1. Risk Management Policy and Procedure 

 

Risk Management Policy and Procedure	PDF

2. Risk Evaluate 

(1) Operational risks - Supply chain risks:
A. Evaluate:
a. Due to factors such as unstable policies in China, factories are prone to suspensions and closures, leading to unstable supply and delayed delivery schedules.
b. Due to the economic downturn, coupled with excessive purchasing during the lockdown in 2022, raw material prices experienced a significant drop in 2023.
c. Suppliers have been gradually destocking throughout 2023, with expectations for improvement in the second quarter of 2024.
B. Impact:
In 2023, there was a significant drop in raw material prices, leading to reduced manufacturing costs. However, corresponding decreases in finished product prices resulted,
making the impact on profit and loss less apparent.
C. Response: 
a. Diversify the supply chain and increase backup sources of supply.
b. Maintain 2-3 suppliers and closely monitor their operational status and market trends.
c. Adjust inventory according to order demands and market trends.
(2) Operational risks - EHS risks:
A. Evaluate:
a. Being in the chemical manufacturing industry carries high potential for fire and toxicity.
b. Equipment damage or employee death or injuries due to negligent operations that might lead to suspension of operations.
c. Environmental pollution due to negligent operations that might lead to suspension of operations.
d.Net zero carbon impact.
B. Impact: :
a. In 2023, the company recognized insurance claim income of NT$210 million. After assessing the compensation details submitted by the neighboring factory that suffered
damage, the reversal of compensation losses amounted to approximately NT 0.37million.
b. The company's fire insurance premium has increased fourfold.
c. Taiwan is about to impose a carbon fee, and products exported to Europe and the United States will be subject to CBAM.
C. Response:
a.To execute standard operational procedures faithfully, ensuring adherence to ISO45000 and ISO14001.
b.To conduct educational training and fire drills and include environmental pollution and work safety incidents as factors for performance awards and punishments.
c.To have fire insurance, the current combined insurance amount of which is about NT$3.3 billion (including insurance for interruption of operations).
d.To have Insurances for public accident liability and employer liability.          
e. Establishment of a Greenhouse Gas Inventory Promotion Task Force to gradually complete inventory and internal and external verification, thereby formulating polic      objectives and control mechanisms.
(3) Operational risks - Quality risks: 
A. Evaluate:
Failing a client audit or health authority inspection or receiving warning letters, which create issues in product quality that necessitate remake or scrapping.
B. Impact: In 2023, the loss of inventory scrapping was about NT 11.8 million, and the amount of returns and allowances was about NT 17.92 million. C. Response:
a.To implement quality assurance policies and good manufacturing practice, ensuring adherence to ISO9001.
b.To have introduced the SAP ERP and Master Control softwares for data integrity and launch the Laboratory Information Management System (LIMS).
c. To have a product liability insurance for US$2 million.
(4) Financial risks - Exchange rates risks:
A. Evaluate:
90% of the company’s revenue is derived from exports. The quoted price is mainly in US dollars, and the appreciation or depreciation of the currency impacts the company’s
revenue significantly.
B. Impact:
The appreciation and depreciation of NT$1 in the foreign exchange between US  dollars and New Taiwan dollars approximately impact 2% of the gross margin. C. Response:
a. Based on developments in the international political and economic situation as well as trends in exchange rate fluctuations, determine the appropriate timing to buy or sell   
foreign currencies.
b.To undertake Forward Foreign Exchange to reduce exchange gains and losses.
 5) Financial risks - FVP&L:
A. Evaluate:
The current amount of financial assets at fair value through profit or loss is NT $ 89 million, mainly consisting of preferred stocks of financial institutions. 
B. Impact:
a. In the year 2023, dividend income was approximately 2.7 million. 
b. The valuation gains or losses from the investment positions, generate the valuation losses of NT$ 1.87 million in 2023.
C. Response: 
Dispose of assets as necessary based on the utilization of operating funds.
(6) Financial risks – PVOCI:
A. Evaluate:
Currently, the financial asset measured at fair value through othe comprehensive income is Energenesis Biomedical Co., Ltd., with an amount of approximately NT$ 96.8 million. 
B. Impact: In the year 2023, other comprehensive income generated a profit of approximately 200 million, primarily from the disposal and revaluation gains of financial asse      measured at fair value through other comprehensive income.
C. Response:
As the investments in those companies are part of a long-term strategy, there is currently no disposal plan.
(7) Financial risks - Credit risks:
A. Evaluate:
a. For the default risk of account receivables, the current account balance is NT$ 307 million.
b. For the default risk of cash and cash equivalent, the current balance is NT$ 942 million.
B. Impact:
There was no bad debt loss in 2023.The interest income of cash and cash equivalent generated is approximately NT$ 3.45 million.
C. Response:
a. The company shall implement proper client credit investigation, prepayment transactions shall be requested to the clients with concerning status, and factoring of accounts
receivables and insurance shall be implemented when necessary. 
b. The company’s cash deposits are in financial institutions with high credit ratings, which are mainly E.SUN Bank and Taipei Fubon Bank, for USD fixed deposits.
