2023 Operation Perspectives

In 2022, the continued military conflict between Russia and Ukraine, along with pandemic prevention measures, resulted in an unbalanced global supply chain and a sharp increase in the prices of energy and raw materials, leading to inflation problems. In 2023, the lower risk of COVID-19 severity contributed to a gradual return to normal life. However, as the Federal Reserve and other global central banks raise their interest rates actively to curb inflation, the global monetary policies have been tightened, further resulting in high depreciations of other currencies except for US dollars. Higher interest rate will dampen consumer spending, adding risks and challenges to the economic outlook of 2023.

Recently, the Ministry of Commerce of China announced its launch of a trade barrier investigation on Taiwan's trade restrictions against China. If the investigation confirms these restrictions, they may have an impact on Taiwan's exports and imports. It is recommended that the government respond to this by proposing a plan that includes providing electricity and land concessions, granting subsidies for talent cultivation, and reducing or exempting taxes such as profit-seeking enterprise income tax, business tax, and commodity tax.

In terms of ESG, Taiwan Glass has implemented energy-saving resource management to save energy and water. Throughout the year, we have saved nearly 5.2 million kWh of electricity and reduced indirect greenhouse gas emissions by 5% by improving the energy efficiency of various equipment and processes, installing rooftop solar panels and windmill motors, and replacing inefficient lamps. Our fiberglass factory in Taoyuan was recognized as an "Excellent Manufacturer of Energy Conservation and Carbon Reduction" by the Bureau of Industry under the Ministry of Economic Affairs. Taiwan Glass is committed to examining the impacts and influences of our products' value chain on the environment and society and working with supply chain partners to move towards sustainability.

At the beginning of 2023, the Climate Change Response Act was passed, which includes a net-zero emissions target by 2050 and the implementation of a carbon pricing system expected in 2024. Taiwan Glass recognizes that achieving net zero and reducing carbon emissions are essential for enterprises to achieve sustainable development. Carbon inventory and disclosure are also key priorities for our decarbonization efforts in the future. We expect the government to establish carbon inventory standards, guidance, certification standards, and management mechanisms that align with international standards, and provide tax credits and incentives for environmental protection investments, such as carbon reduction in manufacturing processes, pollution prevention, and green facilities. These incentives can encourage companies to voluntarily reduce emissions and guide enterprises towards active low-carbon transformation, ultimately achieving the goal of net zero by 2050.

We would like to express our gratitude to all our stockholders for their long-term support, as well as to our directors, management team, and employees for their dedicated efforts. In the face of ever-changing circumstances, Taiwan Glass will continue to innovate in research and development, keeping pace with the times, and prioritize talent cultivation as we strive for steady growth and ESG development.

Regarding the overall performance of Taiwan Glass in 2022, the demand for raw materials in the first half of the year contributed to a certain amount of profit. However, declining demand, inflation, and exchange losses throughout the year had a negative impact on the overall performance. The group's consolidated revenue for 2022 was NT$43.9 billion, but unfortunately, the company experienced a net loss after tax of NT$820 million. The following report provides a breakdown of the performance of each product.

In terms of flat glass, the growth of Taiwan market has slowed down, and related investment, construction and business exchanges have decreased compared to pre-pandemic levels. However, with COVID-19 border restrictions being lifted and related measures gradually opening up, it is expected that domestic demand, consumption, and industry expectations will improve. Taiwan Glass aims to strengthen its innovation and R&D capabilities, optimize the productivity and efficiency of its production lines and equipment, and utilize industry-university resources and foreign technical cooperation. Currently, double-silver Low-E glass has become the mainstream of the market. We are continuously developing new coating colors for tempered double-silver glass and expanding the types of coatings to meet market demand. As for eco-friendly and energy-saving glass, we are committed to researching and developing triple-silver Low-E glass to meet the higher energy-saving standards of exterior walls.

In 2022, China's dynamic zero-COVID policy had a significant impact on all industries, including a significant reduction in new construction projects. However, in 2023, the authorities have lifted restrictions on the real estate industry and are now providing more support to consumers and real estate developers. This is expected to boost domestic demand and help the economy recover. With post-pandemic business opportunities on the horizon, there is hope for a rebound in China's economy.

In fiberglass business, Taiwan Glass is dedicated to reducing costs and speeding up research & development to increase our product value. As for electronic-grade fiberglass fabric, we have successfully developed and supplied the ultra-thin fiberglass fabric #1010 in response to the market needs in the future. Also, we have successfully developed low-dielectric (Low DK, coefficient: 4.58/10GHz) fiberglass fabric for high-speed, high-frequency transmission and remote business, which has been certified and continuously adopted by international terminal manufacturers. For FRP, the new kiln in cooperation with Owens Corning of the United States has improved production capacity and increased efficiency, coupled with advanced fiberglass formulation and production technology to supply clients with more comprehensive, high-performance and eco-friendly products. We will re-evaluate the expansion of production lines once the fiberglass market recovers.

As for container, tableware, kitchenware glass and our private brand, we experienced a slight decrease in overseas shipments due to clients' inventory and high freight rates. To maintain profitability, we strategically increased unit prices and focused on increasing tenders in the domestic market.

In terms of Shihlien Chemical Industrial Jiangsu Co., Ltd. (SCJ, 43.99% of its shareholding held by Taiwan Glass) in 2022, the tight supply-demand balance in the market led to record-high prices of soda ash and ammonium chloride in the middle of the year, which had a positive impact on SCJ's annual operating performance. As a result, Shihlien China Holding Co., Ltd. reported a consolidated operating income of US$610 million and a net profit of US$105 million. The industry is expected to continue its boom and maintain its prosperity and profitability.

Lin, Por Fong
2023.06.14