (2nd-term 1st time)	There were no proposals related to matters listed under Article 14-5 of the Securities and Exchange Act in this Audit Committee meeting.	Not applicable.
November 8, 2019 (2nd-term 2nd time)	1. Approved the Company’s 2020 audit plan.	Approved by all Independent Directors and in the 2019/11/13 Board meeting.

(2) In addition to matters above, other resolutions which did not receive the approval of the Audit Committee but were approved by more than two thirds of the entire Board of Directors: None.

Any Independent Directors who had to recuse themselves to avoid conflicts of interest: None.
Communication between Independent Directors and Internal Auditing Officer and accountants:
(1) Communication method between Independent Directors and internal auditing officer and accountants:

Communication between Independent Directors and internal auditing officer:

－
1. On a regular basis

Each month, completed audit reports are sent via email to each Audit Committee member. If there are questions or instructions, members can contact the auditing officer via email or the telephone.

Each quarter, the Audit Committee submits an Audit Progress Report that contains audit practices, findings, and improvements for abnormalities of the Company as well as its subsidiaries.

－ 2. On a non-regular basis

Through telephone calls, emails, and meetings, communicate how to increase the Company’s audit value and enhance operational efficiency and effectiveness. If any serious violations are discovered, Audit Committee members must be notified according to regulations.

Communication between Independent Directors and accountants:

－ 1. On a regular basis

At each Audit Committee meeting, the CPA shall attend and describe the audit implementation status and the recommendations, and report on the recent amendments of regulations related to accounting and taxes.

－ 2. On a non-regular basis

If an Independent Director deems it necessary, he/she shall invite the accountants to the Company from time to time to report on or describe projects.

(2) Communication summary of Independent Directors, the Company's chief internal auditor and CPAs:

Date	Participatingmembers	Matters of communication	Communication results
2019.3.19 Audit Committee	Auditing, business management, accounting, and finance managers, and the CPA	1. Audit plan progress report as of 2018 Q4. 2. 2018 statement of internal control system. 3. 2018 business report and financial statements. Independent Directors’ recommendations are as follows: 1. The Company should review the inventory management methods, which will help future inventory management and allow the audit unit to have clearer audit standards. 2. In terms of evaluating the internal control system, in addition to the annual self-evaluation by the manager of the internal unit, it is recommended that an external unit periodically review the different control systems. Moreover, when the audit unit plans the audit items, it can consult with the managers to help find and improveproblems.	1. Approved by all committee members as proposed and submitted to the Board of Directors for reporting or discussion. 2. The company re-examined the relevant measures according to the recommendations of Independent Directors and strengthened inventory management. 3. The auditing officer has made relevant plans in accordance with the recommendations of the Independent Directors.
2019.5.9 Audit Committee	Auditing, business management, accounting, and finance managers, and the CPA	1. Audit plan progress report as of 2019 Q1. 2. 2019 Q1 financial statements.	Approved by all committee members as proposed and submitted to the Board of Directors for reporting or discussion.

Date	Participatingmembers	Matters of communication	Communication results
2019.8.8 Audit Committee	Auditing, business management, accounting, and finance managers, and the CPA	1. Audit plan progress report as of 2019 Q2 2. 2019 Q2 financial statements Independent Directors’ recommendations are as follows: 1. It is recommended that the Company strengthen the management intensity of the reinvestment companies with a higher shareholding percentage, and report during the Board meetings as necessary.	1. Approved by all committee members as proposed and submitted to the Board of Directors for reporting or discussion. 2. The Company has requested relevant important subsidiaries to provide financial statements and other relevant materials every month, and report to management after the relevant departments have gathered and analyzed the materials.
2019.11.8 Audit Committee	CFO's office, auditing, accounting, and finance managers, and the CPA	1. Audit plan progress report as of 2019 Q3. 2. 2019 Q3 financial statements. 3. Audit plan for 2020. Independent Directors’ recommendations are as follows: 1. The Company's inventory turnover days increased compared with the same period last year. It is recommended that in addition to strengthening inventory control, the business side should propose an active sales plan to return inventory to normal levels as soon as possible. 2. Managing the Company is not easy. It is necessary to strengthen the control of operating expenses. The management team must raise awareness of the crisis and formulate a comprehensive improvement and execution plan. 3. When reporting the audit results, the audit unit can use different colors to indicate different levels of risk and list project information. In addition to the items, the audit plan should detail the contents, procedures and methods of the audit items.	1. Approved by all committee members as proposed and submitted to the Board of Directors for reporting or discussion. 2. The Company has formulated relevant sales incentives and strengthened inventory management, which has shown improvement according to the annual financial statements. 3. The management team has asked each factory to propose a cost reduction plan and reviews the plans monthly. 4. The audit unit has handled the Independent Directors’ proposal in the 2020/3/8 Audit Committee meeting.

(3) Delivered to the Independent Directors for review by the end of the next month following the completion of the audit items in accordance with Article 15 of the Regulations Governing Establishment of Internal Control Systems by Public Companies.

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

			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 approved the “Corporate Governance Code” in the 17-term, 11th Board meeting on November 8, 2018 and disclosed it on the Company’s website under the corporate governance section under investors for investors to review.	Compliant
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 tradingwith undisclosed	V V V V		To protect shareholders’ interests, the spokesperson, stock affairs unit, and shareholder service agents are responsible for handling matters related to shareholders. The Company regularly obtains this information through shareholder service agents at any time. The management of personnel, assets, and finances between the Company and its affiliates are clearly regulated and independent, and the Company regularly evaluates operating performance. The Companyhas established the Procedures	Compliant Compliant Compliant Compliant

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

				Listed Companies” and Reasons
information?			for Insider Trading Prevention and periodically emails the procedures to relevant personnel requiringthat theycomplywith the rules.
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 companyestablish a standard to	V V V		The Company established the Corporate Governance Code in the Board meeting on November 8, 2018. At present, the Company’s Board of Directors comprises six representatives of Institutional Directors and three Independent Directors. Members of the Board of Directors include university professors, directors of other listed companies, and senior managers of the Company who excel in professional fields such as management and marketing, financial management, strategic investment, papermaking, and material innovation, research and development. The Company has established a Corporate Sustainability Committee and relevant guidelines on June 16, 2016. The committee is chaired by the Chairman and the President, CFO, and department heads are members of the committee. The Board of Directors approved the Board of	Compliant Compliant Compliant

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

				Listed Companies” and Reasons
measure the performance of the Board and implement it annually, and are performance evaluation results submitted to the Board of Directors and referenced when determining the remuneration of individual directors and nominations for reelection? (4) Does the company regularly evaluate the independence of CPAs?	V		Directors performance assessment guidelines on November 13, 2019. Self-evaluations by Directors are expected to take place this year. The results shall be reported to the Board next year. The independence and competence of the CPA has been evaluated in the Audit Committee meeting on November 8, 2019 and the Board meeting on November 13, 2019 and respective results are reported to the Board of Directors. Main evaluation procedures includes: 1. obtaining the statement of independence issued by the CPA; 2. verifying whether the CPA has direct or indirect interests in the Company or matters that would compromise independence; 3. verifying whether the CPA has not been subject to any other punishment, or involved in situations that compromise professionalism or independence; 4. the same CPA has not participated in the Company’s auditing services for more than seven years; 5. verifying whether the communication channel between the CPA and the management and Audit Committee of the Companyisgood.	Compliant

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

				Listed Companies” and Reasons
4. Does the company appoint a suitable number of competent personnel and a supervisor responsible for corporate governance matters (including but not limited to providing information for directors and supervisors to perform their functions, assisting directors and supervisors with compliance, handling work related to meetings of the board of directors and the shareholders' meetings, and producing minutes of board meetings and shareholders' meetings)?	V		In the Board meeting on May 14, 2019, the Company appointed the CFO, who has more than 3 years of finance and management experience, as the Corporate Governance Manager to help the CFO's office, legal, stock affairs, accounting, auditing, and corporate social responsibility office members to deal with corporate governance matters. These matters include businesses related to Board and shareholders’ meetings, assisting Directors' continuing education, providing Directors with information necessary to perform their duties, legal compliance, and other matters established in the Articles of Incorporation or contracts. The main business activities in 2019 includes matters related to the shareholders’ and Board meetings, and formulating the Board of Directors performance assessment guidelines. The Corporate Governance Manager also completed a total of 18 hours of initial training within the stipulated period, and the information of the training was disclosed on the Company's website.	Compliant
5. Does the company establish a communication channel and build a designated section on its	V		The Company has set up a relevant stakeholders section(www.chp.com.tw/`利害關係人專區`/`利`	Compliant

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

				Listed Companies” and Reasons
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?			`害關係者經營`.htm) on the Company`’`s website, and distinguishes between employees, customers, suppliers, shareholders and investors, and government organizations. Stakeholders are supported by corresponding contact channels and methods to properly respond to related issues.
6. Does the company appoint a professional shareholder service agency to deal with shareholder affairs?	V		The Company has hired SinoPac Securities - Register & Transfer Agency Division to help with affairs related to shareholders' meetings.	Compliant
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)? (3) Does the company announce and report annual financial statements within two months after the	V V V		The Company has set up a corporate website (www.chp.com.tw) and discloses information regarding the Company’s financial, business, and corporate governance status in a timely manner for investor inquiry. The Company has held a total of 4 investor conferences in 2019 and has disclosed the relevant information through press releases or on the Company’s website for investor inquiry. The Company has also set up a website in English to help foreign investors understand the information. The Company announces and declares the annual financial report within three months	Compliant Compliant Roughly compliant

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

				Listed Companies” and Reasons
end of each fiscal year, and announce and report Q1, Q2, and Q3 financial statements, as well as monthly operation results, before the prescribed time limit?			after the end of the fiscal year, and announces and declares the first, second, and third quarter financial reports and operating status of each month within the prescribed deadline.
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 established the Corporate Governance Code in the Board meeting on November 8, 2018. 2. The Company formulates working rules for employees and employees ’rights and interests in favor of the employees in accordance with the Labor Standards Act, and established the Employee Welfare Committee to allocate employee benefits and hold regular labor-management meetings on a monthly basis, as well as organize occupational training and recreational activities periodically. 3. Investors can communicate with us through shareholder service agents or spokespersons. The Company has also set up an investor relations mailbox to maintain a smooth communication channel. Suppliers and handling units can also maintain good communication between each other. 4. The Companyhaspurchased liability	Compliant

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

				Listed Companies” and Reasons
			insurance for the Directors and key personnel of the Company and its subsidiaries for 2019, and has reported such at the Board meeting on August 13, 2019. Periodic training information such as the stock exchange, the SFI and the Corporate Governance Association is provided for Directors to use as training reference, and laws and regulations relevant to the Directors are issued to each Director. When there are changes in the laws and regulations, the Directors will be notified immediately, and the updates will be explained to the Directors during the Board meetings. 5. The Company requires all suppliers to sign the Honesty and Integrity Declaration, which guarantees their commitment when dealing with relevant Company personnel to fulfill their obligations of honesty, integrity, environmental protection, and employment. 6. The Company has set up a stakeholder section on the official website to provide relevant contact information for stakeholders to use for providing feedback and filing complaints.

	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
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 Has the Company disclosed the discussion of the Remuneration Committee and the resolutions, and the Company's processing of the member's opinions? The Company has disclosed the relevant information in the 2018 annual report. Has the Company established a dedicated department (concurrent) unit for promoting business integrity and is responsible for formulating and supervising the implementation of integrity management policies and prevention plans? Has the Company disclosed the operations and implementation status of the dedicated unit on its annual report and Company website, and makes regular reports to the Board of Directors? The Company has established the relevant rules. In 2019, in accordance with the Company's Ethical Corporate Management Guidelines, the status of the annual business integrity practices was reported at the 18th-term, third Board meeting on November 13, 2019.

Directors’ training records:

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

Chairman	Kirk Hwang	2019/06/21	2019/08/02	Taiwan Corporate Governance Association	The Reforms and Prospects for Corporations under the Amendments of the CompanyAct	3.0	9.0
			2019/04/26	Securities & Futures Institute	2019 Annual Promotional Conference on Prevention of Insider Trading	3.0
			2019/01/23	Taiwan Institute of Directors	2019 Foreign Investment Forum: Attract Good Foreign Capital x Invest in Good Taiwanese Companies	3.0
Director	S. C. Ho	2019/06/21	2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policy on Groups and Countermeasures	3.0	6.0
			2019/11/08	Taiwan Corporate Governance Association	Trends and Challenges in Information Security Governance	3.0
Director	Felix Ho	2019/06/21	2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policy on Groups and Countermeasures	3.0	6.0
			2019/11/08	Taiwan Corporate Governance Association	Trends and Challenges in Information Security Governance	3.0
Director	Chih-Cheng Huang	2019/06/21	2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policyon Groups and	3.0	6.0

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

					Countermeasures
			2019/05/15	TWSE	Forum on Promoting Climate-Related Financial Disclosures(TCFD)	3.0
Director	Guu-Fong Lin	2019/06/21	2019/11/12	Securities & Futures Institute	Key 5G Technologies and Application Opportunities	3.0	9.0
			2019/10/29	Taiwan Corporate Governance Association	The Criminal Legal Risks and Countermeasures of Enterprise Directors and Supervisors - Enterprise Fraud and Money Laundering Prevention	3.0
			2019/10/09	Securities & Futures Institute	Discussion of Employee Bonus and Remuneration Strategy and Application of Tools	3.0
Director	Ray Chen	2019/06/21	2019/11/21	TWSE	Promotional Conference on Effective Utilization of Directors' Functions	3.0	8.0
			2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policy on Groups and Countermeasures	3.0
			2019/07/24	Taiwan Institute for Sustainable Energy	The 17th CEO Lectures and Talks	2.0
Independent Director	Donald Chang	2019/06/21	2019/02/22	Taiwan Corporate Governance Association	Seminar on Moving Towards Corporate Sustainability and Increasing CompanyLong-Term Value	3.0	6.0
			2019/01/23	Taiwan Institute of Directors	2019 Foreign Investment Forum: Attract Good Foreign Capital x Invest in Good Taiwanese Companies	3.0

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

Independent Director	Shih-Lai Lu	2019/06/21	2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policy on Groups and Countermeasures	3.0	8.0
			2019/11/06	TWSE	Promotional Conference on Effective Utilization of Directors' Functions	3.0
			2019/10/31	Taiwan Institute for Sustainable Energy	The 18th CEO Lectures and Talks	2.0
Independent Director	Yi Lee	2019/06/21	2019/12/13	Securities & Futures Institute	2019 Annual Seminar on Derivative Commodities Hedging of TWSE/TPEx Companies	3.0	13.0
			2019/11/08	Taiwan Corporate Governance Association	The Impact of Economic Substance, the Return of Capital, and the New Southbound Policy on Groups and Countermeasures	3.0
			2019/10/31	Taiwan Institute for Sustainable Energy	The 18th CEO Lectures and Talks	2.0
			2019/10/25	Securities & Futures Institute	2019 Annual Promotional Conference on Prevention of Insider Trading	3.0
			2019/10/04	TWSE	ESG Investment Forum	2.0

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	Meets One of the Following Professional	Meets One of the Following Professional
		Qualification Requirements, Together with at Least			Independence Criteria (Note)
															Number of
		Five Years’ Work Experience
															Other
		An instructor or	A judge, public	Has work
	Criteria														Public
		higher position	prosecutor,	experience
															Companie
		in a department	attorney, Certified	in the
															s in Which
		of commerce,	Public Accountant,	areas of
															the
		law, finance,	or other	commerce,
															Individual
		accounting, or	professional or	law,											is
Title		other academic	technical specialist	finance, or												Remarks
		department	who has passed a	accounting											Concurren
		related to the	national	, or	1	2	3	4	5	6	7	8	9	10	tly
															Serving as
		business needs	examination and	otherwise
															an
		of the Company	been awarded a	necessary
															Remunerat
		in a public or	certificate in a	for the
															ion
		private junior	profession	business of
	Name														Committe
		college, college	necessary for the	the
															e Member
		or university	business of the	Company

			Company
Independent Director	Donald Chang			V	V	V	V	V	V	V	V	V	V	V	0
Independent Director	Shih-Lai Lu	V		V	V	V	V	V	V	V	V	V	V	V	0
Independent Director	Yi Lee			V	V	V	V	V	V	V	V	V	V	V	0	Appointment by the Board of Directors on 3/21/2019
Independent Director	Shi-Kuan Chen	V		V	V	V	V	V	V	V	V	V	V	V	1	Resigned on 1/10/2019

Note:

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 apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
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 of one percent or more of the total number of issued 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 a managerial officer under subparagraph 1 or any of the persons in the preceding two subparagraphs.
Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company, or that ranks among the top five in shareholdings, or that designates its representative to serve as a director or supervisor of the company

under Article 27, paragraph 1 or 2 of the Company Act. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.

If a majority of the company's director seats or voting shares and those of any other company are controlled by the same person: not a director, supervisor, or employee of that other company. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
If the chairperson, general manager, or person holding an equivalent position of the company and a person in any of those positions at another company or institution are the same person or are spouses: not a director (or governor), supervisor, or employee of that other company or institution. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent.
Not a director, supervisor, officer, or shareholder holding five percent or more of the shares, of a specified company or institution that has a financial or business relationship with the company. Not apply to independent directors appointed in accordance with the Act or the laws and regulations of the local country by, and concurrently serving as such at, a public company and its parent or subsidiary or a subsidiary of the same parent, if the specified company or institution holds 20 percent or more and no more than 50 percent of the total number of issued shares of the public company.
Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides auditing services to the company or any affiliate of the company, or that provides commercial, legal, financial, accounting or related services to the company or any affiliate of the company for which the provider in the past 2 years has received cumulative compensation exceeding NT$500,000, or a spouse thereof; provided, this restriction does not apply to a member of the remuneration committee, public tender offer review committee, or special committee for merger/consolidation and acquisition, who exercises powers pursuant to the Act or to the Business Mergers and Acquisitions Act or related laws or regulations.
Not been a person of any conditions defined in Article 30 of the Company Law.

B. Attendance of Members at Remuneration Committee Meetings

(1) The Company’s Remuneration Committee is comprised of three persons.
(2) Term of the current members: June 21, 2019 to June 20, 2022; in the most recent year (2019), the Remuneration Committee (A) has convened 2 meetings, and the qualifications and records of attendance of committee members are listed below:

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

Convener	Donald Chang	2	0	100	Reelection , as a convener on 1/10/2019
	Shi-Kuan Chen	0	0	Not applicable	Due to accepted the public office, resigned on 1/10/ 2019.
Committee Member	Shih-Lai Lu	2	0	100	Reelection
Committee Member	Yi Lee	1	0	100	New appointment by the Board of Directors on 3/21/2019
Other mentionable items: None

(3) Functions of the Company's Remuneration Committee

The purpose of the Company’s Remuneration Committee is to professionally and objectively evaluate the salary and compensation policy of the Company's Directors and Managers. The committee should meet at least twice a year and convene as necessary, and provide its recommendation to the Board of Directors for reference in decision-making.

Responsibilities of the Company's Remuneration Committee:

I. Stipulate and review regularly the compensation policies, systems, standards and structures, and performance of the Company's Directors and Managers.
II. Regularly review Directors' and Managers' remuneration.

The Company's Remuneration Committee shall perform the abovementioned duties based on the following principles:

I. Performance appraisal and remuneration of Directors and Managers shall be based on the levels of industry peers, as well as their individual achievements, the Company's overall performance, and the level of risks involved.
II. The remuneration plan should not entice Directors and Managers into seeking high returns by taking undue risks.
III. Short-term performance bonuses to Directors and Senior Managers and the timing of variable salary payments/remunerations shall be set in reference to the particular industry characteristics and the Company's business nature.

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

			Actions taken by the Company in response
Date	Main issues	Results of resolution
			to the opinion of the committee members

March 19, 2019 (3rd-term 6th time)	1. 2018 Director remuneration distribution 2. 2018 employee remuneration distribution 3. Report on list of Managers after HR adjustment 4. Implementation of the succession plan	Approved by all the present committee members, and the resolution was submitted to the Board of Directors and presented to the shareholders' meeting. Approved by all the present committee members, and the resolution was submitted to the Board of Directors and presented to the shareholders' meeting. Understood. Understood, please regularly report on the implementation results.	Submitted to the Board of Directors on March 21, 2019 and presented to the shareholders' meeting on June 21, 2019. Submitted to the Board of Directors on March 21, 2019 and presented to the shareholders' meeting on June 21, 2019. Since the Factory Director of the Jiutang mill retired on January 10, 2019, the transfer of Managers has taken effect on that day. The progress of the implementation was presented at the 2nd meeting of the 4th Remuneration Committee on March 18, 2020.
November 8, 2019 (4th-term 1st time)	1. Report on the adjustment to the year-end bonus measures 2. Report on the annual adjustment of employee remuneration 3. 2018 remuneration status report of main Managers	Understood. Understood. Understood. Recommendations: 1. When Managers are promoted, the Remuneration Committee shall be notified. 2. The remuneration of Managers is recommended to be 50th in the market to maintain competitiveness. 3. Regardless of whether the market or the business is good or bad, colleagues with good performance must still be encouraged, and colleagues with poor performance must be disciplined.	The new measures will be implemented when the 2019 year-end bonus is issued in early 2020. The annual adjustment of employee remuneration took effect in November 2019. There are no changes in Manager promotions in the near future, but in the future, it will be implemented based on the member recommendations.

3.4.5 Fulfillment of CSR and Deviations from the "Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies"

				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. Does the company assess ESG risks associated with its operations based on the principle of materiality, and establish related risk management policies or strategies?		V	In 2018, the Company adopted the Sustainability and Social Responsibility Guidelines approved by the Board of Directors in accordance with the Company's operating environment, but the relevant risk management policies and strategies are still under discussion.	Roughly compliant
2. 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 reporting to the board?	V		The company has set up a CSR office with two dedicated staff who are responsible for promoting the Company's corporate social responsibility and regularly report the promotion status to the Chairman, and report to the Board of Directors periodically depending on the progress.	Compliant

				Deviations from “the
			Implementation Status
				Corporate Social

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

				Reasons
3. Environmental issues (1) Does the company establish proper environmental management systems based on the characteristics of their industries? (2) Does the company endeavor to utilize all resources more efficiently and use renewable materials which have low impact on the environment? (3) Does the company evaluate the potential risks and opportunities in climate change with regard to the present and future of its business, and take appropriate action to counter climate change issues? (4) Does the company take	V V V V		All production units of the Company have obtained ISO14001 and FSC certifications, and each mill is equipped with dedicated personnel to confirm that the environmental management system is operating effectively. The Company invests a considerable amount of capital expenditure every year to improve production equipment to improve production efficiency and reduce petrochemical materials and waste output. Moreover, the Company uses raw materials in compliance with forest certification standards and continues to enhance waste recycling technology to reduce the impact on the environment. This year, the Company was certified for excellence for green purchasing by both the Environmental Protection Administration and the Department of Environmental Protection, Taipei City Government. The Company incorporates climate change and global sustainable development trends into risk management. For national climate policies, independent review of energy statistics, and compliance measures to comply with laws and regulations, the Company has carried out corresponding equipment renovation and planned the environmental strategy and evaluation mechanism. To mitigate the impact of climate change and fulfill our social responsibility, the	Compliant Compliant Compliant Compliant

				Deviations from “the
			Implementation Status
				Corporate Social

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

				Reasons
inventory of its greenhouse gas emissions, water consumption, and total weight of waste in the last two years, and implement policies on energy efficiency and carbon dioxide reduction, greenhouse gas reduction, water reduction, or waste management?			Company spares no effort in promoting energy conservation and carbon reduction. In addition to obtaining ISO50001 certification for energy management systems, each mill must also implement GHG inventories and energy conservation measures. 1.Greenhouse gas (GHG) inventory: In response to climate change and global greenhouse gas management trends, and to fully grasp relevant issues associated with the Company's business risks and opportunities, the Company continues to pay attention to international trends on the disclosure of carbon emissions as well as domestic regulations and requirements. At the same time, we request all corresponding units to complete GHG inventories voluntarily and register their results on the national greenhouse gas tracking platform. 2.Energy conservation and carbon reduction: The Company promotes the integration and reuse of resources within each mill. Conduct mutual inspections of each mill every quarter and continue the promotion of energy saving projects among mills and offices, which include shifting to LED lights, high-efficiency motors, etc. At the same time, technological exchange meetings are held to introduce energy saving related technologies and improve each mill’s energy efficiency. We aim to move forward in the direction of energy conservation and environmental protection. We also established an energy reduction goal of 1% annually and 5% in five years, which were effectivelyachieved in 2015-2018.
4. Social issues (1) Does the company formulate appropriate management policies and procedures accordingto	V		The Company has signed the Universal Declaration of Human Rights and Global Compact, and has established management policies and procedures in accordance with relevant regulations and the International Bill of Human Rights.	Compliant

				Deviations from “the
			Implementation Status
				Corporate Social

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

				Reasons
relevant regulations and the International Bill of Human Rights?
(2) Does the company have reasonable employee benefit measures (including salaries, leave, and other benefits), and do business performance or results reflect on employee salaries? (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 provide its employees with career development and trainingsessions?	V V V		The Company clearly stipulates the standard of employee remuneration in the Articles of Incorporation. If the Company sustains profit every year, 1% or more of the profit shall be set aside as employee remuneration. The Company has a dedicated safety and health management personnel in place responsible for the development of occupational safety and health management plans to promote work environment and operational safety identification. All employees must undertake at least three hours of safety and health training every three years. All mills in Taiwan are OHSAS18001 certified. Every year, each unit of the Company prepares the personnel training budget. The HR administration and management unit evaluates and plans the skills the personnel should have and conducts relevant education and training to enhance the employees’ career skills.	Compliant Compliant Compliant

				Deviations from “the
			Implementation Status
				Corporate Social

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

				Reasons
(5)Do the company's products and services comply with relevant laws and international standards in relation to customer health and safety, customer privacy, and marketing and labeling of products and services, and are relevant consumer protection and grievance procedure policies implemented? (6) Does the company implement supplier management policies, requiring suppliers to observe relevant regulations on environmental protection, occupational health and safety, or labor and human rights? If so, describe the results.	V V		The Company operates in accordance with the laws and regulations of the locations of the mills, and the marketing and labeling of the Company's products and services comply with relevant laws and international standards, such as FSC, PEFC, ISO, etc. Since 2013, the Company has requested all new suppliers and contractors to sign an Honesty and Integrity Declaration. It comprises the commitments and concrete actions with regard each supplier’s corporate social responsibility, including compliance with the principles of honesty, trustworthiness and integrity, environmental and labor laws, as well as liabilities in case of a breach of contract. When the Company signs a contract with the supplier, declarations have been made with respect to environmental protection and labor legal compliance as well as the liability for damages sustained. We request that all contractors commit to their corporate social responsibility. In the event of a violation, the Company has the right to terminate and void the contract.	Compliant Compliant
5. Does the company reference internationally	V		The Company commissioned a third party, British Standards Institution (BSI), to verifythe 2018 Corporate Social ResponsibilityReport accordingto AA1000AS	Compliant

				Deviations from “the
	Implementation Status
				Corporate Social

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

				Reasons
accepted reporting standards or guidelines, and prepare reports that disclose non-financial information of the company, such as corporate social responsibility reports? Do the reports above obtain assurance from a third partyverification unit?			(2008) and its 2018 Addendum and GRI Standards. The report is verified to be in compliance with AA1000 Type 1 moderate-level assurance and the Core Option Criteria for the GRI Standards.
6. Describe the difference, if any, between actual practice and the corporate social responsibility principles, if the company has implemented such principles based on the Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies: The Audit Committee and Board of Directors approved the establishment of the Company’s Sustainability and Social Responsibility Guidelines on November 6 and November 8, 2018 respectively. There are no major differences between the review and improvement of the planning, operation, or implementation of relevant strategies and systems by the current responsible unit, the Sustainable Development Committee, established by the Company and the Company's Sustainabilityand Social ResponsibilityGuidelines.
7. Other useful information for explaining the status of corporate social responsibility practices: (I) Set up an environmental protection plan group to be responsible for implementing various response measures, and take the initiative to communicate and coordinate with the environmental stakeholders such as the public and community residents to form a consensus. (II) Actively contact various local environmental protection administrations, township (district) offices, representatives' associations, environmental protection groups, agencies, and schools to carry out various cooperation projects and coexist with the community. (III) Achievements: Governance performance * The Company has actively enhanced the disclosure of corporate governance information and strengthened the importance and investment in maintaining sustainable development, friendly environments, and social welfare, and won the TCSA - TOP50 Taiwan Corporate Sustainability Award. The Company coordinated with downstream clients, paper machine plants, and paper recycling plants for the recycling system, which won the TCSA - Growth through Innovation Award.

Deviations from “the
Implementation Status Corporate Social
Responsibility Best-Practice
Evaluation Item Yes No Abstract Explanation Principles for TWSE/TPEx Listed Companies” and Reasons
- In 2017, the Company added new declaration documents in line with international sustainable management trends, including the Green Purchasing Declaration, Wood Chips and Pulp Procurement Declaration, Human Rights Declaration, and Support for the United Nations Convention to enhance the supply chain management needs of the Company and customers and fulfill our corporate social responsibility.
- Officially approved by the Board of Directors: Corporate Governance Code, Ethical Corporate Management Guidelines, Sustainability and Social Responsibility Guidelines
Environmental protection * The Jiutang mill has been awarded for excellence for green purchasing by the Environmental Protection Administration. In addition to the strict and rigorous work on environmental protection, the mill also participates in various activities and certifications to promote environmental protection. For example: ISO, FSC, and GHG inventory.
- The Hualien mill has been awarded as an excellent adoption unit in the Air Quality Purification Zone of the Environmental Protection Administration for three consecutive years.
- The Taitung mill is committed to reusing process waste and improving process efficiency. At the end of 2018, it was awarded the Star Award in the Waste Resource Circular Economy Evaluation, practicing the paper industry ’s circular economy concept.
Social welfare The Company has long paid attention to and implemented the promotion of popular science education in rural areas. In particular, we hope that through the power of the enterprise, the children of Huadong can have excellent science education resources. In addition, we also sponsored Hualien cyclists to support outstanding local youths to win glory for the country. * Yuan T. Lee Science Competition The Company has sponsored the Yuan T. Lee Science Competition for many years in a row. The competition lets senior and vocational high school students work on creative topics, where they can learn from difficult knowledge in the textbook by finding answers in real life. * Tamkang University, Center for Science Education - chemical courses and events The Company continued to cooperate with the Center for Science Education of Tamkang University this year to bring popular science education and chemistry experiments to six rural schools in Hualien and Taitung through employee participation. * Taitung Seashore After-School Program In addition to long-term donation of books to local primary and secondary schools, the Taitung mill has been participating in the reading program for 20 children in the home support center in the Guanshan area for five consecutive years. At present, the reading hours have exceeded 300 hours, accumulating

				Deviations from “the
	Implementation Status
				Corporate Social

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

				Reasons
long-term and stable partnership between volunteers and school children. * Promoting coding education CHP started cooperating with Coding Nations in 2019 to promote basic programming education in Huadong. The Taitung mill adopted six primary schools in the surroundings, conducted basic programming courses twice a week, and exclusively sponsored the Hualian County 2019 CHP Public Welfare Cup Scratch Interscholastic Competition, letting Scratch masters of the eight primary schools in Hualien demonstrate their learning achievements while learning from each other. CHP hopes that through thepower of the enterprise,children in rural areas can also have the abilityto stayahead in the AI era.

