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FENC, New Power, New Challenge

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Business Overview

日期:2019/05/15

As Far Eastern New Century (FENC) prepares to usher in its 70th anniversary during a dazzling age of digital innovation, artificial intelligence, green technology and rapid business metamorphosis, FENC will continue its transformation during this dynamic era, embracing the new economy as a forward-looking, agile and creative enterprise, whilst still adhering to its overarching principles of sincerity, diligence, thrift, prudence and innovation. As an auspicious prelude to its 70th anniversary, FENC steadfastly rose above political and economic turmoil around the world in 2018, and will continue to stride ahead with no slacking in its ambition towards a vision ultimately realized by its centennial celebrations, achieving multiple milestones in sustainable development and innovative business practice along the way.

In 2018, the global economy was dominated by the United States, the European Union, China and Japan with the US standing out among these four with relatively strong growth. The EU experienced only lukewarm recovery, the Chinese economy cooled despite attempts to stabilize it and Japan witnessed a mild economic upturn. Motivated by the unilateralism of President Trump’s America First stance, the US successively withdrew from several international organizations and agreements, including the Trans-Pacific Partnership, the Paris Climate Accord, the Iran Nuclear Deal, and the UN Human Rights Council, and renegotiated the North American Free Trade Agreement. The US also adopted strategies to thwart China’s manufacturing ambitions—“Made in China 2025,” imposing a ban on sales of high-tech products to China. The US-Sino trade disputes on various fronts, such as intellectual property protection, tariffs and exchange rates, have had an enormous impact on the world’s economic growth. Europe meanwhile is faced with its own political and economic challenges with its prospects expected to be fraught with uncertainties as the post-Merkel era begins in Germany. In France, President Emmanuel Macron has been losing his public appeal, and the yellow-vest demonstrations, the largest in scale of the past fifty years, have swept through the country. The British economy, and its politics remain embroiled in continued Brexit uncertainty as the government endeavors to follow through on 2016’s referendum result.

While China continues to accelerate technological development at home, expand its global reach by promoting the Asian Infrastructure Investment Bank as well as the Belt and Road Initiative and dominate negotiations on the Regional Comprehensive Economic Partnership trade deal, it also has both external and internal challenges to grapple with, ranging from ever-increasing debts to the impending contraction of investment and consumption. In order to stabilize its economic and financial situation, it has made the centerpiece of its economic policy “six stabilities”— in the areas of employment, finance, foreign trade, foreign investment, domestic investment, and development targets, and pledged a strategy to expand imports but, notwithstanding these efforts, a full-blown trade war and economic downturn loom large on the horizon.

2019 is set to unfold with a myriad of challenges. Rising populist protectionism runs counter to globalization and geopolitical power struggles persist. America’s dividing partisanship and fiscal deficit and Federal Reserve policy decisions are giving rise to market concerns and developments in trade tensions between the United States and China will continue to impact the rest of the world. Implications of the summit between the American and North Korean leaders remain tantalizingly unclear. The UK’s Brexit talks with the EU are mired in frustration and unpredictability. International oil prices are bound to fluctuate due to a multitude of factors including the deal reached among OPEC member states and their partners to reduce oil production, increased risks of geopolitical conflicts, growth in the electric vehicle sector and advances in green energy. All of these developments and trends contributing to the uncertainty of the global economy are compounded by continuing concerns about the ability of governments around the world to cope with the burgeoning incidence of extreme weather conditions triggered by global warming.

Taiwan has also been braving adversity, ranging from shifts in diplomatic recognition, marginalization in international trade, to cross-strait tensions. As it strives to transform and upgrade its economy, it is faced with a multiplicity of challenges, including scarcity of natural resources, antagonism between political parties, social discord, exclusion from regional economic integration, reductions in energy reliability and increases in production costs, which are negatively impacting the private sector’s decisions to invest and threatening to blunt its competitive edge.

Changes and challenges abound in global politics and the economy as well as in the natural world. Business models evolve rapidly while supply chains are migrating against the backdrop of trade conflicts. Digital technologies are driving the world economy forward. FENC, capitalizing on its 70 years of experience and expertise, is highly responsive and adaptive to these environmental changes and is poised to write a new chapter of success in its illustrious history.

