TFC - Annual Report 2018 | FinancialReports.eu

Stock Code：1722 Printed on May 31, 2019

培元•固本•創新•永續

2018 Annual Report

http://mops.twse.com.tw http://www.taifer.com.tw

I. Company Spokesman:

	Spokesman	Deputy Spokesman
Name	Shihjih Lo	MeilingHuang
Title	DeputyGeneral Manager	Finance Director
Phone Number	(02)2542-2231#706	(02)2542-2231#628
E-mail	[email protected]	[email protected]

II. Address and Phone Number of General Administration and Each Plant:

General Administration Department:

Address: 6F, No. 88, Section 2, Nanjing East Road, Zhongshan District, Taipei City

(104) Phone: (02) 2542-2231 Fax: (02) 2563-4597 Keelung Plant: Address: 171 Zhonghua Road, Zhongshan District, Keelung City (203) Phone: (02) 2422-2151 Fax: (02) 2422-3414 Hualien Plant: Address: 15 Huadong, Hualien City, Hualien County (970) Phone: (038) 223181-6 Fax: (038) 221-854 Miaoli Plant: Address: No. 210 Fuanli, Miaoli City (360) Phone: (037) 260601-5 Fax: (037) 267-170 Taichung Plant: Address: No. 100, Section 2, Nanti Road, Wuqi District, Taichung City (435) Phone: (04) 2639-2358 Fax: (04) 2631-4295

III. Stock Transfer Agency:

Name: Stock Affairs Team, Taiwan Fertilizer Co., Ltd. Website: http://www.taifer.com.tw/ Address: 6F, No. 88, Section 2, Nanjing East Road, Zhongshan District, Taipei City (104) Phone: (02) 2542-2231 Fax: (02) 2531-7679

IV. CPAs Who Audited and Attested the Financial Statements of the Current Year:

Names: Zeng, Guoyang, Lin, Hengsheng CPA Firm: KPMG Taiwan Address: 68F, No. 7, Section 5, Xinyi Road, Xinyi District, Taipei City (110) Phone: (02) 8101-6666 Fax: (02) 8101-6667 Website: https://home.kpmg.com/tw/zh/home.html

V. Name of the Trading Venue for Overseas Securities Listed and the Way to Enquire About Overseas Securities Information: None
VI. Website of the Company: http://www.taifer.com.tw

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Table of Contents

Chapter	One: Report to Shareholders ........................................................................................ 1	One: Report to Shareholders ........................................................................................ 1
Chapter	Two: Company Profile ................................................................................................... 3
I.	Incorporation Date.................................................................................................... 3
II.	Company History...................................................................................................... 3
Chapter	Three: Corporate Governance Report ......................................................................... 7
I.	Organization System................................................................................................. 7
	(I)	Corporation Organization.......................................................................... 7
	(II)	Affairs in charge for each major department........................................... 8
II.	Information on Directors, Supervisors, President, Vice Presidents, and
	Management Team.................................................................................................. 11
	(I)	Director information.................................................................................. 11
	(II)	Information on the President, Vice Presidents and Management
		Team............................................................................................................ 18
III	Remuneration paid to directors, supervisors, president and vice presidents
	for the	recent years.................................................................................................. 20
	(I)	Remuneration for directors of the board (including independent
		directors) (Summary of ways for coordinative disclosure of names).... 20
	(II)	Remuneration for Supervisors (Summary of ways for coordinative
		disclosure of names)................................................................................... 23
	(III)	Remuneration for the President and Vice Presidents (Summary of
		ways for coordinative disclosure of names)............................................. 25
	(IV)	Names of Management Team for the Allotment of Employee
		Remuneration, and Allotment Conditions............................................... 27
	(V)	Comparison and explanation of percentage of the total
		remuneration for directors, supervisors, Presidents and Vice
		Presidents of this Company paid over the past two years by this
		Company and all companies in the consolidated financial
		statements in the net income of individuals or individual financial
		reports after tax, the policy of remuneration payment, the
		combination of standard varieties, procedure for remuneration
		decision, and the relevant between operation performance and
		future risks.................................................................................................. 27
IV.	Corporate Governance Conditions....................................................................... 28
	(I)	Operation of the Board of Directors........................................................ 28
	(II)	Operation of the Audit Committee or the Participation in the Board
		of Directors by Supervisors....................................................................... 32
	(III)	Conditions for Corporate Governance and Operation and
		Difference and Causes of Governance Practice Rules on Listed
		Companies.................................................................................................. 35
	(IV)	The Company should disclose the composition, function, and
		operation circumstances of compensation committee, if any................. 43
	(V)	Performance of Social Responsibilities.................................................... 46
	(VI)	Conditions for performing good faith management and
		measurement by the Company................................................................. 54
	(VII)	Disclosure of Inquiry Ways in Case of any Formulation of
		Corporate Governance Rules and Relevant Regulations by the
		Company..................................................................................................... 59
	(VIII)	Other Important Information Enough to Enhance the

Table of Contents

		Understanding of the Operation of Corporate Governance.................. 59
	(IX)	Status of the Execution of the Internal Control System......................... 60
	(X)	Punishment to the Company and its Personnel by Law and
		Punishment to its Personnel in Breach of Internal Control Systems
		by the Company as well as Major Shortcomings and Improvements
		over the Recent Years and up to the Date of Publication of Annual
		Reports........................................................................................................ 61
	(XI)	Important resolutions at the shareholders’ and board of directors
		meetings in the most recent year and as of the date on which the
		annual report was printed......................................................................... 61
	(XII)	Major Contents of Different Opinions of Directors or Supervisors
		on Important Resolutions with Records or Written Statements as
		Adopted by the Board of Directors over the Recent Years and up to
		the Date of the Publication of Annual Reports....................................... 64
	(XIII)	Summary of conditions for resignation and dismissal of the
		chairman, President, accounting supervisors, financial supervisors,
		internal audit supervisors and research and development
		supervisors of the Company for the recent years and up to the date
		of publication of the annual report.......................................................... 64
V.	Information on CPA Professional Fees................................................................. 64
	(I)	Information of Professional Fees to CPA By Fee Range........................ 64
	(II)	When non-audit fees paid to the certified public accountant, to the
		accounting firm of the certified public accountant, and/or to any
		affiliated enterprise of such accounting firm are one quarter or
		more of the audit fees paid thereto, the amounts of both audit and
		non-audit fees as well as details of non-audit services shall be
		disclosed...................................................................................................... 65
	(III)	When the company changes its accounting firm and the audit fees
		paid for the fiscal year in which such change took place are lower
		than those for the previous fiscal year, the amounts of the audit fees
		before and after the change and the reasons shall be disclosed............. 65
	(IV)	When the audit fees paid for the current fiscal year are lower than
		those for the previous fiscal year by 15 percent or more, the
		reduction in the amount of audit fees, reduction percentage, and
		reason(s) therefor shall be disclosed......................................................... 65
VI.	Information on replacement of certified public accountant............................... 65
VII.	Where	the company's chairperson, general manager, or any managerial
	officer in charge of finance or accounting matters has in the most recent
	year held a position at the accounting firm of its certified public accountant
	or at an affiliated enterprise of such accounting firm......................................... 65
VIII.Any transfer of equity interests and/or pledge of or change in equity interests
	(during the most recent fiscal year or during the current fiscal year up to
	the date of printing of the annual report) by a director, supervisor,
	managerial officer, or shareholder with a stake of more than 10 percent
	during	the most recent fiscal year or during the current fiscal year up to
	the date of printing of the annual report.............................................................. 66
	(I)	Information on transfer of shares............................................................ 66
	(II)	Information on pledge of equity interests................................................ 66
IX.	Top 10	shareholders who are close associates, spouses, or relatives witin two
	degrees of consanguinity......................................................................................... 67
X.	Percentage number of shares and consolidate percentage of the company,
	directors, supervisor, managers and the businesses that are controlled by

Table of Contents

	the company directly or indirectly on the invested company............................. 68	the company directly or indirectly on the invested company............................. 68
Chapter	Four: Capital Overview ............................................................................................... 69
I.	Capital and Shares.................................................................................................. 69
	(I)	Source of Capital Stock............................................................................. 69
	(II)	Structure of Shareholders......................................................................... 69
	(III)	Shareholding Distribution Status............................................................. 70
	(IV)	List of Major Shareholders....................................................................... 70
	(V)	Market Price, Net Value, Earnings, Dividends Per Share of the
		Latest Two Fiscal Years, and Related Information................................. 71
	(VI)	Dividend Policy and Implementation....................................................... 72
	(VII)	Effect of the uncompensated rationed shares deliberated at this
		meeting of shareholders on the Company’s business performance
		and earnings per share.............................................................................. 72
	(VIII)	Remuneration for Employees and Directors........................................... 72
	(IX)	Buyback of the Shares of the Company................................................... 74
II.	Corporate Bonds..................................................................................................... 74
III.	Preferred Stocks...................................................................................................... 74
IV.	Overseas Depositary Receipts................................................................................ 74
V.	Employee Stock Options......................................................................................... 74
VI.	Status of New Shares Issuance in Connection with Mergers and
	Acquisitions............................................................................................................. 74
VII.	Financing Plans and Implementation................................................................... 74
Chapter	Five: Operation Highlights ......................................................................................... 75
I.	Business Content..................................................................................................... 75
	(I)	Scope of Business....................................................................................... 75
	(II)	Industry Overview..................................................................................... 76
	(III)	Technology and R&D overview................................................................ 81
	(IV)	Development plan of medium and long-term and short-term
		business....................................................................................................... 87
II.	Overview of market and production & sales........................................................ 90
	(I)	Market analysis.......................................................................................... 90
	(II)	Important use and manufacture process of main products................. 102
	(III)	Supply conditions of main raw materials.............................................. 104
	(IV)	In the following table, the names of clients whose purchase (selling)
		amount is 10% or more than 10% of total amount in either year of
		last two years, list of main purchase or selling clients and purchase
		(selling) amount, proportion are listed. Besides, the reason for
		increase or decrease is illustrated........................................................... 105
	(V)	List of yield for last two years................................................................. 106
	(VI)	List of sales volume for last two years.................................................... 107
III.	Employees.............................................................................................................. 108
	(I)	Data of employees for last two years till latest annual press................ 108
	(II)	Productivity of employees....................................................................... 108
IV.	Distributed information of environmental protection....................................... 109
	(I)	Loss and punishment for environmental pollution............................... 109
	(II)	Countermeasures and potential distribution in the future.................. 110
V.	Labor-capital relationship.................................................................................... 110
	(I)	Important labor-capital agreements...................................................... 110
	(II)	Employees’ actions or moral principles................................................. 112
	(III)	Employees’ further education and training........................................... 113
	(IV)	Labor-capital dispute and loss................................................................ 113

Table of Contents

VI.	Important contracts.............................................................................................. 113
	(I) Supply and marketing contract.............................................................. 113
	(II) Cooperative contract............................................................................... 113
	(III) Project and other contracts..................................................................... 116
	(IV) Contract for Land Development............................................................ 117
Chapter Six: Financial Summary ............................................................................................. 119
I.	The Condensed Balance Sheets and Comprehensive Income Statements for
	the recent five years and Certified public accountants and audit opinions..... 119
	(I) Information on brief financial statements and comprehensive profit
	and loss statements.................................................................................. 119
	(II) Certified public accountants and audit opinions.................................. 123
II.	Financial Analysis over the Recent Five Years................................................... 124
III.	Audit Committee Review Report for the Current Year.................................... 129
IV.	Current Year Consolidated Financial Statement............................................... 130
V.	The most recent annual individual financial report.......................................... 219
Chapter Seven: Financial Status, Review and Analysis of Financial Performance and
Risks	................................................................................................................................... 304
I.	Financial Status..................................................................................................... 304
II.	Financial Performance......................................................................................... 305
III.	Cash Flow.............................................................................................................. 306
IV.	Impact to the Financial Business by the Significant Capital Expenditures in
	the Previous Year................................................................................................... 306
V.	Re-investment Overview...................................................................................... 308
VI.	Risk Management Organization.......................................................................... 310
VII.	Risk Assessment.................................................................................................. 313
	(I) Impact of Interest Rate Change, Exchange Rate Change, and
	Inflation on the Company’s Profit and Loss and the
	Countermeasures in the Future.............................................................. 313
	(II) Policy on High Risk, High Leverage Investment, Capital Lending
	and Others, Endorsement of Guarantee and Derivative Products
	Trading, and Main Reasons for Profit or Loss and
	Countermeasures in the Future.............................................................. 313
	(III) Future R&D Plan and Estimate of R&D Expenses.............................. 313
	(IV) Impact of Important Policies and Legal Changes at Home and
	Abroad on the Company's Financial Business and Response
	Countermeasures..................................................................................... 315
	(V) Impact of Technological Changes and Industrial Changes to the
	Company’s Financial Business and the Countermeasures.................. 316
	(VI) Impact of Corporate Image Change on Corporate Crisis
	Management and the Countermeasures................................................ 317
	(VII) Expected Benefits, Possible Risks, and Countermeasures of
	Mergers and Acquisitions........................................................................ 317
	(VIII) Expected Benefits, Possible Risks, and Countermeasures of
	Expansion of Plants................................................................................. 317
	(IX) Risks of Purchases or Sales Concentration and Countermeasures..... 318
	(X) Impact of Significant Equity Transfer of Directors, Supervisors, or
	Major Shareholders Holding More than 10% of the Shares of the
	Company, the Risks, and the Countermeasures................................... 319
	(XI) Impact of Changes in Operating Rights of the Company, the Risks,
	and the Countermeasures....................................................................... 319
	(XII) Litigation or Non-litigation Events........................................................ 319

Table of Contents

	(XIII) Other Important Risks and Countermeasures..................................... 323
VIII.	Other Important Matters..................................................................................... 324
Chapter Eight: Special Records ............................................................................................... 325
I.	Affiliate Information............................................................................................. 325
	(I) Consolidated revenue report of affiliates............................................... 325
	(II) Consolidated Financial Statements of Affiliates. .................................. 330
	(III) Affilation Report...................................................................................... 331
II.	Private placements of securities in the most recent year and as of the
	printing date of the annual report....................................................................... 331
III.	Shares of the Company that are held or disposed by a subsidiary in the
	most recent year and as of the printing date of the annual report................... 331
IV.	Other necessary descriptions............................................................................... 331
Chapter Nine: Events of significant influence on shareholders equity or stock price
under	Subparagraph 2, Paragraph 2 in Article 36 of the Securities and Exchange
Act ...................................................................................................................................... 332

Report to Shareholders

Chapter One: Report to Shareholders

Overview of operations in 2018:

2018 was a fruitful year for TFC in which we enjoyed stable growth in our revenue and profit when compared to past years. The consistent increase of our sales proportion in niche fertilizer products, the completion and leasing of the Hsinchu Office Building, property activation, and the stable profit reinvesting businesses have all resulted in the consistent increase of our performance and set a sound cornerstone for the future sustainable development of TFC.

Versatile profits and a friendly environment are the business direction of TFC. In addition to our products in fertilizer chemical engineering, TFC has achieved initial progress on its development of niche electronic chemical products and specialty chemicals, which is estimated will enjoy sound growth in the future. TFC has used the special features of deep ocean water to develop a shrimp and algae breeding industry on its own, and developed the Hualien Deep Ocean Water Industry Park in combination with government resources to enhance the asset usage rate and increase our profit. As for real estate and investment businesses, in addition to the construction and leasing of current office buildings and hotels, it has conducted prudent evaluation on overseas investment opportunities in India and Indonesia with the hope of increasing TFC’s stable profit sources. Regarding the R&D of organic and biotechnological materials, TFC has invested in the development of transforming pig farm biogas residue into organic fertilizer and the development of straw decomposing bacteria products. In addition to promoting the agricultural circular economy, TFC has also contributed efforts to environmental protection.

TFC was selected to the FTSE4Good TIP Taiwan ESG Index in 2018. We have received domestic and international recognition for our business performance, corporate governance, and CSR from professional and independent investment agencies. Moreover, through the “2018 TFC Scholarship Awarding Ceremony and Agriculture Forum”, in addition to awarding outstanding and diligent students, TFC also encourages students to dedicate themselves to practical agricultural business and management with what they have learned and contribute their efforts to society.

The actual production of fertilizer products in 2018 was 635,436 metric tons, which was 5.73% lower than the one in the year 2017; chemical products were 165,974 metric tons, with an increase of 4.69% compared with 2017. The actual sale of fertilizer products was 741,174 metric tons, which was 2.42% lower than the one in the year 2017; chemical products were 216,750 metric tons, compared to 2017 increased by 6.43%.

In terms of revenue and profit, according to the consolidated financial statements, the operating revenue for 2018 was NT$12,215,092,000 dollars, which was 4.77% more than the operating revenue of NT$11,658,986,000 in 2017, while the net operating income was NT$1,286,502,000 dollars, with an increase of 4.77% compared with 2017. Non-operating net income was NT$1,663,118,000 dollars, with an increase of 174.39% compared with 2017. Net income was NT$2,281,319,000 dollars, with an increase of 40.90% compared with 2017.

In terms of financial structure, according to the consolidated financial statements, the company's financial structure is sound. As of December 31, 2018, the total assets amounted to NT$76,399,717,000 dollars with liabilities NT$25,616,771,000 dollars debt ratio 33.53%, and equity is NT$50,782,946,000 dollars. The net value per share was NT$51.82 dollars.

Summary of operating plan in 2019:

The global economy has been affected by regional political disputes and US-China trade friction, resulting in uncertainty in global economic growth, thus influencing the domestic economy, and it is predicted that the export volume will be affected. However, an increasing trend can be seen in investment and domestic demand. According to the estimation of the Directorate General of Budget, Accounting, and Statistics, the economic growth of 2019 will be 2.27%, which will be slightly slower than the 2.63% growth of 2018.

Report to Shareholders

As for our main business of fertilizer chemical engineering, TFC will continue to increase the production and sales volume of niche products and develop friendly agricultural concepts in pursuit of improving our main business. TFC has carried out the sit building project at the Taichung Harbor West Dock 10 to expand fertilizer export markets. We have also developed a new environmentally friendly azuki bean plant drying processor to maintain an ecological sustainable environment. We have also developed Cyclopentanone manufacturing technology development and an electron-level Arginine production line construction project to enhance the profit of electronic chemical products.

Regarding TFC’s real estate business, with the principles of stable profit and sustainable business, TFC has selected to develop office buildings, hotels, and residences according to the condition of land with self-construct-self-manage, co-construct, and leasing methods. Currently, TFC is carrying out development projects such as the hotel and office building construction project in the Nangang District, Taipei, the operation and construction designing project in the Scientific Park Area of Hsinchu City, and the overall land development designing project in the special trade zone of Kaohsiung City.

Summary of future business development strategies:

Looking into the future, facing rapid changes in domestic and international industrial and economic environmental circumstances, TFC will continue to uphold the business concepts of development, consolidation, innovation, and sustainability to carry out transformation and upgrade. With profit growth, competition improvement, and sustainable business as our consistent strategic goal, TFC will focus on the two main businesses of “fertilizer chemical engineering” and “real estate investment” to achieve TFC’s goals and achieve sustainable business and development. Thanks to all shareholders for your support and encouragement for the company.

We wish you perfect health and happiness

Chairman: Hsinhong Kang

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Company Profile

Chapter Two: Company Profile

I. Incorporation Date:

May 1, 1946

II. Company History:

Taiwan Fertilizer Company (TFC) established on May 1st, 1946, was originally a state-owned enterprise. In the period when it operated as a state-owned enterprise to cooperate with the agricultural policy of the government, it mainly produced fertilizer products for domestic market. With the operation and development of more than 73 years, it has been a largest modern fertilizer manufacturer in Taiwan and ensures the sufficient supply of all the fertilizers necessary for the agricultural development on every stage. It has made a great contribution to the development of the agricultural economy of Taiwan. Under the policy of transforming state-owned enterprises into non-governmental ones actively promoted by the government, it was privatized on September 1st, 1999, and is now a listed private corporation.

TFC, as the largest fertilizer manufacturer in Taiwan, annually supplies about 600,000 tons of products, accounting for above 70% of the total demand of Taiwan. TFC produces products such as ammonium sulphate, SSP, NPK fertilizer, organic fertilizer and so on and also imports urea, potassium chloride, calcium ammonium nitrate for direct sale. In addition, it produces and imports chemical products and electronic chemicals for the markets domestically and abroad. After its privatization, in order to cope with the changes in the internal and external circumstances, work with the industry development trend, promote diverse operation, besides the operation of fine fertilizers and chemicals, it has actively explored such businesses as deep ocean water, real estate development, biotechnology, healthcare products and leisure business, etc.

Looking into 2019, facing the rapid change on domestic and oversea industrial economic environment, TFC will continue to uphold its management ideas of building for the future, consolidating its foundation, being innovative, and pursuing sustainability in order to carry out the structural transition and upgrading of the enterprise. It will also continue to regard growing profit, optimized competition and sustainable development as its strategic targets and stipulate a development blueprint that includes the two major businesses of “fertilizer chemical engineering” and “real estate investment”. TFC expects that with the methods of versatile business development and versatile management, it can achieve the enterprise’s goal of sustainable management and development.

The history of the major developments of TFC until now are outlined as follows:

May 1946 Incorporated jointly by the former Resources Commission and Taiwan Provincial Government; Dec. 1979 Authorized by Taiwan Provincial Government, TFC entered into an agreement with Saudi Arabis to establish Al-Jubail in the Kingdom of Saudi Arabia; May 1989 The land in the Nangang Plant Area of TFC was ordered to be laid out for Nangang Economic and Trading Park; Mar. 1995 The Executive Yuan passed the privatization of TFC; Mar. 1998 Had the first release of stocks after privatization; with public placement by means of drawing lots, released 24.93% public stocks and smoothly completed listing; Jul. 1998 In order to work with the overall planning and development of Nangang Economic and Trading Park of the government, Nangang Plant was formally closed;

Company Profile

Sept. 1999	Formally transformed into a private company;
Feb. 2002	Via Hsinchu Plant, worked with Hsinchu Municipal Government for the planning and
	development of Hsinchu Science and Commerce New Metropolis Center Special Zone Program;
Nov. 2004	Via Hualien Plant, participated in the feasibility study report and Phase I investment plan of Deep
	Ocean Water Science and Technology Park;
Jan. 2005	Ministry of Economy released 200 million shares of TFC through after-hour auction and thus the
	shareholding ratio decreased to 24.07%;
Mar. 2005	The shares held by the government shifted to be managed by Ministry of Finance;
May 2005	The shares held by the government shifted to be managed by Commission of Agriculture (COA);
Oct. 2005	Passed the resolution for the Plan of All Plants of TFC Relocated to Taichung Port ;
Nov. 2005	The deep ocean water Phase 1 water taking facilities project of TFC in Hualien commenced;
Dec. 2005	In accordance with the regulations of Taipei Municipal Government regarding urban renewal,
	R13 land was invested in with the adjacent lands for the construction of congregate housing;
May 2006	By means of setting 50-year surface right, the land lots C6/C7/C8/C9 of TFC in Nangang
	Economic and Trading Park were to be developed by entrepreneurs; through public tender,
	Chinatrust Commercial Bank won the bid;
Aug. 2006	Signed the cooperative investment contract with Brand Food Company to establish Taiwan Deep
	Ocean Water Co., Ltd and jointly ran the business of deep ocean water producing and selling
	packed drinkable water/drink, etc.;
Sept. 2006	Taiwan Deep Ocean Water Company in which TFC and Brand Food Company respectively held
	50% shares held the initiator meeting, had initial capital NT$650 million dollars and completed
	the incorporation registration;
May 2007	The water taking engineering of TFC for deep ocean water completed the pipeline arrangement
	and the depth was -662m;
May 2007	The fish scale collagen protein workshop of TFC was put into operation formally;
Nov. 2007	Established TFC Foundation formally;
Nov. 2007	The miss SHARK cosmetics of TFC were formally launched;
Jun. 2009	In order to take social responsibilities, the general meeting of shareholders passed the resolution
	that TFC donated $50 million for the Ministry of Agriculture of Saudi Arab to establish an
	agricultural center;
Sept. 2009	Chairman of TFC, and Mr. Al-Sheaibi, executive vice president of the Fertilizer Department of
	SABIC, jointly signed on the resolution of shareholders of Al-Jubail Fertilizer Company on the
	amendment to the articles of association of Al-Jubail Fertilizer Company, changing the existence
	of Al-Jubail Fertilizer Company from 33 years into 53 years;
May 2010	Invested NT$1.41 billion dollars in the land for Hsinchu Plant of TFC for the development of
	Hsinchu Science and Business Park Phase 1;
Jan. 2011	Invested in and established Hsuchang Chemical Technology Company in Kunshan of Mainland
	China;
Nov. 2011	Invested NT$100 million dollars to establish TFC Biotech Products Marketing Subsidiary in
	which TFC held 100% shares;
Dec. 2011	Established the Salary and Remuneration Committee;
Dec. 2012	Acquisition of 50% shares of Taiwan Deep Ocean Water Co., Ltd held by Brand Food Co., Ltd;
Jul. 2013	Taichung plant was formally launched;
Dec. 2013	Passed the “lease for leisure tourist hotel in Nangang Economic and Trading Park Land Lot C2”
	and signed “agreement on cooperative planning” with awarded companies “Grand Hi-Lai Hotel”
	and “Caesar Park Hotel”;
Feb. 2015	Passed the bidding scheme of Nangang C2 Office Building;
Feb. 2015	Invested and established the TAIFER (CAMBODIA) CO., LTD. in Cambodia;
Apr. 2015	The “Sea mineral 1400” produced by our invested enterprise “Taiwan Yes Deep Ocean Water Co.,

Company Profile

	Ltd.” Has obtained the healthy food certification from Ministry of Health and Welfare;
Jun. 2015	Passed the resolution in the Shareholders’ Meeting in 2015 that two independent directors added
	to the board;
Aug. 2015	ChinaTrust Life Insurance Co., Ltd. and Taiwan Life Insurance Co., Ltd. jointly won the bid of
	Nangang C3 superficies case;
Sept. 2015	C3 superficies case signing ceremony with ChinaTrust Life Insurance Co., Ltd. and Taiwan Life
	Insurance Co., Ltd.;
Dec. 2015	Ground breaking ceremony of Nangang C2 office building and tourism hotel;
Dec. 2015	First publication of 2014 CSR report;
Jan. 2016	Roof beam setting ceremony of Hsinchu D7-A office building;
Feb. 2016	The launch of a new product “＃43” HeyWon “Nitrophosphate Organic Compound Fertilizer
	(Humus)”;
May 2016	The completion of the inspection of greenhouse gas in all plants;
Aug. 2016	The undergoing of the procedure for the dissolution of Hsuchang Chemical Technology Co.
	invested by the Company;
Aug. 2016	The rename of “Taiwan Fertilizer Biotechnology Co., Ltd.”, a subsidiary of Taiwan Fertilizer Co.,
	to “Taiwan International Agricultural Development Co., Ltd.”;
Oct. 2016	The pass of the resolution by the Board of Directors about the investment of NT$2.367 billion
	dollars on the “Construction of Taichung Harbor West Dock 10” project;
Nov. 2016	The pass of the resolution by the Board of Directors about the investment of NT$80 million
	dollars on “Taiwan International Agricultural Development Co., Ltd.” by the Company;
Nov. 2016	The launch of a new product “＃4” HeyWon “Nitrophosphate Organic Compound Fertilizer
	(Humus)”;
Nov. 2016	Won the “Newcomer’s Award” in 2016 TCSA;
Dec. 2016	Exported “＃1” HeyWon “Nitrophosphate Organic Compound Fertilizer (Humus)” and “＃4”
	HeyWon “Nitrophosphate Organic Compound Fertilizer (Humus)” to Malaysia for further
	distribution;
Mar. 2017	Exported “＃43” HeyWon “Nitrophosphate Organic Compound Fertilizer (Humus)” to Malaysia
	for demonstration farm and trial distribution operations;
May 2017	Released the new product of “＃42 Biotec Organic Compound Fertilizer” to replace the
	compound fertilizer market of the original “＃142 Biotec Organic Compound Fertilizer” and “＃
	1 Instant Water Soluble Fertilizer”;
May 2017	To promote organic materials and fertilizers, TFC cooperated with Lujing Complex Agricultural
	Garden at Xihu, Miaoli to establish an organic demonstration farm;
May 2017	The Taichung Harbor West Dock 10 investment project of TFC established the new subsidiary
	enterprise of Peifeng Technological Co., Ltd.;
Jun. 2017	Founded the first distribution center at Hualien;
Jun. 2017	In coordination with government policies, the fertilizers of TFC achieved the goal of
	comprehensive “Biotec-lization”;
Aug. 2017	The Hsinchu TFC ONE business building of TFC completed;
Aug. 2017	To solve the PM 2.5 problems due to burning rice straws, TFC released “＃10 Biotec Organic
	Fertilizer” and “＃12 Biotec Organic Fertilizer”;
Oct. 2017	The board of directors passed the Nangang C4 land development project;
Nov. 2017	TFC won the “TOP 50 Corporate Sustainability Report Awards – Golden Award for Traditional
	Enterprises” and “Social Integration Award” of 2017 TCSA;
Dec. 2017	Premier Lai Ching-te inspected Hualien Deep Sea Water Park and instructed 3 “100%” policy
	goals;
Dec. 2017	TFC announced the ”Nongyo Biotech 10 Organic Fertilizer” and “Nongyo Biotech 12 Organic
	Fertilizer”;

Company Profile

Feb. 2018 TFC’s micro-movie won the “Best Original Script Award” at the 2018 Taipei Golden Eagle Micro-movie Festival; Jul. 2018 The 1st Audit Commission of TFC was founded; Aug. 2018 TFC signed an agreement with National Chengong University on the industry-academic cooperation project of Hualien Deep Sea Water Park; Oct. 2018 President Tsai Ing-wen visited Hualien Deep Sea Water Park and planned assisting the central government in founding the National Marine Resource Museum; Nov. 2018 TFC won the “Platinum Award for Top 50 Corporate Sustainability Report”; Dec. 2018 TFC was selected as FTSE4Good; Dec. 2018 TFC made biotech organic fertilizer the primary goal of its overseas investment; Dec. 2018 The pass of the resolution by the Board of Directors about the investment of NT$60 million dollars on “Taiwan Agriculture Investment and Development co. LTD” by the Company; Feb. 2019 The market value of TFC once again became one of the top 100 enterprises of Taiwan;

Corporate Governance Report

Chapter Three: Corporate Governance Report

I. Organization System

(I) Corporation Organization

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General Meeting of
Shareholders
Board of Directors
Audit Committee
Remuneration
Chairman
Audit Office Office of Board of Directors
President
Vice President
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Keelung Plant Hualien Plant Miaoli Plant Taichung Plan Safety and Health Center Production Dept R&D Dept. Marketing Dept Trading Dept Investment Dept. Property Management Dept. Real Estate Development Dept Enterprise Planning Dept. Information Dept. Financial Dept Administrative Dept.
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Corporate Governance Report

(II) Affairs in charge for each major department

(II) Affairs	in charge for each major department
Name	Duties
R&D Dept.	1. Evaluation and introduction of new products and new technology.
	2. R&D of new products and technology and related business.
	3. Improvement of existing products and technology.
	4. Intellectual property management.
	5. Other relevant R&D and related business.
Trading Dept.	1. Purchase and supply of the domestic and foreign raw materials.
	2. Dispatching and inventory control of raw materials.
	3. Storage and transportation management of products and materials and treatment of dull and waste materials.
	4. Planning and execution of unloading and storage services.
	5. Work and labor bidding.
	6. Import & export and marketing and planning management of the bio-tech chemical products.
	7. Other relevant purchase and marketing of bio-tech chemical products.
Marketing Dept.	1. To market, import, export, plan and manage various fertilizers.
	2. To handle customer complaints regarding fertilizer products and bio-tech chemical products.
	3. To compile information regarding business conditions in fertilizer and bio-tech chemical products markets.
	4. To demonstrate and promote ideas of safe agriculture and fertilizer domestically and overseas.
	5. Other business about the promotions of fertilizers and bio-tech chemical products.
Investment Dept.	1. To seek for, assess, select and study investment opportunities.
	2. To research and execute domestic and overseas investment, cooperation, share participation, merger, venture capital, etc.
	3. To research and execute the technology introduction or cooperation and technical investment.
	4. To research and execute the investment business and its feasibility.
	5. To trace and review investment and reinvestment performance.
	6. To deal with other investment related businesses.
Real Estate Development Dept.	1. Planning, design, and construction of buildings, landscaping, and interior decorations on company land
	2. Environmental impact assessment and deliberation of urban design.
	3. Study and preparation of the construction demand of the development case, project budget, structural system and equipment system.
	4. Acquisition of all development permissions.
	5. Preparation of the project bidding price, construction specification and construction, supervision and completion acceptance.
	6. Warranty and repairing after the completion of the project.
	7. Planning of real estate construction and relevant engineering business.
Property Management Dep	1. Formulation and management of land development strategies, annual plans, and project development plans.
	2. Organization of various services including urban planning changes and joint construction.
	3. Assessment of real estate development planning.
	4. Real estate management and operations, urban land consolidation, and urban updates.
	5. Activation, maintenance, and management of real estate assets.

Corporate Governance Report

Name	Duties
	6. Purchase, sale, and sales services for real estate assets.
	7. Business recruitment and logistics management for real estate assets.
	8. Appropriation and disposition of real estate assets.
	9. Other services pertaining to real estate development, planning, management, maintenance, and business recruitment.
Enterprise Planning Dept.	1. To research and execute operation policy, operation strategy, mid-term and long-term project plan and annual operation plan.
	2. To plan and carry forward operation and management systems; manage and evaluate operation performance.
	3. To trace and evaluate operation meeting minutes, resolutions and project affairs.
	4. To deal with authorization by levels and compile rules and regulations.
	5. To deal with other matters in relation to enterprise planning.
Information Dept.	1. To deal with the business of information system.
	2. To deal with information network.
	3. To deal with the other relevant business.
Financial Dept.	1. To develop service plan, and to dispatch and control funds.
	2. To research and develop financial strategies and conduct financial analysis and prediction.
	3. To plan and execute financial and wealth management matters.
	4. To research and develop accounting system.
	5. To conduct budget and final settlement and control cost and expense.
	6. Business related to investor relationship (IR).
	7. To deal with other matters in relation to finance, accounting and statistics.
Administrative Dept.	1. To plan and execute the HR system, plan and execute organization and HR matters.
	2. To deal with labor and capital relationship.
	3. To manage instruments and transact general affairs.
	4. To distribute and keep cash, securities, notes and deeds.
	5. To compile publications.
	6. To deal with other matters out of the duties of the other departments and offices.
Office of Board of Directors	1. Relevant administrative affairs of the Board.
	2. Preparation of annual report and the minutes of shareholders’ meeting.
	3. Preparation of CSR report and the publications of the Company.
	4. Promotion of corporate social responsibility as well as integrity policies.
	5. To deal with stock matters.
Audit Office	To master and manage internal control and internal audit matters.
Production Dept.	1. Planning, integrating and managing production plans.
	2. Managing production technology, quality and efficiency, and promoting the maintenance system of production equipment.
	3. Planning, integrating and managing construction plans and capital expenses.
	4. Managing fixed and idle assets other than land.
	5. Evaluating and introducing production technology.
	6. Improving production efficiency for saving energy.
	7. Managing intellectual property rights related to production technology.
	8. Other related business regarding the production management and technology development.
Safety and Health Center	1. Drawing up safety and health policies, goals, and rules and regulations.
	2. Implementing and supervising safety and health related laws and regulations.

Corporate Governance Report

Name	Duties
	3. Promoting and implementing safety and health plans.
	4. Auditing and assisting the safety and health business of each plant and subsidiary.
	5. Investigating, analyzing, improving and handling safety events.
	6. Managing and promoting health of employees; safety health education and training for employees.
	7. Counseling and providing information of safety health related business.
	8. Other business related to environment, safety and health.
Production Plants	Manufacturing and production management.

Corporate Governance Report

II. Information on Directors, Supervisors, President, Vice Presidents, and Management Team

(I) Director information

Director information (One)

(I)	Director information	Director information	Director information	Director information	Director information	Director information	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)	Director information (One)
																	May 1, 2019
Title	Nationality	Name	Gender	Election (Accession) Date	Terms	Date First Elected	Shareholding When Elected		Current Shareholding		Shareholding When Elected		Current Shareholding		Experience (Education)	Other Positions in TFC and/or Other Companies	Other executives or directors who are related as spouses or within the second degree of consanguinity
							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relations
Chairman	R.O.C	COA		2018.7.1	3yrs	2005.5.20	235,886,376	24.07	235,886,376	24.07	0	0	0	0			-	-	-
	R.O.C	Representative: Hsinhong Kang	Male	2018.7.1	3yrs	2016.11.24	0	0	0	0	0	0	0	0	PhD in Economics, University of California - Santa Barbara President of Graduate School of Business Administration, Chairman of Dept. of Business Administration, National Cheng KungUniversity	Director of the Board, Jubail Fertilizer Company Chairman of Taizhuang Assets Management & Development Co., Ltd	-	-	-
Director	R.O.C	COA		2018.7.1	3yrs	2005.5.20	235,886,376	24.07	235,886,376	24.07	0	0	0	0			-	-	-
	R.O.C	Representative： Junnejih Chen	Male	2019.3.28	3yrs	2019.3.28	0	0	0	0	5,000	0	0	0	PhD degree in Agronomy from National Chung Hsing University Director-General, Taiwan Agricultural Research Institute, Council of Agriculture, Executive Yuan	Deputy Minister, Council of Agriculture, Executive Yuan	-	-	-
Director	R.O.C	COA		2018.7.1	3yrs	2005.5.20	235,886,376	24.07	235,886,376	24.07	0	0	0	0			-	-	-

Corporate Governance Report

Title	Nationality	Name	Gender	Election (Accession) Date	Terms	Date First Elected	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Experience (Education)	Other Positions in TFC and/or Other Companies	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity
							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relations
	R.O.C	Representative： Shihchi Lin	Male	2018.7.1	3yrs	2018.7.1	0	0	0	0	0	0	0	0	Public Administration Department, National Chung Hsing Uuniversity Director-General, Secretariat, Yilan County Government Director-General, Social Affairs Department, Yilan County	Executive Officer of the Office of the Minister of the Council of Agriculture, Executive yuan	-	-	-
Chairman	R.O.C	COA	Male	2018.7.1	3yrs	2005.5.20	235,886,376	24.07	235,886,376	24.07	0	0	0	0			-	-	-
	R.O.C	Representative： Chaofeng Li		2018.7.1	3yrs	2005.5.20	0	0	0	0	0	0	0	0	PhD, School of Humanities and Social Sciences, Tsinghua University in Beijing Chairman, Sunnet Inc. Chairman, Chung Ying Consuling Inc.	Chairman, Sunnet Inc. Chairman, Chung Ying Consuling Inc.	-	-	-
Director	R.O.C	COA		2018.7.1	3yrs	2017.5.12	235,886,376	24.07	235,886,376	24.07	0	0	0	0			-	-	-
	R.O.C	Representative: Tsaihsing Liu	Male	2018.7.1	3yrs	2005.5.20	0	0	0	0	0	0	0	0	Master’s degree in Industrial Planning from Chinese Culture University Director (manager) of the Central and Northern District Offices of Taiwan Fertilizer Sales Department	Director of the Agricultural Extension Division of the Taiwan Fertilizer Sales Department Taiwan Fertilizer Corporate Union Director	-	-	-

Corporate Governance Report

Title	Nationality	Name	Gender	Election (Accession) Date	Terms	Date First Elected	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Experience (Education)	Other Positions in TFC and/or Other Companies	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity
							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relations
Director	R.O.C	Yawkuang Chen	Male	2018.7.1	3年	2018.7.1	100,000	0.01	100,000	0.01	0	0	0	0	PhD degree from Stevens Institute of Technology Associate Professor at the Architectural Engineering Department of National Cheng Kung University Project Manager at Swanke Hayden Connell Architects, New York	Adjunct Associate Professor at the Architectural Engineering Department of National Cheng Kung University	-	-	-
Independent Director	R.O.C	Horngchang Lin	Male	2018.7.1	3年	2018.7.1	0	0	0	0	0	0	0	0	Master’s degree in Finance from George Washington University, USA CFO of Healthconn Corp. CFO of Yonglin Biotech Independent supervisor of Giga Solar Materials Corp. AVP of the Finance Department and Spokesperson of Senao International Co., Ltd. Consultant of Taiwan Rolling Stock Co., Ltd.	Independent Director of GEOSAT Aerospace & Technology Inc. Chairman of Omni Media International Incorporation Supervisor of Bright LED Electronics Corp. Supervisor of Provision CO., Ltd.

Corporate Governance Report

Title	Nationality	Name	Gender	Election (Accession) Date	Terms	Date First Elected	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Shareholding When Elected	Shareholding When Elected	Current Shareholding	Current Shareholding	Experience (Education)	Other Positions in TFC and/or Other Companies	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity	Other executives or directors who are related as spouses or within the second degree of consanguinity
							Shares	%	Shares	%	Shares	%	Shares	%			Title	Name	Relations
Independent Director	R.O.C	Mingshiuan Lee	Female	2018.7.1	3yrs	2018.7.1	0	0	0	0	0	0	0	0	Master’s Degree in Accounting from University of Illinois at Urbana Champaign Vice President of the Tax and Legal Services Department of PwC Section Leader/Junior Manager of the Underwriting Department of Jian Hua Securities Co., Ltd. (now：SinoPac Securities) ROC CPA	Vice President of the Finance Department and Spokesperson of Kingmax Technology Inc. and concurrently Kingpak Technology Inc.
Independent Director	R.O.C	Chaochin Hsiao	Male	2018.7.1	3yrs	2018.7.1	0	0	0	0	0	0	0	0	Master’s degree in Business Administration National Cheng Kung University Member of the International and Cross-Strait Service Committee of the National Federation of CPA Associations of the R.O.C. ROC CPA	Responsible person and practicing account of Taiming Accounting Firm

Note: Council of Agriculture, Executive Yuan has terminated its representative Chichung Chen on March 28, 2019.

Corporate Governance Report

Form 1: Key Shareholders of Corporate Shareholders

May 1, 2019	May 1, 2019
Name of Institutional Shareholder	Major Shareholders of Institutional Shareholder
Council of Agriculture, Executive Yuan	N/A

Form 2: Key Shareholders as Corporations: None

Corporate Governance Report

Director information (Two)

	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019	May 1, 2019
Conditions Name	Above 5-year Work Experience and Professional Qualifications as Below			Above 5-year Work Experience and Professional Qualifications as Below										Above 5-year Work Experience and Professional Qualifications as Below
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private College	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private College	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private College	1	2	3	4	5	6	7	8	9	10
Hsinhong Kang												
Junnejih Chen												
Shihchi Lin												
Chaofeng Li												
Tsaihsing Liu												
Yawkuang Chen													
Horngchang Lin													
Mingshiuan Lee													
Chaochin Hsiao													

Corporate Governance Report

Note: Please check “  ”the corresponding column to indicate that directors meet the following criteria within two years prior to appointment and during their terms of office.

(1) Not an employee of the Company or any of its affiliates.
(2) Not a director or a supervisor of the Company or its affiliated company (However, the independent director that the Company or its parent company or subsidiary sets according to this law or local law is not subject to this limit).
(3) Not a natural-person shareholder who holds shares, together with those held by the person's spouse, minor children, or held by the person under others' names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.
(5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top 5 in holdings.
(6) Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.
(7) Not a professional person who provides business, legal, financial, and accounting services for the Company or its affiliated company, an owner, a partner, a director, a supervisor, a manager of wholly-owned or partnership company/institution, or its spouse. However, the compensation committee member stated in Article 7 Fulfillment of Authority, Methods for Compensation Committee Setting Up and Authority Exercising of Stock Exchange Listing Company or Company Traded at Securities Dealer Business Office is not subject to this limit.
(8) Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
(9) Not a person of any conditions defined in Article 30 of the Company Law.
(10) Not a governmental body, juridical person or its representative as defined in Article 27 of the Company Law.

Corporate Governance Report

(II) Information on the President, Vice Presidents and Management Team

May 1, 2019

Title	Nationality	Name	Gender	Election (Accession) Date	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Managers as Spouse or within 2-Degree Kinship	Managers as Spouse or within 2-Degree Kinship	Managers as Spouse or within 2-Degree Kinship
					Shares	%	Shares	%	Shares	%			Title	Name	Relations
President	R.O.C	Yaohsing Huang	Male	2016.9.1	0	0	0	0	0	0	Ph.D., Graduate School of Material Science, National Chung Shan University Assistant VP, Taiwan Fertilizer Co., Ltd.,	Chairman, Taifer(Cambodia)Co.,Ltd Director of the Board, Jubail Fertilizer Company Chairman and general manager of Peifeng technology Co., Ltd.	-	-	-
Vice President	R.O.C	Shihjih Lo	Male	2013.2.1	2,381	0	0	0	0	0	Department of Business Management, Fu Jen Catholic University Head, Enterprise Planning Department, Taiwan Fertilizer Co., Ltd.	Director, Taifer(Cambodia)Co.,Ltd Director of Peifeng technology Co., Ltd.	-	-	-
Vice President	R.O.C	Changlang Chang	Male	2015.10.1	0	0	0	0	0	0	NTU Graduate Institute of Building and Planning Assistant VP, Taiwan Fertilizer Co., Ltd.,	Director of the Board, Tai Zhuang Asset Management and Development Co., Ltd. Director of Peifeng technology Co., Ltd.. Legal representative of Taiwan fertilizer (Samoa) CO., LTD. President of Taiwan Agricultural Investment Co., Ltd. Liquidator of Hasbo Biotechnology Co.Ltd.	-	-	-
Financial Dept. Head	R.O.C	Meiling Huang	Female	2017.5.1	0	0	0	0	0	0	Master, EMBA Executive of School of Business, Soochow University Auditor General of Taiwan fertilizer CO., LTD.	Supervisor of Dingtang energy technology Co., Ltd Supervisor of Taiwan fertilizer (Xiamen) Trading Co., LTD.. Supervisor of Peifeng technology Co., LTD.	-	-	-
. Taichung Plant Head	R.O.C	Chinsheng Lin	Male	2018.1.1	0	0	0	0	0	0	Department of Mechanical Engineering, Cheng Shiu University Deputy plamt director of Taichung plant, Taiwan fertilizer CO., LTD.	Plant director and director of the engineering department of Peifeng technology Co., LTD.	-	-	-
Keelung Plant Head	R.O.C	Haohua Shao	Male	2018.10.1	4,585	0	0	0	0	0	Department of Chemical Engineering, Chung Yuan Christian University Technical Section Manager of Taiwan Fertilizer Taichung Factory	Deputy plant director of Taichung Plant of Taiwan fertilizer CO., LTD.	-	-	-

Corporate Governance Report

Title	Nationality	Name	Gender	Election (Accession) Date	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Managers as Spouse or within 2-Degree Kinship	Managers as Spouse or within 2-Degree Kinship	Managers as Spouse or within 2-Degree Kinship
					Shares	%	Shares	%	Shares	%			Title	Name	Relations
Hualien Plant Head	R.O.C	Shenlong Peng	Male	2016.3.1	266	0	0	0	0	0	MS from the Department of Chemistry of National Tsing Hua University Chief engineer of Taichung plant, Taiwan fertilizer CO., LTD.	Chairman and President of Taiwan Yes Deep Ocean Water Co., Ltd.	-	-	-
Miaoli Plant Head	R.O.C	Changchang Tsai	Male	2017.8.1	15,498	0	0	0	0	0	Environmental Engineering Department of Lien Ho Junior College of Technology Management team leader of the Miaoli plant, Taiwan fertilizer CO., LTD.	None	-	-	-

Corporate Governance Report

III Remuneration paid to directors, supervisors, president and vice presidents for the recent years

(I) Remuneration for directors of the board (including independent directors) (Summary of ways for coordinative disclosure of names)

May 1, 2019 Unit: NT$K

itle	Name	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Ratio of Total Remuneration (A+B+C+D) to After-Tax Net Income(%)	Ratio of Total Remuneration (A+B+C+D) to After-Tax Net Income(%)	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Ratio of Total Remuneration (A+B+C+D+E+F+ G) After-Tax Net Income(%)	Ratio of Total Remuneration (A+B+C+D+E+F+ G) After-Tax Net Income(%)	Get Any Remuneratio n from the Invested Businesses Other than Subsidiaries
		Salary (A)		Severance Pay (B)		Remuneration to Directors (C)		Business Execution Expense (D)				Salary, Bonus & Allowance etc. (E)		Severance Pay (F)		Remuneration to employee (G)				Exercisable Employee Stock options
		The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	Companie s in the Consolidat e Financial Statements	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Company		All Companies in the Financial Report		The Compa ny	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report
																cash	stoc k	cash	stoc k
COA		7,105	7,105	0	0	39,986	39,986	6,745	6,745	2.36%	2.36%	1,552	1,552	0	0	169	0	169	0	0	0	2.44%	2.44%	None
Chairman	Representative : Hsinhong Kang
Director	Representative : Junnejih Chen
Director	Representative : Shihchi Lin
Director	Representative : ChaofengLi
Director	Representative : TsaihsingLiu
Director	Representative : Hsuhung Huang (Dismissed on 6/30/2018)
Director	Representative : Shengming Hsu (Dismissed on 6/30/2018)
Director	Representative : Chichung Chen (Dismissed on 3/28/2018)
Natural Person

Corporate Governance Report

itle	Name	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Remuneration to Directors	Ratio of Total Remuneration (A+B+C+D) to After-Tax Net Income(%)	Ratio of Total Remuneration (A+B+C+D) to After-Tax Net Income(%)	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Remuneration to Concurrent Employees	Ratio of Total Remuneration (A+B+C+D+E+F+ G) After-Tax Net Income(%)	Ratio of Total Remuneration (A+B+C+D+E+F+ G) After-Tax Net Income(%)
		Salary (A)		Severance Pay (B)		Remuneration to Directors (C)		Business Execution Expense (D)				Salary, Bonus & Allowance etc. (E)		Severance Pay (F)		Remuneration to employee (G)				Exercisable Employee Stock options
		The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	Companie s in the Consolidat e Financial Statements	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report	The Company		All Companies in the Financial Report		The Compa ny	All Companie s in the Financial Report	The Compan y	All Companie s in the Financial Report
																cash	stoc k	cash	stoc k
Director	Yawkuang Chen
Director	Changchang Tsai (Dismissed on 6/30/2018)
Director	Chinlien Hsu (Dismissed on 6/30/2018)
Independent Director	Horngchang Lin
Independent Director	Mingshiuan Lee
Independent Director	Chaochin Hsiao
Independent Director	Mingtsai Hsu (Dismissed on 6/30/2018)
Independent Director	Huiya Shen (Dismissed on 6/30/2018)

Corporate Governance Report

Remuneration Scale Table

	Remuneration Scale Table	Remuneration Scale Table	Remuneration Scale Table	Remuneration Scale Table
Bracket	Names of Directors
	Total of(A+B+C+D)		Total of(A+B+C+D+E+F+G)
	The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report
Below NT$2,000,000	Chaochin Hsiao, Mingshiuan Lee, Horngchang Lin, Mingtsai Hsu,Huiya Shen	Chaochin Hsiao, Mingshiuan Lee, Horngchang Lin, Mingtsai Hsu,Huiya Shen	Chaochin Hsiao, Mingshiuan Lee, Horngchang Lin, Mingtsai Hsu,Huiya Shen	Chaochin Hsiao, Mingshiuan Lee, Horngchang Lin, Mingtsai Hsu,Huiya Shen
NT$2,000,000 (inclusive) ~ NT$5,000,000 (exclusive)	Tsaihsing Liu, Shengming Hsu, Shihchi Lin, Hsuhung Huang, Changhai Tasi, Yawkuang Chen, Chinglien Hsu	Tsaihsing Liu, Shengming Hsu, Shihchi Lin, Hsuhung Huang, Changhai Tasi, Yawkuang Chen, Chinglien Hsu	Tsaihsing Liu, Shengming Hsu, Shihchi Lin, Hsuhung Huang, Changhai Tasi, Yawkuang Chen, Chinglien Hsu	Tsaihsing Liu, Shengming Hsu, Shihchi Lin, Hsuhung Huang, Changhai Tasi, Yawkuang Chen, Chinglien Hsu
NT$5,000,000 (inclusive) ~ NT$10,000,000 (exclusive)	Chichung Chen, Chaofeng Li	Chichung Chen, Chaofeng Li	Chichung Chen, Chaofeng Li	Chichung Chen, Chaofeng Li
NT$10,000,000 (inclusive) ~ NT$15,000,000 (exclusive)	Hsinhong Kang	Hsinhong Kang	Hsinhong Kang	Hsinhong Kang
NT$15,000,000 (inclusive) ~ NT$30,000,000 (exclusive)	-	-	-	-
NT$30,000,000 (inclusive) ~ NT$50,000,000 (exclusive)	-	-	-	-
NT$50,000,000 (inclusive) ~ NT$100,000,000 (exclusive)	-	-	-	-
Above NT$100,000,000	-	-	-	-
Total	15	15	15	15

Note 1: The names of directors of the board are listed respectively and the remuneration amounts are disclosed in summary manner.
Note 2: The amount of remuneration for directors by surplus distribution is paid by the amount of allotment adopted by the Board of Directors for Surplus Distribution for 2018.
Note 3: The remuneration for the proxy of a juridical person includes the profit payment a juridical person receives as its remuneration. The profit payment for the government shareholders, Hsinhong Kang, Chichung Chen, Hsuhung Huang, Chaofeng Li, and Tsaihsing Liu, designated by the COA was received by the COA and deposited in the treasury pursuant to the regulations.
Note 4: The portion of non-fixed income for president exceeding fixed income (salary for 12 months) is paid to the treasury as specified.
Note 5: The retirement pension actually paid to directors for 2018 is NT$0, with the provision for new system retirement pension for directors accounting for NT$0, and provision for old system retirement pension for directors accounting for NT$0.

Corporate Governance Report

(II) Remuneration for Supervisors (Summary of ways for coordinative disclosure of names)

May 1, 2019

Unit: NT$K

										May 1, 2019 Unit: NT$K
Title	Name	Remuneration to Supervisors						Ratio of Total Remuneration (A+B+C) to After-Tax Net Income (%)		Get Any Remuneration from the Invested Businesses Other than Subsidiaries
		Salary (A)		Remuneration(B)		Business Execution Expense (C)
		The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report
ChungHwa Post Co.,Ltd.		0	0	9,157	9,157	360	360	0.42%	0.42%	None
Supervisor	Representative: Chihlung Lin (Dismissed on 6/30/2018)
Naturalperson
Supervisor	Linglan Tsai (Dismissed on 6/30/2018)
Supervisor	Chailai Chen (Dismissed on 6/30/2018)

Corporate Governance Report

Remuneration Scale Table

Bracket	Supervisor	Supervisor
	Total of(A+B+C)
	The Company	All Companies in the Financial Report
Below NT$2,000,000	-	-
NT$2,000,000(inclusive)~ NT$5,000,000(exclusive)	Linglan Tsai, Chailai Chen, Chihlung Lin	Linglan Tsai, Chailai Chen, Chihlung Lin
NT$5,000,000(inclusive)~ NT$10,000,000(exclusive)	-	-
NT$10,000,000(inclusive)~ NT$15,000,000(exclusive)	-	-
NT$15,000,000(inclusive)~ NT$30,000,000(exclusive)	-	-
NT$30,000,000(inclusive)~ NT$50,000,000(exclusive)	-	-
NT$50,000,000(inclusive)~ NT$100,000,000(exclusive)	-	-
Above NT$100,000,000	-	-
Total	3	3

Note 1: The names of supervisors are listed respectively and the remuneration amounts are disclosed in summary manner.

Note 2: The surplus bonus to supervisors is recognized with the amount to be distributed approved at the surplus distribution meeting of the board of Directors of 2018. Note 3: The salary amount for the legal representative includes the surplus bonus to the juridical person.

Note 4: For FY2018, the actual severance pay to supervisors is NT$0. The new system severance pay to supervisors provided is NT$0 and the old system severance pay to supervisors provided is NT$0.

Corporate Governance Report

(III) Remuneration for the President and Vice Presidents (Summary of ways for coordinative disclosure of names)

May 1, 2019 Unit: NT$K

																		May 1, 2019 Unit: NT$K
Title	Name	Wage (A)		Severance Pay (B)		Bonus and Special Expense (C)		Profit Sharing-Employee Bonus (D)				Ratio of Total Remuneration (A+B+C+D) to After- tax Net Income (%)		Exercisable Employee Stock Options		Number of New Shares for Acquisition of Employee’ Rights		Get Any Remuneration from the Invested Businesses Other than Subsidiaries
		The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report	The Company		All Companies in the Financial Report		The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report	The Company	All Companies in the Financial Report
								Cash	Stock	Cash	Stock
President	Yaohsing Huang	6,929	6,929	0	0	8,988	8,988	711	-	711	-	0.73%	0.73%	-	-	None	None	None
Vice President	Shihjih Lo
Vice President	Changlang Chang

Corporate Governance Report

Remuneration Scale Table

	Remuneration Scale Table	Remuneration Scale Table
Bracket	President and Vice President`s Name
	The Company	All Companies in the Financial Report
Below NT$2,000,000	-	-
NT$2,000,000(inclusive)~ NT$5,000,000(exclusive)	Shihjih Lo, ChanglangChang	Shihjih Lo, ChanglangChang
NT$5,000,000(inclusive)~ NT$10,000,000(exclusive)	YaohsingHuang	YaohsingHuang
NT$10,000,000(inclusive)~ NT$15,000,000(exclusive)	-	-
NT$15,000,000(inclusive)~ NT$30,000,000(exclusive)	-	-
NT$30,000,000(inclusive)~ NT$50,000,000(exclusive)	-	-
NT$50,000,000 (inclusive) ~ NT$100,000,000 (exclusive)	-	-
Above NT$100,000,000	-	-
Total	3	3

Note 1: The names of president and vice presidents are listed respectively and the remuneration amounts are disclosed in summary manner.

Note 2: The surplus bonus to directors is recognized with the amount to be distributed approved at the surplus distribution meeting of the Board of Directors of 2018.

Note 3: The portion of non-fixed income for president exceeding fixed income (salary for 12 months) is paid to the treasury as specified.

Note 4: The retirement pension of General Manager and Deputy General Manager paid in 2018 was NT$0. The new-system pension payable to General Manager and Deputy General Manager was NT$108,000; the old-system pension payable to General Manager and Deputy General Manager was NT$443,000.

Corporate Governance Report

(IV) Names of Management Team for the Allotment of Employee Remuneration, and Allotment Conditions

May 1, 2019 Unit: NT$K

						May 1, 2019 Unit: NT$K
	Title	Name	Bonus in Stock	Bonus in Cash	Total	Raito of Total Amount to After-Tax Net Income(%)
Managerial Officers	President	YaohsingHuang	-	964	964	0.04%
	Vice President	Shihjih Lo
	Vice President	Changlang Chang
	Financial Dept. Head	Meiling Huang

(V) Comparison and explanation of percentage of the total remuneration for directors, supervisors, Presidents and Vice Presidents of this Company paid over the past two years by this Company and all companies in the consolidated financial statements in the net income of individuals or individual financial reports after tax, the policy of remuneration payment, the combination of standard varieties, procedure for remuneration decision, and the relevant between operation performance and future risks:

	risks:
Year	After-tax Net Income(NT$K)	Director	Supervisor	Managerial Officers
2017	1,619,126	2.26%	0.61%	1.51%
2018	2,281,319	2.44%	0.42%	0.73%

Note 1: According to the articles of association of the Company, the salary of the chairman is 1.25 X the income of the president, and the other directors of the board and supervisors might get NT$20,000 traffic fee per month as compensation. However, the remuneration for the independent director is NT$60,000 per month, and the independent director is not allowed to participate the allocation of remuneration for directors and supervisors.