3.4.6 Fulfillment of Ethical Corporate Management and Deviations from the "Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies"

			Implementation Status	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 have a Board-approved ethical corporate management policy and stated in its regulations and external correspondence the ethical corporate management policy and practices, as well as the active commitment of the Board of Directors and management towards enforcement of such policy? (2) Does the company have mechanisms in place to assess the risk of unethical conduct, and perform regular analysis and assessment of business activities with higher risk of unethical conduct within the scope of business? Does the company implement programs to prevent unethical conduct based on the above and ensure the programs cover at least the matters described in Paragraph 2, Article 7 of the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies? (3) Does the company provide clearlythe operating	V V	V	Through the approval of the Board on November 8, 2019, the Company has established the Ethical Corporate Management Guidelines to actively prevent dishonest behavior and conflicts of interest, establish whistleblowing channels, and regulate the conduct of relevant personnel. The Company complies with the relevant laws and regulations, and will establish an evaluation mechanism and measures in the future to take appropriate response measures. The Company established the Ethical Corporate Management Operating Procedures and Code of Conduct in accordance with the Ethical Corporate Management Guidelines to clearly define disciplinary actions and complaint systems. The Company reviews and revises the actions and systems in a timely manner. The Companyhas alreadyestablished the Ethical	Compliant Changes are made gradually Compliant

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

				Listed Companies” and
				Reasons
procedures, code of conduct, disciplinary actions, and appeal procedures in the programs against unethical conduct? Does the company enforce the programs above effectively and perform regular reviews and amendments?			Corporate Management Operating Procedures and Code of Conduct and our prevention methods against dishonest behaviors are listed below: 1. Prevention of dishonest behavior and the prohibition of bribery acceptance: Detailed information about disciplinary actions and the reporting system are listed in Chapter Four: “Service Regulations” of the Work Rules. 2. Protection of intellectual property rights: Achieved by requiring employees to sign the Integrity and Confidentiality of Intellectual Property Agreement as well as the employment contract. 3. Employee Code of Conduct: Established to implement the Company’s core values, maintain high ethical standards, provide employees with standard compliance requirements when performing their daily duties and tasks, protect the Company’s reputation, and earn the respect and trust of our clients,vendors,and other individuals.
2. Fulfill operations integrity policy (1) Does the company evaluate business partners’ ethical records and include ethics-related clauses in business contracts?	V		In the credit evaluation process of business partners, we assess integrity of their records. Likewise, we clearly specify in the procurement contract as well as the Honesty and Integrity Declaration that absolutely no briberyor dishonest behavior are allowed.	Compliant

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

				Listed Companies” and
				Reasons
(2) Does the company have a unit responsible for ethical corporate management on a full-time basis under the Board of Directors which reports the ethical corporate management policy and programs against unethical conduct regularly (at least once a year) to the Board of Directors while overseeing such operations? (3) Does the company establish policies to prevent conflicts of interest and provide appropriate communication channels, and implement it? (4) Does the company have effective accounting and internal control systems in place to implement ethical corporate management? Does the internal audit unit follow the results of unethical conduct risk assessments and devise audit plans to audit the systems accordingly to prevent unethical conduct, or hire outside accountants to perform the audits? (5) Does the company regularly hold internal and external educational trainings on operational integrity?	V V V V		The Company set up an Integrity Management Team in accordance with the Ethical Corporate Management Guidelines, and presented a report of the status at the third meeting of the 18th Board of Directors on November 13, 2019. The report was included in the audit reports and submitted to the Board of Directors. The Company has established the Ethical Corporate Management Operating Procedures and Code of Conduct, which have regulations for Directors, Managers, Supervisors, and employees to avoid conflicts of interest. Anyone who may have a conflict of interest must recuse themselves. The Company's current accounting and internal control system implements a separation of powers and responsibilities to prevent personnel from having an opportunity for dishonesty. Internal auditors include staff integrity as a reference basis for relevant audits. The Company regularly arranges relevant internal and external education and training courses to promote ethical corporate management.	Compliant Compliant Compliant
3. Operation of the integrity channel (1) Does the company establish both a reward/punishment system and an integrityhotline?	V		There are many open reporting channels. The Company established a Personnel Evaluation	Compliant

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

				Listed Companies” and
				Reasons
Can the accused be reached by an appropriate person for follow-up? (2) Does the company have in place standard operating procedures for investigating accusation cases, as well as follow-up actions and relevant post-investigation confidentiality measures? (3) Does the company provide proper whistleblower protection?	V V		Committee to investigate the reports and implement disciplinary actions. The Company also set up the Employee Code of Conduct as a standard for personnel to follow, and has reporting channels and dedicated staff for employees to report illegal acts. After the report is processed, a record is made and the relevant unit will conduct an investigation and report the results to the responsible manager. After investigating and confirming that the specific behaviors violate the integrity regulations, the Company will severely discipline dishonest behaviors in accordance with the Employee Rewards and Disciplinary Actions, and record the situation as a serious offense at minimum or terminate the labor contract. The Company will keep confidential the employees or personnel who report violations or participate in the investigation process. Those who know the identity or content of the whistleblower due to their duties or business shall not disclose the information. The Company promises not to treat the whistleblower improperlydue to the whistleblowing.	Compliant Compliant
4. Strengthening information disclosure Does the company disclose its ethical corporate management policies and the results of its implementation on the company’s website and	V		The Company has disclosed the Ethical Corporate Management Guidelines on the Company's website (www.chp.com.tw)and the Market Observation Post	Compliant

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

				Listed Companies” and
				Reasons
MOPS?			System. The relevant promotion situation and effectiveness will be gradually disclosed according to thepromotion schedule.
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 Board of Directors approved the establishment of the Company’s Ethical Corporate Management Guidelines on November 6 and November 8, 2018 respectively. At present, the Company's practices in integrity are in compliance with the Ethical Corporate Management Guidelines. There is no significant discrepancy in the implementation of the guidelines. However, the revision of the Company’s guidelines is still under discussion due to the revision of the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies in 2019.
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 all suppliers and third parties to sign the Honesty and Integrity Declaration to guarantee their commitment to fulfill their obligations of conducting honest business operations. (b) The Board of Directors approved the Employee Code of Conduct in 2016 to implement the Company’s core values, maintain high ethical standards, provide employees with standard compliance requirements when performing their daily duties and tasks, protect the Company’s reputation, and earn the respect and trust of our clients, vendors, and other individuals. (c) In 2017, the Board of Directors approved the Procedures for Insider Trading Prevention, which is followed by Directors and other insiders when trading stocks and is included in the internal control system. Auditors regularly understand the status of compliance to implement the management of insider trading. (d) In 2018, the Board of Directors approved the Ethical Corporate Management Guidelines as a basic policy for all employees of the Company and its subsidiaries to maintain the corporate culture and develop comprehensive integrity management. (e) The new version of the Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed Companies was completed on May 23, 2019. The Companyhas been discussingthe revised content to make the relevant amendments.

3.4.7 Corporate Governance Guidelines and Regulations

The Company has established the Corporate Governance Code, Sustainability and Social Responsibility Guidelines, and Ethical Corporate Management Guidelines. Please review them on the Company’s website (www.chp.com.tw) by following this path: Home > Investors > Corporate Governance > Internal Regulations.

3.4.8 Other Important Information Regarding Corporate Governance

A. Deliver laws and regulations relevant to Directors to the Directors for reference.
B. Disclose important information in a timely manner and hold regular investor conferences to announce the results of operations, and disclose the relevant information on the Company's website (www.chp.com.tw) as well as the Market Observation Post System.
C. Since 2015, the Company started preparing corporate social responsibility reports and disclosed them on the Company's website and the Market Observation Post System.

3.4.9 Internal Control Systems

A. .Internal Control Statement

Chung Hwa Pulp Corporation

Statement of Internal Control System

Date ： March 23 2020

Based on the findings of a self-assessment, CHP states the following with regard to its internal control system during the year 2019 ：
CHP's Board of Directors and Management are responsible for establishing, implementing, and maintaining an adequate internal control system. Our internal control is a process designed to provide reasonable assurance over the effectiveness and efficiency of our operations (including profitability, performance, and safeguarding of assets), reliability of our financial reporting, and compliance with applicable laws and regulations.
An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing its stated objectives. Moreover, the effectiveness of an internal control system may be subject to changes due to extenuating circumstances beyond our control. Nevertheless, our internal control system contains

self-monitoring mechanisms, and YFY takes immediate remedial actions in response to any identified deficiencies.

CHP evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The criteria adopted by the Regulations identify five key components of managerial internal control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring.
CHP has evaluated the design and operating effectiveness of its internal control system according to the aforesaid Regulations.
Based on the findings of such evaluation, CHP believes that on December 31, 2019, 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 23, 2020, where all of the nine attending directors express dissenting opinion and affirmed the content of this Statement.
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. Important resolutions of the 2019 Shareholders’ Meeting (June/21/2019) (abstract):

(1).Approved the acknowledgment of the Company’s 2018 financial statements
(2).Approved the acknowledgment of the Company’s 2018 earnings distribution proposal
Implementation status: The Company approved July 26, 2019 as the ex-dividend date (NT$0.35 per share cash dividends) in the shareholders' meeting and completed the payment of the cash dividends on August 22, 2019.
(3).Approved the amendment of the Company's Articles of Incorporation.
(4).Approved the amendment of the Company's Asset Acquisition and Disposal Procedure.
(5).Approved the amendment of the Company's Procedure for Transactions with Related Parties.
(6).Approved the amendment of the Company's Procedure for Processing Derivative Transactions.
(7).Approved the amendment of the Company's Procedure for Lending Funds to Other Parties.
(8).Approved the amendment of the Company's Procedures of Making of Endorsement and Guarantees.
Implementation status: After the resolution of the shareholders’ meeting, the Company will handle the matters (3) to (8) according to the resolutions of the shareholders' meeting.
(9).Elected the 18th Board of Directors (6 in total) and Independent Directors (3 in total).
(10).Approved the removal of the non-compete clause for the Company’s new Directors and the institutional entities they represent.
Implementation status: For matters (9) and (10), the Company has formed the 18th Board of Directors in accordance with the election results of the shareholders’ meeting and registered the change of directors on September 5, 2019. In accordance with the resolution of the shareholders’ meeting, the Company has removed the non-compete clause for the Company’s new Directors and the institutional entities they represent.

B. Major Resolutions of Board Meetings

Summary of Major Resolutions of the 12th Board Meeting of the 17th

Board of Directors on March 21, 2019 (abstract):

(1). Approved the 2018 financial statements.
(2). Approved the 2018 earnings distribution proposal.
(3). Approved the 2018 remuneration to the employees and Directors.
(4). Approved the 2018 Statement of Internal Control System.
(5). Approved the amendments to the Company’s Articles of Incorporation and submitted them to the shareholders’ meeting for discussion.
(6). Approved the amendments to the Company’s Asset Acquisition and Disposal Procedure and submitted them to the shareholders’ meeting for discussion.
(7). Approved the amendments to the Company's Procedure for Transactions with Related Parties and submitted them to the shareholders’ meeting for discussion.
(8). Approved the amendments to the Company's Procedure for Processing Derivative Transactions and submitted them to the shareholders’ meeting for discussion.
(9). Approved the amendments to the Company’s Procedure for Lending Funds to Other Parties and submitted them to the shareholders’ meeting for discussion.
(10). Approved the amendments to the Company's Procedures of Making of Endorsement and Guarantees and submitted them to the shareholders’ meeting for discussion.
(11). Approved the resolution to elect the 18th Board of Directors and Independent Directors during the 2019 shareholders’ meeting.
(12). Approved the submission of the list of Director and Independent Director candidates to the shareholders' meeting.
(13). Approved the proposal to the shareholders’ meeting to remove the non-competition restriction for the new Directors and the institutional entities they represent.
(14). Approved the location and other relevant matters regarding the 2019 shareholders’ meeting.
(15). Approved the interbank lending credit line application.
(16). Approved the Company to be the joint promissory note maker of subsidiaries’ interbank lending credit line applications.
(17). Approved the total amount of guarantees for endorsements for external parties 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 Remuneration Committee.

Summary of Major Resolutions of the 13th meeting of the 17th Board of Directors on May 14, 2019 (abstract):

(1). Approved a resolution to add articles to the Company's internal control system.
(2). Approved the interbank lending credit line application.
(3). Approved the Company to be the joint promissory note maker of subsidiaries’ interbank lending credit line applications.
(4). Approved the acknowledgment of the total amount of guarantees for endorsements for external parties by the Company and its subsidiaries as if the first quarter of 2019.
(5). Approved the establishment of a Corporate Governance Manager.
(6). Approved the establishment of the Company policy Standard Procedures for Handling Directors' Requests.

Summary of Major Resolutions of the 1st (interim) meeting of the 18th Board of Directors on June 21, 2019:

(1). Elected the 18th Chairman.
(2). Approved a resolution to appoint the second group of Audit Committee members.
(3). Approved a resolution to appoint the fourth group of Remuneration Committee members.

Summary of Major Resolutions of the 2nd meeting of the 18th Board of

Directors on August 13, 2019 (abstract):

(1). Approved the amendments to the Rules and Procedures for Board of Directors Meetings.
(2). Approved the amendments to the Audit Committee Organizational Rules.
(3). Approved the interbank lending credit line application.
(4). Approved the total amount of guarantees for endorsements for external parties by the Company and its subsidiaries as of the second quarter of 2019.

Summary of Major Resolutions of the 3rd meeting of the 18th Board of Directors on November 13, 2019 (abstract):

(1). Approved the 2020 operating budget.

(2). Approved the 2020 audit plan.

(3). Approved the establishment of the Company's Board of Directors Performance Evaluation Guidelines.
(4). Approved the establishment of the Company’s Ethical Corporate Management Guidelines.
(5). Approved the organization of the 5-year syndicated loan.
(6). Approved the interbank lending credit line application.
(7). Approved the Company to be the joint promissory note maker of subsidiaries’

interbank lending credit line applications.

(8). Approved the total amount of guarantees for endorsements for external parties by the Company and its subsidiaries as of the third quarter of 2019.

Summary of Major Resolutions of the 4th meeting of the 18th Board of

Directors on March 23, 2020 (abstract) :

(1). Approved the 2019 financial statements.
(2). Approved the loss appropriation for 2019.
(3). Approved the 2019 remuneration to the employees and Directors.
(4). Approved the 2019 Statement of Internal Control System.
(5). Approved the amendments to the Company’s Articles of Incorporation and submitted them to the shareholders’ meeting for discussion.
(6). Approved the amendments to the Company's Rules and Procedures for Board of Directors Meetings.
(7). Approved the amendments to the Company’s Audit Committee Organizational Rules.
(8). Approved the amendments to the Company’s Shareholders' Meeting Policy and submitted them to the shareholders’ meeting for discussion.
(9). Approved the location and other relevant matters regarding the 2020 shareholders’ meeting.
(10). Approved the interbank lending credit line application.
(11). Approved the total amount of guarantees for endorsements for external parties by the Company and its subsidiaries as of the fourth quarter of 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: None
3.4.13 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit, Company Secretary and R&D: None

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						Covered by	Remarks
	CPA	Fee	System of	Company	Human	Others	Subtotal
			Design	Registration	Resource			CPA’s Audit
Deloitte & Touche	Shu-Wan Lin Shiow- Ming Shue	3,020	-	-	-	625 Note	625	1/1/2019~ 12/31/2019

Note: The English financial report fee is NT$600 thousand and the non-supervisor full-time employee salary information checklist for 2018 is NT$25 thousand.
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):

The company has no such situation in the last two years and the subsequent period.

3.7 The Chairman, President and Financial or Accounting Managerial Officer of the Company who had worked for the Independent CPA or the affiliate in the past 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
			2019		As of May.4,2020
				Pledged		Pledged
			Holding		Holding
Title	Name			Holding		Holding
			Increase		Increase
				Increase		Increase
			(Decrease)		(Decrease)
				(Decrease)		(Decrease)

Director	YFY INC.		-	-	-	-
Chairman	Kirk Hwang	Representative of YFY INC.	-	-	-	-
	S. C. Ho Note1
Director	Felix Ho		-	-	-	-
Director	Melody Chiu Note2		-	-	-	-
Director	Lotus Ecoscings & EngineeringCo.,Ltd		-	-	-	-
Director	Chih-Cheng Huang	Representative of Lotus Ecoscings & Engineering Co., Ltd.	-	-	-	-
Director	Guu-Fong Lin		-	-	-	-
Director	Ray Chen		-	-	-	-
Independent Director	Donald Chang		-	-	-	-
Independent Director	Shih-Lai Lu		-	-	-	-
Independent Director	Yi LeeNote1		-	-	-	-
Independent Director	Shi-Kuan Chen Note3		-	-	-	-
CEO	Kirk Hwang		-	-	-	-
President	Chih-ChengHuang		-	-	-	-
CFO	Guu-FongLin		-	-	-	-
Executive Vice President	Ray Chen		-	-	-	-
Executive Vice President	Rong-Ming Lin		-	-	-	-
Finance Manager	David Lin		-	-	-	-
Accounting Manager	Jung-Min Huang		-	-	-	-
Major shareholder	YFY INC.		-	-	-	-

Note1: Newly elected on June 21, 2019. Note2: Will not be reelected on June 21, 2019.

Note3: Ms. Shi-Kuan Chen resigned as an Independent Director of the Company on January 10, 2019 due to her transfer to the position of President of the Chung-Hua Institution for Economic Research.

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

5/2/2020

			Spouse’s/minor’s	Spouse’s/minor’s	Shareholding	Shareholding	Name and Relationship Between th	e Company’s Top Ten
	Current Shareholdin				b Nominee
Name		g	Shareholding		y 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	- -
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	- -
Poiunin 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	- -
Custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	6,165,818	0.56	-	-	-	-	-	-	-
Vanguard Emerging Markets Stock Index Fund, a Series of Vanguard International Equity Index Funds	4,020,000	0.36	-	-	-	-	-	-	-
Investor account of DFA Emerging Market core Fund under the trust of CitiBank	3,554,308	0.32	-	-	-	-	-	-	-

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
Genovella Renewables Inc.	-	-	-	100	-	100
Shenzhen Systax Paper Co., Ltd	-	-	-	100	-	100
Syntax Communication (H.K.) Ltd.	-	-	-	100	-	100
Zhaoqing Xinchuan Green Technology Co., Ltd.	-	-	-	100	-	100
E Ink Holdings Inc.	20,000,000	1.75	174,766,635	15.33	194,766,635	17.08
EFFION Enertech Co., Ltd.	34,300,000	49	35,700,000	51	70,000,000	100
Taiwan Global Biofund Co., Ltd.	3,283,200	4.44	19,877,314	26.91	23,160,514	31.35

Capital Overview

4.1 Source of capital


		Authorized Capital		Paid-in Capital			Remark


Month/	Par						Capital Increased by Assets Other than Cash

Year	Value					Source of share
	(NT$)	Shares	Amount	Shares	Amount			Other
						capital



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 NT$1,200,000,000 on August 17 2015 and, the amount of paid-up capital after capital reduction to be NT$ 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

5/2/2020


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


Number of Shareholders	-	9	90	48,280	133	48,512
Shareholding (shares)	-	19,920	753,936,953	303,303,381	45,575,062	1,102,835,316
Percentage	-	-	68.37	27.50	4.13	100.00

5/2/2020

4.3 Shareholding Distribution


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


1 ~999	24,510	6,046,567	0.55
1,000 ~ 5,000	15,514	36,810,258	3.34
5,001 ~ 10,000	3,911	31,924,172	2.90
10,001 ~ 15,000	1,149	14,462,511	1.31
15,001 ~ 20,000	1,024	19,117,303	1.73
20,001 ~ 30,000	732	18,873,714	1.71
30,001 ~ 50,000	716	29,372,774	2.66
50,001 ~ 100,000	478	34,814,721	3.16
100,001 ~ 200,000	258	36,764,232	3.33
200,001 ~ 400,000	111	30,418,574	2.76
400,001 ~ 600,000	38	17,464,782	1.58
600,001 ~ 800,000	25	16,662,598	1.51
800,001 ~ 1,000,000	10	9,318,219	0.85
1,000,001 or over	36	800,784,891	72.61
Total	48,512	1,102,835,316	100.00

4.4 Major Shareholders

5/2/2020

	Shareholding	Shareholding
Shareholder's Name
	Shares	Percentage

YFY INC.	627,827,989	56.93
Shin-Yi Enterprise Co., Ltd.	50,149,248	4.55
Shin-Yi Recreation Co., Ltd.	23,624,028	2.14
Shin-Yi Investment Co., Ltd.	21,090,110	1.91
Poiunin Emerging Markets Small Cap Fund,LLC	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
Custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds	6,165,818	0.56
Vanguard Emerging Markets Stock Index Fund, a Series of Vanguard International EquityIndex Funds	4,020,000	0.36
Investor account of DFA Emerging Market core Fund under the trust of CitiBank	3,554,308	0.32

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

			1/1/2020- 5/4/2020
Items	2018	2019

Market Price per Share
Highest Market Price	12.60	11.25	9.73
Lowest Market Price	8.80	8.83	6.01
Average Market Price	10.49	9.62	8.31
Net Worth per Share
Before Distribution	14.17	13.71	-
After Distribution	13.82	-	-
Earnings per Share
Weighted Average Shares	1,102,835,316	1,102,835,316	1,102,835,316
Diluted Earnings Per Share	0.40	(0.22)	-
Adjusted Diluted Earnings Per Share	0.40	-	-
Dividends per Share
Cash Dividends	0.35	-	-
Stock Dividends
 Dividends from Retained Earnings	-	-	-
 Dividends from Capital Surplus	-	-	-
Accumulated Undistributed Dividends	-	-	-
Return on Investment
Price / Earnings Ratio (Note 1)	26.23	-	-
Price / Dividend Ratio (Note 2)	29.97	-	-
Cash Dividend Yield Rate (Note 3)	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 loss appropriation for year 2019 has yet to be approved by the 2020 AGM..

4.6 Dividend Policy and Implementation Status

A. Dividend policy stipulated in the Company's Articles of Incorporation

Article 31-1: If the Company has any surplus at the end of a year, it shall first be applied to pay income taxes according to the law and cover losses from the previous years. Then 10% of the balance will be allocated to a statutory surplus reserve, and a special surplus reserve shall be allocated according to the law. A special surplus reserve or retained earnings are set aside if needed. Any remaining balance shall be distributed as dividends and bonus by the total number of shares.

Article 32: In consideration of external factors and the objectives of long term financial planning and in the interest of stable business growth, the Company's dividend policy measures future cash flows based on the capital budget and uses retained earnings to meet the cash flow requirements. An appropriate percentage of the remaining surplus will be retained as needed to support the ongoing business operations, and a minimum of 20% of the remaining surplus will be distributed in the form of cash dividends and the rest in share dividends. However, for the purpose of meeting other capital expenditure requirements, the Company may distribute the aforementioned remaining surplus in the form of share dividends only.

B. Dividend distribution to be proposed by the shareholders’ meeting:

The shareholders’ meeting proposes for no dividend payments.

4.7 Impact of Stock Dividend Distribution on Business Performance and EPS:

Not applicable; the shareholders’ meeting proposes for no dividend payments.

4.8 Employees’ and Directors’ Remunerations

A. Percentages or ranges of remuneration of employees and Directors under the Articles of Incorporation:

According to Article 31 of the Articles of Incorporation, if the Company sustains profit every year, 1% or more of the income shall be set aside as the remuneration to employees, and 2% or less shall be distributed as Directors’ remuneration. However, an amount shall be set aside first to compensate cumulative losses, if any.

Directors’ remuneration may be distributed by way of cash dividends, and employees’ remuneration may be distributed by way of cash dividends or stock dividends. The Board of Director shall be authorized to define the qualification requirements of employees entitled to receive shares or cash, including the employees of subsidiaries of the Company that meet certain specific requirements. The distribution ratio of Directors’ remunerations, and the method of distribution and ratio of employees’ remunerations shall be resolved by a majority vote at a Board meeting attended by more than two thirds of the Directors, and shall be reported at the shareholders’ meeting.

Employee and Director’s remunerations are calculated deducting the cumulative losses from the profit for the year (i.e., the profit before employee and Director Remunerations are deducted from profit before tax).

B. Basis for estimating the amount of remuneration of employees and Directors, basis for calculating the number of shares to be distributed as employee remuneration, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated amount, for the current period:

The estimated employee and Director remunerations are recognized as expenses at the distributable amounts for the current year according to the Articles of Incorporation. Any change in the amounts on the date of resolution by the Board of Directors shall be treated as accounting adjustments and recognized as adjustments for net profit and loss of the year approved by the Board of Directors. If it is decided in the Board meeting to distribute employee remuneration in the form of shares, the number of share will be determined by dividing the approved amount by the fair price of the shares. The fair price of the shares will be calculated based on the closing price on the day before the date of the shareholders’ meeting and the effect of ex-dividend/ex-rights.

C. Remuneration Proposals approved by the Board of Directors:

(1) Employee and Director Remuneration will be distributed in cash or shares:

Remuneration of Employees and Directors were not distributed this year.

(2) The amount of remuneration to employees to be paid in shares out of the current company-level financial report in terms of the sum of net profit after tax and employee bonus.

Not applicable.

D. Any difference between actual distribution of employee remuneration and Director remuneration from the previous year and recognized employee and Director remunerations, and the reasons as well as corresponding treatments:

Employee Remuneration for 2018 was NT$5,500,000; Director Remuneration was NT$7,000,000. The actual distribution is consistent with the resolution of the Board of Directors.

4.9 Repurchases of Treasury Stock:

4.9.1 Exercised: None. 4.9.2 Currently exercising: None.

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 (%)of Total Sales 0.19 14.37 64.15 21.05 0.24 100.0
Major Divisions	Total Sales in Year 2019	(%)of Total Sales
Forestry	38,464	0.19
Pulp	2,974,066	14.37
Paper	13,272,143	64.15
Paperboard	4,356,122	21.05
Other	48,602	0.24
Total	20,689,397	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:

Development of special purpose paper.

5.1.2 Industry Overview

A. Overall economic environment

The economic growth rate for 2019 is 2.54%, which is 0.21 percentage points lower than the 2.75% of 2018. In 2019, subject to the continued stalemate of the US-China trade standoff as well as weak overseas demand, global economic growth momentum has clearly weakened. However, Taiwan has benefited from factors such as the transfer of trade orders, the increase in the return and investment of Taiwanese companies, and the expansion of semiconductor equipment investment, which have driven the growth in domestic demand. The annual real GDP growth rate reached 2.99% in Q3. Domestic consumption rebounded and investments increased. The global economic growth outlook for 2020. The economic growth rate forecast for 2020 is about 1.03%.

B. Current industry conditions and development

The pulp market in 2019 is in a process of destocking, and overall, peak periods are not prosperous and demand is weak. At the same time, due to factors such as the uncertainty of the international situation, markets are in observation mode.

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

==> picture [566 x 258] intentionally omitted <==

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

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

D. Product Trends and Competition

In recent years, domestic paper stationary product manufacturers such as Cheng Loong and TPPC have withdrawn from the paper stationary product market in the face of competition from imported paper. CHP still has a place in this market due to its better structure and continuous transformation.

On the demand side, the global demand for paper stationery products keeps declining due to the changes in reading habits, digitalization, and reduced birth rate. However, the demand for packaging paper stays stable due to the prosperous development in e-Commerce. The development of other special purpose paper is anticipated with the development of Industry 4.0 and the Internet of Things.

Facing the fluctuation of international pulp prices, CHP supplies the demand for short-fiber pulp in various factories within the group, in order to reduce the impact of market price fluctuations on profit and loss. The paper stationery product market will implement flexible production and marketing policies and will continue to expand the trade model of sales, in order to maintain the company's reasonable profits and market share. In addition, CHP also continues to research and develop high-value-added special purpose paper market and expand diversified applications.

5.1.3 Research and Development

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

As of the print date of this annual report, direct R&D expenditure was roughly NT$146.2 million in 2019. Expenditure on other development applications was not included herein.

B. Research and Development Achievements of the Past Year:

a. Pulp products: In response to the large fluctuations in product prices, the research and development of pulp products has focused on reducing energy costs and improving production efficiency to reduce the impact of product price fluctuations on income.
b. Paper products: We added new technical elements and researched and developed multi-domain and multi-purpose special paper products to increase the added value of the products.

5.1.4 Long- and Short-term Business Development Plans Short-term Plans

a. Actively improve the process and management, and enhance the momentum of transformation.
b. Invest in environmental protection equipment and hold ourselves to high standards when assessing the emissions.
c. Strengthen the research and development of niche products, develop all kinds of alternative products for plastic, and stabilize our position in the environmental protection products market.
d. Vertically integrate the supply chain, strengthen cooperative development with downstream processing plants, and increase overall industry competitiveness.
e. Strengthen information integration, utilize big data analytics, and improve the efficiency of procurement, production, and marketing processes.
f. Provide customers with innovative cash flow and logistics services to solidify our market control capabilities.

Long-term Plans

a. Research and develop environmentally sustainable and high value-added, botanical fiber-based material products and continue promoting the transformation of product structure.
b. Dedicate to sustainable cycles and use the R3 (recycle, re-creation, and value reinvention) to enhance the usage of materials and promote the evolution of product diversity.
c. Implement a talent cultivation plan, build a succession team, and rank among the world-class materials companies.

5.2 Market and Sales Outlook

5.2.1 Market Analysis

A. Sales of main products

Global pulp prices continued to drop in 2019 and is the opposite of wood chips. The sales strategy of CHP is still based on supplying short-fiber pulp to the various plants in the group. Our operation strategy is to retain cash, adjust production, and lengthen the period of regular equipment maintenance in response to the falling demand.

In terms of the sale of paper, in the development of special paper sales and in response to the worldwide plastics reduction trend, CHP actively developed environmentally friendly materials that use paper as a carrier and can be directly

recycled to replace plastics. In 2020, due to the COVID-19 outbreak, overseas paper customers considered the impact of the epidemic and transferred orders to supply chains outside the affected areas. The positive impacts include the increase in demand for healthcare boxes and the increase in boxes for food as people ordered in due to reduced outdoor activities. The negative impact is that industrial paper is expected to be delayed. Plants in affected areas have delayed their operations or are affected by logistics and transportation issues. If goods are not exported, the demand for packaging will decline.

