Corporate Social Responsibility Report Hsin Kuang Steel · 2020-02-12 · 2 2018 Corporate Social...

20182018Corporate Social Responsibility Report

Hsin Kuang Steel

1

2

3

4

5

1-1 Interaction with Stakeholders 10

1-2 Material Topic Analysis 12

1-3 Sustainable Development Strategies

About the Report 2

A Word from the Chairman 4

2018 Performance Overview 6

聯合國永續發展目標 (SDGs)實踐 8

Appendices

Appendix I Global Reporting Initiative General DisclosuresAppendix II Accountants’ Limited Assurance Report

2-1 About HKS 18

2-2 Operational Performance 22

2-3 Governance Structure 24

2-4 Ethical Operations 29

2-5 Risk Management 30

2-6 Legal Compliance 33

3-1 Products and Techniques 36

3-2 Product Quality 38

3-3 Customer Service 41

3-4 Supply Chain Management 43

4-1 Employee Status 47

4-2 Employee Recruitment and Retention

4-3 Employee Cultivation and Development

4-4 Workplace Health and Safety 56

5-1 Environmental Protection 60

5-2 Social Welfare 64

Stakeholders and Material Topics

Corporate Governance

Products and Services

Employees and the Workplace

Environmental Protection and Public Welfare

Table of Contents

12 49

53

70

74

2018 Corporate Social Responsibility Report Hsin Kuang Steel2

About the Report

Hsin Kuang Steel Co., Ltd. (hereinafter referred to as “HKS” or “the Company”) was founded in 1967. Since establishment, HKS has not only advanced product and service quality but also improved environmental protection and social practices. Starting in 2017, we began to use the GRI Sustainability Reporting Standards (GRI Standards) as a guideline for compiling and publishing our Corporate Social Responsibility Report (or “the Report”). The Report discloses value created by the Company. It offers valuable information to internal and external stakeholders and contributes towards the joint creation of virtuous circles in society.

Report Basis

The Report uses the core disclosure method contained in the GRI Standards made by the Global Reporting Initiative. It follows the “Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Corporate Social Responsibility Reports by TWSE Listed Companies” and the “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies” to disclose CSR practices and results to stakeholders.

Categories and Scope

The Report reveals information relating to HKS’s operational locations, brand and activities in Taiwan between January 1st and December 31st, 2018. Some information in the Report matches the contents of the Company’s consolidated financial statements, which were prepared according to the International Financial Reporting Standards (IFRS) and use New Taiwan Dollars for currency data.

Third-Party Verification

To raise our compliance with the GRI Standards and the Statements of Assurance Engagements Standards No. 1 “Assurance Engagements Other than Audits or Reviews of Historical Financial Information” and to demonstrate the Company’s transparency, Deloitte & Touche LLP reviewed the Report and provided an Assurance Report Statement, certifying adherence to the core disclosure method contained in the GRI Standards, the “Assurance Engagements Other than Audits or Reviews of Historical Financial Information,” and the “Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Corporate Social Responsibility Reports by TWSE Listed Companies.”

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Publishing Information

This is the second corporate social responsibility (CSR) report published by HKS. It is available on the Company’s website.

Report period: January 1st to December 31st, 2018

Publishing period: Annually

Release of this year’s report: August 2018

Release of next year’s report: August 2019 (scheduled)

CSR Contact Information

If you have any comments or suggestions regarding the Report or HKS’s sustainable development or CSR practices, please contact us via any of the following methods:

Address : Fl. 25-1, No. 97, Sec. 4, Chongxin Rd., Sanchong Dist., New Taipei

Tel : +886-2-2978-8888

Email : [email protected]

Company Address : https://www.hkssteel.com.tw/

Hsin Kuang Steel: Administrative Services Department


A Word from the Chairman

Steel is an important material for building a circular economy and a low-carbon society. Using “building a new and beautiful Taiwan” as our vision, we adhere to the four concepts of “integrity, harmony, innovation, and sharing.” Besides closely monitoring important global sustainability developments and trends, such as the United Nation’s (UN) Sustainable Development Goals (SDGs) and the Task Force on Climate-related Financial Disclosures (TCFD), we uphold our CSR commitment. We continue to evaluate and improve related mechanisms, such as the “Hsin Kuang Steel CSR Policies” and the “Hsin Kuang Steel CSR Best Practice Principles” from 2015. These mechanisms steer the implementation of the social responsibilities and sustainable practices that we should fulfill as a corporate citizen.

In order to support long-term competitiveness, the Company adopts composite management practices and offers an expansive portfolio of steel products. For public and private construction, we rely on collaborative cooperation and accept purchase orders. In terms of talent cultivation, we actively recruit new employees who can raise the overall quality of our workforce. From training to work practices, we give our employees space to employ full use of their talents and raise their efficiency and effectiveness. In terms of strategic integration, our mid- and long-term plans foster closer integration of supply chains. We coordinate joint venture companies, cooperate with international steel factories, provide materials and construction services for underwater building projects and foundation piles at offshore wind farms, research steel products and composite materials for the photoelectric and green energy industry, and invest in overseas businesses. For customer relations management, we emphasize use of the value curve when developing new clients.

Through the hard work of all our employees, in 2018 our total operating revenue was NT$8.836 billion, representing an increase of 5.80% compared to 2017, and our profit from operations was NT$571 million. Two significant challenges we faced in 2018 were the US-China trade war and large fluctuations in the price of stainless steel raw materials, which led to an increase in material costs. Despite 2018 lacking the vigor of economic recovery and growth seen in 2017, the Company continued to operate at full capacity. Our procurement, production, and sales remained stable as our staff worked toward a common purpose. Under these conditions, we sold 340,000 tonnes of steel products, reaching 88.8% of our goal of 383,000 tonnes.

When developing green energy, the Company upholds environmental protection, clean energy, spatial reuse, and other sustainable development concepts. By the end of 2018, we added 7,375 kWp of solar panels to our mill roofs, giving us the largest Dupont “safe and reliable” commercial rooftop solar power-generating capacity of any company in Taiwan. The system produces around 7.35 million kWh of power annually, which reduces CO2 emissions by close to 4,070 tonnes per year, equivalent to the carbon absorption capacity of around 10 Daan Forest Parks. We already generated 16.91 million kWh of solar power and reduced carbon emissions by 9,130 tonnes, which is equivalent to the carbon absorption capacity of around 24 Daan Forest Parks.

Natural fencing and greenery enhance our mill environments. Plants distributed throughout the grounds change with the seasons and fill the air with the scent of forest phytoncides. Short-, mid-, and long-term staffing and succession plans advance our corporate culture. We also promote knowledge management, stronger employee training programs, and safe workplaces while actively training workers for higher roles.

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Looking ahead to 2019, we will continue with our expansion policy. Each department will extend task-oriented duties and ensure ongoing staff training, the passing on of skills to new workers, and the recruitment of talented new employees, in order to effectively promote and manage work performance. Besides strengthening existing clients and production lines, we must do more to develop new clients, expand the capacity of our solar and wind power, and develop new products. In order to continue to improve operations, we will incorporate international environmental, social and corporate governance trends. As we contribute more to the national economy, we will improve the lifestyles of our employees and others in society. As we pursue sustainable operations and profits, we will heed social ethics, the rights and interests of stakeholders, and balanced development. During the next five years, the steel industry will gravitate towards innovative techniques and improved quality. We will use this opportunity to implement circular economy principles, reduce energy waste, and stay dedicated to our core values. Our expectation is for the Company to build a sustainable development model for future businesses in the Taiwan steel industry to follow. In order to advance stably, we will fulfill our vision of “Pursuing growth while saving energy, protecting the environment, and creating value through innovation, thus becoming an excellent steel company that is worthy of people’s trust.”

Alexander Sue


2018 Performance Overview

Economic

Environmental

Social

NT$8.836 billion, for growth of 5.80% compared to 2017.

Revenues

Carried out ISO 14001:2015 Environmental Management Systems. We expect to pass inspection and verification in 2019.

Environmental Management Systems

Integrated ISO 45001:2018 Occupational Health and Safety Management Systems into our operations. We expect to pass inspection and verification in 2019.

Occupational Health and Safety Management Systems

Zero workplace injuries for two consecutive years.

Zero workplace injuries

Renewable energy generation capacity of 7,375.40 kWp, which lowers our annual CO2 emissions by

approximately 4,070.51 tonnes.

Reduce greenhouse gases

Neo products that have three-times greater rust prevention than traditional hot dip galvanized products of the same grade.

Added new ECOGAL

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Total education and training hours

reached 13,486, for an average of 46.5 hours per employee.

Education and training

Invested a total of NT$6.64 million into the Hsin Kuang Steel Tian-Cheng Charity Foundation. Accumulated donations reached

NT$37.88 million.

Charity

Energy intensity of 340.01GJ, which was

a decrease of 2.06% compared to 2017.

Improve product capabilities

Completed ISO 3834 quality requirements for fusion welding of metallic materials and

EN 1090 – Structural Steel CE Marking certification to raise our Company’s welding quality assurance.

Quality Certification


Implementing the United Nation’s Sustainable Development GoalsThe UN established 17 SDGs and 169 targets as a blueprint for achieving a more sustainable future for all. Governments, enterprises and non-governmental organizations around the world use them to set development goals. As a global citizen, HKS follows them to promote comprehensive social welfare. In our operations, we respond to the following SDGs:

SDGs Targets Company Actions Corresponding Chapter(s)

By 2030, eliminate gender disparities in education and ensure equal access to all levels of education and vocational training for the vulnerable, including persons with disabilities, indigenous peoples, and children in vulnerable situations.

■ Enhance professional training. Use short-term, mid-term and long-term education and training to offer career development to employees.

■ In 2018, average training hours per employee were 55.73.

■ Establish scholarships and grants for students from low-income families. Subsidize after-school care and classes in rural areas.

4

Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic and public life.

■ Emphasize workplace gender equality.

4

By 2030, increase substantially the share of renewable energy in the global energy mix.

■ Develop solar power, research steel products and composite materials for the photoelectric and green energy industry, install solar panels in the mill area.

■ Invest in offshore wind farms and renewable energy development in Taiwan.

3, 5

Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.

■ Participate in developing underwater construction projects needed for offshore wind farms in order to build green energy infrastructure, thus supporting the transformation of Taiwan’s energy resources and local supply chains.

3

Integrate climate change measures into national policies, strategies and planning.

■ In response to global energy trends, make the development of offshore wind farms a core development direction.

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9

1-1 Interaction with Stakeholders

1-2 Material Topic Analysis



10 2018 Corporate Social Responsibility Report Hsin Kuang Steel

1-1 Interaction with Stakeholders

Stakeholder Identification and Communication

In 2017, the Company used the AA1000 Stakeholder Engagement Standard (SES), and its five core stakeholder attributes (dependency, responsibility, influence, diverse perspectives, and tension) to design questionnaires that were distributed to each department to investigate our degree of relationship with each type of stakeholder. Analysis showed that stakeholders whom the Company had an especially close relationship with were competent authorities, suppliers, shareholders or investors, employees, clients, and contractors or subcontractors. In 2019, following an internal discussion by the Company’s CSR Implementation Team, we determined that there were no major changes to our degree of relationship with each stakeholder. Therefore, we continued to use these six groups as our core stakeholders for this year. In order to quickly understand and respond to their needs, the Company built dedicated channels that support convenient, effective communication.

▼ Method of Communication and Key Topics for Each Stakeholder

Stakeholder Type

Significance to the Company

Communication Methods & Frequency Areas of Concern Company

Response

Competent Authorities

HKS is a listed company, which means that the policy decisions of the competent authorities and their legal and administrative expectations have an impact on the Company’s operations.

■ Regular reporting/monthly

■ Article scope/irregular ■ Document submission &

receipt/irregular

■ Stakeholder communication

■ Corporate governance

■ Legal compliance ■ Supplier

management ■ Sustainable

development strategies

■ Risk management ■ Waste and pollution

management

Chapters 1, 2, 5

Suppliers

Suppliers are the upstream source of the materials that go into the products HKS makes. The quality, specifications, price, and lead times of these materials directly affect the Company’s service.

■ Phone, fax/irregular ■ E-mail/irregular ■ Supplier reviews/annual

■ Sustainable development strategies

■ Greenhouse gas emissions

■ Supplier management

■ Risk management ■ Product quality

Chapters 1, 2, 3, 5

Shareholders and Investors

HKS is a listed company. Shareholders care about the Company’s operational results. The Company, meanwhile, depends on shareholder support in order to achieve sustainable development and operations.

■ E-mail/irregular ■ Shareholders’ meetings/

annual ■ Board of Directors

meetings/quarterly ■ Visits/irregular ■ Phone meetings/irregular ■ Video conferencing/

irregular ■ Investor meetings/

irregular ■ Market Observation Post

System

■ Operational performance

■ Social participation ■ Sustainable


■ Corporate governance

■ Risk management

Chapters 1, 2, 5

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1Stakeholder

TypeSignificance to the

CompanyCommunication

Methods & Frequency Areas of Concern Company Response

Employees

Employees grow with the Company. Together, we establish a culture of strong quality and service.

■ Labor-management meetings/quarterly

■ Goal management meetings/biannual

■ Employee website announcements/irregular



■ Talent recruitment and wages/benefits

■ Legal compliance

■ Building the Company’s services and relationships

Chapters 1, 2, 3, 4

Clients

Clients are the main recipients of the Company’s services. The Company develops products and services in response to their needs and maintains close customer relationships.

■ Phone, fax/irregular ■ On-site visits/irregular ■ Phone/irregular ■ Customer satisfaction

surveys/annual

■ Risk management


■ Building better services and relationships

■ Legal compliance


Chapters 1, 2, 3

Contractors and

Subcontractors

Contractors and subcontractors are the upstream suppliers that support the Company’s operations and services. Their quality, specifications, prices, and lead times are directly related to the Company’s operations.

■ Phone, fax/irregular ■ E-mail/irregular ■ Supplier evaluations/

annual

■ Building Company services and relationships

■ Workplace health and safety

■ Product quality ■ Sustainable


■ Supplier management

Chapters1, 3, 4


1-2 Material Topic Analysis

Material Topic Identification

In 2017, the Company used the GRI Standards and AA1000 standards to create material topic analysis procedures. Considering industrial trends, key sustainability topics, and global benchmarks, we compiled 20 sustainability topics that are closely related to the Company’s operations. Using a combination of questionnaires and conferences, we investigated the influence of these various sustainability topics on each type of stakeholder. The chairman, vice presidents and other high-level executives used these results to determine the significance of related economic, environmental and social impacts. We then arranged the 20 topics based on order of importance and chose eight of the most important topics. Based on these analyses and following discussion with each department, we designated internal and external targets and boundaries for each topic then selected 10 material themes.

In 2018, following an internal discussion by the CSR Implementation Team about the 20 sustainability topics, we determined that the topics still closely relate to the Company’s operational status. We therefore decided to continue using sustainable development strategies, risk management, legal compliance, workplace health and safety, corporate governance, operational performance, product quality, and company services & relationship building as our eight focuses of sustainable development. These affect the scope of information disclosed in this publication and are used to respond to stakeholders.