Note 2: According to the articles of association of the Company, after the provision of reserves, the after-tax net income will be put aside 1.6% as the compensation for Directors and Supervisors, and 2.4% as bonus to employees.

Corporate Governance Report

IV. Corporate Governance Conditions

(I) Operation of the Board of Directors

The board of directors convened 12 meetings (A) in 2018. The attendance of the directors and supervisors is described below:

Title	Name	Attendance in Person (B)	Actual Attendance in Person	Attendance by Proxy (%) (B / A)	Remarks
Chairman	COA Representative: Hsinhong Kang	12	0	100%
Director	COA Representative: ChichungChen	11	0	91.67%	Dismissed on 3/28/2019
Director	COA Representative: ChaofengLi	11	0	91.67%
Director	COA Representative: Shihchi Lin	7	0	87.5%	Appoined on 7/1/2018
Director	COA Representative: TsaihsingLiu	8	0	100%	Appoined on 7/1/2018
Director	COA Representative: HsuhungHuang	2	0	50%	Dismissed on 6/30/2018
Director	COA Representative: ShengmingHsu	4	0	100%	Dismissed on 6/30/2018
Director	Yawkuang Chen	8	0	100%	Appoined on 7/1/2018
Director	Changhai Tsai	1	1	25%	Dismissed on 6/30/2018
Director	Chinlien Hsu	3	0	75%	Dismissed on 6/30/2018
Independent Director	Horngchang Lin	8	0	100%	Appoined on 7/1/2018
Independent Director	Mingshiuan Lee	7	1	87.5%	Appoined on 7/1/2018
Independent Director	Chaochin Hsiao	7	1	87.5%	Appoined on 7/1/2018
Independent Director	Mingtsai Hsu	2	1	50%	Dismissed on 6/30/2018
Independent Director	Huiya Shen	2	1	50%	Dismissed on 6/30/2018
Supervisor	Chunghwa Post	4	0	100%	Dismissed on

Corporate Governance Report

	Co., Ltd. Representative: ChihlungLin				6/30/2018
Supervisor	Chailai Chen	3	0	75%	Dismissed on 6/30/2018
Supervisor	Linglan Tsai	2	0	50%	Dismissed on 6/30/2018
Other matters to be recorded: I. If the operation of board of directors matches one of the following conditions, it is required to specify dates, number of meetings and content of proposals of directors, opinions of all independent directors and response to the opinions of independent directors on the Company. (I) For matters set in the Article 14-3 of Security Exchange Act. 1. 31st meeting of the 33rdBoard of Directors on March 29, 2018 (1) Proposal：2017 Remuneration of directors, supervisors, and employees submitted for review Independent director opinions：N/A (2) Proposal：2017 Remuneration allocation to directors and supervisors submitted for review Independent director opinions：N/A (3) Proposal：Election of the 34thboard of directors (including independent directors) submitted for review Independent director opinions：N/A 2. 32nd meeting of the 33rdBoard of Directors on April 27, 2018 (1) Proposal：Amendment of certain provisions set forth in the Procedures Governing Acquisition or Disposal of Assets submitted for review Independent director opinions：N/A (2) Proposal：Amendment of certain provisions set forth in the Procedures Governing Loaning of Funds and Making of Endorsements/Guarantees submitted for review Independent director opinions：N/A 3. 1st meeting of the 34rd Board of Directors on August 1, 2018 (1) Proposal：Amendment of certain provisions set forth in the Regulations Governing the Internal Control System submitted for review Independent director opinions：N/A 4. 4th meeting of the 34rd Board of Directors on October 29, 2018 (1) Proposal：Commissioning of KPMG Taiwan to audit, attest, and report the financial statement and income tax return for 2019 and retained earnings in 2018 submitted for review Independent director opinions：N/A (2) Proposal：Detailed description of matters pertaining to real estate lease agreements for the Nangang Business Park C2 Development Project and Grand Hi Lai Hotel submitted for review Independent director opinions：N/A (3) Proposal：Deliberation of 2019 Auditing Plan submitted for review Independent director opinions：N/A

Corporate Governance Report

6th meeting of the 34rd Board of Directors on December 28, 2018
- (1) Proposal ： Planned adoption of joint construction and repurchase for the Nangang R13-1 Residential Development Project to reduce risks associated with residential land development based on autonomous construction and sales concepts submitted for review
- Independent director opinions ： N/A
(II) Other resolutions, except for the above-mentioned ones, in the board of directors meeting about which any independent director expresses dissent or reservation and a record or written statement is made: N/A
II. As for the implementation status of recusal bearing on the interest of a director is involved, the name of the director, proposal, reasons for the recusal, and participation in the voting shall be described.
(1) 29th meeting of the 33[rd] Board of Directors on March 29, 2018
- Proposal ： Year-end bonuses for vice presidents or above in 2017 submitted for review Recusing director ： Chairman Hsinhong Kang
- Reason for recusal ： Conflict of interest
- Participation in the voting process ： N/A
(2) 32nd meeting of the 33[rd] Board of Directors on April 27, 2018
1. Proposal ： Nomination of Hsinhong Kang as chairman candidate for the 34th board submitted for review
2. Recusing director ： Chairman Hsinhong Kang
3. Reason for recusal ： Conflict of interest
4. Participation in the voting process ： N/A
5. Proposal ： Nomination of Mr. Chichung Chen as director candidate for the 34[th] board submitted for review
6. Recusing director ： Mr. Chichung Chen
7. Reason for recusal ： Conflict of interest
8. Participation in the voting process ： N/A
9. Proposal ： Nomination of Mr. Chaofeng Li as director candidate for the 34[th] board submitted for review
10. Recusing director ： Mr. Chaofeng Li
11. Reason for recusal ： Conflict of interest
12. Participation in the voting process ： N/A
(3) 5[th] Extraordinary Meeting of the 33[rd] Board of Directors on May 16, 2018
1. Proposal ： Requested review of the candidate qualifications of Mr. Hsinhong Kang, legal representative of the Council of Agriculture, Executive Yuan submitted for review
2. Recusing director ： Mr. Hsinhong Kang
3. Reason for recusal ： Conflict of interest Participation in the voting process ： N/A
4. Proposal ： Requested review of the candidate qualifications of Mr. Chichung Chen, legal representative of the Council of Agriculture, Executive Yuan submitted for review
5. Recusing director ： Mr. Chichung Chen

Corporate Governance Report

	Reason for recusal：Conflict of interest
	Participation in the voting process：N/A
	3. Proposal：Requested review of the candidate qualifications of Mr. Chaofeng Li, legal
	representative of the Council of Agriculture, Executive Yuan submitted for review
	Recusing director：Mr. Chaofeng Li
	Reason for recusal：Conflict of interest
	Participation in the voting process：N/A
	4. Proposal：Lifting of non-competition restrictions for the 34thboard submitted for
	review
	Recusing director：Mr. Chichung Chen
	Reason for recusal：Conflict of interest
	Participation in the voting process：N/A
	(4) 2nd Extraordinary Meeting of the 4thCommittee on November 9, 2018
	1. Proposal：Appointment of the two independent directors Mingshiuan Lee and
	Horngchang Lin and Mr. Yu Cheng, Chairman of Chunghwa Telecom, as members of
	the 4thRemuneration Committee submitted for review
	Recusing director：Mr. Horngchang Lin
	Reason for recusal：Conflict of interest
	Participation in the voting process：N/A
	2. Proposal：Appointment of the two independent directors Mingshiuan Lee and
	Horngchang Lin and Mr. Yu Cheng, Chairman of Chunghwa Telecom, as members of
	the 4thRemuneration Committee submitted for review
	Recusing director：Mr. Mingshiuan Lee
	Reason for recusal：Conflict of interest
	Participation in the voting process：N/A
3.	Goal for enhancement of board functions in the respective year and the most recent
	year（e.g., establishment of an audit committee, enhancement of information
	transparency）and assessment of implementation conditions：
	(1) The Company formed an audit committee composed of the independent directors
	Mingshiuan Lee, Horngchang Lin, and Chaochin Hsiao during the term of the 34th
	board in 2018.
	(2) The organizational charter for the Audit Committee was ratified in the first
	extraordinary meeting of the 34thboard in 2018 with the goal of strengthening corporate
	governance and board functions and powers.
	(3) The two independent directors Mingshiuan Lee and Horngchang Lin and Mr. Yu Cheng,
	Former Chairman of Chunghwa Telecom, were appointed as members of the 4th
	Remuneration Committee.

Corporate Governance Report

(II) Operation of the Audit Committee or the Participation in the Board of Directors by Supervisors

1. Operation of the audit committee:

The board of directors convened 2 meetings (A) in 2018. The attendance of the directors and supervisors is described below:

Title	Name	Actual Attendance (B)	Attendance Rate(%) (B/A)	Remarks
Independent Director	Horngchang Lin	2	100%	Appoined on 7/1/2018
Independent Director	Mingshiuan Lee	1	50%	Appoined on 7/1/2018
Independent Director	Chaochin Hsiao	2	100%	Appoined on 7/1/2018
Other matters to be recorded: 1. Audit Committee composition and responsibilities: (1) Communication with employees and shareholders（e.g., communication channels and methods） I. Meetings are convened at least on a quarterly basis pursuant to the functions and powers as stipulated in Article 6 of the Audit Committee organizational charter (2) Communication with internal auditing officers and accountants（e.g., communication items, methods, and results pertaining to financial and business conditions） I. Communication between the Audit Committee and accountants Meeting Date Communication Point August 1, 2018 1. Accountants provide a detailed description of financial and profit/loss conditions in the second quarter of 2018 and education on newly amended accounting principles and laws 2. Accountants discuss and convey their opinions on issues raised bymeeting participants October 29, 2018 1. Accountants provide a detailed description of financial and profit/loss conditions in the third quarter of 2018 and education on newly amended accounting principles and laws 2. Accountants discuss and convey their opinions on issues raised bymeeting participants II. Communication between the Audit Committee and internal auditing officers Meeting Date Communication Point August 1, 2018 1. Amendment of internal control system principles 2. Amendment of the implementation rules for internal audits 2. Where supervisors state opinions in board meetings, the meeting date, period, proposal contents, and resolutions as well as the handling of such opinions shall be specified: None

Corporate Governance Report

Participaton in the operation of the Board by Supervisors

Attendees at the 12(A) Board meeting in the year of 2018

Title	Name	Actual Attendance (B)	Attendance Rate(%) (B/A)	Remarks
supervisor	Chunghwa Post Co., Ltd. Representative: ChihlungLin	4	100%	Dismissed on 30/6/2018
supervisor	Chihlung Chen	3	75%	Dismissed on 30/6/2018
supervisor	Linglan Tsai	2	50%	Dismissed on 30/6/2018
Other matters to be recorded: I. Composition and responsibilities of supervisors: (I) Communication of the supervisors with the employees and shareholders of the Company (such as communication channels and ways, etc) 1. The Company’s supervisors will sit on the panel of the 2018 General Meeting. (II) Communication of the supervisors with the internal audit officer and accountants: (such as status, ways and results of communication with the Company’s finance, business, and etc). 1.The communication between the supervisors and the CPAs Meeting Date Communication Point March 20, 2018 1. The CPA explained the 2017 financial condition and loss and profit status, and promoted the awareness of some newly amended accounting principles and laws. 2. The CPA discussed and communicated with the attendants in the meeting with respect to the issues being brought up.

Corporate Governance Report

The communication between the supervisor and the internal audit head (1) The internal audit head submits the audit report to the board of directors every month.

2.The communication between the supervisor and the internal audit head (1) The internal audit head submits the audit report to the board of directors every month.	2.The communication between the supervisor and the internal audit head (1) The internal audit head submits the audit report to the board of directors every month.	2.The communication between the supervisor and the internal audit head (1) The internal audit head submits the audit report to the board of directors every month.
Reports and Discussion	Description	Suggestion and Result
Annual audit reporting matters (Auditing has to be reported within the time frame specified by the Financial Supervisory Commission.)	1. The 2018 annual audit plan was reported on November 29, 2017. 2. The 2018 auditors name list and training hours were reported on January 8, 2018. 3. The implementation of the 2017 annual audit plan was reported on February 23, 2018. 4. The 2017 internal control system statement was announced on March 29, 2018. 5. Report on improvements in the field of internal control deficiencies and abnormalities in 2017 submitted on May 18,2018.	No objection.
II. If there is any opinion made by supervisors attending the Board of Directors, it is required to specify dates and number of meetings of the Board of Directors, content of proposals, results of the meetings of directors as well as the response to the opinions of supervisors on the Company：None

II. If there is any opinion made by supervisors attending the Board of Directors, it is required to specify dates and number of meetings of the Board of Directors, content of proposals, results of the meetings of directors as well as the response to the opinions of supervisors on the Company ： None

Corporate Governance Report

(III) Conditions for Corporate Governance and Operation and Difference and Causes of Governance Practice Rules on Listed Companies

Companies
Items assessed	Operationcircumstances			Difference from the code on the governance of listed companies and OTC companiesand cause
	Yes	No	Abstracts
I. Does the Company prepare and disclose the code on the governance of the Company according to the Code of Governance of the Listed Companies and OTC Companies?	V		The Company has prepared and disclosed the code on the governance of the Company according to the Code of Governance of the Listed Companies and OTC Companies.	No difference
II. Shareholdingstructure and shareholders’ rights of the Company
(i) Does the Company prepare the internal operation procedures to deal with the shareholder’s suggestions, doubts, dispute and lawsuit, and execute suchprocedures indeed?	V		(i) The Company prepared the internal regulations to prevent its personnel from trading the securities in virtue of the information that is not open to the public of proposals, and results of the meetings.	No difference
(ii) Does the Company grasp the main shareholders that control the Company and the name list of final controllers of the main shareholders?	V		(ii) The Company established a stock affair team under the Board of Directors Office to manage the major shareholders that actually control the Company and name list of the persons who ultimately control the major shareholders. The team is also responsible for reporting the change of information in accordance with the regulations.	No difference
(iii) Does the Company establish and perform the risk control and firewall mechanism with the affiliates?	V		(iii) The Company shall also prepare the Operation Procedure of Capital Loan and the Endorsement Guarantee in order to establish the proper risk control mechanism and firewall with the affiliates. The business contact between the Company and all of the affiliates should be handled after the signature of the contract and submission to the board of directors for deliberation.	No difference

Corporate Governance Report

(iv) Does the Company prepare the internal regulations to prevent its personnel from trading the securities in virtue of the information that is not open to the public?	V		(iv) The Operation Procedure on the Treatment of Major Information inside Taiwan Fertilizer Co., Ltd. has been drafted to regulate the directors, supervisors, managers, employees and the personnel who are in other identities, occupations or controlling relationship but acquire the major internal information of the Company. Those who areprohibited to do anyinside trades.	No difference
III. Composition andresponsibilities ofboard ofdirectors
(i) Does the board of directors require the members to prepare the diversified policies and then implement these policies?	V		(i) To create good and though practice principles for the Company, we have established the Practice Principles for Taiwan Fertilizer Co., Ltd. Article 20 of the Principles clearly states the diverse policies of the board of directors. The formation of the board of directors shall take into account the organizational culture, business model and long-term development, including but not limited to genders, age, nationality and culture. The directors shall have good education, experience and knowledge in the industry and professional background to put the diverse policies of the board of directors into practice and complete its organization. Currently, the board of directors of Taiwan Fertilizer Co., Ltd consists of 9 directors, including 3 independent directors and one of them is a femal The Taiwan Fertilizer board of directors is currently composed of 9 directors(incl. three independent directors and one female director). All board members are aged between 40 and 65 and possess professional expertise in the fields of business management, agriculture, architecture, finance, and risk management. Their academic and professional backgrounds complement each other, which in turn ensures optimized all-inclusive business decisions. The professional specialty of each director is detailed in Note 1.	No difference

Corporate Governance Report

(ii) In addition to the salary and welfare committee and the audit committee, is the Company willing to set up other committees with similar functions?		V	(ii) This Company has established an Audit and Remuneration Committee pursuant to relevant laws. The spirit of corporate culture and governance has been incorporated in existing regulatory frameworks governing administrative management, education & training, and auditing. Other functional committees have therefore not been established.
				The Company has not established functional committees (as prescribed in the Corporate Governance Best Practice Principles) other than Audit and Remuneration Committees
(iii) In addition to the salary and welfare committee and the audit committee, is the Company willing to set up other committees with similar functions?		V	(iii) The operation performance appraisal standard of the board of directors of the Company means appraising the indexes such as if the annual settlement and operation interests reach those of the previous year, the control rate of the annual settlement and operation interests, growth rate of the operation interests or if exceeding the target.	There is a difference. The Company has a standard for performance evaluation of the board of directors, but does not have regulations governing the performance evaluation of the board ofdirectors.
(iv) Does the Company appraise the independence of the certified public accountants on a regular basis?	V		(iv)This Company assesses auditor independence on a regular basis. Assessment of CPA independence was approved in the 4th meeting of the 34thboard on October 27, 2018 . The Company has therefore compiled a CPA Independence Assessment Form (note 2) with reference to Article 47 of the Certified Public Accountant Act and Code of Ethics for Professional Accountants Statement No.10. In addition to a comprehensive assessment of various impacts on CPA independence, CPAs must issue a Declaration of Independence.	No difference

Corporate Governance Report

IV. Does a listed company or an OTC company have a corporate governance full-time (or part-time) organization or person who takes charge of the corporate governance related affairs (including but not limited to providing data as required by directors or supervisors executing business, handling matters related to board of directors and shareholders meeting, handling company registration and change of registration, taking minutes of the board of directors and shareholding meeting, etc.)?	V		The Company takes the board office as its corporate governance full-time organization. This office is responsible for corporate governance related affairs, including promoting the corporate governance rules, providing data as required by directors or supervisors executing business, handling matters related to board of directors and shareholders meeting, handling company registration and change of registration, taking minutes of the board of directors and shareholding meeting, etc.	No difference
V. Does the Company have a channel to communicate with interested parties, as well as a special zone for the interested parties on the website of the Company, and properly respond to the critical issues regarding the social responsibilities of the Company as concerned bythe interestedparties?	V		The Company has a spokesman. If required by the interested parties, they can communicate with its spokesman or its business unit(s) at any time. The communication channel is smooth. The special zone for the interested parties is set in the website of the Company to respond the issues concerned by the interested parties properly.	No difference
VI. Does the Company entrust a professional stock agency?		V	The Company has issued stocks in public by itself and deals with the stock matters according to the criteria of stock treatment and the internalcontrolsystem.	Difference: the Company handles stock matters solely.
VII. Information disclosure
(i) Does the Company establish the website and disclose the information about finance and governance of Company?	V		(i) The Company has set the special column for serving the investors in its website in both Chinese and English versions, disclosing the information about finance and governance of Company and providing it to the investors for reference on a regular basis.	No difference

Corporate Governance Report

(ii) Does the Company implement other ways to disclose information (such as English website, a designated person to collect and disclose the Company’s information, implementing the spokesman system and putting the process of legal person forum on the Company’s website)?	V		(ii) 1. The Company provides its English version of the critical news such as the annual reports, a handbook for shareholders’ meeting, and a notice of shareholders’ meeting, which the Company’s operation information is fully disclosed in its website. 2. A staff of the Company is designed to issue the news of the Company, and also collect and contact all of media information. 3. The data of the legal person forum will be shown on the Company’s website. And, a specially-assigned staff of the Company will disclose the major information of the Company on the website, too.	No difference

Corporate Governance Report

VIII. Does the Company have the major information that can help understand how the Company operates its governance (including but not limited to the rights and interests of employees, employee care, relationship of investors, relationship of suppliers, rights of the interested parties, further study of directors and supervisors, implementation of risk management policies, risk balance standard and client’s policies and the liability insurance purchased for the Company’s directors and supervisors)?	V		(i) Rights and interests of employees as well as employee care: Adhering to the principle that Taiwan Fertilizer is a family, the Company has established the Welfare Committee of Employees to provide employees excellent and considerate welfare activities and caring projects. (ii) Relationship of investors: The Company aims at ensuring the rights and interests of the shareholders and treats all of them equally. According to the relevant provisions of the competent securities authority, the Company issues the major news such as the finance, business and change of the shareholders at Observation Website for News Disclosure. (iii) Relations with suppliers: The Company reviews the supplier’s quality capacity, delivery capacity, service team capacity, etc. on a regular basis according to supplier management methods of the Company, to stabilize material quality and to ensure material source safety. In regard to suppliers, the Company not only emphasizes the supplier’s quality, price, delivery time, etc. but also concerns human rights, labor welfare, workplace safety, etc., so as to establish a sustainable supply chain system that develops stably. Now, supplier CSR management is gradually introduced. First, the Company promotes supplier self-assessment to know the supplier operating risks, providing the basis for promotion of supplier CSR management and leading suppliers to develop a production and sales model that is better to environment. (iv) Rights of the interested parties: The Company always abides by the principle of integrity in maintaining and safeguarding the rights of the interested parties. The Company also provides a smooth communication channel for different kinds of interested parties to express their opinions at all times. (v) Further study of directors and supervisors: Subject to the provisions of Key Points on the Promotion of Further Study of the Directors and Supervisors of Listed Companies and OTC Companies of Taiwan Stock Exchange Co., Ltd., please refer to Name List of Directors and Supervisors for Further Study at the Observation Website or visit the official website of the Company. (vi) Implementation of risk management policies and risk balance standard: Subject to the Criteria on the Treatment of Internal Control System of the Company, the risk management policy and the risk evaluation standard of the Company are prepared according to the suitability of the Company objective and the units at different levels of the Company. The goals and the result of risk evaluation are set to help the Company to design, modify and implement the control required on a timely basis. (vii) Implementation of client policies: The Company has prepared Details on the Management of Customer Relationship. Its business departments have set up the customer service center to communicate with customers. (viii) Purchase of insurance for directors and supervisors: We have taken out liability insurance for directors and supervisors with Chung Kuo Insurance as the insurer according to relevant regulations. The insurance period is from April 1, 2018 to April 1, 2019.	No difference

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IX. Please state the situation of improved suppliers according to the corporate appraisal results released by the corporate governance center of Taiwan Stock Exchange Corporation in the most recent year, and put forward the priorities to be strengthened and measures for unimproved suppliers. (Those who are not listed in appraised companies need not be stated)
The number of independent directors may be increased in the future in accordance with actual needs.
This Company plans to formulate Board Performance Appraisal Guidelines and Procedures in 2019. Board self-evaluations will be implemented in 2020.
With regard to penalties imposed by the competent authority for an incident involving environmental pollution and CSR violations, all factories have been ordered to strengthen reviews of relevant deficiencies and propose improvements to realize the goal of “zero violations and fines”.

Corporate Governance Report

Note 1: Diversification among the members of the board of directors

Title	Name	Gender	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability	Profession specialty and ability
			Operation al Judgment	Accountin g and Financial	Managem ent and Administr ation	Risk Managem ent	Knowledg e of Industry	Internatio nal Market Perspecti ve	Leadershi p	Strategies making
Chairman	Hsinhong Kang	M								
Director	Junnejih Chen	M								
	Shihchi Lin	M								
	Chaofeng Li	M								
	Tsaihsing Liu	M								
	Yawkuan g Chen	M								
Independe nt Director	Horngch ang Lin	M								
	Mingshiu an Lee	F								
	Chaochin Hsiao	M								

Note 2: The CPA independence evaluation chart of Taiwan Fertilizer Co., Ltd (2018)

Note 2: The CPA independence evaluation chart of Taiwan Fertilizer Co., Ltd (2018)
Item Evaluated	Violation of Independence
1. Havinga direct or material indirect financial interest in the Company.	NO
2. Havingfinancingorguaranteed behaviors with the Company,the directors or supervisors.	NO
3. Members of the audit service team have significant close business relationships with the Companyor anydirector,supervisor or manager of the Company.	NO
4. The audit service team haspotential employment negotiations with the Company.	NO
5. Enteringinto a contingent fee arrangement relatingto the audit engagement.	NO
6. An audit service team member of the accounting firm being, or having been a director, supervisor or manager of the Company, or employed by the Company in a position to exert significant influence over the subject matter of the audit engagement within the last two years.	NO
7. The non-assurance service that wasperformed bythe accountingfirm isprovided.	NO
8. A member of the audit service team has a close or immediate family member who is a director, supervisor, or manager of the Company or an employee of the Company who is in aposition to exert significant influence over the subject matter of the audit engagement.	NO
9. A member of the audit service team accepts significant gifts from the Company, the director,supervisor or managers of the Company.	NO
10. A member of the audit service team being asked by the Company to agrees with the inappropriate choice in accounting or the inappropriate disclosure on financial report conducted bythe management.	NO
11. The audit service team is pressured to reduce the auditing that shall be performed in order to cut down the fees.	NO
12. The audit engagement is performed by the same CPA over 7 years.	NO

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(IV) The Company should disclose the composition, function, and operation circumstances of compensation committee, if any.

Information of compensation committee members

Status	Conditions Name	Above 5-year Work Experience and Professional Qualifications as Below	Above 5-year Work Experience and Professional Qualifications as Below	Above 5-year Work Experience and Professional Qualifications as Below	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Independence Criteria (Note 1)	Number of companies which the Company’s committee members also hold positions in the compensation committee of other public company	Remarks
		An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private College	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Approved a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8
Independent Director (Convener)	Mingshiuan Lee													Appoined on 7/1/2018
Independent Director	Horngchang Lin													Appoined on 7/1/2018
Other	Yu Cheng												2	Appoined on 7/1/2018

Note 1: Please check “  ” at the beginning of the following conditions that various directors and supervisors match in two years before appointment and during their tenure.

(1) Not an employee of the Company or any of its affiliates.
(2) Not a director or supervisor of the Company or its affiliated company. However, the independent director that the Company or its parent company or subsidiary sets according to this law or local law is not subject to this limit.
(3) Not a natural-person shareholder who holds shares, together with those held by the person's spouse, minor children, or held by the person under others' names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs.
(5) Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds

Corporate Governance Report

shares ranking in the top 5 in holdings.

(6) Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.
(7) Not a professional person who provides business, legal, financial, and accounting services for the Company or its affiliated company, an owner, a partner, a director, a supervisor, a manager of wholly-owned or partnership company/institution, or its spouse.
(8) Not a person of any conditions defined in Article 30 of the Company Law.

Note 2 ： Scope of functions and powers of the Remuneration Committee ：

(1) Regular review of the organizational charter of the Remuneration Committee and proposal of amendments.
(2) Formulation and regular review of director and manager performance appraisal standards, annual and long-term performance goals as well as remuneration policies, systems, standards, and structures. Performance appraisal standards are disclosed in annual reports.
(3) Regular assessment of director and manager performance target achievement; individual remuneration contents and amounts in accordance with appraisal results based on the aforementioned standards; individual performance appraisal results, remuneration contents and amounts, and relevance and reasonableness of appraisal results for directors and managers are disclosed in annual reports and reported to shareholders’ meetings.

Corporate Governance Report

Information on compensation committee operation circumstances
(1) The Company’s compensation committee consists of 3 members.
(2) Current tenure: July 1, 2018–June 30, 2021. In the most recent year, the compensation committee held 3 meetings (A). Members’ qualification and attendance are listed below:

Title	Name	Attendance in Person (B)	Attendance on commission	Actual attendance rate (%) (B/A)	Remarks
Convener	Mingtsai Hsu	2	0	100%	Dismissed on 06/30/2018
Member	Mingting Wang	2	0	100%	Dismissed on 06/30/2018
Member	Jihchun Wang	1	1	50%	Dismissed on 06/30/2018
Convener	Mingshiuan Lee	1	0	100%	Appoined on 7/1/2018
Member	Horngchang Lin	1	0	100%	Appoined on 7/1/2018
Member	Yu Cheng	1	0	100%	Appoined on 7/1/2018
Other matters to be recorded: I. If the board of directors does not accept or modify the suggestions from the Remuneration Committee, the date and the number of times of the meeting, contents of the proposal, the board of directors’ resolution, and the response of the Company to the suggestions shall be stated. (If the remuneration approved by the board of directors is higher than the Remuneration Committee suggests, the difference and the reason shall be stated.) : N/A II. If there is a discussed matter in the Remuneration Committee opposed by the members, or a matter the members hold qualified opinions on, which had record or statement in writing, the date and the number of times of the meeting, contents of the proposal, opinions of all members and the response to the opinions shall be stated : N/A

Other matters to be recorded:

I. If the board of directors does not accept or modify the suggestions from the Remuneration Committee, the date and the number of times of the meeting, contents of the proposal, the board of directors’ resolution, and the response of the Company to the suggestions shall be stated. (If the remuneration approved by the board of directors is higher than the Remuneration Committee suggests, the difference and the reason shall be stated.) : N/A
II. If there is a discussed matter in the Remuneration Committee opposed by the members, or a matter the members hold qualified opinions on, which had record or statement in writing, the date and the number of times of the meeting, contents of the proposal, opinions of all members and the response to the opinions shall be stated : N/A

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(V) Performance of Social Responsibilities:

Items assessed	Operationcircumstances	Operationcircumstances	Operationcircumstances	Difference from code of practice on corporate social responsibility of listed companies or OTC companiesand cause
	Yes	No	Abstracts
I. ImplementationofCompany governance
(i) Does the Company prepare the policies or systems on corporate social responsibility and the way to evaluate the performance?	V		(I) The CSR Committee of this Company has formulated six CSR policies (see 2017 CSR Report). It conducts performance inventories, reviews implementation results, and issues CSR reports on a regular basis. Reports are submitted to the board for approval for future reference.	No difference
(ii) Does the Company hold the training on the corporate social responsibility regularly?	V		(ii) The Company holds corporate social responsibility related education training courses of physical and mental healthcare (including potential development and healthcare promotion), and labor union subsidy.	No difference
(iii) Does the Company set the full-time (part-time) unit to promote the corporate social responsibility, ask the high-level management team authorized by the board of directors to handle it and report the actual situation to the board of directors?	V		(III)1. The CSR Committee serves as the highest ranked unit of the company in the field of CSR promotion. The CSR Secretariat, which is a dedicated unit directly subordinate to the board, assists the CSR Committee in the implementation of various tasks associated with CSR policies approved by the board. The Chairman serves as supervising member of the CSR Committee. The President and Vice President serve as the chairperson and deputy chairperson of the committee which is comprised of AVPs, division heads, and factory managers. Four subunits (Corporate Governance Promotion Task Force, Sustainability Promotion Task Force, Green Commitment Task Force, and Social Engagement Task Force) have been established. These task forces convene meetings or initiate projects for different issues periodically. CSR results and implementation conditions are reported to the board at	No difference

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		least annually. 2. Functions and responsibilities of the CSR Committee： (1) Development and determination of CSR policy directions. (2) Collection and compilation of stakeholder opinions and identification and management of ESG related impacts, risks, and opportunities. (3) Formulation of KPIs and management approaches and regular inspection of ESG performance and goal achievement. (4) Annual reporting of ESG performance and future strategic goals to the board. (5) Regular organization of CSR training. (6) Compilation of sustainability reports and submission to the chairman for review and release.
(iv) Does the Company prepare reasonable salary and welfare policies, combine the employee’s performance appraisal system with the corporate social responsibility and set up the effective award & punishment system?	V	(iv) The Company drew up a reasonable and competitive salary remuneration policy. We link the employee performance evaluation system, such as performance bonus and project bonus, and the promotion of corporate social responsibility policy, such as energy conservation and carbon reduction, the management performance of the Company and human resource management and training, together.	No difference
II. Developmentofsustainable development
(i) Does the Company endeavor to improve the utilization rate of all resources and use the renewable materials that exert less influence on the environment?	V	(i) This Company promotes manufacturing value chain integration policies. In the Taichung factory (fertilizer and chemical production base) a highly effective process was designed that allows full recycling of energy resources and greatly enhances energy efficiency. Taiwan Fertilizer utilizes recycled materials with a minimal negative impact on the environment to develop a circular economy (e.g., enhanced extraction of collagen peptide powder from waste fish scales and utilization of wood meal,digestate,and rice	No difference

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		straw decomposed with sake lees as biotech and organic fertilizers)
(ii) Does the Company establish the proper environment management system based on the industrial features?	V	(ii) The Company’s main factories have established ISO 14001 environmental management systems and have passed relevant certifications. Internal audits are implemented on a regular basis based on PDCAprinciples.	No difference
(iii) Does the Company pay attention to the influence of climate change on operation, execute the room temperature gas check and the policies on energy-saving, emission reduction and reduction of gas?	V	(iii) This Company aims to gain a clear understanding of GHG emission conditions in its factories. It formulates GHG reduction goals, maintains a firm grasp of reduction directions, and proposes improvement strategies. According to a GHG emission inventory carried out for all factories, total emissions amounted to 480,092 tons in 2017. The GHG emission inventory for 2018 is scheduled for the 2nd quarter of 2019.	No difference
III. Maintenance ofpublic welfare
(i) Does the Company prepare the relevant management policies and procedures according to the relevant regulations and the international human rights conventions?	V	(i) The Company has prepared the Working Principle for the Working Staffs of Taiwan Fertilizer Co., Ltd. and the Measures on the Retirement, Care and Severance of the Working Staffs of Taiwan Fertilizer Co., Ltd. according to the spirit of international human rights conventions, labor standard law and the regulations on the retirement fees of the workers, and has published it on its internal website besides notifying all the employees via letter so that the employees can inquire it at all times.	No difference
(ii) Does the Company establish a mechanism and channel for any employee’s appeal, and deal with such appeal properly as well?	V	(ii) The Company has set up and improved its grievance mechanism and channel by holding labor relation symposium, and by establishing a labor union and an exclusive complaint mailbox for employees. Thus, employees can file complaints through these channels.	No difference
(iii) Does the Company provide the employees with safe and healthy working environment and carry out regular safetyand health	V	(iii) This Company provides a healthy and safe work environment for its employees and is actively committed to the organization of activities that promote the mental and physical health of its employees. Its efforts in this area have	No difference

Corporate Governance Report

	education to them?			been recognized with a Health Promotion Label (highest level) issued by the Health Promotion Administration of the Ministry of Health and Welfare and a Healthy Workplace Excellence Award presented by Taipei City Government. 1.Health and safety management： (1) Organization of 6S activities to cultivate good health and safety habits and enhance the work efficiency of employees (2) Regular convening of work safety and environmental protection conferences and OHS committee meetings for the discussion of work safety and environmental protection related issues of the company and its factories. (3) Regular organization of employee health and safety training and various emergency response drills (4) Safety gear is available at workplaces as required and employees are educated on the correct use of such equipment in accordance with relevant regulations to prevent injuries (5) Regular monitoring of operating environments to safeguard the health of on-site personnel 2.Promotion of mental and physical health： (1) Provision of on-site medical services and health counseling for employees (2) Organization of annual health checks for employees and assistance in the tracking of of health indicators (3) Organization of mental and physical health lectures and cancer screening to place equal emphasis on career development and mental and physical health. The following activities were organized in 2018: “Brief Discussion of Hypertension and Diabetes”, “Health Check Done – What Now?”,“Don’t Let

Corporate Governance Report

			Allergies Ruin Your Life”, “Free Pap Smear Test”, “Free Flu Vaccination for Employees Aged 50 and Above” 3. This Company formulates health and safety management regulations as deemed necessary pursuant to relevant laws and regulations of the competent authoritytopromote employee health and safety.
(iv) Does the Company establish the regular communication mechanism and notify the employees of the operation changes that may exert significant influence through a reasonable way?	V		(iv) The Company holds labor and capital meetings in the head office and all plants according to labor standard law and discussions and communications at all plants according to the Company’s Key Points for the Implementation of Labor and Capital Forum on a yearly basis. If the Company has major changes in operation, each employee can get a chance for fully communication through the above mechanism. Simultaneously, the Company does an importance assessment and holds an explanation session additionally to strengthenpolicyadvocacyand employee communication.	No difference
(v) Does the Company establish any effective training plans on the development of professional skills for its employees?	V		(v) This Company ensures effective career capability development in the fields of professional competencies (stock affairs laws, international trade and procurement, real estate trends, business English, and labor laws), management competencies (intergenerational leadership, talent recognition practices, mid-level executive management competency training), core competencies (managerial economics, information security, self-improvement activities, problem-solving and analysis), mental and physical health (stress release and emotion management, health promotion lectures), employee career development lectures, and union labor education and training subsidies	No difference

Corporate Governance Report

(vi) In order to protect the customers’ rights and interests, does the Company prepare the relevant policies and appeal procedures in R&D, purchasing, production, operation, and services?	V		(vi) As disclosed in Article 23 of our “Corporate Social Responsibility Best Practice Principles”, we have established the policies on the rights and interests of consumers with respect to the R&D, purchase, production, operation, and service processes. The implementation of these Principles is described below:1. The “Detailed Regulations on Management of Customer Relationship” requires the Sales Department to set up a customer service center department and use it as a communication channel for customer service purposes. The sales unit has a complete “Customer Complaint Management Process” and a special customer service hotline so as to understand the circumstances, take actions immediately, and follow up and continuously make improvements. 2. Our “Production Management Guidelines” explicitly specifies the regulations on handling of customer complaints with respect to products, production, and business operation. 3. Our “Research and Development Management Instructions” explicitly specifies the methods for the R&D unit to review and improve the research and development of products or services. Performance review is made regularly after the products are introduced to the market. Continuous improvement is made to the satisfaction of the customer.	No difference
(vii) Does the Company abide by the relevant regulations and international criteria for the marketing and labeling of product and service?			(vii) Pursuant to Article 24 of the Corporate Social Responsibility Best Practice Principles of this Company, marketing and labeling for self-manufactured products and self-provided services must conform to relevant laws and international standards. This is implemented as follows: 1. The labeling on the bags for all fertilizer products and all promotional materials conform to national laws governing fertilizer management 2. All design, construction, and management operations associated with real estate development conform to the regulations set forth in the BuildingAct. As for marketingandproduct labeling	No difference

Corporate Governance Report

		associated with the sale and rental of real estate, all information is disclosed to consumers in an honest manner in conformityto relevant laws and international standards.
(viii) Does the Company evaluate if the supplier has records that affect the environment and society before establishing a business relationship with the supplier?	V	(viii) The Company has revealed the principle of this article according to Article 25 of Code of Conduct on Corporate Social Responsibility. When entering an agreement with a supplier, the Company will collect the credit of the supplier preliminary, including their performance capacity, and if containing the unfavorable records such as pollution of the environment or raw materials. If such events are added in the commercial terms, the supplier should undertake the liabilities.	No difference
(ix) Does the agreement entered by and between the Company and its main supplier contain the terms that the agreement will be terminated or rescinded as long as the supplier goes against the policies on the corporate social responsibility and exert great influence on the environment and society?	V	(ix) The agreement between the Company and the suppliers specifies the Company shall terminate the agreement whenever the suppliers have behaviors influencing the environment or society or violating government laws.	No difference
IV. Strengthening of informationdisclosure
(i) Does the Company disclose the critical and authentic information about the corporate social responsibility at its website and Observation Website for News Disclosure?	V	(i) The Company discloses its critical and authentic 1. The Company finishes preparation and release of CSR report of last year by the end of every June, and exhibited the contents on the official website and the Observation Website for News Disclosure so that all the interested parties can inquire it. 2. Special zone for the corporate social responsibility has been set in the Company’s official website so that the relevant interested parties can inquire them. 3. The regulations such as Code of Conduct on Corporate	No difference

Corporate Governance Report

Social Responsibility, Code on the Governance of the Company and Integrity Operation Criteria are disclosed on the official website and the Observation Website for News Disclosure of the Company for the relevant interested parties to refer.

V. If the Company has prepared the code of conduct on the corporate social responsibility according to the Code of Conduct on the Corporate Social Responsibility of Listed Companies and OTC Companies, please state the difference between the operation and the code prepared: The Company prepares Code of Conduct on Corporate Social Responsibility as the basis for fulfillment of corporate social responsibilities. The Company has constructed three CSR aspects including treatment, environment and society, shaped CSR policies, promoted plans and executed management guidelines. The Company also demonstrates and reports the annual CSR implementation situation to all interested parties by preparing and publishing CSR reports.
VI. Critical information that helps understand the operation of corporate social responsibility:
(i) Providing Taiwan Fertilizer Group with funds to improve the issues that people are concerned about to meet the expectations of the stakeholders and the international trends, and ensure mutual benefit to society and us. Major social activities are described below:
Taiwan Fertilizer is firmly committed to the promotion of education and demonstration of reasonable application of fertilizers on demo fields. Excellent results have been achieved through annual investment of funds and manpower. Over the past three years, around 4,000 employees have been involved in relevant promotion activities in which over 36,000 farmers participated. Total expenses amounted to NT$ 12,402,478. Substantial results have been achieved through the organization of 1,250 seminars on the reasonable application of fertilizers on demo fields.
Organic cultivation techniques have been developed for 32 crop types through field experiments and verification. 18 organic cultivation databases were established in 2018. It has already been verified that these techniques meet the criteria of economic production models.
The Taifer Foundation is dedicated to taking care of the farming industry, farmers, and underprivileged groups in Taiwan. Scholarships amounting to a total of NT$ 1,155,000 have been awarded for three consecutive years since 2016. In addition to scholarships awarded to outstanding and highly motivated students, the foundation has also established a “Friendly Business Plan” scholarship to inject enterprization and business management concepts into the Taiwanese agriculture sector and move away from a sole focus on production. The consideration of costs, profits, and sales channels allows the initiation of a new business model for the agriculture sector.
In 2018, the Taifer Group and Taifer Foundation cooperated in different areas including charity donations, promotion of art and culture, sports promotion, and produce purchase. Upon learning of the powerful earthquake that struck Hualien on February 6 and caused collapsed buildings and casualties, Chairman Kang immediately ordered Taifer Group to donate Deep Ocean Water of a total value of NT$ 1 million (480 cases of SNQ-certified “Haikuang 1400” and 540 cases of “Shenmingli”). The water was immediately delivered to the Emergency Response Center and reached the rescue personnel and victims in the afternoon of February 7. In the field of sports promotion, Taifer Group and Foundation sponsored the “2018 Swinging Skirts LPGA Championship”. Taifer also purchased bananas, pitayas, and guavas from farmers’ associations in different areas to alleviate the problem of crop surpluses. Total costs amounted to NT$ 15,029,148, marking an increase by NT$ 12,427,788 compared to 2017.
(ii) The fulfillment of our corporate social responsibility is compiled in our annually published Corporate Social Responsibility Report. Stakeholders may download the report from the Market Observation Post System and our official website.
VII. Please make statement here if the Company’s corporate social responsibility report has been certified by a relevant verification agency: BSI Taiwan (British Standards Institution), an independent and impartial certification body, has been entrusted by this Company with the verification of contents and data disclosed in the 2018 CSR Report released by the company in accordance with the AA1000AS2008 assurance standards developed by the AA organization. Upon verification, a third-party guarantee (Type 1 Moderate Assurance) was issued by BSI.

Corporate Governance Report

(VI) Conditions for performing good faith management and measurement by the Company

Items assessed	Operation circumstances	Operation circumstances	Operation circumstances	Difference with the integrity operation criteria of listed companies and OTC companies and the cause
	Yes	No	Abstracts
I. Conclusion of integrityoperationpolicies and schemes
(i) Does the Company specify the policies and actions of integrity operation in the rules and external documents, and implement the commitment of operation policies by the board of directors and its management team actively?	V		(i) The Company specifies its policies and actions of integrity operation in the rules and external documents as follows: 1. We disclose our core value, ethics, in the company profile, three-year business management strategies, and our official website. We established the “Ethical Corporate Management Best Practice Principles” to create a corporate culture of ethical management, build a good risk control mechanism, and sturdily ensure sustainable management and development for the enterprise. 2. The Company prepares CSR report each year to explain its integrity operation commitment and execution performance.	No difference
(ii) Does the Company conclude the action scheme against the non-integrity, define and implement the operation procedure, guide to action, punishment against violations and appeal system in the schemes?	V		(ii) The Ethical Corporate Management Best Practice Principles of this Company serve as overriding principles and codes of conduct ensuring the implementation of ethical corporate management in all business activities carried out by Taiwan Fertilizer, its subsidiaries, and joint ventures provided that the company has de facto control. Taiwan Fertilizer has also enacted a Code of Ethical Conduct for Directors and Top Executives, Work Regulations for Work Personnel of Taiwan Fertilizer Co., Ltd., and	No difference

Corporate Governance Report

		Performance Appraisal Guidelines for Personnel of Taiwan Fertilizer Co., Ltd. to ensure implementation of ethical corporate management initiatives and prevent unethical conduct by personnel at all levels. In addition, detailed whistleblowing guidelines for internal and external personnel stipulating investigation and handling procedures and whistleblower protection policies have been formulated and enforced.
(iii) Does the Company take any preventive measures for the operation activities with high dishonesty level in the Article 7-2 of Integrity Operation Criteria of Listed Companies and OTC Companies or within other scope of business?	V	(iii) The preventive measures taken by the Company against the operation activities with high non-integrity risks in the Article 7-2 of Integrity Operation Criteria of Listed Companies and OTC Companies and other scope of business are described as follows: 1. The Company deems integrity and anti-corruption education and training as important, and arranges relevant trainings or meetings regularly each year, in order to publicize integrity operation principles to all employees and eradicate corruption events completely. 2. Regarding credit and anti-corruption educational training as an important task, the Company regularly arranges related educational training or meetings every year, to communicate the credit management concept to all the colleagues and to completely eradicate corruption events.	No difference
II. Implementation of integrityoperation
(i) Does the Company evaluate the integrity records of the transaction object and conclude the terms regarding the integrity behavior in the agreement signed with them?	V	(i) Prior to the purchase, the Company evaluates the integrity records of the transaction object and specifies in the purchase agreement, trading agreement, etc. that the object shall, prior to the execution of the agreement or during the terms of this agreement, never give present to PartyA’s employee in anyform. Should	No difference

Corporate Governance Report

		Party B go against the regulations, Party A can terminate this agreement immediately as long as it is discovered and cancels Party B’s rights of trading with Party A or contracting Party A’s projects.
(ii) Does the Company set up the full-time (part-time) unit under the board of directors and in charge of promoting the enterprise integrity operation and report the execution to the board of directors regularly?	V	(ii) This Company clearly stipulates in its Code of Conduct for the Board Office, Auditing Office, and Departments Subordinate to the Board of Directors that the company’s directors, independent directors, and top executives shall prevent conflicts of interest involving personal interests or the overall interests of the company.	No difference
(iii) Does the Company prepare the policies against interest conflict and provide and implement the proper statement channel?	V	(iii) This Company clearly stipulates in its Ethical Corporate Management Best Practice Principles and Code of Ethical Conduct for Directors and Top Executives that the company’s directors, independent directors, and top executives shall prevent conflicts of interest involving personal interests or the overall interests of the company. Where it is detected that conduct of employees involves conflicts of interest, such conduct shall be reported to the Audit Committee, managers, internal auditing officers, or other relevant personnel and handled in a confidential manner.	No difference
(iv) Does the Company establish effective accounting system and internal control system for the integrity operation and carry out regular audit by the internal audit unit or by the appointed CAPs?	V	(iv) The Company shall establish its accounting system according to laws and the internal control system, and according to the treatment criteria of internal control system. The audit office shall prepare the annual audit plan for check, and the internal audit shall be reported in written at each board meeting.	No difference
(v) Does the Company hold regular internal and external education trainings on integrity operation regularly?	V	(v) This Company organizes ethical corporate management training on a regular basis. In December 2018, Mr. Li-Cheng Qiu, Vice President of the KPMG	No difference

Corporate Governance Report

			Risk Consulting Department was invited to serve as the instructor for a course on ethical corporate management and corruption and malfeasance prevention and forensic practices. A total of 44 employees participated in this course.
III. Operation of the Company’s whistle-blowingsystem
(i) Does the Company prepare the specific whistle-blowing and award & punishment system, establish the convenient whistle-blowing channel and designate a person to deal with the accused?	V	(i)	We establish the “Whistleblowing and Handling Regulations for Internal and External Personnel” and set the following website address: https://goo.gl/kuKpF5. We also create and easy whistleblowing channel. Whistleblowers may report the violation by sending a letter or an email to the specified address or email address. The Audit Office is designated as the responsible unit for whistleblowing. Appropriate rewards will be granted to the whistleblower or the personnel who have rendered meritorious services according to Article 10 (Rewarding) of the “Whistleblowing and Handling Regulations for Internal and External Personnel”.	No difference
(ii) Does the Company conclude the operation procedures for the investigation of the whistle-blowing event and the relevant confidentiality mechanism?	V	(ii)	We establish the standard operation procedure for investigation of reported violations. Article 6 of the “Whistleblowing and Handling Regulations for Internal and External Personnel” provides for detailed investigation procedures and confidential requirements.	No difference
(iii) Does the Company take measures for protecting the whistle-blower from being punished improperly?	V	(iii)	The whistleblower protection policy is specified in Article 9 of the “Whistleblowing and Handling Regulations for Internal and External Personnel”. It protects the whistleblower from any inappropriate treatment due to whistleblowing.	No difference
IV. Strengthening of information disclosure

Corporate Governance Report

(i) Does the Company specify the contents of Ethical Corporate Management Best Practice Principles for Taiwan Fertilizer Co., Ltd. and the promotion effect on the website as well as the Observation Website for News Disclosure?	V		This Company discloses relevant norms and regulations set forth in its Ethical Corporate Management Best Practice Principles as well as educational information and implementation results on its official website. These principles and the Code of Ethical Conduct for Directors and Top Executives are also disclosed on the Market Observation Post System and relevant training courses are organized. Ethical corporate management implementation records are disclosed in annually released CSR reports.	No difference
V. If the Company concludes the Ethical Corporate Management Best Practice Principles according to the “Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies”, please state the difference of the operation with the criteria concluded: The Company prepared Ethical Corporate Management Best Practice Principles as the basis to put integrity operation into practice. Prior to these principles, the Company still abided by the spirit of integrity operation in promoting all of its businesses. The Company will implement the integrity operation in terms of operation and corporate governance by abiding by the items stated herein in order to realize sustainable development.
VI. Other critical information that helps understand the operation of the Company’s integrity operation: The operation situation and effectiveness of integrity management of the Company are recorded in the annual CSR report issued each year, available for public reference.

Corporate Governance Report

(VII) Disclosure of Inquiry Ways in Case of any Formulation of Corporate Governance Rules and Relevant Regulations by the Company
For TFC Integrity Operation Criteria, please visit the official website at: http://www.taifer.com.tw/taifer/tw/2014-09-01-01-37-40/2014-12-25-02-49-45.html
For more information about the “Ethical Corporate Management Best Practice Principles of Taiwan Fertilizer Co., Ltd.”, please visit our official website: http://www.taifer.com.tw/taifer/tw/2014-09-01-01-37-40/2014-12-25-02-49-45.html ?download=453:8company_regulations
(VIII) Other Important Information Enough to Enhance the Understanding of the Operation of Corporate Governance
We set up the 2[nd] Remuneration Committee on September 25, 2012. The members of the Committee were Mingtsai Hsu, Wang Richun and You Zhongzhe with a term of office till June 30, 2015. The member of the 3[rd] Remuneration Committee are Xu Ming-Cai, Wang Ming-Ting, and Wang Ri-Chun with a term of office from July 01, 2015 to June 30, 2018. Ms. Ming-Shiuan Lee, Mr. Horng-Chang Lin, and Mr. Yu Cheng were appointed as members of the 4[th] Remuneration Committee for a term of office from July 1, 2018 to June 30, 2021.
The “Procedures for Handling Material Inside Information of TFC” were approved by the 31st meeting of 30th BOD session on May 26, 2009. Please visit the official website of TFC.
The TFC Ethical Corporate Management Best Practice Principles were approved by the 13th meeting of 33rd BOD session on August 23, 2016. Please visit the official website of TFC. ， For relevant provisions please refer to the official website of this Company.
The TFC Integrity Operation Criteria was approved by the 16st meeting of 33rd BOD session on November 29, 2016. Please visit the official website of TFC.
This Company has ratified the amended Procedures for Handling Material Inside Information of Taiwan Fertilizer Co., Ltd. by board resolution in the 7[th] meeting of the 34[th] board on January 29, 2019. For relevant provisions please refer to the official website of this Company.
This Company has ratified the amended Corporate Governance Best Practice Principles of Taiwan Fertilizer Co., Ltd. by board resolution in the 8[th] meeting of the 34[th] board on March 28, 2019. For relevant provisions please refer to the official website of this Company.
Please visit our official website for the CSR reports from 2014 to 2018.
This Company has an Audit Committee comprised of its three independent directors in place since its 34th Board of Directors.

Corporate Governance Report

(IX) Status of the Execution of the Internal Control System

Company to the Public Declaration for Internal Control System

Showing the effectiveness in design and implementation (The part following rules and regulations in the Declaration is applicable when all of the rules and regulations are adopted)

Taiwan Fertilizer Co., Ltd. Public Declaration for Internal Control System

Date : March 28, 2019

With respect to the internal control system for 2018, based on the self inspection result, we hereby represent as follows:

Ⅰ The Company acknowledges that it is the responsibility of the Board of Directors and the managers of the Company to establish implement and maintain the internal control system, and the Company has established the system for the purpose of providing reasonable assurance of the achievement of such targets as the operating result and efficiency (including profits, performance and safeguarding assets safety, etc.), the financial report reliability and the compliance with relevant statues.
Ⅱ The internal control system has its congenital limitation; notwithstanding a perfect design, the effective internal control system can only provide reasonable assurance of the achievement of the above three targets; furthermore, the internal control system effectiveness may vary according to the change of the environment and conditions, provided that internal control system of this Company is equipped with the self supervision mechanism and the Company can take any corrective action in case of any deficiency identified.
Ⅲ The Company shall judge the design of the internal control system and the effectiveness of the implementation thereof based on the judgment items of the effectiveness of the internal control system as provided in the Regulations Governing the Establishment of internal Control Systems by Public Companies (hereinafter referred to as “the Regulations”). The internal control system judgment adopted in the Regulations refers to the management based control process and divides the internal control system into five elements: 1. control environment; 2. risk evaluation; 3. Control job; 4. information and communication; and 5.supervision. Each element contains a number of items. For the above items, refer to the Regulations.
Ⅳ The Company has adopted the above-mentioned internal control system judgment items to examine the design of the internal control system and the effectiveness of the implementation thereof.
Ⅴ Based on the preceding examination result, the Company deems that, the internal control system of the Company on December 31, 2018 (including the supervision and management of its subsidiary), including knowing about the operating result and the achievement of the efficiency and targets, financial whistle-blowing reliability and the design of and the implementation effectiveness of the internal control system regarding the compliance with relevant statues, is effective, and it can reasonably ensure the achievement of the above targets.
Ⅵ This Declaration shall be the main content of the annual report and prospectus of the Company and be disclosed to the public. In case of any false or hidden illegal matters, the above content disclosed shall involve the legal responsibilities in Article 20, Article 32, Article 171 and Article 174 in the Securities Exchange Act.
VII We state herein that the Statement was approved by the board of directors on March 29, 2019. None of the 8 directors present at the meeting expressed any objection, and all of them agreed on the contents of the Statement.

Taiwan Fertilizer Co., Ltd

Chairman: Hsinhong Kang

President: Yaohsing Huang

==> picture [49 x 49] intentionally omitted <==

==> picture [36 x 36] intentionally omitted <==

Corporate Governance Report

If a CPA is appointed to review the internal control system, the CPA’s audit report shall be disclosed: N/A
(X) Punishment to the Company and its Personnel by Law and Punishment to its Personnel in Breach of Internal Control Systems by the Company as well as Major Shortcomings and Improvements over the Recent Years and up to the Date of Publication of Annual Reports: N/A
(XI) Important resolutions at the shareholders’ and board of directors meetings in the most recent year and as of the date on which the annual report was printed.
General meeting of shareholders in 2018 (June 29, 2018)

No.	Contents	Result of execution
1	The financial statements and recognition of final statements of the Company in 2017 were approved. No shareholders proposed disagreement after the inquiryof the chairman.	All shareholders have been mailed for inquiry.
2	The 2017 Earnings Distribution Plan was approved after no attending shareholder voiced an objection following an inquiry by the chair.	1. Notification has been sent out to shareholders regarding shareholder bonuses and director, supervisor, and employee remuneration. 2. On August 1, 2018, 2017 cash dividends of NT$ 2.1 per share distributable to shareholders with August 31, 2018 as the base date was approved by board resolution in the first meetingof the 34th board.
3	The 2017 Legal Reserve and Cash Payment proposal was approved after no attending shareholder voiced an objection following an inquiry by the chair.	1. Notification has been sent out to shareholders regarding shareholder bonuses and director, supervisor, and employee remuneration. 2. On August 1, 2018, 2017 cash dividends of NT$ 2.1 per share distributable to shareholders with August 31, 2018 as the base date was approved by board resolution in the first meetingof the 34th board.
3	The amendment of certain provisions set forth in the Procedures for Acquisition or Disposal of Assets was approved after no attending shareholder voiced an objection following an inquirybythe chair.	Amended provisions have been made public on the company website and enforced accordingly.
4	The amendment of certain provisions set forth in the Procedures Governing Loaning of Funds and Making of Endorsements/Guarantees was approved after no attending shareholder voiced an objection followingan inquirybythe chair.	Amended provisions have been made public on the company website and enforced accordingly.
5	The amendment of certain provisions set forth in the Rules of Procedure for Shareholders Meetings was approved after no attending shareholder voiced an objection following an inquirybythe chair.	Amended provisions have been made public on the company website and enforced accordingly.

Corporate Governance Report

No.	Contents	Result of execution
6	Election of Hsin-Hong Kang, Chi-chung Chen, Shih-Chi Lin, Chao-Feng Li, Tsai-Hsing Liu (all representatives of the Council of Agriculture of the Executive Yuan), and Yaw-Kuang Chen as directors and Horng-Chang Lin, Ming-Shiuan Lee, and Chao-Chin Hsiao as independent directors of the 34th Board of Directors.	All directors assumed office on July 1, 2018.

2. Important solutions at the board of directors meeting

2.	Important solutions at the board of directors meeting
mm/yy	Contents
March 2018	1. The declaration on the internal control system was approved. 2. The 2017 individual financial report, consolidated financial report and consolidated financial report of the affiliated business were approved. 3. The 2017 annual business report was approved. 4. The 2017 remuneration distribution for the directors, supervisors and employees was approved. 5. The 2017 profit distribution was approved. 6. The 2017 cash distribution of legal reserve was approved. 7. The proposal right of the shareholder possessing more than 1% of the shares and related business were approved. 8. The director candidate’s (including independent director) nomination period, the number of the director that shall be elected, the addendum of the nominated shareholder and accepting location were approved. 9. The matter that the Company plans to convene the shareholders’ meeting in the Armed Forces officer’s Club (No. 142, Yanping East Road, Zhongheng District, Taipei City) at 9 a.m. on June 29, 2018 (Fri.) was approved. 10. Approval of the amendment of the Rules of Procedure for Shareholders Meetings. 11. The amendment of the “Procedures for Ethical Management” of the Company was approved. 12. The amendment of the “Codes of Ethical Conducts for the Directors and Managers above level 1” was approved. 13. The election of the 34thboard of directors (including independent directors) was approved. 14. The insurance matter regarding the directors and officers liability insurance from Chung Kuo Insurance was approved. 15. The 2017 remuneration distribution for the directors, supervisors and employees was approved. 16. The R13-1 land development case in Nangang of the Company was approved.
April 2018	1. Approval of the amendment of the Procedures for Acquisition or Disposal of Assets. 2. Approval of the amendment of the Procedures Governing Loaning of Funds and Making of Endorsements/Guarantees. 3. Approval of the amendment of the Stock Affairs Unit Internal Control System. 4. Approval of the amendment of the Corporate Governance Best Practice Principles.