Operating Results

FENC invests prudently whilst seeking opportunities and remaining agile and flexible in business operations, maintaining our ability to expand and thrive in the global landscape. Outstanding performances were seen across business segments in 2018. Our consolidated revenue and net income reached NT$228.7 billion and NT$18.392 billion, respectively. The net income attributable to shareholders of the Company came to NT$12.028 billion, a growth of 49% from the previous year, translating into a basic EPS of NT$2.41 based on the IFRS rule. The 23rd term Board of Directors has proposed a cash dividend of NT$1.8 per share in the 4th Board meeting.

Production Business: Deploying across the Globe with an Ever-Broadening Vision

  1. Business foothold—growing deeper roots in Asia and branching out to the rest of the world
    The Company executes strategic investments in a timely manner to fulfill its global vision and business operations located in Taiwan, China, Vietnam, the United States, Japan and Southeast Asia have been vertically integrated into a streamlined system from production to sale. The synergy created by this global deployment has enabled FENC to maintain its leadership position in the industry. Aware of the global wave of protectionism, the Company has reacted proactively with investments in Vietnam, establishing a production capacity of 400,000 tons of PET and in other plants has streamlined the apparel production process from weaving and dyeing to finishing. This latter project has entered phase II expansion, including the second-stage construction of the Dyeing & Finishing Plant, the Polyester Filament and Staple Plant and the 3rd Apparel Plant. These investments have not only enabled us to harness Vietnam’s competitive trading advantages, thanks to its inclusion in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Free Trade Agreement with the European Union, but have also reduced the threat of competing integrations of regional economies around the world and avoided collateral damage in the ongoing trade war between the United States and China. In addition, the bottle-grade PET resin plant with an annual capacity of 360,000 tons in West Virginia U.S.A., acquired in 2018 from Mossi & Ghisolfi (M&G), together with their research and development center in Ohio State, has been integrated into APG Polytech, LLC and commenced production, which affords us advantages in raw material and energy costs and allows the Company to overcome trade barriers and directly supply the American domestic market. In addition, the joint bid with two other international partners for the acquisition and further construction of a production facility in Corpus Christi, Texas has been approved by the US Federal Trade Commission. After the project is completed, these integrated PTA/PET assets will be amongst the world’s largest, with a PTA capacity of 1.3 million tons and PET capacity of 1.1 million tons per annum. In addition, Taiwan’s new 1.5-million-ton PTA plant is up and running, allowing us to phase out old facilities. Not only does this project upgrade the competitiveness of our products, but it also guarantees a secure supply of feedstocks to the manufacturing base in Vietnam. All segments across the board have been exerting themselves to the utmost to realize growth and demonstrate their vigor on the global stage.
     
  2. Industry positioning—standing tall amongst out peers, leading the way to excellence
    The Company is a world leader in the polyester industry and a bellwether globally. Its output of PET resin ranks third globally, recycled PET second in the world, and polyester sheet number one in Asia. Our products of premium quality remain competitive throughout the world with ever-growing sales volumes.
     
  3. Green economy—upgrading and setting trends
    The Company’s green polyester enjoys leadership in the global market, green products certified by rigorous tests and audits both at home and abroad and thereby well-acknowledged by its customer base around the world. We have committed tremendous effort to research and development of assorted recycling technologies and applications, including “Bottle-to-Bottle” recycled polyester chips, “Bottle to Fiber” recycled polyester filaments, and “Bottle to Other Packaging” recycled packaging solutions. In furthering its strategic cooperation with brand-name companies, FENC has a deal with Adidas as its only supplier of “TopGreen Ocean” filament, which is made from recycled polyester fibers from ocean waste PET bottles. We also secured, for the fourth time, orders for functional jerseys made of recycled polyester fibers for several World Cup national teams, won the contract to supply NBA uniforms, and integrated ColorDry, a technology jointly developed with Nike and DyeCoo which substitutes supercritical carbon dioxide for water in the dyeing process, into the production of environmental-friendly fabrics and apparel. New milestones have been achieved in the research and development of green products, with application extended from polyester to nylon fabrics.
     
  4. Dynamic Innovation—driving the business forward with state-of-the-art technologies
    The vertical integration that starts from research and development and goes all the way down to production is complete and well-connected. At the “Far Eastern Group R&D Center,” there are four R&D departments and twelve divisions, all staffed with brilliant and creative minds. The Center has established strategic alliances with international brand-name companies, developing highly profitable and exclusive products. It also collaborates closely with downstream partners and brand owners in product design to initiate trends in the market. We have been awarded 248 patents, reinforcing our leadership in both industry and branding. Our newly-developed functional fabrics have won a “TOP 10” and four “SELECTION” awards at 2019 ISPO Textrends. Tapping into the trend for environmentally-friendly products, we have introduced a sustainable waterproof breathable polyester film made of recycled polyester fibers. Several other R&D projects have spearheaded the industry’s exploration into new domains. Our impressive results in R&D of both products and technologies have truly put Taiwan front and center on the world map of innovation.
     