Step 1 Step 2 Step 3 Step 4

Creation of a sustainability topic list

Influence on stakeholder assessment

Operational impact analysis

Drafting a prioritization of topics array

International industry trends

Global sustainability topics

187 valid questionnaires returned by stakeholders

1 conference

HKS chairperson, vice presidents, and other high-level executives

Compiling and analyzing results, drafting a visual representation

1 conferenceIndustry operations and activities

▼ Prioritization of Topics Array

Corporate governance

Technology R&D and Product Liability

Labor and human

environmentEconomic

Society

Low

High

HighLow Significance of economic, environmental and social impacts High

01

02

03

04

05

12

13

14

15

16

17

18

19

20

06

07

08

09

10

11

01

02

04

0305

06

07

08

09

1011

12

13

1415

1617

18

19

20

Influence on stakeholder assessments and decisions

Sustainable development strategiesCorporate governance

Risk management

Stakeholder communication

Legal compliance

Supplier management

Talent recruitment, salary and benefits

Workplace health and safetyLabor-management relationsLabor practices, human rights, and equalityEducation and career development

Energy useWaste and pollution managementGreenhouse gas emissionsEnergy savings and carbon reduction

Operational achievements

Social participation

Technical R&D

Product quality

HKS services and relationship building

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Based on the prioritization of topics results, the Company evaluates the impact scope of material topics, formulates appropriate management guidelines, and sets short-, mid- and long-term goals for each material topic to be used for future practices.

Direct impact　 Indirect impact

Material Topic

Corresponding GRI Topic/Self-

Designated Topic*Explanation

Impact Scope

HKS

Sustainable development strategies

Sustainable development strategies*

Short-, mid-, and long-term strategies for corporate sustainable operations as well as economic performance, environmental protection, and social participation. Sustainable development strategies have an important impact on the Company’s operations.

Risk management Risk management*

Risk identification, monitoring, warning mechanisms, and crisis management capacity. The Company uses related management methods to ensure sustainable operations.

Legal compliance

Environmental complianceSocioeconomic compliance

Policies, management mechanisms, and status of environmental and socioeconomic compliance. These meet the requests of competent authorities and ensure benefits for the Company and shareholders.

Workplace health and safety


Management mechanisms for maintaining workplace safety and health include disaster prevention, safety management, and worker health management. The Company uses safety and health management measures to maintain employee health and quality of life.


Corporate governance*

Professional capacity, independence, professionalism, and operational status of governance units to respond to investor expectations.

Competent

Authorities

Shareholders/Investors

Contractors and Subcontractors

Suppliers

Clients


Material Topic

Corresponding GRI Topic/Self-

Designated Topic*Explanation

Impact Scope

HKS

Operational performance


The Company’s operational performance is of primary concern to investors. Relevant data include financial information, investment profits and losses, and operational costs.

Product quality

Customer health and safety

Management mechanisms built to maintain and raise the quality of products and services. This gives the Company market advantages and maintains our strong reputation.

Company services and relationship building

Services and relationship building*

Actions carried out in response to client needs in order to build trust and raise service quality and satisfaction. The Company constantly seeks to improve in order to quickly satisfy clients’ needs.

Company Management Direction and Participation

2018 Management Status and Performance Mid- and Long-Term Goals

Sustainable development strategies

The chairman assigns the General Manager’s Office to formulate clear strategies for Company internal operations, production, and corporate procedures. The purpose is to promote corporate sustainable development and CSR, thus achieving balanced environmental, social and governance development in line with international development trends. The scope covers all Company departments.

Oversight of internal operations by the General Manager’s Office includes using business process strategies to promote corporate sustainable development. Our expectation is to meet international trends for balanced environmental, social and corporate governance development, in an effort that extends to all departments. In terms of management systems, we promoted ISO 14001 Environmental Management and ISO 45001 Occupational Health and Safety. For both these programs, we expect to pass inspection and verification in 2019.

Establish seven primary CSR implementation principles and goals: cultivate a corporate culture of integrity and harmony; adhere to all relevant laws and regulations; use corporate governance as a basis for balancing the rights and interests of all stakeholders; provide good jobs that consider the physical and mental needs of workers; participate in social welfare activities while sponsoring educational and cultural activities; respond to climate change by continuing to implement environmental protection measures; oppose corruption, reject showing favoritism towards particular employees due to the influence of their friends or family, and avoid conflicts of interest. Do not offer bribes and do not cultivate improper relations with government officials.

Competent

Authorities

Shareholders/Investors


Suppliers

Clients

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1Company Management

Direction and Participation2018 Management Status and

Performance Mid- and Long-Term Goals

Risk management

The Company relies on close cooperation within the organization and resource integration to identify and manage all strategic, operational, financial, and other potential risks that could impact operations or earnings.

We planned and implemented 61 audit and verification procedures that were established in 2018, in order to monitor operating procedure results to ensure there were no major deficiencies. Since our subsidiary companies continue to expand, we added more audit professionals to guarantee that we have sufficient staff support for carrying out all related tasks.

Assist the Board of Directors and senior management in uncovering internal control mechanism shortcomings followed by subsequent re-evaluations. Balance operational effectiveness and efficiency, provide improvement recommendations, and ensure the ongoing effectiveness of internal control systems.

Environmental compliance

The Company closely tracks legal changes and regularly consults with legal advisors. Adjustments to operational procedures and internal regulations ensure that we meet legal requirements.

We scrupulously abide by all government regulations. If a rule is broken, we immediately review and improve the situation while taking steps to ensure that such an incident does not happen again. In 2018, we did not have any environmental violations.

Ensure compliance with all government, economic, environmental, and social regulations with the goal of achieving full compliance.

Socioeconomic compliance

Each mill unit formulates workplace safety and health solutions and carries out reviews and improvements. All employees participate in safety exercises and technical certification training. The Administrative Services Department arranges and tracks employee health management to maintain good workplace health and safety.

We scrupulously abide by all government regulations. If a rule is broken, we immediately review and improve the situation while taking steps to ensure that such an incident does not happen again. In 2018, following a safety and health violation, we conducted training and improved our forklift safety operational standards.

Ensure compliance with all government, economic, environmental, and social regulations with the goal of achieving full compliance.


Build Board of Directors management methods, review mechanisms, and educational training. Establish functional committees, such as the Audit Committee and Remuneration Committee, in order to strengthen the Board, uphold shareholders’ rights and interests, and achieve equal treatment and information transparency.

Implemented the ISO 45001 Occupational Health and Safety system, and we expect to pass inspection and verification in 2019. As we build our systems, plan environmental monitoring, and implement a personal protection equipment program, we arrange safety education, training and drills.

Build a corporate culture of safety and health, ensure the safety of all employees, achieve zero workplace disasters, zero accidents, and zero fines.


Formulate and track annual plans, ensure close internal communications and cooperation, and integrate external resources. Manage and promote corporate operational performance.

Besides establishing CSR policies and assessing implementation, the Company designated the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct” as a basis for compliance. In 2018, we did not have any incidences of fraud or corruption.

Insist on operational transparency and emphasize the rights and interests of shareholders. Operate a comprehensive and effective Board of Directors that fulfills corporate governance principles in order to continue to achieve good operational performance.


Company Management Direction and Participation

2018 Management Status and Performance Mid- and Long-Term Goals


The Production Department creates quality control mechanisms that include safe storage and production management. Company platforms and equipment enable mill staff to carry out these tasks, and channels are available to communicate with suppliers and clients.

Formulate and follow-up annual plans, conduct close internal communication and cooperation, and integrate external resources in order to manage the Company’s operational performance. In 2018, the Company had revenues of NT$8.836 billion, an increase of NT$484 million compared to the revenues of NT$8.352 billion in 2017, and we sold 340,000 tonnes of steel products, achieving 88.8% of our goal of 383,000 tonnes.

For 2019, we set a goal of selling 370,000 tonnes of steel products. Liberalization of the domestic steel market has already taken place. Supplies and prices are affected by China Steel’s capacity and pricing, competition from major international mills, and the ongoing trade talks between the United States and China. Under these conditions, we must have a strong understanding of volumes, prices, and lead times. Over many years of operation, we have built a strong reputation and cooperate with mills that have undergone renovations or expansion or improved their equipment, workforce, or logistics and deliveries, and which have cutting post-processing capabilities. We forecast that we will be able to reach our 2019 goal.

Customer health and safety

Management procedures are in place for all stages, including product manufacturing, storage, and transport. Safe packaging is used, and the Company ensures product safety. For products already delivered to customers the Company established customer service channels, and the sales department carries out tracking and communication.

Established manufacturing control and safe warehouse mechanisms. Carried out on-site management in order to raise quality. At the same time, we enhanced our post-processing techniques and built service channels that raise product quality and enhance communication with suppliers and clients.

We continue to optimize production management and build safe warehouses in accordance with ISO 9001 Quality Management Systems.

Services and relationship building

Procurement staff and sales agents from the Business Department visit and communicate with customers. They build independent complaint channels and carry out satisfaction surveys to respond to customer needs.

Regular client satisfaction surveys enable us to understand client needs and thus provide a suitable, wider range of services. In 2018, our average overall satisfaction rating was 4.15 out of 5.

Long-term Sales Development Plans: Continue to provide pre-sales and post-sales services that satisfy domestic and international customers. Strengthen the value chains of our wind, solar and other green energy services, and develop offshore wind farm maintenance and operations items. Further develop innovative operations models to provide additional integrated services while exploring profitable business transformation models.

Set up the company's appeal mailbox. When the interested party finds illegal or dissatisfied with the relevant issues, it can appeal, that is, follow the standard process, identify and dispose of it, and request damages through legal procedures if necessary. And review and implement improvement measures afterwards. The supplier is required to sign a letter of integrity, and the complaint channel is also explained to the supplier. In addition, a customer complaint management procedure has been established to provide a channel for customer complaints and to regularly track customer complaints

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1

　

　

　

　

　

2-1 About HKS

2-2 Operational Performance

2-3 Governance Structure

2-4 Ethical Operations

2-5 Risk Management

2-6 Legal Compliance



2-1 About HKS

Revenues Employees Key Products and Services

2018 HKS General Information

NT$88.36 million 242

(through the end of 2018)

Key products include steel plates, hot-rolled products, cold-rolled products, stainless steel, specialty steels, and the precision cutting, cutting, stamping or other post-processing of weather and corrosion resistant building materials. We distribute and sell these materials.

HKS (2031), which was established in January 1965, was listed on the Taiwan Stock Exchange in September 2000. After beginning with a capitalization of NT$200,000, we have grown into a comprehensive steel vendor that offers precision cutting post-processing as well as steel product logistics. Our current registered capital is NT$3.6 billion.

Hsin Kuang Steel Co., Ltd. Headquarters

Area: ~ 29,000 ping

Steel plate cutting, stainless steel cutting, galvanized steel plate cutting, hot-rolled steel cut center, bridge and building earthquake damping and support

Area: ~ 15,000 ping

Steel coil cutting, logistics center for round bars

Area: ~ 8,000 ping

Steel structure manufacturing center, special steel cutting center

Guanyin Logistics Center

Guanyin Mill

Changhua Coastal Park Logistics Center

Changhua Coastal Park Mill

Kaohsiung Logistics Center

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19


2

Hsin Kuang Steel Co., Ltd. Headquarters

Area: ~ 29,000 ping

Steel plate cutting, stainless steel cutting, galvanized steel plate cutting, hot-rolled steel cut center, bridge and building earthquake damping and support

Area: ~ 15,000 ping

Steel coil cutting, logistics center for round bars

Area: ~ 8,000 ping

Steel structure manufacturing center, special steel cutting center

Guanyin Logistics Center

Guanyin Mill

Changhua Coastal Park Logistics Center

Changhua Coastal Park Mill

Kaohsiung Logistics Center

The Company has always sought to improve society. Our vision is to achieve “joint sustainable development, fairness and justice, and a beautiful Taiwan.” We adhere to the operational principles of “integrity, harmony, innovation, and sharing.” Close cooperation and resource integration between different departments enables us to fully utilize the Company’s strengths and become a positive corporate citizen.

Operational Bases

The Company’s primary business operations are in Taiwan. We have a logistics network spread across the northern, central and southern regions of the island. In the north, our storage and dispatch center is Guanyin Mill. It features the only thick plate precision cutting center that is certified by the Industrial Development Bureau, Taiwan’s largest special steel precision cutting center, a stainless steel precision cutting center, a galvanized steel precision cutting center, a hot-rolled steel precision cutting center, and a bridge and building earthquake damping and support manufacturing center. The Changhua Coastal Industrial Park, meanwhile, is responsible for hot-rolled steel precision cutting and is Taiwan’s biggest dispatch center for steel plates and round bars. Our southern Taiwan storage and dispatch center, Kaohsiung Mill, is responsible for steel structure manufacturing and special steel cutting. These locations form a professional steel logistics network with high transport efficiency. In 2017, we bought waterfront land in Chiayi and land in Tainan’s Sin Ji Industrial Park to build a new logistics and dispatch center that will further expand our distribution map.

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External Cooperation

HKS has long been an active participant in a variety of industrial and entrepreneurial organizations. We discuss our practical experiences and industrial trends with other steel industry members in order to expand cooperative ventures and development within the industry, and thus raise our industrial competitiveness.

Organization Member Position

National Joint Association of Hardware of ROC Honorary Director-General

Taiwan Steel & Iron Industries Association

Executive Director

National Innovation and Entrepreneurship Association Association President

Development Timeline

1965 1976 1980 1993 1997 1998 1999 2001 2003 2004 2008 2009 2010 2011 2017 2018

Established Hsin Kuang Steel Co., Ltd.

Construction of the Zhongli Mill was completed. Added steel frame post-processing and precision cutting.

Became publicly traded.

Completed the 1,100-ping Changhua Coastal Park Mill. Established a central region steel logistics center and a steel coil leveling and precision cutting center.

The Kaohsiung Mill added a southern region steel product logistics center.

The Guanyin Mill established a galvanized steel precision cutting center.

The Guanyin, Xinwu, Changhua Coastal Park, and Kaohsiung mills passed ISO 9001 Quality Management Systems.

Completed and opened the Guanyin Mill steel product warehouse and logistics center.Purchased coastal factory land in Chiayi.Installed commercial rooftop solar panels at all of our Taiwan mills.

The Kaohsiung Mill added a "Steel Structure Components Production Center" and a "Special Steel Cutting Center".

Invested in establishing the "Hsin Kuang Alga Engineering Co., Ltd.". and the "Taiwan Tech Struc-tural Mechanics Labora-tory", which is operated in conjunction with the National Taiwan University of Science and Technology.

Established the checkered road steel metrodeck (used to form temporary roadways, floors, and bridges) post-processing and manufacturing center.

In response to offshore wind farm demand, the Changhua Coastal Park Mill began building an Underwater Foundation Piles Straight Pipe Manufacturing Center. The center is expected to be completed and opened in 2019.Raised the quality of steel structure product manufacturing by obtaining ISO 3834 and EN 1090 certification.Established our subsidiary company, Tainan mill.

The Guanyin and Xinwu mills both passed ISO 9002 Quality Systems.

The Guanyin Mill added a stainless steel precision cutting center.

Construction of the Guanyin Mill was completed. Established a thick plate logistics center and thick plate precision cutting center.

The Guanyin, Xinwu and Changhua Coastal Park mills passed ISO 9001 Quality Management Systems.

Expanded with construction of the Xinwu Mill. Added the northern region’s largest hot-rolled steel coils leveler equipment with precision cutting.

Reorganized as company limited by shares.

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2 Development Timeline

1965 1976 1980 1993 1997 1998 1999 2001 2003 2004 2008 2009 2010 2011 2017 2018

Established Hsin Kuang Steel Co., Ltd.

Construction of the Zhongli Mill was completed. Added steel frame post-processing and precision cutting.

Became publicly traded.

Completed the 1,100-ping Changhua Coastal Park Mill. Established a central region steel logistics center and a steel coil leveling and precision cutting center.