Corporate Governance Report

mm/yy	Contents
	5. Approval of business closure registration for the Hsinchu Factory. 6. Approval of the nomation of Hsinhong Kang, Chichung Chen, Chaofeng Li, Shihchi Lin, Tsaihsing Liu, and Yawkuang Chen as director candidates for the 34thBoard of Directors. 7. Approval of the nomation of Horngchang Lin, Mingshiuan Lee, and Chaochin Hsiao as independent director candidates for the 34thBoard of Directors.
July 2018	1. The attending directors unanimously reelect Mr. Hsinhong Kang as Chairman. 2. The attending directors approve the hiring of President Yaohsing Huang.
August 2018	1. Approval of distribution of cash dividends of NT$ 2.1 per share in 2017 with August 31, 2018 as the base date. 2. Approval of the amendment of the Rules Governing the Scope of Powers of Independent Directors. 3. Approval of the amendment of the Regulations Governing the Internal Control System. 4. Approval of the amendment of the Internal Audit Implementation Rules. 5. Approval of the amendment of the Remuneration Committee Organizational Charter.
September 2018	1. Approval of dissolution of Taifer Biotech (Xiamen) Import & Export Co., Ltd. and its parent company Taifer International (Samoa).
October 2018	1. Approval of the 2019 Audit Plan. 2. Approval of commissioning of KPMG Taiwan to audit, attest, and report the financial statement and income tax return for 2019 and retained earnings in 2018. 3. Approval of Conclusion of real estate lease agreements for the Nangang Business Park C2 Development Project and Grand Hi Lai Hotel submitted for review.
December 2018	1. Approval of 2019 Business Plan and Operating Budget. 2. Approval of adoption of joint construction and repurchase for the Nangang R13-1 Residential Development Project.
January 2019	1. Approval of the amendment of the Procedures for Handling Material Inside Information.
March 2019	1. Approval of 2018 Internal Control Statement. 2. Approval of 2018 Consolidated Financial Statement and Individual Financial Statement. 3. Approval of 2018 Business Report. 4. Approval of 2018 Earnings Distribution Plan. 5. Approval of 2018 Remuneration of directors, supervisors, and employees. 6. Approval of 2018 Remuneration allocation to directors and supervisors. 7. Approval of the amendment of Corporate Governance Best Practice Principles. 8. Approval of the handling of matters pertaining to the proposal rights of shareholders with a shareholding ratio of 1% or more. 9. Approval of the planned convening of the 2019 General Shareholders’ Meeting in the Armed Forces Officer’s Club (No. 142, Yanping South Rd., Zhongzheng Dist., Taipei City) on Thursday, June 20, 2018 at 9:00 am. 10. Approval of the purchase of liability insurance for directors and managers from Shinkong Insurance. 11. Approval of the amendment of the Remuneration Committee Organizational

Corporate Governance Report

mm/yy Contents Charter.

(XII) Major Contents of Different Opinions of Directors or Supervisors on Important Resolutions with Records or Written Statements as Adopted by the Board of Directors over the Recent Years and up to the Date of the Publication of Annual Reports: N/A
(XIII) Summary of conditions for resignation and dismissal of the chairman, President, accounting supervisors, financial supervisors, internal audit supervisors and research and development supervisors of the Company for the recent years and up to the date of publication of the annual report: N/A

V. Information on CPA Professional Fees

(I) Information of Professional Fees to CPA By Fee Range

Name of CAP firm	Name of CPA	Name of CPA	Duration of audit	Remarks
KPMG	Guoyang Zeng	Hengshen Lin	2018.1.1~ 2018.12.31	-

Unit: NT$K

				Unit: NT$K
Fee category Range of amount		Audit fee	Non-audit fee	Total
1	Below NT$2,000,000	-	868	-
2	NT$2,000,000 (inclusive) ~ NT$4,000,000	-	-	-
3	NT$4,000,000 (inclusive) ~ NT$6,000,000	4,240	-	5,108
4	NT$6,000,000 (inclusive) ~ NT$8,000,000	-	-	-
5	NT$8,000,000 (inclusive) ~ NT$10,000,000	-	-	-
6	Above NT$10,000,000(inclusive)	-	-	-

Corporate Governance Report

(II) When non-audit fees paid to the certified public accountant, to the accounting firm of the certified public accountant, and/or to any affiliated enterprise of such accounting firm are one quarter or more of the audit fees paid thereto, the amounts of both audit and non-audit fees as well as details of non-audit services shall be disclosed:

CPA expense information

Unit: NT$K

Name of The Accounting Firm	Name of the CPA	Audit Fee	Non-Audit Fee	Non-Audit Fee	Non-Audit Fee	Non-Audit Fee	Non-Audit Fee	CPA Audting Period
			System Design	Business Registrat ion	Human Resource s	Others	Subtotal
Deloitte Taiwan	Guoyang Zeng	4,180	-	-	-	301	301	-
	Hengshen Lin
KPMG	-	-	-	303	-	-	303	-
Baker Tilly Clock & CO	-	60	-	-	-	220 (Note 2)	220	-
BDO Taiwan	-	-	-	-	-	1,147 (Note 3)	44	-
Note 1：Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing service charge of NT$ 220,000 in 2017. Note 2：NT$ 44,000 for 2017 Saudi Arabia taxation certificate.

(III) When the company changes its accounting firm and the audit fees paid for the fiscal year in which such change took place are lower than those for the previous fiscal year, the amounts of the audit fees before and after the change and the reasons shall be disclosed: N/A
(IV) When the audit fees paid for the current fiscal year are lower than those for the previous fiscal year by 15 percent or more, the reduction in the amount of audit fees, reduction percentage, and reason(s) therefor shall be disclosed: N/A

VI. Information on replacement of certified public accountant: N/A

VII. Where the company's chairperson, general manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its certified public accountant or at an affiliated enterprise of such accounting firm: N/A

Corporate Governance Report

VIII.Any transfer of equity interests and/or pledge of or change in equity interests (during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report) by a director, supervisor, managerial officer, or shareholder with a stake of more than 10 percent during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report.

(I) Information on transfer of shares:

Title	Name	2018	2018	2019 until May1	2019 until May1
		Holding Increase (Decrease)	Pledged Holding Increase (Decrease)	Holding Increase (Decrease)	Pledged Holding Increase (Decrease)
Chairman	COA	-	-	-	-
	Representative: HsinhongKang	-	-	-	-
Director	COA	-	-	-	-
	Representative: Junnejih Chen	-	-	-	-
Director	COA	-	-	-	-
	Representative: Shihchi Lin	-	-	-	-
Director	COA	-	-	-	-
	Representative: ChaofengLi	-	-	-	-
Director	COA	-	-	-	-
	Representative: TsaihsingLiu	-	-	-	-
Director	YawkuangChen	-	-	-	-
Independent Director	Horngchang Lin	-	-	-	-
Independent Director	Mingshiuan Lee	-	-	-	-
Independent Director	Chaochin Hsiao	-	-	-	-
President	YaohsingHuang	-	-	-	-
Vice President	Shihjih Lo	-	-	-	-
Vice President	Changlang Chang	-	-	-	-

(II) Information on pledge of equity interests:

The counterparty in any such transfer or pledge of equity interests is a related party: None

Corporate Governance Report

IX. Top 10 shareholders who are close associates, spouses, or relatives witin two degrees of consanguinity

Name	Shareholding	Shareholding	Spouse & minor shareholding	Spouse & minor shareholding	Shareholding by nominee arrangement	Shareholding by nominee arrangement	Relationship information, if among the company's 10 largest shareholders any one is a related party or a relative within the second degree of kinship of another as stated in No. 6 of SFAS	Relationship information, if among the company's 10 largest shareholders any one is a related party or a relative within the second degree of kinship of another as stated in No. 6 of SFAS
	Shares	%	Shares	%	Shares	%	Name	Relations
Council of Agriculture, Executive Yuan	235,886,376	24.07	0	0	0	0	None	None
Representatives: HsinhongKang	0	0	0	0	0	0	None	None
Junnejih Chen	0	0	5,000	0	0	0	None	None
Shihchi Lin	0	0	0	0	0	0	None	None
ChaofengLi	0	0	0	0	0	0	None	None
TsaihsingLiu	0	0	0	0	0	0	None	None
Investment account of Ma Shih Investment Fund Company under the custodyof Bank of Taiwan	30,102,000	3.07	0	0	0	0	None	None
Mercuries Life Insurance Co., Ltd. Representative: Hsiangjie Chen	29,584,000	3.02	0	0	0	0	None	None
	0	0	0	0	0	0	None	None
China Life Insurance Co., Ltd. Representative: MingyangWang	21,257,000	2.17	0	0	0	0	None	None
	0	0	0	0	0	0	None	None
Hsien Jin Xing Kuang general international stock index under the cutodyof JP Morgan	11,892,166	1.21	0	0	0	0	None	None
Investment account of Vanguard emerging market fund under the custodyof JP Morgan	11,878,086	1.21	0	0	0	0	None	None
The 2nd-tier new laborpension fund	11,339,000	1.16	0	0	0	0	None	None
Taiwan Life Insurance Co., Ltd. Representative: Shihkuo Haung	10,657,000	1.09	0	0	0	0	None	None
	0	0	0	0	0	0	None	None
Investment account of Noregs Bank under the custodyof Citibank	10,318,000	1.05	0	0	0	0	None	None
Taipei City Government	8,460,114	0.86	0	0	0	0	None	None

Corporate Governance Report

X. Percentage number of shares and consolidate percentage of the company, directors, supervisor, managers and the businesses that are controlled by the company directly or indirectly on the invested company

Mar. 31, 2019 Unit: Share (dollar); %

					Mar. 31, 2019 Unit: Share (dollar); %	Mar. 31, 2019 Unit: Share (dollar); %
Reinvested entities (Note)	Investment by the Company		Investments by directors, supervisors, managerial officers and directly or indirectly controlled enterprises		Total investment
	Shares	%	Shares	%	Shares	%
Taiwan Yes Deep Ocean Water Co.,Ltd.	25,763,200 shares	100.00	0.00	0.00	25,763,200 shares	100.00
Taichuang Assets Management and Development Co.,Ltd.	5,500,000 shares	100.00	0.00	0.00	5,500,000 shares	100.00
Taifer International (Samoa) GroupCO.,LTD.	0	0.00	1,414,989 shares	100.00	1,414,989 shares	100.00
Taifer Chemical International CO.,LTD.	0	0.00	USD 1,333,494	100.00	USD 1,333,494	100.00
Peifeng Technology CO., LTD.	190,000,000 shares	100.00	0.00	0.00	190,000,000 shares	100.00
Taifer (Cayman) International GroupCO.,LTD.	10,965 shares	100.00	0.00	0.00	10,965 shares	100.00
TR Electronic Chmical CO., LTD.	0.00	0.00	10,965,000 shares	51.00	10,965,000 shares	51.00
TR Electronic Chemical (Kunshan)Ltd.	0.00	0.00	USD 10,965,000	51.00	USD 10,965,000	51.00
Taifer(Cambodia) CO.,LTD.	1,000 shares	100.00	0.00	0.00	1,000 shares	100.00
Al-Jubail Fertilizer Company	6,715 shares	50.00	0.00	0.00	6,715 shares	50.00
Taiwan Agriculture Investment and Development CO., LTD	6,000,000 shares	40.00	0.00	0.00	6,000,000 shares	40.00
Taiwan Agricuture Developement CO., LTD	8,000,000 shares	33.33	0.00	0.00	8,000,000 shares	33.33
Bion Tech Inc.	4,167,000 shares	15.16	0.00	0.00	4,167,000 shares	15.16
TaiAn Technologies Corp.	833,353 shares	16.67	0.00	0.00	833,353 shares	16.67
Visgeneer Inc.	3,147,086 shares	10.31	0.00	0.00	3,147,086 shares	10.31
Phalanx Biotech	403,826 shares	0.76	0.00	0.00	403,826 shares	0.76
Ting Tang Energy Technology Co.,Ltd.	1,500,000 shares	6.71	0.00	0.00	1,500,000 shares	6.71
Taiwan Stock Exchange Corporation	13,872,225 shares	2.00	0.00	0.00	13,872,225 shares	2.00
China Petrochemical DevelopmentCorporation	9,202,205 shares	0.36	0.00	0.00	9,202,205 shares	0.36
Chi Hang Joint Venture Co., Ltd.	4,500,000 shares	10.00	0.00	0.00	4,500,000 shares	10.00
Chi Hang 2 Joint Venture Co., Ltd.	20,000,000 shares	18.50	0.00	0.00	20,000,000 shares	18.50
Qihang CO., LTD	15,000,000 shares	16.56	0.00	0.00	15,000,000 shares	16.56
Sheng Yuan Joint Venture Co., Ltd.	3,360,000 shares	19.75	0.00	0.00	3,360,000 shares	19.75
Fu Ding Joint Venture Co., Ltd.	1,658,536 shares	9.76	0.00	0.00	1,658,536 shares	9.76

Note ： Long-term investments

Capital Overview

Chapter Four: Capital Overview

I. Capital and Shares

(I) Source of Capital Stock

Date	Issue price	Authorized capital	Authorized capital	Paid-in capital	Paid-in capital	Remark	Remark	Remark
		Shares (K shares)	Amount (NT$K)	Shares (K)	Amount (NT$K)	Source of capital	Property other than cash is paid by subscribers	Others
August 2000	NT$10	980,000	9,800,000	980,000	9,800,000	NT$2.8 billion capital reserves converted to increase capital (Note)	None	None

Note: Refer to the Letter of Authorization (2000) Tai-Tsai-Zheng (1) No. 60387 by Securities & Futures Institute on July 12, 2000.

Shareholding Category	Authorized capital	Authorized capital	Authorized capital	Remark
	Circulating Shares Overseas(K shares)	Unissued Stock (K shares)	Total
Common stock	980,000	0	980,000	Listed stocks

Information for shelf registration: N/A

(II) Structure of Shareholders

April 22, 2019

						April 22, 2019
Structure Amount	Government bodies	Financial institutions	Other juridical persons	Individuals	Foreign institutions & foreigners	Total
Members	7	24	293	74,281	284	74,889
Shares held	273,903,490	90,033,858	37,007,095	428,103,959	150,951,598	980,000,000
Percentage (%)	27.95	9.19	3.78	43.68	15.40	100

Capital Overview

(III) Shareholding Distribution Status

1. Common stocks

April 22, 2019

1. Common stocks			April 22, 2019
Range of shares held	Number of shareholders	Shares held	Percentage (%)
1 - 999	23,622	1,077,379	0.11
1,000 - 5,000	38,456	82,009,867	8.39
5,001 - 10,000	6,255	51,261,683	5.23
10,001 - 15,000	1,807	23,655,944	2.41
15,001 - 20,000	1,429	26,983,329	2.75
20,001 - 30,000	1,142	29,966,325	3.06
30,001 - 50,000	886	36,300,787	3.70
50,001 - 100,000	688	50,548,775	5.16
100,001 - 200,000	294	41,399,844	4.22
200,001 - 400,000	144	39,994,158	4.08
400,001 - 600,000	53	26,205,000	2.67
600,001 - 800,000	32	22,320,161	2.28
800,001 - 1,000,000	9	8,173,508	0.83
Above 1,000,001	72	540103240	55.11
Total	74,889	980,000,000	100

Preferred stocks: None.

(IV) List of Major Shareholders

April 22, 2019

(IV) List of Major Shareholders		April 22, 2019
Shareholding Major Shareholders	Shares held	Percentage (%)
Council of Agriculture,Executive Yuan	235,886,376	24.07%
Investment account of Ma Shih Investment Fund Companyunder the custodyof Bank of Taiwan	30,102,000	3.07%
Mercuries Life Insurance Co.,Ltd	29,584,000	3.02%
China Life Insurance Co.,Ltd.	21,257,000	2.17%
Hsien Jin Xing Kuang general international stock index under the cutodyof JP Morgan	11,892,166	1.21%
Investment account of Vanguard emerging market fund under the custodyof JP Morgan	11,878,086	1.21%
New Labor Pension fund	11,339,000	1.16%
Taiwan Life Insurance Co.,Ltd.	10,657,000	1.09%
Investment account of Noregs Bank under the custody of Citibank	10,318,000	1.05%
Taipei CityGovernment	8,460,114	0.86%

Capital Overview

(V) Market Price, Net Value, Earnings, Dividends Per Share of the Latest Two Fiscal Years, and Related Information

Items	Year	Year	2018	2017	As of March 31, 2019 (Note 5)
Market price per share (Note 1)	Max.		NT$48.6	NT$43.9	NT$47.40
	Min.		NT$37.65	NT$37.45	NT$42.70
	Average		NT$42.74	NT$39.97	NT$44.82
Net value per share	Before distribution		NT$51.82	NT$50.09	NT$52.41
	After distribution		Not distributed	NT$47.99	Not distributed
Earnings per share	Weighted average shares(1K)		980,000	980,000	980,000
	Earningsper share		NT$2.33	NT$1.65	NT$0.56
Dividends per share	Cash dividend		Not distributed	NT$2.1	Not distributed
	Free placement	Stock Dividend from Retained Earings	－	－	－
		Stock Dividend from Capital Reserve	－	－	－
	Accumulated undistributed dividends		－	－	－
Return on investment	Price-earnings ratio(Note 2)		18.03	24.49	－
	Price-dividend ratio(Note 3)		－	19.24	－
	Cash dividend yield rate (%) (Note 4)		－	5.20	－

Note 1: The highest and the lowest market value per share. The average market value was annually calculated according to the stock index and the turnover.

Note 2: Price-earnings (P/E) ratio = Average closing price per share that year/ Earnings per share.

Note 3: Price-dividend (P/D) ratio = Average closing price per share / Cash dividends per share.

Note 4: Cash dividend yield rate = Cash dividend per share / Average closing price per share that year.

Note 5: Market price per share in 2018 is the information up to March 31, 2019, and net value per share and earnings per share are information on consolidated financial statements for the first quarter audited by certified public accountants.

Note 6: The net value per share and earnings per share for the year 2017 and 2018 are attested by independent auditors.

Capital Overview

(VI) Dividend Policy and Implementation

TFC’s Dividend Policy
(1) The Dividend Policy is set forth in TFC’s Articles of Incorporation:
- Articles 25-3 and 25-4:

Any earning after final accounting by this Company each year shall be made good for deficit for previous years after payment of taxes by law, and if there are still earnings, there shall be provision for 10% of statutory surplus reserve, and there shall also be provision for or transfer of special surplus reserve by law, and then the balance and total retained earnings for the previous year shall serve as the distributable earnings, but they shall be retained by discretion as business requires or there shall be provision for special surplus reserve by discretion before they will be distributed at the percentage below. For the foregoing matters, the Board of Directors shall provide the proposal for surplus distribution on a yearly basis, and present the same to the executive meeting of shareholders for resolution.

The shareholders’ dividends of TFC shall refer to diversified operation of business and characteristics of changes in economic boom with consideration taken to the demand of life cycles of products or services on future funds as well as business development and shareholders’ equity. For the payment of shareholders’ dividends, except substantial investment plans, significant changes in financial standing, substantial changes in operation and productivity expansion or other substantial capital expenditure and other capital demands for that year, the cash dividend distribution ratio shall be on the whole not be lower than 10% of the total dividends for that year, and shall be submitted to the meeting of shareholders for consent before the same is handled.

  - (2) The distribution of bonus for TFC’s shareholders will be based on the following factors; that is, TFC’s financial condition in future, and the need for a stable dividend condition as well as for the transformation of the Company. In principle, at least 50% of earnings can be distributed after statutory surplus reserve and special surplus reserve by law are deducted.

Dividend distribution to be proposed at this meeting of shareholders:
According to the motion for allocation of earnings from 2018 proposed by the Board of Directors, the bonus to be allocated to shareholders should be NT$2.2 per share.
Estimation of substantial change in the dividend policy of the company: None
(VII) Effect of the uncompensated rationed shares deliberated at this meeting of shareholders on the Company’s business performance and earnings per share: N/A

(VIII) Remuneration for Employees and Directors

Percentage or scope of remuneration for employees, directors and supervisors set forth in TFC’s Articles of Incorporation:

In accordance with Articles 25-1 and 25-2 of TFC’s Articles of Incorporation:

If TFC has any profits, the profits will be distributed at the percentage below remuneration for employees at 2.4%, and for directors and supervisors at within 1.6%. However, if TFC has any losses, the profits shall be made good for deficit for previous years.

The resolutions made in the TFC’s Board Meeting regarding the remuneration for employees, directors and supervisors must have more than one half of directors

Capital Overview

present with consent of more than one half of the directors present, and must be reported in TFC’s general meeting of shareholders.

The basis for the estimate and recognition of the employee bonus as well as directors’ (supervisors’) remuneration, the basis for the calculation of the placed and issued shares for dividends and the accounting handling in case of difference between actual distribution amount and estimated amount for this period:
The estimated employees’ dividends for the current period accounting for NT$ 73,715 thousand and the amount of remuneration for TFC’s directors (supervisors) accounting for NT$49,143 thousand are estimated at 2.4% and 1.6% of profits in 2018 on the basis of Article 27-1 of TFC’s Articles of Incorporation without distribution of share dividends. If actual amount of allotment is different from the estimated amounts, such will be deemed as changes in accounting estimates, which will be recognized as the profit and loss for 2019.
Information about the remuneration for employees, directors to be distributed by the Board of Directors of this year:
(1) Remuneration for employees, directors (supervisors) to be distributed at cash or stocks
- The proposed amount of allotment adopted in the Board Meeting (as shown in the table below) is calculated at 2.4% and 1.6% of profits in 2018 on the basis of Article 25-1 of TFC’s Articles of Incorporation. If actual amount of allotment is different from the estimated amounts, such will be deemed as changes in accounting estimates, which will be adjusted in 2019.

Unit: NT$K

Proposed distribution amount Item passed by the board of directors Cash remuneration to 73,715 employees Stock remuneration to None employees Remuneration for directors 49,143 and supervisors

(2) It is required to deliberate the amounts of employees’ remuneration and the percentage in the net income after tax and total amounts of employees’ dividends in the individual financial reports: N/A
Conditions for actual distribution and payment of remuneration for employees, Directors and Supervisors for the previous year (including number of allotted shares, amounts and prices of shares). If there is any difference in the recognized remuneration for employees, Directors and Supervisors, it is required to specify number of difference, reasons and treatment conditions:

The actually distributed remuneration for employees, directors and supervisors for 2017 has been recognized as expense in 2017, and are the same as the proposed conditions of allotment as adopted by the former meeting of directors.

Capital Overview

Unit: NT$K

		Unit: NT$K
Item	Estimated amount to be distributed by the board of directors	Actually distributed amount
Employees’ remuneration	45,474	45,474
Remuneration for directors and supervisors	30,315	30,315

(IX) Buyback of the Shares of the Company

For FY2018 and FY2019 as at the publication date hereof, no buyback of the shares of the Company.

II. Corporate Bonds: None

III. Preferred Stocks: None

IV. Overseas Depositary Receipts: None
V. Employee Stock Options: None
VI. Status of New Shares Issuance in Connection with Mergers and Acquisitions: None

VII. Financing Plans and Implementation: N/A

Operation Highlights

Chapter Five: Operation Highlights

I. Business Content

(I) Scope of Business

Taiwan Fertilizer Co., Ltd. has been developing mainly under two major business groups, namely “fertilizer chemical” and “real estate development and investment”. Meanwhile, the internal supporting management of the Company has been structured into five sections according to functions. Descriptions are as follows:

Fertilizer and chemical business:
(1) Fertilizers products:

Considering industry development trend and government’s policy of promotion friendly agricultural environment, in addition to the original fertilizer, we constantly expand the green agricultural industry towards the organic development of fertilizers as well as develop biotech agricultural products and promote niche fertilizer products. The company uses the advantages including fertilizers expert experiences and Know-You’s brand value to progressively explore overseas markets; meanwhile, we assess the appropriate collaborative opportunities or investment plans in seeking for new opportunities for the development of fertilizer industry.

(2) Chemical products:

Based on the original business in chemical and electrochemical products, the sales, market, and business in chemical products have been expanded by way of integration of upstream and downstream products as well as upgrade to electrochemical products. In the oversea market, the focus has been on the investment in electrochemical products and the penetration of international electrochemical market, both in production and in sales, so that the technology, knowhow, and market shares of our electrochemical products can be enhanced.

(3) Trading logistics:

Incorporating the existing procurement business in raw materials, taking advantage of the edge of the special piers at Taichung Harbor along with the planning of free trade zone therein, the Company has constructed a number of chemical storage tanks to further expand the business of import procurement, unloading warehousing, transit trade, while actively transforming into the role of a provider for product integration services and a supplier for relevant raw materials2.

Real estate development and investment business:
(1) Development of residential buildings:

Due to regional environmental changes, the industrial lands of the old factories have been changed to non-industrial lands by the local government, and with city development, the lands have become elite areas. Among them, the land of the Nangang Economic and Trade Park is the most valuable, while the land of the Hsinchu Technology and Business Park and the special trade area of Kaohsiung are the second best. Land in these parks can be changed to high-value commercial land use for hotels, shopping malls, offices, etc. At present, the C2 Hotel and Office Building Development Project at Nangang Economic and Trade Park is under construction, the planning and design of the C4 Office Building Development Project at Nangang Economic and Trade Park is in progress, and the construction of the TFC ONE office building at Hsinchu Technology and Business Park has been completed and is available for rent

Operation Highlights

currently.

The Company's real estate development business will aim to make activation of land assets and the focus on our professional development of chemical fertilizers become one of Taiwan Fertilizer's main sources of profits. According to individual land conditions, we will take the models of leasing, self-development, joint purchase, and cooperative development to accelerate development, so as to create long-term and stable rental income, as well as to share the value-added benefits from the development of the real estate; as for land with low efficiency development or with inability, immediate injunction or a co-construction project should be taken to make efficient management so as to reduce the burden of land value tax and troublesome management.

(2) Business Investments:

In the future, we will uphold the principles of “sales-led production” and “priority technical service” to expand our domestic and foreign investment in the development of fertilizer and chemical engineering professions including the three major categories; new agricultural intelligent industry, eco-friendly agriculture, and deep ocean water industry. as well as continuous development of highly efficient new fertilizer, eco-friendly agricultural materials, and microbial bacteria bio-products, in addition to the expansion of the vitality business of agricultural and fishery industries. Additionally, using the development of deep ocean water resources to establish Taiwan Fertilizer's Hualien Deep Ocean Water Park Area in the development of seaweed rich in deep ocean natural minerals, packaged drinking water, deep ocean salt, concentrated solutions, cosmetic and skincare products, health food products, etc. so as to deeply root and expand the deep ocean water industry in a gradual way.

(II) Industry Overview

1. General Economic Environment

The momentum of global economic growth in 2019 became moderate; according to the most updated forecast published by the IHS Markit, the global economic growth this year in January was 2.9%, which is lower than that of 2018 at 3.2%. The growth in 2020 is projected at 2.8%.

The World Bank released its Global Economic Outlook on January 8 and indicated that the weak international trade and manufacturing activity due to trade tensions, as well as some large emerging and developing economies facing financial pressure, have created a reduced global economic growth forecast for this year at 2.9%, which is more moderate than the 3.0% of last year. In addition, the forecast will be decreased to 2.8% for next year owing to an unpromising future. The growth momentum of advanced economies has become weakened, and the economic growth forecast will be at 20% for this year and 1.6% for next year; due to the recovery of emerging and developing economies being slower than expected, while the decreasing growth of commodity importers is faster than expected, the reduced economic growth forecast for this year will be at 4.2% and 4.5% for next year. Additionally, being dragged down by trade restrictions, tariff increases, and trade policy uncertainty, the updated world trade volume has decreased to 3.6% for this year, which is lower than the 3.8% of last year. Global trade growth has been slowing down.

Driven by the leading domestic semiconductor manufacturing process as well as emerging technology applications, our nation's exporting momentum is expected to

Operation Highlights

continue. However, due to decreasing global economic growth, the strength of prosperity expansion will be impacted. Although employment and salary levels have improved continuously, stock market fluctuation has affected consumer confidence. Green energy investments, such as semiconductors and offshore wind power, are in progress. Paired with the government's continuous promotion of forward-looking infrastructure to improve the investment environment, the expansion of business investment is expected to be driven forward. In February 2019, the Directorate-General of Budget, Accounting, and Statistics, Executive Yuan released the economic growth estimate of 2.63% for 2018 and 2.27% for 2019.

At present, sustained attention should be paid to many downside risks that the international economy is still facing, including the emerging economic conflict between the US and China, the slowing economic growth in mainland China happening faster than expected, Brexit consultation, geopolitical risk, price changes in international crude oil and commodities, fluctuation of global financial markets and stock markets, trade protectionism, etc. All the aforementioned risks are impacts on the future international economy and prosperity.

Recent Status and Development of the Industry
(1) Overview, Development Tendency and Race Condition of Fertilizer Industry:
- A. The fertilizer industry, a mature and essential industry with a long history, is closely related to people’s livelihood. Recently, the government has implemented the organic fertilizer policy towards the promotion of developing friendly agricultural environment. In the second quarter of 2017, we mainly subsidized major fertilizer compound prepared for organic substance. In the future, the compound organic fertilizer will gradually replace the traditional compound fertilizer.
- B. There is a lack of raw material for producing fertilizer in our nation, almost all of which are imported. Because the production costs are influenced by the prices of international fertilizer raw materials, we can only be in line with the government’s policy of caring for famers. As a result, the prices of domestic fertilizer have been constrained by the government for a long time.
(2) Overview, Development Tendency and Race Condition of Chemical Industry:

In recent years, Taiwan has been witnessing an outflow and brain drain in chemical industry as a result of scarcity of natural resources and lack of competitiveness therein. At present, all products of the company, except for nitric acid, sulphanilic acid and fuming sulfuric acid, which are subject to transportation and storage restricts on them or their by-products, are still produced in Taiwan. Imported goods have outgrown as the dominant sources for items such as liquid ammonia, industrial urea, etc.; products in downstream market are all supplied to Taiwan to meet internal demand, except for sulphanilic acid that is sold to Europe and America. In the relatively mature and saturated market, it is saturated yet relatively stable.

Operation Highlights

The fertilizer chemical industry up/mid/downstream relationship diagram

==> picture [459 x 444] intentionally omitted <==

----- Start of picture text -----

Upstream Midstream Downstream
(Agricultural
users)
Agricultural
Liquid Nitric acid Nitrophosphorus
Association,
ammonia compound fertilizer
Fertilizer
dealer,
Farmers
Urea
Potassium
Phosphorus and
chloride, phosphorus compound
Potassium fertilizer
sulfate
（ Industrial
users ））
Phosphorite Superphosphate Ammonium Plywood industry
Fertilizer industry
sulfate Electronic industry
Food industry
Power generation
industry
Molten Sulfuric acid Environmental
sulfur protection industry
Chemical
Sulfanilic acid
industry
Steel Industry
Melamine
----- End of picture text -----

Operation Highlights

(3) Overview, Development Tendency and Race Condition of Electric-grade Chemical Industry:

Electric-grade chemicals are generally referred to various chemicals that can be used in the process of electronics industry or facility end, the product items include single organic solvents of simple substance, alkaline acid solution of simple substance to formulas of different proportions. At present, the products are used in the processes such as yellow developer, peeling, itching, polishing and cleaning in semiconductor, panel, solar energy and LED industries.

The value of output of domestic semiconductor industry has broken through NT$2 trillion and more than 200,000 people are employed by this industry. The value-added rate of this industry has exceeded 50% and it contributes at least NT$1.1 trillion to the GDP of Taiwan each year. As for panel industry, the investment of AUO and Innolux was improved by 8.5- generation plant capacity; while the market demand of LED industry was not as good as expected and the average prices of chips and packages decreased to a large extent. Looking into the future, the compound annual growth rate of LED industry will not achieve a growth of more than 10% as it has reached in the past; however, there is still room for it to develop. Speaking of solar industry, the huge solar cell capacity of Taiwan will focus on integrating its large plants in China vertically and the cooperative OEMs in a third place such as Vietnam and Malaysia. Generally speaking, the demand of electric-grade chemicals will grow positively based on the innovative application and continuous capacity expansion in various electronic industries, which proves that there is still space for development in electric-grade chemicals market.

The electronic grade chemicals are the examples of perfect competition. In addition to our commitments to achieving the quality requirements of different industries and different clients, accordingly, our company needs to deepen product production control, quality assurance, technical support and assistance, and comprehensive after-sale customer service. Besides the existing clients in panel industry, we will upgrade relevant technical capabilities to develop semiconductor industry related products and make downward proliferation in seeking solar energy as well as the niche products in LED industry. It is hoped to combine the current self-produced ammonia by Miaoli Plant with the products such as nitric and NMP with the capabilities of distillation, formulation, separation and waste liquid recycle, to expand our product range for offering the comprehensive one-stop shopping service.

(4) General Situation and Development Trend of the DOW Aquatic Industry:

DOW (Deep Ocean Water) is generally referred to the seawater 200m below deep ocean. Contacting with no light all year round, DOW is featured with low temperature, cleanliness, maturity and rich minerals. As a kind of emerging water resource for multi-purpose development and application, DOW can be used in a wide scope. Currently, only Japan, Hawaii of the U.S., Korea and Taiwan has formed efficient DOW development of certain scale worldwide.

In view of the arrival of aged society and awareness of health, health care food industry is attaching more and more importance on minerals. Hualien Plant of the Company is the DOW production base that produces DOW products with the deep ocean water drawn from the sea 662m below Western Pacific in the east coast of Hualien Harbor. In addition to extending the platform utilization of deep ocean water industry, our company has established self-owned deep ocean water breeding and algae as well as progressively introducing relevant downstream manufacturers to work together for value-added industrial output

Operation Highlights

volume. Additionally, in order to extend the utilization of the DOW aquatic industry, the Company has not only self-established DOW breeding aquatic products and the multi-stage application industry of algae, but also aggressively introduced relevant downstream manufacturers to jointly increase value-added industrial output.

(5) Overview, Development Tendency and Race Condition of Land Development Industry:

Residence:

According to the data released by Savills, the amount of large commercial real estate transactions of commercial offices and factories throughout Taiwan in 2018 reached NT$103.5 billion, which was the best performance ever since 2016. Compared to 2017, it’s a 40% increase. The total amount of annual transactions for commercial lands reached up to NT$ 182.2 billion, which is the highest in 5 years.

According to the fourth quarterly index report of 2018 released by Cathay Real Estate, there was an increase in the initial price of A-level offices in Taipei City and an increase in the offices in Neihu Technology Park by 2.54% over the last quarter, while other areas remain stable compared to the last quarter; as to the rate of bargaining space, the offices in both Taipei City and New Taipei City remain stable compared to the last quarter; in terms of the vacancy rate, the A-level and B-level offices in Taipei City, Neihu Technology Park, Nangang Science Park, as well as every area in New Taipei City remain stable compared to the last quarter; in terms of the future supply, the main commercial circles will lack a large supply in 1-2 years in the future. By the year 2020, a new supply of 56,000 pings will be completed one after another, so lessors need to prepare well for an early response; in terms of demand, there is strong demand for A-level offices, and the demand for B-level offices remains stable; in terms of rent, there is a stable demand for A-level offices with an expected increase in rent; in terms of vacancy rate, there was no new supply in the recent year, which was beneficial to the stable deurbanization of A-level offices.

Moreover, according to the estate quarterly report released by Sinyi Global in the fourth quarter of 2018, due to the active return of the insurance industry and constructors to the market, land rights projects in the commercial and land market in Taipei City have also regained attention. The good performance of the deurbanization of office space has been driven by the increasing number of self-use buyers. According to the fourth quarter statistics, the average price of an office in Taipei City reached NT$842 thousand and the capitalization rate of gross rent remained at 2.46%. While the rental market is hotter than the buying and selling markets, rental increase is significantly higher than the price. The average rent rose to NT$2,242, and the vacancy rate reached 5.18%. The market performance in the Neihu Technology Park is strong. Listed companies and OTC (over-the-counter) companies actively purchased office buildings and land with the average sales price remaining NT$511,000, and the slightly increasing average rent reached NT$1,162.

In terms of the commercial real estate market in Hsinchu City, there is a significant impact from the industry in Hsinchu Science Park. Currently, there's a buoyant demand from the high-tech and semiconductor industry, so the demands for office buildings and plant buildings remains strong; however, the demand for new expansions of plants is accompanied by industrial policies of each county and city government, as well as urban planning. The Company's demand in the Hsinchu Science Park will take the expanding chains of the surrounding industries in the Hsinchu Science Park and office migration as the basis. In addition, because the Company's land features the advantages of convenient location and a close distance

Operation Highlights

from downtown Hsinchu, the land is suitable for building modern offices in the park area. At present, the TFC ONE building with its innovative design and high-quality facilities is favored by many high-tech enterprises, and its rent has reached the highest in the Hsinchu area.

(III) Technology and R&D overview

1. R&D expenditure

1. R&D expenditure
Year Item	2017	2018
R&D expenditure(NT$K)	82,267	80,009
Proportion in business volume(%)	0.73%	0.66%

Achievements in recent 2 years

The company strengthens cooperation with foreign research institutions, introduces new technology and shortens the R&D period by following the innovative strategies and transformation of scientific technology to enter the high-tech market. We will keep improving our microbiologic fermentation technology, establish enzyme hydrolysis extraction technology, DOW highly economic aquaculture technology, inorganic and organic fertilizer formula, and development of core technologies such as process technology and purification technology for electrochemical products, etc.

(1) Development of biotech fertilizer

A Application of agricultural microbial strain - development of biotech fertilizer

To strengthen our company’s core technology of organic fertilizer production, we continue to deeply root the field of organic fertilizer and provide more high-quality organic fertilizer products. Our company’s Miaoli Plant has been facilitated with an organic fertilizer research center, which has established the organic fertilizer factory with the production capacity of 6,000 tons in 2015 and produced “ ＃ 5 Organic Compound Fertilizer” and “ ＃ 11 Biotec Organic Fertilizer” for farmers; in 2017, for meeting the demands of fruit crops, we developed “Taifer Organic No.7 Organic Fertilizer” N-P2O5-K2O=3-2-5-80 (organic stimulant) (Fer manufactured(Zhi) No. 0465022 ， item 5-12 mixed organic fertilizer) ， . This product is made by a variety of fermented plant residues and it can improve the physical and chemical properties of the agricultural lands. Currently, all the three products mentioned above have completed the application of the “recommended domestic organic fertilizer brand” and “recommended organic agricultural commodity brand”.

To solve the problem of suspended particles produced by rice straw burning in the field, our company will facilitate Council of Agriculture’s policy of “promoting the reuse of straw and the reduction of open-air combustion” by the means of the core technology of fertilizer production, in 2017, our company transferred the technology to “Taichung District Agricultural Research and Extension Station” as the “preparation and application technology of compound grass-decomposing bacteria” for the production of “Know-You No.10 Biotec Organic Fertilizer”, N-P2O5-K2O=4-2.5-2.5-70 (organic stimulant) (Fer manufactured(Zhi) No. 0644014, item 5-12 mixed

Operation Highlights

organic fertilizer). The product is added with “straw-decomposition germs”, which can effectively make the straw become black, soft and rotten, so the agricultural straw waste can be reused as the soil nutriment. It is an option for farmers to choose. Instead of burning the rice straw, the method is a new nutritious option to farms and helps to improve problem of rice straw burning by farmers.

The Company has also actively cooperated with the government's biogas power generation policy. With the multiple applications of combining biogas slag that is produced after anaerobic fermentation of animal manure with straw decomposition bacteria and agricultural microbial flora, the Company has developed and launched a new product in July 2017, “Known-You Branded Bio-organic No. 12 Fertilizer” N-P2O5-K2O=3-3-2-70 (Organic Matter) Feizhi (Zhi) Zi No. 0042045, Item 5-11 miscellaneous compost). In 2018, the Company started to actively develop biogas slag conversion bio-carbon technology, which is expected to increase the added value of organic fertilizer, not only promoting the agricultural recycling economy, reducing pig dung urine discharged into rivers, and maintaining a water-friendly environment, but also providing soil with fertilizer that strengthens the quality of the land for sustainable cultivation. Meanwhile, the Company is attached to the importance of corporate social responsibility. With the aim of preventing the problem of kitchen waste and livestock manure in animal husbandry from African swine fever, the Company has actively assisted the local government and private enterprises by coordinating composting fields with technical assistance.

B. Application of agricultural biological bacteria-Microbial fertilizer development

In accordance with the inclusion of microbial fertilizer being included in the “measure for the six subsidies in promoting eco-fertilizer materials” by the Council of Agriculture, Executive Yuan, the Company once again managed the non-exclusive authorization to the mass production techniques of “Bio-Phosphorus Solubilization Fertilizer of the Miaoli Living Bacteria No. 1” in the Miaoli District Agricultural Research and Extension Station of the Council of Agriculture, Executive Yuan in 2018. Miaoli Living Bacteria No. 1 has multiple features and it has both significant phosphorus-soluble and dissolved potassium activity that can boost the growth and bloom of crops, and reduce the use of phosphate fertilizer and potassium fertilizer. The development is registered as microbial fertilizer for potassium soluble bacteria - “Known-You Vitality Potassium”, N-P2O5-K2O-MgO=5-5-5-1, Item 8-04 potassium dissolved bacteria fertilizer. In 2018, it completed the sample fertilizer composition analysis and crop toxicity assessment test. And, on November 19, 2018, and December 21, 2018, it claimed the composition analysis by the Soil Survey and Testing Center of National Chung Hsing University and crop toxicity assessment report by the Taiwan Agricultural Research Institute. Fertilizer registration is under application.

C. Development of Organic Liquid Fertilizer That is Suitable for Organic Agriculture

The production of safe organic agriculture products and the sustainable management of agricultural land are the world's leading trends and an important policy of our country. The program has used natural organic materials to extract highly active organic small molecules in a physical method, and this is applied to organic agricultural cultivation and

Operation Highlights

management after concentration formulation to significantly improve the ability of crops to resist adversity, improve quality, as well as increase the amount of yield. Since 2017, the research and development of the new product “Known-You Taiwan Fertilizer Vitality No. 6 Biotech Nutrition Agent”, which has been developed in the laboratory and completed three 500L amplification productions in conjunction with the completion of multi-field accuracy tests with good experimental results. It acquired fertilizer registration on March 15, 2018. On August 27, 2018, it claimed the organic agriculture commercialization materials review and brand recommendation project, and the product is marked “organic agriculture applicable, organic Zishen Zi No. 107021” suitable for general and organic agriculture. It's estimated it will launch on the market in the first quarter of 2019.

D. Establishment of Organic Agricultural Materials Field Accuracy and Cultivation Techniques

The Company attaches importance to the deep cultivation and rise of organic agriculture in Taiwan. With the aim of improving green capacity development, we actively carry out the development of organic materials and fertilizers to provide farmers with good quality and easy-to-use organic agricultural materials. Since the establishment of the “Taiwan Fertilizer Demonstration Farm” in 2014, we have claimed the organic agricultural product certificate (1-014-026411) issued by the “Chengda Agama International Certification Corporation”. After years of combining the “Known-You Vitality Phosphate Fertilizer” of the organic agricultural commercialization materials brand recommendation with the “Taiwan Fertilizer Biotech Organic Fertilizer” series product, the organic cultivation experiments of seasonal vegetables and melon crops have been carried out on the farm (without using any chemical fertilizers or chemical pesticides); also, pairing biological control with the the management of pest control and prevention, the effects of the products are certified. At present, the pairing techniques of fertilizer adoption with the organic plantation are applicable for 32 kinds of crops. During the experiment, the potential and the feasibility tests of multiple organic materials were conducted at the same time. (Including bamboo fibers, extracted liquid of the fermentation powder used in the Zhunan Beer Plant, maifanitum, sorghum mash, Miaoli Living Bacteria No.1, biogas slag compost, thrip sex pheromone repellant, and Taiwan Fertilizer Vitality No.6).

The Company has been active in combination with farmers' practical field experiences; in 2018, we worked with organic cultivation farmers in the Miaoli area on collaborative experiments and demonstrations, including “Yongchang Organic Farm” and “Ichico Co., Ltd.” for the collaborative organic strawberry experiment, “K. K. Orchard” for the collaborative sweet potato leaves experiment, “Li-Yuan Organic Farm” for the collaborative organic small tomato experiment, “Taifu Agricultural Biotech Co., Ltd” and “Sinan Plantation Farm” for the experiment of improving the natural thickener formulated with purslane extract, and “Qingren Organic Farm” for the collaborative organic small watermelon and potato experiment. In addition, in terms of the problem of low firmness of peanuts in Taixi, Yulin, the Company recommended using the combination of the “Taiwan Fertilizer Biotech Organic Fertilizer Series” product with the microbial fertilizer “Vitality Phosphorus Fertilizer”, and it has successfully improved the firmness of the peanuts.

Operation Highlights

In recent years, the government has attached importance to promoting organic and eco-farming. Through external cooperation of organic demonstration farms as the base of communication and experience exchange, the Company signed a contract with “Liujing Complex Farm” to be the “Taiwan Fertilizer Organic Farm” on March 16, 2017, and on May 1, 2018, the Company signed a contract with “Yongchang Organic Farm” to be the Taiwan Fertilizer Organic Strawberry Demonstration Farm in the hopes of expanding the promotion of organic and eco-friendly agriculture as well as enhancing the multi-variate value contributed by agricultural production in the ecological environment.

(2) Development of biological pesticides

In response to the rise of safe and organic agriculture, the Company is committed to the development of environmentally friendly, non-toxic, and safe agricultural microbial agents. In 2013, the transfer of “bacillus amyloliquefaciens Ba-BPD1” patented strains and technology from the “Taiwan Agricultural Chemicals and Toxic Substances Research Institute, Council of Agriculture, Executive Yuan” successfully developed the Bio-Phosphorus Solubilization Fertilizer “Known-You Vitality Phosphorus fertilizer” in conjunction with the research and development of the bio-pesticide water suspending agent for the prevention of strawberry gray mold. After a series of procedures including fermentation mass production conditions, physical and chemical property tests, toxicology tests, product standard specification tests, storage stability tests, field efficacy and drug damage tests were carried out, the test data required for completing the pesticide registration was well prepared; also, it has been certified by the pesticide standard specification inspection of the “Taiwan Agricultural Chemicals and Toxic Substances Research Institute”. The product has the effective ingredient (the number of spores) over 1×10[9] CFU/mL, and meets the requirement of a water suspending agent. In August of 2018, it was certified by the review and assessment and acquired the agricultural pesticide permit (NonyaoZhi Zi No. 06345) and successfully developed “Taiwan Fertilizer Nongzhonghe”, a new agricultural pesticide product. It can be used to prevent gray mold on strawberries, vegetables, flowers, and other crops, and features the advantages of high safety, non-toxic, free residue tolerance, and applicable during harvest. It can be used with chemical pesticides in the application of an integrated pest management (IPM) strategy. It not only reduces the occurrence of resistance, but also reduces the use of chemical pesticides and residual risk and help to ensure the safety of agricultural products.

(3) R&D of micronutrients fertilizer

During the cultivation period of the economic crops, in order to meet the needs for plants to grow better, bear more fruits, and enhance stronger sweetness with the application of fertilizers, practice has been conducted based on the concept of prevention-&-cure-two-in-one to reduce the occurrence of physiological disorders on crops, to supplement the trace minerals lacking, and to develop comprehensive products of trace minerals. The Company and Kaohsiung District Agricultural Research and Extension Station cooperated in implementing the 2-year period agricultural science and technology enterprises technical commercialization plan (during 2016 and 2017) - “the development of the new secondary trace element fertilizer”, which adopted the concentrated liquid of the deep ocean water in rich multiple mineral elements as the basic

Operation Highlights

formula and added a secondary trace element that isn’t contained in the formulation for the creation of a liquid secondary trace element applicable for registering in the fertilizer item 4-40 or 4-42, the liquid miscellaneous secondary trace element fertilizer. Compared to the secondary trace element fertilizer that most farmers are using, it helps improve the quality of crops, such as wax apples, lychees, tomatoes, cabbage, leaf vegetables, and pineapples.

(4) Strawberry (fertilizer, medium) agent development plan

In order to expand and develop our company’s agents of fertilizer and pest management, we take the high-economic crop, “strawberry” in Miaoli area as the target. The main species adopted are “Fengxiang” and “Xiangshui (perfume)”, and we also searched for other appropriate species by continuous developing the supporting application of fertilizer agent and the safe agricultural cultivation techniques without using pesticides during the whole process. With the help of Yuanpei University of Medical Technology, Japanese Sanpu Farm and IMCO Co., Ltd. were introduced to our company. Japan Sanpu Farm has many years of experiences regarding strawberry production technology, in addition to their deep study of cultivation medium, the fertilizer agents they adopted for their technology are also diversified to meet the demands of producing “healthy, safe, and reassured” strawberries. Since 2017, with the adoption of Japanese Miura Orchard's the strawberry production technology, the Company has conducted industry-university collaboration with the Yuanpei University of Medical Technology (YPU) for the plan of “trial plantation of the Japanese style safe strawberry cultivation management method” to certify the possibility of producing healthy and safe strawberries in Taiwan. The trial is implemented on elevated strawberries on the farm using the Company's vitality nutrient agent, and the performance result is good. The Company will develop an exclusive strawberry fertilizer, which can be promoted with the Company's existing materials and products.

(5) Multi-species cultivation in different sections of deep ocean water

With the 100% application policy of deep ocean water that fully applies deep ocean water resources to meeting the target of effective use and reduction of water costs, the Company has chosen the targets of algae, fish, and shrimp to expand breeding in multiple sections. Due to the low temperature of deep ocean water, the average temperature of water that is sent to the breeding section is about 12-15°C, so low-temperature algae is in the 1st breeding stage, such as Ulva prolifera , agardhiella subulata; the sea lettuce and sarcodiaceae are the major in the 2nd breeding farm; the 3rd section is on the basis of fish and shrimp. In the future, it's planning to use the 4-section application on aquaculture fertilizer breeding.

In 2018, the test results of the whiteleg shrimp showed that water quality control for multi-stage algae (mainly the ammonia nitrogen residue that occurred from the fertilizer used in algae farming) as well as the quality of shrimp larvae are very important. Out of the three batches of stocking process in 2018, one of the batches has been certified and found the whiteleg shrimp appearing to have a slow growth disease, which may be caused by the pathogenic bacteria on the shrimp larvae. If the source of shrimp larvae can be stable in conjunction with proper control of the water quality for algae, the bonding of the multiple sections can work well.

Operation Highlights

The company has also applied the three major DOW features, low temperature, cleanliness, and rich in nutrients salts to establish the outdoor large algae production module for the mass breeding technology of different edible algae with nutrient sources in Taiwan, such as sea lettuce, sarcodia montagneana, Ulva Prolifera, etc. In order to acquire a stable and large number of algae seedlings, the Company carried out the industry-university plan of “ Ulva Prolifera seedling and research on the regulation of life history” with the National Taiwan Ocean University in 2017. During 2018 and 2019, the collaborative plans, including “the seedling of Taiwan's large Sarcodia suiae and research on the regulation of life history” and “Taiwan's Ulva prolifera seedling and cross-breeding research” set up the mass cluster breeding technology of Ulva prolifera, cross-breeding technology of Ulva prolifera, indoor mass production technology of Ulva prolifera, seedling protection technology of Ulva prolifera, outdoor mass production technology of Ulva prolifer, as well as the seedling and seedling protection technology of Sarcodia suiae.

(6) Evaluation of the Application of “HAP Natural Soft Beads” in Cosmetics Products

In order to evaluate whether the by-product of collagen peptide-HAP (hydroxyapatite) can replace chemically synthesized soft beads (plastic beads), the Company has entrusted “Chia Nan University” in June 2018 to conduct the “evaluation plan of HAP natural bead” application in cosmetics products. The plan has created the “amino acid cleansing cream”, which contains HAP and features better cleansing performance, makeup removal, and water retention degree than any products on the market; also, it's suitable for people whose skin tends to have pimple problems.

(7) Algae Polysaccharide Extraction Technology Research and Development

In 2014, the Company entrusted the National Chung Hsing University (NCHU) to conduct the inhibitory test of cancer cell lines and found that the ethanolic extract of the algae cultivated in the Company's Hualien Plant with ocean water can significantly inhibit the growth of cancer cell lines (liver cancer, lung adenocarcinoma) (more than 80%; it can also significantly inhibit the growth of liver hepatic stellate cells) (more than 90%). The results have shown the possibility of inhibiting liver fibrosis. In addition, in 2015, the Company entrusted National Taiwan Ocean University to conduct the aforementioned evaluation of oxygen resistance of fucoidan and immunomodulatory physiological activity, and the results showed that fucoidan had a good antioxidant effect on the removal of DPPH free radicals; additionally, fucoidan can have good performances in inhibiting the formation of nitric oxide in macrophages (the rate of inhibition is 85.49%) and boosting the endocytosis of the macrophages (58%) for excellent immunomodulatory effect. In view of the aforementioned test results and the research about how beneficial large algae is to the human body, the Company entrusted the National Taiwan Ocean University in October 2018 to develop “polysaccharide mass extraction production technology”. It is hoped to apply the fucoidan material to health and energy food, as well as cosmetic and skincare products.

(8) Electrical-Grade NMP Purification Research and Development

Industrial-Grade N-methyl pyrrolidone (NMP) can be used as a general solvent.

Operation Highlights

Electrical-grade NMP can be used in lithium battery manufacturing and electronics. Because of the strict requirements of purification, the Company has collaborated with the Material and Chemical Research Laboratories of the Industrial Technology Research Industrial (ITRI) since November 2016 for the development. Until now, the various difficulties have been overcome in the industrial-grade NMP purification for the highest UPS-grade products, and the field test was successful. The thresholds to overcome for the technology include: less than 1ppm amine content, purity increased to more than 99.9%, reduced the chroma to 10 APHA, and the anion and cation content at ppb grade.

(9) Improvement of the Wastewater Process Technology in the Miaoli Plant

Improvement of the wastewater process technology in the Company's Miaoli Plant is carried out in two major principles: 1. Partially process the high-COD wastewater to lower the COD to a reasonable range before it enters the existing wastewater process system to avoid causing the death of the bacteria in the biological treatment pool; 2. Stably reduce the nitrogen concentration in the discharge water. The study has been conducted through the industry-university collaboration with National Cheng Kung University since November of 2017; the initial assessment of 2018 shows: 1. The use of SRS process initial distillation wastewater by using the existing wastewater process system to test and evaluate the activity of the existing activated sludge in the plant; 2. Evaluate the possibility of biodegradable COD wastewater, the NMP initial distillation water efficiency can reach 99%; 3. Evaluate whether the maximum sustained nitrate-nitrogen concentration of the existing sludge is below the condition of 500 mgN/L; 4. Test how the nitrification reaction suppresses the COD concentration, the COD concentration of NMP distillation water should be lower than 10,000 mg/L.

(10) Study on the Purification Process Technology of Cyclopentane

In order to create the Company's new electrochemical niche product as well as integrate the existing distillation purification technology, in 2018, the Company signed a contract with the Industrial Technology Research Institute for carry out the “study on the purification process technology of cyclopentane”. On the basis of cost, the test is planned to progress through the waste liquid→industrial-grade CPN→electrical-grade CPN model.

(IV) Development plan of medium and long-term and short-term business

Category	Short-term business	Medium and Long-term business
Fertilizer industry	(1) To stabilize the existing industry, strength after-sales service, continuously improve fertilizer quality so as to satisfy quality requirements of customers. (2) To separate the market, develop and introduce niche products and keep promoting fertilizers with high additive values so as to increase sales income. (3) To improvepackaging quality,	(1) To continuously develop high-technology organic fertilizers in coordination with development of organic agriculture. (2) To refine the agriculture development in order to promote high-component and high-quality fertilizers.

Operation Highlights

Category	Short-term business	Medium and Long-term business
	strengthen advocacy of new fertilizers, establish test, demonstration and explanation sessions in highly economic crops area of entire province in order to increase the additive value of products. (4) In line with the Southward Policy of the Government along with the global deployment through the construction of ten Plants in the West, work has been undertaken to integrate the industry need of the domestic market, as well as to redirect the excess of fertilizer capacity from domestic market outwards via exporting so as to lay out a foundation for the target oversea markets.
Chemical industry	(1) Anhydrous Ammonia: the downstream demands for supply source shall be stabilized based on the advantages of storage tank. (2) Industry urea: Packing and delivery shall be finished in Taichung Plant to reduce secondary transportation risks on the way to Miaoli Plant and market share shall be expanded flexibly. (3) Nitric acid: the output of nitric acid is increased after operation of Taichung Plant, which can help expand domestic and overseas market. (4) Melamine: the delivery-to-shop service shall be promoted to increase the market share with good quality and service. (5) Sulfamic Acid: the quality and service shall be improved to stabilize supply and delivery time and increase the market share in Europe and American market. (6) Sulfuric acid and Oleum: the marketing shall be promoted based on competitive price and acid recovery capability in coordination with the remaining capacity of fertilizer.	(1) Anhydrous Ammonia: A complete supply chain has been established at Taichung Plant to satisfy customers’ needs. (2) Nitric Acid: Taichung plant has the capacity to stabilize the supply to meet domestic clients’ demands. We expect to expand our exporting business in the second half year of 2018 as soon as the thickening plan is completed for expanding our market scale. (3) Sulfa Acid: We adopted the outsourcing mode to reduce the production cost. And, we will continue maintaining the close contacts with clients and progressively explore the southern European markets (Spain/ France/ the UK). (4) Fuming sulfuric acid: Currently, the business model is through outsourcing to reduce production costs, and the yearly sales is targeted at 14,400 tons. (5) Melamine, industrial urea: It shall be moved to Taichung Plant in coordination with warehousing to improve product quality, quantity and concentration, and continues to serve its customers, so as to expand

Operation Highlights

Category	Short-term business	Medium and Long-term business
		the market.
Electronic grade chemical products	With the aim to take full advantage of the maximum synergy of Miaoli Plant, semiconductor industry will be entered proactively to expand sales of electric-grade chemicals in addition to activating existing production equipment, developing solvent product recovery and regeneration and purification business and increasing capacity utilization.	With 3 acids and 1 alkali as the development focus, number of self-produced items will be increased and processing quality assurance ability will be improved; R&D technology class will be strengthened and after-sales service and customer relation management will be deepened; technical capacity will be improved upwards to serve IC industry customer base and product scope will be spread downwards to solar and LED industries; and competitive niche products will be produced, in order to enhance the overallprofitability.
Deep ovean water industry	The Company's phased and partition development of the Hualien Deep Ocean Water Park Area with self-built breeding aquatic products and process industry has actively introduced external resources for leasing and industry-university collaboration. Moreover, investment has been made in Taiwan's deep ocean water as well as continuous research and development of deep ocean mineral applications and the establishment of a marketing network both nationwide and worldwide.	Once the land estate and activation of deep ocean water resources is completed, we will continue to cooperate with the government and actively promote corridor development of the deep ocean aquatic industry.
Land development	(1) The C2 Development Project at Nangang Economic and Trade Park: The review of the building permit revision has been completed, and we continue to actively carry out the planning of the construction projects. (2) The Development Project of TFC ONE in the Hsinchu Science Park: The commercial building was completed in 2017; currently, the operation has been activated, and the lessees have completed the contracts and been stationed in the building one after another. (3) Stage 12 urban land planning of Hsinchu: Regarding Phase I re-planning, the administration of land registration had been finished in 2019.	(1) The C2 Office Building Development Project at Nangang Economic and Trade Park: It's scheduled to be completed in 2023, including hotel opening and operation and the sustainable management of office leasing. (2) The D7-B co-construction development project in the Hsinchu Science Park: It's scheduled to acquire the construction permit in 2020 to carry out the related operation of the co-construction. (3) Land development plan of 7C in special trade area of Kaohsiung : Kaohsiung City government has initiated the urban land rezoning operation. Once it is completed, the exploring operation will be able to carryout.

