Corporate Governance

Shannung Foods Co., Ltd. was founded in 1985, with its headquarters in Xinyi District, Taipei City. It is primarily engaged in the research and development, production, and sales of food processing, seasonings, convenience foods, beverages, and agricultural products. Currently, it owns three major consumer brands: "Shannung," "Nonghao," and "Chucai." Its product line exceeds 320 SKUs, and its marketing channels cover supermarkets, hypermarkets, convenience stores, and e-commerce platforms across Taiwan. The Company's shares have been listed on the Taiwan Stock Exchange since 2003 (stock code: 1883), with a current market capitalization of approximately NT$48 billion.

As of December 31, 2024, Shannung Foods had a total of 2,847 employees (including full-time and part-time staff) and operates five production bases in Taiwan (Taichung Flagship Plant, Changhua Noodle Plant, Tainan Sauce Plant, Kaohsiung Beverage Plant, and Taipei R&D Center). Its combined annual production capacity reaches 180,000 metric tons. In terms of overseas markets, it markets products to Japan, Singapore, Malaysia, Vietnam, and the United States through a licensed agency model. International market revenue accounts for 17.4%. Consolidated revenue in 2024 was NT$8.24 billion, a 6.8% increase from the previous year. Net profit after tax reached NT$710 million, with EPS of NT$8.32.

Shannung Foods' core competitive advantage lies in its deep integration capabilities with local agricultural raw materials in Taiwan, maintaining long-term contract farming relationships with over 320 agricultural suppliers. The proportion of local Taiwanese raw materials used reaches 68.3%. In terms of R&D investment, R&D expenses in 2024 reached NT$420 million, accounting for 5.1% of revenue. There are 214 R&D personnel, holding 87 valid patents (including 23 invention patents).

Looking back at its nearly forty-year development history since its establishment, Shannung Foods has gradually evolved from an early single grain processing plant into a comprehensive food group spanning four major business units: grains, seasonings, convenience foods, and beverages. The company's mission is "Cultivating good food with care, fostering sustainable agriculture for mutual benefit," upholding the business philosophy of "Safety, Health, Sustainability, and Mutual Benefit." It places its responsibility to the land and consumers at the core of corporate decision-making, with the long-term vision of becoming a benchmark for net-zero transition in Taiwan's food industry. This value proposition permeates all environmental, social, and governance initiatives disclosed in this report.

In terms of brand and product portfolio, "Shannung Foods" is positioned as the main brand for daily household grains and convenience foods, "Nonghao" focuses on health and function-oriented seasonings and ready-to-eat products, while "Chucai" specializes in high-end agricultural processed products emphasizing direct sourcing from origin and ingredient traceability. These three brands are distinct yet form comprehensive market coverage. The product line, with over 320 SKUs, spans categories such as rice and grains, noodles, sauces, canned goods, and beverages. Formulations are continuously optimized based on consumer trends such as healthification, reduced salt and sugar, and plant-based proteins. In 2024, the newly launched low-sodium and plant-based product lines achieved over 20% year-on-year revenue growth, becoming a significant growth driver.

Regarding operational sites and capacity allocation, the five production bases each have distinct roles: the Taichung flagship plant is the main plant for integrated processing and grains, the Changhua noodle plant specializes in noodle products, the Tainan sauce plant produces various seasonings, the Kaohsiung beverage plant is responsible for beverage manufacturing, and the Taipei R&D center coordinates new product development and quality technical support. The total annual production capacity reaches 180,000 metric tons. This decentralized and specialized plant layout not only enhances production efficiency but also diversifies operational and climate risks associated with a single location, forming a crucial foundation for the company's supply chain resilience.

In international market expansion, Shannung Foods adopts a parallel strategy of authorized agency and brand export. Products are marketed to Japan, Singapore, Malaysia, Vietnam, and the United States, among other markets, with international revenue accounting for 17.4%. Southeast Asia is designated as a key growth region for the future. Consolidated revenue has grown steadily over the past three years, from NT$7.132 billion in 2022 and NT$7.713 billion in 2023 to NT$8.24 billion in 2024. The compound growth momentum stems from deepened domestic channels, expansion of healthy product lines, and overseas market penetration, demonstrating the company's operational strength in sustaining growth within a mature food market.

In terms of R&D and intellectual property strategy, the company's 214 R&D personnel span professional fields such as food science, nutrition, packaging engineering, and sensory evaluation. In 2024, R&D expenses reached NT$420 million, accounting for 5.1% of revenue. The company holds 87 valid patents (including 23 invention patents). R&D achievements cover technologies such as agricultural byproduct valorization, low-GWP refrigerant applications, and healthy formulations. Among these, two invention patents have been applied for agricultural waste recycling technology, with plans for technology licensing. This R&D intensity enables Shannung Foods to translate sustainability concepts into concrete product and process innovations, creating a competitive advantage that combines environmental benefits with commercial value.