The Kaohsiung Mill added a southern region steel product logistics center.

The Guanyin Mill established a galvanized steel precision cutting center.

The Guanyin, Xinwu, Changhua Coastal Park, and Kaohsiung mills passed ISO 9001 Quality Management Systems.

Completed and opened the Guanyin Mill steel product warehouse and logistics center.Purchased coastal factory land in Chiayi.Installed commercial rooftop solar panels at all of our Taiwan mills.

The Kaohsiung Mill added a "Steel Structure Components Production Center" and a "Special Steel Cutting Center".

Invested in establishing the "Hsin Kuang Alga Engineering Co., Ltd.". and the "Taiwan Tech Struc-tural Mechanics Labora-tory", which is operated in conjunction with the National Taiwan University of Science and Technology.

Established the checkered road steel metrodeck (used to form temporary roadways, floors, and bridges) post-processing and manufacturing center.

In response to offshore wind farm demand, the Changhua Coastal Park Mill began building an Underwater Foundation Piles Straight Pipe Manufacturing Center. The center is expected to be completed and opened in 2019.Raised the quality of steel structure product manufacturing by obtaining ISO 3834 and EN 1090 certification.Established our subsidiary company, Tainan mill.

The Guanyin and Xinwu mills both passed ISO 9002 Quality Systems.

The Guanyin Mill added a stainless steel precision cutting center.

Construction of the Guanyin Mill was completed. Established a thick plate logistics center and thick plate precision cutting center.

The Guanyin, Xinwu and Changhua Coastal Park mills passed ISO 9001 Quality Management Systems.

Expanded with construction of the Xinwu Mill. Added the northern region’s largest hot-rolled steel coils leveler equipment with precision cutting.

Reorganized as company limited by shares.


2-2 Operational PerformanceWith liberalization of the domestic steel market already fully implemented, steel supplies and prices are largely based on China Steel’s capacity and pricing. Distribution and sales by major international steelmakers in Japan, Russia, Brazil, India, South Korea and Europe also have an impact. The Company’s 2018 consolidated financial statements showed total operating revenue of NT$8.836 billion and net profit of NT$1 billion. Total operating revenue grew by 5.80% compared to 2017. In 2018, production lines at all of the Company’s mills operated at full capacity. Smooth procurement, production, and sales together with a concerted effort from all employees led to sales of 340,000 tonnes of steel products, which equaled about 88.8% of our goal. We did not apply for any tax concessions or reductions in 2018, or any related investment or R&D subsidies.

Due to the state of global trade competition and tariff negotiations between the United States and Mainland China, HKS must have a full understanding of supply chain prices and lead times as well as domestic demand among midstream and downstream customers. The Company has spent several years building a strong reputation. We have carried out renewal and expansion of our mills and equipment, improved our workforce, and strengthened logistics, delivery, and precision cutting post-processing capabilities. We are carrying out five related key operational strategies and are confident that we can achieve our goal of selling 370,000 tonnes of steel products in 2019.

Operational Strategies

Strengthen supplier relations and manage-ment and opportunity to expand our business.

Monitor the value curve, develop new clients, and build good customer relations.

Adopt composite management practices and sell a wide variety of steel products.

Coordinate public and private construction cooperative ventures in order to gain a wider range of orders.

Integrate supply chain strategies, coordinate partner companies, and cooperate with international-level steel mills. Develop steelworks for the underwater foundations of offshore wind farms, peripheral materials for solar power generation facilities, and the mid- and long-term opening of overseas businesses.

23


2 ▼ Financial Performance

Item (NT$ Millions)

2016

6,412

8,3528,836

9171,114

871

571(244)

(345)(300)

673

769

138

440

571

811

1,209 1,142

750

1,0741,000

2017 2018 2016 2017 2018

2016 2017 2018

2016 2017 2018

2016 2017 2018

2016 2017 2018

2016 2017 2018

Total operating revenue

Total operating expenses

Non-operating income and expenses

Net profit

Profit before income tax from continuing operations

Profit from operations

Gross profit


2-3 Governance Structure Organizational Structure

The Audit Office is under the Board of Directors and has the authority to operate independently. The general manager, who is under the Company chairperson, is responsible for operational planning and implementation. First-rate units under the general manager include the Production Department, Business Department, Administrative Services Department, and Finance Department.

室保安

Shareholders’ Meeting

Board of Directors

Chairperson

General Manager

Remuneration Committee

Audit Committee

Audit Office

General Manager’s Office

Production D

epartment

Kaohsiung Mill

Guanyin M

ill

Changhua Coastal Park M

ill

2nd Business D

epartment

1st Business D

epartment

Finance D

epartment

Administrative

Services D

epartment

Kaohsiung Branch O

ffice

Taichung Branch O

ffice

Taoyuan-H

sinchu-Miaoli

Branch Office

Department Duties

General Manager’s Office

Investigates and analyzes domestic and international market trends and scope. Sets corporate directions and goals.

Audit Office Examines and verifies the nine steps of the accounting cycle and establishes a written auditing and verification mechanism.

Production Department

Responsible for the Company’s steel product manufacture, warehouse management and planning, industrial safety, environmental health management, and equipment maintenance and repairs.

Business Department Carries out a wide range of steel product market development, procurement, and sales.

Administrative Services

DepartmentManages the Company’s workforce, procurement, and public affairs.

Finance Department

Manages the Company’s finances, accounting, information system and cost planning, and related implementation.

25


2 Board of Directors Operations

HKS firmly believes in integrity and honestly creating value for the Company. The main duties of the Board of Directors include raising the Company’s core value, overseeing and evaluating the performance of the management team, appointing and dismissing key managers, making major decisions, and guiding the management team. At the same time, the Board upholds corporate ethics and social responsibilities. The Company established the “Scope of Authority for Management, Approval and Decision-making by the Board of Directors and Management Department” and the “Division of Powers and Responsibilities Between the Board of Directors, Chairperson, and General Manager” in order to define the scope of each role. Directors and independent directors are nominated following strict internal processes after a comprehensive assessment of their professional capabilities, ethical behavior, and leadership reputation. The current directors were chosen in an election in 2017 and will serve until 2020. There are a total of nine directors, including three independent directors (33%). All of the directors are male, eight are over the age of 51 (89%), and one is below 30 (11%). The Board oversees the Audit Committee and Remuneration Committee and is the Company’s highest decision-making body for economic, environmental, and social issues. The Board met six times in 2018 and Board members had an average attendance rate of 98%.

Philosophy of the HKS Board

Act with integrity and harmony while finding innovative ways of sharing. Optimize the Company’s operational performance.

Uphold corporate ethics and social responsibilities.

Ensure the suitability and accuracy of the Company’s accounting and financial reporting systems, certify that appropriate internal control mechanisms are in place, in particular mechanisms for overseeing risk, controlling finances, and complying with rules and regulations.

Endeavour for financial information transparency and strengthen investor relations and management.

Emphasize risk management and strengthen internal inspections and control.

Raise the Company’s core values and produce the greatest benefit for shareholders.

Continue to improve quality and raise customer satisfaction.


▼ Board Members and Their Attendance Rates at Board Meetings in 2018

Position Name Background Board Meeting Attendance Rate

ChairmanAlexander

M.T. Su ■ Chairman, Hsin Kuang Steel Co., Ltd. (Listed) ■ Chairman, Han De Investment Co., Ltd. (Listed)

100%

Directors

Trickle T.C. Chang

■ Director, Hsin Kuang Steel Co., Ltd. (Listed) ■ Chairman, Trickle Co., Ltd. (Listed) ■ Chairman, Shin Fa Steel MFG. Co., Ltd. (Listed) ■ Chairman, Shin Shing Fa Investment Co., Ltd. (Listed) ■ Director, Chinsan Electronic Co. (Listed)

100%

Ming-shan Jheng

■ Director/Business Department Vice President, Hsin Kuang Steel Co., Ltd. (Listed)

100%

Fisher C.H. Yu

■ Director/ Special Steel Project Vice President, Hsin Kuang Steel Co., Ltd. (Listed)

100%

Johnathon Y.J. Su

■ Director/Special Assistant to the General Manager Hsin Kuang Steel Co., Ltd. (Listed)

100%

Shih-yang, Chen

■ Director, Hsin Kuang Steel Co., Ltd. (Listed) ■ Optivision Technology Inc. (Listed) ■ Chairman, Smartax Consulting Inc. ■ Pailung Co. (Listed) ■ Supervisor, Chinsan Electronic Co. (Listed)

83%

Independent Directors

Winston Won

■ hairperson of the Remuneration Committee, Hsin Kuang Steel Co., Ltd. (Listed)

■ Chairman, Dar Harnq Co. (Listed)100%

Po-Young, Chu

■ Independent Director, Polytronics Technology Corp. ■ Independent Director and Remuneration Committee

Member, Polylac Co. (Listed) ■ Independent Director, E Ink

100%

Paul T.Y. Huang

■ Member, Taiwan Steel & Iron Industries Association 100%

Board Expectations and Advanced Studies

Each Board member is a professional with corporate or industrial operational experience. Directors’ backgrounds include corporate management, accounting and finance, innovative strategies, construction, steel manufacturing, marketing, and sales. The Company depends on the abundant knowledge, insights, and business judgment of these directors, which is why we require that directors follow the strictest ethical standards when carrying out their duties. The Company established the “Ethical Behavior Standards of Directors and Supervisors,” which all management departments are required to follow. We implemented the “Performance Evaluation Mechanisms for Directors and Managers,” which are used to evaluate Board performance for internal Board assessments. Each year, the Company distributes self-evaluation questionnaires to Board members and uses the opportunity to discuss important topics to focus on in the future. In 2018, all Board members attended the Transformation of Corporate Leadership Ability: Professionalism, Management and Leadership course, which taught the latest information relating to ethical and sustainable operations. Directors also planned other courses of studies based on their individual interests.

27


2 ▼ 2018 Advanced Studies Courses

Position Name 2018 Advanced Studies Courses

Chairman Alexander M.T. Su

■ Analysis of the Latest Changes to the “Company Act” ■ Transformation of Corporate Leadership Ability: Professionalism, Management

and Leadership ■ Conglomerate Governance and Performance Management ■ Analysis of the Latest Tax Reforms and Tax Issues Relating to Corporate &

Institutional Investors

Directors

Trickle T.C. Chang

■ Transformation of Corporate Leadership Ability: Professionalism, Management and Leadership

■ Analysis of the Latest Tax Reforms and Tax Issues Relating to Corporate & Institutional Investors

Ming-shan, Jheng



Fisher C.H. Yu



Johnathon Y.J. Su

■ Compliance and Advocacy Towards the Regulations Governing Share Transactions Involving Employees of Listed and Unlisted (OTC) Companies



Shih-yang, Chen



Independent Directors

Winston Won


and Leadership ■ Analysis of the Latest Tax Reforms and Tax Issues Relating to Corporate &


Po-Young, Chu


and Leadership ■ Analysis of the Latest Tax Reforms and Tax Issues Relating to Corporate &


Paul T.Y. Huang

■ Compliance and Advocacy Towards the Regulations Governing Share Transactions Involving Employees of Listed and Unlisted (OTC) Companies



Functional Committees

The Company believes that a robust, efficient Board serves as the foundation of corporate governance. Based on this principle, the Company founded the Audit Committee and Remuneration Committee and put them under the authority of the Board, which authorizes the committees to assist with oversight. The Board approves the rules for committee formation, and the committees must regularly report to the Board. Both committees are made up of independent directors.


Audit Committee

The Audit Committee convened six times in 2018. Attesting accountants along with management and internal auditors held two bilateral meetings to review the audit of the Company’s financial reports and the Company’s internal control report. They examined the qualifications, performance and independence of the attesting accountants. Internal audit managers regularly discuss audit report results with the Audit Committee and offer reports in each committee quarterly meeting. When situations emerge that warrant special attention, the audit managers also offer immediate reports to the committee. There were no such situations in 2018, and communication between audit managers and the Audit Committee was positive.

▼ 2018 Audit Committee Attendance Rates

Position Name Total Meetings Actual Attendance

Attendance by Proxy

Attendance Rate

Chair Winston Won 6 6 0 100%

Member Po-Young, Chu 6 6 0 100%

Member Paul T.Y. Huang 6 6 0 100%

Remuneration Committee

The Remuneration Committee sets the standards of and regularly reviews the performance of directors and senior managers. It formulates remuneration policies, systems, standards and structures, and regularly reviews and sets the pay packages of directors and senior managers. When carrying out these duties, committee members assess individual performance, economic and governance achievements, and future risks. They weigh industry standards in order to create appropriate pay packages.

The current term of the Remuneration Committee began in August 2017 and ends in August 2020. All three committee members are independent directors. In 2018, the committee held three regular meetings.

▼ 2018 Remuneration Committee Attendance Rates

Position Name Total Meetings Actual Attendance

Attendance by Proxy

Attendance Rate

Chair Winston Won 3 3 0 100%

Member Po-Young, Chu 3 3 0 100%

Member Paul T.Y. Huang 3 3 0 100%

29


22-4 Ethical OperationsThe Company is fully committed to ethical management principles. We established and implement corporate ethical behavior norms, strictly adhere to fair transaction principles, avoid unjust enrichment, protect corporate secrets, and uphold human rights. We comply with laws and regulations and create an honest, upstanding corporate culture.

Our vision is to achieve “joint sustainable development, fairness and justice, and a beautiful Taiwan.” In order to be a good corporate citizen, we relied on close cooperation between departments, resource integration, and the full strength of the Company to establish the following seven CSR implementation principles and goals:

Adhere to ethical operation principles, build a corporate culture that follows the core values of integrity and harmony, and follow these principles in the treatment of shareholders, employees, customers, suppliers, and society.

Place a high value on corporate governance and balance the rights and interests of shareholders, employees, and all stakeholders.

Show long-term care towards communities, participate in social welfare activities, and continue to sponsor educational and cultural activities.

Provide high-quality job opportunities with good wages. Create challenging jobs and a safe workplace to care for the physical and mental needs of workers.

In response to climate change, place a high value on the implementation of environmental protection measures.

Respect and comply with laws and regulations, strictly oppose unethical or illegal behavior.

Oppose corruption, reject showing favoritism towards particular employees due to the influence of their friends or family, and avoid conflicts of interest. Do not offer bribes and do not cultivate improper relations with government officials.

Ethical Operational Policies and Standards

The Company requests that all Board members, senior managers, and other employees adhere to ethical operation rules, standards and values. All business activities shall be carried out in a fair, ethical, trustworthy, transparent way. Senior management, under the supervision of the Board, shall disclose complete, fair, accurate, immediate, and clear finance, accounting, and operational information to the competent authorities and investors. To guide all Company employees towards acting ethically and to prevent untoward behavior, the Company designated the “Ethical Corporate Management Best Practice Principles,” “Procedures for Ethical Management and Guidelines for Conduct,” “Ethical Behavior Standards for Managers and Level 1 Supervisors,” and “Ethical Behavior Standards of Directors and Supervisors.” Standards are also in place to identify, report and handle inappropriate behavior. Key characteristics include the following:

01 02 03 04 05Avoid personal gain that comes at the expense of the Company’s rights or interests.

Prevent all bribes, unfair competition, fraud, or misuse of the Company resources.

Do not engage in behaviors that harm the Company, society or the environment.

Respect all laws and regulations.

Avoid behaviors that run counter to decisions made by stakeholders (government officials, public servants, customers, suppliers, and contractors).