Operation Highlights

Category	Short-term business	Medium and Long-term business
	(4) D7 development Project for Hsinchu Technology and Business Park: Later on, in accordance with the comprehensive planning of D7, another new development plan, D7B, is to follow afterwards. (5) Development project of Nangang Business Park residential housing R13-1: The construction permit was obtained at the end of 2017, and it will be developed in the form of a co-construction and buyback method. (6) The C4 Office Building Development Project at Nangang Economic and Trade Park: The urban design review exercise has been completed, the architectural detailed design has been carried out, and the miscellaneous licenses of continuous walls are under application.	(4) The proposal of modifying the urban planning on Dongming Road, Keelung City: At present, in line with the local government policy, it is intended to plan a “medical exclusive area” and develop in the way of setting the rights to lands. It's hoped to complete the negotiations over the terms of cooperation for working with potential demand units by 2020. (5) Hsinchu Phase II City re-planning: The work of engineering drawing plan and drainage planning has been reviewed where the plans are to be completed in 2021. (6) Hualien land: We continue developing the Deep Ocean Water Aqua Industrial Park, and we plan to introduce relevant industries as the core of development for increasing the rate of land utilization and efficiency.

II. Overview of market and production & sales

(I) Market analysis

Sales area

Category	Product name	Sales area
Fertilizer products	Ammonium sulfate, Urea , Potassium chloride Calcium superphosphate, Compound fertilizer,Organic fertilizer	Taiwan area
Chemical products	Industrial urea	Taiwan area
	Anhydrous Ammonia	Taiwan area
	Nitric acid	Taiwan and Southeast Asia area
	Melamine	Taiwan area
	Sulfamic Acid	European and the US areas
	Sulfuric Acid and Fuming sulfuric acid	Taiwan area
Electronic grade chemical products	Ablution, etchants, organic solution, inorganic acid solution	Taiwan, Southeast Asia, Mainland China
Land development	Residency, commercial real estate	Taipei, Hsinchu, Kaohsiung, Keelung, Hualien and etc.

Operation Highlights

Market share, future supply and demand and growth
(1) Fertilizer products

Regarding fertilizers required in the domestic market, apart from urea and potassium chloride which are totally reliant on imports from abroad as none is produced here at home, the rest of the fertilizers can all be produced here at home by domestic fertilizer manufacturers once raw materials from are imported from abroad. The company has the rich experience, largest output and most complete production equipment of fertilizer in Taiwan with the quality of all products is better than others, making our products more competitive and enjoys a market share of about 68%.

(2) Chemical products
A. Industrial urea: Since the discontinue of the production of urea, the existing key accounts of the Company then started to imported the products for their own use or resale, becoming the main competitors against the Company. In recent years, as the downstream industries are outflowing abroad, the demand in the domestic market has gradually been shrinking where agricultural urea has become a substitute; hence, selling Industrial-grade urea is becoming increasingly difficult and challenging. The market share of urea of the company is about 40%.
B. Liquid ammonia: the three major importers of liquid ammonia in Taiwan are TFC, Sinopec, and Formosa Plastics. However, Sinopec is not equipped with its own storage tank; Formosa Plastics is unable to sell domestically due to its location at the Mailiao Industrial Harbor. Hence, the Company has become the exclusive supplier of liquid ammonia in Taiwan, and the sales and market has been relatively stable. The electronics industry constituted the largest business dealing in the current downstream pipelines. If the global economy continues to develop stably, there shall be more room for growth. Noticeably, some downstream industries are facing competition against China, it is seen that production is unstable or may tend to be migrated elsewhere.
C. Nitric acid: 65% of the total nitric acid produced by our company is a converted to the compound fertilizer. The fertilizer production requires about 100 thousand tons of nitric acid, and about 65 thousand tons of nitric acid can be sold to the market. In recent years, the competition between the imported and the domestic competitors, we are facing a fierce market competition. Also, exporting was interrupted by the low acceptance of 68% concentration, so the exporting will be postponed until the completion of thickening plan in the second half year of 2018.
D. Melamine: After the Company stopped producing melamine, our existing large clients have imported it by themselves as well as sold it, so they've become the Company's main competitors in the perfectly competitive market. Additionally, coupled with the decreased demand as a result of gradual migration of downstream industries and toxic substance control, the Company's domestic sales of melamine have been impacted subsequently.
E. Sulfamic Acid: The major export market is Europe and America with annual sales volume of about 12,000mt. The production of Sulfuric acid worldwide is about 190,000 metric tons, and demand on it is about 150,000 metric tons. The production is obviously exceeding the demand. The competition has been seen among Taiwanese, Chinese, and Indonesian manufacturers which are not slow on trading at competitive prices and squeezing their profit margins.

Operation Highlights

F. Sulfuric acid and Oleum: The products supplied by the company face the competitions from other domestic manufacturers and the market competition is fierce.
(3) Electric grade chemicals

So far, the company has low market share in electric grade chemicals. With regard to future strategy, products relevant to ammonia and the core industries, acid-alkaline series, will be focused on. In addition to mastering raw material advantages and enhancing competitiveness and serving as an upstream supplier, the Company will also integrate its existing resources, improve its equipment utilization ratio, reduce production cost and strengthen its R&D ability and produce products of niche formulas. At the same time, it will compete with peers in order to supply customers directly and thus achieve higher benefits.

Expected sales value

The estimated sales of fertilizer products in 2019 is 669 thousand tons; 163 thousand tons of chemical products; 150 thousand charge-offs of Al-Jubail Fertilizer Company Urea; 12 thousand KL of electronic grade chemicals.

Niche for competition
(1) Fertilizers
- A. As the largest fertilizer manufacturer and supplier, it has a long history and owns the leading brand in market.
- B. The quality is reliable, which has passed CNS Mark and ISO 9001 certification, and the products are trusted by farmers.
- C. Product differentiation: We have Taiwan’s one production equipment producing nitrophosphate organic compound fertilizer, and we have also successfully developed the technology of adding peat, and its patent has been applied in many countries. The product quality and the effect are superior to the product produced by domestic competitors.
- D. With completed, various products, it can meet clients’ demand for one stop shopping by self-producing or importing.
- E. The after-sales service network is available through Taiwan, we have business centers, north, central and south. Our service agents are available for every country nationwide and they provide comprehensive and real-time after-sales service. We also have numerous delivery centers.
- F. The business conditions are mastered exactly and purchase conditions for raw materials are superior to those in same industry.
- G. The teams for R&D, advertising progressively can provide high-tech products creatively, continuously and deal with tests for fertilizer efficiency and explanation session for new products all over this province so that the capacity of product development, advertising is superior to that in same industry.
(2) Chemical products
- A. Nitric acid: 65% of our nitric acid has large production capacity but low lower cost; the domestic market channel of which is stable.
- B. Liquid ammonia: A dedicated storage tank is available through the Company which is the only supplier of this kind in the domestic market.
- C. Sulfamic Acid: With certain popularities and stable market share, the Company has operated chancels of European and American markets for a long time.

Operation Highlights

D. Melamine: With stable supply and good quality, the Company owns basic domestic clients.
E. Industrial urea: As the sole manufacturer previously, the Company has established good brand reputation and keeps favorable interactive relationship with upstream clients and downstream clients. At present, the imported products can supply domestic markets with sufficient supply of goods, which can meet clients’ demand for goods without stock-out.
F. Sulfuric acid and Oleum: The supply of goods in our company is stable and the quality is reliable.
(3) Electric grade chemicals
A. Based on core of the Company and relevant products in this industry (such as ammonia, 3-acid 1-alkali, etc.), the Company can reinforce competitive force by using, mastering niche of raw materials and reducing costs of production.
B. Equipped with the distillation, blending, and split charging OEM capacity of solvent products, and various technical capability and permits to recover and reuse waste liquids.

Operation Highlights

Favorable, unfavorable factors and countermeasures for development:

Category	Favorable factors	Unfavorable factors	Countermeasures
Fertilizer products	(1) The domestic fertilizer market was freed from January 2003 and all owners compete for competitive conditions. The Company is more excellent that those in same industry at the aspect of quality, costs of production, marketing channels, advertising and after-sales service. (2) With improvement of knowledge, the farmers require creation and change, especially in great demand of new fertilizers with special functions and the advanced R&D teams in our company can promote new products in order to meet farmers’ demand appropriately. (3) Since the 2ndquarter of 2017, the government has been subsidizing the compound fertilizer added with organic agents and this is beneficial to the quality upgrading of our company’s traditional compound fertilizer and the development of completely organic compound fertilizer.	(1) Since the domestic fertilizers are scarce and all raw materials depend on importation, the costs of production are quite high and easily affected by international price and fluctuation of ocean freight so that the costs of fertilizers cannot be reflected without allowance of government. (2) In order to keep the supply and demand of domestic chemical fertilizers, the government noticed that export sales of fertilizers should be approved by Council of Agriculture previously from May 2008 to restrict exportation of fertilizers. (3) Our company in line with government’s policy of taking care of farmers, the fertilizer prices have been constrained for a long time.	(1) Adjust combination of products, improve sales profits, continuously improve quality of products, reduce costs of production and increase competitive power of products. (2) Develop basic, multifunctional and excellent products (such as including beneficial microbial fertilizer, organic compound fertilizer, etc.) to keep difference of products, improve added value and meet clients’ demand. (3) Promote excellent organic fertilizers to meet strong demand of consumers for organic agricultural products. (4) Improve service for clients, including demonstrational popularization, field trial, result review and emulation, initiation and education for fertilizers, rapid treatment for clients’ complaints, explanation session for new products, sample presentation for trial, plant visit, etc.

Operation Highlights

Category	Category	Favorable factors	Unfavorable factors	Countermeasures
Chemical products	Industrial urea	(1) As the unique domestic manufacturer, the Company has established good brand reputation and leading position. (2) The supply of goods is sufficient, which can meet clients’ demand and get rid of anxiety for stock-out.	(1) Since the Company stopped producing urea and the government approved free importation, some bigger clients of the Company started to import freely for self-use and sales and competed for urea market. Besides, they owns equipment for self-storage and packages to reduce costs, which is quite unfavorable to the Company. (2) Many Taiwan’s manufacturers have relocated to the Mainland China - resulting in the reduced demand on the industrial urea in the domestic market. (3) Since the urea is approved to import freely, the quality and price compete strongly or “agricultural” urea may be used for replacing “industrial” urea, the market order is affected.	(1) Master international urea market for cheap, excellent and sufficient goods. (2) Regulate favorable price, compete for clients or provide differentiated service by delivering goods to stores. (3) Compete for large, medium or small manufacturers which use raw materials.
	Anhydrous Ammonia	(1) Though Anhydrous Ammonia is allowed to import freely, yet specialized wharf, large capacity storage tank and unloading, storage equipment is needed specially for importing Anhydrous Ammonia. At present, only the Company and Formosa Plastics Sixth Naphtha Cracking Plant own the equipment. Because the Mai-liao Harbor of Formosa Plastics is an industrial	(1) Since the Miaoli Plant of our Company stops production, Anhydrous Ammonia required domestically largely depends on export and the selling price is affected by international price. The cost structure controlled by our Company is reduced relatively, and its price is unstable. (2) Provided that the Anhydrous Ammonia that imported by	(1)Master business condition exactly and purchase low price, spot Anhydrous Ammonia appropriately. (2)Consider the competitive power of downstream clients, make price flexibly and appropriately in order to stimulate demand.

Operation Highlights

Category	Favorable factors	Unfavorable factors	Countermeasures
	port where liquid ammonia cannot be sold, downstream users usually purchase products from the Company. (2) Since Anhydrous Ammonia belongs to high dangerous chemicals and experienced professionals are required for unloading, storage working, only the Company and Formosa Plastics have relevant technologies at present.	Formosa Plastics can be used for selling or the storage tank of Sinopec is constructed, the competitive power of the Company for selling Anhydrous Ammonia is weaken.
Nitric acid	(1) The Company can deal with self-importation of Anhydrous Ammonia which can be used for producing nitric acid as raw materials. Besides, the unloading, storage equipment for importing Anhydrous Ammonia are set in Taichung Plant and the Company keeps leading position for mastering costs of raw materials ,so the cost of production is lower. But the competitive power is high. (2) The equipment for production in Taichung Plant is new, of which the yield is large and the cost of production is lower.	In the second half of 2018, the Company's Taichung Plant completed 68% of the concentration plan and actively promoted exports. However, as a result of the Korean-made products that have been used by our clients for a long time, it's not easy to enter the market.	Step-by-step promotion is adopted to make the clients accept the 65% nitric acid as well as to be effective incentives in the transition. In the second half of 2018, the concentration plan was completed, and so was the promotion of exports. The initial price will be based on the strategic guide to create marginal contribution, and it will be adjusted according to the changes in the market.
Melamine	(1) As the unique domestic manufacturer previously, the Companyowns basic clients and	After the Company stopped producing melamine, most clients have turned to self-importation due to risk spreading.	Ensure quality of products, master quotations in international market and importprice and adjust selling price

Operation Highlights

Category	Favorable factors	Unfavorable factors	Countermeasures
	good market reputation. (2) To import products of high quality and stability for high degree of customer satisfaction. (3) Import largely and build safe retail inventory so that clients can pick up goods smoothly, without anxiety for stock-out. Import good-quality, stable products so the acceptability of clients is high.	Additionally, after the control of toxic substances, the Company cannot change the package, which has made the advantage of paper packaging no longer exist and impacted the Company's sales of melamine in the domestic market.	flexibly to keep competitive advantages.
Sulfamic Acid	(1) The quality is stable and the Company can cooperate with ammonium sulfate plants in order to make the best use of recycled and avoid environmental protection problems. (2) Since operating main channels of European and American markets for quite a long time, the Company has certain reputations and stable market shares.	(1) Our Sulfamic Acid products are sold totally, the selling price of which is affected by internationally market deeply. (2) Since Indonesia and Mainland China have put into production and cause supply is greater than demand, all manufacturers compete for prices in out-sales market in order to keep market shares. (3) The isomorphism type of Sulfamic Acid products is quite high and technologies of production are low. Besides, they can be replaced by developing countries with sufficient raw materials easily.	(1) Ensure stable quality and safety, quickness during transportation. (2) Make quotation differently based on different competitive conditions of out-sales market.
Sulfuric acid	The self-storage and imported smelt sulfuric acid own equipment advantages for sales, which can adjust retail inventory and gain profits.	(1) Since the opponents are of great quantity, the isomorphism type is high and recycled acid can flow easily. (2) The storage tank is located in Taichungwhich is far awayfrom	(1) Keep the costs of purchased materials stable in order to pursuit appropriate profits. (2) Keep current channels smooth and clients’ honesty and ensure market shares.

Operation Highlights

Category	Category	Favorable factors	Unfavorable factors	Countermeasures
			the sulfuric acid market, mostly likelylosingits competitiveness.
	Fuming sulfuric acid	On account of producing calcium superphosphate, the Company has capacity to assist clients to recycle byproduct acid and clients’ dependency is quite high.	Since the downstream clients are simplex, sales conditions are affected by industrial environment and starting time greatly. With addition of lacking self-production capacity, the profits are compressed.	Accelerate to demolish or construct calcium superphosphate factory in Taichung Plant and improve capacity of recycling acid.
Electronic grade chemical products		(1)Electronics related industry is still the key industry in Taiwan. Despite the impact of the red supply chain in recent years that led to shrinking the industrial growth, the semiconductor industry will still be expanding. Also, the panel, solar energy and LED industry still keep in a certain scale, so the prosperity of the market is still expectable. (2) The production and quality control technologies of our electronic products are from HPC, which is the brand accepted in domestic TFT-LCD industry. In the future, the technical layer should be improved and the products and service should be provided for relevant industries, such as, semiconductor, solar energy and LED industry positively. (3)For our electric grade chemicals in future, Miaoli Plant will be the center forproduction and supply,	(1) As the Company enters into this industry quite late, the market is occupied by favorable brands, the supply chain in market is quite stable and the certification for quality of materials in photo-electricity industries, it is quite hard to develop market. (2) Since the business cycle of electronic industries is quite short, manufacturers reduce costs or raw materials and chemicals and control price of electric grade chemicals, which can affect space of profits. (3) In order to occupy product share rapidly, some new suppliers consider reducing price as principal axis of strategies and clients used to choosing supply chain by prices. Thus, the prices are slumped. (4) As the variation of self-made products is not diversified enough, it cannot assist customers’	(1) Provide low costs products by plants of the Company or outsourcing plants as quickly as possible. (2) Improve quality assurance capacity of processing, reinforce R&D technology grade, build complete logistics system, improve after-sales service of products and management capacity for customer relationship and manufacture products with good profitability formula in order to improve profitability. (3) Reinforce sales team’s technical service capacity and improve brand reputation and customer trust. (4) Reinforce the response capacity of manufacturers for production mode of a few diversified products in order to improve chances to get orders.

Operation Highlights

Category	Favorable factors	Unfavorable factors	Countermeasures
	which is the center of Taoyuan County, Hsinchu County, Miaoli County and Taichung County in concentrated area of domestic electronic industries and can provide Just in Time Service needed by this industry urgently. (4)Integrating our company’s core industry of three acids and one alkali, we have the competitive advantage in obtaining advantage raw materials to reduce the production cost. And, our self-produced products will get into the niche market. (5)As a large domestic acid user, the Company can recycle electronic spent acid solution from clients to transform them into industrial products and to solve clients’ anxieties for treatment of spent solution.	comprehensive supply and it is quite difficult for the products to enter current market.
Land development	Leasing market of commercial real estate in Taipei City: (1)The land of the Company is located in the Nangang Economic and Trade Park, with the advantages of thorough traffic infrastructure and convenient transportation network, near Xinyi Planning District and Neihu Technology Park; so far, Phase I, II and IIIproject in	Leasing market of commercial real estate in Taipei City: (1) There's a continuous supply of new buildings in the Xinyi Planning District, so foreign investment may give priority to the Xinyi and Dunbei commercial circles, which have better location and quality. This creates a certain degree of pressure in the office market in the	Leasing market of commercial real estate in Taipei City: (1)The commercial real estate of the Company in Taipei City is adopting models such as the overall planning and design, the whole building leasing, or the building for sales, so that risks can be transferred and stable income/profit can be obtained.

Operation Highlights

Category	Favorable factors	Unfavorable factors	Countermeasures
	Nangang Software Park has reached a full pre-leasing result where the buildings are to be fully occupied. The CTBC Bank headquarters building in Nangang has also completed construction and started to function. Industrial clusters in this area are getting increasingly mature. (2)Major construction project will be launched in the future. Besides the Taiwan Life Insurance C3 Development Project, which is expected to be completed by the end of 2020, we plan to introduce Mitsui’s Lalaport shopping mall. Taipei Pop Music Center will be completed in 2018. Hall 2 of Taipei Nangang Exhibition Center will be completed in 2019. In addition to the Eastern District Portal Promotion Project, there will be numerous lands to be developed, such as bottle cap factory, the site of Nangang plant joint-development and Taiwan Power Company’s Nangang maintenance center. And, there will be more population and industries attracted to station.	Nangang Economic and Trade Park. (2) The Nangang district is not the core region of Taipei City. Although there are benefits from significant construction and the regional lease rate are successful, there is still no improvement to the rent. In addition, the land premium tax in Nangang area has been greatly increased, it’s predicted that in the future, the tax for office building will be increased. Due to the tax will be transferred to tenants, the gross profit of rent from the office building will be lowered.	(2)Work with the professional team to collect market information is undertaken where cooperative MOUs are to be entered into with potential residents moving in, so as to have control over renters and reduce vacancy rate. It is also possible to dispose of certain offices in response to market situation, so as to reduce the risks associated with development.

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Category	Favorable factors	Unfavorable factors	Countermeasures
	Leasing market of commercial real estate in Hsinchu : (1)The Hsinchu Science & Commerce Park of the Company is adjacent to Wulu Interchange of Zhongshangao Road and center of Hsinchu City, the transportation of is convenient. (2)Planning-to-suit, i.e. it is to be tailor-made for the entire office building; since it is close to Hsinchu Technology Park, there is still potential need in the market of whole building project. (3)Many offices of Hsinchu City Center are old and full in addition to the full use of lands in Hsinchu Science Park, there is a situation of a large amount of self-demand request from the companies in Hsinchu Science Park. This park meets the expansion needs for the technological factories.	Leasing market of commercial real estate in Hsinchu : (1)Tai Yuen Hi-Tech Industrial Park near Hsinchu Science & Commerce Park has formed IC design industrial group, and the seven stages of development should be completed continuously. In addition, many office buildings near national Wulu Road are completed. All of them are powerful potential opponents of development for Hsinchu commercial office buildings in Hsinchu. (2)Limited to the business plan of the science and business park, the business types to be introduced in this park may not fully reflect the needs of the customers.	Leasing market of commercial real estate in Hsinchu : (1) The market of office building in Hsinchu is affected by Hsinchu Science Park seriously. According to science industry and demand for industrial updating of industries promoted by the government, the complete office functions should be provided and life convenience or other completed panning, which creates an office park abreast of time. (2) Adjust the planning and design to attract customers that are a match to the provisions of the science and business park, and to actively solicit business to shape up the business atmosphere of this area. (3) Continue striving for the relaxation of the provisions of the land use control for urban planning to facilitate the introduction of the complex commercial development areas that are suitable for regional development.

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(II) Important use and manufacture process of main products

Usage of main products

(1) Fertilizers

(1) Fertilizers
Name of fertilizers	Nitrogen- phosphoric anhydride-potassium oxide	Usage
Ammonium sulfate	21-0-0	Base fertilizers and top dressing of allplants
Urea	46-0-0	Base fertilizers and top dressing of allplants
Potassium chloride	0-0-60	Base fertilizers and top dressing of allplants
Calcium superphosphate	0-18-0	Base fertilizers
Compound fertilizer	Multiple formula	Base fertilizers and top dressing of allplants
Organic fertilizer	Multiple formula	Base fertilizers

(2) Chemical products

Product Name	Specification	Usage
Industrial urea	Including 46% of nitrogen	Resin, melamine, dyeing and finishing, composites plate, dyeing and finishing, green algae, chemicals, environmentalprotection.
Anhydrous Ammonia	99.50 % purity	Monosodium glutamate, refrigeration, electronics, steel,chemicals,etc.
Nitric acid	65~68 % concentration	Mental treatment, electroplate, pigment, chemicals, common industrial usage,etc.
Melamine	99.8 % purity	Resign, molding powder, composites plate, dyeing, finishing,etc.
Sulfamic Acid	99.5 % purity	Flame retardant, softener, metal detergent, pigment, saccharin,food additives,analytical reagent,etc.
Sulfuric acid	98 % purity	Mental treatment, electroplate, chemicals, reagent, detergent and common industrial usage.
Fuming sulfuric acid	Including 25% SO3	Common industrial usage

(3) Electric grade chemicals

Name	Specification	Usage
Ablution	Electronic grade	Wafer, Clean the faceplate after photoresist is stripped.
Etchants	Electronic grade	Wires of faceplate are etched.
Organic Solution	Electronic grade	Clean and re-clean all sections of processing faceplates.
Inorganic acids and alkali	Electronic grade	Etched developing of semiconductor, panel, solar energyand LED etching, development, and cleaning.

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2. Manufacturing process of main products

==> picture [456 x 258] intentionally omitted <==

----- Start of picture text -----

(1) Association graph of Anhydrous Ammonia and downstream products
Materials Based Chemical material Chemical fertilizers Chemical Engineering Products
Melamine
Urea
Sulfamic
Ammonium
sulphate
Anhydrous Ammonia
All Compound Fertilizer
OrgCalcium SuperOrganic
fNitric Acid
Nitric Acid
----- End of picture text -----

(2) Compound Fertilizer Raw Material Association Diagram

==> picture [483 x 301] intentionally omitted <==

----- Start of picture text -----

Rock Phosphate Molten Sulfur
Calcium
Superphospha Sulfuric Acid
Nitric Acid Nitrophosphate Potassium chloride/
Potassium Sulfate
compound
fertilizer
Anhydrous Ammonia
Ammoposphate
Urea Compound
Phosphoric acid Ammonium
Dihydrogen Phosphate
Organic fertilizer/
Organic matter
Organic compound fertilizer
----- End of picture text -----

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(3) Manufacturing process of electronic grade chemicals

==> picture [292 x 102] intentionally omitted <==

----- Start of picture text -----

Raw material Electronic-grade
Products
Distillation, blending
Raw material A
and filtration
Formulated
products
Raw material B
----- End of picture text -----

(4) Process of manufacturing of Microbial fertilizer

==> picture [275 x 50] intentionally omitted <==

----- Start of picture text -----

Sterilization, inoculation,
fermentation
Mixture of raw
Packaging
materials
----- End of picture text -----

(III) Supply conditions of main raw materials

Raw material	Supply Condition
Urea	It is mainly purchased outside, most of which is from Mainland China. Besides, the Company gains urea from transferred-investment company-Al-Jubail Fertilizer Company by buy-back.
Anhydrous Ammonia	It is mainly purchased from Sabic Asia Pacific Pte. Ltd by long-term agreements.
Sulfuric acid	It is mainly purchased from Japan through long term agreement, the supply of which is stable.
Rock Phosphate	The main sources of supply are Jordan, Israel and Morocco.
Potassium chloride	Most of it is imported from Canada, Jordan, Israel and Russia.
Melting sulfur	It is purchased by ordering contracts with CPC Corporation and Formosa Petrochemical Corporation.

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(IV) In the following table, the names of clients whose purchase (selling) amount is 10% or more than 10% of total amount in either year of last two years, list of main purchase or selling clients and purchase (selling) amount, proportion are listed. Besides, the reason for increase or decrease is illustrated.

1. List of main stock manufacturers:

	1. List of main stock manufacturers:	1. List of main stock manufacturers:	1. List of main stock manufacturers:	1. List of main stock manufacturers:
	2017				2018				As of the firstquarter in 2019
Item	Name	Amount (NT$K)	Proportion of net purchases for the whole year (%)	Relationship with distributor	Name	Amount (NT$K)	Proportion of net purchases for the whole year (%)	Relationship with distributor	Name	Amount (NT$K)	Net purchase ratio (%)	Relationship with distributor
1	Sabic Asia Co. Ltd.	1,753,293	19%	Supplier of Anhydrous Ammonia	Sabic Asia Co. Ltd.	2,167,976	23%	Supplier of Anhydrous Ammonia	Sabic Asia Co. Ltd.	565,016	21%	Supplier of Anhydrous Ammonia
2.	Al-Jubail Fertilizer Company	942,151	11%	The Company invests more than 50% of transferred-investment enterprises and delivers urea according to agreements.	Al-Jubail Fertilizer Company	1,159,485	12%	The Company invests more than 50% of transferred-investment enterprises and delivers urea according to agreements.	Al-Jubail Fertilizer Company	389,677	15%	The Company invests more than 50% of transferred-investment enterprises and delivers urea according to agreements.
3	Others	6,362,317	70%	-	Others	6,135,282	65%	-	Others	1,693,654	64%	-
	Net purchases	9,057,761	100%	-	Net purchases	9,462,743	100%	-	Net purchases	2,648,347	100%	-

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2. List of main selling clients:

(1) Fertilizer product

2017	Name of client	Amount	Proportion for this year (%)
2017/1~2017/12	Yunlin County Farmers’ Association	NT$643,423,000	12.23%

2018	Name of client	Amount	Proportion for this year (%)
2018/1~2018/12	-	-	-

(V) List of yield for last two years

Unit: mt / NT$K

				Unit: mt / NT$K	Unit: mt / NT$K	Unit: mt / NT$K
Year Yield Main commodities	2018			2017
	Capacity	output	Value of output	Capacity	output	Value of output
Ammonium sulfate	150,000	105,400	647,443	150,000	114,200	697,403
Calcium superphosphate	120,000	50,550	181,084	120,000	60,000	214,721
Compound fertilizer	485,100	473,540	4,557,422	485,100	495,290	4,606,197
Nitric acid	165,000	151,727	2,302,912	165,000	148,388	2,223,421
Bio-Organic Fertilizer	6,500	5,535	47,582	6,000	4,833	54,536
Recycled Phosphoric Acid	5,500	5,665	131,995	5,500	6,527	144,228
N-Methyl-2-Pyrroli done(NMP)	600	1,410	94,557	600	1,146	97,410
Ammonium Hydroxide Electronic Grade	7,200	1,338	27,081	7,200	768	15,360
Total	939,900	795,165	7,990,075	939,400	831,152	8,053,276

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(VI) List of sales volume for last two years

Unit: mt / NT$K

					Unit: mt / NT$K	Unit: mt / NT$K	Unit: mt / NT$K	Unit: mt / NT$K
Year Yield Main commodities	2018				2017
	Domestic sale		Export		Domestic sale		Export
	Volume	Value	Volume	Value	Volume	Value	Volume	Value
Ammonium sulfate	63,465	389,849	–	–	68,466	420,782	–	–
Calcium superphosphate	22,431	80,353	–	–	26,346	94,945	–	–
Compound fertilizer	463,905	4,278,395	7,028	81,115	487,129	4,533,065	754	8,756
Agricultural urea	32,775	338,503	42,879	417,982	34,454	356,890	35,817	274,268
Potassium chloride	11,465	115,485	–	–	18,435	186,852	–	–
Resell Urea from Al- Jubail	–	–	136,179	1,194,386	–	–	125,155	847,759
Melamine	1,639	69,048	44	1,942	1,384	61,195	–	–
Sulfamic Acid	474	9,321	14,106	250,221	381	7,580	12,673	209,229
Nitric acid	27,519	417,666	7,236	41,117	32,223	433,588	–	–
Industrial urea	4,506	50,939	–	–	3,559	38,404	–	–
Anhydrous Ammonia	89,697	2,175,860	–	–	85,808	1,712,628	–	–
Renewable Phosphoric acid	5,003	116,925	–	–	5,526	132,980	–	–
Sulfuric acid	1,641	2,090	–	–	835	989	–	–
Fuming sulfuric acid	14,381	44,859	–	–	13,093	34,526	–	–
Otherproducts	46,474	32,104	365	9,286	54,166	29,811	–	–
Other operating income	–	1,904,009	–	–	–	1,869,594	–	–
Electronic grade chemicalproducts	6,571	195,036	–	–	4,808	128,063	–	–
Housing	–	-1,399	–	–	–	277,082	–	–
Total	–	10,219,043	–	1,996,049		10,318,974		1,340,012

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III. Employees

(I) Data of employees for last two years till latest annual press

March 31, 2019

				March 31, 2019
Year		2017	2018	Until March 31, 2019
Number of employees		678	688	681
Average age		42.63	42.58	42.79
Average working years		13.36	12.55	12.69
Education	PhD	1.18%	1.02%	1.03%
	Master	22.86%	23.98%	23.93%
	Bachelor	52.06%	52.76%	52.86%
	High School	23.75%	22.09%	22.03%
	Below High School	0.15%	0.15%	0.15%

Note: The number of TFC’s employees here refers to the total sum of regular staff and contracted staff.

(II) Productivity of employees

Unit : NT$K

			Unit : NT$K
Year	2017	2018	Until March 31, 2019
Revenue	11,346,419	11,928,000	3,442,514
Revenueperperson	16,735	17,337	5,055
Annual operating profit	1,275,875	1,292,314	269,408
Annual operating profit per person	1,882	1,878	396

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IV. Distributed information of environmental protection

(I) Loss and punishment for environmental pollution

Year Item	2018	Until March 31, 2019
Polluted condition (category, degree)	1. Due to sudden equipment failure, the discharge of residue of substances exceeded the maximum processing capacity of the air pollution control facility and violated the Air Pollution Control Act. 2. The actual measured value of the detection of odor pollutants in the discharged pipelines exceeded the legal standard and violated the Air Pollution Control Act. 3. A certain section of the pipeline that connects to the air pollution control facility was broken and failed to effectively collect pollutants and violated the Air Pollution Control Act.	1. The actual measured value of the detection of granular pollutants in the boiler discharge pipeline exceeded the legal standard and violated the Air Pollution Control Act. 2. The actual measured value of the detection of the sewer discharge pipe exit exceeded the legal standard and violated the Water Pollution Control Act.
Punished unit	Environmental Protection Bureau, Taichung City Government	Environmental Protection Bureau, Miaoli County Government
Penalty	NT$1,300,000	NT$510,000
Other losses	None	None

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(II) Countermeasures and potential distribution in the future

Predicated capital distribution for environmental protection in next 2 years:

Year Item	2019	2020
Pre-purchased equipment for preventing pollution and contents of distribution	(1) Anti-air pollution control facilities. (2) Improve equipment of wastewater treatment. (3) Clean, treat and recycle wastes; (4) Improve the manufacturing procedures to prevent pollution in mainproductionplants.	(1) Anti-air pollution control facilities. (2) Improve equipment of wastewater treatment. (3) Clean, treat and recycle wastes; (4) Improve the manufacturing procedures to prevent pollution in mainproductionplants.
Predicated conditions after improvement	(1) Improve and reduce pollutant discharge to ensure air pollutants, water discharge, the treatment of air pollutants, and waste disposal comply with environmental protection laws so as to avoid pollution incidents. (2) Meet regulations of environmental affection instruction for newplants.	(1) Improving and reducing pollutant emissions to ensure air pollutants, water discharge, air pollutants and waste disposal can all comply with environmental regulations to avoid pollution incidents. (2) The plant is in compliance with the commitments stated in the environmental impact assessment.
Amount	NT$80,000,000	NT$85,000,000

Influence after improvement:
(1) Improve and reduce discharge of pollutants, make sure that treatment for discharged water, air pollutants and wastes can meet regulations relevant to environmental protection in order to reduce influence on ecological environment.
(2) The operation of plants should meet regulations of specification for environmental instruction evaluation and prevent from polluting environment.
(3) Reduce environmental impact on the public living in the communities near the plants and improve enterprise image.

V. Labor-capital relationship

(I) Important labor-capital agreements

Conditions of labor-capital agreements

The Company has formulated “Implementing Essentials of Labor-management Relation Symposium”, and holds labor-management relation symposium regularly each year. The symposium is hosted by the General Manager or the Deputy General Manager specified by General Manager, who leads HR and first-level staffs to discuss with labor representatives and representatives of all labor unions of TFC o unblock communication channels, publicize business principles of the Company and enhance the interaction between labor and management. In addition, suggestions and advices of workers can happen by means of the Membership Representative Conference, Meetings of Board of Directors and Supervisors and Joint Meeting of Team Leaders regularly held by the Enterprise Union of TFC,. The Company will

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reply employees’ suggestions and advices in written form and improve based on those suggestions and advices.

those suggestions and advices.
Communication method	Frequency
Labor Relations Symposium	Once/year
Labor-management Conference	Once/quarter
Trade Union Congress	Once/year
Meetings of Board of Directors and Supervisors of Trade Union	Once/quarter
Joint Meetingof Team Leaders of Trade Union	Once/quarter

Measures for employees welfares
(1) According to the provisions of the welfare funds, we establish the “employee welfare committee” to manage all the matters regarding employee’s welfare, such as tours and a variety of contests.
(2) Setting up a nursing room provides female employees a place for nursing and babysitting.
(3) Setting up a medical office to manage all employee’s medical matters and regularly holding the health examinations.
(4) There are 13 clubs in the company with diverse type and operated vigorously. The clubs are set for cultivate employee’s interest and self-cultivation.
(5) Our retired employee will be gifted a commemorative present and get a retirement certificate.
(6) Marriage and funeral subsidies are available for employees.
(7) If an employee dies, depending on the cause of death and subject to our company’s guidelines of pension fund, the descendants will be given death benefit, compensation for death and funeral expenses.
(8) We insure employees against Labor Insurance, National Health Insurance, group life accident insurance and hospitalization insurance.
(9) We issue annual bonus to our employees. Also, depending our company’s annual operating interests and the rate of surplus, we will give our employees year-end bonuses and employee remuneration.
(10) Maternity allowance is available for employees.
(11) Travel subsidy is available for employees.
Retirement system

The company has a “Taiwan fertilizer company employees retirement, pension and severance regulations”, which is in accordance with the Labor Standard Act and the Labor Pension Act, for new employees and the selection of senior employees who are applicable to the newly-established pension ordinance, the company should pay monthly 6% of their insured salary to the personal account of Labor Insurance Bureau and the 0~6% of his or her insured salary. Selected senior employees who are applicable as the former labor standards, the company should pay monthly 9% to the retirement reserve account, and at the end of March, in accordance of the 56th law of Labor Standard Act providing for the actuarial replenishment of the difference and periodically convenes the Labor Pension Supervision Committee on a quarterly basis. Employees have to apply for retirement under the fifth of the company's retirement pension and compensation scheme, and those aged 65 should

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be eligible for retirement, and the retired employees shall be given pension under the Labor Standards Act and the Labor Pension Act.

(II) Employees’ actions or moral principles

In accordance with the provisions of the Labor Standard Act, the Company has made the “Taiwan Fertilizer Co., Ltd. Code of Practice for Employees”. In addition to sending a notification letter to the employees, it should be announced on the Company's internal website for employees to look up and follow. There is also the “Taiwan Fertilizer Co., Ltd. Code of Ethical Conduct for Directors, Supervisors, and Level I Managerial Supervisors”, which was submitted to the Company's 2009 Annual Shareholders General Meeting, its revision was approved in the 31st Meeting of the 33rd Committee of the Board of Directors held on March 29, 2018, and it was announced in the Company's 2018 Annual Shareholders General Meeting. The guidelines were also announced in conjunction with the Company's internal website thus allowing the Company's directors as well as the Level I managerial supervisors (including the general manager, deputy general Manager, and Level I managerial supervisors of each unit) to follow as their code of conduct and moral principles whenever engaging in the Company's business activities. In addition, the Company's stakeholders can understand the Company's ethical norms.

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(III) Employees’ further education and training

Year	2017	2018	Until March 31, 2019
Number of classes for training	354	223	28
Person-time for training	4,745	3,728	105
Man-hour for training	18,799	18,627	439.5
Per capita traininghours	27.77	27.07	4.19
Costs for training (NT$)	4,030,000	3,987,000	120,580
Per capita costs for training (NT$)	5,953	5,795	1,148

(IV) Labor-capital dispute and loss: None

VI. Important contracts

(I) Supply and marketing contract

The Party	Beginning and end of contract	Main contents	Restriction
Marubeni Corp.	2017.01.01~2019.12.31	Supply contract for sulfuric acid	None
Sabic Asia Pacific Pte.Ltd.	2019.01.01~2019.12.31	Supply contract for Anhydrous Ammonia	None
Jordan Phosphate Mines Company	2019.01.01~2019.12.31	Supply contract for phosphorite	None
Taiwan Sugar Corp.	2018.1.1-2018.12.31	Sales contract for fertilizers	None

(II) Cooperative contract

The Party	Beginning and end of contract	Main contents
Saudi Basic Industries Corp.	1980.2.8~2031.07.12	Cooperate to invest in Al-Jubail Fertilizer Company, and each party holds 50% equities.
Jinqun International Co., Ltd.	2011.4.18-2031.4.18	Cooperate to invest TR Electronic Chemical Co., Ltd. in Cayman, and TFCholds 51% equities and Jinqun holds 49% equipties.
National Chung Hsing University	2012.10.01~2019.10.01	The technologies of “preparations and manufacture method of streptomyces components for protecting plants” are authorized.
Industrial Technology Research Institute	2017.01.01~2018.12.31	The technologies of “liquefied depolymerization of bionts in ion solution” are authorized
Institute for Biotechnology and Medicine Industry	2013.01.01~2020.01.01	The raw materials of “fish scale collagen peptid” has passed users’ license for nationalqualitystandard

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The Party	Beginning and end of contract	Main contents
Agricultural Chemicals and Toxic Substances Research Institute, Council of Agriculture,Executive Yuan	2013.01.01~2020.01.01	The patent of “new liquefied bacillus thermoamylovorans strain Ba-BPD1 and application” is authorized.
Agricultural Chemicals and Toxic Substances Research Institute, Council of Agriculture, Executive Yuan	2016.01.01~2020.01.01	Without the exclusive rights on the
		“Fermentation, production, and
		application technology of Bacillus
		thuringiensis Strain Ba-BPD1 for
		biological pesticides”.
Kaohsiung District Agricultural Research and Extension Station, Council of Agriculture, Executive Yuan	2016.05.01~2021.05.01	Enterprise Technology Commercialization Plan- Development of new type micro-factor fertilizer
Industrial Technology Research Institute	2016.10.17~2018.01.16	Industrial grade NMP purification for UPS production process technology development
Taichung District Agricultural Research and Extension Station, Council of Agriculture, Executive Yuan	2017.07.01~2022.06.30	Technical authorization of “Production and application technology of rice straw decomposing germ complex preparation”
Taichung District Agricultural Research and Extension Station, Council of Agriculture, Executive Yuan	2017.07.20~2022.07.19	Technical authorization of “Production technology and the application method of Complex farm livestock manure composting fermentation”
Yuanpei University of Medical Technology	2018.06.20~2019.06.20	Industry-University cooperative plan of trial cultivation of safe and non-toxic new-breed strawberry.(the second stage).
National Cheng Kung University	2017.11.01~2019.12.31	Industry-University cooperative plan of technical improvement of Taifer Miaoli plan wastewater treatment
National Taiwan Ocean University (NTOC)	2017.06.01~2018.05.31	Growing Ulva prolifera seedlings and life-history regulation- Taifer deep ocean water aquaculture application on lands
Chia Nan University of Pharmacy& Science	2018.02.11~2018.08.10.	HThe evaluation of HAP natural soft beads application in cosmeticproducts.
National Taiwan Ocean University (NTOC)	2018.03.01~2019.02.28	The seedling and the life history study of Taiwan's large sea Sarcodia suiae- Application study on the large amount aquaculture.
Yongchang Organic Farm	2018.05.01~2019.05.01	Taiwan Fertilizer's Organic Strawberry Cooperative Demonstration Farm.
Miaoli District Agricultural	2018.06.08~2026.06.07	Bio-Phosphorus Solubilization Fertilizer

114

Operation Highlights

The Party	Beginning and end of contract	Main contents
Research and Extension Station		Miaoli Living Bacteria No. 1 - Non-exclusive authorization to the mass production techniques of the Miaoli LivingBacteria No. 1.
Yufeng Agricultural SpecialtyStore	2018.07.24~Now	Strategy alliance of Taiwan Fertilizer and YufengAgricultural SpecialtyStore.
Taiwan Yes Deep Ocean Water Co., Ltd.	2018.03.01~2018.10.31	Commercial marketing promotion of the products associated with the application of the deep ocean water aquatic product industry.
Industrial Technology Research Institute (ITRI)	2018.06.1~2019.05.30	Study on the techniques of the Cyclopentanone (CPN) purification productionprocess.
National Taiwan Ocean University (NTOC)	2018.10.01~2019.09.31	Cultivation of large seaweed and sea lettuce with deep ocean water for the development of polysaccharide mass extractionproduction technology.
Taifu Agricultural Biotech Co., Ltd. Xinan Plantation Farm	2018.09.30~2019.09.30	Test of nutrients in the fertilizer to improve the natural thickener formulated withpurslane extract.
National Taiwan Ocean University (NTOC)	2018.10.1~2019.09.30	Study on Taiwan breed Ulva prolifera seedling cultivation and cross-breeding - Mass cultivation of the land in the application of Taiwan Fertilizer's deep ocean water on the land.

115

Operation Highlights

(III) Project and other contracts

Party	Date of commencement of Contract	Main content	Restriction clause
Liangang Construction Engineering Co., Ltd.	Effective from March 17, 2014, until the expiration of the project warranty in conjunction with the completion of the warranty liability.	Construction project of commercial buildings in Hsinchu science business circle D7-A	None
JJPan and Partners, Architects and Planners	Effective from February 26, 2011 until the completion of all contracted projects in conjunction with no matters required to be resolved by Party B.	Manage the technical service work of “construction design and execution of the 1ststage of D7-A development regarding overall planning of Hsinchu science and business park D7 street”	None
HCCH & Associates Architects Planners & Engineers	Effective from the day of contract (October 31, 2011) until one year after the use permit is acquired.	Technical service work of “Construction design and supervising of the 1ststage C2 and the overall regulation of C2C3C4 Nangang Business Park”	None
HCCH & Associates Architects Planners & Engineers	Effective from February 1, 2013 until the the completion of all contracted projects in conjunction with no matters required to be resolved byPartyB.	Technical service work of “construction design and supervising of Hsinchu science and business circle D7”	None
HCCH & Associates Architects Planners & Engineers	Effective from the day of contract (April 20, 2018) until the use permit is acquired in conjunction with the completion of final acceptance.	Increase the grouping of supervisors and supervision and technical service work for Taiwan Fertilizer's new Nangang C2 hotel and office buildingconstructionproject.	None
Yuanyang Consturction Engineering Co., Ltd.	Effective from the day of contract ( February 5, 2018) until the the completion of final acceptance in conjunction with no matters required to be resolved.	Taiwan Fertilizer's new Nangang C2 hotel and office building construction project.	None
Zhangfeng Construction and Engineering Consulting Co., Ltd.	Effective from January 14, 2019 until the completion of all contracted projects in conjunction with no matters required to be resolved by Party B.	Technical service work for the revision of the Hsinchu Science Park development project (including the analysis report on the difference of environmental impact).	None
Yuanshen Technology Co., Ltd.	2017.12.29~2018.07.17	Taichung Plant nitric acid factory's coolingtower and	None

116

Operation Highlights

Party	Date of commencement of Contract	Main content	Restriction clause
		chiller unit construction project.
Hongjun Engineering & Service Co., Ltd.	2017.10.30~Now	Taichung Plant ammonium sulfate factory's waste heat energy-saving equipment installation and pipeline design and installation constructionproject.	None
Henghe Energy and Environmental Control Co., Ltd.	2017.10.20~Now	Taichung Plant ammonium sulfate factory’s 300USRT hot water absorption type ice water machine procurement project.	None
Riheng Construction Co., Ltd.	2018.02.14~Now	New Miaoli dangerous goods warehouse construction project.	None
Juhuang Corporation	2018.10.15~Now	Miaoli Plant replacement and renewal project of the mechanical equipment in the instant fertilizer packaging factory.	None
Yicheng Technology & Engineering Co., Ltd.	2018.08.15~Now	Miaoli Plant replacement and renewal project of substation transformers and high and low voltage discs.	None
TongzhengConstruction Co., Ltd.	2017.12.01~Now	New Hualien Plant Algae Processing Plant construction project.	None
Xiongyi Construction Co., Ltd.	2018.11.27~Now	New Hualien Plant Multi-functional outdoor breeding pool construction project.	None

(IV) Contract for Land Development

The Party	Beginning and end of contract	Main contents	Restriction
Shinera Construction Co., Ltd.	Commencement was dealt with 5 years from as of the signature date, June 10, 2015, and ownership registration and house delivery should be completed before December 31, 2024.	Urban renewal business of 4 lands of Plot 607, Section 1, Taipei City owned by TFC should be included in the urban renewal business of 25 lands in the same section. The co-construction agreement signed is on the sales of superior	The implementer contained in “Urban Renewal Rules” of the agreement is Shinera, who should handle urban renewal procedures. TFC should provide co-construction land as the building land, and Shinera is responsible for

117

Operation Highlights

The Party	Beginning and end of contract	Main contents	Restriction
		residential buildings to be constructed.	integrating the adjacent lands with the co-constructing land, providing all capital needed to execute this project and implementing construction.

118

Financial Summary

Chapter Six: Financial Summary

I. The Condensed Balance Sheets and Comprehensive Income Statements for the recent five years and Certified public accountants and audit opinions
(I) Information on brief financial statements and comprehensive profit and loss statements
1. Concise Balance Sheet (consolidated)

Unit: NT$K

							Unit: NT$K
Year Description		Financial information for recent fiveyears					The year ended March 31, 2019 Financial information (Note 1)
		2018	2017	2016	2015	2014
Current assets		13,749,184	14,192,823	15,301,306	18,900,345	10,533,836	14,596,848
Real estate, plant and equipment		13,823,376	13,744,278	26,753,401	27,232,915	33,573,437	13,922,085
Intangible assets		146,486	234,595	257,986	471,995	484,830	144,815
Other assets		48,680,671	46,985,195	34,405,109	33,898,550	25,904,834	49,063,126
Total assets		76,399,717	75,156,891	76,717,802	80,503,805	70,496,937	77,726,874
Current liabilities	Before distribution	1,980,296	2,231,866	1,680,062	2,248,724	5,881,372	2,644,972
	After distribution	Not distributed	4,289,866	3,738,062	4,306,724	8,037,372	Not distributed
Non-current liabilities		23,636,475	23,832,573	24,433,314	25,287,221	12,222,950	23,717,717
Total liabilities	Before distribution	25,616,771	26,064,439	26,113,376	27,535,945	18,104,322	26,362,689
	After distribution	Not distributed	28,122,439	28,171,376	29,593,945	20,260,322	Not distributed
Owners’ equity due to parent company		50,782,946	49,092,452	50,604,426	52,967,860	52,392,615	51,364,185
Share capital		9,800,000	9,800,000	9,800,000	9,800,000	9,800,000	9,800,000
Capital rese	rve	2,243,635	2,232,791	2,232,791	2,237,678	2,234,334	2,243,635
Retained earnings	Before distribution	37,426,654	37,094,340	37,976,750	40,177,405	39,927,485	37,973,882
	After distribution	Not distributed	35,036,340	35,918,750	38,119,405	37,771,485	Not distributed
Other equity		1,312,657	(34,679)	594,885	752,777	430,796	1,346,668
Treasury stocks		－	－	－	－	－	－
Non-controlled equity		－	－	－	－	－	－
Total equity	Before distribution	50,782,946	49,092,452	50,604,426	52,967,860	52,392,615	51,364,185
	After distribution	Not distributed	47,034,452	48,546,426	50,909,860	50,236,615	Not distributed

Note 1: The consolidated financial report in 2019 and ended in March 31 was examined by the accountant.

Note 2: The finance statements from 2014 to 2018 were all attested by independent auditors.

Note 3: The figures listed above are based on the resolution made by the shareholder meeting of the next year, but those in 2018 and 2019 are not resolved yet.

119

Financial Summary

2. Brief Comprehensive Profit and Loss Statement (consolidated)

Unit: NT$K

						Unit: NT$K
Year Description	Financial information for recent fiveyears					The year ended March 31~~st~~, 2019 Financial information (Note 1)
	2018	2017	2016	2015	2014
Operatingincome	12,215,092	11,658,986	12,240,920	17,487,077	17,510,273	3,504,892
Operating grossprofits	2,752,349	2,601,225	2,006,254	3,875,000	2,912,631	614,858
Operating profit and loss	1,286,502	1,227,938	595,694	2,345,012	1,659,950	267,188
Non-operating income and expenses	1,663,118	606,115	(616,713)	174,718	1,187,303	405,136
Net profit (loss) before tax	2,949,620	1,834,053	(21,019)	2,519,730	2,847,253	672,324
Continued operation units Netprofits for theperiod	2,281,319	1,619,126	(129,503)	2,427,083	3,068,346	551,671
Loss out of business suspension units	－	－	－	－	－	－
Net profits (loss) for currentperiod	2,281,319	1,619,126	(129,503)	2,427,083	3,068,346	551,671
Other comprehensive profit and loss for current period (Net values after tax)	517,626	(655,952)	(171,044)	300,818	509,897	29,568
Total comprehensive profit and loss for current period	2,798,945	963,174	(300,547)	2,727,901	3,578,243	581,239
Net profits attributable to owner ofparent company	2,281,319	1,619,126	(129,503)	2,427,083	3,068,346	551,671
Net profits attributable to non-controlling rights and interests	－	－	－	－	－	－
Total integrated profit and loss attributable to owners ofparent company	2,798,945	963,174	(300,547)	2,727,901	3,578,243	581,239
Total integrated profit and loss attributable to non-controlling rights and interests	－	－	－	－	－	－
Earnings (Loss) per share (NT$)	2.33	1.65	(0.13)	2.48	3.13	0.56

Note 1: The consolidated financial report in 2019 and ended in March 31 was examined by the accountant. Note 2: The finance statements from 2014 to 2018 were all attested by independent auditors. Note 3: Loss from discontinued business is to be used to reduce the listed net profit after tax of the Company.

120

Financial Summary

3. Concise Balance Sheet (Individual)

Unit: NT$K

							Unit: NT$K
Year Description		Financial information for recent fiveyears					The year ended March 31, 2019 Financial information (Note 1)
		2018	2017	2016	2015	2014
Current assets		11,977,268	13,612,812	15,035,072	18,645,302	10,293,965	－
Real estate, plant and equipment		13,419,677	13,640,123	26,619,098	26,918,099	33,231,463	－
Intangible assets		22,679	28,922	20,567	28,311	40,945	－
Other assets		50,909,738	47,807,025	34,946,418	34,865,330	26,873,209	－
Total assets		76,329,362	75,088,882	76,621,155	80,457,042	70,439,582	－
Current liabilities	Before distribution	1,915,349	2,163,017	1,582,350	2,201,043	5,826,145	－
	After distribution	Not distributed	4,221,017	3,640,350	4,259,043	7,982,145	－
Non-current liabilities		23,631,067	23,833,413	24,434,379	25,288,139	12,220,822	－
Total liabilities	Before distribution	25,546,416	25,996,430	26,016,729	27,489,182	18,046,967	－
	After distribution	Not distributed	28,054,430	28,074,729	29,547,182	20,202,967	－
Owners’ equity due to parent company		－	－	－	－	－	─
Share capital		9,800,000	9,800,000	9,800,000	9,800,000	9,800,000	－
Capital rese	rve	2,243,635	2,232,791	2,232,791	2,237,678	2,234,334	－
Retained earnings	Before distribution	37,426,654	37,094,340	37,976,750	40,177,405	39,927,485	－
	After distribution	Not distributed	35,036,340	35,918,750	38,119,405	37,771,485	－
Other equity		1,312,657	(34,679)	594,885	752,777	430,796	－
Treasury stocks		－	－	－	－	－	－
Non-controlled equity		－	－	－	－	－	－
Total equity	Before distribution	50,782,946	49,092,452	50,604,426	52,967,860	52,392,615	－
	After distribution	Not distributed	47,034,452	48,546,426	50,909,860	50,236,615	－

Note 1: The consolidated financial report in 2019 and ended in March 31 was examined by the accountant.

Note 2: The finance statements from 2014 to 2018 were all attested by independent auditors.

Note 3: The figures listed above are based on the resolution made by the shareholder meeting of the next year, but those in 2016 are not resolved yet.

121

Financial Summary

4. Brief Comprehensive Profit and Loss Statement (Individual)

Unit: NT$K

						Unit: NT$K
Year Description	Financial information for recent five years					The year ended March 31, 2019 Financial information (Note 1)
	2018	2017	2016	2015	2014
Operating profit and loss	11,928,000	11,346,419	11,893,266	17,120,807	17,093,170	－
Non-operating income and expenses	2,701,844	2,544,133	1,975,732	3,816,860	2,808,453	－
Net profit (loss) before tax	1,292,341	1,275,875	675,215	2,401,993	1,710,820	－
Continued operation units Netprofits for theperiod	1,656,253	543,075	(741,654)	139,706	1,149,072	－
Loss out of business suspension units	2,948,594	1,818,950	(66,439)	2,541,699	2,859,892	－
Net profits (loss) for currentperiod	2,281,319	1,619,126	(129,503)	2,427,083	3,068,346	－
Other comprehensive profit and loss for current period (Net values after tax)	－	－	－	－	－	－
Total comprehensive profit and loss for currentperiod	2,281,319	1,619,126	(129,503)	2,427,083	3,068,346	－
Net profits attributable to owner ofparent company	517,626	(655,952)	(171,044)	300,818	509,897	－
Net profits attributable to non-controlling rights and interests	2,798,945	963,174	(300,547)	2,727,901	3,578,243	－
Total integrated profit and loss attributable to owners ofparent company	－	－	－	－	－	－
Total integrated profit and loss attributable to non-controlling rights and interests	－	－	－	－	－	－
Earnings (Loss) per share(NT$)	－	－	－	－	－	－
Operating profit and loss	－	－	－	－	－	－
Non-operating income and expenses	2.33	1.65	(0.13)	2.48	3.13

Note 1: The consolidated financial report in 2019 and ended in March 31 was examined by the accountant.

Note 2: The finance statements from 2014 to 2018 were all attested by independent auditors.

Note 3: Loss from discontinued business is to be used to reduce the listed net profit after tax of the Company.

122

Financial Summary

(II) Certified public accountants and audit opinions

Year	Certified public accountants	Names of certified public accountants	Audit opinions
2014	Deloitte & Touche	Yiwen Wang and Youwei Fan	Revised without reservation
2015	Deloitte & Touche	Yiwen Wang and Youwei Fan	Revised without reservation
2016	Deloitte & Touche	Yiwen Wang and Youwei Fan	Without reservation
2017	KPMG	Kuoyang Tseng and HengshengLin	Without reservation
2018	KPMG	Kuoyang Tseng and HengshengLin	Without reservation

123

Financial Summary

II. Financial Analysis over the Recent Five Years

(I) Financial analysis:

Financial analysis (consolidated)

Year Analysis items (Note 3)	Year Analysis items (Note 3)	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	The year ended March 31, 2019 (Note 1)
		2018	2017	2016	2015	2014
Financial structure (%)	Liabilities to assets ratio	33.52	34.68	34.03	34.20	25.68	33.91
	long-term capital fixed assets ratio	538.35	530.58	280.47	287.35	192.46	539.30
Debt paying ability (%)	Current ratio	694.29	635.91	910.75	840.49	179.10	551.87
	Quick ratio	524.90	537.18	789.23	721.56	104.83	439.19
	Interests coverage ratio	707,442.92	330,560.00	-199.03	4,945.48	24,512.24	679,215.15
Operation capability	Receivables turnover rate(times)	8.56	7.20	6.48	5.83	5.64	2.74
	Average number of days of cash receipt	43	51	56	63	65	133
	Inventory turnover rate(times)	4.06	4.97	5.15	4.66	4.17	1.06
	Payables turnover rate(times)	9.47	8.53	9.73	12.29	18.31	4.20
	Average number of days ofgoods sale	90	73	71	78	88	344
	Turnover rate (times) of real estate, plant and equipment	0.88	0.57	0.45	0.57	0.49	0.25
	Total asset turnover rate(times)	0.16	0.15	0.15	0.23	0.26	0.04
Profitability	Asset return rate(%)	3.01	2.13	-0.15	3.23	4.53	0.71
	Shareholders’ equity return rate(%)	4.56	3.26	-0.25	4.60	5.94	1.08
	Paid-up capital ratio (%) : Net income before tax	30.09	18.71	-0.21	25.71	29.05	6.86
	Net income rate(%)	18.67	13.88	-1.05	13.87	17.52	15.74
	Earning per share (NT$)	2.33	1.65	-0.13	2.48	3.13	0.56
Cash flow	Cash flow ratio(%)	94.89	116.46	97.43	876.81	-10.27	47.01
	Cash flow fair ratio (%)	122.01	142.29	134.18	137.21	45.80	149.97
	Cash re-investment ratio(%)	-0.22	0.70	-0.53	21.73	-3.82	1.55
Leverage	Operation leverage	3.52	3.76	7.52	3.14	3.70	5.94
	Financial leverage	1	1	1	1	1	1

124

Financial Summary

The changes in financial ratios over the past 2 fiscal years:

The rise in the interest coverage ratio was due mainly to increased transfer investment income in 2018 and the recognition of increased net profit pre-tax and pre-interest from the disposal of investment property.
The increased average number of days of goods sales was due mainly to the reclassification of investment property to inventory (under construction) in response to the government’s policy changes pertaining to development plans.
The increased turnover rate of real estate, plants, and equipment was due mainly to increased net sales in 2018.
The increased rate of return on assets in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased return on equity in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased ratio of profit before tax to the amount of paid-up capital in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit before tax.
The increased net profit margin was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased earnings per share was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased cash reinvestment ratio was due mainly to the cash inflow from operating activities being lower than the cash outflow from cash dividend distribution.