The Board of Directors of Shannung Foods Co., Ltd. is the company's highest governance body, bearing ultimate responsibility for the company's strategic direction, major decisions, and risk oversight. The current board (14th term) consists of 11 members, including 6 general directors (of whom 2 are corporate representatives) and 5 independent directors. The proportion of independent directors is 45.5%, exceeding the regulatory minimum requirement of one-third. Four female members (36.4%) are on the board, covering five major professional fields: agricultural technology, food safety regulations, ESG governance, finance, and international supply chain, laying the foundation for the company's diverse decision-making.

In 2024, the Board of Directors convened 7 meetings, with an average attendance rate of 96.4%, and no director's attendance rate fell below two-thirds. Major annual resolutions included: approving the 2024-2026 ESG three-year mid-term targets, approving the US$20 million new energy equipment procurement project, reviewing the supply chain human rights due diligence policy, and establishing the "Board ESG and Sustainability Committee" as a standing sustainability oversight body at the board level.

Regarding director compensation, independent directors receive a fixed annual remuneration of NT$1.2 million, with no additional performance bonuses, ensuring the independence of their oversight position. In the compensation structure for senior executives such as the CEO, ESG indicators (including carbon reduction progress, food safety incident rate, and employee satisfaction) account for 30% of the performance bonus evaluation weight, deeply linking sustainability performance with individual compensation.

To strengthen the professional division of labor and oversight effectiveness of the Board of Directors, the company has established four functional committees under the Board: the Audit Committee, the Remuneration Committee, the Nomination Committee, and the ESG and Sustainability Committee. The Audit Committee, composed of all independent directors, is responsible for overseeing the integrity of financial reporting, the effectiveness of internal controls, and the independence of external certified public accountants. The Remuneration Committee is responsible for reviewing the compensation policies for directors and senior managers. The Nomination Committee is responsible for director nominations and succession planning. The ESG and Sustainability Committee, chaired by an independent director, coordinates sustainability strategy and KPI progress oversight. Each committee meets regularly and reports to the Board of Directors.

In terms of board diversity and functional allocation, the company has established a "Director Skills Matrix" to systematically review the coverage of key functions among current directors, including agricultural technology, food safety regulations, ESG governance, finance, international supply chain, information security, and risk management. This ensures that the board as a whole possesses the professional combination required to oversee the company's sustainable transformation. The newly appointed independent directors for this term were specifically recruited with expertise in climate science, cybersecurity governance, and international supply chain management, precisely to strengthen the board's oversight capabilities on emerging sustainability risk issues and make the governance structure more aligned with the substantive challenges the company faces.

Regarding continuous education and professional development for directors, in 2024, all directors averaged 12.6 hours of training. Courses covered topics such as climate-related financial disclosures, corporate governance practices, cybersecurity trends, and the development of international sustainability reporting standards, meeting the regulatory requirements for director training for listed companies. The company also arranged for directors to visit production bases and contract farms, providing the board with direct insight into frontline operations and supply chain realities, thereby enhancing the practicality and foresight of decision-making.

In terms of board performance evaluation and maintenance of independence, the company conducts an annual self-assessment of the performance of the Board of Directors, functional committees, and individual directors. Every three years, an external professional institution is commissioned to conduct an external evaluation. Evaluation aspects include board structure, meeting operations, decision quality, and oversight effectiveness on sustainability issues. All 5 independent directors comply with regulatory independence requirements, have no material conflicts of interest with the company, and their fixed remuneration design deliberately excludes performance linkage to ensure that their oversight position is not influenced by operational performance, thereby strengthening the checks and balances mechanism.

In deepening the institutionalization of sustainable governance, the establishment of the Board ESG and Sustainability Committee signifies the formal elevation of the company's sustainability oversight from the management level to the governance level. This committee quarterly reviews the progress of key performance indicators such as greenhouse gas reduction, food safety, supply chain assessment, and water resources. The effectiveness of the sustainability blueprint's implementation is also incorporated with a 20% weighting into the annual performance evaluations of the general manager and first-tier executives. This dual linkage of sustainability KPIs with the highest governance body and the executive team's compensation ensures that sustainability commitments can be continuously implemented despite personnel changes, marking an important milestone in the company's governance structure moving towards international standards.