Declarations and Punishments

When employees discover, or have reason to suspect, incidents that violate ethical operation standards, the Company requests that they immediately file a report to the Company’s claims mailbox or inform relevant staff, such as their direct supervisor, the General Manager’s Office, internal audit supervisors, or an Audit Committee member. When such a report is received, staff shall follow procedures to investigate and handle the incident. When necessary, legal recourse shall be taken to request compensation in order to protect the Company’s reputation, rights and interests.

When unethical behaviors occur, related agencies are tasked with reviewing internal controls and operational procedures. They shall propose and implement improvement mechanisms to prevent repeat occurrences and shall report such incidents to the Board. In addition, the “Procurement and External Post-Processing Management Procedures” require suppliers to sign a statement of integrity. Claims channels are explained to suppliers in order to prevent procurement fraud or soliciting of bribes. During the period of this report, the Company did not find any such incidences of corruption.

2-5 Risk ManagementRisk management is of very high importance to the Company. Departments work closely together and resources are integrated in a cost effective manner to identify all potential risks that could affect operations and carry out improvements to reduce the chances of a problem occurring.

Risk Management Mechanisms

HKS readily accepts expectations from the industry and society that it will act sustainably by building corporate risk management mechanisms. In 2018, we had seven key areas of risk management: financial risk, legal risk, technological and industrial change risk, operational risk, supply chain and raw material risk, hazard risk, and information security risk. For each risk type, we identified the risk factors then introduced measures to reduce or avoid the risk event from occurring. For hazard risk, we introduced preventive measures, emergency response procedures, and emergency response command organizational systems for potential accidents or disasters that could affect operations, such as earthquakes, fires, and occupational hazards. Whenever a risk event emerges, each department can immediately launch a response to eliminate or reduce accidents that could threaten people’s safety, the surrounding environment, the Company’s capital goods, or that could cause production stoppages or losses. At the same time, the Company shall notify spokespersons who clearly explain what is happening to external observers.

Follow-up reviews and improvements for risk incidents are jointly carried out by all related departments then reported on in detail to the Board. In 2018, the Company did not have any risk events occur that materially impacted normal operations or the Company’s image.

Risk Type Risk Details Management Measures

Financial Risk

Interest rate

changes

■ The Company’s interest rate risk is associated with the debts and investments made during the course of our business activities. Interest income and expenses are primarily affected by rate fluctuations in Taiwan and the United States.

■ Operating cash income and the issuance of fixed-rate long-term debt fulfills our capital needs. For investments, we choose highly liquid, highly rated fixed income securities to ensure that our capital is safe and to maintain capital liquidity.

31


2Risk Type Risk Details Management Measures

Financial Risk

Exchange rate changes

■ More than half of the Company’s raw material purchases are calculated in foreign currencies while most of our income is in New Taiwan Dollars. Therefore, any significant change in exchange rates could have a negative impact on the Company.

■ We primarily use forward exchange agreements in order to reduce exchange rate risks associated with our assets and debts. We also use functional currency short-term loans and other financial products and tools for amounts recognized or as a hedge for foreign exchange positions that would result from forecast transactions with a high probability of occurring.

Inflation, contraction,

and comprehensive

market fluctuations

■ When market expectations of inflation or deflation suddenly shift, the impact on the global economy is usually significant. High levels of inflation or deflation both reduce market efficiency and affect investment decision-making.

■ Due to the nature of our products and services, market volatility caused by economic changes would likely only have a limited impact on our operational expenses.

Liquidity risk

■ Over the next several years, the Company will require a moderate amount of funding to maintain operations and expand our capacity and logistics network.

■ We formulated operating procedures that ensure robust finances. By analyzing capital needs, we make sure that operations continue and that we have the cash flow required to expand our capacity and logistical network.

Financial derivative

transactions

■ In 2018, the Company did not make any high-risk or high-leverage investments.

■ We use financial derivative transactions to hedge risk, and not as a form of investment trade or speculation.

Legal Risk

Major domestic and

foreign policies and legal changes

■ In January 2018, an amendment to the “Labor Standards Act” changed the standards for calculating overtime wages for workers who work on rest days. The previous amendment raised the Company’s operating costs; the 2018 amendment improved this situation.

■ We engage in regular consultations with corporate legal advisors.

■ We closely monitor legal changes. When necessary, we adjust operational procedures or internal regulations to ensure compliance with legal requirements.

Technological and Industrial Change Risk

Industrial and market

changes caused by

technological advances

■ Steel markets were heavily impacted by economic cyclical changes and overcapacity at steel mills in Mainland China. Since HKS is a steel product services provider, most of our clients are involved in public works, the automobile industry, machinery manufacturing, or electronics components and parts. They are generally closely connected to technological development and have high demand for new materials and new steel products.

■ The Company has invested in developing a variety of high-strength, high-end, weather-resistant structural steel products that are environmentally safe. These materials are well suited to building on islands and other harsh environments. They are used to make electric vehicle molds, components and parts, and go into components and parts for building underwater tower foundations used by the offshore wind farm industry.

■ We closely monitor market changes and quickly develop innovative, integrated service models and manufacturing techniques. This enables us to maintain our supply and manufacturing advantages.

■ We develop components and parts that can be used in new technology and electronics products.


Risk Type Risk Details Management Measures

Operational Risk

Risks associated

with mill expansion

■ As technology advances, industrial demand quickly changes. It is therefore important to heed market trends and make early adjustments to capacity. Expansion of factories and production lines prevents insufficient capacity.

■ We work closely with customers on products and services. Regular long-term market demand forecasts are used as a basis for capacity adjustment planning and expansion plans.

■ In 2018, we expanded production lines for building underwater tower foundations used by the offshore wind farm industry in order to meet market demand for related products and services.

Supply Chain

and Raw Material

Risk

Raw material procurement

risks

■ Raw materials that the Company regularly must acquire include steel plates, special steel plates, alloy steel plates, hot-rolled steel plates, galvanized steel product, stainless steel products, and high-strength, high-end, weather-resistant structural steel that is environmentally safe. In the past, when steel markets were strong, some foreign suppliers temporarily raised their prices and had delivery delays. Additionally, some special products may only be produced by a single factory. Before alternative products can be found, there is the risk that supply may not be able to meet demand.

■ We develop diverse product sources and use different suppliers and regions for the procurement of raw materials in order to prevent supply disruptions.

Equipment supply risks

■ As operations expand and capacity continues to grow, we must ensure that we can acquire sufficient equipment and services from our suppliers. Steel post-processing equipment suppliers frequently only offer a limited supply with long lead times. In the post-processing industry, equipment lead times can often be six months or more.

■ We provide equipment forecasts to suppliers so they can have effective planning.

■ We engage suppliers in discussions aimed at finding mutually beneficial business models. Forecasts enable suppliers to prepare parts in advance, which reduces lead times after we place orders.

Hazard RiskLosses

caused by disasters

■ For all potential emergencies and natural disasters, the Company conducts risk prevention, emergency response, and hazard management, in order to ensure that operations can continue. We develop comprehensive response plans and processes to protect human life, the environment, and the Company’s capital goods.

■ We closely monitor all types of disasters then use risk identification, risk prevention, emergency responses, and crisis management to ensure that operations continue. These steps enable us to develop comprehensive response planning and procedures.

■ Task forces at all of our operational locations quickly respond to disasters to ensure that our operations continue unabated.

Information Security

Risk

Cyberattacks and the

protection of corporate

secrets

■ Cyberattacks could be used in an attempt to acquire our corporate secrets, intellectual property, or confidential information.

■ Malicious cyberattacks could also be used to infect our computer systems with viruses or damage or hijack software. This could affect Company operations or lead to the loss of control over our computer systems or the theft of confidential information.

■ We have comprehensive defense systems for our networks and computer systems. Control mechanisms are in place to manage operational entity data, which ensures that manufacturing, accounting and other operational tasks continue without any issues

■ We sign service contracts with third-party factories that set confidentiality standards and network security rules. Each year we evaluate security procedures in the agreements.

■ Each year, we observe and evaluate network security rules and control procedures to ensure they are suitable and effective.

33


2 Risks and Opportunities Associated with Climate Change

According to the World Economic Forum’s Global Risks Report, extreme weather events, major natural disasters, droughts, and other risks associated with climate change have been among the five biggest risks facing the world for many years. In order to help companies effectively disclose their climate-related financial risks, the Financial Stability Board and G20 nations established the Task Force on Climate-related Financial Disclosures (TCFD). A climate change risk and opportunities framework discloses related information using four key aspects: governance, strategy, risk management, and indicators & goals.

The Company closely monitors global climate change trends. In 2018, we considered climate-related financial disclosure recommendations to respond to the TCFD. We then made an initial identification and analysis of climate-related risks and opportunities and added suitable management measures to our corporate risk management plans.

Risk and Opportunity

TypeClimate Change

ConnectionPotential Risks/

OpportunitiesCompany Management Methods

and Countermeasures

Markets

Market demand changes. For example, clients and investors may change their degree of concern towards environmental performance.

Market demand for traditional steel products will change while demand for new green materials will rise.

The Company is investing in offshore wind farm development and researching new steel products and composite materials that are suited to the wind, solar and green energy industries.

Legal

Domestic and foreign laws change. For example, standards relating to carbon emissions and electricity usage are frequently changing.

Energy laws will become stricter, which will lead to changes to corporate operational models.

New mills and offices use energy-saving designs and continue to raise energy efficiency of operations.

Physical

The frequency of extreme weather events such as typhoons and severe temperature changes will increase.

Extreme weather disasters could affect HKS mills, goods stored in warehouses, or operations.

Task forces in each operational location create risk management procedures in response to potential disasters.

Transformation

Energy and resource use demand and models will change, such as people’s approaches towards renewable energy and circular resources.

Demand for traditional energy will decrease and the usage rate of new alternative energies will rise.

The Company participates in the alternative energy industry, including offshore wind farms and solar power. We installed solar power panels on the rooftops of our mills.

2-6 Legal ComplianceEach Company department has held annual internal reviews since establishment. Policies and rules that could affect corporate operations are updated. The importance of corporate governance, the character and integrity of employees, and other ethical issues are emphasized, and the Company holds related education and training sessions to explain legal compliance. If a worker violates the law or neglects to follow safety regulations, labor contracts, or commercial ethics, he or she shall be disciplined in accordance with relevant rules and regulations. The incident shall also be reflected in the worker's performance review.

In 2018, the Company was not involved in any anti-competitive practices and did not face any anti-trust or monopoly-related litigation. Apart from an incident involving the use of a forklift, which violated Article 116 of the "Regulations Governing the Installation of Occupational Safety and Health Facilities" and Article 6 of the "Occupational Safety and Health Act," there were no other major fines or punishments due to violations of economic, environmental, or social laws or regulations. The Company was not involved in any corruption-related cases. In response to the forklift incident in 2018, the Company established safe operating standards, defined work methods, identified unsafe factors, formulated procedures for handling accidents, and publicized these new policies through education and training. Tangible improvements were evident.

3-1　

Products and Techniques

3-2　

Product Quality

3-3　

Customer Service

3-4　

Supply Chain Management


35


3

3-1　

Products and Techniques

3-2　

Product Quality

3-3　

Customer Service

3-4　

Supply Chain Management


The Company’s primary business items are steel product manufacturing and precision cutting, Tainan’s Sin Ji Mill, stamping, and other post-processing, as well as distribution and retail. We divided post-processing into eight profit centers in order to provide customers with diverse choices in building, public infrastructure, lifestyle furniture, automobile components, computer parts, and machine tools. In response to flourishing green energy industries, the Company is developing materials and construction services for underwater building projects and foundation piles at offshore wind farms. Our core business remains steel material services, and we continue to integrate corporate resources to strengthen our capabilities in this area. Digital operating procedures offer faster response times to better provide customers with everything they need the first time. In an industry with fierce competition, these advances enable us to maintain excellent performance.

Steel Plate Profit Center Hot-Rolled Steel Coil Profit Center

Cold-Rolled Galvanized Profit Center Stainless Steel Profit Center

Special Steel Profit Center

Steel Structure Profit Center

General use structural steel, building & bridge structural steel

Cold-rolled steel coils, cold-rolled galvanized steel coils, electro-galvanized steel coils, hot-rolled galvanized steel coil

Medium/ high carbon steel for making machinery, alloy steel plates, tool steel, medium carbon/alloy steel bars

Box pillars, H-shaped steel assembling, welding

Raw material steel plates/edging steel plates/pre-bent steel plates/xxx/long pipe

Steel plate customized shearing, drilling

Stainless steel coils, stainless steel plates, stainless steel precision shearing

General use structural steel, automobile structural steel, high-strength steel, weather-resistant steel

Steel Plate Precision Shearing Post-Process Profit Center

APEX Offshore Wind Power Equipment Manufacturing Co., Ltd.

The Company believes that quality is the lifeline of sustained business operations. To become more competitive, we deploy the nation’s most comprehensive set of precision cutting equipment. Each year we purchase automatic, high-precision, high-efficiency cutting machinery. To ensure the best commercial products and services, we carefully manage each stage of production, from raw material selection and product post-processing to technical R&D, warehousing, and transport, as well as customer service and supplier cooperation. In 2018, the Company was not implicated in any product or service violations. We adhered to all product health and safety regulations, disclosed service information, and labeled products in accordance with requirements. Our marketing and publicity adhered to all rules and regulations. In the future, the Company will continue to develop acid wash steel plates and acid wash steel coils. As part of joint contracts, we will offer material precision cutting. We are also cooperating with solar power frame operators to provide solar power wave board products that will lead to greater customer demand.

The mission of the APEX Offshore Wind Power Equipment Manufacturing Co., Ltd. is to use a forward-looking vision to build excellent bridges between customers and business operators. Precise operating procedures create a top-quality business that is stably run and a pioneer of environmental protection.


Product and Service Items

Steel platesSpecial steel

Stainless steelStructural steel

Precision Cutting Post-ProcessingTrade in products and materials

Checkered and hot-rolled steel plates

Galvanized steel plates Fixed-dimension precision shearing

Precision polishing post-processingComponent manufacturing and post-processingCheckered road steel metrodeck manufacturing and post-processing

Special shape and dimension post-processing

Steel structural componentsImports of steel with special specifications and materials

3-1 Products and Techniques Sustainable Product Development

The Company is an active participant in the fast-growing solar power industry. Since solar power plants are located outside, their corrosion resistance rating must surpass the performance of traditional galvanized steel. For this reason, and as part of our commitment to environmental protection and development of the green energy industry, we introduced ECOGAL-Neo products in 2018. Meticulous quality control is required throughout production, from smelting to rolling and delivery. The internal and external quality, dimensional accuracy, and post-processing consistency must all be excellent. The surface of ECOGAL-Neo steel is highly flat and smooth and is suitable for outdoor exposure. ECOGAL-Neo steel has three-times greater rust prevention than traditional hot dip galvanized products of the same grade, and comprehensive product traceability is available that includes the management of raw materials.

ECOGAL-Neo is initially being used for solar power frames and wave boards. The Company has built up the full supply chain and entered into strategic cooperative agreements with solar power investors in order to turn ECOGAL-Neo into an industry standard. ECOGAL-Neo has already largely replaced traditional hot dip galvanized products and GL steel in solar power frames and factory structural materials, walls, and rooftops. Since solar projects last from just a few months to many years, in order to keep operating at full capacity, we are also promoting ECOGAL-Neo in other industries, including warehouse shelving, water heaters, outdoor electrical boxes for solar equipment, and factory radiators. In the future, we will continue to add new applications while expanding product range and depth.