125

Financial Summary

2. Financial analysis (individual)

Year Analysis items (Note 3)	Year Analysis items (Note 3)	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	Financial Analysis over the Recent Five Years	The year ended March 31, 2019 (Note 1)
		2018	2017	2016	2015	2014
Financial structure (%)	Liabilities to assets ratio	33.46	34.62	33.95	34.16	25.62	－
	long-term capital fixed assets ratio	554.51	534.64	281.89	290.71	194.43	－
Debt paying ability (%)	Current ratio	625.33	629.34	950.17	847.11	176.69	－
	Quick ratio	453.39	529.83	826.30	729.53	103.53	－
	Interests coverage ratio	No Interest Paid	45,473,850.00	-890.00	5,003.19	25,685.98	－
Operation capability	Receivables turnover rate(times)	8.43	7.05	6.34	5.73	5.55	－
	Average number of days of cash receipt	43	52	58	64	66	－
	Inventory turnover rate(times)	4.05	5.00	5.18	4.69	4.17	－
	Payables turnover rate(times)	9.36	8.41	9.57	12.21	18.48	－
	Average number of days ofgoods sale	90	73	70	78	88	－
	Turnover rate (times) of real estate, plant and equipment	0.88	0.56	0.44	0.56	0.48	－
	Total asset turnover rate(times)	0.15	0.15	0.15	0.22	0.25	－
Profitability	Asset return rate (%)	3.01	2.14	-0.15	3.23	4.55	－
	Shareholders’ equity return rate(%)	4.56	3.26	-0.25	4.60	5.95	－
	Paid-up capital ratio (%) : Net income before tax	30.08	18.56	-0.67	25.93	29.18	－
	Net income rate (%)	19.12	14.26	-1.08	14.17	17.95	－
	Earning per share (NT$)	2.33	1.65	-0.13	2.48	3.13	－
Cash flow	Cash flow ratio (%)	100.46	119.16	104.01	895.47	(9.94)	－
	Cash flow fair ratio (%)	124.90	142.19	134.37	137.27	46.08	－
	Cash re-investment ratio(%)	-0.17	0.68	-0.53	21.73	(3.79)	－
Leverage	Operation leverage	3.28	3.38	6.12	2.91	3.35	－
	Financial leverage	1	1	1	1	1	－

126

Financial Summary

The changes in financial ratios over the past 2 fiscal years:

The rise in the interest coverage ratio was due mainly to increased transfer investment income in 2018 and the recognition of increased net profit pre-tax and pre-interest from the disposal of investment property.
The increased average number of days of goods sales was due mainly to the reclassification of investment property to inventory (under construction) in response to the government’s policy changes pertaining to development plans.
The increased turnover rate of real estate, plants, and equipment was due mainly to increased net sales in 2018.
The increased rate of return on assets in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased return on equity in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased ratio of profit before tax to the amount of paid-up capital in 2018 was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit before tax.
The increased net profit margin was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased earnings per share was due mainly to the increased income from transfer investments and the recognition of the profit from the disposal of the investment real property which increased the year’s net profit.
The increased cash reinvestment ratio was due mainly to the cash inflow from operating activities being lower than the cash outflow from cash dividend distribution.
Note 1: The consolidated financial statements for the quarter ended on March 31, 2019 were reviewed by independent auditors but the unconsolidated financial statemetns were not reviewed by independent auditors.
Note 2: The finance statements from 2014 to 2018 were all attested by independent auditors.
Note 3: Calculation formula for analysis items:
Financial structure
- (1) Liabilities to assets ratio ＝ total liabilities/total assets.
- (2) Long-term capital to fixed assets ratio, plant to equipment ratio ＝ (total equity ＋ non-current liabilities) /net value of real estate, plant and equipment.
Debt paying ability
- (1) Current ratio ＝ current assets /current liabilities.
- －－
- (2) Quick ratio -(Current assets inventory prepaid expenses)/current liabilities. (including inventory and construction work in progress).
- (3) Interest coverage ＝ Net income before income tax and interests expenses/interest expenses for the current period.
Operation capability
- (1) Receivable (including accounts receivable and bills receivable arising from business operation) turnover rate ＝ Net sales of goods/Average receivables for different periods (including balance of accounts receivable and bills receivable arising from business operation).
- (2) Average number of days of cash receipt ＝ 365/Receivables turnover rate.
- (3) Inventory turnover rate ＝ goods sale costs/average inventory (including inventory and construction work in progress).
- (4) Payable (including accounts payable and bills payable arising from business operation) turnover rate ＝ balance of goods sale costs/average payables for different period (including accounts payable and bills payable arising from business operation).
- (5) Average number of days of goods sale ＝ 365/inventory turnover rate.
- (6) Turnover rate of real estate, plant and equipment ＝ Net sales of good/net values of average real estate, plant and equipment.
- (7) Total asset turnover rate ＝ Net sales of goods/total average assets.
Profitability
- －
- (1) Asset return rate = (Profit and loss after tax ＋ interests expenses×(1 tax rate))/average total assets.
- (2) shareholders’ equity return rate ＝ Profit and loss after tax/net average shareholders’ equity.
- (3) Net income rate ＝ Profit and loss after tax/Net sales of goods.
- (4) Earning per share ＝ (Net profit after tax － special share dividends)/Weighted average number of shares issued.
Cash flow

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Financial Summary

(1) Cash flow ratio ＝ net cash flow due to operating activities/current liabilities.
(2) Net cash flow fair ratio ＝ Net cash flow from operating activities over the current five years/increase in (capital expenses + increase in inventory ＋ cash dividends) for the current five years ＋ cash dividends).
(3) Cash re-investment ratio ＝ (net cash flow due to operating activities － cash dividends)/(Gross fixed assets ＋ long － term investment ＋ other assets ＋ Operating capital).
Leverage
(1) Operation leverage ＝ (Net operating income － variable operating costs and expenses)/operating interest.
(2) Financial leverage ＝ operating interest/(operating interest － interests expenses).

128

Financial Summary

III. Audit Committee Review Report for the Current Year

Taiwan Fertilizer Co., Ltd Audit Committee Review Report

The Company's 2018 business report, financial statements and statement of earnings distribution were submitted by the Company’s Board of Directors. The financial statements were already audited by Tseng Kuoyang, CPA and Lin Hengsheng, CPA of KPMG, who also issued the auditor report accordingly.

The above business report, financial statements, and statement of earnings distribution have been reviewed by the Audit Committee to be in compliance with the Article 219 of the Company Law.

General Meeting of Shareholders for 2019 of the Company

Taiwan Fertilizer Co., Ltd

Convener, Audit Committee: Lin Hongcang

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March 28, 2019

129

Financial Summary

IV. Current Year Consolidated Financial Statement

Independent Auditors’ Report

To the Board of Directors of TAIWAN FERTILIZER CO., LTD.:

Opinion

We have audited the consolidated financial statements of TAIWAN FERTILIZER CO., LTD. and its subsidiaries (“the Group”), which comprise the consolidated Balance Sheets as of December 31, 2018 and 2017, and the consolidated statement of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to Other Matter paragraph), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the year ended December 31, 2018 and 2017 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters that, in our professional judgment, should be communicated are as follows:

Impairment assessment of intangible assets

For the accounting policy of impairment assessment of intangible assets, please refer to note 4 (m) “Intangible assets” of the consolidated financial statements. For the accounting estimate and uncertainty assumption of impairment assessment of intangible assets, please refer to note 5 of the consolidated financial statements. For the impairment assessment of intangible assets, please refer to 6(m) of the consolidated financial statements.

130

Key audit matters:

As described in Note 6(m) of the consolidated financial statements, the Group acquired control over Taiwan Yes Deep Ocean Water Co., Ltd. (“ Taiwan Yes” ) on January 7, 2013, which was accounted for as acquisition using the equity method (including the goodwill and trademark with indefinite useful lives). In accordance with IAS 36 “Impairment of Assets”, goodwill and intangible assets with indefinite useful lives should be tested for impairment annually; and based on the estimated future cash flows of Taiwan Yes (the cash-generating unit), the recoverable amount was evaluated in order to determine whether there is any impairment of the aforementioned investment accounted for by using the equity method (including the goodwill and intangible assets with indefinite useful lives). Since the estimated future cash flows requires management’s forecasting of the industry overview and the future operating performance of Taiwan Yes, should the situation change, the recoverable amount will be affected and an impairment loss will be incurred. Therefore, the impairment assessment of equity-method investments has been identified as a key audit matter.

How the matter was addressed in our audit:

Our principal audit procedures included confirming whether the management has properly assessed the recoverability of goodwill based on the forecasted cash flows within the following 5 years, wherein the assessment has been reviewed by the competent authority; and verifying whether the management has disclosed the impairment of goodwill in the financial statements on a timely manner after identifying such circumstance. In addition, we also assessed the adequacy of the forecasting methods and the discount rate used by the management, and compared the discount rate with external information; verified the management’s assumptions with external relevant information, and evaluated the major assumptions (including the forecast revenue growth rate, discount rate and forecast margin).

Other Matter

We did not audit the consolidated financial statements as of and for the years ended December 31, 2018 and 2017 of the certain investees in equity method. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included in the corporation's financial statements for these investees, is based solely on the report of other auditors. As of December 31, 2018 and 2017, the investments in the aforementioned investees are 13.15% (NT$10,048,780 thousand) and 12.69% (NT$9,538,520 thousand) of consolidated total assets. For the years ended December 31, 2018 and 2017, the investment income on the above said investees are 36.91% (NT$1,093,334 thousand) and 33.96% (NT$622,846 thousand) of the Company's income before income tax.

TAIWAN FERTILIZER CO., LTD. has additionally prepared its parent company only financial statements as of and for the years ended December 31, 2018 and 2017, on which we have issued an unqualified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

131

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

132

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Kuo-Yang Tseng and LIN/HENGSHEN.

KPMG

Taipei, Taiwan (Republic of China) March 28, 2019

Notes to Readers

The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

The independent auditors’ report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ report and consolidated financial statements, the Chinese version shall prevail.

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Consolidated Balance Sheets December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

December 31, 2018 Amount % $ 3,441,058 5 1,806,574 2 100,764 - - - 189,152 - 1,098,678 1 6 - 13,733 - 2,815,863 4 538,666 1 3,742,192 6 2,498 -	December 31, 2018	December 31, 2018	December 31, 2018
	Amount	%	Amount
	1,980,296 2 2,231,866 3
	223,648 - 223,648 - 7,218,478 10 7,014,086 9 15,799,704 21 16,173,803 22 114,247 - 112,063 - 280,398 - 308,973 -
13,749,184 19
1,764,692 2 - - 30,729 - - - 10,157,635 13 13,823,376 18 35,155,383 47 146,486 - 193,630 - 207,880 - 49,625 - 1,108,012 1 13,085 -
	23,636,475 31 23,832,573 31
	25,616,771 33 26,064,439 34
	9,800,000 13 9,800,000 13 2,243,635 3 2,232,791 3 2,963,022 4 3,683,109 5 31,234,687 41 31,449,960 42 3,228,945 4 1,961,271 3
	37,426,654 49 37,094,340 50
	1,312,657 2 (34,679) - 1,312,657 2 (34,679) -
62,650,533 81
	50,782,946 67 49,092,452 66
$ 76,399,717 100	$ 76,399,717 100 75,156,891 100

See accompanying notes to consolidated financial statements.

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President: Yaohsing Huang 134

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Chairman: Hsinhong, Kang

Financial Dept. Head: Meiling Huang

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Common Share)

	% 100 (77)	2017	% 100 (78)
Amoun t $ 12,215,092 (9,462,743)		Amount 11,658,986 (9,057,761)
2,752,349	23	2,601,225	22
282,248 1,103,590 80,009	2 9 1	269,381 1,021,639 82,267	2 9 1
1,465,847	12	1,373,287	12
1,286,502	11	1,227,938	10
156,797 428,707 (417) 1,078,031	1 3 - 9	198,553 (208,886) (555) 617,003	2 (2) - 6
1,663,118	13	606,115	6
2,949,620 668,301	24 5	1,834,053 214,927	16 2
2,281,319	19	1,619,126	14
(5,185) 257,300 4,735 4,385	- 2 - -	(39,159) - 6,282 6,658	- - - -
261,235	2	(26,219)	-
(1,942) - 331,657 (73,324)	- - 3 (1)	(5,522) 49,729 (812,515) 138,575	- - (7) 1
256,391	2	(629,733)	(6)
517,626	4	(655,952)	(6)
$ 2,798,945	23	963,174	8
$ 2,281,319	19	1,619,126	14
$ 2,798,945	23	963,174	8
$	2.33		1.65
$	2.32		1.65

See accompanying notes to consolidated financial statements.

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Chairman: President: Financial Dept. Head: Hsinhong, Kang Yaohsing Huang Meiling Huang

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars)

Equity attributable to owners of parent

Share capital		Retained earnings	Retained earnings			Total other equity interest	Total other equity interest
					Exchange differences on translation of foreign financial statements	Unrealized gains (losses) on financial assets measured at fair value through other comprehensive income	Unrealized gains (losses) on available-for-s ale financial assets	Total other equity interest
Ordinary shares	Legal reserve	Special reserve	Unappropriate d retained earnings	Total retained earnings
$ 9,800,000 2,232,791 3,683,109 33,590,309 286,015 37,559,433 532,135 -
- - - - 1,619,126 1,619,126 - - - - - - (26,219) (26,219) (679,462) -							- - 1,619,126 49,729 (629,733) (655,952)
- - - - 1,592,907 1,592,907 (679,462) -							49,729 (629,733) 963,174
- - - - (2,058,000) (2,058,000) - - - - - (2,030,304) 2,030,304 - - - - - - (110,045) 110,045 - - -							- - (2,058,000) - - - - - -
9,800,000 2,232,791 3,683,109 31,449,960 1,961,271 37,094,340 (147,327) - 112,648 (34,679) 49,092,452 - - - - 105,060 105,060 - 946,293 (112,648) 833,645 938,705
9,800,000 2,232,791 3,683,109 31,449,960 2,066,331 37,199,400 (147,327) 946,293 - 798,966 50,031,157
- - - - 2,281,319 2,281,319 - - - - 2,281,319 - - - - 3,935 3,935 256,391 257,300 - 513,691 517,626
- - - - 2,285,254 2,285,254 256,391 257,300 - 513,691 2,798,945
- - 161,913 - (161,913) - - - - - - - - (882,000) - (1,176,000) (2,058,000) - - - - (2,058,000) - - - (215,273) 215,273 - - - - - - - 10,844 - - - - - - - - 10,844
$ 9,800,000 2,243,635 2,963,022 31,234,687 3,228,945 37,426,654 109,064 1,203,593 - 1,312,657 50,782,946

See accompanying notes to consolidated financial statements.

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Chairman: Hsinhong, Kang

Financial Dept. Head: Meiling Huang

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation expense Amortization expense Net loss (gain) on financial assets or liabilities at fair value through profit or loss Interest expense Interest income Dividend income Share of loss (profit) of associates and joint ventures accounted for using equity method Loss (gain) on disposal of property, plan and equipment Property, plan and equipment transferred to expenses Loss (gain) on disposal of investment properties Loss (gain) on disposal of investments Impairment loss on non-financial assets Unrealized foreign exchange loss (gain) Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Decrease (increase) in notes receivable Decrease (increase) in accounts receivable Decrease (increase) in other receivable Decrease (increase) in inventories Decrease (increase) in prepayments Decrease (increase) in other current assets Decrease (increase) in deferred debits Increase (decrease) in contract liabilities Increase (decrease) in notes payable Increase (decrease) in accounts payable Increase (decrease) in other payable Increase (decrease) in receipts in advance Increase (decrease) in other current liabilities Increase (decrease) in net defined benefit liability Increase (decrease) in deferred credits Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes refund (paid) Net cash flows from (used in) operating activities	2018 $ 2,949,620 813,442 83,469 32,071 417 (83,109) (51,483) (1,078,031) 1,815 11,508 (754,449) - 81,867 (25,424) - - 231,880	2017 1,834,053 732,513 84,560 - 555 (83,575) (43,562) (617,004) (79,371) 8,731 24,569 (21,788) 31,715 26,625 861 (24,562) 241,381
	(736,027)	281,648
	(157,304) 434,670 17,110 (239,990) (174,250) (13,431) 105,980 (49,059) 1,474 (440,664) 108,676 (20,816) 154 (3,001) (374,099)	334,476 (227,467) (18,966) (37,523) (117,981) (23,246) 71,630 - (6,466) 320,198 54,004 61,201 17,189 (21,449) (410,848)
	(777,335)	13,829
	(804,550)	(5,248)
	(1,540,577)	276,400
	1,409,043 83,639 739,069 (417) (352,149)	2,110,453 83,124 474,035 (555) (67,701)
	1,879,185	2,599,356

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (CONT ’ D)

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) investing activities: Acquisition of financial assets at fair value through other comprehensive income Proceeds from disposal of financial assets at fair value through other comprehensive income Proceeds from capital reduction of financial assets at fair value through other comprehensive income Acquisition of available-for-sale financial assets Proceeds from disposal of available-for-sale financial assets Acquisition of financial assets at cost Proceeds from capital reduction of financial assets at cost Acquisition of investments accounted for using equity method Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits Acquisition of intangible assets Acquisition of investment properties Proceeds from disposal of investment properties Increase in other financial assets Increase in other non-current assets Other investing activities Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Decrease in short-term loans Decrease in guarantee deposits received Cash dividends paid Net cash flows from (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period	2018 (5,010,000) 5,212,116 17,927 - - - - (50,000) (784,088) 392 104,528 (4,500) (1,575,117) 1,270,109 2,178,725 2,078 -	2017 - - - (2,205,306) 3,311,788 (150,000) 52,683 - (449,306) 132,266 (96,048) - (1,293,562) 68,471 1,333,156 - (40,100)
	1,362,170	664,042
	(3,000) (28,575) (2,058,000)	(11,000) (7,151) (2,058,000)
	(2,089,575)	(2,076,151)
	23,058 1,174,838 2,266,220	(5,862) 1,181,385 1,084,835
	$ 3,441,058	2,266,220

See accompanying notes to consolidated financial statements.

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President: Yaohsing Huang

Financial Dept. Head: Meiling Huang

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(English Translation of Consolidated Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Company history

TAIWAN FERTILIZER CO., LTD. (the “Company”). was incorporated in May 1946. The Company’s registered office address is located at 6F, No. 88, Nanjing E. Rd., Sec.2, Taipei, 10457, Taiwan. The Company and its subsidiaries (together referred to as the “Group”) manufactures and sells inorganic and organic fertilizers and other chemical products. The Group also constructs and leases real estate property. The Group’s shares has been listed on the Taiwan Stock Exchange since March 24, 1998.

(2) Approval date and procedures of the consolidated financial statements:

The accompanying consolidated financial statements were authorized for issue by the Board of Directors on March 28, 2019.

(3) New standards, amendments and interpretations adopted:

(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018.

New, Revised or Amended Standards and Interpretations
Amendment to IFRS 2 “Clarifications of Classification and Measurement of
Share-based Payment Transactions”
Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts”
IFRS 9 “Financial Instruments”
IFRS 15 “Revenue from Contracts with Customers”
Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative”
Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 40 “Transfers of Investment Property”
Annual Improvements to IFRS Standards 2014–2016 Cycle:
Amendments to IFRS 12
Amendments to IFRS 1 and Amendments to IAS 28
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

Effective date
per IASB

January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2017
January 1, 2018
January 1, 2018

(Continued)

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Notes to the Consolidated Financial Statements

Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows:

(i) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces the existing revenue recognition guidance, including IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The Group applies this standard retrospectively with the cumulative effect, it need not restate those contracts, but instead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparative reporting period. The Group recognizes the cumulative effect upon the initially application of this Standard as an adjustment to the opening balance of retained earnings on January 1, 2018.

The following are the nature and impacts on changing of accounting policies:

1) Sales of goods

For the sale of A products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. The Group assessed that the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer is similar to the point in time at which a customer obtains control of goods. Based on its assessment, the Group does not expect the application of IFRS 15 to have any significant impact on its consolidated financial statements.

For certain contracts that permit a customer to return an item, revenue is currently recognized when a reasonable estimate of the returns can be made, provided that all other criteria for revenue recognition are met. Otherwise, a revenue recognition is deferred until the return period lapses or a reasonable estimate of returns can be made. Under IFRS 15, revenue will be recognized for these contracts to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. A refund liability and an asset for recovery will be recognized for these contracts and presented separately in the statement of financial position.

2) Advance Real Estate Receipts

As of advance receipts, the current guidelines do not stipulate whether there is any interest needs for them to be calculated. Under International Financial Reporting Standard No. 15 , it is stipulated that advance receipts should be assessed as to whether there is a significant financial component in order to adjust the amount of the promised consideration to reflect the impact of the time value of money. Based on the assessment, the Group does not expect the application of IFRS 15 to have any significant impact on its consolidated financial statements.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

3) Impacts on financial statements

The following tables summarize the impacts of adopting IFRS15 on the Group’s consolidated financial statements:

December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018
Balances prior to the adoption of IFRS 15	Impact of changes in accounting policies 167,607 (167,607)	Balance upon adoption of IFRS 15	Balances prior to the adoption of IFRS 15	Impact of changes in accounting policies 216,666 (216,666)
$ - 172,089		167,607 - 4,482 241,964
	-			-

Impacted line items on the consolidated statement of cash flows Cash flows from (used in) operating activities: Adjustments: Contract liabilities Receipt in advance Impact on net cash flows from operating activities	For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (49,059) (49,059) (69,875) 49,059 (20,816) -	For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (49,059) (49,059) (69,875) 49,059 (20,816) -	For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (49,059) (49,059) (69,875) 49,059 (20,816) -
	Before adjustments		Impact of changes in accounting polices (49,059) 49,059
	$ - (69,875)
			-

(ii) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting.

As a result of the adoption of IFRS 9, the Group adopted the consequential amendments to IAS 1 “Presentation of Financial Statements” which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Group’s approach was to include the impairment of trade receivables in administrative expenses. Additionally, the Group adopted the consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 but generally have not been applied to comparative information.

(Continued)

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Notes to the Consolidated Financial Statements

The detail of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below:

1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note 4(g).

The adoption of IFRS 9 did not have any a significant impact on its accounting policies on financial liabilities.

2) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with the ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than they are under IAS 39 – please see note 4(g).

3) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,

‧Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.
‧The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.
－ The determination of the business model within which a financial asset is held.
－ The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
－ The designation of certain investments in equity instruments not held for trading as at FVOCI.

(Continued)

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Notes to the Consolidated Financial Statements

‧If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group assumed that the credit risk on its asset will not increase significantly since its initial recognition.
4) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018. (The new measurement categories and carrying amount of the financial liabilities did not change.)

Financial Assets Cash and equivalents Debt securities Equity instruments Other financial assets (Guarantee deposits paid) Other financial assets (Guarantee deposits paid)	IAS39		IFRS9	Carrying Amount 2,266,220 2,040,761 30,305 141,254 1,484,830 1,910,429 5,970,542
	Measurement categories Loans and receivables Available-for-sale financial assets (note 1) Available-for-sale (note 2) Available-for-sale (note 3) Financial assets measured at cost (note 3) Loans and receivables (note 4) Loans and receivables	Carrying Amount

Note1: The corporate debt securities are categorized as available-for-sale under IAS 39. The Group assesses that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities. The Group has identified certain securities which are managed separately, and for which the past practice has been held to collect the contractual cash flows. Consequently, the Group has designated these investments at the date as fair value through profit or loss. The carrying amount of the assets increased $2,040,761 thousand, other equity items decreased $15,762 thousand, and $15,762 thousand was recognized in opening retained earnings upon transition to IFRS 9 on January 1, 2018.
Note2: The corporate debt securities are categorized as available-for-sale under IAS 39. The Group assesses that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities. The Group has identified certain securities which are managed separately, and for which the past practice has been held to collect the contractual cash flows. Consequently, the Group has designated these investments at the date of initial application as measured at amortized cost.

(Continued)

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Notes to the Consolidated Financial Statements

Note3: These equity securities (including financial assets measured at cost) represent investments that the Group intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Group has designated these investments at the date of initial application as measured at FVOCI. Accordingly, an increase of $937,931 thousand in those assets was recognized, and the increase of $848,633 thousand and $89,298 thousand in other equity items and retained earnings and were recognized on January 1, 2018.
Note4: Trade, lease and other receivables that were classified as loans and receivables under IAS 39 are classified as financial assets at amortized cost under IFRS 9.

The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on 1 January, 2018.

2017.12.31 IAS 39 Carrying Amount $ -	Reclassifications 2,040,761	Remeasurements -	2018.1.1 IFRS 9 Carrying Amount	2018.1.1 Retained earnings 15,762	2018.1.1 Other equity (15,762)
$ -	2,040,761	-	2,040,761	15,762	(15,762)
$ 2,758,445 - - -	- - (2,040,761) (29,531)	- 937,931 - -		- 89,298 - -	- 848,633 - -
$ 2,758,445	(2,070,292)	937,931	1,626,084	89,298	848,633
$ 10,147,191 -	- 29,531	- 774		- -	- 774
$ 10,147,191	29,531	774	10,177,496	-	774

For financial assets that have been reclassified to amortized cost category, the following table shows their fair value as of December 31, 2018 and the fair value gain or loss that would have been recognized if these financial assets had not been reclassified as part of the transition to IFRS 9.

From available-for-sale to amortized cost Fair value as of December 31, 2018 Fair value gain/loss that would have been recognized during the year if the financial asset had not been reclassified From designated at fair value through profit or loss (IAS39) to amortized cost	For the year ended December 31, 2018
	29,522 (9)

(Continued)

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Notes to the Consolidated Financial Statements

(b) The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:

New, Revised or Amended Standards and Interpretations
IFRS 16 “Leases”
IFRIC 23 “Uncertainty over Income Tax Treatments”
Amendments to IFRS 9 “Prepayment features with negative compensation”
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”
Amendments to IAS 28 “Long-term interests in associates and joint ventures”
Annual Improvements to IFRS Standards 2015–2017 Cycle

Effective date
per IASB

January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

(i) IFRS 16“Leases”

IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The lessor accounting remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases.

1) Determining whether an arrangement contains a lease

On transition to IFRS 16, the Group can choose to apply either of the following:

‧ IFRS 16 definition of a lease to all its contracts; or
‧ a practical expedient that does not need any reassessment whether a contract is, or contains, a lease.

The Group plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Transition

As a lessee, the Group can apply the standard using either of the following:

‧ retrospective approach; or
‧ modified retrospective approach with optional practical expedients.

On January 1, 2019, the Group plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group chooses to elect the following practical expedients:

  - ‧ apply a single discount rate to a portfolio of leases with similar characteristics.

  - ‧ apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application.

  - ‧ exclude the initial direct costs from measuring the right-of-use assets at the date of initial application.

  - ‧ use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

3) So far, the most significant impact identified is that the Group will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Group estimated that the right-of-use assets and the lease liabilities to increase by $1,359,669 thousand and $251,657 thousand respectively, as well as the retained earnings to decrease by $0 thousand on January 1, 2019. No significant impact is expected for the Group’s finance leases. Besides, The Group does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. Also, the Group is not required to make any adjustments for leases where the Group is the intermediate lessor in a sub-lease.
(ii) IFRIC 23 Uncertainty over Income Tax Treatments

In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entity shall assume that a taxation authority will examine the amounts it has the right to examine and have a full knowledge on all related information when making those examinations.

(Continued)

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Notes to the Consolidated Financial Statements

If an entity concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates consistently with the tax treatment used or planned to be used in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty.

So far, based on the assessment, the Group does not expect the application of IFRS 15 to have any significant impact on its consolidated statement.

The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future.

As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:

Effective date New, Revised or Amended Standards and Interpretations per IASB Amendments to IFRS 3 “Definition of a Business” January 1, 2020 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Effective date to Investor and Its Associate or Joint Venture” be determined by IASB IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020

Those which may be relevant to the Group are set out below:

Issuance / Release Dates September 11, 2014	Standards or Interpretations Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”	Content of amendment
		The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture.

The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

The Group is evaluating the impact on its consolidated financial position and consolidated financial performance upon the initial adoption of the abovementioned standards or interpretations. The results thereof will be disclosed when the Group completes its evaluation.

(Continued)

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Notes to the Consolidated Financial Statements

(4) Summary of significant accounting policies:

The following significant accounting policies have been applied consistently to all periods presented in the non-consolidated financial statements.

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as “the Regulations”) and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations endorsed and issued into effect by the Financial Supervisory Commission, R.O.C.

(b) Basis of preparation

(i) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the balance sheets：

1) Financial instruments measured at fair value through profit or loss are measured at fair value；
2) Fair value through other comprehensive income (available for sale) financial assets are measured at fair value; and
3) The net defined benefit liability is recognized as the present value of the defined benefit obligation less the fair value of plan assets.
(ii) Functional and presentation currency

The functional currency of each Group entities is determined based on the primary economic environment in which the entities operate. The consolidated financial statements are presented in New Taiwan Dollar, which is the Company’s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand.

(c) Basis of consolidation

(i) Principle of preparation of the consolidated financial statements

The consolidated financial statements comprise the Group and subsidiaries. The Group has control over an investee if and only if it has exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of its returns.

The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra group transactions and balances, and any unrealized income and expenses arising from intra group transactions are eliminated in preparing the consolidated financial statements. Losses applicable to the controlling interests in a subsidiary are allocated to the ownership of the parent Group and non controlling interests, even if doing so causes the non controlling interests to have a deficit balance.

(Continued)

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Notes to the Consolidated Financial Statements

Adjustments for financial statements of subsidiaries have been made, and their accounting policies are in accord with the Group’s.

Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The difference between adjustment for the non controlling interest and the fair value of consideration received or paid is directly recognized in equity attributable to the owner.

When the Group loses control of a subsidiary it derecognizes the assets and liabilities and related equity components of the former subsidiary (included goodwill). Any investment retained in the former subsidiary is measured at its fair value at the date when control is lost. A gain or loss is recognized in profit or loss and is calculated as the difference between: a. the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and b. the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any noncontrolling interest. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss or transferred directly to retained earnings as appropriate, on the same basis as would be required.

(ii) List of subsidiaries included in the consolidated financial statements:

Investor	Subsidiary	Nature of business	Shareholding ratio	Shareholding ratio	Notes
			December 31, 2018	December 31, 2017
The Group The Group The Group The Group The Group The Group Taiwan Yes Deep Ocean Water Co., Ltd. Taifer Chemicals International Inc. TAIFER INTERNATIONAL (SAMOA) GROUP CO., LTD	Taifer Chemicals International Inc. TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD. Taiwan Yes Deep Ocean Water Co., Ltd. TAIFER (CAMBODIA) CO., LTD. TAIFER INTERNATIONAL (SAMOA) CO., LTD. PEIFENG Technology & Fertilized Co., Ltd. Hasbo Biotech Co., Ltd. TAIFER INTERNATIONAL (SAMOA) GROUP CO., LTD. TAIFER CHEMICAL INTERNATIONAL CO., LTD.	International trade, wholesale of fertilizer, real estate rental or leasing and gas station Investment and holding Wholesale of drinks, food and grocery International trade and wholesale of fertilizer Investment and holding Manufacture and wholesale of fertilizer 100 Wholesale of Nonalcoholic Beverages and Cosmetics Investment and holding Real estate rental and leasing	100% 100% 100% 100% 100% 100% - % 100% 100%	100% 100% 100% 100% 100% 100% - % 100% 100%	- - - - - - Note 1 - -

Note 1: Hasbo biotech was in liquidation process in October 2017. The process did not finish until audit report date.

(iii) Subsidiaries excluded from the consolidated financial statements: None.

(Continued)

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Notes to the Consolidated Financial Statements

(d) Foreign currency

(i) Foreign currency transaction

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period adjusted for the effective interest and payments during the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following accounts which are recognized in other comprehensive income:

1) Available-for-sale equity investment;
2) A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective.

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Company’s functional currency at exchange rates at the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Company’s functional currency at average rate. Foreign currency differences are recognized in other comprehensive income, and are presented as exchange differences on translation of foreign financial statements in equity.

However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Company disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Company disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income.

(Continued)

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Notes to the Consolidated Financial Statements

(e) Classification of current and non-current assets and liabilities

An asset is classified as current when:

(i) It is expected to be realized, or intended to be sold or consumed, during the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is expected to be realized within twelve months after the reporting period; or
(iv) The asset is cash and cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is classified as current when:

(i) It is expected to be settled during the Company in its normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) The liability is due to be settled within twelve months after the reporting period; or
(iv) It does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by issuing equity instruments do not affect its classification.

All other liabilities are classified as non-current.

(f) Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are assets that are readily convertible to known amounts of cash, and are subject to an insignificant risk of changes in their fair value.

Time deposits are accounted under cash and cash equivalents if they conform to the definition aforementioned, and are held for the purpose of meeting short-term cash commitment rather than for investment or other purpose, readily convertible to a known amount of cash and have an insignificant risk of change in value.

(g) Financial instruments
(i) Financial assets (policy applicable from January 1, 2018)

Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).

The Group shall reclassify all affected financial assets only when it changes its business model for managing its financial assets.

(Continued)

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Notes to the Consolidated Financial Statements

1) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

‧it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

2) Fair value through other comprehensive income (FVOCI )

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

‧it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of equity investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of debt investments are reclassified to retain earnings instead of profit or loss.

Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(Continued)

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Notes to the Consolidated Financial Statements

3) Fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets and accounts receivable (except for those presented as accounts receivable but measured at FVTPL). On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss.

4) Impairment of financial assets

The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable and contract assets.

The Group measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL:

‧debt securities that are determined to have low credit risk at the reporting date; and
‧other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit assessment as well as forward-looking information.

(Continued)

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Notes to the Consolidated Financial Statements

The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data:

‧significant financial difficulty of the borrower or issuer;
‧a breach of contract such as a default or being more than 90 days past due;
‧the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;
‧it is probable that the borrower will enter bankruptcy or other financial reorganization; or
‧the disappearance of an active market for a security because of financial difficulties.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

5) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

On derecognition of a debt instrument in its entirety, the Group recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income.

On derecognition of a part of debt instrument in which the part transferred qualifies for derecognition in its entirety, the previous carrying amount of the financial asset shall be allocated between the part that continues to be recognized and the part that is derecognized, on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized, and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income, shall be recognized in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income.

(ii) Financial assets (applicable from January 1, 2018)
1) Available for sale financial assets

Available for sale financial assets are nonderivative financial assets that are designated as available for sale or are not classified in any of the other categories of financial assets. Availableforsale financial assets are recognized initially at fair value, plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value, and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on availableforsale debt instruments, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, and included in the nonoperating income and expenses. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using tradedate accounting.

“Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured” are measured at amortized cost, and included in financial assets measured at cost.

Dividend income is recognized in profit or loss on the date when the Group’s right to receive payment is established, which in the case of quoted securities is normally the exdividend date. Such dividend income is included in the nonoperating income and expenses.

Interest income from investment in bond security is recognized in profit or loss, under other income of nonoperating income and expenses.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables and other receivables. At initial recognition, these assets are recognized at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses, other than insignificant interest on shortterm receivables. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Interest income is recognized in profit or loss, under other income.

3) Impairment of financial assets

Except for financial assets at fair value through profit or loss, financial assets are assessed for impairment at each reporting date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) that occurred subsequent to the initial recognition of the asset and that a loss event (or events) has an impact on the future cash flows of the financial assets that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment.

All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than the one suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate.

An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversible in subsequent periods.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The carrying amount of a financial asset is reduced for an impairment loss, except for trade receivables, in which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off against the allowance account. Any subsequent recovery from written off receivable is charged to the allowance account. Changes in the allowance accounts are recognized in profit or loss.

Reclassify the gains and impairment losses which were previously recognized in other comprehensive income to profit or loss when an impairment incurred.

If, in a subsequent period, the amount of impairment loss on a financial asset measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost before the impairment loss was recognized at the reversal date.

Impairment losses recognized on an available for sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available for sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available for sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

Impairment losses and recoveries are recognized in profit or loss, under “other gains and losses, net”.

4) Derecognition of financial assets

The Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets.

On partial derecognition of a financial assets, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity account unrealized gains or losses from available for sale financial assets is reclassified to profit or loss, under “other gains and losses, net”.

The Company separates the part that continues to be recognized and the part that is derecognized, based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is charged to profit or loss.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) Financial liabilities and equity instruments
1) Classification of debt or equity instruments

Debt or equity instruments issued by the Company are classified as financial liabilities or equity instruments in accordance with the substance of the contractual agreement.

An equity instrument is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued are recognized based on amount of consideration received less the direct issuance cost.

Interest related to the financial liability is recognized in profit or loss, under nonoperating income and expense. On conversion, financial liability is reclassified to equity, without recognizing any gain or loss.

2)

Other financial liabilities

At initial recognition, financial liabilities not classified as heldfortrading, or designated as at fair value through profit or loss, which comprise of loans and borrowings, and trade and other payables, are measured at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, under finance cost.

3)

Other financial liabilities

A financial liability is derecognized when its contractual obligation has been discharged or cancelled or expires. The difference between the carrying amount of a financial liability derecognized and the consideration paid (including any noncash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in “nonoperating income and expenses”.

4) Offsetting of financial assets and liabilities

Financial assets and liabilities are presented on a net basis when the Company has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

5)

Financial guarantee contract

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder of a loss it incurs because a specified debtor fails to pay on due date in accordance with the original or modified terms of a debt instrument.

At initial recognition, a financial guarantee contracts not classified as financial liabilities at fair value through profit or loss by the Company is recognized at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, these contracts are measured at the higher of (a) the amount of contractual obligation determined in accordance with IAS 37; or (b) the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with IAS 18.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(h) Inventories

－ Inventories included Raw materials, finished goods, merchandise, and construction-in-progress land and projects. Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

(i) Investment in associates

Associates are those entities in which the Group has significant influence, but not control or joint control, over their financial and operating policies.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition less any accumulated impairment losses.

The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of associates, after adjustments to align their accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. The Group recognizes any changes, proportionately with the shareholding ratio under capital surplus, when an associate’s equity changes due to reasons other than profit and loss or comprehensive income, which did not result in changes in actual controlling power.

Unrealized profits resulting from transactions between the Group and an associate are eliminated to the extent of the Group’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired.

When the Group’s share of losses exceeds its interests in an associate, the carrying amount of the investment, including any long term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent the Group has an obligation or has made payments on behalf of the associate.

(j) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of a self-constructed asset comprises material, labor, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that eligible for capitalization. Cost also includes transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately, unless the useful life and the depreciation method of the significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined based on the difference between the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in profit or loss, under other gains and losses.

(ii) Subsequent cost

Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with the expenditure will flow to the Group. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance is expensed as incurred.

(iii) Depreciation

Depreciation is calculated on the depreciable amount of an asset using the straight-line basis over its useful life. The depreciable amount of an asset is determined based on the cost less its residual value. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period is recognized in profit or loss.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the lease term and its useful life.

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

Buildings Machine Instrument equipment Miscellaneous equipment Item Buildings: Leasehold improvements and others Buildings, warehouses, storage sheds	33~60years 3~40years 3~15years 3~15years Useful lives Item Machine: 3～15 years Production equipment 16～60 years Storage tanks, power transmission systems, etc.	Useful lives
		3～15 years 16～40 years

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Depreciation methods, useful lives, and residual values are reviewed at each annual reporting date. If expectations differ from the previous estimate, the changes are accounted for as a changes in accounting estimate.

(iv) Reclassification as investment property

A property is reclassified to investment property at its carrying amount when the use of the property changes from owneroccupied to investment property.

(k) Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business or for administrative purposes. Investment property is measured at cost on initial recognition. Subsequent to initial recognition, investment property is measured at initial acquisition cost less accumulated depreciation and accumulated impairment losses. The methods for depreciating and determining the useful life and residual valu of investment property are the same as those adopted for property, plant and equipment. Cost includes expenditure that is directly attributable to the acquisition of the investment property, bringing the investment property to the condition necessary for it to be available for use, and any borrowing cost that is eligible for capitalization.

An investment property is reclassified to property, plant and equipment at its carrying amount when the purpose of the investment property has been changed from investment to owner-occupied.

(l) Leased assets
(i) Lessor

Lease income from operating lease is recognized in profit or loss on a straightline basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straightline basis so that the lease income received is reduced accordingly.

Contingent rents are recognized as income in the period when the lease adjustments are confirmed.

(ii) Lessee

Other leases are accounted for operating leases and the lease assets are not recognized in the Group’s nonconsolidated balance sheets.

Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straightline basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Contingent rent is recognized as expense in the periods in which they are incurred.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(m) Intangible assets
(i) Goodwill
- 1) Initial recognition: The goodwill generated by purchasing subsidiaries is contained in intangible assets.
- 2) Subsequent measurement: Goodwill is measured at cost less accumulated impairment losses. Impairment loss on equity investment in investees accounted for under the equity method is not allocated to any asset, including goodwill that forms part of the carrying amount of such investment.
(ii) Other Intangible Assets

Other intangible assets that are acquired by the Group are measured at cost less accumulated amortization and any accumulated impairment losses.

(iii) Subsequent Expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

(iv) Amortization

Depreciable amount of intangible asset is calculated based on the cost of an asset less its residual values.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date when they are made available for use. The estimated useful lives of intangible assets for the current and comparative periods are as follows:

Computer software cost 5 years Patent 7~8 years

The residual value, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least annually at each financial year-end. Any change thereof is accounted for as a change in accounting estimate.

(n) Impairment – Non-financial assets

The Group assesses non-financial assets for impairment (except for inventories, deferred income tax assets and employee benefits) at every reporting date, and estimates its recoverable amount.

If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Company will have to determine the recoverable amount for the asset’s cash-generating unit (CGU).

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

An assessment is made at the end of each reporting period as to whether there is any indication that an impairment loss recognized in prior periods for an assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amount of that asset is estimated.

The recoverable amount for an individual asset or a CGU is the higher of its fair value less costs to sell and its value in use. When evaluating value in use, the pre-tax discount rate is used to estimate the future cash flows. The discount rate should reflect the evaluation of specific risk resulting from the impact of the current market on the time value of money and on the asset or CGU.

The recoverable amount for individual asset or a cash-generating unit is the higher of its fair value less costs to dispose and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Such is deemed as an impairment loss, which is recognized immediately in profit or loss.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the acquirer’s CGUs, or groups of CGUs, that are expected to benefit from the synergies of the combination.

If the carrying amount of each of the CGUs exceeds the recoverable amount of the unit, impairment loss is recognized and is allocated to reduce the carrying of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited.

An impairment loss recognized in prior periods for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. In this case, the carrying amount of the asset is increased to its recoverable amount by reversing an impairment loss.

(o) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and an outflow of economic benefits is possibly required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(p) Revenue Recognition
(v) Derivative financial instruments and hedge accounting (policy applicable from January 1, 2018)

Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below.

(Continued)

163

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

1) Sale of goods

The Group manufactures and sells fertilizer products to market. The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.

2)

Land development and sale of real estate

The Group develops and sells residential properties and usually sales properties in advance during construction or before construction begins. Revenue is recognized when control over the properties has been transferred to the customer. The properties have generally no alternative use for the Group due to contractual restrictions. However, an enforceable right to payment does not arise until legal title of a property has passed to the customer. Therefore, revenue is recognized at a point in time when the legal title has passed to the customer.

The revenue is measured at the transaction price agreed under the contract. For sale of readily available house, in most cases, the consideration is due when legal title of a property has been transferred. While deferred payment terms may be agreed in rare circumstances, the deferral never exceeds twelve months. The transaction price is therefore not adjusted for the effects of a significant financing component. For pre-selling properties, the consideration is usually received by installment during the period from contract inception until the transfer of properties to the customer. If the contract includes a significant financing component, the transaction price will be adjusted for the effects of the time value of money during the period, using the specific borrowing rate of the construction project. Receipt of a prepayment from a customer is recognized as contract liability. Interest expense and contract liability are recognized when adjusting the effects of the time value of money. Accumulated amount of contract liability is recognized as revenue when control over the property has been transferred to the customer.

3)

Financing components

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(vi) Revenue Recognition (policy applicable before January 1, 2018)
1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Corporation has transferred to the buyer the significant risks and rewards of ownership of the goods;
b) The Corporation retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
c) The amount of revenue can be measured reliably;
d) It is probable that the economic benefits associated with the transaction will flow to the Corporation; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from the sale of property in the course of ordinary activities is recognized when the construction is completed and the property is transferred to the buyer. Until such revenue is recognized, deposits and installment payments received from sales of properties are carried in the parent company only balance sheets under current liabilities.

The allowance for sales returns and discounts is based on customer complaints, historical experience, and any factors that may affect the reasonable estimation of possible sales returns and discounts, and its recognized as sales return and discount in the year of product sales.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Corporation and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Corporation and the amount of income can be measured reliably. Interest income is accrued on a time basis by reference to the principal outstanding and at the applicable effective interest rate.

(q) Employee benefits
(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(Continued)

165

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted from the aforesaid discounted present value. The discount rate is the yield at the reporting date on (market yields of high quality corporate bonds or government bonds) bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss immediately.

Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re-measurement of the defined benefit plan is charged to retained earnings.

Gains or losses on the curtailment or settlement of a defined benefit plan are recognized when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation.

(iii) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for a defined benefit plan except that remeasurement is recognized in profit or loss.

(iv) Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognises expense when it can no longer withdraw an offer of termination benefits or it recognises related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after the balance sheet date shall be discounted to their present value.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(v) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

(r) Income Taxes

Income tax expenses include both current taxes and deferred taxes. Except for expenses that are related to business combinations, expenses recognized in equity or other comprehensive income directly, and other related expenses, all current and deferred taxes are recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes are not recognized for the following:

(i) Assets and liabilities that are initially recognized from non-business combination transactions, with no effect on net income or taxable gains (losses).
(ii) Temporary differences arising from equity investments on subsidiaries or joint ventures, where there is a high probability that such temporary differences will not reverse.
(iii) Initial recognition of goodwill.

Deferred taxes are measured based on the statutory tax rate on the reporting date or the actual legislative tax rate during the year of expected asset realization or debt liquidation.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

(i) if the entity has the legal right to settle tax assets and liabilities on a net basis; and
(ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios:
1) levied by the same taxing authority; or
2) levied by different taxing authorities, but where each such authority intend to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation; or where the timing of asset realization and debt liquidation is matched.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

A deferred tax asset is recognized for unused tax losses available for carry-forward, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits and deductible temporary differences are also re-evaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits and deductible temporary differences can be utilized.

(s) Earnings per share

Disclosures are made of basic and diluted earnings per share attributable to ordinary equity holders of the Group. The basic earnings per share is calculated based on the profit attributable to the ordinary shareholders of the Group divided by weighted average number of ordinary shares outstanding. The diluted earnings per share is calculated based on the profit attributable to ordinary shareholders of the Group, divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all potentially dilutive ordinary shares, such as remuneration of employees and employee stock options.

(t) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Each operating segment consists of standalone financial information.

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

The preparation of the consolidated financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period.

Significant judgements are involved. There is no material impact on recognized amounts for financial report.

Regarding assumptions and estimation uncertainties, valuation has a significant risk of resulting in a material adjustment within the next financial year as following:

Impairment of goodwill

The assessment of impairment of goodwill is based on the valuation method, material assumptions, share value, etc. The assumptions of forecast annual revenue growth rate, forecast margin, revenue on cash basis, etc. require the subjective judgments of the management, which contains estimation of uncertainty. Please refer to 6(m) for further description of the impairment of goodwill.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The process of measurement

The Group’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss. The Group’s financial instrument valuation group conducts independent verification on fair value by using data sources that are independent, reliable, and representative of exercise prices. This financial instrument valuation group also periodically adjusts valuation models, conducts back testing, renews input data for valuation models, and makes all other necessary fair value adjustments to assure the rationality of fair value.

The Group strives to use the market observable inputs when measuring its assets and liabilities.

The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

(a) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.
(b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
(c) Level 3: inputs for the assets or liability that are not based on observable market data.

Please refer to notes listed below for assumptions used in measuring fair value.

For any transfer within the fair value hierarchy, the impact of the transfer is recognized on the reporting date. Please refer to Note 6(r), Financial instruments for assumptions used in measuring fair value.

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash on hand Demand deposits and checking accounts Time deposits with original maturities less than 3 months Cash and cash equivalents	December 31, 2018 $ 4,476 568,244 2,868,338 $ 3,441,058	December 31, 2017 4,776 885,424 1,376,020 2,266,220

(i) Time deposits with original maturity of more than 3 months are recorded as other financial assets, and are classified as non-current if their maturities exceed one year, and as follow.

Other current financial assets Other non current financial assets	December 31, 2018 $ 3,742,192 49,625	December 31, 2017 5,918,160 52,382
	$ 3,791,817	5,970,542

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(ii) Refer to Note 6(x) for the fair value sensitivity analysis and interest rate risk of the financial assets and liabilities of the Group.
(b) Financial assets and liabilities at fair value through profit or loss

Financial assets and liabilities at fair value through profit or loss.

Financial assets and liabilities at fair value through profit or loss. Non-derivative financial assets Beneficiary Certificate	December 31, 2018 $ 1,806,574

Please refer to note 6(x) for the amount of remeasurement fair value through profit or loss.

Financial assets at fair value through other comprehensive income
Equity investments at fair value through other comprehensive income Stock listed on domestic markets Stock unlisted on domestic markets Total	December 31, 2018 $ 100,764 1,764,692
	$ 1,865,456

(i) Equity investments at fair value through other comprehensive income.

On January 1, 2018, the Group designated the investments shown above as equity securities as at fair value through other comprehensive income because these equity securities represent those investments that the Group intends to hold for long-term for strategic purposes. These investments were classified as available-for-sale financial assets and financial assets measured at cost on December 31, 2017.

During the years ended December 31, 2018, the dividends of $51,483 thousand, related to equity investments at fair value through other comprehensive income held on December 31, 2018, were recognized.

A resolution was passed during the provisional meeting of shareholders by Eminent Venture Capital Corporation, one of the financial assets measured at fair value through other comprehensive income by the Group. held on 1 March 2018, for capital reduction. The Group received the refund of the shares for $15,000 thousand.

A resolution was passed during the general meeting of shareholders by Top Taiwan V Venture Capital Co., Ltd., one of the financial assets measured at fair value through other comprehensive income by the Group, held on 27 May 2018, for capital reduction. The Group received the refund of the shares for $2,927 thousand.

(ii) For credit risk, please refer to note 6(x).

(Continued)

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Notes to the Consolidated Financial Statements

(iii) Financial assets at fair value through other comprehensive income of the Company had not been pledged as collateral for long-term borrowings.
(d) Financial assets measured at amortized cost

Financial assets measured at amortized cost
Foreign government bonds Less : Loss allowance Total	December 31, 2018 $ 30,729 -
	$ 30,729

The Group has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost on January 1, 2018.

(i) For credit risk, please refer to note 6(x).
(ii) Financial assets measured at amortized costs of the Group had not been pledged as collateral for long-term borrowings.
(e) Financial asset
(i) Listed as follows:

Available-for-sale financial assets - current Stock listed on domestic markets Beneficiary Certificate Total Available-for-sale financial assets – Non-current Bond investments Financial assets measure at cost – Non-current Stock unlisted on domestic markets Total	December 31, 2017 $ 141,254 2,040,761
	2,182,015
	29,531
	546,899
	$ 2,758,445

(ii) For the classification from available-for-sale financial assets to financial assets at fair value through profit and loss, to through other comprehensive income, or to measured at amortized cost. Please refer to note 6(b), (c) and (d).
(iii) The aforementioned investments held by the Group were measured at amortized cost as of December 31, 2017, given the range of reasonable fair value estimates is large and the probability for each estimate cannot be reasonably determined; therefore, the Group management had determined that the fair value cannot be measured reliably. These investments were classified as financial assets at fair value through other comprehensive income or at fair value through profit or loss on December 31, 2018.

(Continued)

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Notes to the Consolidated Financial Statements

(iv) A resolution was passed during the interim meeting of shareholders by Eminent Venture Capital Corporation, one of the financial assets measured at amortized cost by the Group, held on March 1, 2017 for capital reduction. The Group received the refund of the shares for $40,000 thousand.
(v) A resolution was passed during the general meeting of shareholders by Top Taiwan Venture Capital Co., Ltd., one of the financial assets measured at amortized cost by the Group, held on June 1, 2017 for capital reduction. The Group received the refund of the shares for $12,683 thousand.
(vi) The Group invested Eminent III Venture Capital Corporation by joint venture agreement in November 1, 2017. The Group paid $150,000 thousand for shares.
(vii) For relevant risk of financial assets, please refer to Note 6 (x).
(viii) As of December 31, 2018, financial assets measured at amortized costs of the Group had not been pleged as collateral for long-term borrowings.
(f) Notes receivable, accounts receivable, long-term notes and accounts receivable

Notes receivables Notes receivables – Merchandise Real estate notes receivables Notes receivables Long-term notes receivables Accounts receivables Account receivables – Sales of goods Real estate notes receivables Less : Unrealized interest revenue Less : Loss allowance Account receivables Long-term receivables	December 31, 2018 $ 186,462 2,690	December 31, 2017 31,848 21,331
	$ 189,152	53,179
	$ 189,152 -	31,848 21,331
	$ 189,152	53,179
	$ 1,100,907 271,231 (63,351) (2,229)	1,533,348 362,690 (70,161) -
	$ 1,306,558	1,825,877
	$ 1,098,678 207,880	1,533,348 292,529
	$ 1,306,558	1,825,877

The Group applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables on December 31, 2018. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information, including macroeconomic and relevant industry information. The loss allowance provision in Taiwan as of December 31, 2018 was determined as follows:

(Continued)

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Notes to the Consolidated Financial Statements

Current 1 to 30 days past due 31 to 60 days past due More than 60 days past due	Gross carrying amount	Expected loss rate 0%~0.01% 0%~0.56% 0%~0.89% 0%~1.09%		Loss allowance provision 141 799 416 873
	$ 1,293,078 5,379 3,757 4,344
	$ 1,306,558			2,229

As of December 31, 2017, the Group applies the incurred loss model to consider the loss allowance provision of notes and trade receivable, and the aging analysis of notes and trade receivable, which were past due but not impaired, was as follows:

Overdue 1 to 30 days Overdue 31 to 60 days Overdue over 61 days	December 31, 2017 $ 6,983 2,828 59,661
	$ 69,472

As of December 31, 2018 the total receivables from selling properties and lands were 273,921 thousand dollars, including receivables from installment sales 271,231 thousand dollars and notes receivables 2,690 thousand dollars. The receivables are expected to be collected for 26,036 thousand dollars and 248,885 thousand dollars, respectively.

Among the aforementioned receivables 273,921 thousand dollars from property and land activities, 273,921 thousand dollars of sold property, land and borrowings were pledged as collaterals; also, the the collaterals were pledge to the Group.

(g) Other receivables

Other receivables Less : Loss allowance	December 31, 2018 $ 331,010 317,277	December 31, 2017 348,650 317,277
	$ 13,733	31,373

(Continued)

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Notes to the Consolidated Financial Statements

The movement in the allowance for other receivables was as follows.

Balance on January 1, 2018 and 2017 per IAS 39 Adjustment on initial application of IFRS 9 Balance on January 1, 2018 per IFRS9	For the years ended December 31, 2018	For the years ended December 31, 2017 Individually assessed impairment Collectively assessed impairment 317,277 -	For the years ended December 31, 2017 Individually assessed impairment Collectively assessed impairment 317,277 -
	$ 317,277 -

	$ 317,277

Note: Ending balances in 2018 and 2017 were the same as the beginning balances in 2018 and 2017.

For the explanation of individually assessed impairment, please refers to note 7; for other credit risk information, please refers to note 6 (x).

(h) Inventories, buildings and land held for sale/receipts in advance

Inventories Raw materials Finished goods Merchandise Construction in progress Hsinchu land development project Others Buildings and land held for sale Nangang R5 Residential Project Others Receipt in advance Nangang R5 Residential Project	December 31, 2018 $ 1,223,087 650,895 3,760	December 31, 2017 1,092,561 539,136 6,054
	$ 1,877,742	1,637,751
	$ 644,783 91,997	- -
	$ 736,780	-
	$ 201,341 -	201,341 30
	$ 201,341	201,371
	$ 76,212	117,171

(Continued)

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Notes to the Consolidated Financial Statements

The cost of inventories recognized as cost of goods sold and expense for the years ended December 31, 2018 and 2017, amounted to $8,714,869 thousand and $8,184,041 thousand, respectively. For the years ended December 31, 2018 and 2017, the write-down of inventories to net realizable value amounted to $1,327 and $6,707 thousand. The write-downs are included in cost of sales. Also, gains on inventory value recoveries amounted to $2,921 thousand, and losses on inventory valuation loss amounted to $713 thousand, are recognized due to inventory closeout in 2018 and 2017, respectively.

The Group reclassified portion of investment property to inventories because of alternation of use. Please refer to note 6(l).

(i) Investments accounted for using equity method

The Group’s financial information for equity accounted investees at the reporting date was as follows:

Material associates Al-Jubail Fertilizer Company (“Al-Jubail”) Associates that are not individually material Bion Tech Inc. MITAGRI Co., Ltd. Joint ventures that are not individually material TR ELECTRONIC CHEMICAL CO., LTD.	December 31, 2018 $ 10,048,780 59,020 49,835	December 31, 2017 9,538,520 74,158 -
	$ 10,157,635	9,612,678
	December 31, 2018 $ -	December 31, 2017 -

TR ELECTRONIC CHEMICAL CO., LTD.

(i) Associates that had materiality were as follows:

Associate	Nature of relationship	Country of registration	Equity ownership	Equity ownership
			December 31, 2018	December 31, 2017 50.00%
AI-Jabail Fertilizer Company	Equity-method investee	Kingdom of Saudi Arabia	50.00%

The following is a summary of financial information on the Company’s significant associates. In order to reflect the adjustments for fair value in acquisition of shares and differences in accounting policies, adjustment for the amounts presented on the financial statements of associates in accordance with IFRSs has been made to such financial information.

(Continued)

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Notes to the Consolidated Financial Statements

Summary financial information on AI-Jabail Fertilizer Company

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Net assets Net assets attributable to non controlling interests Net assets attributable to investee owners Revenue Profit for the year Other comprehensive income Comprehensive income Comprehensive income attributable to non controlling interests Comprehensive income attributable to investee owners Dividends declared by Associates	December 31, 2018 $ 7,407,740 16,754,241 (2,851,338) (681,275)	December 31, 2017 7,502,494 16,935,494 (2,476,055) (2,525,920)
	$ 20,629,368	19,436,013
	$ 10,106,777 10,522,591	9,577,196 9,858,815
	$ 20,629,368	19,436,011
	For the years ended December 31 2018 2017 $ 10,833,406 9,656,637
	2,309,451 9,471	1,323,622 12,564
	$ 2,318,922	1,336,186
	$ 1,220,853	715,439
	$ 1,098,069	620,747
	$ 901,413	798,667

(ii) On March 31, 2011, under the authorization of the Investment Commission of the Ministry of Economic Affairs of the Republic of China, the Group established TR Electronic Chemical Co., Ltd. (“TREC”) in the Cayman Islands through its subsidiary, Taifer (Cayman) International Group Co., Ltd. TREC then invested in TR Electronic Chemical (Kunshan) Co., Ltd. (“TREC-K”), which enabled the Group to have a 51% indirect interest in TREC-K. TREC-K manufactures and sells electronic chemicals. Later, under a joint venture agreement between the Group and Shiung-Shing Chemical International Trade Corp. (“Shiung-Shing”), another TREC shareholder, Shiung- Shing assigned a manager to handle TREC’s daily business and management. Thus, the Group had no control over TREC and TREC-K. In June 2015, the carrying amount of the Group’s investment in TREC was zero. For the relevant explanation of bankruptcy and litigation, please refer to note 7.