Paper production in 2019 is 371,434 metric tons, which is a decrease of 53,109 metric tons from the 424,543 metric tons produced in 2018. Domestic paper sales amounted to 197,721 metric tons and export sales amounted to 218,289, totaling 416,010 metric tons. Cardboard production was 133,072 metric tons, which is an increase of 9,865 metric tons from the 123,207 metric tons produced in 2018. Facing many uncertainties in the international economy in 2020, CHP will continue to improve product quality, strengthen the stability of raw material sources, prices, and supply, expand product application markets, and strengthen services to enhance market competitiveness.

The Company is focused on the development of special paper with the aim of gradually transforming the production portfolio from paper stationery products to industrial-use special materials to meet the diverse demands of the packaging, food, and electronics industry. Advanced countries have greater demands for multi-use special paper products, and the emerging new market also have stronger demands day by day. These are the source for sales value growth. Looking ahead to 2020, we will continue to improve the quality of our products, strengthen the hold on raw materials and the product supply stability, as well as expand the applications of our products and improve 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 and Vietnam.

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—Suitable tree species are used based on the paper plant’s requirements; different types of pulp are produced from lumber after evaporation, cleaning, bleaching, molding and drying.

Paper products—The main raw material is pulp; different types of paper are produced by going through a series of processing steps including pulp dispersion, blending, cleaning, shaping, dehydration, drying, and coiling. High-quality printing paper (e.g., coated paper and simile paper) is made by coating and calendering the surface, which is suitable for premium quality text and color printing; and special papers (e.g., glassine paper and masking paper) are suitable for various types of industrial use. We are also actively developing food-safe paper (e.g., paper straws, paper cups, and sealing paper).

5.2.3 Supply Status of Main Materials

In 2019, the Company imported wood chips for producing LBKP in Taiwan, mainly from Australian and Vietnam 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.

B. Major Clients in the Last Two Calendar Years

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

5.2.5 Production in the Last Two Years

Unit: MT / NT$ thousands

	2018	2018	2019	2019
Year
Output	Quantity	Amount	Quantity	Amount
Main Products
Pulp	363,262	8,083,896	329,746	6,150,298
Paper	424,543	13,707,654	371,434	11,850,027
Paperboard	123,207	2,431,235	133,072	2,533,224

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	2018	2018	2018	2018	2019	2019	2019	2019
Shipments	Local		Export		Local		Export
& Sales
Major	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
Products
Pulp	104,010	2,351,966	86,817	1,894,618	85,824	1,671,989	73,629	1,302,077
Paper	241,268	7,045,191	221,135	7,884,877	197,721	5,734,415	218,289	7,537,728
Paperboard	158,014	3,109,657	77,810	1,543,826	162,045	3,077,570	66,785	1,278,552

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

5.3 Employee Information in the last two years and up to the print date of this annual report

				Data as of ending data in the current year
Year		2018	2019

Number of employees		2,678	2,642	2,647
Average age		41.23	42.03	42.15
Average year of services		15.20	15.05	14.95
Education distribution r	Ph.D.	0.15	0.15	0.15
	Masters	5.75	5.45	5.75
	Bachelor's Degree	40.59	42.88	42.64
	Senior High School	46.15	44.17	44.31
atio %	Below Senior High School	7.36	7.35	7.15

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

5.4 Environmental Protection Expenditure

Losses of each production unit due to environmental pollution and relevant information in last year and up to the print date for this annual report:

	Disposi -tion date			Content of provision(s) violated
Company /Mill		Disposition No.	Provisions(s) violated
					Content of disposition	Amount	Response measures


Hualien Mill	2019/8 /29	Fu-Huan-Kong -Zi No. 1080171446	Paragraph 1, Article 20 of the Air Pollution Control Act	Public and private premises with stationary pollution sources that emit air pollutants shall comply with emission standards.	The sampling and measurement of odor pollutants in the discharge pipeline found that the odor concentration exceeds Article 2, Restrictions on Emission Standards of Odor Pollutants in the Area Where the Sampling Point Is Located, of the Emission Standards for Foul Odors of Stationary Pollution Sources.	NT$300 Thousand	Due to the fouling and clogging of the boiler capping facility, the old pipe was removed and cleaned when the boiler was shut down, and improved and restored. The test indicated that it is now normal.
Hualien Mill	2019/9 /10	Fu-Huan-Kong -Zi No. 1080202485	Paragraph 1, Article 20 of the Air Pollution Control Act	Public and private premises with stationary pollution sources that emit air	The sampling and measurement of odor pollutants in the discharge pipeline found that the odor concentration exceeds Article 2, Restrictions on Emission Standards of Odor Pollutants	NT$300 Thousand	The corrosion and damage of the boiler facilities affected the boiler's combustion efficiency. Improvement has

	Disposi -tion date			Content of provision(s) violated
Company /Mill		Disposition No.	Provisions(s) violated
					Content of disposition	Amount	Response measures


				pollutants shall comply with emission standards.	in the Area Where the Sampling Point Is Located, of the Emission Standards for Foul Odors of Stationary Pollution Sources.		been completed during the boiler maintenance period. At present, inspections have found no air leakage.
Hualien Mill	2020/1 /13	Fu-Huan-Kong -Zi No. 1090005396	Paragraph 1, Article 20 of the Air Pollution Control Act	Public and private premises with stationary pollution sources that emit air pollutants shall comply with emission standards.	The sulfur monitoring data of the flue pipe continuous automated monitoring system has exceeded the emission standard of 100 ppm for 5 consecutive hours, and has not been reported to the Environmental Protection Administration in accordance with Article 89 of the Air Pollution Control Act.	NT$300 Thousand	A warning and notification system for monitoring anomalies will be built, and emergency training and training of on-site operators and foremen in response to anomalies will be strengthened.
Hualien Mill	2020/2 /26	Hua-Huan-Fei- Zi No. 1090003433	Article 31, Paragraph 1, Subparagrap h 1 of the Waste Disposal Act	Operations may begin only after the review and approval of an industrial waste disposal plan submitted to the competent authority; this regulation shall also apply to the modification of matters related to the production and disposal of industrial waste.	The Environmental Protection Bureau inspected the contents of the mill's waste disposal plan and found that the sludge generated in the pulp manufacturing process violated the provisions of Article 31 of the Waste Disposal Act because the capacity of the mill's storage facilities exceeded the approved capacity.	NT$6 Thousand	Submit the application documents for the modification of the waste disposal plan and submit a plan for reduction and improvement of the inorganic sludge storage site of the plant in accordance with the requirements of the Environmental Protection Bureau.
Hualien Mill	2020/4 /1	Fu-Huan-Kong -Zi No. 1090058901	Paragraph 2, Article 24 of the Air Pollution Control Act	After the installation or modification of the stationary pollution sources, verification documents that demonstrate compliance	The storage height of the inorganic waste storage site exceeds the standard and is thus determined as a storage site, which is not included in the operation permit of the stationary pollution source, and violates the provisions of Paragraph 2, Article 24 of the Air Pollution Control Act.	NT$100 Thousand	A change application for the pulp manufacturing process operation permit has been submitted to change the inorganic waste storage site to a storage site.

			Content of provision(s) violated
Company /Mill	Disposition No.	Provisions(s) violated
				Content of disposition	Amount	Response measures


			with the regulations of the Act shall be submitted to the competent authority in order to apply for the issuance of operating permits, and operations shall be performed pursuant to the permit contents.

The following are the appeal cases that have been disclosed in the 2018 annual report:

The Company's Hualien mill was hit by a strong earthquake in 2018. Successive earthquakes in the mill area have caused equipment abnormalities, resulting in occasional instability of the quality of the water discharged and therefore penalization. In addition to filing an appeal, the Company has successively added multiple real-time monitoring and control points in the pulp and paper production process of the Hualien mill since November 2018 to strengthen monitoring to complete the discharge water treatment process. Since 2019, there have been no relevant fines in violation of the Water Pollution Control Act.

The following table shows the current status of the cases where the judgment was changed due to an appeal as of the printing date of this report. The relevant fines have been recognized in 2018. The original amount of the fines was NT$53.193 million, including the amount of the confirmed penalties and payment of NT$2.82 million. The amount of fines that has been canceled is NT$16.821 million. If we lose the current appeals, there will be no significant impact on future profitability.

				Content of provision(s) violated
Company /Mill	Disposition date	Disposition No.	Provisions(s) violated
					Content of disposition	Description


Genovella Renewables Inc.	2019/12/25	Fu-Huan-Shui -Zi No. 1080276729	Violation of Paragraph 1, Article 7 and Paragraph 1, Article 28 of the Water Pollution Control Act	1. Facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	The water samples collected from the drainage ditch outside the Hualien mill were tested for chemical oxygen demand, suspended particles, and true chromaticity, all of which exceeded the effluent standards. A fine of NT$1.68 million has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the 2018 sanction, and is currently closed.

				Content of provision(s) violated
Company /Mill	Disposition date	Disposition No.	Provisions(s) violated
					Content of disposition	Description


				2. Enterprises that discharge wastewater or sewage shall drain from an approved and registered dischargepoint.
Hualien Mill	2019/12/31	Fu-Huan-Shui -Zi No. 1080284529	Violation of Paragraph 1, Article 7 and Paragraph 1, Article 28 of the Water Pollution Control Act	Enterprises that discharge wastewater or sewage into surface water bodies shall comply with effluent standards. Maintenance and preventive measures shall be adopted for those circumstances in which leakage through negligence causes the pollution of a water body, and emergency response measures shall be adopted promptly and the local competent authority notified within three hours of the occurrence of the accident.	The water samples collected from the drainage ditch outside the Hualien mill were tested for biochemical oxygen demand, chemical oxygen demand, suspended solids, and true chromaticity, all of which exceeded the effluent standards. A fine of NT$7.128 million has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the 2018 sanction. We are currently filing an appeal.
Hualien Mill	2020/1/6	Fu-Huan-Shui -Zi No. 1080285267	Violation of Paragraph 1, Article 7 of the Water Pollution Control Act	Those enterprises, sewage systems, or building sewage treatment facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	The chemical oxygen demand of water samples collected from the drainage ditch outside the Hualien mill exceeded the effluent standards. A fine of NT$363 thousand has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the 2018 sanction. We are currently filing an appeal.
Hualien Mill	2020/1/7	Fu-Huan-Shui -Zi No. 1090001721	Violation of Paragraph 1, Article 7 of the Water Pollution	Those enterprises, sewage systems, or building sewage treatment	The detected chemical oxygen demand of water samples collected from the drainage ditch outside the Hualien mill exceeded the effluent	The fine for this case has been disclosed in the 2018 annual report,which is a

				Content of provision(s) violated
Company /Mill	Disposition date	Disposition No.	Provisions(s) violated
					Content of disposition	Description


			Control Act	facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	standards. A fine of NT$7.878 million has been imposed.	follow-up to the 2018 sanction. We are currently filing an appeal.
Hualien Mill	2020/1/8	Fu-Huan-Shui -Zi No. 1090002132	Violation of Paragraph 1, Article 7 of the Water Pollution Control Act	Those enterprises, sewage systems, or building sewage treatment facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	The water samples collected from the drainage ditch outside the Hualien mill were tested for chemical oxygen demand, biochemical oxygen demand, and suspended solids, all of which exceeded the effluent standards. A fine of NT$9.36 million has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the 2018 sanction. We are currently filing an appeal.
Hualien Mill	2020/1/8	Fu-Huan-Shui -Zi No. 1090002208	Violation of Paragraph 1, Article 7 of the Water Pollution Control Act	Those enterprises, sewage systems, or building sewage treatment facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	The detected chemical oxygen demand and suspended solids of water samples collected from the drainage ditch outside the Hualien mill exceeded the effluent standards. Due to Article 73 of the Water Pollution Control Act, the severe circumstance referred to in the Act as explained in Item III (circumstances in which a violator, having been notified twice within one year to make improvements within a limited period, still continues to violate the regulations of this Act), a penalty of NT$647.4 million has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the January 8, 2019 sanction. We are currently filing an appeal.
Hualien Mill	2020/1/9	Fu-Huan-Shui -Zi No. 1090002242	Violation of Paragraph 1, Article 7 of the Water Pollution Control Act	Those enterprises, sewage systems, or building sewage treatment facilities that discharge wastewater or sewage into surface water bodies shall comply with effluent standards.	The detected chemical oxygen demand, biochemical oxygen demand, and suspended solids of water samples collected from the drainage ditch outside the Hualien mill exceeded the effluent standards. Due to Article 73 of the Water Pollution Control Act, the severe circumstance referred to in the Act as explained in Item III (circumstances in which a violator, having been notified twice within one year to make improvements within a limited period, still continues to violate the regulations of this Act), a penalty of NT$561.6 million has been imposed.	The fine for this case has been disclosed in the 2018 annual report, which is a follow-up to the 2018 sanction. We are currently filing an appeal.

In addition to handling various by-products generated during production in accordance with various relevant environmental protection regulations, the Company and its subsidiaries strengthen the professional knowledge and equipment maintenance of operating personnel, and continue to invest in environmental protection equipment to comply with the laws and regulations.
Environmental protection capital expenditures: In 2019, the production units of the Company's Taiwan and mainland China regions mainly invested about NT$170 million in related environmental protection expenditures, including expenditures related to water resource treatment of about NT$27 million, air quality control of about NT$61 million, and the processing of solid materials of about NT$82 million.

5.5 Labor Relations

5.5.1 Present status and the implementation of employer-employee agreements:

Employee Welfare:
The Company has formulated Work Rules in favor of the employees, established a Staff Welfare Committee, allocates employee benefits on a monthly basis, and regularly holds employee-employer meetings as an open communication channel between labor and management.
To purchase employee group accident insurance and healthcare insurance to offer better protection for employees' families.
To strengthen protection for employees' families, allowances and support are available to the families of employees who are disabled or deceased.
To improve the quality of life of employees, promote employee friendships and encourage employees to organize self-improvement activities and provide subsidies.
Encourage employees to organize clubs to organize activities that benefit the body and mind, and provide subsidies.
Regularly conduct employee health checkups, and often organize a number of group sports activities to maintain employees' physical and mental health.

 Employee Retirement Program:

The Company's Taiwan region has implemented an employee retirement program in accordance with the Labor Standards Act and the Labor Pension Act, and has assembled a Supervisory Committees of Workers’ Pension Reserve Funds and makes monthly contributions to the pension reserve. The Company regularly allocates 6% of the total salary expenses of employees under the old rules and saves it in a pension reserve account at the Bank of Taiwan. In addition, in compliance with the implementation of the Labor Pension Act, the Company makes monthly contributions of 6% of the total salary to individual pension accounts at the Bureau of Labor Insurance for existing employees who opted for the new rules and new employees who are subject to the new rules.

 Labor-management Communications:

The Company regularly convenes employer-employee meetings to communicate and coordinate with employees, and subsequently adjusts measures according to the consensus of both parties.

 Continuing Education and Training for Employees

The Company holds talent strategic development consensus meetings with executives, amends training development rules, and conducts assessments of employee competency at all levels to sustain the development of the Company and overcome any market and industry challenges. Systematic and continuous talent cultivation programs are provided to encourage employees to maximize their potential and improve their performance. Meanwhile, diversified learning resources are made available to employees (e.g., orientation training, management training, professional training, and general training) to encourage self-enhancement among employees.

Orientation training: Aims to assist new employees to know their way around the workplace and understand the Company's vision, organizational structure, rules, and the operating status of each functional and business units.
Management training: Aims to strengthen the organization’s management performance, and foster and improve supervisors’ leadership and strategic thinking capabilities.
Professional training: Aims to enhance work-related skills of departmental professionals.
General training: Aims to foster employees’ knowledge and skills required for independent operations, workplace communication, and job management to support the Company’s future business development requirements and achieve long-term business goals.

The Company organized various education and training courses for employees in 2019, including 12,917 person-times and 44,979 hours of internal training and external training.

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


Professional competency	537	12,456	41,282	2,553
Management and general knowledge	28	357	2,571	912
Cultural cultivation for newrecruits	14	104	1,126	1

 Employee Safety and Health:

The Company is responsible for and obligated to protect the health and safety of its

employees. In addition to the OHSAS 18001 certification for occupational safety and health, the Company's mills have declared their determination to promote employee safety and the vision to create a corporate safety culture.

An occupational safety and health center was established to ensure employee health and safety. The following active measures are adopted in adherence to the aforementioned safety ideals:

(1) Responsibilities of different levels of responsible units: The first level is the occupational safety and health center supervisor. A professional in occupational safety and health is responsible for cross-unit coordination and direct supervision of the safety and health policies, regulations, and practices adopted by each mill. The second level is the Company’s mills. Each mill appoints an occupational safety and health supervisor who reports to the supervisor of the center and is responsible for developing safety and health work rules for the mills, and acts as the counselor, supervisor, and auditor of safety and health measures.
(2) Safe operations promotion: Through safety education and labor safety systems, the safety management functions of managers of all levels are reinforced to gradually establish a coherent set of safety values and standards, and build a consensus to promote safe operations.
(3) Operation standardization: Standard operating procedures and work safety analysis are implemented for various operations.
(4) Employee health management: Regular employee physical checkups are held and exceed requirements of the Labor Health Protection Regulations. Health promotion programs for employees are developed according to health checkup results.
(5) Employee safety training: Employees and contractors must receive safety training upon entering the Company and during reassignments. Departments hold ad hoc work safety training and education seminars to increase collective safety awareness.
(6) Accident reporting and investigation: Any work accident at any of the mills must be reported to the occupational safety and health center supervisor and the person in charge of the mill within 24 hours, and an investigation for cause and improvement must take place within one week. Meanwhile, all employees are informed of the incident to prevent it from repeating.
(7) Work safety reviews and disaster drills: In addition to regular disaster drills and monthly occupational safety and health center meetings,

equipment safety inspections are reinforced to actively improve the workplace and safety measures.

 Employee code of conduct or ethics:

The Company’s Work Rules provide a service guideline and clear work principles for employee compliance. To more effectively protect the Company’s trade secrets, operating profits, and competitive edge in response to the amendment made to the Trade Secrets Act in 2013, the Company has prescribed Integrity and Confidentiality of Intellectual Property Agreement as a mandatory document for registration of new recruits..

The Company subsequently promulgated the Employee Code of Conduct in July 2016. Employees’ behavior must comply with this Code of Conduct when performing daily tasks and operations: Employees must take the initiative to avoid improper benefits, perform their duties properly, and effectively utilize Company resources and public properties during work. The Employee Code of Conduct prescribes reporting channels and investigation procedures. Regular education and training programs are provided to raise employees’ awareness towards ethical conduct.

 Other Important Agreements:

None.

5.5.2 Performance of Social Responsibilities:

(1). The Company has formulated Work Rules in favor of the employees and regularly holds employee-employer meetings as an open communication channel between labor and management.
(2). The Company has set up an employee grievance mechanism and contact method, and handles complaints properly.
(3). The Company’s mills in Taiwan have all obtained OHSAS 18001 certification. Each mill has assembled a special unit for safety and health to actively promote related businesses, implement standard operating procedures and work safety analysis for the operations to fully standardize the operations and make them safe, and reinforce the safety management functions of the management to slowly establish a unified set of safety value and standards and build a consensus to promote safe operations. Employees are required to receive safety training upon entering the company and at reassignment. The departments hold regular safety training and education seminars to increase collective safety awareness and regular disaster drills and quarterly work safety reviews. They also reinforce equipment safety inspections to actively improve the workplace and safety measures.
(4). The Company also organizes various education and training courses for employees which include professional competency, management and general knowledge, cultural cultivation for new recruits, and on-the-job continuing education to provide employees with development opportunities and cultivate effective occupational empowerment.

5.5.3 Measures to specifically enhance employee benefits or rights compared to

the previous year:

(1). Adjustments were made to employee health checkup items and frequency to provide employee health checkups that are superior to regulations.
(2). Continued to increase the variety of welfare products to meet the different needs of employees.
(3). Regularly organize birthday celebrations, employee travel, volunteer activities, etc., and encourage employees to actively participate in activities that are beneficial to both body and mind.

5.5.4 Losses due to labor disputes last year and up to the print date for this annual report:

The Company has always had a harmonious labor-management relationship. No major labor disputes have occurred.

5.5.5 As of the print date for this annual report, the following are the labor

inspection results that violate the Labor Standards Act:

	Disposition date	Disposition No.	Provisions(s) violated		Content of disposition
Mill				Content of disposition

Jiutang Mill	2020/1/7	Bei-Shi-Lao-Ti ao-Zi No. 10930397200	V Paragraph 4, Article 32 of the Labor Standards Act; Paragraph 2, Article 34 of the Labor Standards Act; Article 36 of the Labor Standards Act	Due to the occurrence of an act of God, an accident, or an unexpected event and when an employer has a necessity to have workers to perform the work besides regular working hours, may extend the working hours. However, the employer shall notify the labor union within twenty-four hours after the beginning of the extension. If there is no labor union, the employer shall report it to the local competent authority for record. Subsequent to the over time, the employer shall offer workers suitable time off. The day and night rotation system does not give workers rest days in accordance with the regulations. The workers do not have two regular days off every seven days, where one day is a regular leave and the other one is a rest day.	Each article violation is subject to a penalty of NT$50,000; a total of NT$150,000 has been imposed.
Taitung Mill	2019/8/22	Fu-She-Lao-Zi No. 1080173974	Paragraph 2, Article 24 of the Labor Standards Act	Insufficient pay for work on rest days	A fine of NT$20,000 has been imposed.

Estimated values that might occur now and in the future and their countermeasures: The Company will devise a plan for adjusting the way shifts are scheduled in response, and implement it only after obtaining the labor union's consent.

5.6 Major Contracts

Agreement	Counterparty	Period	Major Contents	Restrictions
Long term loan contract	Made jointly by Bank of Taiwan, Chang Hwa Bank, Land Bank of Taiwan, Taiwan Cooperative Bank, Hua Nan Bank, and Taipei Fubon Bank and 5 participatingbanks.	3/31/2020~ 3/31/2025	5-year syndicated loan repaid at maturity	None

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	2018
Item
		2015	2016	(Audited after	(Audited after	2019

				Restated)	Restated)

Current assets		13,080,307	11,884,530	12,937,151	13,777,988	13,098,672
Property, Plant and Equipment		13,741,408	14,560,196	14,345,577	14,565,801	14,654,819
Long-Term Investment		1,861,526	1,803,660	1,602,555	1,600,194	1,835,627
Other assets		1,742,898	1,404,507	1,387,464	1,433,589	1,509,299
Total assets		30,426,139	29,652,893	30,272,747	31,377,572	31,098,417
Current liabilities	Before distribution	7,770,394	7,416,126	8,871,833	9,173,037	11,116,249
	After distribution	8,432,095	7,802,118	9,423,251	9,559,029	Note1
Non-current liabilities		3,553,031	4,177,440	3,219,365	4,140,427	2,587,144
Total liabilities	Before distribution	11,323,425	11,593,566	12,091,198	13,313,464	13,703,393
	After distribution	11,985,126	11,979,558	12,642,616	13,699,456	Note1
Equity attributable the parent	to shareholders of	16,509,457	15,713,957	15,688,969	15,621,710	15,117,231
Capital stock		11,028,353	11,028,353	11,028,353	11,028,353	11,028,353
Capital surplus		27,286	34,403	36,602	31,468	29,563
Retained earnings	Before distribution	4,507,038	4,186,649	4,398,747	4,273,971	3,649,276
	After distribution	3,845,337	3,800,657	3,847,329	3,887,979	Note1
Other equity interest		946,780	464,552	225,267	287,918	410,039
Treasury stock		-	-	-	-	-
Equity Attributable To Former Owner Of Business Combination Under Common Control		-	-	86,069	13,440	-
Non-controlling interest		2,593,257	2,345,370	2,406,511	2,428,958	2,277,793
Total equity	Before distribution	19,102,714	18,059,327	18,181,549	18,064,108	17,395,024
	After distribution	18,441,013	17,673,335	17,630,131	17,678,116	Note1

Note1: The loss appropriation for year 2019 has yet to be approved by the 2020 AGM.

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	2018
Item	2015	2016	(Audited after	(Audited after	2019
			Restated)	Restated)
Operatingrevenue	20,990,843	22,001,536	22,839,355	24,025,221	20,689,397
Grossprofit	2,271,179	1,876,095	2,383,345	2,336,838	1,213,022
Income from operations	779,508	385,108	817,915	592,042	(383,777)
Non-operating income & expenses	80,947	(51,988)	90,796	77,054	21,365
Income before tax	860,455	333,120	908,711	669,096	(362,412)
Net income(Loss)	845,778	349,718	744,953	532,245	(302,084)
Net income (Loss) from Discontinued Operations	-	-	-	-	-
Net income(Loss)in theperiod	845,778	349,718	744,953	532,245	(302,084)
Other comprehensive income (income after tax)	(379,152)	(742,077)	(302,896)	(47,309)	34,337
Total comprehensive income	466,626	(392,359)	442,057	484,936	(267,747)
Net income attributable to shareholders of theparent	779,717	391,114	618,582	445,663	(245,098)
Net income attributable to Former Owner Of Business Combination Under Common Control	-	-	18,738	21,999	-
Net income attributable to non-controllinginterest	66,061	(41,396)	107,633	64,583	(56,986)
Comprehensive income attributable to Shareholders of theparent	478,369	(144,472)	363,366	445,156	(116,582)
Comprehensive income attributable to Former Owner Of Business Combination Under Common Control	-	-	17,550	18,233	-
Comprehensive income attributable to non-controlling interest	(11,743)	(247,887)	61,141	21,547	(151,165)
Earningsper share	0.66	0.35	0.56	0.40	(0.22)

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

Unit: NT$ thousands


Year		Financial Summary for The Last Five Years

				2017	2018
Item
		2015	2016	(Audited after	(Audited after	2019

				Restated)	Restated)

Current assets		7,087,286	6,505,215	7,164,802	7,971,014	7,790,430
Property, Plant and Equipment		11,814,617	11,893,495	11,873,321	12,255,178	12,420,909
Long-Term Investment		7,568,755	7,125,512	6,986,810	7,020,935	6,718,464
Other assets		590,795	815,469	857,262	802,133	997,434
Total assets		27,061,453	26,339,691	26,882,195	28,049,260	27,927,237
Current liabilities	Before distribution	7,022,419	6,395,036	7,974,144	8,474,607	10,429,002
	After distribution	7,684,120	6,781,028	8,525,562	8,860,599	Note1
Non-current liabilities		3,529,577	4,230,698	3,133,013	3,939,503	2,381,004
Total liabilities	Before distribution	10,551,996	10,625,734	11,107,157	12,414,110	12,810,006
	After distribution	11,213,697	11,011,726	11,658,575	12,800,102	Note1
Capital stock		11,028,353	11,028,353	11,028,353	11,028,353	11,028,353
Capital surplus		27,286	34,403	36,602	31,468	29,563
Retained earnings	Before distribution	4,507,038	4,186,649	4,398,747	4,273,971	3,649,276
	After distribution	3,845,337	3,800,657	3,847,329	3,887,979	Note1
Other equity interest		946,780	464,552	225,267	287,918	410,039
Treasury stock		-	-	-	-	-
Former Owner Of Business Combination Under Common Control		-	-	86,069	13,440	-
Total equity	Before distribution	16,509,457	15,713,957	15,775,038	15,635,150	15,117,231
	After distribution	15,847,756	15,327,965	15,223,620	15,249,158	Note1

Note1: The loss appropriation for year 2019 has yet to be approved by the 2020 AGM.

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

Unit: NT$ thousands


	Financial Summary for The Last Five Years
Year
			2017	2018
Item	2015	2016	(Audited after	(Audited after	2019
			Restated)	Restated)

Operatingrevenue	18,728,358	19,433,094	19,905,161	21,005,335	18,328,975
Grossprofit	1,965,139	1,866,437	1,900,672	1,765,932	1,122,100
Income from operations	604,896	493,268	497,495	291,560	(237,550)
Non-operating income & expenses	174,821	53,064	218,778	244,752	(43,311)
Income before tax	779,717	440,204	716,273	536,312	(280,861)
Netprofit for the currentperiod	779,717	391,114	637,320	467,662	(245,098)
Net income (Loss) from Discontinued Operations	-	-	-	-	-
Net income(Loss)	779,717	391,114	637,320	467,662	(245,098)
Other comprehensive income (income after tax)	(301,348)	(535,586)	(256,404)	(4,273)	128,516
Total comprehensive income	478,369	(144,472)	380,916	463,389	(116,582)
Earningsper share	0.66	0.35	0.56	0.40	(0.22)

6.1.2 Auditors’ Name and their Opinions

Year	CPA’s Name	Audit 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
2019	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		2015	2016	2017	2018	2019
Financial Structure (%)	Debt Ratio	37.22	39.10	40.02	42.44	44.06
	Ratio of long-term capital to property, plant and equipment	143.31	136.61	131.81	135.68	120.81
Liquidity (%)	Current ratio	168.34	160.25	144.97	150.10	117.83
	Quick ratio	111.91	113.15	105.04	99.94	77.48
	Interest earned ratio(times)	14.20	5.49	11.84	8.27	(2.97)
Operating Ability	Accounts receivable turnover (times)	6.13	5.50	6.36	6.86	6.30
	Average collectionperiod	59.54	66.36	57.39	53.21	57.94
	Inventoryturnover(times)	4.79	5.94	6.77	6.00	4.82
	Accountspayable turnover(times)	7.00	7.20	9.04	9.54	9.82
	Average days in sales	76.20	61.45	53.91	60.83	75.73
	Property, plant and equipment turnover(times)	1.53	1.51	1.58	1.65	1.41
	Total assets turnover(times)	0.69	0.74	0.75	0.77	0.67
Profitability	Return on total assets(%)	3.00	1.37	2.65	1.96	(0.73)
	Return on stockholders' equity (%)	4.61	2.17	4.63	3.38	(1.97)
	Pre-tax income to paid-in capital (%)	7.80	3.02	8.02	6.03	(3.29)
	Profit ratio(%)	4.03	1.59	3.20	2.20	(1.46)
	Earningsper share(NT$)	0.66	0.35	0.56	0.40	(0.22)
Cash Flow	Cash flow ratio (%)	20.07	27.59	21.45	5.39	7.38
	Cash flow adequacy ratio (%)	45.13	65.76	91.82	71.90	55.41
	Cash reinvestment ratio (%)	2.81	2.71	2.95	(0.11)	0.88
Leverage	Operating leverage	2.18	3.42	2.43	2.94	(1.99)
	Financial leverage	1.09	1.22	1.12	1.18	0.81
Explanation of the reasons for the changes in various financial ratios in the last two years:
1. Liquidity: The current ratio and quick ratio decreased due to the repayment of long-term borrowings in
2019, and the interest protection multiple was negative due to the loss in 2019.
2. Operating Ability: Due to the impact of international trade disputes in 2019, market demand has declined,
sales revenue and costs have decreased, resulting in a lower inventory turnover rate and an increase in average days of sales. 3. Profitability: Due to the loss in 2019. 4. Cash flow: Due to improved cash inflow from operating activities in 2019. 5. Leverage: Due to operating losses in 2019.