In April 2018, we entered the offshore wind farm industry. To meet its rigorous requirements, we added professional consultants to assist with the welding process and provide technical guidance. Production staff underwent regular education and training to maintain their professional competency. We sent staff to Singapore for welding technical courses, to raise both their practical abilities and knowledge. In addition, in order to check staff qualifications, we arrange for employees to take certification tests that are related to their area of work. Objective evaluation and verification demonstrate that their welding capabilities meet required standards.

37


3 Development Cooperation

Demand confirmation

Discussion and decide on a

solution

Testing, data gathering and

analysisAdjustments and

modifications Formal rollout

To continue advancing post-processing and raise the quality and class of Taiwan-made steel products, the Company develops and implements suitable techniques. We regularly share information and offer feedback to upstream suppliers (steel mills and manufacturers), downstream clients (customers and steel-consuming factories), and equipment manufacturers. Bringing together different groups who have worked with a wide range of different steel types jointly advances technical development.

After first confirming the capabilities of upstream suppliers and the demands of downstream clients, the Company uses experiences in steel manufacturing, post processing, and equipment manufacturing to match partners. During development, we plan and test manufacturing, quality control, and traceability. After analysis and adjustments, we devise complete solutions to ensure high-quality products that meet customer needs. Finally, we finish development by integrating production management and services, from logistics and post-processing to quality testing, sales, and traceability.

On-Site Management

The Company believes that on-site management of production is needed to ensure product quality. Standard operating procedures must be followed in order to ensure employee safety and produce excellent-quality products.

▼ On-Site Management

Management Type Promotional Measures

Safety Management

■ Zero Disaster Activities: Establish clear, written safety regulations. Use comprehensive safety education and patrol activities to carry out disaster management.

■ 5S Management: Begin promotion from employee education to build a highly efficient and safe workplace organization.

Operational Management

■ Standard Operations: Complete standard operating manuals for all mill procedures. ■ Technical Training: Promote technical training and assessments, including technical

evaluation standards, technical training planning, and training standards. ■ Improvement Activities: Support the improvements contained in our business

planning objectives by creating a mechanism for employees to propose operational improvement plans.

Quality Management

■ Everyday Management: Establish quality guarantee standards and supervisor management standards that include production operations.

■ Defective Product Management: Establish response standards to use when defective products are made and released into the marketplace. Enable all workers to understand the cause and prevent reoccurrences.

Equipment Management

■ Total Productive Maintenance (TPM) Equipment Checklist Standard: Establish equipment checklist standards (including charts and timelines) and procedures to follow when machinery stops operating. Educate and train all workers and create educational materials for operators.


3-2 Product Quality

Management Systems

In response to quality management development trends, the Company focuses on process establishment and management. We uphold the spirit of ISO 9001: 2015 Quality Management Systems and at the same time integrate the 5S methodology, TPM, and other production line management methods. During production and when serving customers, we rigorously implement management procedures to build a customer-oriented management framework system.

Quality Policies

Raise product quality to meet customers’

expectations

Commit to ongoing improvements and

enhanced operational efficiency

Full commitment from all staff to achieve our

operational goals

Welding Quality Management

Control over welding voltage, electric currents and speed

Included angle and quality level Welder operations

Qualifications and tools of non-destructive testing staff

Education and training of welding operators

Storage and management of welding parent metal and consumables

Besides ISO 9001, we incorporated ISO 3834 Quality Requirements for Welding and adopted EN 1090 steel structure CE-Marking, which is stricter than general international standards. We raised our welding quality to meet customer needs and adopted a blue ocean strategy in order to achieve our long-term objectives of expanding global reach and becoming a world-class steel provider. Achieving these international certifications represent a new milestone for HKS. The Company’s Kaohsiung Mill passed ISO 3834 and EN 1090 certification in 2018. To raise customer satisfaction and meet high-quality standards, we expect all of our production methods to fall within the scope of ISO 9001, ISO 3834 and EN 1090 and thus achieve the standards and accuracy of a major international steel company.

39


3ISO 3834 and EN 1090 both require stringent control over welding and the welding process. The correct person must use the correct methods, tools and tests to ensure that a quality product is produced that fits customers’ needs. To receive certification, we added Spanish beveling machines that support grooving and side milling in a single step, thus raising operational efficiency and lowering losses, and we added Italian rolling machines that can easily roll steel bars with a thickness of 10 cm, which makes follow-up welding much easier. We cooperate with domestic suppliers to learn new welding techniques and send staff overseas to acquire new techniques that raise our post-processing capabilities.

Product Testing

To guarantee that we offer leading product development techniques and performance, the Company’s laboratories are certified. Our internal laboratories test the physical properties and chemical composition of all steel materials, and external laboratories mimic environmental conditions to test new steel products. The testing data significantly improve our product development and techniques.

Product Management

The Company carries out strict quality control before, during and after production. Upon delivery to our mills, we inspect the exterior of shipments prior to acceptance. All products and materials are kept in an environment with a suitable temperature and humidity. After processing, we prioritize protection of the products during storage and transport as well as safety during shipment. Records are kept at each stage of the process to facilitate future traceability.


▼ Management of the Export Packaging and Shipping Process

STEP 1

STEP 2

STEP 3

A B C

A B

Ensure that safe packaging is used in accordance with the Company’s management standards and that all packaging meets required certifications.

Oil Paper: High-quality oil paper protects steel coil products and prevents floating items, humidity, shape changes, or losses.

Check lower boards and container walls for damage before loading. Any damage must be recorded in order to protect the rights and interests of the Company and our customers.

Ensure that goods are fastened and secured in accordance with the Company’s standards to prevent damage during sea shipment.

Test and record the state of the empty container

Use wooden splints to secure the shipment and prevent sliding during transport. The two sides of the goods should be secured against the walls of the container to distribute weight and prevent damage to the container.

Confirm that the steel is secured.

Wooden Crates: Besides securing products in bags, wooden crates are used for protection and to prevent losses caused by scratches or collisions.

All of the wooden shipping materials we use underwent heat treatment.

41


3STEP 4

Before the product leaves the mill, take a complete record of the container number, the packaging seal code, and the vehicle registration number to assist with future tracing and traceability.

3-3 Customer Service Satisfaction Surveys

HKS is devoted to providing high-quality products and professional services that meet customers’ needs. To gain feedback and learn about customer demand, we distribute annual questionnaires to customers to inquire about service quality, product quality and overall satisfaction. In 2018, we distributed 169 questionnaires and received 154 back, for a return rate of 91.12%. Of all items, customers expressed the greatest satisfaction towards the attitude of our sales service staff.

Survey results from 2018 suggested that the greatest improvements are needed in the areas of lead times and price. In recent years, the number of small, independent customers with small stocks and a greater need for fast delivery of product and materials increased. The Company therefore analyzed past data to devise better forecasts of future orders. Using these numbers, we adjusted our inventory and supplies to support more agile deliveries. Customers also expressed that there were improvements in the areas of shipping staff attitude, sales agent attitude, and claims handling capabilities.

4.284.38

4.284.25

4.224.06 4.08

3.95 3.964.07

31%

0%

58%

11%

2018 Customer Satisfaction 2018 Customer Satisfaction – Problem Solving Capabilities

Shipping staff attitude

Sales service staff attitude

Professional knowledge of

service staff

Comm

unication ability of service staff

Claims handling capabilities

Product quality meets

expectations

Price meets expectations

Packaging meets expectations

Precision cutting meets

expectations

Lead times m

eet expectations

Very dissatisfied

Very satisfied

Satisfied

Dissatisfied

Ordinary


Complaint Channels

The Company provides a diverse range of communication channels to customers. Besides satisfaction surveys, phone lines, and mailboxes, customers are able to directly reach out to sales agents and sales service staff. When the Company receives a customer complaint, we first dispatch a sales agent to gain a better understanding of the situation. We review the work order and quality control records, judge why the problem occurred then devise a response and make improvements. At the same time, we explain to the customer what happened and offer improvement measures.

Customer Privacy Protection

The Company upholds a professional ethics standard that includes compliance with all laws, regulations, and internal standards. Systems we use to store and retrieve customer data have comprehensive authorization and access controls in place. The creation or revision of customer files must be authorized by the head office systems operator in order to protect customer privacy, and customers can send any related complaints to our Company mailboxes. In 2018, there were zero customer privacy violations and we did not receive any related claims.

0304

0502

08

09

07

06

01Taiwan

Raw Material Import Countries

01

02

03

04

05

06

07

08

09

Russia (special steel round bars, steel plates)

Malaysia (steel coils, steel plates)

Japan (steel coils, steel plates, special steel round bars)

Korea (steel coils, steel plates, special steel round bars)India (stainless steel, steel plates, special steel round bars)

China (stainless steel, steel plates, special steel round bars)

Indonesia (stainless steel)

Vietnam (steel coils, steel plates)

New Zealand (steel coils)

43


33-4 Supply Chain ManagementThe upstream suppliers of the Company are primarily steel mills that do smelting and manufacturing. HKS, meanwhile, serves as a dealer and distributor engaged in the trade of steel products to midstream and downstream customers and does precision cutting to make products which are then sold to small-scale retailers or directly to post-processing factories. The mills upstream of us are in a high capital industry and have high standards and self-regulation towards environmental protection, green energy, and social welfare. Through regular industrial cooperation ventures, communication, and sharing of manufacturing techniques and experiences, the Company builds stronger partnerships with key suppliers and contractors. Together, we work towards better sustainable performance.

Different procurement strategies are in place for each type of steel material. In 2018, the Company imported steel products from Taiwan and nine other countries, with 53.91% of procurement by value coming from Taiwan.

▼ Raw Material Import Countries

0304

0502

08

09

07

06

01Taiwan

Raw Material Import Countries

01

02

03

04

05

06

07

08

09

Russia (special steel round bars, steel plates)

Malaysia (steel coils, steel plates)

Japan (steel coils, steel plates, special steel round bars)

Korea (steel coils, steel plates, special steel round bars)India (stainless steel, steel plates, special steel round bars)

China (stainless steel, steel plates, special steel round bars)

Indonesia (stainless steel)

Vietnam (steel coils, steel plates)

New Zealand (steel coils)


Choosing Suppliers

The Company continues to strengthen supply chain management. When choosing suppliers, our primary considerations include quality, stability, the possibility of long-term cooperation, and safety and health records. This shows that price is not our only consideration. In addition, we consider the CSR performance and social contributions of potential suppliers in order to make a full assessment of cooperative value. The upstream suppliers of the Company are primarily steel mills that do smelting and manufacturing. They are in a high capital industry and have high standards and self-regulation towards environmental protection, green energy, and social welfare issues.

Management of Import and Procurement Contracts

Since managing overseas suppliers presents added difficulties, the Company established dedicated evaluation and approval procedures. Before signing an agreement, we first evaluate the supplier and review the contract content.

To support tracking of raw materials, products are stored based on their steel type and nation of origin. Besides evaluating the overall product quality, operational management, technical capabilities, and market reputation of suppliers, we consider the type of steel we are purchasing, the nation of origin, and the material dimensions. At the same time, we review the trade terms of the contract, the port of loading and discharge, the final loading date, and the appearance of the goods. Based on the expected date of arrival of the goods we arrange for warehouse entry, to ensure that the storage process goes quickly and smoothly.

Before signing a procurement contract, the procurement department and sales entity review and approve the terms. A number of people from different levels review the contract to determine ways to minimize risks, including the person responsible for the contract, profit center supervisors, procurement supervisors, authorized contract representatives, and the general manager.


The contractors and subcontractors that work with HKS are required to comply with all safety and health regulations. For example, when carrying out high-risk tasks, they must clearly define and mandate that their operators adhere to required safety and prevention measures. Builders and other contractors that use cranes or other high-risk equipment must implement an occupational safety and health management system such as ISO 45001 and require that their workers complete comprehensive technical training. When managing mills, the Company seeks to raise overall safety. This includes supervising partners to ensure that they also improve working conditions as they work towards better operational and social performance.

Supply Chain Ethical Values

HKS takes concrete actions to assist upstream and downstream suppliers in implementing the Company’s ethical management operational policies and CSR culture in accordance with the “Procedures for Ethical Management and Guidelines for Conduct.” We require that all suppliers and contractors comply with the Company’s ethical operations policies and CSR promises and regularly request that partners disseminate their own related policies. Through public information tracking and communication, we determine whether violations take place within our supply chain. If we discover ethical violations among our partners or other companies that we do business with, we immediately terminate our business relationship with them and blacklist them as a business partner.

45


3 Supply Chain Audits

Supplier audits are conducted by internal evaluation task forces, which are composed of staff from supply and resource management, risk management, and quality systems management units. Their primary responsibility is to lower supply chain risks and improve supply chains. By sharing risk management cases with suppliers, they help the suppliers raise their quality and implement green procurement, environmental protection, and workplace safety. At the same time, we use publicly available information to monitor the financial situation of our key suppliers and inventory changes within the full supply chain while also preparing responses to lower risks. Each month, the task forces meet to check the progress of each plan and figure out ways to solve problems that suppliers face.

Results of supplier audits affect annual supplier evaluations. Suppliers that do not pass audits and that still do not meet requirements following improvements either face a reduction in orders or a termination of the partnership based on the severity of the shortcomings. After many years of management, the Company has built a network of excellent suppliers with whom we have maintained long-term relationships. In 2018, we had a total of 85 raw material suppliers and 60 post-processing companies, 100% of whom agreed to undergo evaluations. The evaluations did not reveal any areas in need of major improvements. The Company plans to continue developing deeper cooperation with suppliers to build stable, reliable relationships that benefit all parties.

4-1　

Employee Status

4-2　

Employee Recruitment and Retention

Employee Cultivation and Development

Workplace Health and Safety

4-3 　

4-4 　

4Employees and the Workplace

47

Employees and the W

orkplace

44-1 Employees and the WorkplacePeople are the most important asset of a company. HKS endeavors to provide all employees with challenging, meaningful work in a safe workplace environment, as well as excellent wages and benefits packages. We are honest towards our workers and safeguard their rights and interests in accordance with the “Labor Standards Act” and other labor-related laws and legislation. Our welfare mechanism provides a stable life away from work and we offer strong educational and training mechanisms to build good labor-management relationships that are based on mutual trust and reliance. Besides encouraging workers to do their best in the workplace, we want them to be attentive towards their families, develop outside interests, expand their social participation, and lead a happy life.

At the end of 2018, the Company had a total of 242 employees who were all full-time. Among them were 187 general workers (77.27%) and 55 foreign migrant laborers hired on a contractual basis (22.73%). There were 22 employees that were at least a section chief or above, all of whom were ROC citizens. Besides Taipei headquarters, all of the Company’s locations combine an office and a mill. Most mill technicians and workers are male. At the end of 2018, the Company had 189 male employees (78.10%), which was about 3.57 times higher than our female staff (21.90%).

▼ Employee Breakdown by Gender and Employment Type

Year GenderGeneral

EmployeeContracted Employee

(Foreign Migrant Workers) Total

2018

52 1 53

135 54 189

2017

42 1 43

118 60 178

2016年

41 1 42

113 49 162

▼ Employee Breakdown by Gender and Age

Year Gender 30 and Under 31-50 51 and Above Total

2018

14 35 4 53

53 114 22 189



2017

9 30 4 43

46 111 21 178

2016

10 29 3 42

40 98 24 162

▼ Employee Breakdown by Rank and Gender

Year Gender Female Male Total

2018Supervisor 11 35 46

Non-Supervisor

42 154 196

2017Supervisor 12 34 46

Non-Supervisor

31 144 175

2016

Supervisor 11 29 40

Non-Supervisor

31 133 164

▼ Employee Breakdown by Rank and Age


2018

Supervisor 2 30 14 46

Non-Supervisor

65 119 12 196

2017


Non-Supervisor

53 111 11 175

2016


Non-Supervisor

48 104 12 164

49

Employees and the W

orkplace

44-2 Employee Recruitment and RetentionEmployee-use guidelines are based on operational objectives, government labor policy, internal and external labor resource needs, and employees’ future prospects and development. The Company formulated the “Rules Governing Employee Appointment, Dismissal and Wages” in order to have detailed procedures in place for recruiting new employees and other responsibilities. Most new employees are initially recruited via online job banks, and the Company participates in campus job fairs.