Shannung Foods has established a three-lines-of-defense risk management framework: autonomous risk control by business units (first line), independent oversight by the Corporate Legal and Compliance Department (second line), and audits by the Internal Audit Office and oversight by the Audit Committee (third line). In 2024, the company completed third-party certification for the ISO 37001 Anti-Bribery Management System, becoming the first leading enterprise in Taiwan's food industry to obtain this certification. Throughout the year, internal audit conducted 127 audit tasks, covering all business units, identifying and improving 43 medium-to-high risk items, all of which have completed improvement tracking and confirmation.

In terms of integrity training, in 2024, all 2,847 employees completed online integrity management training, totaling 8,541 hours. Additionally, for high-risk departments such as procurement, sales, and R&D, 4 in-person advanced courses totaling 8 hours were conducted, with 270 participants. A comprehensive whistleblower protection mechanism has been established, featuring an independent third-party complaint platform to ensure the confidentiality of complainants' identities. In 2024, a total of 3 complaint cases were received (2 procurement-related, 1 employee relations-related), all of which were investigated and handled according to regulations, with no major violations found.

Regarding legal compliance records, in 2024, there were no significant penalty cases for violations of food safety laws, labor laws, or securities regulations. In terms of taxation, the company has been rated as an A-grade excellent taxpayer by tax authorities for three consecutive years, with no major tax disputes. There was only one minor violation of fire safety regulations due to the untimely update of warehouse fire safety equipment, resulting in a fine of NT$30,000. The equipment update was completed immediately after the fine was paid.

In terms of the overall risk governance framework, the company has an inter-departmental Risk Management Committee, chaired by the General Manager. This committee quarterly compiles and assesses the strategic, operational, financial, compliance, climate, and emerging risks faced by the company, and reports significant risks to the Board of Directors. Risk identification employs a two-dimensional assessment of "likelihood of occurrence" and "impact severity" to create a company risk map, and risk appetite and response measures are defined for high-risk items. The three-lines-of-defense framework clearly defines risk accountability at each level: the first line implements daily controls, the second line establishes policies and oversight, and the third line provides independent assurance, forming a multi-layered risk defense system.

In managing emerging risks, the company specifically designates climate change risk and information security risk as key monitoring items. For climate risk, physical risks from extreme weather to contract farm produce supply and plant operations, as well as transition risks from carbon fee regulations and shifting consumer preferences, are identified according to the TCFD framework and addressed through supply chain diversification and carbon reduction investments. For information security risk, the company has implemented an information security management system to strengthen the protection of production systems and customer data. In 2024, no major information security incidents or customer personal data breaches occurred, and regular employee cybersecurity awareness training and social engineering drills were conducted.

In deepening the governance of information security and personal data protection, the company has appointed dedicated information security personnel to establish a layered defense mechanism for network protection, access control, backup and recovery, and incident response. Regular vulnerability scans and penetration tests are conducted for external service platforms such as "Shannung Traceability." Regarding personal data protection, the company complies with the Personal Data Protection Act, establishing internal regulations for the collection, processing, and utilization of personal data for consumers, employees, and suppliers, and publishes a privacy policy on its official website to ensure the data rights of stakeholders are protected.

In building tax governance and an integrity culture, the company adheres to the principles of honest reporting and tax payment according to law, refraining from transaction arrangements primarily aimed at tax evasion. It has been rated as an A-grade excellent taxpayer by tax authorities for three consecutive years, demonstrating a strong record of tax compliance. The deep rooting of an integrity culture relies not only on systems but also on the integrity management training for all employees (8,541 hours), in-person advanced courses for high-risk departments, and leadership by example from supervisors, gradually internalizing it into the organizational DNA. The implementation of the ISO 37001 Anti-Bribery Management System further establishes systematic anti-bribery control and oversight mechanisms in the three high-risk departments: procurement, sales, and R&D.

Regarding the operational effectiveness of the whistleblower and complaint mechanism, the company entrusts an independent third-party organization to operate the complaint platform, offering multiple channels such as phone, email, and web. It clearly stipulates protection principles of identity confidentiality and prohibition of retaliation, encouraging employees and external stakeholders to bravely report misconduct. All 3 complaint cases received in 2024 were investigated and handled according to standard procedures, with complete records maintained and reported to the Audit Committee. The company believes that a trusted and functional complaint mechanism is the most important last line of defense for ethical operations and a crucial source of feedback for continuous improvement in governance quality.

Shannung Foods' supply chain encompasses agricultural raw material suppliers, packaging material suppliers, and third-party logistics providers, with a total of 624 suppliers, including 342 core suppliers. This year, ESG baseline data filing was completed for all core suppliers. Based on three dimensions—procurement amount, item risk, and geographical location—the 342 suppliers were categorized into two risk levels: "High Concern" (118 suppliers) and "General Management" (224 suppliers). All 118 high-concern suppliers have undergone on-site audits (covering human rights, labor safety, and environmental aspects), identifying a total of 132 non-compliance items, all of which have submitted improvement plans and initiated tracking mechanisms.