As of December 31, 2018 and 2017, the investments in the aforesaid equity-accounted investees were not pledged as collateral.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(j) Loss of control of a subsidiary

In July 2017, The Group subscribed to the additional shares of MITAGRI Co., Ltd. at a percentage different from its existing ownership percentage, resulting in a decrease in its shareholding to 33.33%. In August, the directors and supervisors of MITAGRI Co., Ltd. were re-elected during the provisional meeting of the shareholders. Therefore, the Group no longer has any significant influence over MITAGRI Co., Ltd.; as a result, it excluded MITAGRI Co., Ltd. from its consolidated financial statements since September 1, 2017. The gain on disposal of the investment of $24,562 was included in “other gains and losses”.

The derecognition amounts of investee's assets and liabilities as of August 30, 2017, were as follows:

Cash and cash equivalents (with capital increased by cash $168,260 thousands) Property, plant, and equipment Other current assets - others Other current assets - non-current Accounts payable and other accounts payable Book value of net assets of previous subsidiary	$ 208,360 5,602 3,211 1,580 (1,048) $ 217,705

(k) Property, plant and equipment

The movements in the cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2018 and 2017 were as follows:

Land $ 3,638,943 - - - - -	Building and constructio n 3,120,068 12,284 (14,104) (15,942) - 533,689	Machinery and equipment 9,255,420 97,184 (31,785) (424) - 324,979	Transportation Equipment 75,474 1,991 (4,458) - 1 12,685	Other Equipmen 392,567 8,487 (11,417) (1,441) - 33,538	Construction inprogress 1,090,856 691,271 - - - (874,202)	Total
						17,573,328 811,217 (61,764) (17,807) 1 30,689
$ 3,638,943	3,635,995	9,645,374	85,693	421,734	907,925	18,335,664
$ 16,192,381 1,194 (29,195) (12,525,437) - - -	3,228,803 9,608 (4,409) (196,399) (3,827) (950) 87,242	9,025,621 128,023 (8,250) (24,472) (729) (25) 135,252	66,627 8,390 (1,520) - (552) (8) 2,537	387,396 4,134 (2,436) (9,190) (1,252) (70) 13,985	1,145,638 297,906 - - - - (352,688)	30,046,466 449,255 (45,810) (12,755,498) (6,360) (1,053) (113,672)
$ 3,638,943	3,120,068	9,255,420	75,474	392,567	1,090,856	17,573,328

(Continued)

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Notes to the Consolidated Financial Statements

Depreciation and impairment loss:
Balance on January 1, 2018	$	-	618,612	2,948,102	46,927	126,604	88,805	3,829,050
Depreciation for the year		-	102,320	596,614	7,609	29,186	-	735,729
Disposals		-	(13,508)	(30,893)	(4,067)	(10,989)	-	(59,457)
Transfer to investment properties		-	(6,519)	(400)	-	(929)	-	(7,848)
Effect of foreign currency		-	-	-	1	-	-	1
exchanges difference
Transfer from completion		-	(19,334)	28,930	5,217	-	-	14,813
Balance on December 31, 2018	$	-	681,571	3,542,353	55,687	143,872	88,805	4,512,288
Balance on January 1, 2017	$	-	594,344	2,463,205	43,642	109,054	82,820	3,293,065
Depreciation for the year		-	92,266	569,564	7,889	27,351	-	697,070
Disposals		-	(3,855)	(7,664)	(1,386)	(2,143)	-	(15,048)
Transfer to investment properties		-	(63,667)	(1,817)	(15,601)	(7,287)	-	(88,372)
Reclassification		-	(128)	(178)	(164)	(288)	-	(758)
Effect of foreign currency		-	(348)	(23)	(3)	(47)	-	(421)
exchanges difference
Transfer from completion		-	-	(74,985)	12,550	(36)	5,985	(56,486)
Balance on December 31, 2017	$	-	618,612	2,948,102	46,927	126,604	88,805	3,829,050
Carrying amounts:
Balance on December 31, 2018	$	3,638,943	2,954,424	6,103,021	30,006	277,862	819,120	13,823,376
Balance on December 31, 2017	$	3,638,943	2,501,456	6,307,318	28,547	265,963	1,002,051	13,744,278
Balance on January 1, 2017	$	16,192,381	2,634,459	6,562,416	22,985	278,342	1,062,818	26,753,401

(i) The Group due to the partial replotting of the land and the planned change to the use of lease during this period, after the approval of the board of directors of the report, it was transferred to $19,165,912 under the investment property.
(ii) As of December 31, 2018 and 2017, the property, plant and equipment were not pledged as collateral.
(l) Investment property

The Group for the Investment property were as follows:

Completed Investment Property $ 8,568,152 3,989 17,807 - - 2,426,535	Investment Property under Construction 7,250,187 1,549,451 - - - (1,137,571)	Undeveloped Investment Property 19,887,453 - - (736,750) (515,660) (1,287,206)	Total 35,705,792 1,553,440 17,807 (736,750) (515,660) 1,758
$ 11,016,483	7,662,067	17,347,837	36,026,387
$ 8,347,437 3,827 216,888 -	6,426,206 820,865 3,116 -	7,045,536 399,463 12,535,494 (93,040)	21,819,179 1,224,155 12,755,498 (93,040)
$ 8,568,152	7,250,187	19,887,453	35,705,792

(Continued)

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Notes to the Consolidated Financial Statements

$ 136,700 41,048 607,646 785,394 59,288 18,474 - 77,762 7,848 - - 7,848	$ 136,700 41,048 607,646 785,394 59,288 18,474 - 77,762 7,848 - - 7,848	$ 136,700 41,048 607,646 785,394 59,288 18,474 - 77,762 7,848 - - 7,848
$ 203,836 59,522	607,646 871,004
$ 30,424 23,509 607,646 661,579 18,904 17,539 - 36,443 88,372 - - 88,372
$ 137,700 41,048	607,646 786,394
$ 10,812,647 7,602,545 16,740,191 35,155,383
$ 8,431,452 7,209,139 19,279,807 34,920,398
$ 8,317,013 6,402,697 6,437,890 21,157,600
		$ 99,804,921
		$ 100,758,372
		$ 89,504,110

In July, 2017, the partial rezoning of land was completed and transferred to investment real estate. Please refer to Note 6(k) for details. Also, the use of partial investment property was changed and approved by board of meeting to transferred to inventory.

Completed investment property are located in C3/C6/C7/C8/C9 in the Nangang Economic and Trade Park, and the Corporation leased land use right to others.

(i) The main provisions of the C6/C7/C8/C9 contract on the pledging of land use rights were as follows:
1) Land use rights are for 50 years from the date of registration of these rights. When these rights expire or the contract is terminated, the lessee should cancel its registration for the land use rights and transfer to the Corporation all the land improvements (including the main building, attached building, parking space and all other attached facilities and improvements such as air-conditioning, and utility fixtures).
2) The land use rights (accounted for as deferred income-noncurrent) amounted to $3,200,889 thousand, which has been treated as royalty revenue (accounted for as operating revenue) amortizable over 50 years from June 13, 2006. As of December 31, 2018, 2017 and January 1, 2017, the unamortized balances of the land used rights under above mentioned contract were $2,397,999 thousand, $2,462,017 thousand, and $2,462,017 thousand, respectively.

3) In addition to the land use right, the annual rental payable by the lessee is 8% of the reference land price announced by the local government, with the calculation starting from the contract date. When the reference land price is adjusted, the annual rental will be revised at the percentage the same as that set on the date of the reference price adjustment. The annual rentals in 2018 and 2017 were $324,869 thousand and $331,327 thousand, respectively.

(Continued)

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Notes to the Consolidated Financial Statements

(ii) On September 15, 2015, the Corporation signed with CTBC Life Insurance Co., Ltd. and Taiwan Life Insurance Co., Ltd. (together, the “lessees”) separate contracts for these two insurance companies to have the rights to use land located in C3 in the Nangang Economic and Trade Park. The main provisions of these contracts are as follows:
1) Land use rights (LURs) are valid for 45 years from the date of the registration of these rights.
2) The LURs (accounted for as deferred income - noncurrent) amounted to $14,288,705 thousand, which has been treated as royalty revenue (under operating revenue) amortizable over 45 years from December 10, 2015. As of December 31, 2017, 2016 and January 1, 2016, the unamortized balance of the LURs were $13,318,484 thousand and $13,636,011 thousand, respectively.
3) In addition to the LURs, the annual rental payable by the lessees is 0.8% of the reference land price announced by the local government, with the calculation starting from the registration date. When the reference land price is adjusted, the annual rental will be revised at the same percentage as the rate of the reference price adjustment. The lessees’ annual rental in 2018 and 2017 were $45,009 thousand and $48,149 thousand.
4) After nine years and six months from the registration date, the lessees have within six months to extend the validity period for the land use rights to another 40 years by giving a written notice to the Corporation. With this extension, the entire validity period of the LURs will be 85 years, and the lessees should pay an additional one-time royalty of $15,000,000 thousand.
5) Under the contract, the lessees provided the Taiwan Government Bond A02105 and A03114 as collaterals; the fair values of these bonds were as follow:

Balance on December 31, 2018 Balance on December 31, 2017 Balance on January 1, 2017	The Taiwan Government Bond A02105 $ 1,086,786	The Taiwan Government Bond A03114 1,596,767
	$ 1,030,629	1,614,901
	$ 1,078,335	1,666,091

(iii) Investment properties under construction are located in Hsinchu City and Hualien City and included land for the “C2 Tourist Hotel Project” and “Commercial Building Project” in the Nangang Economic and Trade Park. The C2 Tourist Hotel Project was won by the Grand Hi-Lai Hotel Co., Ltd. and the Caesar Park Hotel Co., Ltd., which both signed a front-end agreement (FEA) on December 31, 2013; both parties (the “Hotels”) will sign a lease agreement under this FEA.

(Continued)

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Notes to the Consolidated Financial Statements

The main terms of the FEA were as follows:

1) The Corporation is responsible for the construction of the lease premises (the “Premises”), and the Hotels should assist the Corporation in construction-related matters. The Corporation will shoulder the construction cost. Both parties are responsible for the completion of the premises in six years after signing the FEA.
2) The lease contract is for 20 years from the start of the lease contract, and the lessee has the first option to extend the lease for another 10 years. Upon expiry or termination of this lease agreement, the lessee should turn over the Premises as is to the Corporation.
3) The lessee should pay monthly rentals, calculated at the higher of the guaranteed rentals or revenue-based rentals payable to the Corporation from the Premises opening date. The guaranteed rental will be increased 1% each year, and the revenue-based rentals are 16% of the gross revenue of the hotel each month.
4) Under this FEA and lease agreement, the lessee should not assign and transfer any of its rights or obligation to a third party.

The bid for the C2 Commercial Building Project was won by Dung Jeng Investment Co., Ltd. (“Dung Jeng”), for which the Corporation will construct a building and parking space for Dung Jeng’s lease. The lease contract was signed on January 30,2015. The lease period is 20 years from the completion of the building and parking space.

The C2 Hotel and Commercial Building Project got the construction license, which is now.

The fair value of investment properties (as measured or disclosed in the consolidated financial statements) was based on a valuation by a qualified independent appraiser who has recent valuation experience in the location and category of the investment property being valued. The inputs of levels of fair value hierarchy in determining the fair value is classified to Level 3.

The fair values of investment properties were assessed as follows:

C6／C7／C8／C9 Fair value Measurement C2 Fair value	December 31, 2018 $ 22,746,927	December 31, 2017 23,025,461
	The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer. $ 18,615,031	The fair values were based on the valuations carried out at March 11, 2016 by independent qualified professional valuer. 19,038,100

(Continued)

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Notes to the Consolidated Financial Statements

Measurement The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer. C3 Fair value $ 32,542,935 Measurement The fair values were

The fair values were based on the valuations carried out at March 11, 2016 by independent qualified professional valuer.

$ 32,542,935 32,919,880 The fair values were The fair values were based on the valuations based on the valuations carried out at April 11, carried out at March 2017 by independent 11, 2016 by qualified professional independent qualified valuer. professional valuer.

$ 8,817,650 8,475,168 The fair values were The fair values were based on the valuations based on the valuations carried out at April 3, carried out at April 11, 2018 by independent 2017 by independent qualified professional qualified professional valuer. valuer.

$ 17,082,378	16,817,630
The fair values were	The fair values were
based on the valuations	based on the valuations
carried out at April 3,	carried out at April 11,
2018 by independent	2017 by independent
qualified professional	qualified professional
valuer.	valuer.

The fair value is measured at market value, mainly use the comparison approach and land development analysis approach to determine the value of the investment property. The weight is 50/50. The significant key assumption of the development profit margin intervals were as follows:

Area C6/C7/C8/C9 C2 C3 HsinChu KaoHsiung	For the years ended December 31	For the years ended December 31
	2018 18% 16% 18% 16% 16%	2017
		18% 15% 18% 16% 16%

(Continued)

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Notes to the Consolidated Financial Statements

The other investment properties held by the Corporation are mainly located in different industrial zones. They have no quoted prices in an active market and there was no alternative basis for estimating their fair values. Thus, the fair values of the investment properties were not reliably determinable.

As of December 31, 2018, 2017 and January 1, 2016 investment properties were not pledged as collateral.

(m) Intangible Assets

The components of the costs of intangible assets, amortization, and impairment loss thereon for the years ended December 31, 2018 and 2017, were as follows:

Patents $ 29,010 900	Computer Software 142,129 3,600	Trademark 84,900 -	Goodwill 358,487 -	Total 614,526 4,500
$ 29,910	145,729	84,900	358,487	619,026
$ 29,010 -	120,929 21,200	84,900 -	358,487 -	593,326 21,200
$ 29,010	142,129	84,900	358,487	614,526
$ 28,859 151 -	113,358 10,591 -	49,000 - -	188,714 - 81,867	379,931 10,742 81,867
$ 29,010	123,949	49,000	270,581	472,540
$ 28,574 285 -	100,766 12,592 -	49,000 - -	157,000 - 31,714	335,340 12,877 31,714
$ 28,859	113,358	49,000	188,714	379,931
$ 900	21,780	35,900	87,906	146,486
$ 151	28,771	35,900	169,773	234,595
$ 436	20,163	35,900	201,487	257,986

The Group acquired trademark and goodwill through the acquisition of an additional 50% equity in Taiwan Yes Deep Ocean Water Co., Ltd. (“Taiwan Yes”) on January 7, 2013. For the years ended December 31, 2018 and 2017, the Group evaluated the recoverable amount of trademark and goodwill and recognized an impairment loss of $81,867 and $31,715 thousand, respectively. The recoverable amount of Taiwan Yes were determined based on the value in use calculation with a discount rate of 15.54% and 17.31%, respectively. This impairment was mainly due to the fact that the future operating performance of Taiwan Yes was not as expected.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(n) Long-term prepayment for lease

Land in a special petrochemical industry zone in Taichung	December 31, 2018 $ 1,108,012	December 31, 2017 1,180,739

On October 31, 2006, the Corporation leased from the Taichung Harbor Bureau, Ministry of Transportation and Communications (“THB”) a 247.298-square meter lot in a special petrochemical industry zone in Taichung to develop wharf areas, called wests 8 and 9, and construct warehouse facilities and public roads. In April 2007, the Corporation informed THB that an inspection showed the area of the land as stated in the lease contract was the same as that to be actually used by the Corporation; thus, the Corporation signed the contract. The main provisions of the lease agreement were as follows:

(i) The lease term for the land in a special industrial zone is 20 years, and the agreement is renewable until the total lease reaches 50 years.
(ii) As mentioned above, the Corporation has leased land, developed wests 8 and 9 of the wharf area and constructed warehouse facilities and public roads on behalf of THB. The Corporation used its capital expenses for the construction as rentals in advance. However, once the lease term ends or the agreement is early terminated, all the titles to the facilities and improvements on the leased land should be transferred to THB.

The Corporation uses its expenditures of $1,500,481 thousand for the construction of wests 8 and 9 of Taichung Harbor as rentals until March 20, 2034. The long-term prepayments for lease should be amortized over its rent-free periods.

As of December 31, 2018, 2017 and January 1, 2016 long-term prepayment for lease were not pledged as collateral.

(o) Operating leases

The Group leases out its investment properties (see Note 6(l)). The future minimum leases payments under non cancellable leases (excluding land used rights) are as follows:

Less than one year Between one and five years More than five years	December 31, 2018 $ 685,520 2,467,451 13,220,021	December 31, 2017
		583,929 2,316,853 13,927,467
	$ 16,372,992	16,828,249

Operating leases relate to the investment property owned by the Corporation with lease terms between 1 to 50 years. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017, the property rental income were 521,226 thousand and $453,040 thousand, respectively. There were no significant property equipment and maintenance expenses.

(p) Employee benefits

(i) Defined benefit plans

Reconciliation of defined benefit obligation at present value and plan asset at and fair value are as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities	December 31, 2018 $ 520,510 (406,263)	December 31, 2017 115,353 (70,732)
	$ 114,247	112,063

The Group makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pension benefits for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for the six months prior to retirement.

1) Composition of plan assets

The Group set aside pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. Under these regulations, the minimum earnings from these pension funds shall not be less than the earnings from two-year time deposits with the interest rates offered by local banks.

The Group’s contributions to the pension funds were deposited with Bank of Taiwan. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

(Continued)

185

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

2) Movements in present value of the defined benefit obligations

The movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2017 were as follows:

Defined benefit obligation, January 1 Current service costs and interest Re-measurement of the net defined benefit liability －Actuarial (losses) gains arose from changes in demographic assumptions －Actuarial gains arose from changes in financial assumption －Experience adjustment Past service cost and settlement loss or profit Benefits paid Defined benefit obligation, December 31	For the years ended December 31 2018 2017 $ 542,820 542,182 20,959 23,319 1 1 - 19,243 20,096 19,720 - (1,376) (63,366) (60,269) $ 520,510 542,820
	2018 $ 542,820 20,959 1 - 20,096 - (63,366)
	$ 520,510

3) Movements in the fair value of plan assets

The movements in the fair value of the defined benefit plan assets for the years ended December 31, 2018 and 2017 were as follows:

	For	the years ended	December 31
		2018	2017
Fair value of plan assets, January 1	$	430,757	447,829
Interests revenue		3,027	4,302
Re-measurement of the net defined benefit liability
－Experience adjustment		14,912	(195)
Contributions made		20,933	33,307
Benefits paid		(63,366)	(54,486)
Fair value of plan assets, December 31	$	406,263	430,757

4) Movements in the fair value of plan assets : None

(Continued)

186

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

5) Expenses recognized in profit or loss

The Group’s pension expenses recognized in profit or loss for the years ended December 31, 2018 and 2017 were as follows:

Current service cost Net interest of net liabilities for defined benefit obligations Past service cost and settlement loss or profit Operating costs Operating expenses	For the years ended December 31 2018 2017 $ 17,161 18,173 770 843 - (1,376)	For the years ended December 31 2018 2017 $ 17,161 18,173 770 843 - (1,376)
	2018 $ 17,161 770 -
	$ 17,931	17,640
	$ 11,493 6,438	10,954 6,686
	$ 17,931	17,640

6) Re-measurement of net defined benefit liability recognized in other comprehensive income

The Group’s net defined benefit liability recognized in other comprehensive income for the years ended December 31, 2018 and 2017 were as follows:

Cumulative amount, January 1 Recognized during the year Cumulative amount, December 31	For the years ended December 31 2018 2017 $ 92,770 60,269 4,148 32,501	For the years ended December 31 2018 2017 $ 92,770 60,269 4,148 32,501
	2018 $ 92,770 4,148
	$ 96,918	92,770

7) Actuarial assumptions

The following were the key actuarial assumptions at the reporting date:

The principal actuarial assumptions at the reporting date were as follows:

Discount rate Future salary increases	2018.12.31 0.75% 1.50%	2017.12.31 0.75% 1.50%

The expected allocation payment to be made by the Group to the defined benefit plans for the one-year period after the reporting date is $17,890.

The weighted-average duration of the defined benefit plan is 6 year.

(Continued)

187

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

8) Sensitivity Analysis

As of December 31, 2018 and 2017, the changes in the principal actuarial assumptions will impact on the present value of defined benefit obligation as follows:

December 31, 2018 Discount rate Future salary increase rate December 31, 2017 Discount rate Future salary increase rate	Impact on the present value of defined benefit obligation Increase by 0.25% Decrease by 0.25% (8,389) 8,658 8,572 (8,348) (8,862) 9,154 9,062 (8,819)
	Increase by 0.25% (8,389) 8,572 (8,862) 9,062

The sensitivity analysis assumed all other variables remain constant during the measurement. This may not be representative of the actual change in defined benefit obligation as some of the variables may be correlated in the actual situation. The model used in the sensitivity analysis is the same as the defined benefit obligation liability.

The analysis is performed on the same basis for prior year.

(ii) Defined contribution plans

The Group contributes an amount at the rate of 6% of the employee’s monthly wages to the Labor Pension personal account with the Bureau of the Labor Insurance and Council of Labor Affairs in R.O.C. in accordance with the provisions of the Labor Pension Act. The Group’s contributions to the Bureau of the Labor Insurance and Social Security Bureau for the employees’ pension benefits require no further payment of additional legal or constructive obligations.

As of December 31, 2018 and 2017, the expense of defined contribution plans under Labor Pension Act was as follows:

Operating costs Operating expenses	For the years ended December 31 2018 2017 $ 10,961 10,374 10,255 10,808	For the years ended December 31 2018 2017 $ 10,961 10,374 10,255 10,808
	2018 $ 10,961 10,255
	$ 21,216	21,182

The cost of the pension contributions to the Labor Insurance Bureau for the years ended December 31, 2018 and 2017 amounted to $22,895 thousand and $18,284 thousand, respectively

(Continued)

188

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(q) Income tax

According to the amendments to the "Income Tax Act" enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the FY 2018 corporate income tax return.

(i) The components of income tax expense for the years ended December 31, 2018 and 2017 were as follows:

Current income tax expense Current period incurred Land value increment tax 10% surtax on undistributed earnings Prior years income tax adjustment Deferred tax expense Income tax expense	For the years ended December 31 2018 2017 $ 415,788 170,368 93,466 36,470 - 1,361 8,206 (10,483) 517,460 197,716 150,841 17,211 $ 668,301 214,927	For the years ended December 31 2018 2017 $ 415,788 170,368 93,466 36,470 - 1,361 8,206 (10,483) 517,460 197,716 150,841 17,211 $ 668,301 214,927
		2017 170,368 36,470 1,361 (10,483)
		197,716
		17,211
		214,927

The following are details of the income tax (expense) benefit recognized under other comprehensive income:

Remeasurements effects of defined benefit plans Items that may be reclassified subsequently to profit and loss: Translation of foreign operations	For the years ended December 31 2018 2017 $ 4,385 6,658	For the years ended December 31 2018 2017 $ 4,385 6,658
		2017 6,658
	$ (73,324)	138,575

Income tax calculated on pre tax financial income was reconciled with income tax expense for the years ended December 31, 2018 and 2017 as follows:

Profit before income tax Income tax on pre tax financial income calculated at the domestic rate Effect of tax rates in foreign jurisdiction Adjustment in tax rate Non-deductible income tax Tax-exempt income Changes in unrecognized deductible temporary differences 10% surtax on undistributed earnings Prior years income tax adjustment Items should be adjusted to increase determination Others Income tax expense	For the years ended December 31 2018 2017 $ 2,957,608 1,834,053	For the years ended December 31 2018 2017 $ 2,957,608 1,834,053
	2018 $ 2,957,608
	589,924 (844) 65,828 48,424 (157,610) 77,900 503 8,206 35,970 -	311,789 (265) - 41,083 (52,781) (10,581) 1,361 (10,483) (64,905) (291)
	$ 668,301	214,927

(Continued)

189

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Recognized deferred tax assets and liabilities
1) Unrecognized deferred tax assets

The Group’s unrecognizrd deferred tax liabilities are as follows:

Tax effect of deductible Temporary Differences The carryforward of unused tax losses	December 31, 2018 December 31, 2017 $ 7,477 7,252 71,346 807,904
	$ 78,823 815,156

The ROC Income Tax Act allows the carry forward of net losses, as assessed by the tax authorities, to offset against taxable income. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.

As of December 31, 2018, the information of the Group’s unutilized business losses, in which no deferred tax assets were recognized, are as follows:

Yearof occurrence 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018	Unused balance $ 105,711 95,911 126,391 70,864 43,350 5,447 22,641 26,549 50,044 13,704 $ 560,612	Expiry year
		2019 2018 2011 2012 2022 2023 2024 2025 2026 2027

2) Recognized deferred tax assets and liabilities

The movements in deferred tax assets and liabilities for the years ended December 31, 2018 and 2017 were as follows:

Deferred tax liabilities:

Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018	Land value increment tax	Investment income recognized under the equity method	Exchange difference on the translation of foreign operations	Others	Total 7,014,086 154,372 50,020
	$ 6,412,828 (28,330) -	527,163 168,962 -	61,698 - 50,020	12,397 13,740 -
	$ 6,384,498	696,125	111,718	26,137	7,218,478

(Continued)

190

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Balance on January 1, 2017	$	6,420,233	532,020	176,761	83	7,129,097
Recognized in profit or loss		(7,405)	(4,857)	-	12,314	52
Recognized in other comprehensive income		-	-	(115,063)	-	(115,063)
Balance on December 31, 2017	$	6,412,828	527,163	61,698	12,397	7,014,086

Deferred tax assets:

Unamortized manufacturing costs	Tax losses	Defined benefit obligation	Impairment loss on assets	Exchange difference on the translation of foreign operations	Others	Total
$ 33,531 10,982 -	40,312 - -	19,051 (842) 4,385	70,731 (7,275) -	23,512 - (23,304)	21,880 667 -	209,017 3,532 (18,919)
$ 44,513	40,312	22,594	63,456	208	22,547	193,630
$ 37,834 (4,303) -	67,766 (27,454) -	16,040 (3,646) 6,657	70,731 - -	- - 23,512	16,743 5,137 -	209,114 (30,266) 30,169
$ 33,531	40,312	19,051	70,731	23,512	21,880	209,017

(iii) The Company’s income tax returns through 2017 have been assessed and approved by the Tax Authority.

(r) Share capital and other interests

(i) Share capital

As of December 31, 2018 and 2017, the authorized capital of the Company amounting to $9,800,000 with par value of $10 per share. The paid in capital was $9,800,000 thousands, and the capital that rose from the shares had all been retrieved.

(ii) Capital surplus

The components of capital surplus were as follows:

Donations Treasury share transactions Others	December 31, 2018 $ 44,803 2,187,988 10,844	December 31, 2017 44,803 2,187,988 -
	$ 2,243,635	2,232,791

In accordance with Amended Companies Act 2012, realized capital reserves can only be capitalized or distributed as cash dividends after offsetting against losses. The aforementioned capital reserves include share premiums and donation gains. In accordance with Securities Offering and Issuance Guidelines, the amount of capital reserves that can be capitalized shall not exceed 10 percent of the actual share capital amount.

(Continued)

191

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Retained earnings

Under the dividend policy as set forth in the Articles, where the Corporation made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Corporation’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders.

To determine dividend amounts, the Corporation should take into account the diversity of its business, cycles of the industry, and capital demand in relation to specific products and services. To balance business development and shareholders’ welfare, the cash dividend should not be less than 10% of total annual dividends, unless there is any capital demand due to essential investment plan, change in financial position, business operation, extension of capacity or any other capital expenditure and should be approved in the shareholders’ meetings.

1) Legal reserve

In accordance with the Company Act amended in 2012, 10 percent of net income is set aside as legal reserve until it is equal to share capital. If the Company earned a profit for the year, the meeting of shareholders decides on the distribution of the statutory earnings reserve either by issuing new shares or by paying cash, and the distribution is limited to the portion of legal reserve which exceeds 25 percent of the actual share capital.

2) Special reserve

The Group implemented the optional exemptions under IFRS 1 "First-time Adoption of International Financial Reporting Standards” when adopting the International Financial Reporting Standards at first time. The increase in retained earnings resulting from the unrealized revaluation increments, cumulative translation adjustment and the revaluation increments in the transfer from fix assets to investment property was $32,114,341. In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, the same amount of the increasing earnings shall be reclassified to special earnings reserve. If a certain proportion of the asset has been disposed or reclassified, the same proportion of special earnings reserve equivalent to that of the asset, which has been disposed or reclassified, has to be transferred back to its earnings. Such special earnings reserve has to have the same amount with the one that was initially being reclassified to its special earnings reserve. The balance of such special earnings reserve amounted to $30,820,879 and $31,036,152 as of December 31, 2018 and 2017, respectively.

In accordance with the aforesaid Ruling, a special reserve is set aside from the current year’s net income after tax and prior year’s undistributed earnings at an amount equal to the debit balance of contra accounts in shareholders’ equity. When the debit balance of any of these contra accounts in shareholders’ equity is reversed, the related special reserve can be reversed. The subsequent reversals of the contra accounts in shareholders' equity shall quality for additional distributions.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

3) Earnings distribution

Earnings distribution for 2017 and 2016 was decided via the general meeting of shareholders held on 29 June 2018 and 14 June 2017, respectively. The relevant dividends distributions to shareholders were as follows:

Dividends distributed to ordinary shareholders: Cash	2017	2017	2016 Amount per share (dollars) Amount 2.10 2,058,000	2016 Amount per share (dollars) Amount 2.10 2,058,000
	Amount per share (dollars)	Amount
	$ 1.20	1,176,000	2.10

Also, the shareholder’s meeting in 2018 resolved to distribute cash dividends amounting $882,000 thousand from legal reserve. AS the result, the Corporation will distribute cash dividends amounting to $2,058,000 thousand.

On March 28, 2019, the Company's Board of Directors resolved to appropriate the 2018 earnings. These earnings were appropriated as follows:

Dividends distributed to ordinary shareholders: Cash	For the year ended December 31	For the year ended December 31	For the year ended December 31
	2018
	Amount per share (dollars)		Amount
	$ 2.20		2,156,000

(iv) Other equity accounts (net of tax)

Balance on January 1, 2018 Effects of retrospective application Balance at January 1, 2018after adjustments Exchange differences on translation of foreign financial statements Exchange differences on subsidiaries accounted for using equity method Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income Balance on December 31, 2018	Exchange differences on translation of foreign financial statements $ (147,327) -	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income - 946,293	Unrealized gains (losses) on available-for-s ale financial assets 112,648 (112,648)	Unrealized gains (losses) on available-for-s ale financial assets 112,648 (112,648)	Total (34,679) 833,645 798,966 (2,593) 258,984 257,300 1,312,657
	(147,327) (2,593) 258,984 - $ 109,064	946,293 - - 257,300 1,203,593	- - - - -

(Continued)

193

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Exchange differences on translation of foreign financial statements $ 531,966 169	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income	Unrealized gains (losses) on available-for-sa le financial assets	Total
	- -	62,919 -	594,885 169
532,135 (5,075) (674,387) -	- - - -	62,919 - - 49,729	595,054 (5,075) (674,387) 49,729
$ (147,327)	-	112,648	(34,679)

(s) Earnings per share

The basic earnings per share and diluted earnings per share were calculated as follows:

Basic earnings per share Profit attributable to ordinary shareholders Weighted average number of ordinary shares Diluted earnings per share Profit attributable to ordinary shareholders (diluted) Weighted average number of ordinary shares Effect of potentially dilutive ordinary shares Employees’ compensation Weighted average number of ordinary shares (diluted)	For the years ended December 31	For the years ended December 31
	2018 $ 2,281,319	2017 1,619,126
	980,000	980,000
	$ 2.33	1.65
	$ 2,281,319	1,619,126
	980,000 2,230	980,000 1,186
	982,230	981,186
	$ 2.32	1.65

(Continued)

194

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(t) Revenue from contracts with customers
(i) Details of revenue

The details of revenue for the year ended December 31, 2018 were as follows:

						For the year ended	For the year ended
						December 31
							2018
Revenue from contracts with	customers					$	10,602,787
Revenue from investment properties							1,558,297
Property revenue							(1,399)
Other operating revenue							55,407
						$	12,215,092
Disaggregation of revenue
			For the years		ended	December 31, 2018
		Fertilizers		Real estate
		and other		property
		chemical		and
		products		investment		Others	Total
Primary geographical markets
Taiwan	$	10,228,771		1,549,858		348,308	12,126,937
Others			81,115		7,040	-	88,155
	$	10,309,886		1,556,898		348,308	12,215,092
Major products/services lines
Fertilizers and other chemical	$	10,309,886		-		-	10,309,886
products
Rental revenue		-		1,556,898		-	1,556,898
Others		-		-		348,308	348,308
	$	10,309,886		1,556,898		348,308	12,215,092

(ii) Disaggregation of revenue

For details on revenue for the year ended December 31, 2017, please refer to note 6(u).

(iii) Contract balances

Accounts receivable Less: allowance for impairment Total Contract liabilities-Chemical fertilizers product Contract liabilities- Property revenue Total	December 31, 2018 $ 1,497,939 (2,229)	January 1, 2018 1,879,056 -
	$ 1,495,710	1,879,056
	$ 91,395 76,212	99,495 117,171
	$ 167,607	216,666

(Continued)

195

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For details on accounts receivable and allowance for impairment, please refer to note 6(f).

The amount of revenue recognized for the year ended December 31, 2018 that was included

in the contract liability balance at the beginning of the period was $99,495 thousand. (u) Revenue

The details of operating revenues for the year ended December 31, 2017 were as follows:

Operating revenues Sales revenue Rental revenue Property revenue Other revenue Less: Sales returns and allowances Net operating revenues Details of Revenue for 2018; please refer to note 6(t).	For the year ended December 31 2017 $ 9,964,394 1,493,868 277,082 58,668 (135,026)
	$ 11,658,986

(v) Remuneration to employees, directors and supervisors

In accordance with the articles of incorporation the Company should contribute no less than 2.4% of the profit as employee compensation and less than 1.6% as directors’ and supervisors’ remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit.

For the years ended December 31, 2018 and 2017, the Company estimated its employee remuneration amounting to $73,715 thousand and $45,474 thousand, and directors’ and supervisors’ remuneration amounting to $49,143 thousand and $30,437 thousand, respectively. The estimated amounts mentioned above are calculated based on the net profit before tax, excluding the remuneration to employees, directors and supervisors of each period, multiplied by the percentage of remuneration to employees, directors and supervisors as specified in the Company’s articles. These remunerations were expensed under operating costs or operating expenses during 2018 and 2017. The numbers of shares to be distributed for 2018 and 2017 were calculated based on the closing price of the Company’s ordinary shares, one day before the date of the meeting of Board of Directors. If the financial report release date of subsequent year changed,

There was no difference of Employee compensation and directors’ and supervisors’ remuneration between the amounts recognized on consolidated financial statements and actual distributed amount.

Information on remuneration to employees, directors and supervisors resolved by the Corporation’s board of directors in 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(w) Non operating income and expenses

(i) Other income

The details of other income for the years ended December 31, 2018 and 2017 were as follows:

Interest income Interest income - bank deposits Subsidies of land improvement demolition Total Dividends Others	For the years ended December 31 2018 2017 $ 77,142 75,715 5,967 7,860	For the years ended December 31 2018 2017 $ 77,142 75,715 5,967 7,860
	2018 $ 77,142 5,967
	83,109	83,575
	51,483 22,205	43,562 71,416
	$ 156,797	198,553

(ii) Other gains and losses

The details of other gains and losses for the years ended December 31, 2018 and 2017 were as follows:

Gain on disposal of property, plant and equipment Net foreign exchange gain or loss Loss on disposal of other non-current assets Gain on disposal of investments Gains on financial assets (liabilities) at fair value through profit or loss Donation expenses Loss on impairment of intangible assets Others	For the years ended December 31 2018 2017 $ (1,815) 79,371 42,266 (36,083) 754,449 (24,569) - 46,350 (32,071) - (231,880) (241,381) (81,867) (31,714) (20,375) (860)	For the years ended December 31 2018 2017 $ (1,815) 79,371 42,266 (36,083) 754,449 (24,569) - 46,350 (32,071) - (231,880) (241,381) (81,867) (31,714) (20,375) (860)
	2018 $ (1,815) 42,266 754,449 - (32,071) (231,880) (81,867) (20,375)
	$ 428,707	(208,886)

(iii) Finance costs

The details of finance costs for the years ended December 31, 2018 and 2017 were as follows:

Bank interest expense	For the years ended December 31 2018 2017 $ 417 555
	2018 $ 417

(Continued)

197

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(x) Financial instruments
(i) Credit risk
- 1) Exposure to credit risk

The carrying amount of financial assets represents the Company’s maximum credit exposure.

2) Credit risk concentrations

The clients of the Company are widely spread and unrelated; thus, credit risk is limited.

3) Receivables and debt securities

For credit risk exposure of note and trade receivables, please refer to note 6(f). Other financial assets at amortized cost includes other receivables. For the details of investments and loss allowance on December 31, 2017, please refer to note 6(f).

Other debt instruments at amortized cost includes unlisted debt securities (previously classified as available-for-sale financial assets on December 31, 2017). For the details on investments, please refer to note 6 (d).

(ii) Liquidity risk

The following are the contractual maturities of financial liabilities, excluding estimated interest payment and the impact of netting agreements.

Carrying amount	Within 1 year	1-3 months	3 months -1 year	1-5years More than 5 years - - - -
$ 32,132 1,016,430	32,132 19,672	- 670,615	- 326,143
$ 1,048,562	51,804	670,615	326,143	- -
$ 35,104 1,426,636	35 17,778	35,069 1,016,160	- 392,698	- - - -
$ 1,461,740	17,813	1,051,229	392,698	- -

The Group does not expect the cash flows included in the maturity analysis to occur significantly earlier or at significantly different amounts.

(Continued)

198

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(iii) Transfer between levels

1) Currency risk

The following are the contractual maturities of financial liabilities, excluding estimated interest payment and the impact of netting agreements.

December 31, 2018	December 31, 2018	December 31, 2018	(after adjusted) December 31, 2017	(after adjusted) December 31, 2017	(after adjusted) December 31, 2017
Foreign Currency	Exchang e Rate	NTD	Foreign Currency	Exchang e Rate	NTD
$ 48,781 49,403 1,226,253 9,079	30.73 30.73 8.19 30.73	1,499,201 1,518,306 10,048,780 279,031	114,310 1,416 1,173,285 19,537	29.76 29.76 7.94 29.76	3,401,870 42,133 9,310,318 581,429

2) Sensitivity analysis

The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans, accounts payable and other payables that are denominated in foreign currency. A 10% of appreciation of each major foreign currency against the Group’s functional currency as of December 31, 2018 and 2017 would have increased or decreased the before tax net income by $219,078 thousand and $237,594 thousand, respectively. The analysis is performed on the same basis for both periods.

As the Group deals in diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2018 and 2017, the foreign exchange losses, including both realized and unrealized, amounted to 42,266thousand and (36,083) thousand, respectively.

(iv) Interest rate analysis

The interest risk exposure from financial assets and liabilities has been disclosed in the note of liquidity risk management.

The sensitivity analysies below were based on the exposure to equity price risks at the end of the reporting period. For floating-rate liabilities, the analysis is based on the assumption that the amount of liabilities outstanding on the reporting date is circulated throughout the year.

If interest rates had been 1 basis point higher/lower and all other variables were held constant, the Corporation’s pre-tax (loss) profit for the years ended December 31, 2018 and 2017 would decrease/increase by $0 due to the Company’ s cash and cash equivalents balances which exceeds its loan amount.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(v) Other price risk

If the stock price changes at the reporting date, the changes in other comprehensive income of the Company are estimated as follows: (The analysis was made on the same basis for both periods, assuming that all other variables remain constant and any impact to forecasted sales and purchases was ignored):

For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -	For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -	For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -
2018
Comprehensive Income (Loss)(net of tax) $ 92,777	Net Income (Loss) (net of tax)	Net Income (Loss) (net of tax)
		-
$ (92,777)	(90,329) (110,577)	-

(vi) Fair value of financial instruments
1) Categories and fair value of financial instruments

The fair value of financial assets and liabilities at fair value through profit or loss, and financial assets at fair value through other comprehensive income (available for sale financial assets) is measured on a recurring basis. The carrying amount and fair value of the Group’s financial assets and liabilities, including the information on fair value hierarchy were as follows; however, except as described in the following paragraphs, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, and for equity investments that has no quoted prices in the active markets and whose fair value cannot be reliably measured, disclosure of fair value information is not required:

	December 31, 2018	December 31, 2018	December 31, 2018	Total 1,806,574
Book Value $ 1,806,574		Fair Value
	Level 1 1,806,574	Level 2 -	Level 3 -
$ 100,764 1,764,692	100,764 -	- -	- 1,764,692	100,764 1,764,692
1,865,456	100,764	-	1,764,692	1,865,456

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Financial assets measured at amortized cost Government bonds Cash and cash equivalents Other financial assets (including non-current) Notes receivable and accounts receivables (including long-term) Other receivables Total Total Financial liabilities at amortized cost Bank loans Notes and accounts payable Other payables Total Total	$ 30,729 - - - - 3,441,058 - - - - 3,791,817 - - - - 1,495,710 - - - - 13,733 - - - -
	8,773,047 - - - -
	$ 12,445,077 1,907,338 - 1,764,692 3,672,030
	$ 32,000 - - - - 779,300 - - - - 237,130 - - - -
	1,048,430 - - - -
	$ 1,048,430 - - - -

	December 31, 2017	December 31, 2017	December 31, 2017
Book Value $ 546,899		Fair Value		Total -
	Level 1 -	Level 2 -	Level 3 -
546,899	-	-	-	-
141,254 2,040,761 29,531	141,254 2,040,761 -	- - -	- - 29,531	141,254 2,040,761 29,531
2,211,546	2,182,015	-	29,531	2,211,546
2,266,220 5,970,542 1,879,056 31,373	- - - -	- - - -	- - - -	- - - -
10,147,191	-	-	-	-
$ 12,905,636	2,182,015	-	29,531	2,211,546
$ 35,000 1,218,490 208,146	- - -	- - -	- - -	- - -
1,461,636	-	-	-	-
$ 1,461,636	-	-	-	-

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

2) Valuation techniques for financial instruments measured at fair value:
a) Non-derivative financial instruments

When a financial instrument is regarded as quoted in an active market, the quoted prices in an active market will be the fair value. The market prices from the main exchanges and government bond exchanges are the basis of the fair value of OTC equity instruments and debt instruments which have a quoted market price in an active market.

A financial instrument is regarded as being quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. Quoted market prices may not be indicative of the fair value of an instrument if the activity in the market is infrequent, the market is not well-established, only small volumes are traded, or bid-ask spreads are very wide.

Measurements of fair value of financial instruments without an active market are based on a valuation technique or quoted price from a competitor. Fair value measured by a valuation technique can be extrapolated from similar financial instruments, the discounted cash flow method, or other valuation technique including a model using observable market data at the reporting date.

If the financial instruments held by the Group do not belong to active markets, the category and nature of the fair value are as follows:

Equity investments without an active market: The fair value is assessed by market comparison approach. The main assumption is measured from the retained earnings multiplier as the basis.
3) Transfers between Level 1 and Level 2

There were no transfers in either direction in 2018 and 2017.

4) Reconciliation of Level 3 fair values

Reconciliation of Level 3 fair values
Opening balance, January 1, 2018 Total gains and losses recognized: In other comprehensive income Capital reduction by capital stock return Ending Balance,December 31, 2018	Fair value through other comprehensive income (Available-for-sale financial assets) Unquoted equity instruments $ 1,484,830 297,789 (17,927)
	$ 1,764,692

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the years ended December 31, 2018 and 2017, total gains and losses that were included in “other gains and losses” , “unrealized gains and losses from available-for-sale financial assets” and “unrealized gains and losses from financial assets at fair value through other comprehensive income” were as follows:

Total gains and losses recognized: In other comprehensive income, and presented in “unrealized gains and losses from financial assets at fair value through other comprehensive income”		For the years ended December 31	For the years ended December 31
		2018 297,789	2017
			-

5) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

The Group’s financial instruments that use Level 3 inputs to measure fair value include “financial assets measured at fair value through profit or loss – debt investments” and “fair value through other comprehensive income (available-for-sale financial assets) – equity investments”.

The Group most fair value is categorized to Level 3 with single significant unobservable input. The equity investments without an active market has duplicate unobservable inputs. The unobservable inputs of the equity investments without an active market are independent, so there is no correlation to others.

Quantified information of significant unobservable inputs was as follows:

Valuation Item technique Financial assets at fair ~~Comparable~~ value through profit or transaction loss- equity investments method without an active market

Financial assets at fair Cost method value through other comprehensive income-equity investments without an active market

Financial assets at fair Net Asset value through other Value Method comprehensive income-equity investments without an active market

Inter-relationship
between significant
Significant unobservable unobservable inputs and inputs fair value measurement
‧The multiplier of price-to-book The estimated fair value ratio (As of January 1, 2018 would increase (decrease) and December 31, 2017, were if: 11.83~18.78 and 19.7~22.3) ‧the multiplier were the multiplier were
‧Market illiquidity discount (As higher (lower) of January 1, 2018 and ‧the market illiquidity the market illiquidity December 31, 2017, were discount were lower 10%~33% and 3%~20% )
‧the multiplier were the multiplier were higher (lower)
‧the market illiquidity the market illiquidity discount were lower (higher).
‧The multiplier of price-to-book ratio (As of January 1, 2018 , were 20%~25%)

‧Market illiquidity discount (As of January 1, 2018, were 26%~31%)

‧Net Asset Value

Not applicable

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

6) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The Group’s measurement on the fair value of financial instruments is deemed reasonable despite different valuation models or assumptions may lead to different results.

For fair value measurements in Level 3, changing one or more of the assumptions would have the following effects on profit or loss and other comprehensive income：

December 31, 2018 Financial assets at fair value through other comprehensive income Equity investments without an active market	Inputs	Fluctuati on in inputs	Profit	or loss	Other comprehensive income Favor-abl e Unfavor-a ble 75,340 (130,258)
			Favor-abl e	Unfavor-a ble	Favor-abl e
	Market illiquidity discount	1%	-	-	75,340

The favorable and unfavorable effects represent the changes in fair value, and fair value is based on a variety of unobservable inputs calculated using a valuation technique. The analysis above only reflects the effects of changes in a single input, and it does not include the interrelationships with another input.

(y) Financial risk management

(i) Overview

The Group has exposures to the following risks from its financial instruments:

1) Credit risk
2) Liquidity risk
3) Market risk

The following discusses the Group’s objectives, policies and processes for measuring and managing the above mentioned risks. For more disclosures about the quantitative effects of these risks exposures, please refer to the respective notes in the accompanying non-consolidated financial statements.

(ii) Risk management framework

The Group’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

(Continued)

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Notes to the Consolidated Financial Statements

(iii) Credit risk

Credit risk means the potential loss of the Group if the counterparty involved in that transaction defaults. The primary potential credit risk is from financial instruments like accounts receivable and equity securities.

1) Accounts receivables and other receivables

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances.

The Group establishes an impairment allowance that represents its estimate of incurred losses in respect of trade receivables. The two components of this impairment allowance are specific loss component that relates to individually significant exposure and collective loss component which the loss was incurred but not identified. The collective component is based on historical payment experience of similar financial assets.

2) Investment

The credit risk exposure in the bank deposits, fixed income investments and other financial instruments are measured and monitored by the Group’s finance department. As the Group deals with the banks and other external parties with good credit standing and financial institutions, corporate organization and government agencies which are graded above investment level, management believes that the Group does not have compliance issues and no significant credit risk.

3) Guarantees

The Group’s policies were prepared in accordance with Guidelines for Lending of Capital, Endorsements and Guarantees by Public Companies.

(iv) Liquidity risk

Liquidity risk is a risk that the Group is unable to meet the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as much as possible, that it always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

(v) Market risk

Market risk is a risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

1) Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency. The currencies used in these transactions are denominated in USD, EUR, JPY, and RMB.

The exchange gains or losses of trade receivables in foreign currencies resulting from the changes in exchange rates are offset against the exchange losses or gains of short-term borrowings in foreign currencies; thus, the exposure to foreign currency risk is insignificant.

The interest is denominated in the same currency as borrowings. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances.

The investments of other subsidiaries of the Company are not for hedging.

2) Interest rate risk

The Group’s interest rate risk arises from short-term and long-term loans bearing floating interest rates. Future cash flow will be affected by a change in market interest rate.

3) Other market risk

The Group does not enter into any commodity contracts other than to meet its expected usage and sales requirements; such contracts are not settled on a net basis.

(z) Capital management

The Group’s objectives in managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, and issue new shares or sell assets to reduce debts.

The Group manages capital by the debt to equity ratio. Such ratio is calculated as net liabilities divided by total capital. Net liabilities represent the total amount of liabilities on the balance sheet minus cash and cash equivalents. The total amount of capital represents all the equity components (share capital, capital surplus, retained earnings, and other equity) plus net liabilities.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The Group’s debt to equity ratios at the balance sheet date were as follows:

Total liabilities Less: cash and cash equivalents Net debt Total capital Adjusted capital Debt to equity ratio	December 31, 2018 $ 25,616,771 (3,441,058)	December 31, 2018 $ 25,616,771 (3,441,058)	December 31, 2017 26,064,439 (2,266,220)
	22,175,713 50,782,946 $ 72,958,659		23,798,219 49,092,452 72,890,671
		30.39%	32.65%

(7) Related-party transactions:

(a) Names and relationship with related parties

The following are entities that have had transactions with related parties and the Company's subsidiaries during the periods covered in the non consolidated financial statements.

Name of related party AI-Jabail Fertilizer Company TR Electronic Chemical Co.,Ltd. TR Electronic Chemical (Kunshan) Ltd. Council of Agriculture, Executive Yuan, R.O.C. TAIWAN FERTILIZER Legal Foundation	Relationship with the Group
	Equity-method investee The Company's jointly controlled entity The Company's jointly controlled entity’s subsidary Individuals are those entities in which the Group has significant influence Other related parties

Note: The bankruptcy of TR Electronic Chemical (Kunshan) Ltd. was declared by the court in China in September, 2017, and the relevant statutory procedures had not yet been completed up to the date of our auditor's report.

(b) Significant transactions with related parties
(i) Sale of Goods to Related Parties

The amounts of significant sales transactions and outstanding balances between the Group and related parties were as follows:

Other related parties	Sales For the years ended December 31 2018 2017	Sales For the years ended December 31 2018 2017	Receivables from relatedparties	Receivables from relatedparties
	2018		December 31, 2018	December 31, 2017
	$ -	11	-	11

Prices charged for sales transactions with associates were not significantly different from those of non related parties.

(Continued)

207

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(ii) Purchase of Goods from Related Parties

The amounts of significant purchase transactions and outstanding balances between the Group and related parties were as follows:

and related parties were as follows:	s follows:	s follows:	s follows:
Purchases For the years ended December 31 Payables to Related Parties 2018 2017 December 31, 2018 December 31, 2017 AI-Jabail Fertilizer Company $ 1,159,485 942,151 281,341 581,275 Prepayments December 31, 2018 December 31, 2017 AI-Jabail Fertilizer Company $ - 6,761	Purchases			Payables to Related Parties December 31, 2018 December 31, 2017 281,341 581,275
	For the years ended December 31
	2018	2017				December 31, 2017
	$ 1,159,485	942,151				581,275

			December 31, 2018 $ -
					6,761

There were no significant differences between the terms and pricing of purchase transactions with related enterprises and those carried out with other normal vendors.

(iii) Others

1) TR Electronic Chemical Co., Ltd. (TR), a jointly controlled entity of the Corporation, had obtained a financing of US$10,000 thousand from a bank, and the Corporation and Jing Chin International Limited Corporation, a shareholder of TR, guaranteed the repayment of this financing. When TR failed to make a repayment, the bank then requested the guarantors to repay the loan partially. Because the Corporation could only provide TR-in compliance with the “Regulations Governing the Granting of Loans and Endorsements and Guarantees by Public Companies” - with a limited amount of endorsement, the Corporation’s board approved the repayment of TR’s loan, as following.

Due Date Date of Repayment Amount inUSD March 27, 2014 June 27, 2014 $ 4,570 April 26, 2015 April 24, 2015 3,300 March 27, 2016 March 31, 2016 2,147	Amount inNTD 144,641 102,610 70,026

Considering the weakening operating and repayment capability of TR, the Corporation recognized an impairment loss in 2015.

2) The bankruptcy of TR Electronic Chemical (Kunshan) Ltd., declared by the court in China in September, 2017, was investigated, and the proposal of liquidated property distribution was announced publicly in mid-August, 2018. Also, the investors of TR Electronic Chemical Co. Ltd., JIN QUN INTERNATIONAL CO., Ltd. and other six stockholders, institute the civil lawsuit with joint liquidation liability in Taipei District Court. The first instance was pronounced in December, 2018. However, the stockholders were not satisfied with the result and appealed for the second instance. The relevant statutory procedures have not yet been completed up to the date of our auditor's report.

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

3) Other prepayment for related parties

Jointly controlled entity

	Accounts receivable	Accounts receivable	Accounts receivable
	December	31,	December	31,
	2018		2017
$		455		455

4) Hasbo Biotech Co., Ltd. conducted its liquidation procedures in October 2017. The relevant statutory procedures are expected to be completed in 2018, and it is expected to recover the amount of $5,038, which has yet to be received.

The compensation to directors and other key management personnel were as follows:

Salaries and other short-term employee benefits Post-employment benefits	For the years ended December 31 2018 2017 $ 83,185 79,821 1,139 1,010	For the years ended December 31 2018 2017 $ 83,185 79,821 1,139 1,010
	2018
	$ 83,185 1,139	79,821 1,010
	$ 84,324	80,831

(8) Pledged assets:

ledged assets:
Asset	Purpose of pledge	December 31, 2018 $ 4,500 27,050	December 31, 2017 - 31,550
Other financial asset current Other financial asset non-current	Pledge deposits Pledge deposits
		$ 31,550	31,550

(9) Commitments and contingencies:

(a) Significant commitments and contingencies
(i) Significant commitments and contingencies were as follows:

Purchase real estate property Purchase investment property (ii) Unused standby letters of credit USD thousands EUR thousands	December 31, 2018 $ 2,053,742	December 31, 2017 187,764
	$ 8,274,646	793,858
	December 31, 2018 $ 1,174	December 31, 2017 5,744
	$ -	65

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(iii) The Corporation had guarantee notes payable for its debt as follow:

Guarantee notes payable	December 31, 2018 $ 9,039,910	December 31, 2017
		12,167,420

(b) Commitments
(i) Huaku Development Co., Ltd. (“Huaku”) filed an appeal with the Taipei District Civil Court (the “Court”) for the Corporation to pay a co-building trade business tax of $38,370 thousand. The Court ruled that the Corporation should make this payment in June 2014. The Corporation brought this case to a High Court in August 2014; however, the High Court ruled denying in June 2015. Therefore, the Corporation lodged an appeal against the High Court judgment in July 2015, but the Supreme Court decided against the Corporation, so the conviction has been affirmed by the Supreme Court. The Corporation accrued a possible loss of $38,370 thousand for this case in 2012 financial statements.
(ii) On June 25, 2013, the shareholders resolved that, in order to enhance the long-term business relationship with Saudi Arabian Basic Industries Corporation as well as to maintain the relationship with the Kingdom of Saudi Arabia (“Saudi Arabia”), the Corporation shall donate its share of Al-Jubail’s profit, with US$50,000 thousand as the donation limit, to the government or organizations in Saudi Arabia.

In October 2013, the Corporation and Al-Jubail signed a Memorandum of Understanding (MOU); the main contents of the MOU are summarized as follows:

1) The Corporation agreed to donate US$42,000 thousand by way of six equal semiannual installments of US$7,000 thousand to the government or a nonprofit organization in Saudi Arabia. The first donation should be made by October 31, 2013.
2) The donation will be funded from the dividends of Al-Jubail that have been declared and are to be distributed to the Corporation. Al-Jubail will keep the above funds in a separate account in its name in a local bank. As administrator of the donations, Al-Jubail should designate the recipient of the donation. The Corporation’s donation was as follows:

Period 1st 2nd 3rd 4th 5th 6th	Date of Donations October 2013 June, 2014 December, 2014 March, 2015 December, 2017 December, 2017	Amount inUSD $ 7,000 7,000 7,000 7,000 7,000 7,000	Amount inNTD 209,440 208,635 212,940 223,650 209,650 215,110

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(10) Losses Due to Major Disasters:None

(11) Subsequent Events:None

(12) Other:

(a) A summary of current-period employee benefits, depreciation, and amortization, by function, is as follows:

follows:
By item	For the years ended December 31 2018 2017
	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total
Employee benefit Salary Health and labor insurance Pension Others Depreciation Amortization	$ 425,051 34,684 22,454 18,032 755,536 73,767	585,950 25,632 16,693 11,904 39,142 9,702	1,011,001 60,316 39,147 29,936 794,678 83,469	413,122 33,841 22,181 18,564 667,129 73,101	547,402 25,769 29,443 12,677 47,845 11,459	960,524 59,610 51,624 31,241 714,974 84,560

The depreciation of non-operating income and expenses of the Group in 2018 and 2017 were $18,764 thousand and 17,539 thousand, respectively.

(b) To promote "New Southbound Policy", to help intensify the bound between Taiwanese and people in Indo-Pacific area, and to expand the interaction and collaboration with significant active figures in Indo-Pacific area. The board of directors of the Group resolved to donate $10,000 thousand to establish the foundation in March 2018.

(Continued)

211

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(13) Other disclosures:

(a) Information on significant transactions:

The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group:

(i) Loans to other parties:None

(ii) Guarantees and endorsements for other parties:

(In Thousands of New Taiwan Dollars)

==> picture [565 x 123] intentionally omitted <==

----- Start of picture text -----

Ratio of
Counter-party of accumulated
guarantee and amounts of Parent Subsidiary Endorsements/
endorsement Limitation on Highest Balance of Property guarantees and company endorsements/ guarantees to
amount of balance for guarantees pledged for endorsements to endorsements/ guarantees third parties
guarantees and guarantees and Actual usage guarantees net worth of the Maximum guarantees to to third parties on behalf of
Relationshi endorsements and endorsements amount and latest amount for third parties on behalf of companies in
Name of p with the for a specific endorsements as of during the endorsements financial guarantees and on behalf of parent Mainland
No. guarantor Name Company enterprise during reporting date period (Amount) statements endorsements subsidiary company China
the period
0 Taiwan TAIFER Subsidiary 42,870 13,500 13,500 13,500 - 0.03% 25,402,394
Fertilizer (CAMBO
Co., Ltd. DIA) CO.,
(the LTD
“Company”)
----- End of picture text -----

Note 1: (1) The company under business dealings.
(2) A subsidiary in which the Group directly or indirectly holds more than 50% of its common shares.
(3) The parent company which directly or indirectly holds more than 50% of the common shares of the Group.
(4) A subsidiary in which the Group directly or indirectly holds more than 90% of its common shares.
(5) The financial guarantee provided by the Group based on its contractor's agreement to the same trade and co-proprietor.
(6) The financial guarantee provided by the Group based on its shareholding due to joint venture relationship.
(7) The financial guarantee provided by the Group based on sales contract regulated by Consumer Protection Act for sales in advance .
Note 2: The total amount of the guarantee provided by the Corporation to any individual entity should not exceed 20% of the Corporation’s net worth, or 50% of the individual net worth of Taifer.