In 2018, new employees made up 32.23% of our workforce (average monthly addition of 2.69%). This was higher than the average monthly rate for manufacturing of 1.99% in 2018 that was announced by the Directorate-General of Budget, Accounting and Statistics, under the Executive Yuan. The employee turnover rate was 22.73% (monthly average of 1.89%), which was slightly lower than the average monthly rate for manufacturing of 1.90% in 2018. Since the Company is still in the growth stage, for the past three years we have recruited more new employees than the number of employees who have left. This strengthens our labor vitality.

▼ New Recruits During the Past Three Years

YearGender

TotalAge

TotalFemale Male 30 and

Under 31-50 51 and Above

2018 23 55 78 40 37 1 78

2017 7 49 56 22 34 0 56

2016 7 55 62 25 37 0 62

Recruitment Rate

2018 9.50% 22.73% 32.23% 16.53% 15.29% 0.41% 32.23%

2017 3.17% 22.17% 25.34% 9.95% 15.38% 0.00% 25.34%

2016 3.43% 26.96% 30.39% 12.25% 18.14% 0.00% 30.39%

▼ Employee Turnover During the Past Three Years (Includes Voluntary Resignations, Dismissals, and Retirements)

YearGender

TotalAge

TotalFemale Male 30 and

Under 31-50 51 and Above

2018 13 42 55 18 32 5 55

2017 6 30 36 12 23 1 36

2016 8 45 53 22 31 0 53

Turnover Rate

2018 5.37% 17.36% 22.73% 7.44% 13.22% 2.07% 22.73%

2017 2.71% 13.57% 16.29% 5.43% 10.41% 0.45% 16.29%

2016年 3.92% 22.06% 25.98% 10.78% 15.20% 0.00% 25.98%


Wage Policy

The Company strives to provide employees with wages and benefits packages that meet or exceed industry standards. We balance external competition, internal fairness, and legal standards to provide a diverse and competitive remuneration system. At the same time, we uphold the belief of sharing profits with our employees to raise retention rates and inspire them to work towards advancing their careers.

Besides monthly wages, employee remuneration packages include quarterly operational performance cash bonuses and annual bonuses based on the Company’s profits for the year. The bonuses and rewards are our way of giving back to employees for the contributions they make while encouraging them to continue their hard work. By linking employee benefits to shareholder benefits, we create a winning situation for the Company, shareholders and employees. HKS bases employee reward packages on the Company’s overall performance and international pay standards. The Remuneration Committee recommends payment amounts and distribution methods to the Board. Employee bonuses are distributed following Board approval, and the amount that each person receives is based on his or her position, contributions, and performance. We have not yet hired a remuneration consultant. Using the “Non-Supervisor Full-Time Employee Salary Information Reporting Procedures Explanation,” which was released by the Taiwan Stock Exchange, the Company calculated the average salaries of the 218 non-supervisor, full-time employees that we employed in 2018. Their average annual wages were NT$703,000.

Employees below the level of assistant group leader are considered base level staff. Their average salaries exceed the local minimum wage. Male base level staff earn on average 1.27 times the minimum wage and female base level staff earn on average 1.32 times the minimum wage. The wage and bonus gender ratios for supervisors at or above the level of assistant section leader and non-supervisors are as follows:

1 10.70 0.93Supervisor Non-

Supervisor

Employee Benefits

The Company helps employees integrate into our corporate culture from the perspectives of adaptability, professional growth, and career development. We put development goals into practice that encourage employees to challenge themselves, set new records, and grow together with the Company in a diverse, innovative environment. Besides the Company’s welfare system, HKS established a Labor Welfare Committee that carefully plans and strategizes a variety of activities and welfare facilities. We create a lively work environment that boosts worker morale.

In order to support government policy to raise the birth rate, the Company offers especially strong support for birth benefits and child raising allowances. Besides subsidies and allowances offered by the Labor Welfare Committee, the Chairman personally distributes NT$80,000 bonuses. Eight people applied for this benefit in 2018. Employees with children under the age of 12 can apply for NT$5,000 educational subsides for each qualifying child at both the autumn and spring semesters. In 2018, a total of 75 people applied for this subsidy, with the Company distributing NT$375,000 in funding to them. The Company also provides a certificate of merit and gold ring to excellent foreign laborers at the expiration of their contract. Welfare benefits offered to full-time employees include the following:

51

Employees and the W

orkplace

4

Life Insurance

Subsidies Health Promotion OtherSocial Group Subsidies

Health Insurance Bonuses Recreational Welfare

Term life insurance, accident insurance, occupation disaster insurance

Employee wedding subsidies, birth subsidies, children’s education subsidies, child raising allowances, children’s scholarships, employee on-the-job education and training, funeral subsidies for employees and their immediate families

Health checks, blood donations, health seminars and other activities and plans that promote physical and mental health

Marriage, funeral, birth, hospitalization, and health check subsidies, gifts for Labor Day and the three major holidays, year-end party prize drawings

The chairman person-ally sponors birth subsidies, employee meals, and emergency assistance

Labor insurance, national health insurance

Annual bonus, employee birthday gifts

Domestic travel, international travel, “hundred peaks” hiking activities, art appreciation activities, and family day activities

In accordance with the “Act of Gender Equality in Employment,” the Company provides full-time employees with maternity leave and paternity leave. All employees qualify for parental leave without pay. In 2018, one employee applied for this parental leave and one employee returned to work at the expiration of leave.

▼ Parental Leave Without Pay Applications, Reinstatement, and Retention

Item

2018 2017

Number of employees who applied for parental leave without pay 1 0 0 0

Number of employees who qualified for reinstatement (A) 1 - 1 -

Number of employees who actually returned to work at the end of their unpaid parental leave (B) 1 - 0 -

Reinstatement from the previous year (C) - - 1 -

Employees reinstated at the end of their unpaid parental leave who remained in their position for at least one year after reinstatement (D)

- - 1 -

Reinstatement rate at the end of unpaid parental leave (B/A) 100% - 0% -

Rate of employees who remained in their position for at least one year after reinstatement (D/C) - - 100% -


2018 Employee hike to the Daba peaks 2018 Employee hike up Yize Mountain

Retirement System

To award employees for their professional service and support a stable retirement, the Company established the “Labor Retirement Mechanism” in accordance with the “Labor Standards Act,” “Labor Pension Act” and other related regulations. The mechanism offers a comprehensive financial system that ensures employees receive pension payments during retirement, which encourages them to make a long-term commitment to the Company during their careers. All persons employed by and who receive wages from the Company, including employees who concurrently serve as directors or managers (current or previous) qualify under the mechanism.

Every month, the Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the Trust Department of the Bank of Taiwan. The payments go to a reserve fund used to pay pensions under the old labor pension system. Additionally, under the new labor pension system, monthly contributions are made to the employees’ individual pension accounts at 6% of monthly salaries and wages. These are administered by the Bureau of Labor Insurance. For more detailed information on welfare plan payments, refer to the HKS Consolidated Financial Statements from 2018.

A send-off ceremony for a senior employee in 2018

Labor-Management Relations

The Company highly regards labor-management relations and believes that all employees should be treated with dignity and respect. We never force or compel any employee to carry out a task that they are unwilling to do. We also listen carefully to the opinions of our employees and keep communication channels open to promote two-way discussions.

53

Employees and the W

orkplace

4To provide another opportunity for employees to express their opinions and comments, the Company holds quarterly labor-management meetings. Employee express themselves through this fair, effective communication channel, giving management a chance to hear their views and quickly respond to any problems. This brings greater harmony to labor-management relations, creating a win-win situation. The Company also respects employees’ assembly rights, though no employees have yet organized a labor union. In 2018, the Company held five labor-management meetings to discuss issues such as employee travel, employee health examinations, methods for distributing scholarships and grants for employees’ children, applications for foreign migrant workers, and adhering to “Labor Standards Act” rules regarding overtime hours. At the same time, we confirmed the Company schedule, workdays, and work hours for 2019. In 2018, the Company had zero violations of labor laws or regulations that impacted employees’ rights or interests.

Sexual Harassment Prevention

To prevent harassment in the workplace and maintain equality between people of all genders, the Company established the “Sexual Harassment Prevention Measures and Discipline Mechanism,” in accordance with the “Sexual Harassment Prevention Act.” If employees or job seekers face harassment in the workplace, they should fill out a “Sexual Harassment Complaint Form” then submit it to the Administrative Services Department to inquire about action to take. When necessary, within seven days the department must convene a task force to investigate and deliberate on the case. The task force consists of five people, two of whom represent management and three of whom represent labor. At least half of the members must be women. In 2018, there were zero sexual harassment incidents at the Company.

4-3 Employee Cultivation and Development Education and Training

HKS believes that the Company’s growth is closely linked to the ability of our employees to advance with the times. In order to achieve this objective, we integrate internal and external resources while providing our employees with challenging work and opportunities to demonstrate their capabilities. A rotation system is in place so employees can test their limits. We formulated the “Employee Training and Advancement Mechanism” to build a diverse, ongoing study environment that gives employees and the Company a way to grow together through the implementation of shared objectives, discipline and plans.

Short-Term Mid-Term Long-Term

Cultivation Targets: General employees, new employees

Cultivation Targets: Entry-level and mid-level supervisors

Training Key Points: (1) Basic job training, occupa-

tional safety and health basic training and concepts, product introductions and awareness, on-site practice.

(2) Corporate culture, Company policies, product professional knowledge.

(3) Efficiency, quality, service, and other professional skills; strengthening time manage-ment, processes, customers’ ways of thinking, and emotional quotient.

Training Key Points:(1) Performance and

management. (2) Team building and

cohesion. (3) Communication and

encouragement. (4) Execution.

Cultivation Targets: Senior supervisorsTraining Key Points: (1) Organizational competi-

tiveness. (2) Strategic management. (3) Transformational

leadership/management.(4) Human resources

management. (5) Negotiations. (6) Financial management.(7) Marketing (enrichment of

production and sales staff).


In order to cultivate high-quality employees with greater knowledge and skill, the Company offers a short-term, mid-term and long-term education and training framework. It is a systematic plan to raise work quality and create a high-performance work environment. Based on the needs of each department, individual job characteristics, performance evaluation results, and career development, we create employee and organizational development plans to help individuals improve their performances and contributions to the Company. At the same time, we provide diverse study channels and developmental resources, including on-the-job training, classroom training, work guidance, advisor systems, job rotations, and a wide range of study motivation plans. These measures teach employees more about the different types of jobs at the Company and support mutual discussion. Building an atmosphere that promotes study helps us to achieve organizational growth while advancing staff capabilities.

Educational and training classes are based on different needs. Besides inviting external experts to teach, we develop lecturers from among the Company’s employees who are able to pass on important professional knowledge, experiences and skills. Those who become internal training or study group lecturers qualify to apply for teaching fees.

HKS Training Courses:

Training for New Employees

Professional/Functional Skill Training

Customized Training

Supervisor Training

Direct Training

General Competency Training

Includes basic training and employee orientation. Additionally, the employees’ supervisors and colleagues who will work with them in the “good partner system” help new employees to quickly adapt to the Company’s culture and work content.

Includes technical skills and professional training specific to each role, such as equip-ment engineering, manufacturing processes, accounting, and information technology. Staff must have required certifications that need to be renewed regularly.

Includes development and training based on the current status of each department and staff training plan key points.

Includes planning management development training to cover the skills and duties needed by supervisors of various levels. Content includes core competency classes for entry-level, mid-level and senior supervisors, as well as other elective courses.

Includes knowledge, technical skills, and methods required by manufacturing line staff in order to pass equipment certification. Content includes direct technical training, technical training for training staff, and manufacturing department group leader training.

Includes government rules and regulations, Company policy requirements, and training activities that involve the whole Company or specific levels. Topics include industrial safety, health, quality control, mill emergency responses, and personal effectiveness management.

Every November, the Company distributes education and training questionnaires then conducts related planning based on the responses. Employees can apply for external training based on their work needs, and they qualify for official leave when they take courses during their work hours. To encourage employees to use spare time to advance their skills, the Company also subsidizes external short-term research and study courses. Employees who study at public or private universities in the pursuit of a degree or academic credits qualify for a 50% tuition and fees subsidy.

55

Employees and the W

orkplace

4In 2018, the Company added education and training courses to cover the revised ISO 9001: 2015 Quality Management Systems and planning was underway for training classes that cover ISO 14001 Environmental Management and ISO 45001 Occupational Health and Safety. We also incorporated additional training and certification courses that cover specific topics, such as stationary crane and forklift operation, fire prevention management re-training, high-pressure vessel equipment operation, and first-aid training.

In 2018, the Company invested NT$2.37 million into education and training and held 77 courses, with total attendance of 290 persons and total training hours of 13,486, for an average of 46.5 hours per employee.

▼ Average Education and Training Hours, Per Employee

8.6 32.3130 116.539.4 52.3Supervisor Non-

Supervisor

Note: Supervisors are defined as deputy section chiefs (inclusive) and above

▼ Key Training Items and Course-Related Data

Course Type Course Name Times Held

Total Participants

Total Hours Attended

Labor safety and health Forklift and crane operation 44 76 2769

“Labor Standards Act”

Retirement triad and pension reform: new labor pension plan, labor insurance pension, national pension

1 1 3

Audit and verificationISO, 5S

ISO 9001: 2015 clause explanations and promotion of 3S at the Guanyin Mill 3 3 156

ISO,5S ISO 9001: 2015 clause explanations and promotion of 3S at the Guanyin Mill 4 46 105

Securities investment

Analysis research and training relating to the technical and fundamental aspects of securities 6 6 39

Accounting Implementing the International Financial Reporting Standards in Taiwan 5 5 33.5


Enterprise management by objectives reports, trends and influences analysis 3 99 489

Information systems

Corporate computer systems operational use and training 1 10 8320

Self-study classes Industrial management 2 2 613

Other Steel seminars and other research and study 8 42 958.5

Note: Due to the nature of some classes, it is difficult to obtain actual hours. This year, we used a reasonable calculation method to estimate the total hours attended. In the future, we will plan related mechanisms to obtain more accurate data.


Performance Assessments

Each year the Company conducts two employee performance evaluations in accordance with our Employee Assessment Mechanism. The evaluations examine goal implementation, behavioral cases, and expectations towards the Company’s vision, as well as employee conduct improvements. Current employees undergo an assessment every half year. The first assessment is an important measure of salary adjustments and the second assessment is an important measure of how much individual employees’ will receive in their year-end bonuses. In 2018, 100% of the Company’s full-time employees agreed to undergo the assessments.

Strong employees also rely on performance evaluation mechanisms for promotions. A record is kept of each employees’ regular work performance. Those who do well and are willing to take on more responsibility are rewarded with a promotion or the opportunity to seek a promotion. The Company hopes that each employee has an opportunity to demonstrate his or her ability and that top employees have a chance to lead a team and continue to build upon the Company’s success.