Farmer partner management is at the core of Shannung Foods' supply chain. Currently, the company maintains long-term contract farming relationships with 332 farms across Taiwan, involving over 2,100 farmer households. Key crops procured include soybeans, sugarcane, corn, peanuts, and various fruits and vegetables. This year, the "Contract Farming Carbon Reduction Program" was launched, collaborating with 12 demonstration farms to introduce soil carbon sequestration monitoring systems and precision agriculture technologies, and subsidizing the purchase of energy-efficient agricultural machinery. The program aims to expand participation to 50 farms by the end of 2026, collectively reducing Scope 3 agricultural emissions by approximately 5,200 metric tons of CO₂e.

Regarding green procurement policy, the company has required all core suppliers to sign the "Supplier Sustainable Conduct Code" starting from 2026, which clearly stipulates minimum standards in four major areas: labor rights, environmental protection, anti-corruption, and business ethics. As of 2024, 287 suppliers (84%) have completed signing, with another 55 undergoing consultation and guidance procedures. The company also prioritizes the procurement of raw materials and packaging with eco-labels, energy-saving labels, or fair trade certifications. In 2024, green procurement amounted to NT$1.28 billion, accounting for 23.4% of total procurement.

In terms of supplier risk classification and management mechanisms, the company has established a systematic supplier lifecycle management process, covering four stages: new supplier onboarding evaluation, annual ESG assessment, on-site audit and guidance, and performance review. Among the 342 core suppliers, risk levels are differentiated based on three dimensions: procurement amount, item risk, and geographical location. Of these, 118 high-concern suppliers are required to undergo at least one on-site audit annually, while 224 general management suppliers are primarily assessed through self-assessment questionnaires combined with document review. This tiered management allows limited audit resources to focus on the highest-risk supply chain links, improving overall supply chain management efficiency.

In supply chain human rights due diligence, the company follows the frameworks of the OECD Guidelines for Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights. During the reporting period, ESG risk assessments were conducted for 342 core suppliers, covering 89% of the total procurement amount. The assessment covered human rights aspects such as forced labor, child labor, working hours and wages, occupational safety, and freedom of association. All 118 identified high-risk suppliers have completed on-site audits and are required to submit improvement plans within 12 months. This marks the first supply chain human rights due diligence report published by a Taiwanese food industry company under this international framework, demonstrating the company's forward-looking commitment to supply chain human rights issues.

In terms of audit findings and improvement tracking, in 2024, a total of 132 non-compliance items were identified during on-site audits of 118 high-concern suppliers, primarily concentrated in three categories: working hour records, fire and machinery safety protection, and waste management. For each non-compliance item, the company requires suppliers to propose corrective actions and timelines, with subsequent tracking and verification conducted by procurement and quality assurance personnel, forming a "audit-improvement-review" closed-loop management. For suppliers with lagging improvement progress or refusal to cooperate, the company has established a tiered handling mechanism, ranging from reducing procurement quotas to terminating cooperation, to ensure that the code requirements have substantive binding force.

In deepening farmer empowerment and upstream carbon reduction, the Contract Farming Carbon Reduction Program is not merely a procurement relationship but a partnership for capacity building. The company provides free technical consulting on soil carbon sequestration, precision fertilization systems, and subsidies for energy-efficient agricultural machinery, assisting 12 demonstration farms in reducing chemical fertilizer usage (average reduction of 15%) and agricultural machinery fuel consumption (approximately 8% reduction). Plans are in place to expand participation to 50 farms by 2026. The company is further exploring the establishment of a farmer carbon credit sharing mechanism, allowing carbon reduction achievements to translate into tangible income for farmers, embodying the "mutual benefit and co-prosperity" philosophy of supply chain sustainability.

Looking ahead, Shannung Foods will continue to deepen the breadth and depth of its supply chain sustainability management. In the short term, it will promote the signing of the "Supplier Sustainable Conduct Code" by all core suppliers starting from 2026 (currently 84%) and gradually extend ESG assessments to Tier 2 suppliers. In the medium to long term, plans include introducing a digitized supply chain carbon inventory system to establish a complete baseline and reduction roadmap for Scope 3 emissions, and increasing the proportion of green procurement. Through a three-pronged approach of upstream carbon reduction, human rights due diligence, and green procurement, the company is committed to building a sustainable supply chain that is resilient, transparent, and low-carbon.