Note 3: The total amount of guarantee should not exceed 50% of the Corporation’s net worth.

(iii) Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates and joint ventures):

(In Thousands of New Taiwan Dollars)

Category and name of security	Marketable Securities Type/Name and Issuer	Relationship with company	Account title	Endingbalance	Endingbalance	Endingbalance		Highest Percentage of ownership (%)	Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value
Taiwan Fertilizer Co., Ltd.	Mutual funds Mega Diamond Money Market Fund Jih Sun Money Market Fund Jih Sun Asian High Yield Bond Fund Fuh Hua Strategic High Income Fund of Funds Nomura Global Short Duration Bond Fund JPMorgan (Taiwan) Pacific Balanced Fund Fuh Hwa Digital Economy Fund Ordinary shares Eminent Venture Capital Corporation Eminent II VC Corp Eminent III VC Corp Taiwan Stock Exchange Corporation Top Taiwan V Venture Capital Co., Ltd Visgeneer Inc.	－－－－－－－ Our Company is legal representative director of the company 〞〞－ Our Company is legal representative director of the company 〞	Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent	15,988 63,607 10,485 11,053 9,502 4,072 9,213 4,500 20,000 15,000 13,872 1,659 3,147	200,202 940,973 160,169 150,151 150,078 55,001 150,000 24,189 157,925 145,366 1,334,526 12,207 27,232	- % - % - % - % - % - % - % 10.00% 18.50% 16.56% 2.00% 9.76% 10.31%	200,202 940,973 160,169 150,151 150,078 55,001 150,000 24,189 157,925 145,366 1,334,526 12,207 27,232	- % - % - % - % - % - % - % 10.00% 18.50% 16.56% 2.00% 9.76% 10.31%	Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 3 Note 3 Note 3 Note 5 Note 3 Note 5

(Continued)

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TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Taiwan Fertilizer Co., Ltd.	TaiAn Technologies Corporation TSCBio Ventures Capital Co. Ding-Tang Phalanx Biotech Co., Ltd. Bion tech Inc. China Petrochemical Development Corporation Bonds International Bonds: Mizuho Financial Group	Our Company is legal representative director of the company 〞－－ Our Company is legal representative director of the company －－	FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent Amortized at cost financial assets - non current	833 3,360 1,500 404 4,167 9,202 -	13,305 44,379 - - 5,563 100,764 30,729	16.67% 19.75% 6.71% 0.65% 15.16% 0.34% - %	13,305 44,379 - - 5,563 100,764 30,729	16.67% 19.75% 6.71% 0.65% 15.16% 0.34% - %	Note 3 Note 5 Note 2 Note 4

Note 1: The market value was calculated on the basis of the net asset value as of the balance sheet date.
Note 2: The market value was calculated on the basis of the closing price on the Taiwan Stock Exchange as of the balance sheet date.
Note 3: The market value was calculated on the basis of the unaudited financial statement for the same period.
Note 4: The market value was calculated on the basis of the audited financial statement for the most recent period.
Note 5: The market value was calculated on the basis of the closing rate on the Taiwan Stock Exchange as of the balance sheet date.
(iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Category and name of security	Account name	Name of counter-par ty	Relationship with the company	BeginningBalance	BeginningBalance	Purchases	Purchases	Sales	Sales	Sales	Sales	EndingBalance	EndingBalance
					Shares	Amount	Shares	Amount	Shares	Price	Cost	Gain (loss) on disposal	Shares	Amount
Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co.,Ltd.	Mega Diamond Money Market Fund Jih Sun Money Market Fund First Bank Money Market Fund Eastspring Investment s Well Pool Money Market Fund Pei Feng Technolog yCo.,Ltd.	FVOCI - c urrent FVOCI - c urrent FVOCI - c urrent FVOCI - c urrent Investment in equity method	- -	- -	16,079 63,961 - - 40,000	200,000 940,000 - - 400,000	48,033 191,097 31,497 33,200 150,000	600,000 2,820,000 480,000 450,000 1,500,000	48,124 191,451 21,013 22,147 -	600,000 2,820,000 320,000 300,000 -	601,136 2,825,216 320,453 300,352 -	1,136 5,216 453 352 -	15,988 63,607 10,485 11,053 190,000	200,000 940,000 160,000 150,000 1,900,000

Note: Unrealized gain and loss on financial assets were recognized.

(v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:None
(vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Type of property	Transaction date	Acquisition date	Book value	Transaction amount	Amount actually receivable	Gain from disposal	Counter-part y	Nature of relationship	Purpose of disposal	Price reference	Other terms
Taiwan Fertilizer Co., Ltd.	Investment Properties	November 19, 2018	March 1, 1978	429,345	937,001	-	507,656	Bai Fu real estate development Co.,Ltd.

(Continued)

213

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Relatedparty	Nature of relationship	Transaction details	Transaction details	Transaction details	Transaction details	Transactions with terms different from others	Transactions with terms different from others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/Sale	Amount	Percentage of total purchases/sales	Payment terms	Unitprice	Payment terms	Endingbalance	Percentage of total notes/accounts receivable (payable)
Taiwan Fertilizer Co., Ltd.	AI-Jabail Fertilizer Company	Equity-method investee	Purchase	1,159,485	15.74%	Same as those for third parties	Determined under the considerations of international market price and production cost	30 days	(281,341)	(36.10)%	-

(viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Counter-party	Nature of relationship	Ending balance	Turnover rate	Overdue	Overdue	Amounts received in subsequentperiod	Allowance for bad debts
					Amount	Action taken
Taiwan Fertilizer Co., Ltd.	TR ELECTRONIC CHEMICAL CO.,LTD.	Jointly controlled entity	Other receivable 317,277	-	317,277	-	-	317,277

(ix) Trading in derivative instruments:None
(x) Business relationships and significant intercompany transactions:

(In Thousands of New Taiwan Dollars)

				(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)	(In Thousands of New Taiwan Dollars)
No.	Name of company	Name of counter-party	Nature of relationship	Intercompanytransactions
				Account name	Amount	Trading terms	Percentage of the consolidated net revenue or total assets
0 1	TaiwanFertilizerCo ., Ltd.	Taiwan Yes Deep Ocean Water Co., Ltd. Taiwan Yes Deep Ocean Water Co., Ltd. Taiwan Yes Deep Ocean Water Co., Ltd. Taiwan Yes Deep Ocean Water Co., Ltd. Taifer Chemicals International Inc TAIFER (CAMBODIA) CO., LTD TAIFER (CAMBODIA) CO.,LTD	1 1 1 3	Guarantee deposits received Sales Rental revenue Accounts receivable Sales revenue	1,776 2,629 7,702 58 5,962 1,182 2,596	were not significantly different from others were not significantly different from others were not significantly different from others were not significantly different from others were not significantly different from others were not significantly different from others were not significantly different from others	0.00% 0.02% 0.06% 0.00% 0.05% 0.00% 0.02%

Note 1): The numbering is as follows:

1.“0” represents the parent company.
2.Subsidiaries are sequentially numbered from 1 by company.

Note 2): The types of transaction between the parent company and subsidiaries are as follows:

1.Transactions from parent company to subsidiary.
2.Transactions from subsidiary to parent company.
3.Transactions between subsidiaries.
Note 3): The report only disclosed the data of sales and accounts receivable of the significant trade between parent and subsidiary. The relative purchase and accounts payable will not be disclosed redundantly.

Note 4): It is the amount of consolidated operating revenue or consolidated total assets divided by trading amount.

Note 5): The transaction listed on the consolidated financial statements has been eliminated through consolidation.

(Continued)

214

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(b) Information on investees:

The following is the information on investees for the years ended December 31, 2018 (excluding information on investees in Mainland China):

(In Thousands of New Taiwan Dollars)

Name of investor	Name of investee	Location	Main businesses and products	Original investment amount	Original investment amount	Balance as of December 31,2018	Balance as of December 31,2018	Balance as of December 31,2018	Highest Percentage of wnership	Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31,2018	December 31,2017	Shares (thousands)	Percentage of wnership	Carrying value
Taiwan Fertilizer Co., Ltd. 〃〃〃〃〃〃〃〃 TAIFER (CAYMAN) INTERNATIONA L GROUP CO., LTD. Taifer Chemicals International Inc. TAIFER INTERNATIONA L (SAMOA) GROUP CO., LTD.	Al-Jubail Fertilizer Company Taifer Chemicals International Inc Taiwan Yes Deep Ocean Water Co., Ltd. TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD. TAIFER (CAMBODIA) CO., LTD TAIFER INTERNATIONAL (SAMOA) CO., LTD. TR ELECTRONIC CHEMICAL CO., LTD. TAIFER INTERNATIONAL (SAMOA) GROUP CO.,LTD. TAIFER CHEMICAL INTERNATIONAL CO.,LTD.	Kingdom of Saudi Arabia Taiwan Taiwan Cayman Islands Taiwan Cambodia Samoa Taiwan Cayman Islands Samoa Mongolia	Manufacture of urea, 2-EH (2-ethyl hexanol), and DOP (dioctyl phthalate) International trade; wholesale of fertilizer, tobacco, liquor, beverage, forage, machinery, electrical equipment, etc.; development, operation and management of residential buildings and factory buildings; special zone development; investment in and construction of public works; development of new towns and districts; agent services on regional district requisition; land adjustment; and real estate rental or leasing Wholesale of drinks, food and grocery and other articles for daily use; tobacco and liquor; glass and pottery; hygiene products; fertilizers and other chemical products; and cosmetics; and international trade Investment and holding Wholesale and retail of products for organic agriculture International trade; wholesale of fertilizer Investment and holding Manufacture and wholesale of fertilizer Investment and holding Investment and holding Real estate rental and leasing	3,050,000 126,300 1,224,235 1,900,000 80,000 50,000 321,990 40,052 9,348 321,962 42,618 41,077	3,050,000 126,300 1,224,235 400,000 80,000 - 321,990 40,052 9,348 321,962 42,618 41,077	7 5,500 25,763 190,000 8,000 5,000 11 - - - - -	50.00% 100.00% 100.00% 100.00% 33.33% 33.33% 100.00% 100.00% 100.00% 51.00% 100.00% 100.00%	10,048,780 85,740 304,278 1,890,632 59,020 49,835 - 30,870 9,280 - 58,958 58,703	50.00% 100.00% 100.00% 100.00% 33.33% 33.33% 100.00% 100.00% 100.00% 51.00% 100.00% 100.00%	2,309,448 9,919 (3,533) (7,287) (45,416) (496) - 2,248 59 - 7,988 7,988	1,093,334 9,919 (84,592) (7,287) (15,137) (165) - 2,242 59 No applicable - -	Associate Subsidiary Subsidiary Subsidiary Note 1 Subsidiary Subsidiary Subsidiary Jointly controlled entity Subsidiary Subsidiary

Note : The liquidation procedure was conducted in October 2017, and the relevant statutory procedures have not yet been completed up to the date of our auditors’ report.

(Continued)

215

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(c) Information on investment in mainland China:
(i) The names of investees in Mainland China, the main businesses and products, and other information:

(In Thousands of New Taiwan Dollars)

Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment	Accumulated outflow of investment from Taiwan as of January1,2017	Investment flows	Investment flows	Accumulated outflow of investment from Taiwan as of December 31,2018	Net income (losses) of the investee	Percentage of ownership	Highest percentage of ownership	Investment income (losses)	Book value	Accumu-lated remittance of earnings in currentperiod
					Outflow	Inflow
TR Electronic Chemical (Kunshan) Ltd.	Manufacture of nitric acid, hydrofluoric acid, ammonia, phosphoric acid, oxalic acid, ammonia fluoride and LCD and IC Stripper	USD$ 21,500 (NT$660,760) (note4)	()	USD$ 10,965 (NT$336,987) (note4)	-	-	USD$ 10,965 (NT$336,987) (note4)	USD$ - (NT$ - ) (note 1 and5)	51.00%	-%	USD$ - (NT$ - ) (note 6)	USD$ - (NT$ - ) (note 6)	-

(ii) Limitation on investment in Mainland China:

Accumulated Investment in Mainland China as of December31,2018	Investment Amounts Authorized by Investment Commission,MOEA	Upper Limit on Investment
NT$ 336,987 (US$ 10,965 ) (note4)	NT$ 336,987 (US$ 10,965 ) (note4)	NT$ 30,482,873 (note 2)

Note 1: The Group applied for the cessation of it operations to the local court on March 17, 2017.
Note 2: The limit is based on the “Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China” issued by the Investment Commission under the Ministry of Economic Affairs; the amount is 60% of shareholders’ equity or of consolidated shareholders’ equity.
Note 3: Indirect investment in mainland China through a subsidiary in a third place. (Investor: TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD.)
Note 4: The foreign currency amounts of original investment amount and carrying value were translated into New Taiwan dollars at the exchange rate NT$30.733 as of December 31, 2017.
Note 5: The foreign currency amount of investment gain/loss was translated into New Taiwan dollars at an average exchange rate NT$30.1886 for the year ended December 31, 2017.
Note 6: As of June 30, 2015, the investment accounted for using the equity method balance of the Corporation was zero, so the Company did not recognize income (loss) of the investment.
(iii) Significant transactions:None

(Continued)

216

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements

(14) Segment information:

(a) General information

Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. Specifically, the Group’s reportable segments under IFRS 8 “Operating Segments” were fertilizer and chemical and construction (rental is included).

(b) Reportable segment profit or loss, segment assets, segment liabilities, and their measurement and reconciliations

The Group uses the internal management report that the chief operating decision maker reviews as the basis to determine resource allocation and make a performance evaluation. The internal management report includes profit before taxation, excluding any extraordinary activity and foreign exchange gain or losses, because taxation, extraordinary activity and foreign exchange gains or losses are managed on a group basis, and hence they are not able to be allocated to each reportable segment. In addition, not all reportable segments include depreciation and amortization of significant non-cash items. The reportable amount is similar to that in the report used by the chief operatin decision maker.

The operating segment accounting policies are similar to the ones described in Note 4 “Significant accounting policies” except for the recognition and measurement of pension cost, which is on a cash basis. The Group treated intersegment sales and transfers as third-party transactions. They are measured at market price.

The Group’s operating segment information and reconciliation were as follows:

For the year ended December 31, 2018	Fertilizer and chemical $ 10,309,886 2,596	Construction 1,556,898 13,663	Others 348,308 16,499	Adjustment and eliminations - (32,758)	Adjustment and eliminations - (32,758)	Total 12,215,092 -
External customer revenues Intersegment revenues Total revenue Net gains and losses of intersegment Other gains and losses Finance costs Share of profit of associates and joint ventures accounted for using equity method Other income Reportable segment profit or loss
	$ 10,312,482	1,570,561	364,807	(32,758)		12,215,092
	$ 1,210,626	138,551	(62,675)	-		1,286,502 428,707 (417) 1,078,031 156,797

					$ 2,949,620

(Continued)

217

TAIWAN FERTILIZER CO., LTD. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

For the year ended December 31, 2017	Fertilizer and chemical $ 9,512,310 -	Construction 1,770,950 14,035	Others 375,726 2,085	Adjustment and eliminations - (16,120)	Adjustment and eliminations - (16,120)	Total 11,658,986 -
External customer revenues Intersegment revenues Total revenue Net gains and losses of intersegment Other gains and losses Finance costs Share of profit of associates and joint ventures accounted for using equity method Other income Reportable segment profit or loss Reportable segment assets December 31, 2018 December 31, 2017 Reportable segment liabilities December 31, 2018 December 31, 2017
	$ 9,512,310	1,784,985	377,811	(16,120)		11,658,986
	$ 980,630	342,291	(94,983)	-		1,227,938 (208,886) (555) 617,003 198,553
	$ 21,782,807	54,189,692	461,393
					$ 1,834,053
	$ 19,865,770	53,792,611	1,501,111	(2,601) 75,156,891
	$ 5,693,642	19,867,377	59,982	(4,230) 25,616,771
	$ 5,604,178	20,390,728	72,134	(2,601) 26,064,439

(c) Geographic information

The revenue-generating units of the Group were mainly in Republic of China. Thus, the disclosure of geographical information was not required.

(d) Major customer

The Corporation and its subsidiaries had no sales to a single customer that were at least 10% of total sales in 2018 and 2017.

218

V. The most recent annual individual financial report

Independent Auditors’ Report

To the Board of Directors of TAIWAN FERTILIZER CO., LTD.:

Opinion

We have audited the financial statements of TAIWAN FERTILIZER CO., LTD.(“the Company”), which comprise the Balance Sheets as of December 31, 2018 and 2017, and the statement of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to Other Matter paragraph), the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018 and 2017, and its financial performance and its cash flows for the year ended December 31, 2018 and 2017 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters that, in our professional judgment, should be communicated are as follows:

Impairment assessment of investments in equity method (including goodwill and intangible assets with an indefinite useful life)

Please refer to notes 4(h), 5 and 6(i) of the notes to the recognition of impairment assessment of investments accounted for by the equity method, assumptions used and uncertainties considered in determining investments accounted for by the equity method, investments for impairment loss and obsolescence and balances of impairment loss and obsolescence, respectively.

219

Key audit matters:

As described in Note 6(i) of the accompanying financial statements, the Company acquired control over Taiwan Yes Deep Ocean Water Co., Ltd. (“ Taiwan Yes” ) on January 7, 2013, which was accounted for as acquisition using the equity method (including the goodwill and trademark with indefinite useful lives). In accordance with IAS 36 “Impairment of Assets”, goodwill and intangible assets with indefinite useful lives should be tested for impairment annually; and based on the estimated future cash flows of Taiwan Yes (the cash-generating unit), the recoverable amount was evaluated in order to determine whether there is any impairment of the aforementioned investment accounted for by using the equity method (including the goodwill and intangible assets with indefinite useful lives). Since the estimated future cash flows requires management’s forecasting of the industry overview and the future operating performance of Taiwan Yes, should the situation change, the recoverable amount will be affected and an impairment loss will be incurred. Therefore, the impairment assessment of equity-method investments has been identified as a key audit matter.

How the matter was addressed in our audit:

Our principal audit procedures included confirming whether the management have properly assessed the recoverability of goodwill based on the forecasted cash flows within the following 5 years, wherein the assessment have been reviewed by the competent authority; and verifying whether the management has disclosed the impairment of goodwill in the financial statements on a timely manner after identifying such circumstance. In addition, we also assessed the adequacy of the forecasting methods and the discount rate used by the management, and compared the discount rate with external information; verified the management’s assumptions with external relevant information, and evaluated the major assumptions (including the forecast revenue growth rate, discount rate and forecast margin).

Other Matter

We did not audit the financial statements as of and for the years ended December 31, 2018 and 2017, of certain investees in equity method. Those statements were audited by other auditors, whose reports have been furnished to us. Our opinion, insofar as it relates to the amounts included in the Corporation’s financial statements for these investees, is based solely on the reports of the other auditors. As of December 31, 2018 and 2017, the investments in the aforementioned investees are 13.16% and 12.70% ($10,048,780 thousand and $9,538,520 thousand), of the Corporation’s total assets. For the years ended December 31, 2018 and 2017, the investment income on the above said investees are 37.08% and 34.24% ($1,093,334 thousand and $622,846 thousand) of the Corporation’s income before income tax.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs, IASs, interpretation as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

220

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit.

221

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Kuo-Yang Tseng and LIN/HENGSHEN.

KPMG

Taipei, Taiwan (Republic of China) March 28, 2019

Notes to Readers

The accompanying parent company only financial statements are intended only to present the statement of financial position, financial performance and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally accepted and applied in the Republic of China.

The independent auditors’ report and the accompanying parent company only financial statements are the partial English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language independent auditors’ report and parent company only financial statements, the Chinese version shall prevail.

222

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD.

Balance Sheets

December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

December 31, 2018 Amount % $ 2,213,249 3 1,806,574 2 100,764 - - - 181,767 - 1,092,070 1 - - 7,821 - 2,763,061 4 530,123 1 3,280,364 4 1,475 -	December 31, 2018	December 31, 2018
	Amount	%
	1,915,349 2 2,163,017 3
	223,648 - 223,648 - 7,218,478 10 7,014,086 9 15,799,704 21 16,173,803 22 114,247 - 112,063 - 274,990 - 309,813 -
11,977,268 15
	25,546,416 33 25,996,430 34
1,764,692 2 - - 30,729 - - - 12,478,435 16 13,419,677 18 35,145,424 47 22,679 - 153,317 - 207,880 - 9,000 - 1,108,012 2 12,249 -
	9,800,000 13 9,800,000 13 2,243,635 3 2,232,791 3 2,963,022 4 3,683,109 5 31,234,687 41 31,449,960 42 3,228,945 4 1,961,271 3 1,312,657 2 (34,679) -
	50,782,946 67 49,092,452 66
64,352,094 85
$ 76,329,362 100	$ 76,329,362 100 75,088,882 100

See accompanying notes to parent company only financial statements.

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Chairman: Hsinhong, Kang

President: Yaohsing Huang

Financial Dept. Head: Meiling Huang

223

Statements of Comprehensive Income

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD.

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Common Share)

2018	% 100 (77)	2017	% 100 (78)
Amount $ 11,928,000 (9,226,156)		Amount 11,346,419 (8,802,286)
2,701,844	23	2,544,133	22
(239,434) (1,092,592) (77,477)	(2) (9) (1)	(194,857) (991,134) (82,267)	(2) (9) (1)
(1,409,503)	(12)	(1,268,258)	(12)
1,292,341	11	1,275,875	10
151,201 506,679 - 998,373	1 5 - 8	193,867 (173,163) (4) 522,375	2 (2) - 5
1,656,253	14	543,075	5
2,948,594 667,275	25 6	1,818,950 199,824	15 2
2,281,319	19	1,619,126	13
(5,185) 257,300 4,735 4,385	- 2 - -	(39,159) - 6,282 6,658	- - - -
261,235	2	(26,219)	-
- 329,715 (73,324)	- 3 (1)	49,729 (818,037) 138,575	- (7) 1
256,391	2	(629,733)	(6)
517,626	4	(655,952)	(6)
$ 2,798,945	23	963,174	7
$	2.33		1.65
$	2.32		1.65

See accompanying notes to parent company only financial statements.

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Chairman: President: Hsinhong, Kang Yaohsing Huang

Financial Dept. Head: Meiling Huang

224

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese)

TAIWAN FERTILIZER CO., LTD.

Statements of Changes in Equity For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Share capital		Retained earnings	Retained earnings			Total other equity interest	Total other equity interest
					Exchange differences on translation of foreign financial statements	Unrealized gains (losses) on financial assets measured at fair value through other comprehensive income	Unrealized gains (losses) on available-for-s ale financial assets	Total other equity interest
Ordinary shares	Legal reserve	Special reserve	Unappropriate d retained earnings	Total retained earnings
$ 9,800,000 2,232,791 3,683,109 33,590,309 286,015 37,559,433 532,135 -
- - - - 1,619,126 1,619,126 - - - - - - (26,219) (26,219) (679,462) -							- - 1,619,126 49,729 (629,733) (655,952)
- - - - 1,592,907 1,592,907 (679,462) -							49,729 (629,733) 963,174
- - - - (2,058,000) (2,058,000) - - - - - (2,030,304) 2,030,304 - - - - - - (110,045) 110,045 - - -							- - (2,058,000) - - - - - -
9,800,000 2,232,791 3,683,109 31,449,960 1,961,271 37,094,340 (147,327) - 112,648 (34,679) 49,092,452 - - - - 105,060 105,060 - 946,293 (112,648) 833,645 938,705
9,800,000 2,232,791 3,683,109 31,449,960 2,066,331 37,199,400 (147,327) 946,293 - 798,966 50,031,157
- - - - 2,281,319 2,281,319 - - - - 2,281,319 - - - - 3,935 3,935 256,391 257,300 - 513,691 517,626
- - - - 2,285,254 2,285,254 256,391 257,300 - 513,691 2,798,945
- - 161,913 - (161,913) - - - - - - - - (882,000) - (1,176,000) (2,058,000) - - - - (2,058,000) - - - (215,273) 215,273 - - - - - - - 10,844 - - - - - - - - 10,844
$ 9,800,000 2,243,635 2,963,022 31,234,687 3,228,945 37,426,654 109,064 1,203,593 - 1,312,657 50,782,946

See accompanying notes to parent company only financial statements.

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President: Yaohsing Huang

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Financial Dept. Head: Meiling Huang

Chairman: Hsinhong, Kang

225

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD.

Statements of Cash Flows For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation expense Amortization expense Net loss (gain) on financial assets or liabilities at fair value through profit or loss Interest expense Interest income Dividend income Share of loss (profit) of subsidiaries,associates and joint ventures accounted for using equity method Loss (gain) on disposal of property, plan and equipment Property, plan and equipment transferred to expenses Loss (gain) on disposal of investment properties Loss (gain) on disposal of investments Loss (gain) on disposal of investments accounted for using equity method Unrealized foreign exchange loss (gain) Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in notes receivable Decrease (increase) in accounts receivable Decrease (increase) in other receivable Decrease (increase) in inventories Decrease (increase) in prepayments Decrease (increase) in other current assets Decrease (increase) in other financial assets Decrease (increase) in deferred debits Changes in operating liabilities: Increase (decrease) in contract liabilities Increase (decrease) in notes payable Increase (decrease) in accounts payable Increase (decrease) in other payable Increase (decrease) in receipts in advance Increase (decrease) in other current liabilities Increase (decrease) in net defined benefit liability Increase (decrease) in deferred credits Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes refund (paid) Net cash flows from (used in) operating activities	2018 $ 2,948,594 807,736 83,470 32,071 - (79,568) (51,483) (998,373) 1,880 11,506 (754,449) - - (424) - 231,880	2017 1,818,950 721,182 84,514 - 4 (80,169) (43,562) (522,375) (101,610) 8,731 24,569 (21,788) (24,562) - 861 241,381
	(715,754)	287,176
	(151,497) 432,328 16,859 (236,290) (167,739) (13,472) - 105,980 (49,536) (436) (437,891) 121,542 (20,225) (32) (3,001) (374,099)	334,853 (229,837) (13,322) (63,693) (128,696) - (19,858) 71,630 - (6,454) 323,415 71,515 61,715 16,729 (21,449) (410,848)
	(763,678)	34,623
	(777,509)	(14,300)
	(1,493,263)	272,876
	1,455,331 80,098 739,069 - (350,246)	2,091,826 78,976 474,037 (4) (67,282)
	1,924,252	2,577,553

226

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD.

Statements of Cash Flows (CONT ’ D)

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars)

Cash flows from (used in) investing activities: Proceeds from capital reduction of financial assets at fair value through other comprehensive income Acquisition of financial assets at amortised cost Acquisition of financial assets designated at fair value through profit or loss Proceeds from disposal of financial assets designated at fair value through profit or loss Acquisition of available-for-sale financial assets Proceeds from disposal of available-for-sale financial assets Proceeds from capital reduction of financial assets at cost Acquisition of investments accounted for using equity method Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease in refundable deposits Acquisition of intangible assets Acquisition of investment properties Proceeds from disposal of investment properties Decrease in other financial assets Decrease in other non-current assets Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Decrease in guarantee deposits received Cash dividends paid Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period	2018 17,927 - (5,010,000) 5,212,116 - - - (1,550,000) (502,490) 392 103,987 (4,500) (1,555,200) 1,270,109 2,642,296 2,079	2017 - (150,000) - - (2,205,305) 3,311,788 52,683 (408,260) (404,867) 132,263 (95,198) - (1,293,562) 68,471 1,287,140 -
	626,716	295,153
	(34,823) (2,058,000)	(7,376) (2,058,000)
	(2,092,823)	(2,065,376)
	458,145 1,755,104	807,330 947,774
	$ 2,213,249	1,755,104

See accompanying notes to parent company only financial statements.

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Chairman: Hsinhong, Kang

President: Yaohsing Huang

Financial Dept. Head: Meiling Huang

227

(English Translation of Parent Company Only Financial Statements Originally Issued in Chinese) TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

For the years ended December 31, 2018 and 2017

(Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

(1) Company history

TAIWAN FERTILIZER CO., LTD. (the “Company”). was incorporated in May 1946. The Company’s registered office address is located at 6F, No. 88, Nanjing E. Rd., Sec.2, Taipei, 10457, Taiwan. The Company and its subsidiaries (together referred to as the “Group” ) manufactures and sells inorganic and organic fertilizers and other chemical products. The Group also constructs and leases real estate

(2) Approval date and procedures of the financial statements:

The accompanying financial statements were authorized for issue by the Board of Directors on March 28, 2019.

(3) New standards, amendments and interpretations adopted:

(a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018.

Effective date
per IASB

January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2017
January 1, 2018
January 1, 2018

(Continued)

228

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of signification changes are as follows:

(i) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces the existing revenue recognition guidance, including IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The Company applies this standard retrospectively with the cumulative effect, it need not restate those contracts, but instead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparative reporting period. The Company recognizes the cumulative effect upon the initially application of this Standard as an adjustment to the opening balance of retained earnings on January 1, 2018.

The following are the nature and impacts on changing of accounting policies:

1) Sales of goods

For the sale of A products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. The Company assessed that the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer is similar to the point in time at which a customer obtains control of goods. Based on its assessment, the Company does not expect the application of IFRS 15 to have any significant impact on its consolidated financial statements.

2) Advance Real Estate Receipts

As of advance receipts, the current guidelines do not stipulate whether there is any interest needs for them to be calculated. Under International Financial Reporting Standard No. 15 , it is stipulated that advance receipts should be assessed as to whether there is a significant financial component in order to adjust the amount of the promised consideration to reflect the impact of the time value of money. Based on the assessment, the Company does not expect the application of IFRS 15 to have any significant impact on its consolidated financial statements.

(Continued)

229

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

3) Impacts on financial statements

The following tables summarize the impacts of adopting IFRS15 on the Company’s financial statements:

December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018	December 31, 2018
Balances prior to the adoption of IFRS 15	Impact of changes in accounting policies 167,130 (167,130)	Balance upon adoption of IFRS 15	Balances prior to the adoption of IFRS 15	Impact of changes in accounting policies 215,683 (215,683)
$ - 171,219		167,130 - 4,089 240,980
	-			-

For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (48,553) (48,553) (69,761) 48,553 (21,208) $ -	For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (48,553) (48,553) (69,761) 48,553 (21,208) $ -	For the year ended December 31, 2018 Before adjustments Impact of changes in accounting polices After adjustments $ - (48,553) (48,553) (69,761) 48,553 (21,208) $ -
Before adjustments		Impact of changes in accounting polices (48,553) 48,553
$ - (69,761)
	$ -

(ii) IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting.

As a result of the adoption of IFRS 9, the Company adopted the consequential amendments to IAS 1 “Presentation of Financial Statements” which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Company’s approach was to include the impairment of trade receivables in administrative expenses. Additionally, the Company adopted the consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2018 but generally have not been applied to comparative information.

(Continued)

230

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

The detail of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below:

1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Company classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note 4(f).

The adoption of IFRS 9 did not have any a significant impact on its accounting policies on financial liabilities.

2) Impairment of financial assets

3) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,

‧Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.
‧The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.
－ The determination of the business model within which a financial asset is held.
－ The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.
－ The designation of certain investments in equity instruments not held for trading as at FVOCI.

(Continued)

231

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

‧If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Company assumed that the credit risk on its asset will not increase significantly since its initial recognition.
4) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets as of January 1, 2018.

Financial Assets Cash and equivalents Debt securities Equity instruments Other financial assets (Guarantee deposits paid) Other financial assets (Guarantee deposits paid)	IAS39		IFRS9	Carrying Amount 1,755,104 2,040,761 30,305 141,254 1,484,830 1,893,738 5,931,660
	Measurement categories Loans and receivables Available-for-sale financial assets (note 1) Available-for-sale (note 2) Available-for-sale financial assets (note 3) Financial assets measured at cost (note 3) Loans and receivables Loans and receivables	Carrying Amount

Note1: The corporate debt securities are categorized as available-for-sale under IAS 39. The Company assesses that these securities are held within a business model whose objective is achieved by selling securities. The Company has identified certain securities which are managed separately, and for which the past practice has been held to collect the contractual cash flows. Consequently, the Company has designated these investments at the date of initial application as fair value through profit or loss. The carrying amount of the assets increased $2,040,761 thousand, other equity items decreased $15,762 thousand, and $15,762 thousand was recognized in opening retained earnings upon transition to IFRS 9 on January 1, 2018.
Note2: The corporate debt securities are categorized as available-for-sale under IAS 39. The Company assesses that these securities are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling securities. The Company has identified certain securities which are managed separately, and for which the past practice has been held to collect the contractual cash flows. Consequently, the Company has designated these investments at the date of initial application as measured at amortized cost.

(Continued)

232

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

Note3: These equity securities (including financial assets measured at cost) represent investments that the Company intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Company has designated these investments at the date of initial application as measured at FVOCI. Accordingly, an increase of $937,931 thousand in those assets recognized, and the increase of $848,633 thousand and $89,298 thousand in other equity items and retained earnings were recognized on January 1, 2018.
Note4: The company's notes receivables, account receivables and other receivables classified as loans and receivables under IAS 39 were classified as financial assets measured at amortized cost under IFRS 9.

The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on 1 January, 2018.

2017.12.31 IAS 39 Carrying Amount $ -	Reclassifications 2,040,761	Remeasurements -	2018.1.1 IFRS 9 Carrying Amount	2018.1.1 Retained earnings 15,762	2018.1.1 Other equity (15,762)
$ -	2,040,761	-	2,040,761	15,762	(15,762)
$ 2,758,445 - - -	- - (2,040,761) (29,531)	- 937,931 - -		- 89,298 - -	- 848,633 - -
$ 2,758,445	(2,070,292)	937,931	1,626,084	89,298	848,633
$ 9,580,502 -	- 29,531	- 774		- -	- 774
$ 9,580,502	29,531	774	9,610,807	-	774

From available-for-sale to amortized cost Fair value as of December 31, 2018 Fair value gain/loss that would have been recognized during the year if the financial asset had not been reclassified	For the year ended December 31, 2018 29,522 (9)

From designated at fair value through profit or loss (IAS39) to amortized cost

(Continued)

233

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(b) The impact of IFRS endorsed by FSC but not yet effective

Effective date
per IASB

January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

(i) IFRS 16“Leases”

1) Determining whether an arrangement contains a lease

On transition to IFRS 16, the Company can choose to apply either of the following:

‧ IFRS 16 definition of a lease to all its contracts; or
‧ a practical expedient that does not need any reassessment whether a contract is, or contains, a lease.

The Company plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

(Continued)

234

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

2) Transition

As a lessee, the Company can apply the standard using either of the following:

‧ retrospective approach; or
‧ modified retrospective approach with optional practical expedients.

On January 1, 2019, the Company plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Company chooses to elect the following practical expedients:

  - ‧ apply a single discount rate to a portfolio of leases with similar characteristics.

  - ‧ apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application.

  - ‧ exclude the initial direct costs from measuring the right-of-use assets at the date of initial application.

  - ‧ use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

3) So far, the most significant impact identified is that the Company will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Company estimated that the right-of-use assets and the lease liabilities to increase by $1,321,932 thousand and $213,921 thousand respectively, as well as the retained earnings to decrease by $0 thousand on January 1, 2019. No significant impact is expected for the Company’s finance leases. Besides, The Company does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. Also, the Company is not required to make any adjustments for leases where the Company is the intermediate lessor in a sub-lease.
(ii) IFRIC 23 Uncertainty over Income Tax Treatments

(Continued)

235

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

So far, based on the assessment, the Company does not expect the application of IFRS 15 to have any significant impact on its consolidated statement.

The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future.

As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC:

Those which may be relevant to the Company are set out below:

Issuance / Release Standards or Dates Interpretations Content of amendment September 11, 2014 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture.

(Continued)

236

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

The Company is evaluating the impact on its financial position and financial performance upon the initial adoption of the abovementioned standards or interpretations. The results thereof will be disclosed when the Company completes its evaluation.

(4) Summary of significant accounting policies:

The following significant accounting policies have been applied consistently to all periods presented in the non-consolidated financial statements.

(a) Statement of compliance

These financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as “the Regulations”).

(b) Basis of preparation
(i) Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following material items in the balance sheets：

1) Financial instruments measured at fair value through profit or loss are measured at fair value；
2) Fair value through other comprehensive income (available for sale) financial assets are measured at fair value; and
3) The net defined benefit liability is recognized as the present value of the defined benefit obligation less the fair value of plan assets.
(ii) Functional and presentation currency

(c) Foreign currency

(i) Foreign currency transaction

(Continued)

237

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following accounts which are recognized in other comprehensive income:

1) Available-for-sale equity investment;
2) A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective.
(ii) Foreign operations

(d) Classification of current and non-current assets and liabilities

An asset is classified as current when:

(i) It is expected to be realized, or intended to be sold or consumed, during the normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) It is expected to be realized within twelve months after the reporting period; or

(Continued)

238

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iv) The asset is cash and cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is classified as current when:

(i) It is expected to be settled during the Company in its normal operating cycle;
(ii) It is held primarily for the purpose of trading;
(iii) The liability is due to be settled within twelve months after the reporting period; or
(iv) It does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by issuing equity instruments do not affect its classification.

All other liabilities are classified as non-current.

(e) Cash and cash equivalents

(f) Financial instruments
(i) Financial assets (policy applicable from January 1, 2018)

Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).

The Company shall reclassify all affected financial assets only when it changes its business model for managing its financial assets.

1) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

‧it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

(Continued)

239

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

2) Fair value through other comprehensive income (FVOCI )

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

‧it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
‧iits contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

Dividend income derived from equity investments is recognized on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

3) Fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets and accounts receivable (except for those presented as accounts receivable but measured at FVTPL). On initial recognition, the Company may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

(Continued)

240

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

4) Impairment of financial assets

The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable and contract assets.

The Company measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL:

‧debt securities that are determined to have low credit risk at the reporting date; and

‧other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Company’s historical experience and informed credit assessment as well as forward-looking information.

The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

(Continued)

241

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data:

‧significant financial difficulty of the borrower or issuer;
‧a breach of contract such as a default or being more than 180 days past due;
‧the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider;
‧it is probable that the borrower will enter bankruptcy or other financial reorganization; or
‧the disappearance of an active market for a security because of financial difficulties.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Company recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

5) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a debt instrument in its entirety, the Company recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income.

(Continued)

242

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(ii) Financial assets (applicable from January 1, 2018)

The financial assets of the Company are classified in available for sale financial assets and loan and receivables.

1) Available for sale financial assets

Dividend income is recognized in profit or loss on the date when the Company’s right to receive payment is established, which in the case of quoted securities is normally the exdividend date. Such dividend income is included in the nonoperating income and expenses.

Interest income from investment in bond security is recognized in profit or loss, under other income of nonoperating income and expenses.

2) Loans and receivables

(Continued)

243

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

Interest income is recognized in profit or loss, under other income.

3) Impairment of financial assets

Reclassify the gains and impairment losses which were previously recognized in other comprehensive income to profit or loss when an impairment incurred.

(Continued)

244

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Impairment losses and recoveries are recognized in profit or loss, under “other gains and losses, net”.

4) Derecognition of financial assets

(iii) Financial liabilities and equity instruments
1) Classification of debt or equity instruments

Debt or equity instruments issued by the Company are classified as financial liabilities or equity instruments in accordance with the substance of the contractual agreement.

(Continued)

245

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

2) Other financial liabilities

3) Other financial liabilities

4) Offsetting of financial assets and liabilities

5) Financial guarantee contract

(g) Inventories

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost, of completino and selling expenses.

(Continued)

246

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(h) Subsidiaries

The subsidiaries in which the Company holds controlling interest are accounted for under equity method in the nonconsolidated financial statements. Under equity method, the net income, other comprehensive income and equity in the nonconsolidated financial statement are the same as those attributable to the owners of parent in the consolidated financial statements.

The changes in ownership of the subsidiaries that did not resule in the Company’s loss of control.are recognized as equity transaction.

(i) Investment in associates

Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies.

The financial statements include the Company’s share of the profit or loss and other comprehensive income of equityaccounted investees, after adjustments to align their accounting policies with those of the Company, from the date that significant influence commences until the date that significant influence ceases.

When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Company’s ownership percentage of the associate, the Company recognizes the Company’s share of change in equity of the associate in capital reserves in proportion to its ownership.

Unrealized profits resulting from the transactions between the Company and an associate are eliminated to the extent of the Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired.

When the Company’s share of losses exceeds its interest in an associate, the carrying amount of the investment, including any longterm interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the associate.

(j) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of a self-constructed asset comprises material, labor, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that eligible for capitalization. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating.

(Continued)

247

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(ii) Subsequent cost

Subsequent expenditure is capitalized only when it is probable that future economic benefits associated with the expenditure will flow to the Company. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance is expensed as incurred.

(iii) Depreciation

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

Buildings 33 ～ 60years Machine 3 ～ 40years Instrument equipment 3 ～ 15years

Miscellaneous equipment 3 ～ 15years

Item Buildings: Leasehold improvements and others Buildings, warehouses, storage sheds	Useful lives 3～15 years 16～60 years	Item Machine: Production equipment Storage tanks, power transmission systems, etc.	Useful lives
			3～15 years 16～40 years

(Continued)

248

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iv) Reclassification as investment property

A property is reclassified to investment property at its carrying amount when the use of the property changes from owneroccupied to investment property.

(k) Investment property

An investment property is reclassified to property, plant and equipment at its carrying amount when the purpose of the investment property has been changed from investment to owner-occupied.

(l) Leased assets
(i) Lessor

Contingent rents are recognized as income in the period when the lease adjustments are confirmed.

(ii) Lessee

Other leases are accounted for operating leases and the lease assets are not recognized in the Company’s nonconsolidated balance sheets.

Contingent rent is recognized as expense in the periods in which they are incurred.

(Continued)

249

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(m) Intangible assets

(i) Other Intangible Assets

Other intangible assets that are acquired by the Company are measured at cost less accumulated amortization and any accumulated impairment losses.

(ii) Subsequent Expenditure

(iii) Amortization

Depreciable amount of intangible asset is calculated based on the cost of an asset less its residual values.

Computer software cost 5 years Customer relationships 10 years Patent 7~8 years

(n) Impairment – Non financial assets

The Company assesses non-financial assets for impairment (except for inventories, deferred income tax assets and employee benefits) at every reporting date, and estimates its recoverable amount.

The recoverable amount for an individual asset or a CGU is the higher of its fair value less costs to sell and its value in use.

(Continued)

250

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

If, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Such is deemed as an impairment loss, which is recognized immediately in profit or loss.

(o) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and an outflow of economic benefits is possibly required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

(p) Revenue Recognition
(i) Revenue from contracts with customers

Revenue is measured based on the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Company’s main types of revenue are explained below.

1) Sale of goods

The Company manufactures and sells fertilizer products to market. The Company recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied.

2)
Land development and sale of real estate

The Company develops and sells residential properties and usually sales properties in advance during construction or before construction begins. Revenue is recognized when control over the properties has been transferred to the customer. The properties have generally no alternative use for the Company due to contractual restrictions. However, an enforceable right to payment does not arise until legal title of a property has passed to the customer. Therefore, revenue is recognized at a point in time when the legal title has passed to the customer.

(Continued)

251

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

3) Financing components

The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money.

(ii) Revenue Recognition (policy applicable before January 1, 2018)
1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Corporation has transferred to the buyer the significant risks and rewards of ownership of the goods;
b) The Corporation retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
c) The amount of revenue can be measured reliably;
d) It is probable that the economic benefits associated with the transaction will flow to the Corporation; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

(Continued)

252

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

2) Dividend and interest income

(q) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(ii) Defined benefit plans

The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss immediately.

(Continued)

253

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iii) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for a defined benefit plan except that remeasurement is recognized in profit or loss.

(iv) Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Company’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Company recognises expense when it can no longer withdraw an offer of termination benefits or it recognises related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after the balance sheet date shall be discounted to their present value.

(v) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

(r) Income Taxes

(i) Assets and liabilities that are initially recognized from non-business combination transactions, with no effect on net income or taxable gains (losses).

(Continued)

254

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(ii) Temporary differences arising from equity investments on subsidiaries or joint ventures, where there is a high probability that such temporary differences will not reverse.
(iii) Initial recognition of goodwill.

Deferred taxes are measured based on the statutory tax rate on the reporting date or the actual legislative tax rate during the year of expected asset realization or debt liquidation.

Deferred tax assets and liabilities may be offset against each other if the following criteria are met:

(i) if the entity has the legal right to settle tax assets and liabilities on a net basis; and
(ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios:
1) levied by the same taxing authority; or
2) levied by different taxing authorities, but where each such authority intend to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation; or where the timing of asset realization and debt liquidation is matched.

(s) Earnings per share

Disclosures are made of basic and diluted earnings per share attributable to ordinary equity holders of the Company. The basic earnings per share is calculated based on the profit attributable to the ordinary shareholders of the Company divided by weighted average number of ordinary shares outstanding. The diluted earnings per share is calculated based on the profit attributable to ordinary shareholders of the Company, divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all potentially dilutive ordinary shares, such as remuneration of employees and employee stock options.

(t) Operating segments

(Continued)

255

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty:

The preparation of the financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

Significant judgments are involved. There is no material impact on recognized amounts for financial report.

Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is as follows:

(a) Impairment assumptions of carrying amounts of subsidiaries.

The assessment of impairment of subsidiaries requires the Company to allocate the subsidiaries' CGUs to the recoverable amount. To calculate the recoverable amount of relevant CGUs, the management should use the appropriate discount rate for calculating the present value to estimate the future cash flow of CGUs . If the actual cash flow less than expectation, the Company would have significant impairment loss.

Regarding assumptions and estimation uncertainties, valuation has a significant risk of resulting in a material adjustment within the next financial year as following:

The Company’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss. The Company’s financial instrument valuation group conducts independent verification on fair value by using data sources that are independent, reliable, and representative of exercise prices. This financial instrument valuation group also periodically adjusts valuation models, conducts back testing, renews input data for valuation models, and makes all other necessary fair value adjustments to assure the rationality of fair value.

The Company strives uses the market observable inputs when measuring its assets and liabilities.

(a) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.
(b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
(c) Level 3: inputs for the assets or liability that are not based on observable market data.

Please refer to notes listed below for assumptions used in measuring fair value.

For any transfer within the fair value hierarchy, the impact of the transfer is recognized on the reporting date. Please refer to Note 6(w), Financial instruments for assumptions used in measuring fair value.

(Continued)

256

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(6) Explanation of significant accounts:

(a) Cash and cash equivalents

Cash on hand Demand deposits and checking accounts Time deposits with original maturities less than 3 months Cash and cash equivalents	December 31, 2018 $ 2,126 442,798 1,768,325 $ 2,213,249	December 31, 2017
		2,220 376,864 1,376,020 1,755,104

(i) Time deposits with original maturity of more than 3 months are recorded as other financial assets, and are classified as non-current if their maturities exceed one year, and as follow.

Other current financial assets Other non current financial assets	December 31, 2018 $ 3,280,364 9,000	December 31, 2017
		5,918,160 13,500
	$ 3,289,364	5,931,660

(ii) Refer to Note 6(w) for the fair value sensitivity analysis and interest rate risk of the financial assets and liabilities of the Group.

(b) Financial assets and liabilities at fair value through profit or loss

Mandatorily measured at fair value through profit or loss Non-derivative financial assets Beneficiary certificate	December 31, 2018 $ 1,806,574

Please refer to note 6(v) for the amount of remeasurement fair value through profit or loss.

Equity investments at fair value through other comprehensive income Stock listed on domestic markets Stock unlisted on domestic markets Total	December 31, 2018 $ 100,764 1,764,692
	$ 1,865,456

(Continued)

257

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(i) Equity investments at fair value through other comprehensive income

On January 1, 2018, the Company designated the investments shown above as equity securities as at fair value through other comprehensive income because these equity securities represent those investments that the Company intends to hold for long-term for strategic purposes. These investments were classified as available-for-sale financial assets and financial assets measured at cost on December 31, 2017.

During the years ended December 31, 2018, the dividends of $51,483 thousand, related to equity investments at fair value through other comprehensive income held on December 31, 2018, were recognized.

A resolution was passed during the provisional meeting of shareholders by Eminent Venture Capital Corporation , one of the financial assets measured at fair value through other comprehensive income by the Group. held on 1 March 2018, for capital reduction. The Group received the refund of the shares for $15,000 thousand.

(ii) For credit risk, please refer to note 6(w).
(iii) Financial assets at fair value through other comprehensive income of the Company had not been pledged as collateral for long-term borrowings.
(d) Financial assets measured at amortized cost

Financial assets measured at amortized cost
Foreign government bonds Less : Loss allowance Total	December 31, 2018 $ 30,729 -
	$ 30,729

The Company has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost on January 1, 2018.

(i) For credit risk, please refer to note 6(x).
(ii) Financial assets measured at amortized costs of the Company had not been pledged as collateral for long-term borrowings.

(Continued)

258

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(e) Financial asset
(i) Listed as follows:

Available-for-sale financial assets - current Stock listed on domestic markets Beneficiary Certificate Total Available-for-sale financial assets – current – Non current Bond investments Financial assets measure at cost – Non current domestic Unlisted common shares. Stock unlisted on domestic markets Total	December 31, 2017 $ 141,254 2,040,761
	2,182,015
	29,531
	546,899
	$ 2,758,445

(ii) For the classification from available-for-sale financial assets to financial assets at fair value through profit and loss, to through other comprehensive income, or to measured at amortized cost. Please refer to note 6(b), (c) (d), and(w).
(iii) The aforementioned investments held by the Company were measured at amortized cost as of December 31, 2017, given the range of reasonable fair value estimates is large and the probability for each estimate cannot be reasonably determined; therefore, the Company management had determined that the fair value cannot be measured reliably. These investments were classified as financial assets at fair value through other comprehensive income or at fair value through profit or loss on December 31, 2018.
(iv) A resolution was passed during the interim meeting of shareholders by Eminent Venture Capital Corporation, one of the financial assets measured at amortized cost by the Group, held on March 1, 2017 for capital reduction. The Company received the refund of the shares for $40,000 thousand.
(v) A resolution was passed during the general meeting of shareholders by Top Taiwan V Venture Capital Co., Ltd., one of the financial assets measured at amortized cost by the Group, held on June 1, 2017 for capital reduction. The Company received the refund of the shares for $12,683 thousand.
(vi) The Company invested Eminent III Venture Capital Corporation by joint venture agreement in November 1, 2017. The Company paid $150,000 thousand for shares.
(vii) For relevant risk of financial assets, please refer to Note 6(w).
(viii) As of December 31, 2017, financial assets measured at amortized costs of the Company had not been pleged as collateral for long-term borrowings.

(Continued)

259

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(f) Notes receivable, accounts receivable, long-term notes and accounts receivable

Notes receivables Notes receivables – Merchandise Real estate notes receivables Notes receivables Long-term notes receivables Accounts receivables Account receivables – Sales of goods Real estate notes receivables Less : Unrealized interest revenue Less : Loss allowance Account receivables Long-term receivables	December 31, 2018 December 31, 2017 $ 179,077 30,270 2,690 21,330
	$ 181,767 51,600
	$ 181,767 30,270 - 21,330
	$ 181,767 51,600
	$ 1,092,070 1,524,398 271,231 362,691 (63,351) (70,161) - -
	$ 1,299,950 1,816,928
	$ 1,092,070 1,524,398 207,880 292,530
	$ 1,299,950 1,816,928

The Company applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables on December 31, 2018. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information, including macroeconomic and relevant industry information. The loss allowance provision in Taiwan as of December 31, 2018 was determined as follows:

Current 1 to 30 days past due 31 to 60 days past due More than 60 days past due	Gross carrying amount	Expected loss rate 0%~0.01% 0%~0.56% 0%~0.89% 0%~1.09%		Loss allowance provision - - - -
	$ 1,286,470 5,379 3,757 4,344
	$ 1,299,950			-

(Continued)

260

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

As of December 31, 2017, the Company applies the incurred loss model to consider the loss allowance provision of notes and trade receivable, and the aging analysis of notes and trade receivable, which were past due but not impaired, was as follows:

Overdue 1 to 30 days Overdue 31 to 60 days Overdue over 61 days	December 31, 2017 $ 6,983 2,828 59,661
	$ 69,472

As of December 31, 2018, the total receivables from selling properties and lands were 273,921 thousand dollars, including receivables from installment sales 271,231 thousand dollars and notes receivables 2,690 thousand dollars. The receivables are expected to be collected for 26,036 thousand dollars and 248,885 thousand dollars, respectively.

(g) Other receivables

Other receivables Less : Loss allowance	December 31, 2018 $ 325,098 317,277	December 31, 2017 342,487 317,277
	$ 7,821	25,210

The movement in the allowance for other receivables was as follows.

Balance on January 1, 2018 and 2017 per IAS 39 Adjustment on initial application of IFRS 9 Balance on January 1, 2018 per IFRS9	For the years ended December 31, 2018		For the years ended December 31, 2017 Individually assessed impairment Collectively assessed impairment 317,277 -	For the years ended December 31, 2017 Individually assessed impairment Collectively assessed impairment 317,277 -
			Individually assessed impairment 317,277
	$ 317,277 -

	$ 317,277

Note: Ending balances in 2018 and 2017 were the same as the beginning balances in 2018 and 2017.

For the explanation of individually assessed impairment, please refers to note 7; for other credit risk information, please refers to note 6(x).

(Continued)

261

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(h) Inventories, construction in progress, land held for sale and receipts in advance

Raw materials Finished goods Merchandise Construction in progress Hsinchu land development project Others Buildings and land held for sale Nangang R5 Residential Project Others Receipts in advance Nangang R5 Residential Project	December 31, 2018 December 31, 2017 $ 1,217,241 1,085,692 607,433 502,374 266 583
	$ 1,824,940 1,588,649
	$ 644,783 - 91,997 -
	$ 736,780 -
	$ 201,341 201,341 - 30
	$ 201,341 201,341
	$ 76,212 117,171

The cost of inventories recognized as cost of goods sold and expense for the years ended December 31, 2018 and 2017, amounted to $8,462,583 thousand and $7,941,388 thousand, respectively. For the years ended December 31, 2018 and 2017, the write-down of inventories to net realizable value amounted to $0 and $0 thousand. The write-downs are included in cost of sales. Also, gains on inventory value recoveries amounted to $0 thousand, and losses on inventory valuation loss amounted to $0 thousand, are recognized due to inventory closeout in 2018 and 2017, respectively.

The Company reclassified portion of investment property to inventories because of alternation of use. Please refer to note 6(l).

(i) Investments accounted for using equity method

Subsidiaries Associates	December 31, 2018 $ 2,320,800 10,157,635	December 31, 2017 902,400 9,612,678
	$ 12,478,435	10,515,078

(i) Subsidiaries

Please refer to the consolidated financial report for the years ended December 31, 2018.

(Continued)

262

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(ii) The Company’s financial information for equity accounted investees at the reporting date was as follows:

Material associates Al-Jubail Fertilizer Company (“Al-Jubail”) Associates that are not individually material Bion Tech Inc. MITAGRI Co., Ltd.	December 31, 2018 $ 10,048,780 59,020 49,835	December 31, 2017 9,538,520 74,158 -
	$ 10,157,635	9,612,678

Associates that had materiality were as follows:

Associate	Nature of relationship	Country of registration	Equity ownership	Equity ownership
			December 31, 2018	December 31, 2017 50.00%
AI-Jabail Fertilizer Company	Equity-method investee	Kingdom of Saudi Arabia	50.00%

Summary financial information on AI-Jabail Fertilizer Company

Current assets Noncurrent assets Current liabilities Noncurrent liabilities Net assets Net assets attributable to non controlling interests Net assets attributable to investee owners	December 31, 2018 $ 7,407,740 16,754,241 (2,851,338) (681,275) $ 20,629,368 $ 10,106,777 10,522,591 $ 20,629,368	December 31, 2017 7,502,494 16,935,494 (2,476,055) (2,525,920)
		19,436,013
		9,577,196 9,858,817
		19,436,013

(Continued)

263

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Revenue Profit for the year Other comprehensive income Comprehensive income Comprehensive income attributable to non controlling interests Comprehensive income attributable to investee owners Dividends declared by Associates	For the years ended December 31 2018 2017 $ 10,833,406 9,656,637	For the years ended December 31 2018 2017 $ 10,833,406 9,656,637
	2,309,451 9,471	1,323,622 12,564
	$ 2,318,922	1,336,186
	$ 1,220,853	715,439
	$ 1,098,069	620,747
	$ 901,413	798,667

(iii) Taiwan Yes Deep Ocean Water Co., Ltd., which was accounted for as acquisition using the equity method, did not meet the expected operation performance taoget. The Company assessed the decrease of future cash inflow would cause the recoverable amount less than the bookl value. The Company recognized impairment loss $81,867 thousand and $31,714 thousand included in share of other compreensive income of subsidiaires, associates and joint ventures accounted for using equity method in statements of comprehensive income.

(iv) Collateral

As of December 31, 2018 and 2017, the investments in the aforesaid equity-accounted investees were not pledged as collateral.

(j) Loss of control of a subsidiary

In July 2017, The Company subscribed to the additional shares of MITAGRI Co., Ltd. at a percentage different from its existing ownership percentage, resulting in a decrease in its shareholding to 33.33%. In August, the directors and supervisors of MITAGRI Co., Ltd. were re-elected during the provisional meeting of the shareholders. Therefore, the Company no longer has any significant influence over MITAGRI Co., Ltd.; as a result, it excluded MITAGRI Co., Ltd. from its consolidated financial statements since September 1, 2017. The gain on disposal of the investment of $24,562 was included in “other gains and losses”.

The derecognition amount o investee's assets and liabilities as of August 30, 2017, were as follows:

Cash and cash equivalents (with capital increased by cash $168,260 thousands) Property, plant, and equipment Other current assets - others Other current assets - non-current Accounts payable and other accounts payable Book value of net assets of previous subsidiary	$ 208,360 5,602 3,211 1,580 (1,048)
	$ 217,705

(Continued)

264

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(k) Property, plant and equipment

The movements in the cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2018 and 2017 were as follows:

Land $ 3,652,778 - - -	Building and constructio n 3,073,003 12,284 (14,104) 533,689	Machinery and equipment 8,628,816 97,184 (31,537) 324,979	Transportation Equipment 74,463 1,991 (4,458) 12,685	Other Equipmen 378,713 8,124 (11,267) 33,538	Construction inprogress 994,072 376,369 - (874,202)	Total 16,801,845 495,952 (61,366) 30,689
$ 3,652,778	3,604,872	9,019,442	84,681	409,108	496,239	17,267,120
$ 16,175,333 1,194 (29,195) (12,494,554) -	3,183,398 6,998 (4,409) (196,399) 83,415	8,399,273 127,013 (8,250) (24,472) 135,252	65,056 8,390 (1,520) - 2,537	370,449 4,423 (990) (9,190) 14,021	1,060,175 282,758 - - (348,861)	29,253,684 430,776 (44,364) (12,724,615) (113,636)
$ 3,652,778	3,073,003	8,628,816	74,463	378,713	994,072	16,801,845
: $ - - - -	566,324 101,817 (13,508) (19,306)	2,352,144 591,910 (30,651) 28,930	45,961 7,598 (4,067) 5,217	114,473 28,649 (10,868) -	82,820 - - -	3,161,722 729,974 (59,094) 14,841
$ -	635,327	2,942,333	54,709	132,254	82,820	3,847,443
	542,599 91,247 (3,855) (63,667) -	1,870,427 560,198 (7,664) (1,817) (69,000)	42,576 7,822 (1,386) (15,601) 12,550	96,164 26,472 (840) (7,287) (36)	82,820 - - - -	2,634,586 685,739 (13,745) (88,372) (56,486)
$ -	566,324	2,352,144	45,961	114,473	82,820	3,161,722
$ 3,652,778	2,969,545	6,077,109	29,972	276,854	413,419	13,419,677
$ 3,652,778	2,506,679	6,276,672	28,502	264,240	911,252	13,640,123
$ 16,175,333	2,640,799	6,528,846	22,480	274,285	977,355	26,619,098

(i) The Company due to the partial replotting of the land and the planned change to the use of lease during this period, after the approval of the board of directors of the report, it was transferred to $19,165,912 under the investment property.
(ii) As of December 31, 2018 and 2017, the property, plant and equipment were not pledged as collateral.