  5. CSR model enterprise—striving for excellence and thriving on sustainability
    The Company sees itself as a world-class enterprise that provides happiness and well-being. Our efforts and achievements have been well-acknowledged by 2018 Global Corporate Sustainability Awards (GCSA) and Taiwan Corporate Sustainability Awards (TCSA). We have been honored with the Most Prestigious Sustainability Awards-Top Ten Domestic Corporates, the 2018 CSR Report of the Year for the third consecutive year by the TCSA, and the Reporting Awards by GCSA. Moreover, we have received a record-breaking number of awards, including the Climate Leadership Award, Growth through Innovation Award, Circular Economy Leadership Award, People Development Award, and English Reportage Award. The Company was also recognized in 2018 by Taiwan’s CommonWealth Magazine for its Excellence in Corporate Social Responsibility, selected as an “A-Level” constituent of the MSCI ESG Leaders Indexes, included in the FTSE4Good Emerging Index, TWSE Corporate Governance 100 Index, and Taiwan Sustainability Index. In 2018, FENC was not only honored to accept the CSR Winner for the second time from Global Views Monthly, but also nominated as one of the World’s Best Employers for the second straight year by Forbes with a global ranking of 149, the highest among only four Taiwanese companies to make the list and thereby a role model for corporate Taiwan.

Diversified Investments: Expanding our Scope to Realize Consistent Income

FENC has continued to expand its scope of investments across ten different sectors, which encompasses Far EasTone Telecommunications Corporation Limited (FET), Asia Cement Corporation (ACC), Far Eastern Department Stores Limited (FEDS), Oriental Union Chemical Corporation (OUCC), and Far Eastern International Bank (FEIB). Investments in these listed companies, which are all top performers in their own right, generate consistent incomes for FENC. The innovation-minded FET is ready to reposition itself from telecom operator to digital service provider in the era of 5G, and will increase the proportion of value-added services to compete on value rather than price. It will also aim for growth in cloud, security and energy management, and materialize business opportunities by focusing on the applications of the IoT and smart city. FENC has seen an impressive return on investment in ACC. The significant growth in earnings results mainly from its remarkable performance in China. It has managed to strengthen its foothold in the industry by both growing organically and expanding via acquisition, thereby extending its reach from central China to north China and making it to the Top 5 in China. In the retail segment, FEDS is actively pursuing transformation, introducing shopping centers of new concepts to consumers. Its three shopping malls of the City series boosted the Group’s market share in the sector of department stores. It has also managed to capitalize on the trend of “Online to Offline” as e-commerce continues to develop towards full bloom. Two more shopping malls, respectively located in Taipei’s Xinyi A13 and Chubei, are expected to further broaden its retail landscape when they open. OUCC experienced a growth in revenue in 2018 mainly as a combined effect of an increase in both the sales volume of its staple product—MEG and its selling price. FEIB, with its digital capabilities kept up to date for financial services, also performed relatively well in revenue and earnings. Overall, the optimal returns on investment across the board have proven a valuable contribution to the Company’s huge increase in profits.

