Risk Management Mechanism
To build strong risk management awareness, reasonably assure the achievement of the strategic goals to reach sustainable development, the Board of Directors of the Company passed the establishment of the “Rules Governing Risk Management” and formulated the following risk management policies:
- The operational management of the company possesses risk awareness, assuring corporate continued operations.
- The business responsible unit shall establish appropriate risk management procedures and continue the review and implementation. The aim is to ensure effective control of the various risks it bears.
The Company's risk management operation is divided into three control levels, through the various departments at different levels of responsibility, to implement risk control and reduce the risks faced by the company's operations. We also integrate with international standards such as ISO 27001 Information Security Management System, ISO 45001 Occupational Safety and Health Management System, ISO 90001 Quality Management System, and ISO 14001 Environmental Management System. Through annual internal and external audits, we confirm the efficacy of risk management measures and reduce operational risks.
The Board of Directors is the highest decision-making unit for the Company’s risk management. The Audit Committee assists the Board of Directors in supervising the Company's risk management operations, supervising the Company's existing or potential risks, and ensuring compliance with relevant laws and regulations and the effectiveness of the risk management mechanism. The Sustainability Committee is the executive unit that urges all responsible units to identify environmental, social or governance risks related to corporate operations, and to implementrisk control and response measures. It also reports the risk control status to the Audit Committee and the Board of Directors on an annual basis.
The Chief Internal Auditor will report the audit results to the independent directors and Board of Directors on a regular basis, assisting senior management and Board of Directors in inspecting and re-examining for deficiencies in internal control system, measuring the effects and efficiencies of operations. The aim is to ensure the operations effects, financial reports and legal compliance continue to be implemented effectively and to provide timely improvement suggestions. These form a basis for the review and corrections of the management system which can prevent frauds from happening and stimulates a strong management of the company.
The Internal Auditing Officer will report the audit results to the independent directors and Board of Directors on a regular basis, assisting senior level management and Board of Directors in inspecting and re-examining for deficiencies in internal control system, measuring the effects and efficiencies of operations. The aim is to ensure the operations effects, financial reports and legal compliance continue to be implemented effectively and to provide timely improvement suggestions. These form a basis for the review and corrections.
The operation in the past year was as follows:
| Year |
Operation Status |
| 2023 |
- “Risk management status” was reported to the Audit Committee and the Board of Directors in January.
- Reported to the Board of Directors and the Audit Committee on the implementation of internal audit in January, February, May, August, and November.
- A business unit meeting was held in November to identify the parent company's overall business environment risks in 2024 and formulated operating strategies.
|
| 2024 |
- “Risk management status” was reported to the Audit Committee and the Board of Directors in January.
- Reported to the Board of Directors and the Audit Committee on the implementation of internal audit in January, February, May, August.
|
Risk Identification and Countermeasures
In 2023, the overall environment was affected by highinterest rates, high inflation, and unstable international situations (Russian-Ukrainian War, Israel-Hamas conflict, Mainland-Taiwan relations) and other factors, resulting in fluctuations in raw material costs and a decline in agrochemical prices. Added to the suspension of rice irrigation in Taiwan and the policy of reducing the seasonal crop rice, these factors have all weakened the demand for end products. In addition, international society continues to tighten control over the safety of crop protection agents, including the ban on highly toxic products, pesticide labeling management, and high attention to net zero emissions, resulting in increased overall operational risks for the Company. In 2024, for the continuation of the overall environmental situation in 2023, the Company continued to face the impacts of unstable international conditions, financial fluctuations, abnormal climate, and unstable global supply chains. In terms of technology, agricultural drones and smart
agriculture are becoming popular in replacing human cultivation
The above-mentioned major risk items have been submitted to the Audit Committee and the Board of Directors on January 19, 2024. Identify and measure risks, monitor them effectively, and take appropriate measures to respond to them. Currently, various risks can be controlled within the limits.
| Strategy Risk |
| Risk Item / Scenario |
Risk Countermeasure |
Market trends in environmental and food safety
- The government of every country is taking rigorous control of the registration, production, and sales regulations for the crop protection products, and implements various measures based on promotion of soil protection and food safety. If response is not taken, there will be risk in being replaced by the market.
|
Control Department：All business departments
- Accelerate the registration of new products and alternatives, and develop self-brand biological control materials and microorganisms products, registration-exempt crop protection products, and controlled-release fertilizer products through industry-government academia collaboration to reduce or ban the use of chemical pesticides and fertilizers.
- We continue to develop overseas new crop protection products (i.e., microbial products) and promote safe dosage forms to seize the sales advantage at an early stage.
- Monitor products in inventories, track product quality, and improve and upgrade equipment to minimize the risk of unqualified results of product sampling checks.
- We continuously enhance the talent training plan to maintain the skill and knowledge levelof all R&D and sales personnel, making them experts on crops.
- Through technology advice for Sinon's agricultural cultivation methods, and various promotion and demonstration events, we provide farmers with complete crop protection solutions
|
|
Insufficient human resources in the agriculture industry/changes in technologies
- Insufficient labor due to the old age of farmers and population loss in rural
areas.
- Agricultural drones are now widely used to replace workforce.
|
Control Department：All business departments
- Promote the features and advantages of Sinon's products to save time and labor.
- Develop dosage forms suitable for drone products and increase the application ofagricultural machinery.
- Strengthen the agricultural drone product line and the promotion of the scope of application.
|
|
Change in policies and regulations
- The Ministry of Agriculture's policy of reducing the seasonal crop rice resulted in a decrease in the agricultural acreage.
- Carbon reduction subsidy for domestic resource compound fertilizer.
- Unstable electricity supply, frequent instantaneous jumps, and rising electricity prices.