(8) Financial risks–Others:
A. Evaluate:
a. Interest rates risks.
b. Liquidity risks.
c. Inflation risks.
d. Endorsement / Guarantees risks.( Framosa Co.)
B. Impact:
a. As of the end of 2023, the accumulated capitalization amount of interest on the five-year loan from Mega Bank is approximately NT$ 11 million, which will be amortized aft      the operation of the Guanyin plant.
b. Interest expense for 2023 was approximately NT$ 6.29 million.
c. In 2023, inflation did not have a significant impact, but depreciation expenses in 2024 will have a significant impact.   
d. If the endorser of the guarantee fails to fulfill their debt obligations, a loss must be recognized. As of the end of 2023, the actual disbursed amount is approximately NT$ 7      million.
C. Response:
a. Interest rates : Closely monitor changes in the financial market and adjust the borrowing period accordingly
b. Liquidity : In November 2023, to meet the capital requirements for the construction of the Guanyin plant, cash was increased by NT$ 960 million through equity financing,
with additional utilization of medium to long-term loans. This included a NT$ 10 billion credit line from Mega Bank (5-year term), a NT$ 130 million credit line from Shangha      Commercial & Savings Bank, (3-year term), and a NT$ 100 million credit line from E.SUN Bank (3-year term).
c.Inflation : Closely monitor developments in relevant situations and adjust product prices moderately as needed.
d. Endorsement / Guarantees: Record relevant matters in the reference book and monitor the utilization of guarantee limits. Internal audit personnel will audit the endorsement
guarantee operation procedures and their execution at least quarterly.
(9) Strategy risks:  
A. Evaluate:
a. The company joint venture with Veolia to establish the Framosa Co., Ltd in the hope to reduce the consumption and the outsourced processing of chemical solvent,        enhancing the competitiveness in operation and meeting the global trend of ESG, thus the company support Framosa to construct its plant and operate within the schedule.
b. Construction of a second plant: The plant in Guanyin is to decentralize the production locations and stabilize the relationships with clients. 
B. Impact:
a. The company is holding 25% of the shares of Framosa Co., Ltd., allowing it to become one of the company’s affiliated companies. The shareholding ratio will be utilized to
recognize the loss on investment (NT$ 10 million of losses recognized in 2023). The decrease in consumption and the outsourced processing of chemical solvent will reduce the operating costs and increase the gross profit margin of products.
b. The total investment for the Guanyin Plant is expected to be NT$2.44 billion, if the utilization rate of the production capacity is not high enough after the operation started, it
will affect the profitability of the company’s main business.
C. Response:
a. To support the construction and operation of the Framosa Co., Ltd. under the schedule to secure the solvent processing service agreements within the industry and establish
economic scale.
b. To strengthen the business team to maintain good relationships with existing customers while actively expanding to acquire new customers. This approach aims to enhance
the sustained growth momentum of the products and subsequently improve capacity utilization.
(10) Hazard risks–Natural disaster risks:
A. Evaluate:
a. Taiwan is easily impacted by natural disasters such as typhoons, earthquakes, etc. 
b. Risks of emerging infectious diseases.
B. Impact:
No losses related to natural disasters occurred in 2023.
C. Response:
a.To enact the continuous operation plan of the company.
b.To enact the reporting and protection measures of infectious diseases, and implement them accordingly.
c.To purchase property insurance, currently the total coverage amounts of insurance is approximately NT$3.3 billion (the scope of insurance includes the stock, machinery
equipment, buildings, and the interruption in operation.)
(11) Law risks :
A. Evaluate:
a. Compliance with government laws and orders. 
b. Investment agreement signed by the President’s Office.
c. Non-disclosure agreement and supply agreement signed by the Business and Purchase Department. 
d.Service agreement and equipment agreement from other departments.
B. Impact:
None in 2023.  
C. Response:
a. Each department shall assign personnel to review the amendment of laws and regulations and review its impact and the corresponding measures that  shall be taken by the company. 
b. Each department shall review all agreements carefully, and strictly enforce the internal control procedures requiring signatures and seals. 
c. To commission services from legal firms for special and significant events.
d. To consult the opinions of General Counsel from the parent company for special and significant events.
(12) Others risks–Market risks:
A. Evaluate:
a. The market for pharmaceuticals grows steadily each year under population growth, aging, and economic growth.
b. The risk of losing clients.
c. The risk of having excessive ratios of a single product and a single client in the company’s revenues.
B. Impact: Due to the impact of a fire accident, the reconstruction schedule is delayed compared to expectations, resulting in the inability to restore capacity as planned. This
may lead to the risk of losing customers in the future.
C. Response:
a. To continuously enhance the relationship with the clients, speed up the processes of reconstruction, returning to production, and the construction of Guanyin Plant to restore the confidence of our clients.
b. To continuously develop new products with the goal of reducing the ratio of a singleproduct to the company’s revenue to below 15%. 
c. To continuously develop new clients with the goal of reducing the ratio of a single client to the company’s revenue to below 10%.