Land Development—Flexible Land Strategies to Maximize Returns

The Company has up to 570,000 pings (1,884,306 m2) of land throughout Taiwan. In order to formulate strategies for land development, Far Eastern Resources Development Corporation (FERD) was set up to take charge of revitalizing the Company’s existing properties, with the hope that agile, flexible strategies in land management can maximize the benefits of real estate operation. Most of its properties are located in premium areas across the north of Taiwan, including Taipei Far Eastern Telecom Park (Tpark), Taipei Far Eastern Plaza, Mega Tower— the tallest skyscraper in New Taipei City, the lots of 170,000 pings (561,986 m2) in Wugu and 140,000 pings (462,812 m2) in Kuanyin. These valuable assets, if utilized with agility and forward thinking strategy, are certain to generate even far greater economic benefits. Phase I construction of Tpark, located in New Taipei City’s Banqiao district, is complete and operating. It now hosts the NTPC-AWS Joint Innovation Center, a development partnership between New Taipei City government and Amazon Web Services (AWS). This iconic project has raised the park’s international profile and the park is in turn primed to be a telecom park of sustainable development complete with office buildings, shopping centers, residential complexes, a library, a medical center, a hypermarket and schools. In addition, the tech giant Google, in an agreement with Tpark, will unveil a research and development office complex in the park in 2020 to promote its Intelligent Taiwan project, which will align the resources for neighboring startups and the cloud industry and even galvanize the establishment of an AI R&D center creating a growing demand for high-tech talent which will ripple out to the rest of the economy. As the Company has successfully attracted multinational tech heavyweights to deploy their R&D investments in Tpark, New Taipei City’s ICT industry will unequivocally be invigorated and subsequently give rise to an overall industrial upgrade. These developments will refine New Taipei City’s image in the international community and boost local economic prosperity, creating even more business opportunities and niches. Phase II construction is also underway with the main structures of FET’s IDC building and second R&D building both completed in February 2019 and the rest of the construction to be completed by the end of the year. Once inaugurated, these two assets will yield a substantial rental income. The upscale residential project jointly developed with Far Eastern Construction in Tpark, currently under construction and expected to be completed by 2020, will enter the sales stage. The construction of the hot-spring hotel in Yilan’s Jiaoxi Township (on Taiwan’s northeast coast) is scheduled to begin after receiving the building permit in 2019. Our FERD management team remains committed to creating advantages for our assets and enhancing their value-growing potential.

Business Goals and prospects

Capitalizing on its solid foundations of industrial management, FENC operates its business in an agile and strategic manner. We will continue to stride toward our strategic goals as an intelligent enterprise that excels at cutting-edge technologies, innovative R&D and elite management.