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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		2015	2016	2017	2018	2019
Financial structure (%)	Debt Ratio	39	40	41	44	46
	Ratio of long-term capital to property, plant and equipment	166	167	159	160	141
Liquidity (%)	Current ratio	101	100	90	94	75
	Quick ratio	45	57	50	49	41
	Interest earned ratio(times)	13	7	10	8	(2)
Operating Ability	Accounts receivable turnover (times)	7.76	7.50	7.06	7.14	6.28
	Average collectionperiod	47	49	52	51	58
	Inventoryturnover(times)	5.15	5.82	6.72	5.98	5.12
	Accountspayable turnover(times)	9.10	9.66	9.03	9.49	9.89
	Average days in sales	71	63	54	61	71
	Property, plant and equipment turnover(times)	1.59	1.63	1.68	1.71	1.48
	Total assets turnover(times)	0.69	0.74	0.74	0.75	0.66
Profitability	Return on total assets(%)	3.11	1.69	2.56	1.91	(0.63)
	Return on stockholders' equity (%)	4.61	2.43	3.94	2.97	(1.59)
	Pre-tax income to paid-in capital (%)	7.07	3.99	6.32	4.84	(2.55)
	Profit ratio(%)	4.16	2.01	3.11	2.21	(1.34)
	Earningsper share(NT$)	0.66	0.35	0.56	0.40	(0.22)
Cash flow	Cash flow ratio (%)	12	31	12	3	8
	Cash flow adequacy ratio (%)	32.42	65.76	79.80	60.69	39.95
	Cash reinvestment ratio (%)	1.56	3.00	1.18	(0.61)	1.06
Leverage	Operating leverage	2.25	2.60	2.78	4.10	(2.89)
	Financial leverage	1.12	1.17	1.18	1.34	0.74
Analysis of financial ratio differences for the last two years
1. Liquidity: The current ratio and quick ratio decreased due to the repayment of long-term borrowings in
2019, and the interest protection multiple was negative due to the loss in 2019.
2. Operating ability: Due to the impact of international trade disputes in 2019, market demand has declined,
sales revenue and costs have decreased, resulting in a lower inventory turnover rate and an increase in average days of sales. 3. Profitability: Due to the loss in 2019. 4. Cash flow: Due to improved cash inflow from operating activities in 2019. 5. Leverage: Due to operating losses in 2019.

Liquidity: The current ratio and quick ratio decreased due to the repayment of long-term borrowings in 2019, and the interest protection multiple was negative due to the loss in 2019.
Operating ability: Due to the impact of international trade disputes in 2019, market demand has declined,
sales revenue and costs have decreased, resulting in a lower inventory turnover rate and an increase in average days of sales.

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

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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 2019 business report, financial statements and proposal of loss

appropriation 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 2020 Annual General Meeting of shareholders of the Company.

Chung Hwa Pulp Corporation Convener of the audit committee: Yi Lee March 23, 2020

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6.4 Consolidated Financial Statements for the Years Ended December 31, 2019 and 2018, 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, 2019 and 2018, 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 (collectively referred to as the “consolidated financial statements”)..

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, 2019 and 2018, 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, 2019. 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 key audit matter identified in the consolidated financial statements for the year ended December 31, 2019 is as follows:

Estimation of Expected Credit Loss Recognized on Accounts Receivable

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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 judgment. Therefore, the estimation of expected credit loss recognized on accounts receivables was identified as a key audit matter.

The audit procedures that we performed in respect of the above key audit matter included the following:

We obtained and assessed the reasonableness of the method and the information used by managements for the estimation of expected credit loss of accounts receivable.
We sample-tested items in the aging report on the balance sheet date and we verified and assessed the correctness of the calculation of the expected credit loss.
We analyzed and sample-tested the recoverability of the overdue receivables after the balance sheet date. We assessed the reasonableness of the expected credit loss recognized on the accounts receivable based on the customers’ historical payment record, credit limit control and overdue receivables tracking.

Emphasis of Matter

As disclosed in Notes 14 and 25 to the accompanying consolidated financial statements, Guangdong Dingfung Pulp & Paper Co., Ltd. acquired 100% equity of Shenzhen Jinglun Paper Co., Ltd. from fellow subsidiaries of YFY Group in the fourth quarter of 2018, and CHP International (BVI) Corporation acquired 100% equity of Syntax Communication (H.K.) Limited from fellow subsidiaries of YFY Group in the first quarter of 2019. 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 was disclosed as if it had occurred before January 1, 2018, and the Group’s consolidated financial statements as of and for the year ended December 31, 2018 were 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, 2019 and 2018, on which we have issued an unmodified opinion with emphasis of matter paragraph.

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

104

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 and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated

105

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 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, 2019, 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 23, 2020

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.

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CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(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 - current (Notes 4 and 7) Financial assets at fair value through other comprehensive income - current (Notes 4 and 8) Financial assets for hedging - current (Notes 4 and 9) Financial assets at amortized cost - current (Notes 4 and 10) Notes and accounts receivable (Notes 4 and 11) Notes and accounts receivable from related parties (Notes 4 and 28) Other receivables from related parties (Notes 4 and 28) Inventories (Notes 4 and 12) Biological assets (Notes 4 and 13) Other current assets (Note 27) 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) Financial assets at amortized cost - non-current (Notes 4 and 10) Investments accounted for using the equity method (Notes 4 and 15) Property, plant and equipment (Notes 4 and 16) Right-of-use assets (Notes 4 and 17) Investment properties (Notes 4 and 18) Deferred tax assets (Notes 4 and 23) Prepayments for equipment Long-term prepayments for lease Other non-current assets (Note 27) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 19) Short-term bills payable (Note 19) Financial liabilities at fair value through profit or loss - current (Notes 4 and 7) Financial liabilities for hedging - current (Notes 4 and 9) Notes and accounts payable Notes and accounts payable to related parties (Note 28) Other payables Other payables to related parties Current tax liabilities Lease liabilities - current (Notes 4 and 17) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note 19) Deferred tax liabilities (Notes 4 and 23) Lease liabilities - non-current (Notes 4 and 17) Net defined benefit liabilities (Notes 4 and 20) Other non-current liabilities (Note 27) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 21) 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 NON-CONTROLLING INTERESTS Total equity TOTAL		2019 Amount % $ 478,725 2 12,151 - 1,328,656 4 24 - 11,700 - 2,649,484 9 455,513 1 423,820 1 3,886,070 13 3,252,537 10 599,992 2 13,098,672 42 171,035 1 575,788 2 300,823 1 787,981 2 14,654,819 47 487,433 2 257,144 1 110,052 - 570,344 2 - - 84,326 - 17,999,745 58 $ 31,098,417 100 $ 5,245,500 17 2,449,479 8 5,995 - - - 1,365,942 4 480,665 2 1,025,660 3 5,194 - 1,179 - 20,202 - 516,433 2 11,116,249 36 147,675 - 2,002,167 6 26,243 - 202,645 1 208,414 1 2,587,144 8 13,703,393 44 11,028,353 36 29,563 - 226,257 1 1,186,894 4 2,236,125 7 3,649,276 12 410,039 1 15,117,231 49 - - 2,277,793 7 17,395,024 56 $ 31,098,417 100	2018 (Audited after Restatement)	2018 (Audited after Restatement)
				Amount % $ 565,494 2 7,515 - 1,052,704 3 50 - 5,900 - 2,683,910 9 775,443 3 769,379 2 4,196,216 13 3,317,475 11 403,902 1 13,777,988 44 171,035 1 560,484 2 5,000 - 863,675 3 14,565,801 46 - - 257,411 1 76,976 - 534,411 2 459,664 1 105,127 - 17,599,584 56 $ 31,377,572 100 $ 3,694,901 12 1,849,709 6 - - 250 - 1,515,665 5 602,770 2 1,032,774 3 7,433 - 16,768 - - - 452,767 1 9,173,037 29 1,695,875 5 2,005,460 6 - - 234,935 1 204,157 1 4,140,427 13 13,313,464 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 13,440 - 2,428,958 8 18,064,108 58 $ 31,377,572 100

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

(With Deloitte & Touche auditors’ report dated March 23, 2020)

107

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Note 28) Sales Sales returns and allowances Net sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 12, 22, and 28) Cost of goods sold Other operating cost Total operating costs LOSS FROM CHANGES IN FAIR VALUE LESS COSTS TO SELL OF BIOLOGICAL ASSETS (Note 13) GROSS PROFIT OPERATING EXPENSES (Notes 22 and 28) Selling and marketing General and administrative Research and development Total operating expenses PROFIT (LOSS) FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Finance costs (Note 22) Share of (loss) profit of associates (Note 15) Interest income (Note 28) Dividend income Other income (Loss) gain on disposal of property, plant and equipment Gain on disposal of investments Loss on financial instruments at FVTPL Other losses Foreign exchange loss		2019 Amount % $ 20,788,779 101 147,984 1 20,640,795 100 48,602 - 20,689,397 100 19,435,059 94 35,227 - 19,470,286 94 (6,089 ) - 1,213,022 6 1,117,383 5 351,205 2 128,211 1 1,596,799 8 (383,777 ) (2 ) (91,305) - (3,987) - 27,380 - 76,543 - 83,311 - (219) - 9 - (1,672) - (1,847) - (66,848 ) -		2018 (Audited after Restatement)
				Amount % $ 24,092,008 100 128,585 - 23,963,423 100 61,798 - 24,025,221 100 21,630,295 90 47,393 - 21,677,688 90 (10,695 ) - 2,336,838 10 1,209,957 5 387,470 1 147,369 1 1,744,796 7 592,042 3 (92,303) - 57,270 - 40,325 - 55,783 - 59,634 - 8 - 12 - (24,159) - (5,063) - (14,453 ) - (Continued)

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CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Total non-operating income and expenses (LOSS) PROFIT BEFORE INCOME TAX INCOME TAX (BENEFIT) EXPENSE (Notes 4 and 23) NET (LOSS) 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 FVTOCI Share of the other comprehensive income (loss) of associates Tax effect of items that will not be reclassified (Note 23) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating the financial statements of foreign operations Gain (loss) on hedging instruments Share of the other comprehensive loss of associates Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR NET (LOSS) PROFIT ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control Non-controlling interests		2019 Amount % 21,365 - (362,412) (2) (60,328 ) (1 ) (302,084 ) (1 ) (4,701) - 308,482 2 23,302 - 940 - (277,653) (2) 1,185 - (17,218 ) - 34,337 - $ (267,747 ) (1 ) $ (245,098) (1) - - (56,986 ) -		2018 (Audited after Restatement)
				Amount % 77,054 - 669,096 3 136,851 1 532,245 2 (40,093) - 59,458 - (23,316) - 16,606 - (57,850) - (584) - (1,530 ) - (47,309 ) - $ 484,936 2 $ 445,663 2 21,999 - 64,583 -

(Continued)

109

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TOTAL COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control Non-controlling interests (LOSS) EARNINGS PER SHARE (Note 24) Basic Diluted		2019 Amount % $ (302,084 ) (1 ) $ (116,582) - - - (151,165 ) (1 ) $ (267,747 ) (1 ) $ (0.22 )		2018 (Audited after Restatement)
				Amount % $ 532,245 2 $ 445,156 2 18,233 - 21,547 - $ 484,936 2 $ 0.40 $ 0.40
		$		$
		$		$

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

(With Deloitte & Touche auditors’ report dated March 23, 2020) (Concluded)

110

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

	Equity Attributable to O	wners of the Company (Notes 4and 21)	wners of the Company (Notes 4and 21)	wners of the Company (Notes 4and 21)
Share Capital Shares (In Thousands) Amount Capital Surplus 1,102,835 $ 11,028,353 $ 36,602 - - - - - - 1,102,835 11,028,353 36,602 - - - - - - - - - - - (6,467 ) - - - - - - - - - - - 1,349 - - (16 ) 1,102,835 11,028,353 31,468 - - - - - - - - (1,024 ) - - - - - - - - - - - (865 ) - - (16 ) - - - 1,102,835 $ 11,028,353 $ 29,563	Retained Earnings	Total $ 4,398,747 (3,719 ) - 4,395,028 - - (551,418 ) 8,292 445,663 (23,594 ) 422,069 - - 4,273,971 - (385,992 ) - (245,098 ) (3,949 ) (249,047 ) - - 10,344 $ 3,649,276		Other Equity		(Loss) gain on Hedging Instrument $ - (6,377 ) - (6,377 ) - - - - - (584 ) (584 ) - - (6,961 ) - - - - 1,185 1,185 - - - $ (5,776 )
			Exchange Differences on Translating the Financial Statements of Foreign Operations $ (87,435 ) - - (87,435 ) - - - - - (12,578 ) (12,578 ) - - (100,013 ) - - - - (200,692 ) (200,692 ) - - - $ (300,705 )	Unrealized Gain (Loss) on Financial Unrealized Assets at Fair Gain (Loss) on Value Through Available-for- Other sale Financial Comprehensive Assets Income $ 319,079 $ - (319,079 ) 358,643 - - - 358,643 - - - - - - - - - - - 36,249 - 36,249 - - - - - 394,892 - - - - - - - - - 331,972 - 331,972 - - - - - (10,344 ) $ - $ 716,520	Cash Flow Hedges $ (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 $ 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 44,566 - (44,566 ) - - (385,992 ) - - - - - (245,098 ) - - (3,949 ) - - (249,047 ) - - - - - - - - 10,344 $ 226,257 $ 1,186,894 $ 2,236,125

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

(With Deloitte & Touche auditors’ report dated March 23, 2020)

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CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) income before income tax

Adjustments for:
Depreciation and amortization expenses

Expected credit loss (reversed) recognized on account
receivables
Loss on financial instruments at FVTPL
Finance costs
Interest income
Dividend income
Share of loss (profit) of associates
Gain (loss) on disposal of property, plant and equipment
Gain on disposal of investments
Write-downs of (Reversal of write-down) inventories
Unrealized loss (gain) on foreign currency exchange
Loss on changes in fair value less costs to sell of biological
assets
Changes in operating assets and liabilities
Financial assets mandatorily classified as at FVTPL
Notes and accounts receivable
Notes and accounts receivable from related parties
Inventories
Biological assets
Other current assets
Notes and accounts payable
Notes and accounts payable to related parties
Other payables
Other current liabilities
Net defined benefit liabilities

Cash generated from operations
Interest received
Interest paid
Income tax received (paid)

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial assets at FVTOCI

2019
2018
(Audited After
Restatement)
$ (362,412) $ 669,096
1,148,547
1,141,788
(24,525)
4,376
1,672
24,159
91,305
92,303
(27,380)
(40,325)
(76,543)
(55,783)
3,987
(57,270)
219
(8)
(9)
(12)
36,351
(681)
41,638
(12,269)
6,089
10,695
(127)
208,726
(21,474)
30,920
311,578
20,338
242,529
(1,128,101)
(75,863)
(106,099)
(214,718)
115,074
(141,771)
(332,020)
(90,228)
58,893
(13,696)
57,493
75,837
32,198
(36,991
)
(29,853
)
874,015
703,638
27,302
39,499
(89,931)
(90,577)
9,213

(68,819
)
820,599

583,741
(3)
(24,983)
(Continued)

112

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

Proceeds from capital reduction on investments accounted for
financial assets at FVTOCI
$ Purchase of financial assets at amortized cost
Purchase of financial instruments for hedging
Proceeds from sale of financial instruments for hedging
Net cash outflow from acquisition of subsidiary under common
control
Proceeds from capital reduction on investments accounted for
using the equity method
Payments for property, plant and equipment

Proceeds from disposal of property, plant and equipment
Decrease (increase) in other receivables from related parties
(Increase) decrease in other non-current assets
Increase in prepayments for equipment
Dividends received from investments accounted for using equity
method

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings

Increase (decrease) in short-term bills payable
Proceeds from long-term borrowings

Repayments of long-term borrowings

Decrease (increase) in other payables to related parties
Repayment of the principal portion of lease liabilities
Increase in other non-current liabilities
Distribution of cash dividends

Net cash generated from financing activities

EFFECTS OF EXCHANGE RATE CHANGES ON THE
BALANCE OF CASH HELD IN FOREIGN CURRENCIES

NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF
THE YEAR

2019
2018
(Audited After
Restatement)

17,229
$ 18,655
(314,548)
(1,100)
-
(9,645)
4,252
2,719
(14,305)
(100,083)
27,168
-
(1,264,293) (1,004,351)
7,807
9
341,159
(640,266)
(6,563)
3,654
(41,275)
(133,626)
126,133

88,583
(1,117,239
)(1,800,434
)
1,553,977
363,820
599,770
(99,559)
2,402,000
2,500,000
(3,952,000) (1,720,000)
(2,027)
7,433
(21,633)
-
12,753
33,935
(385,992
)
(549,359
)
206,848

536,270
3,023

(2,631
)
(86,769)
(683,054)
565,494
1,248,548
(Continued)

113

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In Thousands of New Taiwan Dollars)

(In Thousands of New Taiwan Dollars)
		2018
		(Audited After
	2019	Restatement)
CASH AND CASH EQUIVALENTS AT THE END OF THE
YEAR	$ 478,725	$ 565,494
The accompanying notes are an integral part of the consolidated	financial statements.
(With Deloitte & Touche auditors’ report dated March 23, 2020)		(Concluded)

114

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (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, 2019 and 2018.

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 23, 2020.

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 Financial Supervisory Commission (FSC).

Except for the following, 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 did not have any material impact on the Group’s accounting policies:

IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessee and lessor. It supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, and a number of related interpretations. Refer to Note 4 for information relating to the relevant accounting policies.

Definition of a lease

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The Group elects 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 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

The Group recognizes 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 are recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group presents 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 consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities. Prior to the application of IFRS 16, payments under operating lease contracts were recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights in China were recognized as prepayments for leases. Cash flows for operating leases were classified within operating activities on the consolidated statements of cash flows.

Lease liabilities were recognized on January 1, 2019 for leases previously classified as operating leases under IAS 17. Lease liabilities were 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 are measured at an amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments. The Group applies IAS 36 to all right-of-use assets.

The Group also applies the following practical expedients:

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

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 is 2.397%. The difference between the (i) lease liabilities recognized and (ii) operating lease commitments disclosed under IAS 17 on December 31, 2018 is explained as follows:

The future minimum lease payments of non-cancellable operating lease commitments on December 31, 2018 Less: Recognition exemption for short-term leases and leases of low-value assets Undiscounted amounts on January 1, 2019 Discounted amounts using the incremental borrowing rate on January 1, 2019 Lease liabilities recognized on January 1, 2019	$ 63,594 (9,095 ) $ 54,499 $ 53,292 $ 53,292

116

The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

	As Originally	As Originally	Adjustments
	Stated on		Arising from	Restated on
	January 1,		Initial	January 1,
		2019	Application		2019
Prepayments for leases - current	$	12,073	$ (12,073)	$	-
Prepayments for leases - non-current		459,664	(459,664)		-
Right-of-use assets		-	525,029		525,029
Total effect on assets	$	471,737	$ 53,292	$	525,029
Lease liabilities - current	$	-	$ 17,516	$	17,516
Lease liabilities - non-current		-	35,776		35,776
Total effect on liabilities	$	-	$ 53,292	$	53,292

b. The IFRSs endorsed by the Financial Supervisory Commission (FSC) for application starting from 2020

New IFRSs Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform” Amendments to IAS 1 and IAS 8 “Definition of Material”	Effective Date Announced by IASB
	January 1, 2020 (Note 1) January 1, 2020 (Note 2) January 1, 2020 (Note 3)

Note 1: 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 2: The Group shall apply these amendments retrospectively for annual reporting periods beginning on or after January 1, 2020.
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 consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

117

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

New IFRSs

Effective Date Announced by IASB (Note 1)

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 “Classification of Liabilities as Current January 1, 2022 or Non-current”

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual reporting

periods beginning on or after their respective effective dates.

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 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

118

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 14, 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”.

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

119

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 its foreign operations (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 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

120

(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.

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.

Beginning January 1, 2019, investment properties acquired through leases were initially measured at

121

cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made on or before the commencement date, plus initial direct costs incurred and an estimate of costs needed to restore the underlying assets, less any lease incentives received. These investment properties are subsequently measured at cost less accumulated depreciation and accumulated impairment loss and adjusted for any remeasurement of the lease liabilities.

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

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

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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.

b) Impairment of financial assets

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 (ECLs) for accounts receivable.

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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.

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 2017, 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.

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.

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Financial liabilities held for trading are stated at fair value, and any interest paid on such financial liability is recognized in finance costs; any remesurement gains or losses on such financial liabilites are recognized in other gains or losses. Fair value is determined in the manner described in Note 27.

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

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.

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

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.

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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.

o. Leases

2019

At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.

1) The Group as lessor

Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases.

2) The Group as lessee

The Group recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities adjusted for lease payments made at or before the commencement date. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented on a separate line in the consolidated balance sheets.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group uses the lessee’s incremental borrowing rate.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Group remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the consolidated balance sheets.

2018

1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

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2) The Group as lessee

Operating lease payments are recognized as expenses 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 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 on unappropriated earnings is provided for 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

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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.

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.

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.

Estimated impairment of financial assets

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

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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 11. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalents Time deposits with original maturities of less than three months		December 31	December 31
		2019 $ 1,247 255,485 221,993 $ 478,725	2018 $ 947 564,547 - $ 565,494

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
	2019 2018 0.001%-0.38% 0.001%-0.48% 0.82%-3.96% -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current 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 Bank debentures in the ROC (b) Financial liabilities at FVTPL-current Financial liabilities mandatorily classified as at FVTPL		December 31	December 31
		2019 $ 10,794 1,357 $ 12,151 $ 171,035	2018 $ 3,166 4,349 $ 7,515 $ 171,035

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Derivative financial liabilities (not under hedge accounting) -
Foreign exchange forward contracts (a) $ 5,995 $
a. At the end of the reporting year, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2019
					USD33,400/NTD1,001,3
Sell			USD:NTD	2020.01.10-2020.02.27	32
					USD20,000/RMB139,52
Buy			USD:RMB	2020.01.13-2020.01.21	4
December	31,	2018
Sell			USD:NTD	2019.01.09-2019.01.22	USD16,500/NTD506,798

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.

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

Current Domestic investments Listed shares Non-current Domestic investments Listed shares Unlisted shares		December 31	December 31
		2019 $ 1,328,656 $ 281,803 293,985 $ 575,788	2018 $ 1,052,704 $ 260,361 300,123 $ 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

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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.

9. FINANCIAL INSTRUMENTS FOR HEDGING

Financial assets under hedge accounting-current Cash flow hedges - foreign exchange forward contracts Financial liabilities under hedge accounting-current Cash flow hedges - foreign exchange forward contracts		December	31
		2019 $ 24 $ -	2018 $ 50 $ 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 2019 and 2018 were $2,106 thousand and $584 thousand, respectively, the following tables summarize the information relating to the hedges of foreign currency risk.

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2019
Buy			EUR:NTD	2020.01.31	EUR300/NTD10,077
December	31,	2018
Buy			EUR:NTD	2019.03.05	EUR243/NTD8,554
Buy			EUR:NTD	2019.01.22-2019.01.28	EUR3,470/NTD122,144

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December 31, 2019

	Change in	Other Equity
	Value Used for	Carrying
	Calculating	Amount in
	Hedge	Continuing
Hedged Items	Ineffectiveness	Hedges
Cash flow hedge
Forecast transactions (capital expenditures)	$ (2,106 )	$ (5,776 )
December 31, 2018
	Change in	Other Equity
	Value Used for	Carrying
	Calculating	Amount in
	Hedge	Continuing
Hedged Items	Ineffectiveness	Hedges
Cash flow hedge
Forecast transactions (capital expenditures)	$ (584 )	$ (6,961 )

For the years ended December 31, 2019 and 2018, refer to Note 21(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 2019 and 2018.

10. FINANCIAL ASSETS AT AMORTIZED COST

Current Domestic investments Time deposits with original maturity between three months and a year Time deposits with original maturity of more than a year Non-current Domestic investments Time deposits with original maturity of more than a year		December 31	December 31
		2019 $ 6,700 5,000 $ 11,700 $ 300,823	2018 $ 5,900 - $ 5,900 $ 5,000

The interest rates for time deposits with original maturity between three months and a year were 0.66%~0.82% and 0.82%, respectively, and the interest rates for time deposits with original maturity of more than a year were 3.96% and 1.12%, respectively, as at the end of the reporting year.

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11. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable - operating Accounts receivable - operating Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2019 $ 465,228 2,199,873 2,665,101 (15,617 ) $ 2,649,484	2018 $ 593,550 2,130,831 2,724,381 (40,471 ) $ 2,683,910

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 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, 2019

Not Past Due Less than 90 Days Gross carrying amount $ 2,458,266 $ 183,499 Loss allowance (Lifetime ECL) ( 9,912 ) ( 5,063 ) ( Amortized cost $ 2,448,354 $ 178,436	91 Days to A Year Over A Year $ 23,099 $ 237 405 ) ( 237 ) ( $ 22,694 $ -	Total $ 2,665,101 15,617 ) $ 2,649,484

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December 31, 2018

Not Past Due Less than 90 Days Gross carrying amount $ 2,597,347 $ 124,543 Loss allowance (Lifetime ECL) ( 36,262 ) ( 1,718 ) ( Amortized cost $ 2,561,085 $ 122,825	91 Days to A Year Over A Year $ 1 $ 2,490 1 ) ( 2,490 ) ( $ - $ -	Total $ 2,724,381 40,471 ) $ 2,683,910

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

Balance at January 1 Net remeasurement of loss allowance Amounts written off Foreign exchange translation gains and losses Balance at December 31	2019 $ 40,471 (24,525) - (329) $ 15,617	2018 $ 33,900 4,376 (73) 2,268 $ 40,471

12. INVENTORIES

Finished and purchased goods Work in process Materials		December 31	December 31
		2019 $ 2,131,072 374,046 1,380,952 $ 3,886,070	2018 $ 2,373,492 416,128 1,406,596 $ 4,196,216

The cost of goods sold for the years ended December 31, 2019 and 2018 included inventory write-downs of $36,351 thousand and reversal of inventory write-downs of $681 thousand, respectively.

13. BIOLOGICAL ASSETS

For the Year Ended December

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		31
		2019 $ 3,317,475 201,244 (6,089) (125,381) (134,712) $ 3,252,537	2018 $ 3,280,878 262,717 (10,695) (156,618) (58,807) $ 3,317,475

The biological assets and their fair values measured on a recurring basis (before deducting costs to sell) were as follows:

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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
		2019 $ 3,360,128 $ 3,396,946 211,239 (6,392) (131,608) (110,057 ) $ 3,360,128	2018 $ 3,396,946 $ 3,380,533 292,628 (11,912) (174,448) (89,855 ) $ 3,396,946

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

14. 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 Dingfung Pulp & Paper
Co., Ltd.
Pulp and paper production, trading
and forestry business
Zhaoqing Dingfung Forestry Ltd.
Seedling cultivation and sales,
reforestation, sales-cum-forest
logging and other forestry,
processing and transportation
Syntax Communication (H.K.)
Limited (b)
Sale and print of paper merchandise
Hwa Fong Investment
Co., Ltd.
Genovella Renewables Inc. (c)
Fertilizer production, sale of
fertilizer, retail sale of food
products and groceries, special
crop and edible fungus
cultivation, refractory materials
manufacturing, cement and
concrete products manufacturing,
ready-mixed concrete
manufacturing, refractory
materials wholesale and sale of
building material
Guangdong Dingfung
Pulp & Paper Co., Ltd.
Zhaoqing Dingfung Forestry Ltd.
Seedling cultivation and sales,
reforestation, sales-cum-forest
logging and other forestry,
processing and transportation
Shenzhen Jinglun Paper Co., Ltd.
(b)
Paper trading, cargo and technic
import and export business
Zhaoging Xinchuan Green
Technology Co., Ltd. (d)
Environment equipment technology
research and development,
construction for wastewater, flue
gas, noise and solid waste
treatment, pure water

% of Ownership

December 31

2019
2018
100.0
100.0
100.0
100.0
60.0
60.0
20.2
20.2

100.0
-
100.0
100.0
66.3
66.3
100.0
100.0
100.0
-

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construction, environment technology consulting, sale of environment equipment and chemical raw material, cargo and technic import and export

a. The financial statements of Genovella Renewables Inc. have not been audited; as of December 31, 2019 and 2018, combined total assets of this subsidiary were $13,735 thousand and $12,779 thousand, respectively, representing 0.04% and 0.04 %, respectively, of the total consolidated assets, and combined total liabilities of this subsidiary were $4,306 thousand and $5,803 thousand, respectively, representing 0.03% and 0.04 %, respectively, of the total consolidated liabilities. For the years ended December 31, 2019 and 2018, net sales were about $15,145 thousand and $15,334 thousand respectively, representing 0.07% and 0.06 %, respectively, of the total consolidated net sales, respectively; the net loss was about $2,453 thousand and the net income was about $340 thousand, respectively, representing (0.81)% and (0.06)%, respectively, of the total consolidated net (loss) income. Management believes that the amounts do not have material impact even if the financial statements were audited.
b. Guangdong Dingfung Pulp & Paper Co., Ltd., a subsidiary of the Group, acquired 100% equity of Shenzhen Jinglun Paper Co., Ltd. from fellow subsidiaries of YFY Group for RMB22,560 thousand in the fourth quarter of 2018, and CHP International (BVI) Corporation., a subsidiary of the Group, acquired 100% equity of Syntax Communication (H.K.) Limited from fellow subsidiaries of YFY Group for HK$3,653 thousand in the first quarter of 2019. In compliance with the “Comments on IFRS” and Interpretation 2012-301 issued by Accounting Research and Development Foundation, the acquisitions resulted in joint control restructuring. In the preparation of comparative consolidated financial statements, the acquisitions are disclosed as if they have occurred before January 1, 2018, and the Group’s consolidated financial statements as of and for the year ended December 31, 2018 are restated. The related equity adjustments are recognized as equity attributable to former owner of business combination under common control.
c. Kuang Hwa Fertilizer Limited Company was renamed as Genovella Renewables Inc. on April 22, 2019.
d. Guangdong Dingfung Pulp & Paper Co., Ltd. established Zhaoging Xinchuan Green Technology Co., Ltd., on September 12, 2019, after the Company’s board of directors passed the resolution with a total investment of RMB10,000 thousand and Guangdong Dingfung Pulp & Paper Co., Ltd. held 100 % ownership interest. To meet the capital funding, a capital of RMB2,000 thousand was injected as of December 31, 2019.

15. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Associates that are not individually material		December 31	December 31
		2019 $ 787,981	2018 $ 863,675

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

The Group’s share of: (Loss) Profit from continuing operations Other comprehensive income (loss) Total comprehensive income for the year		December	31
		2019 $ (3,987) 6,084 $ 2,097	2018 $ 52,270 (24,846 ) $ 32,424

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.

16. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2018 Additions Disposals Effect of foreign currency exchange differences Reclassifications 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 Cost Balance at January 1, 2019 Additions Disposals Effect of foreign currency exchange differences Reclassifications Balance at December 31, 2019 Accumulated depreciation and impairment Balance at January 1, 2019 Disposals Depreciation expenses Effect of foreign currency exchange differences Balance at December 31, 2019 Carrying amounts at December 31, 2019	Freehold Land $ 6,637,258 - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258 $ 6,637,258 - - - - $ 6,637,258 $ - - - - $ - $ 6,637,258	Buildings $ 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 $ 3,815,936 11,996 (6,236 ) (29,373 ) 20,722 $ 3,813,045 $ 2,805,733 (6,236 ) 101,873 (9,975 ) $ 2,891,395 $ 921,650	Machinery $ 28,487,324 137,540 (19,315 ) (74,115 ) 418,832 $ 28,950,266 $ 23,283,026 (19,315 ) 781,648 (45,266 ) $ 24,000,093 $ 4,950,173 $ 28,950,266 54,765 (301,701 ) (165,508 ) 715,154 $ 29,252,976 $ 24,000,093 (294,052 ) 767,134 (103,966 ) $ 24,369,209 $ 4,883,767	Electric Equipment $ 2,912,891 16,216 (1,586 ) - 39,465 $ 2,966,986 $ 2,357,159 (1,586 ) 73,811 - $ 2,429,384 $ 537,602 $ 2,966,986 13,774 (56,500 ) - 31,046 $ 2,955,306 $ 2,429,384 (56,500 ) 75,786 - $ 2,448,670 $ 506,636	Tools $ 1,613,469 36,618 (999 ) - 73,478 $ 1,722,566 $ 1,336,737 (999 ) 100,986 - $ 1,436,724 $ 285,842 $ 1,722,566 28,813 (27,840 ) - 45,760 $ 1,769,299 $ 1,436,724 (27,783 ) 100,948 - $ 1,509,889 $ 259,410	Miscellaneous Equipment $ 759,471 11,747 (7,824 ) (2,852 ) 11,183 $ 771,725 $ 574,003 (7,823 ) 43,347 (1,217 ) $ 608,310 $ 163,415 $ 771,725 10,002 (23,863 ) (6,911 ) 15,200 $ 766,153 $ 608,310 (23,543 ) 42,160 (3,822 ) $ 623,105 $ 143,048	Property in Construction $ 420,855 1,136,485 - (1,107 ) (574,925 ) $ 981,308 $ - - - - $ - $ 981,308 $ 981,308 1,158,024 - (8,400 ) (827,882 ) $ 1,303,050 $ - - - - $ - $ 1,303,050	Total $ 44,603,307 1,363,603 (29,724 ) (91,141 ) - $ 45,846,045 $ 30,257,012 (29,723 ) 1,103,387 (50,432 ) $ 31,280,244 $ 14,565,801 $ 45,846,045 1,277,374 (416,140 ) (210,192 ) - $ 46,497,087 $ 31,280,244 (408,114 ) 1,087,901 (117,763 ) $ 31,842,268 $ 14,654,819

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

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3-5 years 3-20 years

Tools Miscellaneous equipment

17. LEASE ARRANGEMENTS

a. Right-of-use assets - 2019

	December 31,
	2019
Carrying amounts
Land	$ 445,680
Buildings	26,714
Office equipment	11,785
Transportation equipment	3,254
	$ 487,433
	For the Year
	Ended
	December 31,
	2019
Additions to right-of-use assets	$ 14,209
Depreciation charge for right-of-use assets
Land	$ 14,233
Buildings	12,071
Office equipment	5,583
Transportation equipment	1,583
	$ 33,470
Lease liabilities - 2019
	December 31,
	2019
Carrying amounts
Current	$ 20,202
Non-current	$ 26,243

b. Lease liabilities - 2019

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Range of discount rate for lease liabilities was as follows:

	December 31,
	2019
Land	1.21%
Buildings	1.21％-3.50%
Office equipment	1.21%
Transportation equipment	1.21%

c. Material lease-in activities and terms

The Group leases certain equipment for the use of operating activities with lease terms of 2 to 5 years. These arrangements do not contain renewal or purchase options at the end of the lease terms.

The Group also leases land and buildings for the use of plants, offices, and warehouses with lease terms of 2 to 6 years. The lease contract for land and buildings located in China specifies that land and buildings are mainly used as plants, and lease payments will be made at the beginning of the contract with lease terms of 50 years. The Group does not have bargain purchase options to acquire the leasehold land and buildings at the end of the lease terms.

d. Other lease information

Lease arrangements under operating leases for the leasing out of investment properties are set out in Note 18.

2019
	For the Year
	Ended
	December 31,
	2019
Expenses relating to short-term leases and low-value asset
leases	$ 54,842
Total cash outflow for leases	$(80,634)

The Group has elected to apply the recognition exemption and, thus, did not recognize right-of-use assets and lease liabilities for these short-term leases and certain leases which qualify as low-value asset leases.

For the year ended December 31, 2019, expenses relating to short-term leases also include expenses relating to leases for which the lease terms end on or before December 31, 2019 and for which the recognition exemption is applied. The amount of lease commitments for short-term leases for which the recognition exemption is applied was $43,976 thousand as of December 31, 2019.

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2018

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

	December 31,
	2018
Not later than 1 year	$ 27,026
Later than 1 year and not later than 5 years	36,568
	$ 63,594
The lease payments recognized in profit or loss were as follows:
	For the Year
	Ended
	December 31,
	2018
Minimum lease payments	$ 68,469

18. 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
		2019 $ 272,334 $ 272,334 $ (14,923) (267 ) $ (15,190 ) $ 257,144	2018 $ 272,334 $ 272,334 $ (14,656) (267 ) $ (14,923 ) $ 257,411

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
		2019 $ 341,731	2018 $ 341,731

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The investment properties were leased out as operating leases from May 1, 2015 to June 30, 2020. The lessees do not have bargain purchase options to acquire the investment properties at the expiry of the lease periods.

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2019 are as follows:

	December 31,
	2019
Payment period
2020	$ 3,540

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2018 are as follows:

	December 31,
	2018
Not later than 1 year	$ 7,080
Later than 1 year and not later than 5 years	3,540
	$ 10,620

19. BORROWINGS

a. Short-term borrowings

Bank credit loans Letter of credit loans		December 31	December 31
		2019 $ 4,917,000 328,500 $ 5,245,500	2018 $ 3,601,000 93,901 $ 3,694,901

As of December 31, 2019 and 2018, the interest rates of short-term borrowings were 0.92%-2.68% per annum and 0.91%-3.89% per annum, respectively.

b. Short-term bills payable

Commercial paper Less: Unamortized discounts on bills payable		December 31	December 31
		2019 $ 2,450,000 (521 ) $ 2,449,479	2018 $ 1,850,000 (291 ) $ 1,849,709

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Short-term bills payable are commercial papers due within one year. Interest rates on these bills payable were 0.98%-1.17% and 0.91%-1.12% as of December 31, 2019 and 2018, respectively.

c. Long-term borrowings

Unsecured bank loans Less: Loan management fees Long-term bank loans		December 31	December 31
		2019 $ 150,000 (2,325 ) $ 147,675	2018 $ 1,700,000 (4,125 ) $ 1,695,875

Interest Due Date Article Rate Taiwan Bank Credit loan A 2021.06.30 The credit can be revolved within 60 months from September 30, 2016, the first drawdown date of the loan. 1.80% KGI Bank Credit loan 2021.01.04 The credit can be revolved within 24 months from January 4, 2019, the first drawdown date of the loan. 1.10%		December 31	December 31
		2019 $ - 150,000 $ 150,000	2018 $ 1,700,000 - $ 1,700,000

20. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company, Hwa Fong Investment Co., Ltd. and Genovella Renewables Inc. of the Group adopted a pension plan under the Labor Pension Act (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

142

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
		2019 $ 542,868 (340,223 ) $ 202,645	2018 $ 602,251 (367,316 ) $ 234,935

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, 2018	$ 624,763	$(400,068 )	$ 224,695
Service cost
Current service cost	19,143	-	19,143
Net interest expense (income)	10,434	(8,905 )	1,529
Recognized in profit or loss	29,577	(8,905 )	20,672
Remeasurement
Return on plan assets (excluding
amounts included in net interest)	-	(7,181)	(7,181)
Actuarial loss - experience adjustments	37,863	-	37,863
Actuarial loss - changes in financial
assumptions	9,101	-	9,101
Actuarial loss - changes in other
assumptions	310	-	310
Recognized in other comprehensive
income	47,424	(7,181 )	40,093
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
Balance at January 1, 2019	$ 602,251	$(367,316 )	$ 234,935
Service cost
Current service cost	17,257	-	17,257
Net interest expense (income)	8,563	(5,392 )	3,171
Recognized in profit or loss	25,820	(5,392 )	20,428
Remeasurement
Return on plan assets (excluding
amounts included in net interest)	-	(12,270)	(12,270)

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Actuarial loss - experience adjustments Actuarial loss - changes in financial assumptions Recognized in other comprehensive income Contributions from the employer Benefits paid Balance at December 31, 2019	341 16,630 16,971 - (102,174 ) $ 542,868	- - (12,270 ) (57,419) 102,174 $(340,223 )	341 16,630 4,701 (57,419) - $ 202,645

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
	2019 2018 1.00% 1.50% 1.50% 1.50% 1.00% 1.00%

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
		2019 $ (4,246 ) $ 4,306 $ 4,301 $ (4,252 )	2018 $ (4,602 ) $ 4,668 $ 4,686 $ (4,631 )

The sensitivity analysis presented above may not be representative of the actual change in the

144

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
		2019 $ 17,076 6.4 years	2018 $ 57,419 7.2 years

21. 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.		December 31
	2019 2018 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

b. 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 associates		December	31
		2018 $ 20,817 484 8,262 $ 29,563	2018 $ 20,817 1,349 9,302 $ 31,468

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 (limited to a certain percentage of paid-in capital).

145

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 22 (c).

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 2018 and 2017 approved in the shareholders’ meetings on June 21, 2019 and June 26, 2018 were as follows:

Legal reserve Cash dividends Cash dividends per share (NT$) d. Special reserves Special reserves	Appropriation of Earnings For the Year Ended December 31 2018 2017 $ 44,566 $ 61,858 385,992 551,418 $ 0.35 $ 0.5 For the Year Ended December 31	Appropriation of Earnings	Appropriation of Earnings	Appropriation of Earnings
			For the Year Ended December 31
		2019 $ 1,186,894		2018 $ 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.

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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
2019
Balance at January 1
$(100,013) $ 394,892
$ (6,961)
Unrealized gain on financial
assets at FVTOCI
-
308,482
-

Exchange differences arising
on translating the foreign
operation
(183,474)
-
-

Loss arising on changes in
the fair value of hedging
instrument
-
-
(2,106)
The amount transferred to
initial carrying amount of
hedged items
-
-
3,291
Share of other
comprehensive income
(loss) of associates
(17,218)
23,490
-
Cumulative unrealized gain
(loss) of equity
instruments transferred to
retained earnings due to
disposal

-
(10,344)

-

Balance at December 31
$(300,705
) $ 716,520
$ (5,776
)
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 financial
assets at FVTOCI
-
59,458
-
Exchange differences on
translating the financial
statements of foreign
(11,048)
-
-

Total
$ 287,918
308,482
(183,474)

(2,106)
3,291
6,272
(10,344)
$ 410,039
$ (87,435)
352,266
264,831
59,458
(11,048)

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operation Gain (loss) arising on changes in the fair value of hedging instruments Share of other comprehensive loss of associates Balance at December 31 f. Non-controlling interests	- (1,530 ) $(100,013 )	- (23,209 ) $ 394,892	(584) - $ (6,961 )	(584) (24,739 ) $ 287,918

Balance at January 1 Attributable to non-controlling interests: Share of (loss) profit for the year Exchange differences on translating the financial statements of foreign operations Business combination under common control Balance at December 31 g. Equity attributable to former owner of business combination under Balance at January 1 Attributable to non-controlling interests: Issuance of common stock for cash Share of profit for the period Exchange differences on translating the financial statements of foreign operations Equity attributable to owners of the Company from former owner of 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
	2019 2018 $ 2,428,958 $ 2,406,511 (56,986) 64,583 (94,179) (43,036) - 900 $ 2,277,793 $ 2,428,958 common control For the Year Ended December 31
		2019 $ 13,440 - - - (13,440 ) $ -	2018 $ 44,409 53,130 21,999 (3,766) (102,332 ) $ 13,440

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22. NET (LOSS) 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 An analysis of amortization by function Operating costs Operating expenses	For the Year Ended December 31 2019 2018 $ 93,038 $ 92,860 (1,733 ) (557 ) $ 91,305 $ 92,303 For the Year Ended December 31 2019 2018 0.99%-1.24% 0.99%-1.22% For the Year Ended December 31 2019 2018 $ 1,090,512 $ 1,095,360 31,126 8,294 $ 1,121,638 $ 1,103,654 $ 163 $ 12,487 26,746 25,647 $ 26,909 $ 38,134	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
			2019 $ 1,090,512 31,126 $ 1,121,638 $ 163 26,746 $ 26,909	2018 $ 1,095,360 8,294 $ 1,103,654 $ 12,487 25,647 $ 38,134

149

c. Employee benefit expense

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits Total employee benefit expense An analysis of employee benefit expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 67,279 20,428 87,707 1,782,035 $ 1,869,742 $ 1,660,197 209,545 $ 1,869,742	2018 $ 67,598 20,672 88,270 1,864,826 $ 1,953,096 $ 1,715,352 237,744 $ 1,953,096

As of December 31, 2019 and 2018, the Group had 2,642 and 2,683 employees, respectively. 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. For the year ended December 31, 2019, because of operation loss, the Company did not estimate the compensation of employees and the remuneration of directors and supervisors. The compensation of employees and remuneration of directors and supervisors for the years ended December 31, 2018, which were approved by the Company’s board of directors on March 21, 2019 are as follows:

Amount Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31, 2018
	Cash $ 5,500 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 in the following year.

There was no difference between the actual amounts of the compensation and remuneration proposed in 2018 and 2017, and the amounts recognized in the consolidated financial statements for the years ended December 31, 2018 and 2017.

Information on the compensation of employees and remuneration of directors and supervisors resolved by the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

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23. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Income tax recognized in profit or loss

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

Current tax In respect of the current year Adjustments for prior years Deferred tax In respect of the current year Effect of change in tax rate Adjustments for prior years Income tax (benefit) expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 5,637 (30,421 ) (24,784 ) (36,608) - 1,064 (35,544 ) $ (60,328 )	2018 $ 61,606 6,418 68,024 66,453 747 1,627 68,827 $ 136,851

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

(Loss) Profit before tax from continuing operations Income tax (benefit) 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 (benefit)recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $(362,412 ) $ (72,482) (22,925) 64,605 (29,357) - (169) $ (60,328)	2018 $ 669,096 $ 133,819 (18,939) 16 8,045 747 13,163 $ 136,851

The Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings was reduced from 10% to 5%.

The applicable tax rate used by subsidiaries in China is 25%. Under the “Criteria for Designation of High and New Technology Enterprise”, a designated high and new technology enterprise is allowed a 15% income tax rate. Guangdong Dingfung Pulp & Paper Co., Ltd. had obtained its qualification certificates and have a tax incentive of 15% income tax rate. Tax rates used by other entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

151

b. Income tax recognized in other comprehensive income

For the Year Ended December

Deferred tax Effect of change in tax rate Remeasurement on defined benefit plan Total income tax recognized in other comprehensive income		31
		2019 $ - 940 $ 940	2018 $ 8,587 8,019 $ 16,606

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, 2019

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance $ 46,987 9,896 20,093 $ 76,976 $ 1,924,940 80,520 $ 2,005,460	Recognized in Profit or Loss $ (7,398) 26,176 13,473 $ 32,251 $ - (3,293 ) $ (3,293 )	Recognized in Other Compre- hensive Income $ 940 - - $ 940 $ - - $ -	Exchange Differences $ - - (115 ) $ (115 ) $ - - $ -	Closing Balance $ 40,529 36,072 33,451
					$ 110,052
					$ 1,924,940 77,227
					$ 2,002,167

For the year ended December 31, 2018

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others	Opening Balance $ 38,198 61,721 15,285 $ 115,204	Recognized in Profit or Loss $ (7,817) (51,825) 4,848 $ (54,794 )	Recognized in Other Compre- hensive Income $ 16,606 - - $ 16,606	Exchange Differences $ - - (40 ) $ (40 )	Closing Balance $ 46,987 9,896 20,093
					$ 76,976

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Deferred tax liabilities Temporary differences Land value increment tax Others	$ 1,924,940 66,487 $ 1,991,427	$ - 14,033 $ 14,033	$ - - $ -	$ - - $ -	$ 1,924,940 80,520
					$ 2,005,460

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 2028 Expiry in 2029 Loss carryforwards as of December 31, 2019 comprised: The Company Unused Amount $ 44,158 136,204 $180,362 Hwa Fong Investments Co., Ltd. Unused Amount $ 82 120 $ 202 Syntax Communication (H.K.) Limited Unused Amount $ 10,889		December	31
		2019 2018 $ 82 $ - 120 82 $ 202 $ 82 Expiry Year 2024 2029 Expiry Year 2028 2029 Expiry Year Unlimited

e. Loss carryforwards as of December 31, 2019 comprised:

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f. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized

As of December 31, 2019 and 2018, the taxable temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized were $636,479 thousand and $663,452 thousand, respectively.

g. Income tax assessments

The Company Hwa Fong Investments Co., Ltd. Genovella Renewables Inc.	Latest Approved Year
	2017 2018 2017

24. (LOSS) EARNINGS PER SHARE

Basic (loss) earnings per share Diluted earnings per share	For 31	the Year Ended December	the Year Ended December
		2019 $ (0.22)	2018 $ 0.40 $ 0.40

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

Net (loss) profit for the Year:

For the Year Ended December	For the Year Ended December	For the Year Ended December
31
	2019	2018
(Loss) profit for the year attributable to owners of the
Company	$(245,098)	$ 445,663
Weighted average number of ordinary shares outstanding (in thousands of shares):
For the Year Ended December
31
	2019	2018
Weighted average number of ordinary shares used in the
computation of basic earnings (loss) per share	1,102,835	1,102,835
Effect of potentially dilutive ordinary shares:
Bonuses issued to employees		719
Weighted average number of ordinary shares used in the
computation of diluted earnings per share		1,103,554

154

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.

25. BUSINESS COMBINATIONS

a. Subsidiaries acquired

			Proportion of
			Voting Equity
	Principal	Date of	Interests	Consideration
Subsidiary	Activity	Reorganization	Acquired (%)	Transferred
Shenzhen Jinglun	Note 14	The fourth	100	$ 100,083
Paper Co., Ltd.		quarter, 2018
Syntax	Note 14	The first quarter,	100	$ 14,305
Communication		2019
(H.K.) Limited

The acquisition of Shenzhen Jinglun Paper Co., Ltd. and Syntax Communication (H.K.) Limited is the Group’s operating strategy to continue the expansion of its business activities in China and Hong Kong.

b. Consideration transferred

		Syntax
	Shenzhen	Communicatio
	Jinglun Paper	n (H.K.)
	Co., Ltd.	Limited
Cash	$ 100,083	$ 14,305

The Group paid RMB22,560 thousand and HK$3,653 thousand to the related parties of YFY Group in exchange for the equity of Shenzhen Jinglun Paper Co., Ltd. and Syntax Communication (H.K.) Limited, respectively, and the amount of investments held by the related parties were measured at the carrying amount of RMB23,062 thousand and HK$3,428 thousand, respectively, by using the equity method at the time of acquisition.

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

		Syntax
	Shenzhen	Communicatio
	Jinglun Paper	n (H.K.)
	Co., Ltd.	Limited
Current assets
Cash and cash equivalents	$ 675	$ 12,115

155

Trade and other receivables Inventories Other current assets Non-current assets Current liabilities Trade and other payables Other current liabilities	416,256 66,625 28,235 1,917 (401,830) (9,546 ) $ 102,332	2,003 - 383 2,692 (3,654) (99 ) $ 13,440

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

				Syntax
	Shenzhen		Communicatio
	Jinglun Paper		n (H.K.)
	Co., Ltd.		Limited
Consideration transferred	$	100,083	$	14,305
Less: Carrying amount of identifiable net assets acquired	(102,332 )			(13,440 )
		(2,249)		865
Equity attributable to former owner due to business
combination under common control
Capitals surplus		1,349		(865)
Non-controlling interests		900		-
	$	-	$	-

26. 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.

27. 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

156

December 31, 2019

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 at FVTPL Derivative financial liabilities - foreign exchange forward contracts (not under hedge accounting) 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	Level 1 $ 1,357 - - $ 1,357 $ 1,610,459 - $ 1,610,459 $ - $ - Level 1 $ 4,349 - - $ 4,349	Level 2 $ - 10,794 171,035 $ 181,829 $ - - $ - $ 24 $ 5,995 Level 2 $ - 3,166 171,035 $ 174,201	Level 3 $ - - - $ - $ - 293,985 $ 293,985 $ - $ - Level 3 $ - - - $ -	Total $ 1,357 10,794 171,035 $ 183,186 $ 1,610,459 293,985 $ 1,904,444 $ 24 $ 5,995 Total $ 4,349 3,166 171,035 $ 178,550

157

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	$ 1,313,065 - $ 1,313,065 $ - $ -	$ - - $ - $ 50 $ 250	$ - 300,123 $ 300,123 $ - $ -	$ 1,313,065 300,123
				$ 1,613,188
				$ 50
				$ 250

There were no transfers between Levels 1 and 2 for the years ended December 31, 2019 and 2018.

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

	Financial
	Assets of
	Equity
	Securities at
Financial Assets	FVTOCI
Balance at January 1, 2019	$ 300,123
Purchases	3
Proceeds from capital reduction	(17,229)
Recognized in other comprehensive income	11,088
Balance at December 31, 2019	$ 293,985
	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

158

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:
(a) The average exchange rate (i.e., difference between the
highest and the lowest exchange rates) of the
counterparties’ financial institutions in the accordance
with the Reuters quoting system, or
(b) The daily spot exchange rate quoted by financial
institutions.
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,	December	31,
	2019		2018
Discount for lack of marketability	15%		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,	December 31,
	2019	2018
Discount for lack of marketability
2.5% increase	$ (8,647 )	$ (8,827 )
2.5% decrease	$ 8,647	$ 8,827

159

b. Categories of financial instruments

Financial assets Financial assets at FVTPL Mandatorily classified as at FVTPL Financial assets for hedging Financial assets at amortized cost (1) Financial assets at FVTOCI Financial liabilities Financial liabilities at FVTPL Financial liabilities at amortized cost (2) Financial liabilities for hedging	December 31
	2019 2018 $ 183,186 $ 178,550 24 50 4,403,820 4,917,529 1,904,444 1,613,188 5,995 - 10,928,529 10,603,284 - 250

1) 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 from related parties, other receivables (accounted as other current assets), and refundable deposits (accounted as other non-current assets).
2) 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, other payables to related parties, long-term borrowings, and deposits received (accounted as other non-current liabilities).
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.

160

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.

Influence to profit or loss at 5% variance USD RMB	For the Year Ended December 31
	2019 2018 $ 52,288 $ 3,950 85,031 30,491

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
	2019 2018 $ 1,129,371 $ 1,122,349 2,602,348 3,553,017 255,484 564,547 5,245,500 3,694,901

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, 2019 and 2018 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
		2019 $ 4,990	2018 $ 3,130

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c) Other price risk

The Group was exposed to equity price risk through its investments in equity securities and mutual funds. To prevent significant price risk, the Group has built an immediate control system.

Sensitivity analysis

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

If equity prices had been 5% higher/lower, the Group’s comprehensive income for the years ended December 31, 2019 and 2018 would increase/decrease as follows:

Profit before tax Increase/decrease Other comprehensive income Increase/decrease	For the Year Ended December 31
	2019 2018 $ 68 $ 217 95,222 65,653

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.

As of December 31, 2019 and 2018, the Group’s unused financing facilities were $8,339,131 thousand and $5,788,780 thousand, respectively.

162

28. 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, 2019 and 2018.

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.

a. Related party name and category

Related Party Name Related Party Category YFY Consumer Products Co., Ltd. Fellow subsidiary YFY Packaging Inc. Fellow subsidiary YFY International BVI Corp. Fellow subsidiary Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd. Fellow subsidiary YFY Family Care (Kunshan) Co., Ltd. Fellow subsidiary YFY Family Paper (Beijing) Co., Ltd. Fellow subsidiary YFY Capital Co., Ltd. Fellow subsidiary Union Paper Corp. Fellow subsidiary Shin Foong Specialty & Applied Materials Co., Ltd. Fellow subsidiary YFY Japan Co., Ltd. Fellow subsidiary YFY Investment Co., Ltd. Fellow subsidiary China Color Printing Co., Ltd. Fellow subsidiary Cupid InfoTech Co., Ltd. Fellow subsidiary YFY Holding Management Co., Ltd. Fellow subsidiary YFY Jupiter Ltd. Fellow subsidiary Yuen Foong Yu Blue Economy Natural Resource (Yangzhou) Co., Fellow subsidiary Ltd. Ever Growing Agriculture Biotech Co., Ltd. Fellow subsidiary Arizon RFID Technology (Hong Kong) Co., Ltd., Taiwan Branch Fellow subsidiary MOBIUS105 LIMITED Fellow subsidiary Yuen Foong Yu Consumer Products (Yangzhou) Co., Ltd. Fellow subsidiary Sustainable Carbohydrate Innovation Co., Ltd. Fellow subsidiary YFY Biotechnology Co., Ltd. Parent’s associate Yuen Foong Paper Co., Ltd. Substantial related-party Shin-Yi Foundation Substantial related-party Beautone Co., Ltd. Substantial related-party Shin-Yi Enterprise 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 Substantial related-parties	For the Year Ended December 31
	2019 2018 $ 3,891,318 $ 4,971,242 305,268 354,677

163

Parent’s associates Parent company	76 41 $ 4,196,703	- 164 $ 5,326,083

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 Substantial related-parties Parent’s associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 2,429,748 2,263 599 $ 2,432,610	2018 $ 3,103,668 3,600 479 $ 3,107,747

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

d. Notes and accounts receivable from related parties

Related Party Type Fellow subsidiaries YFY Investment Co., Ltd. YFY Packaging Inc. Union Paper Corp. YFY Capital Co., Ltd. YFY Consumer Products Co., Ltd Others Substantial related-parties Beautone Co., Ltd. Others Parent’s associates Parent company		December 31	December 31
		2019 $ 107,284 69,428 54,999 53,914 49,565 60,025 395,215 49,142 11,114 60,256 39 3 $ 455,513	2018 $ 106,240 114,679 112,940 54,726 261,088 61,063 710,736 60,002 4,697 64,699 - 8 $ 775,443

164

The outstanding accounts receivable from related parties are unsecured. No bad debt was recognized for the years ended December 31, 2019 and 2018 for allowance of impaired accounts receivable from related parties.

e. Notes and accounts payable 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-parties Parent company Parent’s associates		December 31	December 31
		2019 $ 260,528 97,603 59,291 61,464 478,886 1,491 259 29 $ 480,665	2018 $ 346,869 132,512 65,315 55,663 600,359 2,152 259 - $ 602,770

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
		2019 $ 121,926 301,894 $ 423,820	2018 $ 460,215 309,164 $ 769,379

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

For the years ended December 31, 2019 and 2018, the interest income from the loans to related parties amounted to $21,805 thousand and $18,994 thousand, respectively.

g. Loans from related parties

Related Party Type Fellow subsidiaries Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd.		December 31	December 31
		2019 $ 5,194	2018 $ 7,433

165

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

For the years ended December 31, 2019 and 2018, the interest expense from the loans to related parties amounted to $570 thousand and $3 thousand, respectively.

h. Disposals of property, plant and equipment

Proceeds	Proceeds	- For	- For	Gain(Loss) on Disposal For the Year Ended December 31 2019 2018 $ - $ - the Year Ended December 31
For the Year Ended December 31
	2018 $

		2019 2018 $ 260 $ - $ 10,885 $ 10,885 7,049 7,091 $ 17,934 $ 17,976 Rental Income (Accounted as Other Income)	$
			$
			$
		For the Year Ended December 31
			2019 $ 1,429 114 $ 1,543	2018 $ 1,429 114 $ 1,543

i. Lease arrangements
j. Other transactions with related parties

166

Other Operating Expense	Other Operating Expense	Other Operating Expense
For the Year Ended December 31
2019 2018 $ 42,117 $ 37,128 Management Fee (Accounted as Operating Expenses)
For the Year Ended December 31
	2019 $ 84,932	2018 $ 81,377

The amount of management fee was depended on the agreements; rental income and expenses which were received or paid monthly were based on the market price.

k. 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
		2019 $ 22,140 2,900 $ 25,040	2018 $ 30,030 3,132 $ 33,162

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

29. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2019 and 2018, unused letters of credit for purchases of raw materials and machinery and equipment amounted to approximately $113,669 thousand and $447,769 thousand, respectively.

30. 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:

167

Financial assets Monetary items USD RMB Non-monetary items Derivative instruments USD Financial liabilities Monetary items USD Non-monetary items Derivative instruments USD EUR Financial assets Monetary items USD RMB Non-monetary items Derivative instruments USD EUR Financial liabilities Monetary items USD Non-monetary items Derivative instruments EUR	December 31, 2019
	Foreign Currency (In Thousands) Exchange Rate New Taiwan Dollars $ 44,979 29.98 $ 1,348,470 395,767 4.297 1,700,611 33,400 29.98 1,001,332 23,497 29.98 704,440 20,000 29.98 599,600 300 33.59 10,077 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

For the years ended December 31, 2019 and 2018, realized and unrealized foreign exchange losses were $66,848 thousand and $14,453 thousand, respectively. It is impractical to disclose net foreign exchange

168

gains by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

31. 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 (None)
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 9)
10) Intercompany relationships and significant intercompany transactions (Table 8)
11) Information on investees (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
- 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

169

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

32. 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, 2019 Revenue from external customers Revenue from other internal operating segments Segment profit or loss For the year ended December 31, 2018 Revenue from external customers Revenue from other internal operating segments Segment profit or loss	Business Unit of Pulp and Fine Paper $ 20,602,331 $ 1,133,382 ($ 307,581 ) $ 23,877,912 $ 1,096,653 $ 527,442	Business Unit of Forestry $ 38,464 $ 180,434 $ 7,175 $ 85,511 $ 255,061 $ 515	Other Segment $ 48,602 $ 8,868 ($ 1,678 ) $ 61,798 $ 7,290 $ 4,288	Adjustment and Elimination $ - ($ 1,322,684 ) $ - $ - ($ 1,359,004 ) $ -	Total $ 20,689,397 $ - ($ 302,084 ) $ 24,025,221 $ - $ 532,245

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.

