Risk Management Organizational Framework

LITE-ON follows the existing organizational management system and internal control cycle and uses the most cost-effective methods to actively control and deal with the considerable risks in the process of operations.

Risk Management Cycle

Based on experience accumulated throughout its long history, the company has been able to develop a comprehensive risk management framework with job functions and areas of responsibility clearly segregated for risk identification purposes. Risks identified within the organization are classified into "External Risks," "Operational Risks," and "Information Disclosure Risks." Each risk is further assessed and assigned a severity level of high, medium, or low, and mapped onto a risk map for ease of identification. This enables the organization to take further steps to transfer, accept, mitigate, and avoid the identified risks. By executing the PDCA cycle (plan, do, check, and act) the company is able to improve its control over various risk factors and reduce the chances of risks occurring and the impact they might have.

"External Risks" refer to external factors such as slow sales, competition, loss of market demand, change in consumer preferences, changes in technologies, new competing products, international incidents, economic recession, mergers and acquisitions, change in foreign currency control, election outcomes, extortion, noise, pollution, natural disasters, etc.. "Operational Risks" refer to problems that are associated with the company itself, such as inability to deliver goods on time, defective goods, unresolved technical issues, high procurement costs, excess inventory, bad production design, plant malfunction, employee discipline, safety incidents, fire hazard, use of child labor, forced labor, loss of data, information errors, financial reporting mistakes, etc.. "Information Disclosure Risks." refer to risks associated with the disclosure of public information as part of the company's operations, such as pricing failure, leakage of commercial secrets, unreliable financial forecasts, frequent adjustment of financial forecasts, failure to prepare quarterly/annual financial statements on time, failure to disclose required information, correction of errors etc. By setting key performance indicators (KPI) within the organization, LITE-ON is able to assess whether key risks have emerged, and take necessary actions to transfer, accept, mitigate or avoid such risks. In order to minimize the possibility and degree of loss, the company adopts a risk management system that is even more pro-active than insurance. Meanwhile, LITE-ON is progressively implementing an "AAA Product Liability Control Project" as enhanced management over manufacturing and sales risk.

Emerging Risks Identified

We identified two important long-term (3-5 years+) emerging risks as having the most significant impact on the business in the future:

Risk Management Projects

In order to address external and operational risks of higher occurrence or impact, LITE-ON has implemented a risk management plan throughout all plant sites that focuses on "Raising Safety Awareness," "Protecting Critical Assets," and "Establishing Safety Systems and Rules." Apart from raising risk awareness within LITE-ON, the company has also executed a number of risk management projects that not only help identify dangers within various production centers, but also provides suggestions for future improvements. Through one project at a time, LITE-ON is able to accomplish the overall goal of its risk management, and build a foundation for sustainable operations.

Raising Safety Awareness

The Risk Management Department arranges regular training and seminars featuring the use of case studies to help employees learn from past mistakes, and hence raise their awareness towards safety and risk management.

Protecting Critical Assets

Each year, the company conducts infrared tests on electrical appliances used in plant sites, and performs random checks on their risk management practices to identify areas of weakness and ways of minimizing foreseeable risks. Meanwhile, logistics operations are also inspected regularly to reduce logistics risks. All products that LITE-ON offers to its customers undergo stringent internal quality control and are certified by third-parties who scrutinize everything the company does from product design, manufacturing to after-sale liabilities.

Establishing Safety Systems and Rules

LITE-ON has been establishing a risk control and checking system since 2009 that aims to grade each property by level of associated risk, and thereby facilitate future assessments and management. Through regular inspections and improvements, LITE-ON is able to optimize the risk profiles of its production sites, reducing the possibility of accidents and hence minimizing loss of workers, plant, equipment, raw materials, and operations.

The risk rating and audit system also helps reflect the risk status of various production sites. It reminds workers of the potential dangers present in the workplace, and allows quantifiable targets to be set and improved upon. In the short term, the system helps eliminate risks as soon as they are discovered; in the long run, it enables management to better plan its risk controls and implementation.

LITE-ON will be introducing new business continuity management to make sure that the company can resume operations rapidly and remain competitive when facing any disaster. At the current stage, the company is focused on developing a Business Continuity Plan (BCP) that achieves the following benefits:

• Ensure business recoverability and sustainability; reduce overall operational risks and maintain competitiveness.
• Provide assurances to customers and secure or even expand market share.
• Protect the company's reputation and shareholders' interests.
• Reduce costs of supply chain management and create industry service value.