4-4 Workplace Health and SafetySteelmaking is a primary industry. To strengthen employee health and safety, the Company has always emphasized work safety. In accordance with the “Occupational Safety and Health Act,” we formulated the “Occupational Safety and Health Guidelines.” We established notices regarding work safety and health standards and require that employees undergo regular health checks. Staff who conduct operations that pose a particularly high risk to health shall also undergo industrial dust as well as pulmonary and thoracic cavity examinations. Currently, we have one labor safety and health specialist who is in charge of mill safety and health.

Each work station has an operations work board that stresses work standards and offers one point lessons. These help supervisors understand study progress of their staff, which helps them to assign appropriate staff to tasks and understand the areas where new employees need to make progress, thus avoiding putting staff into unnecessarily risky situations. Chemicals are suitably labelled and stored and managed safely.

To provide a safe working environment, mills continue to implement the 2S, 3S, 5S, and TPM methods, regularly issue management by objectives reports, and post placards with related messages. Employees progressively carried out 2S, 3S then 5S policies in order to effectively implement 5S and TPM. Production teams raised problems then discussed solutions. After inspection and verification, they announced results.

In order to promote health and the prevention and early diagnosis of disease, the Company plans employee health examinations. Employees use morning hours (with official leave) to visit a nearby designated hospital to undergo an exam that includes test items agreed upon between the Company and the hospital. The exams cost NT$8,000 per person and are full subsidized by the Company ’s Employee Welfare Committee. Employees who require additional tests can elect to add items at their own expense.

57

Employees and the W

orkplace

4In 2018, the Company began to integrate and certify occupational safety and health management systems. We systematized existing management mechanisms and plan to certify them in 2019. To promote our management systems, we officially announced our environmental, safety, and health policies. We printed policy details on small cards that we distributed to employees so they could better understand the Company’s philosophy towards maintaining work safety and the physical and mental health of employees.

Using ISO 45001:2018 Occupational Health and Safety Management Systems, the Company identifies risks within the organization. Circumstances that could threaten the safety or health of colleagues or opportunities to promote safety or health are analyzed to determine the likelihood of occurrence, the seriousness, and the frequency. Based on these results, we prioritize areas for improvement then enact responses and solutions. In addition, education and training is provided to general and specific employees to ensure they carry out their work in a safe manner. We post signs throughout the mill to remind staff about rules and regulations and to make clear where they should wear safety shoes, helmets, and hearing protection. To support implementation of these management systems, in 2019 the Company plans to establish a safety and health committee. In 2018, there were a total of 62,920 hours worked at the Company and there were no work-related injuries or accidents.

At the end of each year, the Company formulates plans to monitor the environments of our Guanyin, Changhua Coastal Park and Kaohsiung mills. We prioritize identification of hazards and information gathering to determine the nature of the hazards and the employee groups who are exposed. We determine how to conduct monitoring, collect samples then carry out monitoring tasks once every six months. Follow-up improvements and reviews are based on the monitoring results.

The head office has been used since 1998. Since the original floor was made of tiles, when adding new desks and work spaces we had to add exposed network cables and electricity lines. This created a messy work environment with many tripping hazards and a poor appearance. To create a better, safer work environment, we renovated the office. At the same time, we added leisure areas, including a small bar where employees can relax and have a cup of tea or coffee and admire the view from the 25th floor. After calming their mood, the employees work more efficiently.

To prevent accidents and emergency situations, staff are required to familiarize themselves with emergency response procedures and regularly carry out firefighting drills. In 2018, Guanyin Mill conducted two self-defense firefighting team drills that were attended by 29 people. Additionally, our safety and health promotion key points were prevention of workplace accidents and strengthening transport safety.


Labeling of hazardous zones

Foreign languages are added to warning signs

5Environmental Protection and Public Welfare

5-1 Environmental Protection

5-2 Social Welfare


5-1 Environmental ProtectionHKS places high importance on CSR. We are fully dedicated to environmental causes such as saving energy, reducing carbon, greenification, and resource reuse. We support environmental awareness and take advantage of opportunities for the Company to promote the green energy industry. In 2018, we planned and integrated ISO 14001:2015 Environmental Management Systems, which not only shows employees that we are committed to maintaining a safe workplace environment but also supports our long-term efforts to implement first-rate environmental protection and green energy policies.

Environmental Safety and Health Policies

Adhere to rules and regulations, prevent pollution, and build an excellent work environment.

Conduct risk management and health promotion to further improve management performance.

Continue to make improvements and carry out inspections in order to achieve sustainable operations.

Conduct effective training and rigorous evaluations that achieve full employee participation.

Using ISO 14001:2015 Environmental Management Systems, we integrate environmental management policies, risk identification, and legal compliance into our operations. We systematically choose areas to prioritize then establish management procedures and improvement plans. Staff education and training teaches how to reduce the environmental impact of the Company’s operations and shows how to provide customers with safe products and services that are also safe for workers to produce and use.

While integrating ISO 14001:2015, we already arranged several rounds of employee education and training. Enthusiastic participation and hands-on practice are improving current work models and paving the way towards fulfillment of our environmental management objectives. Environmental Management Systems not only show employees that we are committed to maintaining a safe workplace environment but also support our long-term efforts to implement first-rate environmental protection and green energy policies.

Each mill actively carries out greenification to provide employees with an excellent work environment. We planted trees around the mill perimeter to serve as a natural barrier. We added fish ponds and lotus plants to bring ecological balance to the grounds. When choosing greenery, we prioritize native Taiwan species (such as broad-leaved Podocarpus, Chinese juniper, camellia, red cedars, and azalea). Natural techniques used in all our buildings add to our green mill environment.

The Company carries out environmental protection and pollution prevention in line with government rules and regulations. In 2018, we had zero environmental violations.

61

Environmental Protection and Public W

elfare

5 Energy and Emissions

The Company is fully dedicated to environmental causes such as saving energy, reducing carbon, greenification, and resource reuse. As we expand capacity and product lines, we plan and implement ways to reduce greenhouse gas (GHG) emissions. At the same time, we are preparing for future legal amendments that could lead to carbon trading systems and corporate carbon resource management. When building new mills and offices, we use energy-saving designs. During operations, we continue to raise energy efficiency. Besides reducing costs, these measures lower GHG emissions.

In order to promote energy saving and carbon reduction policies, the Bureau of Energy encourages energy consumers to use high-efficiency equipment that raises manufacturing effectiveness and overall energy efficiency. When replacing old equipment, the Company chooses efficient air compressors that the bureau recommends and subsidizes.

The Company primarily relies on externally purchased electricity. Our company vehicles and forklifts use gasoline or diesel. All of the energy that we use comes from non-renewable sources. Our 2018 energy use volume and GHG emissions volume are shown below:

Energy Type Usage Volume Unit

(GJ)Energy Usage

Volume (GJ)

Direct (Scope 1)

Gasoline 89,282 Liters 2,915

Diesel 424,243 Liters 14,917Liquefied petroleum gas

36,251 Liters 1,986

Indirect (Scope 2) Electricity 4,602,570 kWh 16,569

Total 36,388Energy Intensity (GJ/1,000 tonnes capacity) 340.01

Emissions Source

Usage Volume

Emissions Volume (CO2e

tonnes)

Scope 1

Gasoline (liters) 89,282 210.82 Diesel (liters) 424,243 1,124.39 Liquefied petroleum gas

36,251 125.44

Carbon dioxide (kg) 183,345 183.35cetylene (kg) 39 0.13Subtotal 1,644.13

Scope 2

Electrical power 4,602,570 2,453.17

Total 4,097.30

Intensity (CO2e tonnes/1,000 tonnes) 38.29

Note 1: CPC Corp., Taiwan keeps a record of the gasoline and diesel that is added to our company cars. Guanyin Mill calculates diesel used in its forklifts based on diesel purchase records and the average annual price of fuel; our other mills keep records of how much fuel they add to the forklifts. Usage data of liquefied petroleum gas, carbon dioxide, and acetylene are based on purchase records, and the volume of liquefied petroleum gas is based on conditions of 15° C and a density of 0.507 kg/m3. Electricity use data are based on our electricity bills.

Note 2: Energy usage volume = fuel usage volume * fuel heating value. Heating values are based on the energy product heating value chart released by the Bureau of Energy.

Note 3: GHG emissions = Activity data * GHG emissions factor * GWP; GHG emissions volume is collected and organized based on operational control; GHG emissions factor and GWP are based on the GHG emissions factor management table version 6.03 released by the Environmental Protection Administration and the IPCC’s 4th Assessment Report (2007). The electricity carbon emissions factor is based on 2018 data announced by the Bureau of Energy, Ministry of Economic Affairs.

Note 4: GHG emissions types include CO2, N2O and CH4; Scope 2 emissions are based on local calculation methods.Note 5: Energy intensity is measured in GJ/1,000 tonnes capacity; emissions intensity is measured in CO2e tonnes/1,000

tonnes capacity. In 2018, the Company’s total capacity was 107.02 thousand tonnes.

Water Resources Management

Besides installing solar panels at each mill, the Company participates in national green energy construction projects. In order to provide construction services for underwater foundation piles at offshore wind farms, we obtained ISO9001 and are applying for ISO14001, ISO45001, ISO 3834, and EN1090 (we expect to be certified in 2019). In 2018, in order to develop and promote weather and corrosion resistant building materials, we introduced ECOGAL-Neo products to use in the construction of solar panel frames, shelving frames, factory structural work, walls, and rooftops. The anti-corrosion properties of this material provides customers with a safer, more economic steel choice.


Water Use Volume (m3) 2017 2018

Guanyin Mill 23,509 27,372

Changhua Coastal Park Mill 2,547 2,961

Kaohsiung Mill 4,844 3,636

Total 30,900 33,969

Note: Water usage data is based on our water bills (from January 1 to December 31 of the listed year).

Green Energy Implementation

In conjunction with government policy that aims to build a beautiful Taiwan, save energy, reduce carbon, promote green energy, and protect the environment, HKS installed solar panels at each of the Company’s mills. Since solar generated power does not emit GHG, solar power reduces GHG emissions in proportion to the amount of traditional power it replaces. Currently, solar panels at the Guanyin, Changhua Coastal Park, Kaohsiung, and Tainan mills are all generating solar power. At the same time, each mill uses LED lights and environmentally friendly steel plates. To save energy and improve air circulation, some parts of new mills incorporate transparent curtains or screens.

At the end of 2018, the capacity of solar power generating equipment the Company had installed reached 7,375.4 kWp, which was able to generate 7,347,000 kWh of electricity per year and reduce annual GHG emissions by close to 4,070 tonnes. The reduction in emissions is equivalent to the amount of carbon that 24 Daan Forest Parks would be able to absorb in a year.

▼ Solar Panel Installation and Power Generation

Installed Location

Installed Capacity (kWp)

Annual Power Generation

(kWh)

Annual Carbon Reduction (Tonnes)

Accumulated Power

Generation (kWh)

Accumulated Carbon

Reduction (Tonnes)

Taoyuan 2,353.28 2,790,460 1,545.92 6,006,280 3,247.07

Changhua 2,248.96 2,811,440 1,557.54 2,811,440 1,557.54

Yunlin 418.00 509,040 282.01 3,697,620 1,967.69

Chiayi 498.00 152,000 84.21 152,000 84.21

Tainan 999.00 184,200 102.05 184,200 102.05

Kaohsiung 858.16 900,320 494,498.78 4,062,560 2,171.92

Total 7,375.40 7,347,460 4,070.51 16,914,100 9,130.48

Note: Carbon reduction = Electricity generation * (electricity emissions factor – solar power carbon emissions factor); the Bureau of Energy releases electricity emissions factor data; the solar power emissions factor is zero.

63


elfare

5Besides installing solar panels at each mill, the Company participates in national green energy construction projects. In order to p r o v i d e c o n s t r u c t i o n s e r v i c e s f o r underwater foundation piles at offshore wind farms, we obtained ISO9001 and are applying for ISO14001, ISO45001, ISO 3834, and EN1090 (we expect to be certified in 2019). In 2018, in order to develop and promote weather and corrosion resistant building materials, we introduced ECOGAL-Neo products to use in the construction of solar panel frames, shelving frames, factory structural work, walls, and rooftops. The anti-corrosion properties of this material provides customers with a safer, more economic steel choice.

Waste Management

The Company has made healthy and sustainable development a key objective, which is why we are willing to work hard to save resources and protect the environment. Besides promoting energy savings and waste and pollutant discharge reductions, we actively seek to make industrial product manufacturing and consumption compatible with protecting the environment. These measures reduce the risks that industrial activities pose to humans and the environment. In the future, we will do more to promote reuse among the upstream and downstream members of our industrial supply chain.

Steel precision cutting and logistics services are low-polluting industries. When building our mills, the Company carefully evaluates the environmental protection and pollution implications. During production, our approaches to air emissions, wastewater, and production process by-products include the following:

The primary equipment at each mill is precision cutting equipment. We do not do smelting, heat processing, metal plating, or other post-processing items. At the same time, all leftover scraps and fragments are sold to contracted metal scrap factories to be recycled and re-melted. Therefore, our production processes do not cause any air or water pollution.Most of our inventory is steel plates, steel coils, and round bars. These items typically do not become waste. Northern district factory inspectors conducted noise tests at our mill and found that the noise created loading and unloading steel materials conforms with noise control regulations.

Waste produced at each mill is collected and disposed of twice a week by a professional, certified waste management company in accordance with regulations. At our Taipei head office, the waste is disposed of by a certified waste management company that was commissioned by the building management. When getting quotes, we confirm that the companies are legal and certified to handle waste. All waste management contracts must include a copy of the company’s waste management permit as well as the name and license number of a staff member who will be in charge of handling the waste.

Mills and offices have separate containers for different types of recyclables and trash. Beside them are instructions and photos that explain how to separate discarded items, with the instructions also printed in Thai for our Thai workers. The Company’s internal website publicizes environmental protection and green topics, such as encouraging employees to reuse paper in order to reduce paper waste. Messages also urge all workers to contribute by separating their waste.


Mill waste is divided into domestic waste and general industrial waste. Each type of waste meets environmental regulations and is managed by contracted, licensed companies. For domestic waste, the Guanyin and the Changhua Coastal Park mills each have two 1,000-liter dumpsters and the Kaohsiung mill has three 1,000-liter dumpsters. The waste is gathered twice per week. The production of general industrial waste is more difficult to forecast., so staff inform the waste management companies when it is time for pick up. Waste at the head office is separated and disposed of in accordance with building management rules. Currently, general industrial waste is not incinerated or buried in a landfill. Instead, it is handled in accordance with Environmental Protection Administration regulations. In 2018, we discarded 22.29 tonnes of waste, a decrease of 2.48 tonnes compared to 2017.

Signs describe how waste at the mill should be separated

5-2 Social WelfareBesides focusing on running and developing our business, the Company places a great deal of importance on fulfilling CSR. We participate in social welfare activities to give back to society and promote social harmony. At the same time, we established the Hsin Kuang Steel Tian-Cheng Charity Foundation, which specializes in managing social welfare work. Key aspects of our social welfare work include the following:

Assisting the Disadvantaged

Implementing Community Care

Founding of a year-end dinner for the homeless and support for Kindgarden and the Chung-Hua Foundation for Persons with Intellectual Disabilities.

Staff Training

Scholarships and grants to support students of National Chiao Tung University, dependents left behind by former members of the armed forces, and funds for the families of members of the armed forces.

Reconstruction of the assembly hall at Long Yuan Elementary School, donations to support the Kaohsiung gas explosion victims, and renovations to the conference hall at National Chengchi University.