170

Revenue from External

	Revenue from External
Taiwan Mainland China	Customers For the Year Ended December 31 2019 2018 $ 17,201,870 $ 20,036,279 3,487,527 3,988,942 $ 20,689,397 $ 24,025,221	Non-current Assets

		December 31
	2019 $ 17,201,870 3,487,527 $ 20,689,397	2019 $ 13,312,792 2,741,508 $ 16,054,300	2018 $ 12,984,417 2,937,997 $ 15,922,414

Information about Major Customers

No other single customers contributed 10% or more to the Group’s revenue for both 2019 and 2018.

171

TABLE 1

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS

FOR THE YEAR ENDED DECEMBER 31, 2019

(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			i i
					Thousands)										Currences n	Thousands)
						(Notes 2 and 4)	Thousands)								Thousands)
					(Notes 2 and 4)											(Notes 3 and 4)
							(Note 4)								(Notes 3 and 4)

1	Guangdong Dingfung Pulp & Paper Co., Ltd.	Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd	Other receivables from related parties	Yes	$ 521,007 ( RMB 121,249 )	$ 487,633 ( RMB 113,482 )	$ 121,243 ( RMB 28,216 )	3.25	Short-term financing	$ -	Operating capital	$ -	-	-	$ 487,633 ( RMB 113,482 )	$ 1,950,533 ( RMB 453,929 )
2	CHP International (BVI) Corporation	YFY International BVI Corp. Guangdong Dingfung Pulp & Paper Co., Ltd. Zhaoqing Dingfung Forestry Ltd.	Other receivables from related parties Other receivables from related parties Other receivables from related parties	Yes Yes Yes	316,000 ( US$ 10,540 ) 1,037,795 ( US$ 34,616 ) 379,200 ( US$ 12,648 )	299,800 ( US$ 10,000 ) 979,823 ( US$ 32,683 ) 359,760 ( US$ 12,000 )	299,800 ( US$ 10,000 ) 979,823 ( US$ 32,683 ) 359,760 ( US$ 12,000 )	2.80 3.10 2.50	Short-term financing Short-term financing Short-term financing	- - -	Operating capital Operating capital Operating capital	- - -	- - -	- - -	524,716 ( US$ 17,502 ) 2,098,863 (US$ 70,009 ) 2,098,863 (US$ 70,009 )	2,098,863 (US$ 70,009 ) 2,098,863 (US$ 70,009 ) 2,098,863 (US$ 70,009 )
3	Zhaoqing Dingfung Forestry Ltd.	Guangdong Dingfung Pulp & Paper Co., Ltd.	Other receivables from related parties	Yes	91,023 ( RMB 21,183 )	-	-	-	Short-term financing	-	Operating capital	-	-	-	1,132,240 ( RMB 263,495 )	1,132,240 ( RMB 263,495 )
4	Shenzhen Jinglun Paper Co., Ltd.	Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd	Other receivables from related parties	Yes	10,737 ( RMB 2,499 )	10,049 ( RMB 2,339 )	-	3.25	Short-term financing	-	Operating capital	-	-	-	10,049 (RMB 2,339 )	40,198 (RMB 9,355 )

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 Dingfung 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 Dingfung Forestry Ltd.:

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

Note 4: The exchange rates are US$1=NT$29.98 or RMB1=NT$4.297 as of December 31, 2019.

172

TABLE 2

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2019

(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					End of the Period	Actual Borrowing	Endorsed/	Guarantee to Net	Endorsement/	by Parent on
(Note 1)		Name	Relationship	Guarantee Given	During the Period							by Subsidiaries 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 0	Chung Hwa Pulp Corporation Chung Hwa Pulp Corporation	CHP International (BVI) Corporation Guangdong Dingfung Pulp & Paper Co., Ltd.	b. b.	$ 23,432,565 23,432,565	$ 869,250 (US$ 28,994) 183,973 (RMB 42,814)	$ 704,530 (US$ 23,500) 171,899 (RMB 40,004)	$ 38,546 -	$ - -	4.66 1.14	$ 31,243,420 31,243,420	Note 8 Note 8	N N	N N

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.

173

TABLE 3

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

DECEMBER 31, 2019

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

					December	31, 2019
		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. Genovella Renewables Inc.	Ordinary shares SinoPac Holdings Co., Ltd. NTU Innovation & Incubation Co., Ltd. Groundhog Technologies Inc. KHL IB Venture Capital Co., Ltd. Direct Insight Inc. 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 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 19,161,529 275,000 15,315,356 - 150,000 2,394,960 97,099	$ 1,297,521 - - 293,982 3 281,803 171,035 - 31,135 1,357	0.9 6.3 1.0 14.9 1.0 2.1 - 0.2 - -	$ 1,297,521 - - 293,982 3 281,803 171,035 - 31,135 1,357

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 6 and Table 7 for information on investments in subsidiaries and associates.

174

TABLE 4

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, 2019

(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 Dingfung Forestry Ltd. Guangdong Dingfung Pulp & Paper Co., Ltd. Shenzhen Jinglun Paper Co., Ltd.	YFY Capital Co., Ltd. Shenzhen Jinglun Paper Co., Ltd. YFY Consumer Products 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 Dingfung Pulp & Paper Co., Ltd. Zhaoqing Dingfung Forestry Ltd. YFY Investment Co., Ltd. YFY Investment Co., Ltd. Chung Hwa Pulp Corporation	a. b. a. a. a. a. a. a. a. c. b. b. a. a. b.	Sale Sale Sale Sale Purchase Sale Purchase Purchase Purchase Sale Sale Purchase Purchase Sale Purchase	$ (822,562) (1,106,237) (Note 2) (584,410) (315,693) 1,509,486 (860,847) 143,210 219,279 376,522 (264,584) (180,434) (Note 2) 180,434 (Note 2) 170,739 (1,057,936) 1,106,237 (Note 2)	(4) (6) (3) (2) 9 (5) 1 1 2 (1) (82) 8 8 (49) 100	0.5 month after transaction month 5 months after transaction month 2 months after transaction month 3 months after transaction month 1 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 5 months after transaction month	$ - - - - - - - - - - - - - - -	- - - - - - - - - - - - - - -	$ 53,914 727,224 49,565 69,428 (260,528) 54,999 (11,857) (97,603) - 49,142 61,882 (61,882) (11,630) 107,284 (727,224)	2 26 2 2 (16) 2 (1) (6) - 2 94 (24) (5) 26 (100)	$ - 2,312 - - - - - - - - 965 - - - -

Note 1: a. Fellow subsidiaries.

b. Parent company and subsidiary.

c. Substantial related parties.

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

175

TABLE 5

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, 2019

(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 Guangdong Dingfung Pulp & Paper Co., Ltd.	Shenzhen Jinglun Paper Co., Ltd. YFY Investment Co., Ltd.	Parent company and subsidiary Fellow subsidiaries	$ 727,224 (Note) 107,284	1.65 9.9	$ - -	- -	$ 173,105 34,929	$ - -

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

176

TABLE 6

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2019

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

				Investment Amount	Investment Amount	As of December 31, 2019	As of December 31, 2019	As of December 31, 2019	Net Income
Investor
	Investee Company	Location	Main Businesses and Products	December 31,	December 31,	Number of		Carrying	(Loss) of the	Share of	Note
Company
				2019	2018	Shares	%	Amount	Investee	Profits (Loss)

Chung Hwa Pulp Corporation Hwa Fong Investment Co., Ltd. CHP International (BVI) Corporation	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. Genovella Renewables Inc. (Note 3) Syntax Communication (H.K.) Limited	British Virgin Island Hsinchu, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Taipei, Taiwan Hualien, Taiwan Hong Kong	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 Fertilizer production, sale of fertilizer, retail sale of food products and groceries, special crop and edible fungus cultivation, refractory materials manufacturing, cement and concrete products manufacturing, ready-mixed concrete manufacturing, refractory materials wholesale and sale of building material Sale and print of paper merchandise	$ 1,747,085 329,000 343,000 32,832 36,000 7,000 5,000 US$ 466 (Note 2)	$ 1,747,085 329,000 343,000 60,000 36,000 7,000 5,000 - (Note 2)	61,039,956 20,000,000 34,300,000 3,283,200 3,600,000 700,000 - 34,000,000	100.0 1.8 49.0 4.4 100.0 1.0 100.0 100.0	$ 5,136,559 417,192 284,522 80,460 52,908 5,807 9,429 13,781	$ (57,213) 3,083,789 (96,377) (229,750) 2,893 (96,377) 2,453 602	$ (53,850) 54,456 (47,224) (10,255) 2,893 (964) 2,453 602	a. b. b. b. a. b. a. a.

Note1 : a. Subsidiaries.

b. Investments accounted for using the equity method.

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

Note 2: CHP International (BVI) Corporation, subsidiary of the Company, acquire shares of Syntax Communication (H.K.) Limited by cash from a fellow subsidiary, YFY International BVI Corp. in January 2019.

Note 3: Formerly as Kuang Hwa Fertilizer Limited Company.

177

TABLE 7

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES INFORMATION ON INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2019 (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, 2019	Outward	Inward	December 31,	of the Investee	Direct or Indirect	Gain (Loss)	December 31,	Income as of
		Thousand)
				(Foreign			2018		Investment		2019	December 31,
		(Note 1)					(Foreign
				Currencies in								2019
							Currencies in
				Thousand)
							Thousand)
				(Note 1)
							(Note 1)

Guangdong Dingfung Pulp & Paper Co., Ltd. Shenzhen Jinglun Paper Co., Ltd. Zhaoqing Dingfung Forestry Ltd. Zhaoqing Xinchuan Green Technology Co., Ltd. (Note 4)	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. Environmental equipment technology research and development; construction of wastewater, flue gas, noise and solid waste treatment; pure water treatment construction; environmental technology consulting; sale of environmental protection equipment and chemical raw material; import and export of cargo and technology	$ 2,567,187 (US$ 85,630) (Note 3) 13,750 (RMB$ 3,200) 655,962 (US$ 21,880) 8,594 (RMB$ 2,000) (Note 7)	Investment in mainland China through companies set up in another country. (Note 5) Investment in mainland China through companies set up in another country. (Note 5)	$ 395,736 (US$ 13,200) - 132,751 (US$ 4,428) -	$ - - - -	$ - - - -	$ 395,736 (US$ 13,200) (Note 5) 132,751 (US$ 4,428) (Note 5)	($ 144,885) (Note 2,b.) 17,390 (Note 2,b.) 7,175 (Note 2,b.) 700 (Note 2,b.)	60.0 100.0 (Note 6) 86.5 (Note 4) 100.0 (Note 7)	($ 86,931) (Note 2,b.) 17,390 (Note 2,b.) 6,206 (Note 2,b.) 700	$ 2,842,449 117,155 2,454,651 9,266	$ - - - -

Accumulated Investment in Mainland China as of	Investment Amounts Authorized by
		Upper Limit on Investment
December 31, 2019	Investment Commission, MOEA

$528,487 (Note 1)	$1,277,328 (Note 1)	$9,070,339

Note 1: The exchange rates are US$1=NT$29.98 or RMB$1=NT$4.297 as of December 31, 2019.
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 Dingfung 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 Dingfung Pulp & Paper Co., Ltd. are 20.2% and 66.3%, respectively.
Note 5: Investment in mainland China through companies set up in another country. The direct investor is Guangdong Dingfung Pulp & Paper Co., Ltd.
Note 6: Guangdong Dingfung Pulp & Paper Co., Ltd. acquired shares of Shenzhen Jinglun Paper Co., Ltd. from a fellow subsidiary, Hwa Fong Paper (Hong Kong) Limited, in 2018.
Note 7: On September 12, 2019, the board of directors of Guangdong Dingfung Pulp & Paper Co., Ltd. decided to establish Zhaoqing Xinchuan Green Technology Co., Ltd. The total investment was RMB10,000 thousand and Guangdong Dingfung Pulp & Paper held 100% equity. The total capital injection was RMB 2,000 thousand as of December 31, 2019.

178

TABLE 8

CHUNG HWA PULP CORPORATION AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2019

(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 Jinglun Paper Co., Ltd.	Subsidiary	Accounts receivable Sales	$ 727,224 1,106,237	5 months after transaction month By market price	2 5
2	Zhaoqing Dingfung Forestry Ltd.	Guangdong Dingfung Pulp & Paper Co., Ltd.	Parent company	Accounts receivable Sales	61,882 180,434	Net 120 days By market price	- 1
3	Genovella Renewables Inc.	Chung Hwa Pulp Corporation	Parent company	Accounts receivable Sales	856 8,868	Prepaid or Net 30 days By market price	- -
4	Syntax Communication (H.K.) Limited	Chung Hwa Pulp Corporation	Parent company	Accounts receivable Commission	2,928 27,003	Net 30 days By market price	- -

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

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6.5 Financial Statements for the Years Ended December 31, 2019 and 2018, 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, 2019 and 2018, 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 (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, 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, 2019. 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.

The key audit matter identified in the financial statements for the year ended December 31, 2019 is as follows:

180

Estimation of Expected Credit Loss of Accounts Receivable

The accounts receivable of the Company 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.

The audit procedures that we performed in respect of the above key audit matter included the following:

We obtained and assessed the reasonableness of the method and the information used by management for the estimation of expected credit loss of accounts receivable.
We sample-tested items in the aging report on the balance sheet date and we verified and assessed the correctness of the calculation of the expected credit loss.
We analyzed and sample-tested the recoverability of the overdue receivables after the balance sheet date. We assessed the reasonableness of the expected credit loss recognized on the accounts receivable based on the customers’ historical payment record, credit limit control and overdue receivables tracking.

Emphasis of Matter

As disclosed in Notes 4 and 12 to the accompanying financial statements, the Company’s subsidiary Guangdong Dingfung Pulp & Paper Co., Ltd. acquired 100% equity of Shenzhen Jinglun Paper Co., Ltd. from fellow subsidiaries of YFY Group in the fourth quarter of 2018, and CHP International (BVI) Corporation acquired 100% equity of Syntax Communication (H.K.) Limited from fellow subsidiaries of YFY Group in the first quarter of 2019. 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 was disclosed as if it had occurred before January 1, 2018, and the Company’s financial statements as of and for the year ended December 31, 2018 were 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 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

181

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 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.

182

Obtain sufficient and 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, 2019, 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 23, 2020

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.

183

CHUNG HWA PULP CORPORATION

BALANCE SHEETS DECEMBER 31, 2019 AND 2018 (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) Financial assets for hedging - current (Notes 4 and 9) Notes and accounts receivable (Notes 4 and 10) Accounts receivable from related parties (Notes 4 and 25) Inventories (Notes 4 and 11) Other current assets (Note 24) 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) Investments accounted for using the equity method (Notes 4 and 12) Property, plant and equipment (Notes 4 and 13) Right-of-use assets (Notes 4 and 14) Investment properties (Notes 4 and 15) Deferred tax assets (Notes 4 and 20) Prepayments for equipment Other non-current assets Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 16) Short-term bills payable (Note 16) Financial liabilities for hedging - current (Notes 4 and 9) Notes and accounts payable Accounts payable to related parties (Note 25) Other payables Lease liabilities - current (Notes 4 and 14) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Note16) Deferred tax liabilities (Notes 4 and 20) Lease liabilities - non-current (Notes 4 and 14) Net defined benefit liabilities (Notes 4 and 17) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 18) 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		2019 Amount % $ 144,332 1 10,794 - 1,297,521 5 24 - 1,799,070 6 1,039,436 4 3,090,420 11 408,833 1 7,790,430 28 171,035 1 575,788 2 5,971,641 21 12,420,909 45 43,919 - 257,144 1 106,312 - 516,999 2 73,060 - 20,136,807 72 $ 27,927,237 100 $ 5,245,500 19 2,449,479 9 - - 1,170,651 4 459,648 1 886,323 3 19,304 - 198,097 1 10,429,002 37 147,675 1 2,002,167 7 24,950 - 202,645 1 3,567 - 2,381,004 9 12,810,006 46 11,028,353 40 29,563 - 226,257 1 1,186,894 4 2,236,125 8 3,649,276 13 410,039 1 - - 15,117,231 54 $ 27,927,237 100		2018 (Audited after Restatement)
				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 6,289,416 23 12,255,178 44 - - 257,411 1 72,902 - 375,823 1 95,997 - 20,078,246 72 $ 28,049,260 100 $ 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 13,440 - 15,635,150 56 $ 28,049,260 100

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

(With Deloitte & Touche auditors’ report dated March 23, 2020)

184

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4 and 24) Sales Sales returns and allowances Net sales Other operating revenue Total operating revenue OPERATING COSTS (Notes 4, 11, 19 and 24) Cost of goods sold Other operating cost Total operating costs GROSS PROFIT OPERATING EXPENSES (Notes 4, 19 and 24) Selling and marketing General and administrative Research and development Total operating expenses (LOSS) PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Finance costs (Note 19) Share of (loss) profit of subsidiaries and associates (Notes 4 and 12) Interest income Dividend income Other income (Note 24) Gain on disposal of property, plant and equipment Gain on disposal of investments Foreign exchange (loss) gain (Note 4) Gain (loss) on financial instruments at FVTPL Other losses Total non-operating income and expenses		2019 Amount % $ 18,435,504 101 (147,983 ) (1 ) 18,287,521 100 41,454 - 18,328,975 100 17,178,852 94 28,023 - 17,206,875 94 1,122,100 6 1,094,700 6 231,242 2 33,708 - 1,359,650 8 (237,550 ) (2 ) (85,269) - (53,980) - 1,128 - 75,020 - 71,133 - 32 - 9 - (51,247) - 1,426 - (1,563 ) - (43,311 ) -		2018 (Audited after Restatement)
				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) - 203,589 1 2,066 - 54,609 - 60,918 - - - 12 - 34,734 - (31,784) - (4,651 ) - 244,752 1 (Continued)

185

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

(LOSS) PROFIT BEFORE INCOME TAX INCOME TAX (BENEFIT) EXPENSE (Notes 4 and 20) NET (LOSS) 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 17) Unrealized gain on investments in equity instruments at fair value through other comprehensive income Share of the other comprehensive income (loss) of subsidiaries and associates Tax effect of items that will not be reclassified (Note 20) Items that may be reclassified subsequently to profit or loss: Gain (loss) on hedging instruments (Note 18) Share of the other comprehensive loss of subsidiaries and associates (Note 18) Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE YEAR NET (LOSS) PROFIT ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control		2019 Amount % $ (280,861) (2) (35,763 ) - (245,098 ) (2 ) (4,701) - 302,015 2 29,769 - 940 - 1,185 - (200,692 ) (1 ) 128,516 1 $ (116,582 ) (1 ) $ (245,098) (1) - - $ (245,098 ) (1 )		2018 (Audited after Restatement)
				Amount % $ 536,312 2 68,650 - 467,662 2 (40,093) - 59,774 - (23,632) - 16,606 - (584) - (16,344 ) - (4,273 ) - $ 463,389 2 $ 445,663 2 21,999 - $ 467,662 2 (Continued)

186

CHUNG HWA PULP CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

TOTAL COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO: Owners of the Company Equity attributable to former owner of business combination under common control (LOSS) EARNINGS PER SHARE (Note 21) Basic Diluted		2019 Amount % $ (116,582) (1) - - $ (116,582 ) (1 ) $ (0.22 )		2018 (Audited after Restatement)
				Amount % $ 445,156 2 18,233 - $ 463,389 2 $ 0.40 $ 0.40
		$		$

The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche auditors’ report dated March 23, 2020) (Concluded)

187

CHUNG HWA PULP CORPORATION

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

	Share Capital (Notes 4and 18) Capital Surplus ares (Thousands) Amount (Notes 4 and 18) 1,102,835 $ 11,028,353 $ 36,602 - - - - - - 1,102,835 11,028,353 36,602 - - - - - - - - - - - (6,467 ) - - - - - - - - - - - 1,349 - - (16 ) 1,102,835 11,028,353 31,468 - - - - - - - - (1,024 ) - - - - - - - - - - - (865 ) - - (16 ) - - - 1,102,835 $ 11,028,353 $ 29,563	Retained Earnings (Notes 4and 18)		Other Equity (Notes 4and 18)
			Exchange Differences on Translating U the Financial Statements of A Foreign Operations $ (87,435 ) - - (87,435 ) - - - - (12,578 ) (12,578 ) - - (100,013 ) - - - - (200,692 ) (200,692 ) - - - $ (300,705 )	Unrealized (Loss) Gain on Financial Assets at Fair nrealized (Loss) Value Through Gain on Other vailable-for-sale Comprehensive Financial Assets Income C $ 319,079 $ - (319,079 ) 358,643 - - - 358,643 - - - - - - - - - - - 36,249 - 36,249 - - - - - 394,892 - - - - - - - - - 331,972 - 331,972 - - - - - (10,344 ) $ - $ 716,520	ash Flow Hedges $ (6,377 ) 6,377 - - - - - - - - - - - - - - - - - - - - $ -
		Unappropriated Legal Reserve Special Reserve Earnings $ 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 44,566 - (44,566 ) - - (385,992 ) - - - - - (245,098 ) - - (3,949 ) - - (249,047 ) - - - - - - - - 10,344 $ 226,257 $ 1,186,894 $ 2,236,125
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 23, 2020)

188

CHUNG HWA PULP CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) income before income tax

Adjustments for:
Depreciation and amortization expenses
Expected credit loss (reversed) recognized on accounts
receivables
(Gain) loss on financial instruments at FVTPL
Finance costs
Interest income
Dividend income
Share of loss (profit) of subsidiaries and associates
Gain on disposal of property, plant and equipment
Net gain on disposal of investments
Write-downs of (reversal of write-down) inventories
Net unrealized loss (gain) on foreign currency exchange
Changes in operating assets and liabilities
Increase in financial assets mandatorily classified as at fair
value through profit or loss
Notes and accounts receivable
Notes and accounts receivable from related parties
Inventories
Other current assets
Notes payable and accounts payable
Notes and accounts payable to related parties
Other payables
Other current liabilities
Net defined benefit liabilities

Cash generated from operations
Interest received
Interest paid
Income tax paid

Net cash generated from operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial assets at FVTOCI
Proceeds from capital reduction on financial assets at fair value
through other comprehensive income
Purchase of financial instruments for hedging

2019
2018
(Audited after
Restatement)
$ (280,861) $ 536,312
924,397
904,012
(22,285)
2,330
(1,426)
31,784
85,269
74,741
(1,128)
(2,066)
(75,020)
(54,609)
53,980
(203,589)
(32)
-
(9)
(12)
34,116
(1,275)
41,638
(12,269)
(6,202)
(9,016)
(69,697)
86,087
205,670
(199,868)
510,858
(834,526)
(188,382)
144,172
(103,101)
(400,206)
(114,669)
43,397
(62,997)
220,140
63,343
36,984
(36,991
)
(29,853
)
956,471
332,670
1,128
3,101
(84,529)
(77,592)
(755
)
(846
)
872,315

257,333
(3)
-
17,229
18,655
-
(9,645)
(Continued)

189 -

CHUNG HWA PULP CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (In Thousands of New Taiwan Dollars)
				2018
			(Audited after
		2019	Restatement)
Proceeds from the sale of financial instruments for hedging	$	4,252	$	2,719
Proceeds from capital reduction on investments accounted for
using the equity method		27,168		-
Payments for property, plant and equipment		(1,038,902)		(901,638)
Proceeds from the disposal of property, plant and equipment		89		-
Increase in other non-current assets		(3,898)		(53)
Increase in prepayments for equipment		(144,467)		(8,864)
Dividend received		125,388		92,600
Net cash used in investing activities		(1,013,144 )		(806,226 )
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings		1,553,977		363,820
Increase (decrease) in short-term bills payable		599,770		(99,559)
Proceeds from long-term borrowings		2,402,000		2,500,000
Repayments of long-term borrowings		(3,952,000)	(1,720,000)
Repayment of the principal portion of lease liabilities		(20,097)		-
Increase in other non-current liabilities		335		417
Cash dividends paid		(385,992 )		(549,355 )
Net cash generated from financing activities		197,993		495,323
NET INCREASE (DECREASE) IN CASH		57,164		(53,570)
CASH AT THE BEGINNING OF THE YEAR		87,168		140,738
CASH AT THE END OF THE YEAR	$ 144,332		$	87,168

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

(With Deloitte & Touche auditors’ report dated March 23, 2020)

(Concluded)

190 -

CHUNG HWA PULP CORPORATION

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (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.

YFY Inc. and its subsidiaries held 57.7% of ordinary shares of the Company as of December 31, 2019 and 2018.

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 23, 2020.

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), IFRIC Interpretations (IFRIC) and SIC Interpretations (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

IFRS 16 “Leases”

Definition of a lease

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The Company elects 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 are not reassessed and are accounted for in accordance with the transitional provisions under IFRS 16.

The Company as lessee

The Company recognizes 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 are recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company presents 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 are classified within financing activities; cash payments for the interest portion are classified within operating activities. Prior to the application of IFRS 16, payments under operating lease contracts were recognized as expenses on a straight-line basis. Cash flows for operating leases were classified within operating activities on the statements of cash flows.

The Company also applies the following practical expedients:

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

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 is 1.2101%. The difference between the (i) lease liabilities recognized and (ii) operating lease commitments disclosed under IAS 17 on December 31, 2018 is explained as follows:

The future minimum lease payments of non-cancellable operating lease commitments on December 31, 2018 Less: Recognition exemption for short-term leases and leases of low-value assets Undiscounted amounts on January 1, 2019 Discounted amounts using the incremental borrowing rate on January 1, 2019 Lease liabilities recognized on January 1, 2019	$ 59,275 (7,994 ) $ 51,281 $ 50,142 $ 50,142

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The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

	As Originally	As Originally	Adjustments
	Stated on		Arising from	Restated on
	January	1,	Initial	January 1,
	2019		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

b. The IFRSs endorsed by the Financial Supervisory Commission (FSC) for application starting from 2020

Effective Date

New IFRSs Announced by IASB

Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 1) Amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate January 1, 2020 (Note 2) Benchmark Reform”

Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

Note 1: 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 2: The Company shall apply these amendments retrospectively for annual reporting periods beginning on or after January 1, 2020.
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 Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC
193 -

Effective Date Announced by IASB New IFRSs (Note)

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 “Classification of Liabilities as Current January 1, 2022 or Non-current”

Note: Unless stated otherwise, the above New IFRSs are effective for annual reporting

periods beginning on or after their respective effective dates.

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.

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;
194 -
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 Company’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 translated using the exchange rate at the date of the transaction.

For the purpose of preparing financial statements, the functional currencies of the Company and its foreign operations (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 exchange differences, if any, are recognized in other comprehensive income and accumulated in equity.

e. Inventories

Inventories consist of raw materials, supplies, work in progress and finished goods 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.

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.

195 -

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 to recognize its share of further losses.

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

The Company assesses its investment for any impairment by comparing the estimated recoverable amount with the carrying amount based on the investee’s financial statements as a whole. If the recoverable amount of the investment subsequently increases, the Company will recognize 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 of loss of control. 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 of loss of control is recognized as a gain or loss in profit or loss. In addition, 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, profit and loss 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

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.

196 -

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.

h. Property, plant and equipment

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.

Depreciation is recognized using the straight-line method.

197 -

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.

1) Financial assets

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

a) Measurement category

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

i. Financial assets at FVTPL

198 -

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

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.

b) Impairment of financial assets

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 (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.

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reporting date.

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.

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.

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.

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.

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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 are recognized immediately in profit or loss.

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.

m. Provisions

n. Revenue recognition

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.

o. Leases

2019

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease.

1) The Company as lessor
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Lease payments (less any lease incentives payable) from operating leases are recognized as income on a straight-line basis over the terms of the relevant leases.

2) The Company as lessee

The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for short-term leases and low-value asset leases accounted for applying a recognition exemption where lease payments are recognized as expenses on a straight-line basis over the lease terms.

Right-of-use assets are depreciated using the straight-line method from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities are initially measured at the present value of the lease payments, which comprise fixed payments. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses the lessee’s incremental borrowing rate.

Subsequently, lease liabilities are measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented on a separate line in the balance sheets.

2018

1) The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

2) The Company as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

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
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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.

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 on unappropriated earnings is provided for 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.

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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.

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.

Estimated impairment of financial assets

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 10. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

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6. CASH

Cash on hand Checking accounts and demand deposits		December 31	December 31
		2019 $ 639 143,693 $ 144,332	2018 $ 658 86,510 $ 87,168

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
	2019 2018 0.001%-0.38% 0.001%-0.48%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current 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 Bank debentures in the ROC (b)		December 31	December 31
		2019 $ 10,794 $ 171,035	2018 $ 3,166 $ 171,035

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

					Notional Amount
			Currency	Maturity Date	(In Thousands)
December	31,	2019
					USD33,400/NTD1,001,3
Sell			USD:NTD	2020.01.10-2020.02.27	32
December	31,	2018
Sell			USD:NTD	2019.01.09-2019.01.22	USD16,500/NTD506,798

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.

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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.

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

Current Domestic investments Listed shares Non-current Domestic investments Listed shares Unlisted shares		December 31	December 31
		2019 $ 1,297,521 $ 281,803 293,985 $ 575,788	2018 $ 1,028,036 $ 260,361 300,123 $ 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 Company’s strategy of holding these investments for long-term purposes.

9. FINANCIAL INSTRUMENTS FOR HEDGING

Financial assets under hedge accounting-current Cash flow hedges - foreign exchange forward contracts Financial liabilities under hedge accounting-current Cash flow hedges - foreign exchange forward contracts		December	31
		2019 $ 24 $ -	2018 $ 50 $ 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 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.

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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.

			Notional Amount	Notional Amount
	Currency	Maturity Date	(In Thousands)
December 31, 2019
Buy	EUR:NTD	2020.01.31	EUR300/NTD10,077
December 31, 2018
Buy	EUR:NTD	2019.03.05	EUR243/NTD8,554
Buy	EUR:NTD	2019.01.22-2019.01.28 EUR3,470/NTD122,144
December 31, 2019
			Change in	Other Equity
			Value Used for	Carrying
			Calculating	Amount in
			Hedge	Continuing
	Hedged Items		Ineffectiveness	Hedges
Cash flow hedge
Forecast transactions	(capital expenditures)		$ (2,106 )	$ (5,776 )
December 31, 2018
			Change in	Other Equity
			Value Used for	Carrying
			Calculating	Amount in
			Hedge	Continuing
	Hedged Items		Ineffectiveness	Hedges
Cash flow hedge
Forecast transactions	(capital expenditures)		$ (584 )	$ (6,961 )

For the years ended December 31, 2019 and 2018, refer to Note 18(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 2019 and 2018.