  1. Building Global Presence to Optimize Sales Performance and Service Quality
    As the Company pursues growth opportunities ardently to achieve sustainable operation, we will forge ahead with overseas expansion and increase investments around the world to mitigate the effects of trade barriers. The investment project in Vietnam has moved onto Phase II, ranging from polyester staple and filament, dyeing to apparel factories. The exports are mainly bound for countries that grant tariff concessions to Vietnam, such as the EU and ASEAN member states. The newly-acquired capacities in the United States will successively join the production line. The joint venture in PTA production in Yangzhou, China has been reviewed for reactivation. The Company has also been keenly building its global presence to cushion the impact of any particular market or abrupt economic change. Its deployment in diverse geographic locations around the world affords it not only agility in business operation but also acute responsiveness to customer needs. It is also believed that the proximity to our most valued clients will foster mutual growth and prosperity. We will take a prudent approach to the markets and continuously enhance our competitive advantages.
  2. Leveraging Artificial Intelligence to Capture Business Opportunities Derived from Successful TransformationThe Company is fully committed to introducing smart equipment and manufacturing processes. Specific funds have been earmarked to support AI initiatives and build a smart manufacturing supply chain. We have built Asia’s first smart factory of industry 4.0 in Vietnam, integrating ERP and MES with the automated warehousing system in alignment with automated production, connecting the factory with our clients via IoT, and thereby greatly improving production efficiency. Our petrochemical factory is taking a bold lead in Taiwan by installing the first smart P&ID platform which integrates the virtual data with the physical working environment. Our polyester and textile factories are embracing smart manufacturing in various aspects, including big data management, introduction of AI, cyber-physical integration, robot-assisted development and application, which all aim to maximize the operational efficiency of an intelligent supply chain. The Company is increasingly dedicated to completing our intelligent transformation in the era of industry 4.0 in order to create new business opportunities.
  3. Focusing on Green Products to Uphold Brand Values
    Going green is a prevailing global trend. The Company has been a leader in the development of eco-friendly products and manufacturing processes for well more than three decades. We serve brand customers with the most advanced technologies and profit from the green opportunities by supplying massive multinationals with high-quality products that meet the requirements for food-grade packaging materials set by the U.S. Food and Drug Administration, European Food Safety Authority and Japan’s Administration of Food Safety. In assisting our brand customers to fulfill their green missions and future goals, we have also planned to add new production lines in Japan, Southeast Asia and the U.S. to mitigate risks associated with the feedstock’s places of origin and to respond to customers’ needs in a timely fashion from a closer geographic location. FIGP in Japan has been expanding its second line and will continuously increase its capacity to capture new business opportunities brought about by green trends.
  4. Initiating Smart Management Practices to Sustain Competitive Edge
    To fast-track transformation and ultimately achieve synergy, a global management team has been put in charge of expansion around the world to coordinate the initiatives of smart management and consolidate resources in various geographic locations. Virtual/digital management has been initiated across the board in tandem with the establishment of a mobile office environment. Corporate financial strategy and policies are governed by the principles of stability and agility to buttress investments and increase asset values. A customer contribution system has been installed to enhance the efficiency of business operation, and a risk alert system to manage risks in a preemptive and holistic manner. FENC has also not only urged each business segment to reinforce the management of its own supply chain, but remains committed to the cultivation of new talent for its ever-expanding global presence and cooperation with academic institutes both enables recruitment of the brightest and best and bolsters its R&D capabilities. We will continue to strive for advances in corporate governance, environmental sustainability and energy efficiency to align ourselves with international best practices in business management and build a distinguished corporate image.
  5. Reinforcing R&D Capabilities to Harness Advanced Technologies
    Innovation lies at the core of the Company’s value system, and thus as we develop its R&D capabilities to the fullest, we also make sure that our projects in various fields, ranging from environmental protection, AI to IoT, are all infused with new concepts, new technologies, and new economic mindsets, which genuinely carve out lucrative and exclusive competitive niches in the market. Our R&D functionality keeps scaling up and the resultant innovative power permeates through the whole organization in our various locations around the world. In the United States, the resources of Sharon Center will be restructured for the establishment of a PET R&D Center. In Suzhou, China, a Modernization Manufacturing Center has been jointly built with NIKE. In Taiwan, COLAB operates to develop new materials and technologies with our brand customers. The Company leverages its world-class competency in R&D and innovative technologies on collaborative projects with multinational companies, which exemplifies our R&D strengths and turns out heartening opportunities and promising possibilities.
  6. Committing to Philanthropy to Create a Ripple Effect in the Corporate WorldNot only does the Company concern itself with industrial progress, but it also engages in a variety of endeavors, including philanthropy, education, healthcare and environmental sustainability. To advance public interests, its effort spans four different areas—healthcare, education, research and development of science and technology, and cultural creation and environmental protection. It has established three schools, two medical institutes and four philanthropic foundations. Regular events are held by the Far Eastern Medical Foundation, Far Eastern Memorial Foundation, and Far Eastern Y. Z. Hsu Science and Technology Memorial Foundation to promote a positive mentality and foster hope in society. We take concrete action to purse corporate sustainable development in concurrence with the UN SDGs. In 2018, for example, Far Eastern Memorial Foundation co-published with universities two white paper books on long-term care policy, entitled respectively Rights of Migrant Caregivers in Taiwan and Prospects of Smart Technology Application to Senior Caregiving, which received favorable reviews in a variety of circles upon publication and were applauded for their insightful contribution to policy suggestion. The foundations also hold the Far Eastern Architecture Award and Top Talent for New Life Cooking Competition to promote the humanities. In addition, the Far Eastern Y. Z. Hsu Science and Technology Memorial Foundation hosts the Y. Z. Hsu Science Award, and presents in three categories, namely Y. Z. Hsu Science Chair Professor, Y. Z. Hsu Science Paper Award, and Y. Z. Hsu Technology Invention Award, to promote science and technology innovation and simultaneously enhancing Taiwan’s future competitiveness. Since the inception of the Y. Z. Hsu Science Award, nearly 300 Taiwanese scholars have been recognized with total prizes of around NT$140 million. At the forefront of healthcare, the Far Eastern Memorial Hospital has completed its expansion, and can therefore allow medical professionals to delve into even more advanced and sophisticated clinical research that will benefit even more patients. In the field of education, Yuan Ze University has spared no efforts in upgrading itself with digital innovation and expects to join the ranks of world-class universities. The Company remains dedicated to advancing public wellbeing and is preparing itself to contribute even more to the country in the future.

Over the 70 years since its establishment, FENC has witnessed numerous changes in the socio-economic climate. We are ready to thrive in an era of fast-evolving business models by harnessing technological innovations, including IoT, mobile technology, AI, block chain, cloud computing and big data. As touched on in the theme of the 2018 Far Eastern Group Annual Strategy Meeting—Transformation in a Dynamic Era to Embrace the New Economy, we will undertake this transformation with new thinking, pursue growth with innovation and perseverance, inject renewed life into all our business operations across various sectors from Taiwan to Asia, and globally, and stride on towards centennial prosperity.

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