- Cross-strait tensions may result in changes in the export tax rebate policy.
|
Control Department：All business departments
- Development of community crop combination using pesticides/fertilizer and cultivationmanagement.
- Adding new domestic resource compound fertilizer items.
- Maintain 100% availability rate of emergency generators and continue to promote energy conservation and waste reduction.
- Diversification of raw material supply sources.
|
|
Decline in customer demand/Product competition
- Customers postpone or reduce purchases due to high product inventory.
- The price of raw materials is on the decline, so farmers are buying now and
using them instead of stockpiling them.
- Me Too product competition
|
Control Department：All business departments
- Accelerate product development and increase product diversity and differentiation.
- Adjust selling prices and sales activities in line with market conditions, stock up on short term inventory, and increase inventory turnover.
|
| Operating Risks |
|
| Risk Item / Scenario |
Risk Countermeasure |
Raw material price fluctuations and supply chain risk
- The government's environmental protection policy at where the supplier is located limits the production of raw materials resulting in shortages of the raw materials or surge in prices. The company's production capacity is thus restricted, and the production costs increased.
- Prices of raw materials fluctuate due to unstable international development.
|
Control Department：Supplu Chain Department
- The Company establishes a global sourcing platform to integrate the demand for raw materials; searches for substitute raw materials and suppliers to stabilize the source of supply.
- We review and control the safety stock level, monitor the market changes, and enhance bargaining power for raw materials and products to respond to product production demand flexibly.
- Many logistics companies for flexible adjustments in the goods supply for raw materials and products.
|
|
Human resources risks
- The unfavorable labor-capital relationship will affect stuff turnover and impact our corporate image.
- Aging population in the society structure and industrial type, the salary is lower than peer industry or relative competitor (electronic industry).
|
Control Department：Management Division, Legal Affairs Office, All business departments
- Ensure that the management and operations of human resources comply with international human rights standards and the requirements of local laws and regulations where our operations are located.
- Maintain smooth labor-capital communication channels and improve labor-capital harmony.
- Increase automation in production to raise the production efficiency.
- Provide stable salary and welfare measures and career development plans for the benefit of talent retention and recruitment.
- Participate in campus recruiting events, organize corporate internships for students, and keep close contact with universities and colleges in Central Taiwan to secure talents from the source.
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|
Environmental protection and occupational safety and health risks
- Occurrence of emergency disaster events (fire hazard, explosion, chemical substances leakage, raw materials tank leakage) will create danger to the internal and external environment and personnel of the factory.
- Industrial waste results in harm to the environment, surrounding residents of the factory area, and employees.
- Inappropriate operating procedures and insufficient control that result in harming the safety and health of personnel or financial losses of the Company.
- Limited wastewater treatment capacity and limited production capacity
|
Control Department：Construction & HSE Management Division
|
| Financial Risks |
| Risk Item / Scenario |
Risk Countermeasure |
Exchange rate risk
- The interest rate policies of major CBC around the world create exchange rate fluctuations
|
Control Department：Management Division
- The finance department closely pays attention to the exchange rate fluctuations at any time and adjusts the foreign currency positions according to the actual capital requirements and exchange rate trends.
- We develop hedging strategies and hedge through hedging instruments such as forward rates.
- Adjust product structure, sales strategy, and optimize inventory.
|
| Information Risks |
| Risk Item / Scenario |
Risk Countermeasure |
Information security risk
- Improper information security structure design or insufficient control of the system, equipment, network, privacy management mechanism leading to higher possibility of intrusion of the information system facing risks in operation interruptions and on.
|
Control Department：Management Division
- The Company has implemented the ISO 27001 Information Security Management System to integrate and strengthen information security mechanisms.
- We conduct information security trainings and drills, to enhance information security awareness and contingency capability.
- Set up dedicated chief and dedicated personnel for information safety to assume responsibility for information safety and protection affairs.
|
| Legal Compliance and Ethical Risks |
| Risk Item / Scenario |
Risk Countermeasure |
Social, economic, and legal compliance
- Operation risks arise due to non-compliance to related laws and regulations (labor laws, Company Act, Securities Exchange Act, anti corruption, environmental laws and so on) by the corporation or employees.
|
Control Department：Management Division, Legal Affairs Office
- We formulate internal rules to specify operational regulations, conduct internal control, and establish a whistle blowing mechanism to ensure that operations and employees comply with laws and regulations.
- We keep up to date with legal changes. We assign staff from time to time to participate in advocating meetings and courses held by government agencies and conduct educational training and regulatory identification to ensure compliance with legal requirements.
- All business departments of the Group shall have legal compliance personnel in place. Such personnel shall be responsible for the control and implementation of legal compliance in all departments.
- Promotional measures to reinforce ethical corporate management and intellectual property rights (educational training and the execution of compliance commitment).
|
| Other Risks |
|
| Risk Item / Scenario |
Risk Countermeasure |
Climate Change risk
- The initiatives of net-zero carbon emission in different countries restrict the carbon dioxide emission volumes of enterprises, which impacts the supply of raw materials, increases the operating costs of enterprises, and affects the Company's production capacity.
- Various countries are discussing the carbon tax/carbon fee systems, giving rise to the operating costs of enterprises.
- Policies of various countries call for a reduction in using chemical fertilizers (judicious use of fertilizers).
- GHG inventory and verification requirements to enterprises.
- Extreme weather and climate events (high temperatures, droughts, floods, and storms) resulted in an increase in crop production variables and a reduction in crop cultivation, affecting our product demand. The occurrence
of climate events will also impact the supply of raw materials and affect our production stability.
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Control Department：Sustainability Committee, All business departments
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