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10. NOTES RECEIVABLE AND ACCOUNTS RECEIVABLE

Notes receivable - operating Accounts receivable - operating Gross carrying amount Less: Allowance for impairment loss		December 31	December 31
		2019 $ 13,079 1,793,622 1,806,701 (7,631 ) $ 1,799,070	2018 $ 22,080 1,760,234 1,782,314 (29,916 ) $ 1,752,398

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 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, 2019

Not Past Due Gross carrying amount $ 1,727,611 Loss allowance (Lifetime ECL) (570 ) Amortized cost $ 1,727,041	Less than 90 Days $ 64,139 (1,355 ) $ 62,784	91 Days to A Year $ 14,883 (5,638 ) $ 9,245	Over A Year $ 68 (68 ) $ -	Total $ 1,806,701 (7,631 ) $ 1,799,070

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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 movement of the loss allowance of trade receivables were as follows:

Balance at January 1 Net remeasurement of loss allowance Balance at December 31	2019 $ 29,916 (22,285 ) $ 7,631	2018 $ 27,586 2,330 $ 29,916

11. INVENTORIES

Finished and purchased goods Work in process Materials		December 31	December 31
		2019 $ 1,696,283 348,244 1,045,893 $ 3,090,420	2018 $ 2,135,217 379,465 1,120,712 $ 3,635,394

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2019 and 2018 were $17,178,852 thousand and $19,197,893 thousand, respectively.

The cost of goods sold for the years ended December 31, 2019 and 2018 included inventory write-downs of $34,116 thousand and reversal of inventory write-downs of $1,275 thousand, respectively.

12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries Investments in associates		December 31	December 31
		2019 $ 5,189,467 782,174 $ 5,971,641	2018 $ 5,432,619 856,797 $ 6,289,416

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a. Investments in subsidiaries

CHP International (BVI) Corporation Hwa Fong Investment Co., Ltd.		December 31	December 31
		2019 $ 5,136,559 52,908 $ 5,189,467	2018 $ 5,388,188 44,431 $ 5,432,619

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
	2019 2018 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.

The Company’s subsidiary Guangdong Dingfung Pulp & Paper Co., Ltd. acquired 100% equity of Shenzhen Jinglun Paper Co., Ltd. from fellow subsidiaries of YFY Inc. group in the fourth quarter of 2018 by RMB22,560 thousand and CHP International (BVI) Corporation acquired 100% equity of Syntax Communication (H.K.) Limited from fellow subsidiaries of YFY Group in the first quarter of 2019 by HK$3,653 thousand. 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, 2018 and the Company’s financial statements as of and for the year ended December 31, 2018 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
		2019 $ 782,174	2018 $ 856,797

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

The Company’s share of: (Loss) profit for the year Other comprehensive profit (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
		2019 $ (3,023) 6,162 $ 3,137	2018 $ 57,130 (24,792 ) $ 32,338

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.

13. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2018 Additions Disposals Reclassifications Balance at December 31, 2018 Accumulated depreciation and impairment Balance at January 1, 2018 Disposals Depreciation expenses Balance at December 31, 2018 Carrying amounts at December 31, 2018 Cost Balance at January 1, 2019 Additions Disposals Reclassifications Balance at December 31, 2019 Accumulated depreciation and impairment Balance at January 1, 2019 Disposals Depreciation expenses Balance at December 31, 2019 Carrying amounts at December 31, 2019	Freehold Land $ 6,637,258 - - - $ 6,637,258 $ - - - $ - $ 6,637,258 $ 6,637,258 - - - $ 6,637,258 $ - - - $ - $ 6,637,258	Buildings $ 3,040,101 6,598 - 31,966 $ 3,078,665 $ 2,509,492 - 74,969 $ 2,584,461 $ 494,204 $ 3,078,665 11,996 (6,235 ) 18,921 $ 3,103,347 $ 2,584,461 (6,235 ) 73,164 $ 2,651,390 $ 451,957	Machinery $ 24,288,761 77,225 (19,315 ) 418,832 $ 24,765,503 $ 20,866,123 (19,315 ) (606,786 ) $ 21,453,594 $ 3,311,909 $ 24,765,503 53,360 (199,015 ) 632,342 $ 25,252,190 $ 21,453,594 (199,015 ) (604,814 ) $ 21,859,393 $ 3,392,797	Electric Equipment $ 2,912,891 16,216 (1,586 ) 39,466 $ 2,966,987 $ 2,357,160 (1,586 ) 73,811 $ 2,429,385 $ 537,602 $ 2,966,987 13,774 (56,500 ) 31,046 $ 2,955,307 $ 2,429,385 (56,500 ) 75,785 $ 2,448,670 $ 506,637	Tools $ 1,613,469 36,618 (999 ) 73,478 $ 1,722,566 $ 1,336,736 (999 ) 100,987 $ 1,436,724 $ 285,842 $ 1,722,566 28,813 (27,840 ) 45,760 $ 1,769,299 $ 1,436,724 (27,783 ) 100,949 $ 1,509,890 $ 259,409	Miscellaneous Equipment $ 578,378 9,439 (5,096 ) 11,183 $ 593,904 $ 509,498 (5,096 ) (21,424 ) $ 525,826 $ 68,078 $ 593,904 7,880 (19,255 ) 13,659 $ 596,188 $ 525,826 (19,255 ) 22,152 $ 528,723 $ 67,465	Property in Construction $ 381,472 1,113,738 - (574,925 ) $ 920,285 $ - - - $ - $ 920,285 $ 920,285 926,829 - (741,728 ) $ 1,105,386 $ - - - $ - $ 1,105,386	Total $ 39,452,330 1,259,834 (26,996 ) - $ 40,685,168 $ 27,579,009 (26,996 ) 877,977 $ 28,429,990 $ 12,255,178 $ 40,685,168 1,042,652 (308,845 ) - $ 41,418,975 $ 28,429,990 (308,788 ) (876,864 ) $ 28,998,066 $ 12,420,909

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 Others Machinery

15-35 years 3-44 years 3-15 years

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Electric equipment	5-15 years
Tools	3-5 years
Miscellaneous equipment	3-20 years

14. LEASE ARRANGEMENTS

a.	Right-of-use assets - 2019 December 31, 2019 Carrying amounts Land $ 4,284 Buildings 24,596 Office equipment 3,254 Transportation equipment 11,785 $ 43,919 For the Year Ended December 31, 2019 Additions to right-of-use assets $ 14,209 Depreciation charge for right-of-use assets Land $ 2,142 Buildings 11,124 Office equipment 5,583 Transportation equipment 1,583 $ 20,432

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b. Lease liabilities - 2019

	December 31,
	2019
Carrying amounts
Current	$ 19,304
Non-current	$ 24,950
Range of discount rate for lease liabilities was as follows:
	December 31,
	2019
Land	1.21%
Buildings	1.21%
Office equipment	1.21%
Transportation equipment	1.21%

c. Material lease-in activities and terms

The Company leases certain equipment for the use of operating activities with lease terms of 2 to 5 years. These arrangements do not contain renewal or purchase options at the end of the lease terms.

The Company also leases land and buildings for the use of plants, offices, and warehouses with lease terms of 2 to 5 years. Lease payments will be made at the beginning of the contract with lease terms of 50 years. The Company does not have bargain purchase options to acquire the leasehold land and buildings at the end of the lease terms.

d. Other lease information

Lease arrangements under operating leases for the leasing out of investment properties are set out in Note 15.

2019
	For the Year
	Ended
	December 31,
	2019
Expenses relating to short-term leases and low-value asset
leases	$ 53,735
Total cash outflow for leases	$(78,623 )

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The Company has elected to apply the recognition exemption and, thus, did not recognize right-of-use assets and lease liabilities for these short-term leases and certain leases which qualify as low-value asset leases.

2018

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

	December 31,
	2018
Not later than 1 year	$ 25,022
Later than 1 year and not later than 5 years	34,253
	$ 59,275
The lease payments recognized in profit or loss were as follows:
	For the Year
	Ended
	December 31,
	2018
Minimum lease payments	$ 59,212

15. 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
		2019 $ 272,334 $ 272,334 $ (14,923) (267 ) $ (15,190 ) $ 257,144	2018 $ 272,334 $ 272,334 $ (14,656) (267 ) $ (14,923 ) $ 257,411

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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
		2019 $ 341,731	2018 $ 341,731

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2019 are as follows:

	December 31,
	2019
Payment period
2020	$ 3,540

The future minimum lease payments of non-cancellable operating lease commitments as of December 31, 2018 are as follows:

	December 31,
	2018
Not later than 1 year	$ 7,080
Later than 1 year and not later than 5 years	3,540
	$ 10,620

16. BORROWINGS

a. Short-term borrowings

Bank credit loans Letter of credit loans		December 31	December 31
		2019 $ 4,917,000 328,500 $ 5,245,500	2018 $ 3,601,000 93,901 $ 3,694,901

As of December 31, 2019 and 2018, the interest rates of short-term borrowings were 0.92%-2.68% per annum and 0.96%-3.89% per annum, respectively.

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b. Short-term bills payable

Commercial paper Less: Unamortized discount on bills payable		December 31	December 31
		2019 $ 2,450,000 (521 ) $ 2,449,479	2018 $ 1,850,000 (291 ) $ 1,849,709

Short-term bills payable are commercial papers due within one year. Interest rates on these bills payable were 0.98%-1.17% and 0.96%-1.12% as of December 31, 2019 and 2018, respectively.

c. Long-term borrowings

December 31 2019 2018 Unsecured bank loans $ 150,000 $ 1,700,000 Less: Loan management fees (2,325 ) (4,125 ) Long-term bank loans $ 147,675 $ 1,695,875 Interest December 31 Due Date Article Rate 2019 2018 Taiwan Bank Credit loan A 2021.06.30 The credit can be revolved within 60 months from June 30, 2016, the first drawdown date of the loan. 1.80% $ - $ 1,700,000 KGI Bank Credit loan 2021.01.04 The credit can be revolved within 24 months from January 4, 2019, the first drawdown date of the loan. 1.10% 150,000 - $ 150,000 $ 1,700,000		December 31	December 31	December 31	December 31

				2019 $ - 150,000 $ 150,000	2018 $ 1,700,000 - $ 1,700,000

17. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (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

216 -

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 “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, 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 income 47,424		December 31
	2019 2018 $ 542,868 $ 602,251 (340,223 ) (367,316 ) $ 202,645 $ 234,935 Fair Value of the Plan Assets Net Defined Benefit Liability $(400,068 )$ 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 (Continued)

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	Present Value	Present Value
	of the Defined		Fair Value of	Net Defined
	Benefit		the Plan	Benefit
	Obligation		Assets	Liability
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
Balance at January 1, 2019	$	602,251	$(367,316 )	$ 234,935
Service cost
Current service cost		17,257	-	17,257
Net interest expense (income)		8,563	(5,392 )	3,171
Recognized in profit or loss		25,820	(5,392 )	20,428
Remeasurement
Return on plan assets (excluding
amounts included in net interest)		-	(12,270)	(12,270)
Actuarial loss - experience adjustments		341	-	341
Actuarial loss - changes in financial
assumptions		16,630	-	16,630
Recognized in other comprehensive
income		16,971	(12,270 )	4,701
Contributions from the employer		-	(57,419)	(57,419)
Benefits paid	(102,174 )		102,174	-
Balance at December 31, 2019	$	542,868	$(340,223 )	$ 202,645
				(Concluded)

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.
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3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

Discount rates Expected rates of salary increase - less than 16 years Expected rates of salary increase - more than 16 years	December 31
	2019 2018 1.00% 1.50% 1.50% 1.50% 1.00% 1.00%

Discount rates 0.125% increase 0.125% decrease Expected rates of salary increase 0.125% increase 0.125% decrease		December	31
		2019 $ (4,246 ) $ 4,306 $ 4,301 $ (4,252 )	2018 $ (4,602 ) $ 4,668 $ 4,686 $ (4,631 )

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
		2019 $ 17,076 6.4 years	2018 $ 57,419 7.2 years

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18. 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
acquisition
May be used to offset a deficit only
Arising from share of changes in capital surplus of
subsidiaries and associates

b. Capital surplus

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 (limited to a certain percentage of paid-in capital).
c. Retained earnings and dividends policy

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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 19 (c).

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 share dividends. If there is a requirement for capital expenditure, the Company may distribute only share dividends.

The appropriations of earnings for 2018 and 2017 which were approved in the shareholders’ meetings on June 21, 2019 and June 26, 2018 were as follows:

Legal reserve Cash dividends Cash dividends per share (NT$)	Appropriation of Earnings	Appropriation of Earnings	Appropriation of Earnings
		For the Year Ended December 31
		2018 $ 44,566 385,992 $ 0.35	2017 $ 61,858 551,418 $ 0.5

d. Special reserves

Special reserves	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 1,186,894	2018 $ 1,186,894

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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	Unrealized
	the Financial	Gain (Loss)
	Statements of	on Financial	Gain (Loss)
	Foreign	Assets at	on Hedging
	Operations	FVTOCI	Instruments		Total
2019
Balance at January 1	$(100,013)	$ 394,892	$	(6,961)	$ 287,918
Unrealized gain on financial
assets at FVTOCI	-	302,015		-	302,015
Loss arising on changes in
the fair value of hedging
instrument	-	-		(2,106)	(2,106)
The amount transferred to
initial carrying amount of
hedged items	-	-		3,291	3,291
Share of other
comprehensive income
(loss) of associates	(200,692)	29,957		-	(170,735)
Cumulative unrealized gain
(loss) of equity
instruments transferred to
retained earnings due to
disposal	-	(10,344)		-	(10,344)
Balance at December 31	$(300,705 )	$ 716,520	$	(5,776 )	$ 410,039
					(Continued)

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	Exchange
	Differences
	Arising on
	Translating	Unrealized
	the Financial	Gain (Loss)
	Statements of	on	Financial	Gain (Loss)
	Foreign	Assets at		on	Hedging
	Operations	FVTOCI		Instruments		Total
2018
Balance at January 1 (IAS
39)	$ (87,435)	$	-	$	-	$ (87,435)
Applying IFRS 9
retrospectively with the
cumulative effect of the
initial application of this
standard.	-		358,643		(6,377 )	352,266
Balance at January 1 (IFRS
9)	(87,435)		358,643		(6,377)	264,831
Unrealized gain on financial
assets at FVTOCI	-		59,774		-	59,774
Gain (loss) arising on
changes in the fair value of
hedging instruments	-		-		(584)	(584)
Share of other
comprehensive loss of
associates	(12,578 )		(23,525 )		-	(36,103 )
Balance at December 31	$(100,013 )	$	394,892	$	(6,961 )	$ 287,918
						(Concluded)

f. Equity attributable to former owner of business combination under common control

Balance at January 1 Attributable to non-controlling interests: Issuance of ordinary shares for cash Share of profit for the period	For the Year Ended December 31
	2019 2018 $ 13,440 $ 44,409 - 53,130 - 21,999

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Exchange differences on translating the financial statements of foreign operations Equity attributable to owners of the Company from former owner of business combination under common control Balance at December 31	- (13,440 ) $ -	(3,766) (102,332 ) $ 13,440

19. NET (LOSS) 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 An analysis of amortization by function Operating costs Operating expenses	For the Year Ended December 31 2019 2018 $ 87,002 $ 75,298 (1,733 ) (557 ) $ 85,269 $ 74,741 For the Year Ended December 31 2019 2018 0.99%-1.24% 0.99%-1.22% For the Year Ended December 31 2019 2018 $ 889,855 $ 876,766 7,708 1,478 $ 897,563 $ 878,244 $ 163 $ 186 26,671 25,582 $ 26,834 $ 25,768	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
			2019 $ 889,855 7,708 $ 897,563 $ 163 26,671 $ 26,834	2018 $ 876,766 1,478 $ 878,244 $ 186 25,582 $ 25,768

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c. Employee benefit expense

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits Total employee benefit expense An analysis of employee benefit expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 55,098 20,428 75,526 1,617,181 $ 1,692,707 $ 1,542,579 150,128 $ 1,692,707	2018 $ 55,131 20,672 75,803 1,692,543 $ 1,768,346 $ 1,587,094 181,252 $ 1,768,346

As of December 31, 2019 and 2018, the Company had 1,983 and 2,000 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.

Amount

Amount
Compensation of employees Remuneration of directors and supervisors	For the Year Ended December 31, 2018
	Cash $ 5,500 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 in the following year.

There was no difference between the actual amounts of the compensation and remuneration proposed in 2018 and 2017, and the amounts recognized in the financial statements for the years ended December 31, 2018 and 2017.

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20. 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
		2019 $ - (36,827) - 1,064 $(35,763 )	2018 $ - 66,276 747 1,627 $ 68,650

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

(Loss) profit before tax from continuing operations Income tax (benefit) expense calculated at the statutory rate Tax-exempt income Unrecognized loss carryforwards 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
		2019 $(280,861 ) $ (56,172) (6,165) 24,760 750 1,064 - $ (35,763 )	2018 $ 536,312 $ 107,262 (51,645) - 10,659 1,627 747 $ 68,650

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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
		2019 $ - 940 $ 940	2018 $ 8,587 8,019 $ 16,606

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, 2019

Deferred tax assets Temporary differences Defined benefit obligation Loss carryforwards Others Deferred tax liabilities Temporary differences Land value increment tax Others	Opening Balance $ 46,987 9,896 16,019 $ 72,902 Opening Balance $ 1,924,940 80,520 $ 2,005,460	Recognized in Profit or Loss $ (7,398) 26,176 13,692 $ 32,470 Recognized in Profit or Loss $ - $ (3,293 ) $ (3,293 )	Recognized in Other Com- prehensive Income $ 940 - - $ 940 Recognized in Other Com- prehensive Income $ - - $ -	Closing Balance $ 40,529 36,072 29,711 $ 106,312 Closing Balance $ 1,924,940 77,227 $ 2,002,167

(Concluded)

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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 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

d. Loss carryforwards as of December 31, 2019 comprised:

Unused
Amount	Expiry Year
$ 44,158	2024
136,204	2029
$ 180,362

e. The aggregate amount of temporary differences associated with investments for which deferred tax liabilities have not been recognized.

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f. Income tax assessments

The Company (LOSS) EARNINGS PER SHARE Basic (loss) earnings per share Diluted earnings per share	Latest Approved Year 2017 For the Year Ended December 31	Latest Approved Year 2017 For the Year Ended December 31	Latest Approved Year	Latest Approved Year
				2017 December
		2019 $ (0.22 )		2018 $ 0.40 $ 0.40

21. (LOSS) EARNINGS PER SHARE

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

Net (Loss) Profit for the Year

For the Year Ended December 31 2019 2018 (Loss) profit for the year attributable to owners of the Company $(245,098 )$ 445,663 Weighted average number of ordinary shares outstanding (in thousands of shares): For the Year Ended December 31 2019 2018 Weighted average number of ordinary shares used in the computation of basic (loss) earnings per share 1,102,835 1,102,835 Effect of potentially dilutive ordinary shares: Bonus issue to employees 719 Weighted average number of ordinary shares used in the computation of diluted earnings per share 1,103,554	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 1,102,835	2018 1,102,835 719 1,103,554

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.

229 -

22. 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.

23. 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 financial statements to approximate their fair values.

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

December 31, 2019 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	Level 1 $ - - $ - $ 1,579,324 - $ 1,579,324 $ -	Level 2 $ 10,794 171,035 $ 181,829 $ - - $ - $ 24	Level 3 $ - - $ - $ - 293,985 $ 293,985 $ -	Total $ 10,794 171,035 $ 181,829 $ 1,579,324 293,985 $ 1,873,309 $ 24

230 -

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	Level 1 $ - - $ - $ 1,288,397 - $ 1,288,397 Level 1 $ - $ -	Level 2 $ 3,166 171,035 $ 174,201 $ - - $ - Level 2 $ 50 $ 250	Level 3 $ - - $ - $ - 300,123 $ 300,123 Level 3 $ - $ -	Total $ 3,166 171,035 $ 174,201 $ 1,288,397 300,123 $ 1,588,520 Total $ 50 $ 250

231 -

There were no transfers between Levels 1 and 2 for the years ended December 31, 2019 and 2018.

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

	Financial
	Assets of
	Equity
	Securities at
Financial Assets	FVTOCI
Balance at January 1, 2019	$ 300,123
Purchases	3
Proceeds from capital reduction	(17,229)
Recognized in other comprehensive income	11,088
Balance at December 31, 2019	$ 293,985
	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 Bank debentures in the ROC	Valuation Techniques and Inputs
	Discounted cash flow: a) The average exchange rate (i.e., difference between the highest and the lowest exchange rates) of the counterparties’ financial institutions in the accordance with the Reuters quoting system, or b) The daily spot exchange rate quoted by financial institutions. Discounted cash flow.

Future cash flows are discounted at a rate that reflects

232 -

current borrowing interest rates of the debenture issuers at the end of the reporting period.

(Concluded)

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

Discount for lack of marketability	December 31
	2019 2018 15% 15%

Discount for lack of marketability 2.5% increase 2.5% decrease Categories of financial instruments Financial assets Financial assets at FVTPL Mandatorily classified as at FVTPL Financial assets for hedging Financial assets at amortized cost (1) Financial assets at FVTOCI Financial liabilities Financial liabilities at amortized cost (2) Financial liabilities for hedging		December	31
		2019 $ (8,647 ) $ 8,647 December	2018 $ (8,827 ) $ 8,827 31
	$	2019 181,829 $ 24 3,044,776 1,873,309 10,362,843 -	2018 174,201 50 3,186,557 1,588,520 10,032,998 250

b. Categories of financial instruments
1) The balances include financial assets measured at amortized cost, which comprise cash, notes and accounts receivable, notes and accounts receivable from related parties, other receivables
233 -

(accounted as other current assets), and refundable deposits (accounted as other non-current assets).

2) 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 (accounted as other non-current liabilities).
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 non-derivative 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 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 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	For the Year Ended December 31
	2019 2018 $ 100,207 $ 27,590 35,603 30,491

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b) Interest rate risk

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	For the Year Ended December 31
	2019 2018 $ 171,035 $ 171,035 2,597,154 3,545,584 143,693 86,510 5,245,500 3,694,901

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, 2019 and 2018 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
		2019 $ 5,102	2018 $ 3,608

The Company was exposed to equity price risk through its investments in listed equity securities. 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, 2019 and 2018 would increase/decrease as follows:

Other comprehensive income Increase/decrease	For the Year Ended December 31
	2019 2018 $ 93,665 $ 64,420

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2) Credit risk

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

As of December 31, 2019 and 2018, the Company’s unused financing facilities were $8,339,131 thousand and $5,788,780 thousand, respectively.

24. TRANSACTIONS WITH RELATED PARTIES

a. Related party name and category

Related Party Name
YFY Inc.
Genovella Renewables Inc.
Shenzhen Jinglun Paper Co., Ltd.
YFY Consumer Products Co., Ltd.
YFY Packaging Inc.
YFY International BVI Corp.
Yuen Foong Yu Paper MFG (Yangzhou) Co., Ltd.
YFY Capital Co., Ltd.
Union Paper Corp.
Shin Foong Specialty & Applied Materials Co., Ltd.
China Color Printing Co., Ltd.
Cupid InfoTech Co., Ltd.
YFY Holding Management Co., Ltd.
Yuen Foong Yu Blue Economy Natural Resource (Yangzhou) Co.,
Ltd.

Related Party
Category

Parent company
Subsidiary
Subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary
Fellow subsidiary

(Continued)

236 -

Related Party Name

Related Party Category

Ever Growing Agriculture Biotech Co., Ltd. Fellow subsidiary YFY Jupiter Ltd. Fellow subsidiary YFY Japan Co., Ltd. Fellow subsidiary Sustainable Carbohydrate Innovation Co., Ltd. Fellow subsidiary MOBIUS105 LIMITED Fellow subsidiary Arizon RFID Technology (Hong Kong) Co., Ltd., Taiwan Branch Fellow subsidiary YFY Biotechnology Co., Ltd. Parent’s associate E Ink Holdings Inc. Parent’s associate 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 (Concluded)

b. Sales of goods

Related Party Type Fellow subsidiaries Subsidiaries Substantial related-parties Parent’s associates Parent company	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 2,679,892 1,106,237 305,268 76 41 $ 4,091,514	2018 $ 3,595,465 977,100 354,677 - 164 $ 4,927,406

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 Substantial related-parties Parent’s associates Subsidiaries	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 2,259,010 2,263 599 186 $ 2,262,058	2018 $ 2,878,829 3,600 479 - $ 2,882,908

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

237 -

d. Receivables from related parties

For the Year Ended December 31 Related Party Type 2019 2018 Subsidiaries Shenzhen Jinglun Paper Co., Ltd. $ 727,224 $ 610,542 Others 368 367 727,592 610,909 Fellow subsidiaries 251,546 569,490 Substantial related-parties 60,256 64,699 Parent’s associates 39 - Parent company 3 8 $ 1,039,436 $ 1,245,106 The outstanding accounts receivable from related parties are unsecured. No bad debt was recognized for the years ended December 31, 2019 and 2018 for allowance of impaired accounts receivable from related parties. Payables to related parties For the Year Ended December 31 Related Party Type 2019 2018 Fellow subsidiaries YFY Packaging Inc. $ 260,528 $ 346,869 Shin Foong Specialty & Applied Materials Co., Ltd. 97,603 132,512 YFY Capital Co., Ltd. 59,291 65,315 Others 36,663 26,485 454,085 571,181 Subsidiaries 3,784 2,152 Substantial related-parties 1,491 725 Parent company 259 259 Parent’s associates 29 - $ 459,648 $ 574,317	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 260,528 97,603 59,291 36,663 454,085 3,784 1,491 259 29 $ 459,648	2018 $ 346,869 132,512 65,315 26,485 571,181 2,152 725 259 - $ 574,317

e. Payables to related parties

The outstanding accounts payable to related parties are unsecured.

f. Lease arrangements

Related Party Type Interest expense Parent company	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2019 $ 260	2018 $ -

238 -

Lease expense Parent company Substantial related-parties	$ 10,885 7,049 $ 17,934	$ 10,885 7,091 $ 17,976

g. Other transactions with related parties

Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)	Rental Income (Accounted as Other Income)
For the Year Ended December 31
	2019 2018 $ 1,429 $ 1,429 114 114 $ 1,543 $ 1,543 Other Operating Expenses
For the Year Ended December 31
2019 2018 $ 42,117 $ 37,128 Management Fee (Accounted as Operating Expenses)
For the Year Ended December 31
	2019 $ 84,932	2018 $ 81,377

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

h. 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
		2019 $ 22,140 2,900 $ 25,040	2018 $ 30,030 3,132 $ 33,162

The remuneration of directors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

239 -

25. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2019 and 2018, unused letters of credit for purchases of raw materials and machinery and equipment amounted to approximately $113,669 thousand and $447,769 thousand, respectively.

26. 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 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 Financial liabilities Monetary items USD Non-monetary items Derivative instruments EUR	December 31, 2019
	Foreign Currency (In Thousands) Exchange Rate New Taiwan Dollars $ 44,815 29.98 $ 1,343,554 165,709 4.297 712,052 171,333 29.98 5,136,558 33,400 29.98 1,001,332 11,366 29.98 340,753 300 33.59 10,077

240 -

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	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 35.2 8,554 3,421 30.715 105,061 3,470 35.2 122,144

27. 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 (None)
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 3)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 4)
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9) Trading in derivative instruments (Notes 7 and 9)
10) Information of investee (Table 5)
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 6)
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 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.
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TABLE 1

CHUNG HWA PULP CORPORATION

ENDORSEMENTS/GUARANTEES PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2019

(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			i	i i	End of the Period	A	Endorsed/	Guarantee to Net	Endorsement/	by Parent on	iii
(Note 1)		Name	Relationship	Guarantee Gven	Durng the Perod		mount					by Subsdares 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 Dingfung Pulp & Paper Co.,Ltd.	b. b.	$ 23,432,565 23,432,565	$ 869,250 (US$ 28,994) 183,973 (RMB 42,814)	$ 704,530 (US$ 23,500) 171,899 (RMB 40,004)	$ 38,546 -	$ - -	4.66 1.14	$ 31,243,420 31,243,420	Note 8 Note 8	N N	N N

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.

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TABLE 2

CHUNG HWA PULP CORPORATION

MARKETABLE SECURITIES HELD

DECEMBER 31, 2019

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

					December	31, 2019
		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. Direct Insight Inc. 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 other comprehensive income - non-current Financial assets at fair value through profit or loss - non-current	99,809,327 800,000 275,000 19,161,529 275,000 15,315,356 -	$ 1,297,521 - - 293,982 3 281,803 171,035	0.9 6.3 1.0 14.9 1.0 2.1 -	$ 1,297,521 - - 293,982 3 281,803 171,035

Note 2: Refer to Table 5 and Table 6 for information on investments in subsidiaries and associates.

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TABLE 3

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, 2019

(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)	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 Jinglun Paper Co., Ltd. YFY Consumer Products Co., Ltd. YFY Packaging Inc. YFY Packaging Inc. Union Paper Corp. Union Paper Corp. Shin Foong Specialty and Applied Materials Co., Ltd. YFY Japan Co., Ltd. Beautone Co., Ltd.	a. b. a. a. a. a. a. a. a. c.	Sale Sale Sale Sale Purchase Sale Purchase Purchase Purchase Sale	$ (822,562) (1,106,237) (584,410) (315,693) 1,509,486 (860,847) 143,210 219,279 376,522 (264,584)	(4) (6) (3) (2) 9 (5) 1 1 2 (1)	0.5 month after transaction month 5 months after transaction month 2 months after transaction month 3 months after transaction month 1 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	$ - - - - - - - - - -	- - - - - - - - - -	$ 53,914 727,224 49,565 69,428 (260,528) 54,999 (11,857) (97,603) - 49,142	2 26 2 2 (16) 2 (1) (6) - 2	$ - 2,312 - - - - - - - -

Note: a. Fellow subsidiaries.

b. Parent company and subsidiary.

c. Substantial related-party.

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TABLE 4

CHUNG HWA PULP CORPORATION

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2019

(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	Shenzhen Jinglun Paper Co., Ltd.	Parent company and subsidiary	$ 727,224	1.65	$ -	-	$ 173,105	$ -

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TABLE 5

CHUNG HWA PULP CORPORATION

INFORMATION ON INVESTEES

FOR THE YEAR ENDED DECEMBER 31, 2019

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

				Investment Amount	Investment Amount	As of December 31, 2019	As of December 31, 2019	As of December 31, 2019	Net (Loss)
Investor
	Investee Company	Location	Main Businesses and Products	December 31,	December 31,	Number of		Carrying	Income of the	Share of	Note
Company
				2019	2018	Shares	%	Amount	Investee	(Loss) Profits

				$ 1,747,085 329,000 343,000 32,832 36,000	$ 1,747,085 329,000 343,000 60,000 36,000	61,039,956 20,000,000 34,300,000 3,283,200 3,600,000	100.0 1.8 49.0 4.4 100.0	$ 5,136,559 417,192 284,522 80,460 52,908	$ (57,213) 3,083,789 (96,377) (229,750) 2,893	$ (53,850) 54,456 (47,224) (10,255) 2,893	a. b. b. b. a.
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

Note: a. Subsidiaries.

b. Investments accounted for using the equity method.