Medical Treatment Assistance

Volunteer clinics in Nepal operated by the Taiwan Root Medical Peace Corps and ambulances for use in the Guanyin area.

(tonnes)

24.77 22.29

Volume of Waste

2017 2018

65


elfare

5In 2018, the Company made donations to care for the disadvantaged and to support emergency care, youth education and welfare (including scholarships and grants for students from low income families), sponsored year-end dinners for the homeless and senior citizens who live alone, sponsored adoption programs for dependents of armed forces veterans who died, and contributed to volunteer clinics run by NGOs. Our total donations to these causes were NT$2.19 million and our accumulated donations during the past 10 years surpassed NT$15.7 million (not including the NT$8.8 million we donated to the Tian-Cheng Charity Foundation and the NT$20 million we donated to establish the foundation). The money went towards supporting the disadvantaged (founding of a year-end dinner for the homeless and support for Kindgarden), human cultivation (scholarships and grants to support dependents of armed forces veterans who died, funds for the families of members of the armed forces, as well as support for after-school care provided by the Taiwan Action Buddha Society), community care (reconstruction of the assembly hall at Long Yuan Elementary School and donations to support the Kaohsiung gas explosion victims), and medical care relief (volunteer clinics operated by the Taiwan Root Medical Peace Corps and ambulances for use in the Guanyin area).In 2018, General Wu Kuen-der was asked by Chairman Su to help strategize ways to help disadvantaged people overlooked by the government safety net. One case involved a nonagenarian farming couple who lived in the mountains and were still harvesting fruit to care for their 70-year-old deaf and mute son. They were adept at planting but did not understand how to sell or market their product, which meant most of their crop went to waste. Wu and his wife visited the couple then helped to harvest and package the crop. HKS bought 5,000 catty (3,000 kg) of the fruit then distributed it to employees and clients. The gesture was of great benefit to the couple’s family. When domestic cabbage prices plummeted, HKS helped by buying up a quantity of the excess crop and employees supported us in distributing the cabbage to disadvantaged groups. These contributions helped farmers, disadvantaged groups, and elderly people living in rural areas. The Company also purchased pineapples from the Pingtung Farmers’ Association and Mama Peach products from Taoyuan. These purchases directly supported local agricultural products, thus contributing to the livelihoods of local farmers.

Kindgarden Vietnam volunteer clinic operated by the Taiwan Root Medical Peace Corps

Hsin Kuang Steel Tian-Cheng Charity Foundation

The Hsin Kuang Steel Tian-Cheng Charity Foundation was established on January 22, 2009, with an initial establishment amount of NT$30 million. HKS contributed NT$20 million and the Tian-Cheng Company contributed NT$10 million. Trickle T.C. Chang, the HKS founder and current director, serves as the foundation chairman. The Committee’s main objective is to carry out social welfare and philanthropic work. It uses the resources at its disposal to help the government implement social welfare services, to raise support for the rights and interests of the disadvantaged, and to lower social burdens and costs. The primary themes of its work are provision of assistance in times of critical need, education and welfare of children and youths, aid for the disabled, welfare for the elderly, and subsidies for low income families and people with special medical care needs. These contributions are the Company’s way of giving back to society and fulfilling our corporate responsibilities.


The foundation has already donated 11 medical vehicles and ambulances (for emergency use, health care, and to bring the disabled to health centers for treatment). In recognition of the importance of these treatment measures, the foundation continues to donate medical-use vehicles and related rescue equipment to fire departments in Taipei, Hualien, New Taipei, Taichung, and Hsinchu County. It also donated health care and bathing vehicles to the Sisters of Our Lady of China Catholic Charity Social Welfare Foundation in Chiayi as well as shuttle buses to Taipei Veterans General Hospital and Chiayi Christian Hospital to help the disabled and disadvantaged groups receive medical care.

The foundation contributed NT$6.64 million in funds in 2018 (NT$2 million of which was donated by HKS). Since founding, the Company has donated more than NT$37.88 million to social welfare institutions and disadvantaged groups and individuals. The money went towards human cultivation (unified examination prep classes in rural junior high schools, scholarships for children and youths from disadvantaged families and families facing hardships, and subsidies to cover tuition and miscellaneous fees for underprivileged junior high school students), community care (a dining hall for the elderly in Minsyong, Chiayi), assistance for the disadvantaged (material and monetary support for the “slow-flying angels” and other institutions that support the disabled), and health care assistance (replacing old emergency equipment in hospitals and health care subsidies for families facing hardships). In 2011 and 2014, the Ministry of the Interior and the Department of Health and Welfare gave the foundation first place awards in their assessments of national and local social welfare and charitable foundations.

A disaster relief vehicle donated to Fengbin, Hualien

A dining hall for the elderly in Minsyong, Chiayi

11.0%

67.4%

14.1%

4.5% 3.0%

Hsin Kuang Steel Tian-Cheng Charity Foundation Annual

Use of Philanthropic Funds

Human cultivation and spreading education and culture

Other

Assisting the disadvantaged

Providing health care and emergency equipment

Community care

67


elfare

5 Taipei County Huirong Social Welfare and Charitable Enterprises Foundation

The Huirong Foundation was founded in 2003 with NT$20 million in contributions from Company Chairman Alexander M.T. Su, his younger sister Su Ching-yun, and the Huirong Investment Co., Ltd. In 2006, the amount was raised to NT$30 million. Chairman Su and Johnathon Y.J. Su continued to donate HKS shares and cash, bringing the foundation’s total funding to NT$120 million. The foundation primarily sponsors welfare activities for children, the elderly, the disabled, and youths along with health care and life care.

When business was stable, Chairman Su founded the Huirong Foundation to make amends for what he perceived as an earlier inability to provide prompt, adequate care to his father. Su missed his father and wanted to transform that longing into a show of great love. His actions supported people in need, fulfilling his aspiration of giving back to a community that had given him so much. Su also wanted to show his children and future generations the hardships that went into founding the Company and the hard work that would be needed going forward to preserve their accomplishments and maintain the business. Su hopes that in the future his children are serious about work and leadership while at the same time using their abilities contribute to society.

The foundation’s primary goals include human cultivation, spreading education and culture, community care, assisting the disadvantaged, and providing health care and emergency equipment. Its ambition is to build a society that cares for the individual. Since founding, the foundation has donated 17 vehicles (for emergency rescue and to transport the disabled and people living in rural mountainous areas to health centers for treatment). In recognition of the importance of first aid, the foundation continues to donate ambulances and related first aid equipment to fire departments in Kaohsiung, Taoyuan, New Taipei, Taichung, Changhua, Chiayi County, Yunlin, Yilan and Hsinchu County as well as the Taipei Medical University Hospital. It has also given medical vehicles to Saint Mary’s Hospital Luodong to contribute towards their efforts to bring care to residents of rural mountainous areas, and disabled-use vehicles to Hsiangyuan School and the Hung-Chia Sanctuary for the Handicapped.

In 2018, the foundation contributed more than NT$9.18 million. Since founding, accumulated donations have surpassed NT$880.8 billion. Besides contributing to emergency medical treatment, the foundation supports human cultivation (students facing hardships who are introduced by schools at all levels or social groups such as World Vision, the Mustard Seed Mission, dependents of armed forces veterans who died, and the Ginling Girls’ High School), community care (indigenous dance groups, the Nanao Ryohen Tribe Development Association, the Association for Victims Support, the Peitou Citizens’ Association, and the Village of Angelic Children), assistance for the disadvantaged (the Genesis Social Welfare Foundation, Taiwan Lighthouse, the Taiwan Disabled People ’s Association, the Yu An Children’s Home, the Welfare Association for the Deaf, and foundations for individuals with intellectual disabilities) and medical care and relief (volunteer health clinic teams such as Taiwan Root Medical Peace Corps, the Taipei Medical University Fengxing Youth Service Team, and health care subsidies for families facing hardships).

21.3%

59.9%

13.9%

4.9%

Huirong Foundation

Annual Use of Philanthropic

Funds

Human cultivation and spreading education and culture

Assisting the disadvantaged

Providing health care and emergency equipment

Community care


Human Cultivation

Students facing hardships who are introduced by schools at all levels or social groups such as World Vision, the Mustard Seed Mission, dependents of armed forces veterans who died, and the Ginling Girls’ High School

Community Care

Indigenous dance groups, the Nanao Ryohen Tribe Development Association, the Association for Victims Support, the Peitou Citizens’ Association, and the Village of Angelic Children

Assisting the Disadvantaged

IThe Genesis Social Welfare Foundation, Taiwan Lighthouse, the Taiwan Disabled People’s Association, the Yu An Children’s Home, the Welfare Association for the Deaf, foundations for individuals with intellectual disabilities, special education students at Tianmu Elementary School, and individual relief

Health Care Assistance

Volunteer health clinic teams such as Taiwan Root Medical Peace Corps, the Taipei Medical University Fengxing Youth Service Team, and health care subsidies for families facing hardships

Taiwan Action Buddha Society Plan

Feng Tien Elementary School Baseball Team

69


elfare

5 Ambulance Donations

HKS, the Hsin Kuang Steel Tian-Cheng Charity Foundation, and the Huirong Charitable Foundation have already donated 23 medical treatment vehicles and ambulances across Taiwan.

Taipei Minquan Branch: Fire department ambulance

New Taipei Banqiao Mountain Unit:Disaster survey vehicleHsinchu County Taoyuan City

Taichung City Government Fire Department: Ambulance

Changhua Fire Department: Ambulance

Chiayi Fire Department: AmbulanceKaohsiung County Government Fire Department: Fire department ambulance

Yunlin Dounan Township: Medical services vehicle

Yunlin County

Yilan Luodong Hospital: Roaming medical care vehicle

Hualien county


Appendices

Appendix I Global Reporting Initiative General Disclosures

▼ General Disclosures

Standards Disclosure Items Corresponding Chapter/Explanation/Omissions Pages

GRI 102: General Disclosures 2016

Organizational profile

102-1 Name of the organization 2-1 About HKS 18

102-2 Activities, brands, products, and services 2-1 About HKS 18

102-3 Location of headquarters 2-1 About HKS 18

102-4 Location of operations 2-1 About HKS 18

102-5 Ownership and legal form 2-1 About HKS 18

102-6 Markets served2-1 About HKS3-1 Products and Techniques

18

36

102-7 Scale of the organization2-1 About HKS2-2 Operational Performance

18

22

102-8Information on employees and other workers

4-1 Employee Status 47

102-9 Supply chain 3-4 Supply Chain Management 43

102-10Significant changes to the organization and its supply chain

N/A

102-11 Precautionary Principle or approach 2-5 Risk Management 30

102-12 External initiatives N/A

102-13 Membership of associations 2-1 About HKS 18

Strategy

102-14 Statement from senior decision-maker A Word from the Chairman 4

Ethics and integrity

102-16Values, principles, standards, and norms of behavior

2-4 Ethical Operations 29

71

Appendices


Governance

102-18 Governance structure 2-3 Governance Structure 24

102-36 Process for determining remuneration2-3 Governance Structure4-2 Employee Recruitment and

Retention

2449

Stakeholder engagement

102-40 List of stakeholder groups 1-1 Interaction with Stakeholders 10

102-41 Collective bargaining agreementsStaff have not formed a labor union or collective agreement

102-42 Identifying and selecting stakeholders 1-1 Interaction with Stakeholders 10

102-43 Approach to stakeholder engagement 1-1 Interaction with Stakeholders 10

102-44 Key topics and concerns raised 1-1 Interaction with Stakeholders 10

Reporting practice

102-45Entities included in the consolidated financial statements

Refer to the Company’s 2018 Annual Report

102-46 Defining report content and topic Boundaries1-3 Sustainable Development

Strategies13

102-47 List of material topics1-3 Sustainable Development

Strategies13

102-48 Reinstatement of information N/A in 2018

102-49 Changes in reporting N/A in 2018

102-50 Reporting period About the Report 2

102-51 Date of most recent report About the Report 2

102-52 Reporting cycle About the Report 2

102-53Contact point for questions regarding the report

About the Report 2

102-54Claims of reporting in accordance with the GRI Standards

About the Report 2

102-55 GRI content indexAppendix I Global Reporting Initiative General Disclosures

70

102-56 External assuranceAppendix II Accountants’ Limited Assurance Report

74

GRI 103: Management Approach 2016

103-1 Explanation of the material topic and its Boundaries


13

103-2 The management approach and its components


13

103-3 Evaluation of the management approach1-3 Sustainable Development

Strategies13


▼ Specific Disclosures


GRI 200: Economic

GRI 201: Economic Performance 2016

201-3 Defined benefit plan obligations and other retirement plans


49

GRI 202: Market Presence 2016

202-1 Ratios of standard entry level wage by gender compared to local minimum wage


49

202-2 Proportion of senior management hired from the local community 4-1 Employee Status 47

GRI 205: Anti-corruption 2016

205-3 Confirmed incidents of corruption and actions taken 2-6 Legal Compliance 33

GRI 206: Anti-competitive Behavior 2016

206-1 Legal actions taken for anti-competitive behavior, anti-trust, and monopoly practices N/A in 2018

GRI 300: Environmental topics

GRI 302: Energy 2016

302-1 Energy consumption within the organization 5-1 Environmental Protection 60

302-3 Energy intensity 5-1 Environmental Protection 60

GRI 305: Emissions 2016

305-1 Direct (Scope 1) GHG emissions 5-1 Environmental Protection 60

305-2 Energy indirect (Scope 2) GHG emissions 5-1 Environmental Protection 60

305-4 GHG emissions intensity 5-1 Environmental Protection 60

305-5 Reduction of GHG emissions 5-1 Environmental Protection 60

GRI 307: Environmental Compliance 2016

307-1 Non-compliance with environmental laws and regulations N/A in 2018

GRI 400: Social topics

GRI 401: Employment 2016

401-1 New employee hires and employee turnover4-1 Employee Recruitment and

Retention47

401-2Benefits provided to full-time employees that are not provided to temporary or part-time employees


49

401-3 Parental leave4-2 Employee Recruitment and

Retention49

73

Appendices


GRI 403: Occupational Health and Safety 2016

403-3 Workers with high incidence or high risk of diseases related to their occupation

4-4 Workplace Health and Safety

56

GRI 404: Training and Education 2016

404-1 Average hours of training per year per employee


53

404-3 Percentage of employees receiving regular performance and career development reviews


53

GRI 405: Diversity and Equal Opportunity 2016

405-1 Diversity of governance bodies and employees 2-3 Governance Structure4-1 Employee Status

2447

405-2 Ratio of basic salary and remuneration of women to men


49

GRI 416: Customer Health and Safety 2016

416-2Incidents of non-compliance concerning the health and safety impacts of products and services

N/A in 2018

GRI 417: Marketing and Labeling 2016

417-2 Incidents of non-compliance concerning product and service information and labeling N/A in 2018

GRI 418: Customer Privacy 2016

418-1Substantiated complaints concerning breaches of customer privacy and losses of customer data

3-3 Customer Service 38

GRI 419: Socioeconomic Compliance 2016

419-1 Non-compliance with laws and regulations in the social and economic area

2-4 Ethical Operations4-2 Employee Recruitment and

Retention

2949


Appendix II Accountants’ Limited Assurance Report

75

Appendices

2018

新光鋼鐵股份有限公司

企業社會責任報告書

Address: Fl. 25-1, No. 97, Sec. 4, Chongxin Rd., Sanchong Dist., New Taipei

TEL：02-2978-8888

https://www.hkssteel.com.tw

Corporate Social Responsibility Report Hsin Kuang Steel · 2020-02-12 · 2 2018 Corporate Social...

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