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TABLE 6

CHUNG HWA PULP CORPORATION

INFORMATION ON INVESTMENTS IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2019

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

				Accumulated	Remittance of Funds	Remittance of Funds	Accumulated
				Outward			Outward
				Remittance for			Remittance for					Accumulated
		Paid-in Capital
				Investment from			Investment from		% Ownership of		Carrying	Repatriation of
		(Foreign Currencies						Net Income (Loss) of		Investment
Investee Company	Main Businesses and Products		Method of Investment	Taiwan as of			Taiwan as of		Direct or Indirect		Amount as of	Investment Income
		in Thousand)			Outward	Inward		the Investee		Gain (Loss)
				January 1, 2019			December 31, 2018		Investment		December 31, 2019	as of December 31,
		(Note 1)
				(Foreign Currencies			(Foreign Currencies					2019

				in Thousand)			in Thousand)
				(Note 1)			(Note 1)
Guangdong Dingfung Pulp & Paper Co., Ltd. Shenzhen Jinglun Paper Co., Ltd. Zhaoqing Dingfung Forestry Ltd. Zhaoqing Xinchuan Green Technology Co., 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. Environmental equipment technology research and development; construction of wastewater, flue gas, noise and solid waste treatment; pure water treatment construction; environmental technology consulting; sale of environmental protection equipment and chemical raw material; import and export of cargo and technology	$ 2,567,187 (US$ 85,630 ) (Note 3) 13,750 (RMB 3,200 ) 655,962 (US$ 21,880 ) 8,594 (RMB 2,000 ) (Note 7)	Investment in mainland China through companies set up in another country. (Note 5) Investment in mainland China through companies set up in another country. (Note 5)	$ 395,736 (US$ 13,200 ) - 132,751 (US$ 4,428 ) -	$ - - - -	$ - - - -	$ 395,736 (US$ 13,200 ) (Note 5) 132,751 (US$ 4,428 ) (Note 5)	$ (144,885 ) (Note 2,b.) 17,390 (Note 2,b.) 7,175 (Note 2,b.) 700 (Note 2,b.)	60.0 100.0 (Note 6) 86.5 (Note 4) 100.0 (Note 7)	$ (86,931 ) (Note 2,b.) 17,390 (Note 2,b.) 6,206 (Note 2,b.) 700	$ 2,842,449 117,155 2,454,651 9,266	$ - - - -

Accumulated Investment in Mainland China as of	Investment Amounts Authorized by
		Upper Limit on Investment
December 31, 2019	Investment Commission, MOEA

$528,487 (Note 1)	$1,277,328 (Note 1)	$9,070,339

Note 1: The exchange rates are US$1=NT$29.98 or RMB1=NT$4.297 as of December 31, 2019.
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 Dingfung 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 Dingfung Pulp & Paper Co., Ltd. are 20.2% and 66.3%, respectively.
Note 5: Investment in mainland China through companies set up in another country. The direct investor is Guangdong Dingfung Pulp & Paper Co., Ltd.
Note 6: Guangdong Dingfung Pulp & Paper Co., Ltd. acquired shares of Shenzhen Jinglun Paper Co., Ltd. from a fellow subsidiary, Hwa Fong Paper (Hong Kong) Limited, in 2018.
Note 7: On September 12, 2019, the board of directors of Guangdong Dingfung Pulp & Paper Co., Ltd. decided to establish Zhaoqing Xinchuan Green Technology Co., Ltd. The total investment was RMB10,000 thousand and Guangdong Dingfung Pulp & Paper held 100% equity. The total capital injection was RMB2,000 thousand as of December 2019.
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6.6 Any financial difficulty and the impact on the Company's finance in last year and up to the print date of this annual report:

None

249 -

Review of Financial Conditions, Financial Performance, and Risk Management

7.1 Balance Sheet Analysis

Unit: NT$ thousands

Year			Difference	Difference
		2018
	2019
Item		(Audited after Restated)	Amount	%


Current Assets	13,098,672	13,777,988	(679,316)	(5)
Fixed Assets	14,654,819	14,565,801	89,018	1
Other Assets	3,344,926	3,033,783	311,143	10
Total Assets	31,098,417	31,377,572	(279,155)	(1)
Current Liabilities	11,116,249	9,173,037	1,943,212	21
Non-current Liabilities	2,587,144	4,140,427	(1,553,283)	(38)
Total Liabilities	13,703,393	13,313,464	389,929	3
Capital stock	11,028,353	11,028,353	-	-
Capital surplus	29,563	31,468	(1,905)	(6)
Retained Earnings	3,649,276	4,273,971	(624,695)	(15)
Other Equity	410,039	287,918	122,121	42
Equity Attributable To Former Owner Of Business Combination Under Common Control	-	13,440	(13,440)	-
Non-controllinginterests	2,277,793	2,428,958	(151,165)	(6)
Total Stockholders' Equity	17,395,024	18,064,108	(669,084)	(4)

Note: Since Syntax Communication (H.K.) Ltd. Was incorporated into the Company in the first quarter of 2019, the Company referred to the IFRS Q&A and the 2012 letter Ji-Mi-Tze No. 301 of the Accounting Research and Development Foundation in Taiwan to compile a restatement of 2018.

Analysis of changes in financial ratios:

(1) Current Liabilities: Due to the increase in short-term borrowings.
(2) Non-current Liabilities: Due to the decrease in long-term borrowings.
(3) Other Equity: Mainly due to the increase of unrealized gains on available-for-sale financial assets and the effect of the decrease in the cumulative conversion under exchange rate changes.
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7.2 Statements of Comprehensive Income Analysis

A. Statements of Comprehensive Income Analysis of Operation Results

Unit: NT$ thousands

		2018	Difference	Difference
Year
Item	2019	(Audited after Restated:	Amount	%
		Note)

Net Sales	20,689,397	24,025,221	(3,335,824)	(14)
Cost of Sales	19,470,286	21,677,688	(2,207,402)	(10)
Changes in Biological Assets	(6,089)	(10,695)	4,606	(43)
Gross Profit	1,213,022	2,336,838	(1,123,816)	(48)
OperatingExpenses	1,596,799	1,744,796	(147,997)	(8)
OperatingIncome	(383,777)	592,042	(975,819)	(165)
Non-operatingGains and Losses	21,365	77,054	(55,689)	(72)
Income(Loss)before Tax	(362,412)	669,096	(1,031,508)	(154)
Tax Expense(Benefit)	(60,328)	136,851	(197,179)	(144)
Net income (Loss)	(302,084)	532,245	(834,329)	(157)

Analysis of changes in financial ratios:

(1) Changes in Biological Assets: Mainly due to the decrease in fair value minus the cost to sell a biological asset.
(2) Gross Profit: Due to the decline in international pulp and paper prices, the high cost of wood chips, and the pulp line equipment transformed in phases in 2019, the price and cost of pulp products have been affected.
(3) Operating Income: Same as Note (2).
(4) Non-operating Gains and Losses: Mainly due to the loss of associated companies losses under the equity method in 2019, and the exchange losses caused by the impact of exchange rate fluctuations.
(5) Income (Loss) before Tax: Same as Note (2).

(6) Tax Expense (Benefit): Due to the income tax deduction because of the loss in 2019.

(7) Net profit: Same as Note (2).

B. Expected sales Volume in 2020

The Company expects that pulp sales will grow by about 1-2%, paper and paperboard sales will grow by about 0.5% to 1.0%, and overall revenue will grow by about 1% to 2% in 2020..

251 -

7.3 Cash Flow Analysis

Cash Flow Analysis for the Current Year

Unit: NT$ thousands


Cash and Cash	Net Cash Flow		Cash Surlus	Leverage of Cash Deficit
Equivalents,	from Operating	Cash Outflow	p (Deficit)
Beginning of Year	Activities			Investment Plans	FinancingPlans

565,494	820,599	(907,368)	478,725	-	-

A. Cash Flow Analysis for 2019
Operating Activities: The Company's net cash flow from operating activities increased compared with the previous period, which was mainly due to the Company's active destocking and recovered accounts receivable.
Investment Activities: The Company's net cash flow from investment activities decreased compared with the previous period, which was mainly due to the decrease in lending to associated companies in the current period.
Financing Activities: The Company's net cash flow from financing activities decreased compared with the previous period, which was mainly due to the decrease in the demand for capital in the current period and the decrease in borrowings.

B. Remedy for Cash Deficit and Liquidity Analysis: None

C. Cash Flow Analysis for the Coming Year:
Business Activities: Continue to strengthen inventory management, actively destock inventory, and strengthen the recovery of accounts receivables to maintain stable operating cash flow under normal operations.
Investment Activities: Mainly for replacing and repairing equipment with constancy mechanisms.
Financing Activities: Appropriate financing or repayments will be arranged based on the overall operating and investing activities.

7.4 Major Capital Expenditures and Impact on Financial Operations in last year

The Company's recent major capital expenditures are mainly for the improvement of equipment efficiency or the replacement of old equipment as described below:

Jiutang Mill paper machine renovation: Equipment renovation to increase special paper production capacity is expected to increase product competitiveness in the business.

Working capitals for the abovementioned capital expenditures are sourced from the Company's funds and bank loans. This year and last year's interest expenditures were the same and therefore did not generate a material impact on the Company's finance.

7.5 Reinvestment Policy, Reasons for Profit or Loss, Improvement Plans, and

Investment Plans for Next Year

A. The Company's reinvestments are in line with the Company's long-term
252 -

development strategy, focusing on areas such as afforestation and pulp and paper to achieve the consistent production of forests, pulp, and paper. The reinvestment entities suffered losses in 2019, mainly due to the decline in international pulp prices.

B. Considering the COVID-19 epidemic in 2020, in addition to giving priority to epidemic prevention to ensure the smooth production line operations, the Company pays attention to the changes in the international situation and the epidemic situation, and strives to prepare raw material production and enhance product competitiveness in order to explore different markets in the future, and build a sustainable, circular management system with the goal of implementing a circular economy.

7.6 Risk Analysis and Assessment (in the most recent year and up to the print date of this annual report)

7.6.1 Impact of Changes in Interest Rates, Exchange Rates, and Inflation on the Company’s Profitability and Response Measures:

Interest Rate : The US economic growth and price trends in 2019 were affected by the global economic downturn and the worsening of the US-China trade conflict. The Federal Reserve has stopped raising interest rates in the first half of 2019, stopped shrinking its balance sheet in the second half of the year, and initiated three precautionary rate cuts. The monetary policy changed from the original tightening to easing, which significantly reduced the interest rate in the US dollar market. Eurozone economic performance continued to slump without obvious improvement. The European Central Bank maintained their negative interest rate mindset on monetary policy, and there is still the possibility of continued interest rate cuts. Japan and numerous other emerging economies also maintained a tendency towards a loose monetary policy to sustain the growth momentum of the economy. In 2019, Taiwan ’s economic performance was relatively good, and due to the transfer of trade orders effect caused by the US-China trade war, overseas capital remittances and government expansion of fiscal expenditures all provided positive support for Taiwan ’s economic performance. However, the global outbreak of COVID-19 in early 2020 has caused companies and financial markets to become more conservative about this year ’s economic trends and investment prospects, and the second phase of the US-China trade negotiations is full of uncertainties. The Central Bank of the Republic of China (Taiwan) adopted a preventive interest rate cut of 0.25% in Q1 of 2020.

Response Measures : In response to the impact of the COVID-19 epidemic and the

253 -

uncertainties in the second phase of US-China trade negotiations, the uncertainty of the global economic outlook has continued to rise. The Central Bank of the Republic of China (Taiwan) is expected to maintain adequate and loose monetary policies to facilitate the economic growth of Taiwan in the presence of moderate inflation and short-term negative impact of the suppressed economic growth due to the effect of COVID-19 on the external economic environment. The Company will evaluate the liability positions and financing policies regularly and flexibly to effectively reduce the Company’s interest expenses.

Exchange Rate : In 2019, the global economic slowdown and the expansion of the US-China trade conflict have caused the Federal Reserve to initiate preventive interest rate cuts and stop shrinking its balance sheet to ease US dollar liquidity shortages. However, due to rising risk aversion in the market, the global US dollar exchange rate trend remained relatively stable, the Renminbi was greatly devalued above 7.1 due to the expansion of the US-China trade conflict in the second half of the year and the adverse fundamentals of the domestic economic slowdown. The New Taiwan Dollar has experienced a reverse appreciation trend in 2019 due to the halt of US interest rate hikes, the guidance of mainland China's transfer of trade orders effect because of the US-China trade war, and the strength of overseas capital remittances. The Company's main exchange rate risk positions include USD and RMB receivables. In 2019, the Company adopted the net position management of natural hedging and dynamically adjusted positions according to market trends and controlled hedging costs to reduce the fluctuations in overall currency exchange gain or loss.
Response Measures : 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 : In the first half of 2019, global oil prices were mostly adjusting around NT$ 60, and the fluctuations were relatively stable. The appreciation of the New Taiwan dollar against the US dollar reduced the overall inflationary pressure of Taiwan in 2019. Although the retaliatory tariffs between China and the United States in the second half of the year have affected the price trend and trade
254 -

volume of the two countries, the impact has not reached consumer electronics. Thus, the impact on the Taiwan economy and the overall price trend is also limited. Overall, domestic inflation pressures are still mild. The overall CPI and core CPI in 2019 (excluding the CPI of energy and fruits and vegetables) were 0.56% and 0.49%, respectively, suggesting stable commodity price.

Response Measures : Affected by the epidemic, the 2020 Q1 Central Bank Supervisors Meeting estimated the economic growth rate to be 1.92%. The initial estimates of the annual growth rate of CPI and core CPI in 2020 are 0.59% and 0.55%, respectively, and the outlook for inflation is moderate. Up to the printing date of this annual report, inflation does not exert a material impact on the Company. However, China is continuing to increase the extent of its environmental supervision, while the US-China trade war and relocation of supply chains have exposed raw material prices to risks of fluctuation. Also, the overall economic impact caused by the COVID-19 epidemic remains to be assessed. The Company will still pay close attention to changes in raw material prices as well as the risks derived from the US-China trade war and COVID-19.

7.6.2 Policies on High Risk or High Leverage Investments, Lending to Others, Making Endorsements or Guarantees, and Trading Derivatives, Reasons for Profit or Loss, and Response Measures:

The Company has not invested in high risk and high leverage instruments. For example, the utilization of short-term idle funds focuses on trading of notes or bonds under repurchase agreements and subscriptions of money market funds. The Company engages in derivative transactions in accordance with its Procedure for Processing Derivative Transactions so as to clearly define the purposes of each transaction, which must be primarily hedging.

The Company adheres to its Procedure for Lending Funds to Other Parties and Procedures of Making of Endorsement and Guarantees when lending funds to others and providing endorsements and guarantees. Principally, funds or endorsement/guarantees are extended between affiliated parent companies and subsidiaries for financial and business purposes.

The Company engages in derivative transactions in accordance with its Procedure for Processing Derivative Transactions so as to clearly define the purposes of each transaction, which must be primarily hedging. The derivatives operated in 2019 are primarily aimed at avoiding USD and RMB exchange rate risks. The hedging ratio is adjusted with due consideration given to the hedge cost and exchange rate risk of derivatives to mitigate the effects of USD and RMB exchange rate fluctuations.

7.6.3 Future R&D Plans and Expected R&D investment:

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A. Future R&D Plans:

Food-safe paper development plan.

High-value special paper development plan.

Special material development plan.

B. Expected R&D investment:

Expected R&D expenditure for 2020 is approximately NT$120 million to 130 million.

7.6.4 Major Changes in Government Policies and Laws at Home and Broad, Impact on the Company’s Finance and Business, and Response Measures:

For the purpose of managing legal risks as a whole, the Company hired external legal consultants to assist the Company in managing legal risks due to regulation changes in addition to signing a legal service contract with the legal department of YFY Inc.

The Company’s response measures for any potential impact of important policy and legislative changes in Taiwan and overseas on the Company's financial or sales performance will be devised by the legal department together with the responsible departments. In case of any noncompliance with the law in the Company's internal guidelines and operating procedures, the responsible departments will make the necessary changes to effectively manage and reduce the Company's legal risk.

In response to the promulgation of the amendments of the Labor Standards Act, the Company has also modified related internal regulations and the Work Rules, as well as convened labor-management meetings each quarter to discuss various response measures. Work hours and work schedule for each company (plant) were adjusted accordingly, and employee annual leaves and holiday pay for unused annual leaves were given to employees according to regulations.

IFRS 16, the standard for lease agreement recognition and accounting requirements for lessors and lessees, shall replace the relevant interpretations of IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease. The Company chooses to evaluate whether it shall be identified as (or includes) as a lease according to IFRS 16 only for contracts signed (or changed) after January 1, 2019. Previous contracts identified as a lease under IAS 17 and IFRIC 4 will not be re-evaluated and shall be handled in accordance with the transitional provisions of IFRS 16.

7.6.5 Impact of Recent Technological and Market Changes on the Company’s Finance and Business, and Response Measures:

With the rapid development of technology, technological innovation has become an

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indispensable plan for operations, and it is also an important niche for corporate competition. The Company is committed to industrial innovation and will evaluate the impact on the Company's finances and business to adopt good response measures to pursue sustainable operation.

7.6.6 Impact of Corporate Image Change on Risk Management and Response Measures:

There are various risks in the operation of enterprises, including aspects such as industrial safety, finance, products, marketing, and security. Especially with today’s widespread mass media and social networks, the occurrence of a risky event and the deliberate dissemination of false information will often evolve into an irreparable crisis. The Company believes that corporate image is more than just a facade, and to fundamentally adjust the Company’s structure, we must start from the inside and enhance our corporate image at a steady pace.

CHP was established over 50 years ago in 1968. The Company has always adhered to the professional concept of corporate governance and conducts talent training, participates in social and community public welfare activities, and gives back to local neighborhoods. The management team has always adhered to the mission of sustainable development by using “employees”, “community”, and “the environment” as its three major concerns. With an active and robust approach in taking actions, we aim to externally transform our corporate image by taking not only actions but also maintaining constant communication.

In terms of employees and community involvement, we share the goals and vision of the Company to raise employee’s awareness towards environmental protection and eco-friendly subjects, and encourage employees to participate in environmental, cultural, and charitable activities. With respect to supply chain management, we aim to incorporate environmental protection, labor safety, and other standards into the work process, regulations, and agreements.

In the protection of employee rights, we continue to improve personnel health and provide a safe work environment. We have raised the threshold of CHP's safety and health, social responsibility, and sustainable development fields. Through internal communication, we internalized the Company's philosophy, brand value, and major concerns in the minds of employees, and raised the standards in various fields such as safety and health, social responsibility, and sustainable development. From employees to leaders, we clearly understand the attitude and response to facing related issues, so that we can radically reduce the probability of occurrence of various crises such as industrial safety and environmental protection in enterprise operations, and at the

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same time promote the corporate image with specific results.

For CHP, corporate image change and corporate crisis management are important topics with mutual objectives and consistent goals, as well as major management policies that we will keep improving from now to the future to respond to social needs and world trends.

7.6.7 The Expected Benefits and Possible Risks of Mergers and Acquisitions as well as the Responding Measures: None

7.6.8 Expected Benefits of Plant Expansion, Potential Risks, and Response Measures:

The Company only has plans for improving or renovating production equipment. We have no plans for plant expansion, so there are no related risks and response measures.

7.6.9 Risks in Concentrated Procurement or Sales and Response Measures:

(1). Procurements: The main raw material procurement strategy for the Company's products is to comprehensively consider factors such as supplier quality, price, delivery time, and whether there will be a global shortage of raw materials in the future to select suitable suppliers and flexibly adjust the preparation period. Moreover, the Company maintains more than two suppliers for the main raw materials and has good long-term relationship with them. There is currently no risk of centralized purchasing.
(2). Sales: The Company has not yet had a significant degree of centralization, and each customer has accounted for less than 10% of the sales in the past three years. The company maintains a long-term cooperative relationship with existing customers. On the one hand, we strive to develop new customers to expand and diversify our business sources, so there should be no risk of sales centralization.

7.6.10 Impact of mass transfer of equity by or change of directors, supervisors, or shareholders holding more than 10% equity of the Company, associated risks and response measures:

The composition of directors or shareholders holding more than 10% of the Company’s shares and the shareholding ratio are stable. As of the print date of this annual report, there are not large transfers. Equity transfer or conversion is considered a normal financial transaction for shareholders, which does not have a significant impact on the Company. The Company’s directors and major shareholders always maintain open channels of communication.

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7.6.11 The Impact and Risk of a Change in Company Ownership, and Response

Measures:

The Company is not exposed to risks of control transfer.

7.6.12 Litigation or Non-litigation Events:

The current non-litigation events of the Company are mainly appeals against environmental sanctions. The relevant content has been disclosed under the environmental protection expenditure information in the business overview section. Please refer to page 85 of this annual report

7.6.13 Other significant risks and response measures:

(1) The impact of major security events and countermeasures.

There were no major cyberattacks or events from 2019 to the publication date of this annual report. We were not involved in any legal cases or investigated for related incidents.

Through the dedicated information security management platform and team, the Company’s information security management allows the Company and its subsidiaries to adopt optimal approaches to utilize resources, centralize management in an appropriate and timely manner, and upgrade existing information security network equipment and mechanisms, so that the information is kept secure in line with current trends.

Information security policies and specific management plans

The Company’s information security policy is focused on the use of technology and information governance. By using a human-machine interface, software, and hardware configurations and systems of inspection and balance, we construct a network of information security management and subsequently implement various aspects of the policy through firewall setup, information server room management, user information management, and plant information security management. The Company conducts yearly discussions with IT technicians from each plant to talk about information security problems, trends, and reinforcement measures. Education and training programs are organized to increase employees’ awareness towards the environmental maintenance of information security and risks.

The professional IT management and service platform is responsible for the governance, planning, supervision, and policy implementation relating to the information security of the Company and its subsidiaries. The platform

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simultaneously evaluates and selects potential risks and proposes corresponding plans as needed. An external consultant is hired when necessary in hopes of keeping in pace with current trends and facilitating immediate response to various IT demands. Reporting of information security risk management is conducted periodically, and information security policies and plans of action are inspected every six months. In addition, information security protection mechanism review and counseling is occasionally conducted at production sites to develop a total information security protection capability and educate employees on the importance of information security.

Complete information security auditing system: Auditing departments of the Company and its subsidiaries regularly conduct auditing of information security tasks to ensure the completeness of information security systems and the effective implementation of relevant policies. Relevant audit results are periodically reported to the senior managers as required by law.

The Company not only endeavors to comply with government policies and in-house regulations regarding information security. The Company also fulfills responsibilities to complete routine tasks related to information security management so as to minimize the IT-related operational risks of the Company and its subsidiaries.

(2) Other major risks:

In addition to implementing management guidelines for internal management accordance with the law, the Company also devises rules to be followed by relevant units. Operational risks are distributed and managed by various departments according to their functions, and the audit department regularly and project-examines the implementation and compliance of the regulations, systems, and procedures of each department.

(3) Other market risk:

Before the situation of the COVID-19 epidemic is eased, the Company will give priority to epidemic prevention to ensure that all production lines can run smoothly. We will also continue to develop various types of food-safe paper products that can be directly recycled to contribute to the environment.

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(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		Holding or Pledged of Shares	Holding or Pledged of Shares	Holding or Pledged of Shares	Served Position	Served Position

	Control Name	Shares	Percentage	Pledged	Title	Name

YFY INC.	Obtained more than half of Directors' seats	627,827,989	56.93	-	Chairman(CEO)	Kirk Hwang
					Director	S. C. Ho
					Director	Felix Ho

(2). Transactions

A. Sales and purchase

a. Percentage of (sales) purchase and sales amount in total purchase (sales) amount

Import/Sale	Amount(NT Thousand)	Ratio of Import(Sale)	Gross Margin(NT Thousand)
Sale	41	-	2

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	3	-
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
Transaction	Nature of				Total current
		Rental decisions	(payment)	with general		agreed
type	lease				rent
			method	rental levels		items

Lessee	Operating leases	Reference to general local standards	Monthly payment	Equivalent	10,885	None

E. Other important transactions: None.

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(3). Endorsements/Guarantees: None.
(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 [521 x 285] intentionally omitted <==

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

Chung Hwa Pulp
Corporation
100% 100%
Hwa Fung CHP International (BVI)
Investment Co., Ltd. Corp.
20.24%
100% 60% 100%
Genovella Guangdong Zhaoqing Syntax
Renewables Inc. Dingfung Pulp & 66.27% Dingfung Forestry Communication
Paper Co., Ltd. Co., Ltd. (H.K.) Ltd.
100% 100%
Shenzhen Jinglun Paper Zhaoqing Xinchung Green
Co., Ltd. Technology 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	NT$ 36,000	Investment and holding
Genovella Renewables Inc.	8/30/2010	No.100, Guanghua St., Ji’an Township, Hualien County,Taiwan	NT$ 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 Jinglun Paper Co., Ltd.	6/24/2008	Room 1705, Tongxin Building 17F, No. 5020, Binhe Avenue, Futian Dist. Shenzhen City,GuangdongProvince	CNY 3,200	Paper trading, cargo and technic Import and export business

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	Date of Incorporation		Paid-in Capital (Thousand)
Name		Address		Main Business

Syntax Communication (H.K.) Ltd.	5/31/1985	2F, No. 22-28, Shatin Industrial Building, Wo Shui Rd., Fo Tan, Shatin, NT, HK	HKD$ 34,088	Trading, printing and sales of all types of paper products; paper-related businesses.
Zhaoqing Xinchuan Green Technology Co., Ltd.	9/19/2019	Shouyue, Nanjie, Guangning County, Zhaoqing City, Guangdong Province, PROC	CNY 2,000	Environmental equipment technology research and development; construction of wastewater, flue gas, noise and solid waste treatment; pure water treatment construction; environmental technology consulting; sale of environmental protection equipment and chemical raw material; import and export of cargo and technology

(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;%	Unit: Share;%	Unit: Share;%
			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
Genovella Renewables Inc.	Director	Shih-Hsiung Wu: Representative of Hwa Fong Investment Co.,Ltd.	-	100.0
Guangdong Dingfung Pulp & Paper Co., Ltd.	Chairman & 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
Zhaoqing Dingfung ForestryCo.,Ltd.	Chairman &	Guu-Fong Lin: Representative of Guangdong DingfungPulp& Paper Co.,Ltd.	-	66.27

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			Shareholding	Shareholding
Company Name	Title	Name of Representative
			Shares	%

	President Director Director Supervisor	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.	- -	20.24 13.49
Shenzhen Jinglun Paper Co., Ltd	Chairman Director Director & President Supervisor	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.	-	100.0
Syntax Communication (H.K.) Ltd.	Director Director & President Director	Chih-Cheng Huang: Representative of CHP International (BVI) Corp.. Wayne Liu: Representative of CHP International (BVI) Corp. David Lim: Representative of CHP International(BVI)Corp.	-	100.0
Zhaoqing Xinchuan Green Technology Co., Ltd.	Chairman Director Director Supervisor	Guu-Fong Lin: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Frank Chin: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Tsung-Yun Lin: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd. Claire Hou: Representative of Guangdong Dingfung Pulp & Paper Co., Ltd.	-	100.0

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	171,458	203	171,256	-	(105)	(1,851)	(0.03)
Hwa Fong Investment Co., Ltd	NTD	36,000	53,082	175	52,907	-	(169)	2,892	0.80
Genovella Renewables Inc.	NTD	5,000	13,735	4,306	9,429	15,145	2,995	2,453	-
Guangdong Dingfung Pulp & Paper Co.,Ltd.	CNY	648,482	1,421,870	319,497	1,102,373	486,221	(20,685)	(11,961)	-
Zhaoqing Dingfung Forestry Co.,Ltd.	CNY	178,162	867,630	207,363	660,267	48,838	1,601	1,601,	-
Shenzhen Jinglun Paper Co.,Ltd	CNY	3,200	193,088	165,824	27,264	277,135	5,311	3,880	-
Syntax Communication (H.K.)Ltd.	HKD	34,088	4,453	873	3,580	6,845	173	153	0.004

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		Paid-in Capital	Total Assets	Total Liabilities	Net Worth	Operating Revenue	Operating Income	Net Income
Company Name	Currency								EPS

Zhaoqing Xinchuan Green Technology Co., Ltd.	CNY	2,000	2,178	22	2,156	194	165	156	-

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, 2019 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, 2019.

Very truly yours,

CHUNG HWA PULP CORPORATION

By:

March 23, 2020

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

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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

267 -

AI assistant

CHP — Annual Report 2019

51933_rns_2020-07-08_c23ef8db-dbf9-44cf-b540-afc733ce713c.pdf

1. Spokesperson and Acting spokesperson:

2. Headquarters, Branch office & Plant

3. Stock Administration

4. Auditor

5. Overseas Securities Exchange: None

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

7. Stakeholders Contact: [email protected]

Notice to readers

Contents

Review of Financial Conditions, Financial Performance, and Risk Management

Dear Shareholders, Ladies and Gentlemen,

2.1 Date of Incorporation

2.2 Company History

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 of Directors (include Independent Directors), President, and Vice Presidents

3.3.1 Remuneration of Directors and Independent Directors

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

3.3.2 Remuneration of the President and Vice Presidents

3.3.3 Managerial officers with the top five highest remuneration

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

3.3.5 Comparison of Remuneration 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 prescribed under Article 14-5 of the Securities and Exchange Act:

－ 2. On a non-regular basis

－ 1. On a regular basis

－ 2. On a non-regular basis

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

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. Attendance of Members at Remuneration Committee Meetings

(3) Functions of the Company's Remuneration Committee

3.4.5 Fulfillment of CSR and Deviations from the "Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies"

3.4.6 Fulfillment of Ethical Corporate Management and Deviations from the "Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies"

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. Important resolutions of the 2019 Shareholders’ Meeting (June/21/2019) (abstract):

B. Major Resolutions of Board Meetings

Summary of Major Resolutions of the 12th Board Meeting of the 17th

Board of Directors on March 21, 2019 (abstract):

Summary of Major Resolutions of the 13th meeting of the 17th Board of Directors on May 14, 2019 (abstract):

Summary of Major Resolutions of the 1st (interim) meeting of the 18th Board of Directors on June 21, 2019:

Summary of Major Resolutions of the 2nd meeting of the 18th Board of

Directors on August 13, 2019 (abstract):

Summary of Major Resolutions of the 3rd meeting of the 18th Board of Directors on November 13, 2019 (abstract):

Summary of Major Resolutions of the 4th meeting of the 18th Board of

Directors on March 23, 2020 (abstract) :

3.4.14 Internal Audit Licenses

3.5 Audit Fee

3.6 Replacement of Certified Public Accountant (CPA):

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 stipulated in the Company's Articles of Incorporation

B. Dividend distribution to be proposed by the shareholders’ meeting:

4.7 Impact of Stock Dividend Distribution on Business Performance and EPS:

4.8 Employees’ and Directors’ Remunerations

A. Percentages or ranges of remuneration of employees and Directors under the Articles of Incorporation:

C. Remuneration Proposals approved by the Board of Directors:

4.9 Repurchases of Treasury Stock:

CHP Annual Report 2019