(Continued)

265

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(l) Investment property

The Company for the Investment property were as follows:

Completed Investment Property $ 8,567,255 3,989 - - 2,427,432	Investment Property under Construction 7,251,084 1,549,451 - - (1,138,468)	Undeveloped Investment Property 19,887,453 - (736,750) (515,660) (1,287,206)	Undeveloped Investment Property 19,887,453 - (736,750) (515,660) (1,287,206)	Total 35,705,792 1,553,440 (736,750) (515,660) 1,758
$ 10,998,676	7,662,067	17,347,837		36,008,580
$ 8,346,540 3,827 216,888 -	6,426,206 821,762 3,116 -	7,045,536 399,463 12,535,494 (93,040)		21,818,282 1,225,052 12,755,498 (93,040)
$ 8,567,255	7,251,084	19,887,453		35,705,792
$ 136,700 59,288	41,048 18,474	607,646 -		785,394 77,762
$ 195,988	59,522	607,646		863,156
$ 30,424 17,904 88,372	23,509 17,539 -	607,646 - -		661,579 35,443 88,372
$ 136,700	41,048	607,646		785,394
$ 10,802,688	7,602,545	16,740,191		35,145,424
$ 8,430,555	7,210,036	19,279,807		34,920,398
$ 8,316,116	6,402,697	6,437,890		21,156,703
			$ 99,804,921
			$ 100,758,372
			$ 89,504,110

In 2017, the company was completed due to partial rezoning of land and transferred to investment real estate. Please refer to Note 6(k) for details. In the current period, the use of partial investment properties was changed and the change was approved by board of directors and transferred to inventories.

Completed investment property are located in C3/C6/C7/C8/C9 in the Nangang Economic and Trade Park, and the Corporation leased land use right to others.

(i) The main provisions of the C6/C7/C8/C9 contract on the pledging of land use rights were as follows:
1) Land use rights are for 50 years from the date of registration of these rights.

(Continued)

266

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

2) The land use rights (accounted for as deferred income-noncurrent) amounted to $3,200,889 thousand, which has been treated as royalty revenue (accounted for as operating revenue) amortizable over 50 years from June 13, 2006. As of December 31, 2018, 2017 and January 1, 2017, the unamortized balances of the land used rights under above mentioned contract were $2,397,999 thousand and $2,426,017 thousand, respectively.
3) In addition to the land use right, the annual rental payable by the lessee is 8% of the reference land price announced by the local government, with the calculation starting from the contract date. When the reference land price is adjusted, the annual rental will be revised at the percentage the same as that set on the date of the reference price adjustment. The annual rentals in 2018 and 2017 were $324,869 thousand and $331,327 thousand, respectively.
(ii) On September 15, 2015, the Corporation signed with CTBC Life Insurance Co., Ltd. and Taiwan Life Insurance Co., Ltd. (together, the “lessees”) separate contracts for these two insurance companies to have the rights to use land located in C3 in the Nangang Economic and Trade Park. The main provisions of these contracts are as follows:
1) Land use rights (LURs) are valid for 45 years from the date of the registration of these rights.
2) The LURs (accounted for as deferred income - noncurrent) amounted to $14,288,705 thousand, which has been treated as royalty revenue (under operating revenue) amortizable over 45 years from December 10, 2015. As of December 31, 2018, 2017 and January 1, 2016, the unamortized balance of the LURs were $13,318,484 thousand and $13,636,011 thousand, respectively.
3) In addition to the LURs, the annual rental payable by the lessees is 0.8% of the reference land price announced by the local government, with the calculation starting from the registration date. When the reference land price is adjusted, the annual rental will be revised at the same percentage as the rate of the reference price adjustment. The lessees’ annual rental in 2018 and 2017 were $45,009 thousand and $48,149 thousand.
4) After nine years and six months from the registration date, the lessees have within six months to extend the validity period for the land use rights to another 40 years by giving a written notice to the Corporation. With this extension, the entire validity period of the LURs will be 85 years, and the lessees should pay an additional one-time royalty of $15,000,000 thousand.
5) Under the contract, the lessees provided the Taiwan Government Bond A02105 and A03114 as collaterals; the fair values of these bonds were as follow:

Balance on December 31, 2018 Balance on December 31, 2017 Balance on January 1, 2017	The Taiwan Government Bond A02105 $ 1,086,786	The Taiwan Government Bond A03114 1,596,767
	$ 1,030,629	1,614,901
	$ 1,078,335	1,666,091

(Continued)

267

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iii) Investment properties under construction are located in Hsinchu City and Hualien City and included land for the “C2 Tourist Hotel Project” and “Commercial Building Project” in the Nangang Economic and Trade Park. The C2 Tourist Hotel Project was won by the Grand Hi-Lai Hotel Co., Ltd. and the Caesar Park Hotel Co., Ltd., which both signed a front-end agreement (FEA) on December 31, 2013; both parties (the “Hotels”) will sign a lease agreement under this FEA.

The main terms of the FEA were as follows:

1) The Corporation is responsible for the construction of the lease premises (the “Premises”), and the Hotels should assist the Corporation in construction-related matters. The Corporation will shoulder the construction cost. Both parties are responsible for the completion of the premises in six years after signing the FEA.
2) The lease contract is for 20 years from the start of the lease contract, and the lessee has the first option to extend the lease for another 10 years. Upon expiry or termination of this lease agreement, the lessee should turn over the Premises as is to the Corporation.
3) The lessee should pay monthly rentals, calculated at the higher of the guaranteed rentals or revenue-based rentals payable to the Corporation from the Premises opening date. The guaranteed rental will be increased 1% each year, and the revenue-based rentals are 16% of the gross revenue of the hotel each month.
4) Under this FEA and lease agreement, the lessee should not assign and transfer any of its rights or obligation to a third party.

The C2 Hotel and Commercial Building Project received the construction license. The project is now under construction of diaphragm wall, steel structure and curtain wall , etc. The cost are about $1,089,574 thousand.

(Continued)

268

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

The fair values of investment properties were assessed as follows:

C6／C7／C8／C9 Fair value Measurement C2 Fair value Measurement C3 Fair value Measurement Hsinchu Fair value Measurement Kaohsiung Fair value Measurement	December 31, 2018 $ 22,746,927	December 31, 2017 23,025,461
	The fair values were based on the valuations carried out at April 3, 2018 by independent qualified professional valuer. $ 18,615,031	The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer. 19,038,100
	The fair values were based on the valuations carried out at April 3, 2018 by independent qualified professional valuer. $ 32,542,935	The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer. 32,919,880
	The fair values were based on the valuations carried out at April 3, 2018 by independent qualified professional valuer. $ 8,817,650	The fair values were based on the valuations carried out at April 11, 2017, 2016 by independent qualified professional valuer. 8,475,168
	The fair values were based on the valuations carried out at April 3, 2018 by independent qualified professional valuer. $ 17,082,378	The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer. 16,817,630
	The fair values were based on the valuations carried out at April 3, 2018 by independent qualified professional valuer.	The fair values were based on the valuations carried out at April 11, 2017 by independent qualified professional valuer.

(Continued)

269

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Area C6/C7/C8/C9 C2 C3 HsinChu KaoHsiung	For the years ended December 31	For the years ended December 31
	2018 18% 16% 18% 16% 16%	2017
		18% 15% 18% 16% 16%

As of December 31, 2018, 2017 and January 1, 2016 investment properties were not pledged as collateral.

(m) Long-term prepayment for lease

Land in a special petrochemical industry zone in Taichung	December 31, 2018 $ 1,108,012	December 31, 2017 1,180,739

(i) The lease term for the land in a special industrial zone is 20 years, and the agreement is renewable until the total lease reaches 50 years.
(ii) As mentioned above, the Corporation has leased land, developed wests 8 and 9 of the wharf area and constructed warehouse facilities and public roads on behalf of THB. The Corporation used its capital expenses for the construction as rentals in advance. However, once the lease term ends or the agreement is early terminated, all the titles to the facilities and improvements on the leased land should be transferred to THB.

(Continued)

270

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

As of December 31, 2018, 2017 and January 1, 2016 long-term prepayment for lease were not pledged as collateral.

(n) Operating leases

The Company leases out its investment properties (see Note 6(g)). The future minimum leases payments under non cancellable leases (excluding land used rights) are as follows:

Less than one year Between one and five years More than five years	December 31, 2018 $ 700,362 2,508,033 13,289,105	December 31, 2017 598,257 2,345,001 14,003,460
	$ 16,497,500	16,946,718

For the years ended December 31, 2018 and 2017, the property rental income were $534,879 thousand and $460,854 thousand, respectively. There were no significant property equipment and maintenance expenses.

(o) Employee benefits

(i) Defined benefit plans

Reconciliation of defined benefit obligation at present value and plan asset at and fair value are as follows:

Present value of defined benefit obligation Fair value of plan assets The effect of the asset ceiling Net defined benefit liabilities	December 31, 2018 $ 520,510 (406,263)	December 31, 2017 115,353 (70,732)
	-	-
	$ 114,247	112,063

The Company makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pension benefits for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for the six months prior to retirement.

(Continued)

271

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

1) Composition of plan assets

The Company set aside pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund and such funds are managed by the Bureau of Labor Funds, Ministry of Labor. Under these regulations, the minimum earnings from these pension funds shall not be less than the earnings from two-year time deposits with the interest rates offered by local banks.

The Company’s contributions to the pension funds were deposited with Bank of Taiwan. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor.

2)

Movements in present value of the defined benefit obligations

The movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2017 were as follows:

Defined benefit obligation, January 1 Current service costs and interest Re-measurement of the net defined benefit liability －Actuarial (losses) gains arose from changes in demographic assumptions －Actuarial gains arose from changes in financial assumption －Experience adjustment Past service cost and settlement loss or profit Benefits paid Defined benefit obligation, December 31	For the years ended December 31 2018 2017 $ 542,820 542,182 20,959 23,319 1 1 - 19,243 20,096 19,720 - (1,376) (63,366) (60,269)	For the years ended December 31 2018 2017 $ 542,820 542,182 20,959 23,319 1 1 - 19,243 20,096 19,720 - (1,376) (63,366) (60,269)
	2018 $ 542,820 20,959 1 - 20,096 - (63,366)
	$ 520,510	542,820

(Continued)

272

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

3) Movements in the fair value of plan assets

The movements in the fair value of the defined benefit plan assets for the years ended December 31, 2018 and 2017 were as follows:

For the years ended December 31 2018 2017 Fair value of plan assets, January 1 $ 430,757 447,829 Interests revenue 3,027 4,302 Re-measurement of the net defined benefit liability －Experience adjustment 14,912 (195) Contributions made 20,933 33,307 Benefits paid (63,366) (54,486) Fair value of plan assets, December 31 $ 406,263 430,757	For the years ended December 31 2018 2017 Fair value of plan assets, January 1 $ 430,757 447,829 Interests revenue 3,027 4,302 Re-measurement of the net defined benefit liability －Experience adjustment 14,912 (195) Contributions made 20,933 33,307 Benefits paid (63,366) (54,486) Fair value of plan assets, December 31 $ 406,263 430,757	For the years ended December 31 2018 2017 Fair value of plan assets, January 1 $ 430,757 447,829 Interests revenue 3,027 4,302 Re-measurement of the net defined benefit liability －Experience adjustment 14,912 (195) Contributions made 20,933 33,307 Benefits paid (63,366) (54,486) Fair value of plan assets, December 31 $ 406,263 430,757
	$ 406,263	430,757

4) Movements in the fair value of plan assets : None
5) Expenses recognized in profit or loss

The Company’s pension expenses recognized in profit or loss for the years ended December 31, 2018 and 2017 were as follows:

Current service cost Net interest of net liabilities for defined benefit obligations Past service cost and settlement loss or profit Operating costs Operating expenses	For the years ended December 31 2018 2017 $ 17,161 18,173 770 843 - (1,376)	For the years ended December 31 2018 2017 $ 17,161 18,173 770 843 - (1,376)
	2018 $ 17,161 770 -
	$ 17,931	17,640
	$ 11,493 6,438	10,954 6,686
	$ 17,931	17,640

6) Re-measurement of net defined benefit liability recognized in other comprehensive income

The Company’s net defined benefit liability recognized in other comprehensive income for the years ended December 31, 2018 and 2017 were as follows:

Cumulative amount, January 1 Recognized during the year Cumulative amount, December 31	For the years ended December 31 2018 2017 $ 92,770 60,269 4,148 32,501	For the years ended December 31 2018 2017 $ 92,770 60,269 4,148 32,501
	2018 $ 92,770 4,148
	$ 96,918	92,770

(Continued)

273

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

7) Actuarial assumptions

The following were the key actuarial assumptions at the reporting date:

The principal actuarial assumptions at the reporting date were as follows:

Discount rate Future salary increases	2018.12.31 0.75% 1.50%	2017.12.31 0.75% 1.50%

The expected allocation payment to be made by the Company to the defined benefit plans for the one-year period after the reporting date is $17,890.

The weighted-average duration of the defined benefit plan is 6 year.

8)

Sensitivity Analysis

As of December 31, 2018 and 2017, the changes in the principal actuarial assumptions will impact on the present value of defined benefit obligation as follows:

December 31, 2018 Discount rate Future salary increase rate December 31, 2017 Discount rate Future salary increase rate	Impact on the present value of defined benefitobligation Increase by 0.25% Decrease by 0.25% (8,389) 8,658 8,572 (8,348) (8,862) 9,154 9,062 (8,819)
	Increase by 0.25% (8,389) 8,572 (8,862) 9,062

The analysis is performed on the same basis for prior year.

(ii) Defined contribution plans

The Company contributes an amount at the rate of 6% of the employee’s monthly wages to the Labor Pension personal account with the Bureau of the Labor Insurance and Council of Labor Affairs in R.O.C. in accordance with the provisions of the Labor Pension Act. The Company’s contributions to the Bureau of the Labor Insurance and Social Security Bureau for the employees’ pension benefits require no further payment of additional legal or constructive obligations.

(Continued)

274

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

As of December 31, 2018 and 2017, the expense of defined contribution plans under Labor Pension Act was as follows:

Operating costs Operating expenses	For the years ended December 31 2018 2017 $ 10,618 10,011 8,787 8,897	For the years ended December 31 2018 2017 $ 10,618 10,011 8,787 8,897
	2018 $ 10,618 8,787
	$ 19,405	18,908

The cost of the pension contributions to the Labor Insurance Bureau for the years ended December 31, 2018 and 2017 amounted to $21,084 thousand and $16,010 thousand, respectively

(iii) Short-term employee benefits

short term employee benefit liabilities	December 31, 2018 $ 8,980	December 31, 2017 5,881

(p) Income tax

(i) The components of income tax expense for the years ended December 31, 2018 and 2017 were as follows:

Current income tax expense Current period incurred Land value increment tax Prior years income tax adjustment Deferred tax expense Origination and reversal of temporary differences Adjustment in tax rate Change in unrecognized deductible temporary differences Income tax expense	For the years ended December 31 2018 2017 $ 414,762 156,626 93,466 36,470 8,206 (10,483)	For the years ended December 31 2018 2017 $ 414,762 156,626 93,466 36,470 8,206 (10,483)
	2018 $ 414,762 93,466 8,206
	516,434	182,613
	106,229 72,942 (28,330) $ 667,275	24,616 - (7,405) 199,824

(Continued)

275

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

The following are details of the income tax (expense) benefit recognized under other comprehensive income:

Items that will not be reclassified to profit or loss: Remeasurements effects of defined benefit plans Items that may be reclassified subsequently to profit and loss: Translation of foreign operations	For the years ended December 31 2018 2017 $ 4,385 6,658	For the years ended December 31 2018 2017 $ 4,385 6,658
		2017 6,658
	$ (73,324)	138,575

Income tax calculated on pre tax financial income was reconciled with income tax expense for the years ended December 31, 2018 and 2017 as follows:

Profit before income tax Income tax using the Company’s domestic tax rate Adjustment in tax rate Non-deductible income tax Tax-exempt income Changes in unrecognized deductible temporary differences Overestimate and underestimate of previously income tax Items should be adjusted to increase determination Income tax expense	For the years ended December 31 2018 2017 $ 2,948,594 1,818,950	For the years ended December 31 2018 2017 $ 2,948,594 1,818,950
	2018 $ 2,948,594
		1,818,950
	589,719 72,942 47,940 (157,610) 77,899 8,206 28,179	309,222 - 41,083 (52,781) (10,581) (10,483) (76,636)
	$ 667,275	199,824

(ii) Recognized deferred tax assets and liabilities
1) Recognized deferred tax assets and liabilities

The movements in deferred tax assets and liabilities for the years ended December 31, 2018 and 2017 were as follows:

Deferred tax liabilities:

Land value increment tax	Investment income recognized under the equity method	Exchange difference on the translation of foreign operations	Others	Total
$ 6,412,828 (28,330) -	528,589 168,962 -	61,698 - 50,020	10,971 13,740 -	7,014,086 154,372 50,020
$ 6,384,498	697,551	111,718	24,711	7,218,478
$ 6,420,233 (7,405) -	532,020 (3,431) -	176,761 - (115,063)	83 10,888 -	7,129,097 52 (115,063)
$ 6,412,828	528,589	61,698	10,971	7,014,086

(Continued)

276

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Deferred tax assets:

Deferred tax assets:
Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018 alance on January 1, 2017 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2017	Unamortized manufacturing costs	Tax losses	Defined benefit obligation	Impairment loss on assets	Exchange difference on the translation of foreign operations	Others	Total
	$ 33,531 10,982 -	- - -	19,051 (842) 4,385	70,731 (7,275) -	23,512 - (23,304)	21,880 666 -	168,705 3,531 (18,919)
	$ 44,513	-	22,594	63,456	208	22,546	153,317
	$ 37,834 (4,303) -	14,347 (14,347) -	16,040 (3,646) 6,657	70,731 - -	- - 23,512	16,743 5,137 -	155,695 (17,159) 30,169
	$ 33,531	-	19,051	70,731	23,512	21,880	168,705

(iii) The Company’s income tax returns through 2017 have been assessed and approved by the Tax Authority.

(q) Share capital and other interests

(i) Share capital

(ii) Capital surplus

The components of capital surplus were as follows:

The components of capital surplus were as follows:
Donations Treasury share transactions Others	December 31, 2018 $ 44,803 2,187,988 10,844	December 31, 2017 44,803 2,187,988 -
	$ 2,243,635	2,232,791

(Continued)

277

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(iii) Retained earnings

1) Legal reserve

2) Special reserve

The Company implemented the optional exemptions under IFRS 1 "First-time Adoption of International Financial Reporting Standards” when adopting the International Financial Reporting Standards at first time. The increase in retained earnings resulting from the unrealized revaluation increments, cumulative translation adjustment and the revaluation increments in the transfer from fix assets to investment property was $32,114,341. In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, the same amount of the increasing earnings shall be reclassified to special earnings reserve. If a certain proportion of the asset has been disposed or reclassified, the same proportion of special earnings reserve equivalent to that of the asset, which has been disposed or reclassified, has to be transferred back to its earnings. Such special earnings reserve has to have the same amount with the one that was initially being reclassified to its special earnings reserve. The balance of such special earnings reserve amounted to $30,820,879 and $31,036,152 as of December 31, 2018 and 2017, respectively.

(Continued)

278

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

3) Earnings distribution

Dividends distributed to ordinary shareholders: Cash	2017	2017	2016 Amount per share (dollars) Amount 2.10 2,058,000	2016 Amount per share (dollars) Amount 2.10 2,058,000
	Amount per share (dollars)	Amount
	$ 1.20	1,176,000	2.10

On March 28, 2019, the Company's Board of Directors resolved to appropriate the 2018 earnings. These earnings were appropriated as follows:

Dividends distributed to ordinary shareholders: Cash	For the year ended December 31	For the year ended December 31	For the year ended December 31
	2018
	Amount per share (dollars)		Amount
	$ 2.20		2,156,000

(iv) Other equity accounts (net of tax)

Balance on January 1, 2018 Effects of retrospective application Balance at January 1, 2018 after adjustments Exchange differences on subsidiaries accounted for using equity method Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income Balance on December 31, 2018	Exchange differences on translation of foreign financial statements $ (147,327) -	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income - 946,293	Unrealized gains (losses) on available-for-s ale financial assets 112,648 (112,648)	Unrealized gains (losses) on available-for-s ale financial assets 112,648 (112,648)	Total (34,679) 833,645
	(147,327) 256,391 - $ 109,064	946,293 - 257,300 1,203,593	- - - -		798,966 256,391 257,300 1,312,657

(Continued)

279

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Exchange differences on translation of foreign financial statements $ 531,966 169	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income	Unrealized gains (losses) on available-for-sa le financial assets	Total
	- -	62,919 -	594,885 169
532,135 (679,462) -	- - -	62,919 - 49,729	595,054 (679,462) 49,729
$ (147,327)	-	112,648	(34,679)

(r) Earnings per share

The basic earnings per share and diluted earnings per share were calculated as follows:

Basic earnings per share Profit attributable to ordinary shareholders Weightedaverage number of ordinary shares Diluted earnings per share Profit attributable to ordinary shareholders (diluted) Weightedaverage number of ordinary shares Effect of potentially dilutive ordinary shares Employees’ compensation Weightedaverage number of ordinary shares (diluted)	For the years ended December 31 2018 2017 $ 2,281,319 1,619,126	For the years ended December 31 2018 2017 $ 2,281,319 1,619,126
	2018 $ 2,281,319
	980,000	980,000
	$ 2.33	1.65
	$ 2,281,319	1,619,126
	980,000 2,230	980,000 1,186
	982,230	981,186
	$ 2.32	1.65

(Continued)

280

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(s) Revenue from contracts with customers
(i) Details of revenue

The details of revenue for the year ended December 31, 2018 were as follows:

Revenue from contracts with customers Revenue from investment properties Property revenue Other operating revenue	For the years ended December 31 2018 $ 10,312,482 1,564,920 (1,399) 51,997 $ 11,928,000

(ii) Disaggregation of revenue

For the years ended December 31, 2018 Fertilizers and other chemical products Real estate property and investment Others Total $ 10,231,367 1,563,521 51,997 11,846,885 81,115 - - 81,115	For the years ended December 31, 2018 Fertilizers and other chemical products Real estate property and investment Others Total $ 10,231,367 1,563,521 51,997 11,846,885 81,115 - - 81,115	For the years ended December 31, 2018 Fertilizers and other chemical products Real estate property and investment Others Total $ 10,231,367 1,563,521 51,997 11,846,885 81,115 - - 81,115	For the years ended December 31, 2018 Fertilizers and other chemical products Real estate property and investment Others Total $ 10,231,367 1,563,521 51,997 11,846,885 81,115 - - 81,115
Fertilizers and other chemical products $ 10,231,367 81,115	Real estate property and investment 1,563,521 -	Others 51,997 -
$ 10,312,482	1,563,521	51,997	11,928,000
$ 10,312,482 - -	- 1,563,521 -	- - 51,997	10,312,482 1,563,521 51,997
$ 10,312,482	1,563,521	51,997	11,928,000

For details on revenue for the year ended December 31, 2017, please refer to note 6(t).

(iii) Contract balances

Accounts receivable Less: allowance for impairment Total	December 31, 2018 $ 1,481,717 -	January 1, 2018
		1,868,528 -
	$ 1,481,717	1,868,528

(Continued)

281

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

Contract liabilities-Chemical fertilizers product Contract liabilities- Property revenue Total	December 31, 2018 $ 90,918 76,212	January 1, 2018 98,512 117,171
	$ 167,130	215,683

For details on accounts receivable and allowance for impairment, please refer to note 6(f).

The amount of revenue recognized for the year ended December 31, 2018 that was included

in the contract liability balance at the beginning of the period was $98,512 thousand.

(t) Revenue

The details of operating revenues for the year ended December 31, 2017 were as follows:

Operating revenues Sales revenue Rental revenue Property revenue Other revenue Less: Sales returns and allowances Net operating revenues	For the year ended December 31, 2017 $ 9,643,995 1,501,693 277,082 55,334 (131,685)
	$ 11,346,419

Details of Revenue for 2018; please refer to note 6(s).

(u) Remuneration to employees, directors and supervisors

For the years ended December 31, 2018 and 2017, the Company estimated its employee remuneration amounting to $73,715 thousand and $45,474 thousand, and directors’ and supervisors’ remuneration amounting to $49,143 thousand and $30,316 thousand, respectively. The estimated amounts mentioned above are calculated based on the net profit before tax, excluding the remuneration to employees, directors and supervisors of each period, multiplied by the percentage of remuneration to employees, directors and supervisors as specified in the Company’s articles. These remunerations were expensed under operating costs or operating expenses during 2018 and 2017. The numbers of shares to be distributed for 2018 and 2017 were calculated based on the closing price of the Company’s ordinary shares, one day before the date of the meeting of Board of Directors. If the financial report release date of subsequent year changed,

(Continued)

282

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

There was no difference of Employee compensation and directors’ and supervisors’ remuneration between the amounts recognized on financial statements and actual distributed amount.

(v) Non operating income and expenses
(i) Other income

The details of other income for the years ended December 31, 2018 and 2017 were as follows:

Interest income - bank deposits Other interest income Total interest income Dividends Payables overdue Others	For the years ended December 31 2018 2017 $ 73,601 72,310 5,967 7,860	For the years ended December 31 2018 2017 $ 73,601 72,310 5,967 7,860
	2018 $ 73,601 5,967
	79,568	80,170
	51,483 - 20,150	43,562 55,852 14,283
	$ 151,201	193,867

(ii) Other gains and losses

The details of other gains and losses for the years ended December 31, 2018 and 2017 were as follows:

(Loss) gain on disposal of property, plant and equipment Gain (loss) on disposal of investment properties Gain on disposal of investments Net foreign exchange (loss) and gain Loss on financial assets at fair value through profit or loss Donation expenses & relevane withholding tax Others	For the years ended December 31 2018 2017 $ (1,878) 101,610 754,449 (24,569) 46,350 38,189 (34,333) (32,071) - (231,880) (241,381) (20,130) (20,840)	For the years ended December 31 2018 2017 $ (1,878) 101,610 754,449 (24,569) 46,350 38,189 (34,333) (32,071) - (231,880) (241,381) (20,130) (20,840)
	2018 $ (1,878) 754,449 38,189 (32,071) (231,880) (20,130)
	$ 506,679	(173,163)

(Continued)

283

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(iii) Finance costs

The details of finance costs for the years ended December 31, 2018 and 2017 were as follows:

Bank interest expense	For the years ended December 31 2018 2017 $ - (4)
	2018 $ -

(w) Financial instruments
(i) Credit risk

1) Exposure to credit risk

The carrying amount of financial assets represents the Company’s maximum credit exposure.

2) Credit risk concentrations

The clients of the Company are widely spread and unrelated; thus, credit risk is limited.

3) Receivables and debt securities

(ii) Liquidity risk

The following are the contractual maturities of financial liabilities, excluding estimated interest payment and the impact of netting agreements.

December 31, 2018 Non-derivative financial liabilities Noninterestbearing liabilities December 31, 2017 Non-derivative financial liabilities Noninterestbearing liabilities	Carrying amount	Within 1 year	1-3 months	3 months -1 year	1-5years More than 5 years - -
	$ 996,946	19,672	652,098	325,176
	$ 1,402,213	17,778	995,650	388,785	- -

The Company does not expect the cash flows included in the maturity analysis to occur significantly earlier or at significantly different amounts.

(Continued)

284

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iii) Market risk

1) Currency risk

The following are the contractual maturities of financial liabilities, excluding estimated interest payment and the impact of netting agreements.

December 31, 2018	December 31, 2018	December 31, 2018	(after adjusted) December 31, 2017	(after adjusted) December 31, 2017	(after adjusted) December 31, 2017
Foreign Currency	Exchang e Rate	NTD	Foreign Currency	Exchang e Rate	NTD
$ 44,104 1,226,253 1,306 9,079	30.73 8.19 30.73 30.73	1,355,448 10,048,780 40,150 279,025	97,915 1,202,043 1,230 19,537	29.76 7.94 29.76 29.76	2,913,951 9,538,520 36,611 581,429

2) Sensitivity analysis

The Company’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans, accounts payable and other payables that are denominated in foreign currency. A 10% of appreciation of each major foreign currency against the Company’s functional currency as of December 31, 2018 and 2017 would have increased or decreased the before tax net income by $86,114 thousand and $193,599 thousand, respectively. The analysis is performed on the same basis for both periods.

As the Company deals in diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2018 and 2017, the foreign exchange losses, including both realized and unrealized, amounted to 38,189thousand and (34,333) thousand, respectively.

(iv) Interest rate analysis

The interest risk exposure from financial assets and liabilities has been disclosed in the note of liquidity risk management.

(Continued)

285

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(v) Other price risk

For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -	For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -	For the years ended December 31 2018 2017 Comprehensive Income (Loss)(net of tax) Net Income (Loss) (net of tax) Comprehensive Income (Loss)(net of tax Net Income (Loss) (net of tax) $ 92,777 90,329 110,577 -
2018
Comprehensive Income (Loss)(net of tax) $ 92,777	Net Income (Loss) (net of tax)	Net Income (Loss) (net of tax)
		-
$ (92,777)	(90,329) (110,577)	-

(vi) Fair value of financial instruments
1) Categories and fair value of financial instruments

The fair value of financial assets and liabilities at fair value through profit or loss, and financial assets at fair value through other comprehensive income (available for sale financial assets) is measured on a recurring basis. The carrying amount and fair value of the Company’s financial assets and liabilities, including the information on fair value hierarchy were as follows; however, except as described in the following paragraphs, for financial instruments not measured at fair value whose carrying amount is reasonably close to the fair value, and for equity investments that has no quoted prices in the active markets and whose fair value cannot be reliably measured, disclosure of fair value information is not required:

	December 31, 2018	December 31, 2018	December 31, 2018	Total 1,806,574
Book Value $ 1,806,574		Fair Value
	Level 1 1,806,574	Level 2 -	Level 3 -
$ 100,764 1,764,692	100,764 -	- -	- 1,764,692	100,764 1,764,692
1,865,456	100,764	-	1,764,692	1,865,456

(Continued)

286

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

$ 30,729 2,213,249 3,289,364 1,481,717 7,821	- - - - - - - - - - - - - - -	- - - - - - - - - - - - - - -	- - - - - - - - - - - - - - -	- - - - -
7,022,880	- - -			-
$ 10,694,910	1,907,338 - 1,764,692			3,672,030
$ 765,828 231,118	- - - - - -			- -
996,946	- - -			-
$ 996,946	- - -			-
	December 31, 2017
Book Value $ 546,899		Fair Value		Total -
	Level 1 -	Level 2 -	Level 3 -
546,899	-	-	-	-
141,254 2,040,761 29,531	141,254 2,040,761 -	- - -	- - 29,531	141,254 2,040,761 29,531
2,211,546	2,182,015	-	29,531	2,211,546
1,755,104 5,931,660 1,868,528 25,210	- - - -	- - - -	- - - -	- - - -
9,580,502	-	-	-	-
$ 1,204,155 198,058	- -	- -	- -	- -
1,402,213	-	-	-	-
$ 1,402,213	-	-	-	-

(Continued)

287

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

2) Valuation techniques for financial instruments not measured at fair value

The Company’s valuation techniques and assumptions used for financial instruments not measured at fair value are as follows:

a) Financial assets measured at amortized cost (held to maturity financial assets)

If the quoted prices in active markets are available, the market price is established as the fair value. However, if quoted prices in active markets are not available, the estimated valuation or prices used by competitors are adopted.

b) Financial assets measured at amortized cost (debt investment that has no active markets) and financial liabilities measured at amortized cost

If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values.

3) Valuation techniques for financial instruments measured at fair value:
a) Non-derivative financial instruments

If the financial instruments held by the Company do not belong to active markets, the category and nature of the fair value are as follows:

Equity investments without an active market: The fair value is assessed by market comparison approach. The main assumption is measured from the retained earnings multiplier as the basis.

(Continued)

288

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

4) Transfers between Level 1 and Level 2

There were no transfers in either direction in 2018 and 2017.

5) Reconciliation of Level 3 fair values

Reconciliation of Level 3 fair values
Opening balance, January 1, 2018 Total gains and losses recognized: In other comprehensive income Capital reduction by capitak stock return Ending Balance,December 31, 2018	Fair value through other comprehensive income (Available-for-sale financial assets) Unquoted equity instruments $ 1,484,830 297,789 (17,927)
	$ 1,764,692

Total gains and losses recognized: In other comprehensive income, and presented in “unrealized gains and losses from financial assets at fair value through other comprehensive income”	For the years ended December 31	For the years ended December 31
	2018 297,789	2017
		-

6) Quantified information on significant unobservable inputs (Level 3) used in fair value measurement

The Company’s financial instruments that use Level 3 inputs to measure fair value include “financial assets measured at fair value through profit or loss – debt investments” and “fair value through other comprehensive income (available-for-sale financial assets) – equity investments”.

(Continued)

289

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

Quantified information of significant unobservable inputs was as follows:

Item Financial assets at fair value through profit or loss- equity investments without an active market Financial assets at fair value through other comprehensive income-equity investments without an active market Financial assets at fair value through other comprehensive income-equity investments without an active market	Valuation technique Comparable transaction method Cost method Net Asset Value Method	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fairvalue measurement
		‧The multiplier of price-to-book ratio (As of January 1, 2018 and December 31, 2017, were 11.83~18.78 and 19.7~22.3) ‧Market illiquidity discount (As of January 1, 2018 and December 31, 2017, were 10%~33% and 3%~20% ) ‧The multiplier of price-to-book ratio (As of January 1, 2018 , were 20%~25%) ‧Market illiquidity discount (As of January 1, 2018, were 26%~31%) ‧Net Asset Value	The estimated fair value would increase (decrease) if: ‧the multiplier were higher (lower) ‧the market illiquidity discount were lower (higher). Not applicable

7) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The Company’s measurement on the fair value of financial instruments is deemed reasonable despite different valuation models or assumptions may lead to different results.

For fair value measurements in Level 3, changing one or more of the assumptions would have the following effects on profit or loss and other comprehensive income：

December 31, 2018 Financial assets at fair value through other comprehensive income Equity investments without an active market	Inputs	Fluctuati on in inputs	Profit	or loss	Other comprehensive income Favor-abl e Unfavor-a ble 75,340 (130,258)
			Favor-abl e	Unfavor-a ble	Favor-abl e
	Market illiquidity discount	±1%	-	-	75,340

(Continued)

290

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(x) Financial risk management
(i) Overview

The Company has exposures to the following risks from its financial instruments:

1) Credit risk
2) Liquidity risk
3) Market risk

The following discusses the Company’s objectives, policies and processes for measuring and managing the above mentioned risks.

(ii) Risk management framework

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

(iii) Credit risk

Credit risk means the potential loss of the Company if the counterparty involved in that transaction defaults. The primary potential credit risk is from financial instruments like accounts receivable and equity securities.

1) Accounts receivables and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances.

The Company establishes an impairment allowance that represents its estimate of incurred losses in respect of trade receivables. The two components of this impairment allowance are specific loss component that relates to individually significant exposure and collective loss component which the loss was incurred but not identified. The collective component is based on historical payment experience of similar financial assets.

2) Investment

The credit risk exposure in the bank deposits, fixed income investments and other financial instruments are measured and monitored by the Company’s finance department. As the Company deals with the banks and other external parties with good credit standing and financial institutions, corporate organization and government agencies which are graded above investment level, management believes that the Company does not have compliance issues and no significant credit risk.

(Continued)

291

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

3) Guarantees

The Company’s policies were prepared in accordance with Guidelines for Lending of Capital, Endorsements and Guarantees by Public Companies.

(iv) Liquidity risk

Liquidity risk is a risk that the Company is unable to meet the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as much as possible, that it always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

(v) Market risk

Market risk is a risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

1) Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency. The currencies used in these transactions are denominated in USD, EUR, JPY, and RMB.

The interest is denominated in the same currency as borrowings. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Company.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Company ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short term imbalances.

The investments of other subsidiaries of the Company are not for hedging.

2) Interest rate risk

The Company’s interest rate risk arises from short-term and long-term loans bearing floating interest rates. Future cash flow will be affected by a change in market interest rate.

3) Other market risk

The Company does not enter into any commodity contracts other than to meet its expected usage and sales requirements; such contracts are not settled on a net basis.

(Continued)

292

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(y) Capital management

The Company’s objectives in managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, and issue new shares or sell assets to reduce debts.

The Company manages capital by the debt to equity ratio. Such ratio is calculated as net liabilities divided by total capital. Net liabilities represent the total amount of liabilities on the balance sheet minus cash and cash equivalents. The total amount of capital represents all the equity components (share capital, capital surplus, retained earnings, and other equity) plus net liabilities.

31% to 34%The Company’s debt to equity ratios at the balance sheet date were as follows:

Total liabilities Less: cash and cash equivalents Net debt Total capital Adjusted capital Debt to equity ratio	December 31, 2018 $ 25,546,416 (2,213,249)	December 31, 2018 $ 25,546,416 (2,213,249)	December 31, 2017 25,996,430 (1,755,104)
	23,333,167 50,782,946 $ 74,116,113		24,241,326 49,092,452 73,333,778
		31.48%	33.06%

(7) Related-party transactions:

(a) Names and relationship with related parties

The following are entities that have had transactions with related parties and the Company's subsidiaries during the periods covered in the non consolidated financial statements.

Name of related party AI-Jabail Fertilizer Company TR Electronic Chemical Co.,Ltd.

TR Electronic Chemical (Kunshan) Ltd.

MITAGRI Co., Ltd. TAIFER (CAMBODIA) Co., Ltd. Taifer Chemicals International Inc. Taiwan Yes Deep Ocean Water Co., Ltd. Hasbo Biotech Co., Ltd. (note)

Relationship with the Company Equity-method investee The Company's jointly controlled entity

The Company's jointly controlled entity’s subsidary Equity-method investee The Company's subsidary

〃〃〃

(Continued)

293

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

PEIFENG Technology & Fertilizer Co., Ltd.	The Company's subsidary
TAIFER (CAYMAN) INTERNATIONAL GROUP Co., Ltd.	〃
TAIFER INTERNATIONAL (SAMOA) Co., Ltd.	〃
TAIFER INTERNATIONAL (SAMOA) GROUP Co., Ltd.	〃
TAIFER CHEMICAL INTERNATIONAL Co., Ltd.	〃

Note: The liquidation procedure was conducted in October 2017, and the relevant statutory procedures have not yet been completed up on the date of our auditors' report.

(b) Significant transactions with related parties
(i) Sale of Goods to Related Parties

The amounts of significant sales transactions and outstanding balances between the Company and related parties were as follows:

Subsidiaries	For the years ended December 31 2018 2017 $ 5,225 4,379	For the years ended December 31 2018 2017 $ 5,225 4,379
	2018
	$ 5,225	4,379

Prices charged for sales transactions with associates were not significantly different from those of non related parties.

(ii) Purchase of Goods from Related Parties

The amounts of significant purchase transactions and outstanding balances between the Company and related parties were as follows:

Purchases	Purchases	Purchases	Payables to Related Parties	Payables to Related Parties
For the years ended December 31 2018 2017
2018			December 31, 2018	December 31, 2017
$ 1,159,485	942,151		281,341	581,275
		Prepayments December 31, 2018 December 31, 2017 $ - 6,761

There were no significant differences between the terms and pricing of purchase transactions with related enterprises and those carried out with other normal vendors.

(Continued)

294

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(iii) Other related party transactions accounted for as assets and liabilities in the balance sheet.

The amounts of assets and liabilities balances between the Company and related aprties were as follows:

Subsidiaries Subsidiaries Subsidiaries Subsidiaries	Accounts receivables December 31, 2018 December 31, 2017 $ 1,240 888
	December 31, 2018 $ 1,240
	Other receivables December 31, 2018 December 31, 2017 $ 191 163
	December 31, 2018 $ 191
	Account payables December 31, 2018 December 31, 2017 $ 168 490
	December 31, 2018 $ 168
	Guarantee deposit December 31, 2018 December 31, 2017 $ 1,776 1,776
	December 31, 2018 $ 1,776

(iv) The amount of acquisition of property, plant and equipment was as follows:

Subsidiaries	For the years ended December 31 2018 2017 $ - 1,194	For the years ended December 31 2018 2017 $ - 1,194
	2018 $ -
		1,194

(v) Rent revenue

The Company leased its office building to its parent company in 2018 and 2017. The lease contract was based on the regional rent rate. For the years ended December 31, 2018 and 2017, the Company incurred the amounts of $13,664 and $14,898 thousand, respectively, resulting from its transaction with other related parties.

(Continued)

295

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(vi) Others

1) TR Electronic Chemical Co., Ltd. (TR), a jointly controlled entity of the Corporation, had obtained a financing of US$10,000 thousand from a bank, and the Corporation and Jing Chin International Limited Corporation, a shareholder of TR, guaranteed the repayment of this financing. When TR failed to make a repayment, the bank then requested the guarantors to repay the loan partially. Because the Corporation could only provide TR-in compliance with the “Regulations Governing the Granting of Loans and Endorsements and Guarantees by Public Companies” - with a limited amount of endorsement, the Corporation’s board approved the repayment of TR’s loan, as following.

Due Date Date of Repayment Amount inUSD March 27, 2014 June 27, 2014 $ 4,570 April 26, 2015 April 24, 2015 3,300 March 27, 2016 March 31, 2016 2,147	Amount inNTD 144,641 102,610 70,026

Considering the weakening operating and repayment capability of TR, the Corporation recognized an impairment loss in 2015.

2) Other prepayment for related parties

Jointly controlled entity	Accounts receivable December 31, 2018 December 31, 2017 $ 455 455
	December 31, 2018 $ 455

3) Hasbo Biotech Co., Ltd. conducted its liquidation procedures in October 2017. The relevant statutory procedures are expected to recover the amount of $5,038,376, which has yet to be received.
(c) Compensation of key management personnel

The compensation to directors and other key management personnel were as follows:

Salaries and other short-term employee benefits Post-employment benefits	For the years ended December 31 2018 2017 $ 75,174 53,658 1,139 6,631	For the years ended December 31 2018 2017 $ 75,174 53,658 1,139 6,631
	2018
	$ 75,174 1,139	53,658 6,631
	$ 76,313	60,289

(Continued)

296

TAIWAN FERTILIZER CO., LTD.

Notes to the Financial Statements

(8) Pledged assets:

ledged assets:
Asset	Purpose of pledge	December 31, 2018 $ 4,500 9,000	December 31, 2017
Other financial asset current Other financial asset non-current	Pledge deposits Pledge deposits		- 13,500
		$ 13,500	13,500

(9) Commitments and contingencies:

(a) Significant commitments and contingencies
(i) Significant commitments and contingencies were as follows:

Purchase real estate property Purchase investment property	December 31, 2018 $ 393,010	December 31, 2017 177,760
	$ 8,274,646	793,858

(ii) Unused standby letters of credit

USD thousands EUR thousands	December 31, 2018 $ 1,174	December 31, 2017 5,744
	$ -	65

(iii) The Corporation had guarantee notes payable for its debt as follow:

Guarantee notes payable	December 31, 2018 $ 9,039,910	December 31, 2017 12,167,420

(b) Commitments

(i) Huaku Development Co., Ltd. (“Huaku”) filed an appeal with the Taipei District Civil Court (the “Court”) for the Corporation to pay a co-building trade business tax of $38,370 thousand. The Court ruled that the Corporation should make this payment in June 2014. The Corporation brought this case to a High Court in August 2014; however, the High Court ruled denying in June 2015. Therefore, the Corporation lodged an appeal against the High Court judgment in July 2015, but the Supreme Court decided against the Corporation, so the conviction has been affirmed by the Supreme Court. The Corporation accrued a possible loss of $38,370 thousand for this case in 2012 financial statements.

(Continued)

297

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(ii) On June 25, 2013, the shareholders resolved that, in order to enhance the long-term business relationship with Saudi Arabian Basic Industries Corporation as well as to maintain the relationship with the Kingdom of Saudi Arabia (“Saudi Arabia”), the Corporation shall donate its share of Al-Jubail’s profit, with US$50,000 thousand as the donation limit, to the government or organizations in Saudi Arabia.

In October 2013, the Corporation and Al-Jubail signed a Memorandum of Understanding (MOU); the main contents of the MOU are summarized as follows:

1) The Corporation agreed to donate US$42,000 thousand by way of six equal semiannual installments of US$7,000 thousand to the government or a nonprofit organization in Saudi Arabia. The first donation should be made by October 31, 2013.
2) The donation will be funded from the dividends of Al-Jubail that have been declared and are to be distributed to the Corporation. Al-Jubail will keep the above funds in a separate account in its name in a local bank. As administrator of the donations, Al-Jubail should designate the recipient of the donation. The Corporation’s donation was as follows:

Period 1st 2nd 3rd 4th 5th 6th	Date of Donations October 2013 June, 2014 December, 2014 March, 2015 December, 2017 December, 2018	Amount inUSD $ 7,000 7,000 7,000 7,000 7,000 7,000	Amount inNTD 209,440 208,635 212,940 223,650 209,650 215,110

(10) Losses Due to Major Disasters:None

(11) Subsequent Events:None

(Continued)

298

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(12) Other:

(a) A summary of current-period employee benefits, depreciation, and amortization, by function, is as follows:

follows:
By item	For the years ended December 31 2018 2017
	Operating Cost	Operating expense	Total	Operating Cost	Operating expense	Total
Employee benefit Salary Health and labor insurance Pension Others Depreciation Amortization	$ 416,965 33,741 22,111 - 17,854 750,653 73,768	502,176 22,625 15,225 53,836 11,565 38,319 9,702	919,141 56,366 37,336 53,836 29,419 788,972 83,470	404,424 32,928 21,818 - 18,489 655,822 73,055	490,949 22,678 14,746 35,211 12,538 47,821 11,459	895,373 55,606 36,564 35,211 31,027 703,643 84,514

(i) The depreciation of non-operating income and expenses of the Company in 2018 and 2017 were $18,764 thousand and $17,539 thousand, respectively.
(ii) The average amounts of employees of the Company are 684 and 688 people in 2018 and 2017, respectively. The board members who are not employees are 8 and 8 people, respectively.
(b) To promote "New Southbound Policy" , to help intensify the bound between Taiwanese and people in Indo-Pacific area, and to expand the interaction and collaboration with significant active figures in Indo-Pacific area. The board of directors of the Company resolved to donate $10,000 thousand to establish the foundation in March 2018.

(Continued)

299

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(13) Other disclosures:

(a) Information on significant transactions:

The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group:

(i) Loans to other parties:None

(ii) Guarantees and endorsements for other parties:

(In Thousands of New Taiwan Dollars)

No.	Name of guarantor	Counter-party of guarantee and endorsement	Counter-party of guarantee and endorsement	Limitation on amount of guarantees and endorsements for a specific enterprise	Highest balance for guarantees and endorsements during theperiod	Balance of guarantees and endorsements as of reporting date	Actual usage amount during the period	Property pledged for guarantees and endorsements (Amount)	Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements	Maximum amount for guarantees and endorsements	Parent company endorsements/ guarantees to third parties on behalf of subsidiary	Subsidiary endorsements/ guarantees to third parties on behalf of parent company	Endorsements/ guarantees to third parties on behalf of companies in Mainland China
		Name	Relationshi p with the Company
0	Taiwan Fertilizer Co., Ltd. (the “Company”)	Taifer Chemicals Internation al Inc. ("Taifer")	Subsidiary	42,870	13,500	13,500	13,500	-	0.03%	25,402,394	Y	N	N

Note 1: (1) A subsidiary in which the Group directly or indirectly holds more than 50% of its common shares.

(2) The financial guarantee provided by the Group based on its shareholding due to joint venture relationship.
(3) The parent company which directly or indirectly holds more than 50% of the common shares of the Group.
Note 2: The total amount of the guarantee provided by the Corporation to any individual entity should not exceed 20% of the Corporation’s net worth, or 50% of the individual net worth of Taifer.

Note 3: The total amount of guarantee should not exceed 50% of the Corporation’s net worth.

(iii) Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates and joint ventures):

(In Thousands of New Taiwan Dollars)

				(In Thousands of New Taiwan	(In Thousands of New Taiwan	(In Thousands of New Taiwan	(In Thousands of New Taiwan	Dollars)
Category and name of security	Marketable Securities Type/Name and Issuer	Relationship with company	Account title	Endingbalance				Note
				Shares/Units (thousands)	Carrying value	Percentage of ownership (%)	Fair value
Taiwan Fertilizer Co., Ltd.	Mutual funds Mega Diamond Money Market Fund Jih Sun Money Market Fund Jih Sun Asian High Yield Bond Fund Fuh Hua Strategic High Income Fund of Funds Nomura Global Short Duration Bond Fund JPMorgan (Taiwan) Pacific Balanced Fund Fuh Hwa Digital Economy Fund Ordinary shares Eminent Venture Capital Corporation Eminent II VC Corp Eminent III VC Corp Taiwan Stock Exchange Corporation Top Taiwan V Venture Capital Co., Ltd Visgeneer Inc. TaiAn Technologies Corporation TSCBio Ventures Capital Co. Ding-Tang Phalanx Biotech Co., Ltd. Bion tech Inc. China Petrochemical Development Corporation	－－－－－ Our Company is legal representative director of the company 〞〃－ Our Company is legal representative director of the company 〞〞〞－－ Our Company is legal representative director of the company －	Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current Fair value through profit or loss- current FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent FVOCI - noncurrent	15,988 63,607 10,485 11,053 9,502 4,072 9,213 4,500 20,000 15,000 13,872 1,659 3,147 833 3,360 1,500 404 4,167 9,202	200,202 940,973 160,169 150,151 150,078 55,001 150,000 24,189 157,925 145,366 1,334,526 12,207 27,232 13,305 44,379 - - 5,563 100,764	- % - % - % - % - % - % - % 10.00% 18.50% 16.56% 2.00% 9.76% 10.31% 16.67% 19.75% 6.71% 0.65% 15.16% 0.34%	200,202 940,973 160,169 150,151 150,078 55,001 150,000 24,189 157,925 145,366 1,334,526 12,207 27,232 13,305 44,379 - - 5,563 100,764	Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 1 Note 3 Note 3 Note 3 Note 5 Note 3 Note 5 Note 3 Note 3 Note 5 Note 2

(Continued)

300

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

Bonds International Bonds: Mizuho Financial Group	－	Amortized at cost financial assets - non current	-	30,729	- %	30,729	Note 4

Note 1: The market value was calculated on the basis of the net asset value as of the balance sheet date.
Note 2: The market value was calculated on the basis of the closing price on the Taiwan Stock Exchange as of the balance sheet date.
Note 3: The market value was calculated on the basis of the unaudited financial statement for the same period.
Note 4: The market value was calculated on the basis of the audited financial statement for the most recent period.
Note 5: The market value was calculated on the basis of the closing rate on the Taiwan Stock Exchange as of the balance sheet date.
(iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Category and name of security	Account name	Name of counter-part y	Relationship with the company	BeginningBalance	BeginningBalance	Purchases	Purchases	Sales	Sales	Sales	Sales	EndingBalance	EndingBalance
					Shares	Amount	Shares	Amount	Shares	Price	Cost	Gain (loss) on disposal	Shares	Amount
Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co., Ltd. Taiwan Fertilizer Co.,Ltd.	Mega Diamond Money Market Fund Jih Sun Money Market Fund First Bank Money Market Fund Eastspring Investments Well Pool Money Market Fund Pei Feng Technology Co.,Ltd.	FVOCI - cur rent FVOCI - cur rent FVOCI - cur rent FVOCI - cur rent Investment in equity method	- -	- -	16,079 63,961 - - 40,000	200,000 940,000 - - 400,000	48,033 191,097 31,497 33,200 150,000	600,000 2,820,000 480,000 450,000 1,500,000	48,124 191,451 21,013 22,147 -	600,000 2,820,000 320,000 300,000 -	601,136 2,825,216 320,453 300,352 -	1,136 5,216 453 352 -	15,988 63,607 10,485 11,053 190,000	200,000 940,000 160,000 150,000 1,900,000

Note: Unrealized gain and loss on financial assets were recognized.

(v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:None
(vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Type of property	Transaction date	Acquisition date	Book value	Transaction amount	Amount actually receivable	Gain from disposal	Counter-part y	Nature of relationship	Purpose of disposal	Price reference	Other terms
Taiwan Fertilizer Co., Ltd.	Investment Properties	November 19, 2018	March 1, 1978	429,345	937,001	-	507,656	Bai Fu real estate development Co.,Ltd.	None	To activate unused assets	Appraisal report

(Continued)

301

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

(vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Relatedparty	Nature of relationship	Transaction details	Transaction details	Transaction details	Transaction details	Transactions with terms different from others	Transactions with terms different from others	Notes/Accounts receivable (payable)	Notes/Accounts receivable (payable)	Note
			Purchase/Sale	Amount	Percentage of total purchases/sales	Payment terms	Unitprice	Payment terms	Endingbalance	Percentage of total notes/accounts receivable (payable)
Taiwan Fertilizer Co., Ltd.	AI-Jabail Fertilizer Company	Equity-method investee	Purchase	1,159,485	15.74%	Same as those for third parties	Determined under the considerations of international market price and production cost	30 days	(281,341)	(36.10)%	-

(viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of company	Counter-party	Nature of relationship	Ending balance	Turnover rate	Overdue	Overdue	Amounts received in subsequentperiod	Allowance for bad debts
					Amount	Action taken
Taiwan Fertilizer Co., Ltd.	TR ELECTRONIC CHEMICAL CO.,LTD.	Jointly controlled entity	Other receivable 317,277	-	317,277	-	-	317,277

(ix) Trading in derivative instruments:None
(b) Information on investees:

The following is the information on investees for the years ended December 31, 2018 (excluding information on investees in Mainland China):

				(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity	(In Thousands of New Taiwan Dollars) Original investment amount Balance as of December 31,2018 Net income Share of December 31,2018 December 31,2017 Shares (thousands) Percentage of wnership Carrying value (losses) of investee profits/losses of investee Note 3,050,000 3,050,000 7 50.00% 10,048,780 2,309,448 1,093,334 Associate 126,300 126,300 5,500 100.00% 85,740 9,919 9,919 Subsidiary 1,224,235 1,224,235 25,763 100.00% 304,278 (3,533) (84,592) Subsidiary 9,348 9,348 - 100.00% 9,280 59 59 50,000 - 5,000 33.33% 49,835 (496) (165) Subsidiary 1,900,000 400,000 190,000 100.00% 1,890,632 (7,287) (7,287) Note 1 80,000 80,000 8,000 33.33% 59,020 (45,416) (15,137) Subsidiary 321,990 321,990 11 100.00% - - - Subsidiary 40,052 40,052 - 100.00% 30,870 2,248 2,242 Subsidiary 321,962 321,962 - 51.00% - - No applicable Jointly controlled entity
Name of investor	Name of investee	Location	Main businesses and products	Original investment amount		Balance as of December 31,2018			Net income (losses) of investee	Share of profits/losses of investee	Note
				December 31,2018	December 31,2017	Shares (thousands)	Percentage of wnership	Carrying value
Taiwan Fertilizer Co., Ltd. 〃〃〃〃〃〃〃〃 TAIFER (CAYMAN) INTERNATIONA L GROUP CO., LTD.	Al-Jubail Fertilizer Company Taifer Chemicals International Inc Taiwan Yes Deep Ocean Water Co., Ltd. TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD. TAIFER (CAMBODIA) CO., LTD TAIFER INTERNATIONAL (SAMOA) CO., LTD. TR ELECTRONIC CHEMICAL CO., LTD.	Kingdom of Saudi Arabia Taiwan Taiwan Cayman Islands Taiwan Cambodia Samoa Taiwan Cayman Islands	Manufacture of urea, 2-EH (2-ethyl hexanol), and DOP (dioctyl phthalate) International trade; wholesale of fertilizer, tobacco, liquor, beverage, forage, machinery, electrical equipment, etc.; development, operation and management of residential buildings and factory buildings; special zone development; investment in and construction of public works; development of new towns and districts; agent services on regional district requisition; land adjustment; and real estate rental or leasing Wholesale of drinks, food and grocery and other articles for daily use; tobacco and liquor; glass and pottery; hygiene products; fertilizers and other chemical products; and cosmetics; and international trade Investment and holding Wholesale and retail of products for organic agriculture International trade; wholesale of fertilizer Investment and holding Manufacture and wholesale of fertilizer Investment and holding	3,050,000 126,300 1,224,235 9,348 50,000 1,900,000 80,000 321,990 40,052 321,962	3,050,000 126,300 1,224,235 9,348 - 400,000 80,000 321,990 40,052 321,962	7 5,500 25,763 - 5,000 190,000 8,000 11 - -	50.00% 100.00% 100.00% 100.00% 33.33% 100.00% 33.33% 100.00% 100.00% 51.00%	10,048,780 85,740 304,278 9,280 49,835 1,890,632 59,020 - 30,870 -	2,309,448 9,919 (3,533) 59 (496) (7,287) (45,416) - 2,248 -	1,093,334 9,919 (84,592) 59 (165) (7,287) (15,137) - 2,242 No applicable	Associate Subsidiary Subsidiary Subsidiary Note 1 Subsidiary Subsidiary Subsidiary Jointly controlled entity

(Continued)

302

TAIWAN FERTILIZER CO., LTD. Notes to the Financial Statements

==> picture [563 x 63] intentionally omitted <==

----- Start of picture text -----

Taifer Chemicals TAIFER Samoa Investment and holding 42,618 42,618 - 100.00% 58,958 7,988 - Subsidiary
International Inc. INTERNATIONAL
(SAMOA) GROUP
CO.,LTD.
TAIFER TAIFER Mongolia Real estate rental and leasing 41,077 41,077 - 100.00% 58,703 7,988 - Subsidiary
INTERNATIONA CHEMICAL
L (SAMOA) INTERNATIONAL
GROUP CO., CO.,LTD.
LTD.
----- End of picture text -----

Note : The liquidation procedure was conducted in October 2017, and the relevant statutory procedures have not yet been completed up to the date of our auditors’ report.
(c) Information on investment in mainland China:
(i) The names of investees in Mainland China, the main businesses and products, and other information:

(In Thousands of New Taiwan Dollars)

Name of investee	Main businesses and products	Total amount of paid-in capital	Method of investment	Accumulated outflow of investment from Taiwan as of January1,2017	Investment flows	Investment flows	Accumulated outflow of investment from Taiwan as of December 31,2018	Net income (losses) of the investee	Percentage of ownership	Investment income (losses)	Book value	Accumu-lated remittance of earnings in currentperiod
					Outflow	Inflow
TR Electronic Chemical (Kunshan) Ltd.	Manufacture of nitric acid, hydrofluoric acid, ammonia, phosphoric acid, oxalic acid, ammonia fluoride and LCD and IC Stripper	USD$ 21,500 (NT$660,760) (note4)	(Note 3)	USD$ 10,965 (NT$336,987) (note4)	-	-	USD$ 10,965 (NT$336,987) (note4)	USD$ - (NT$ - (note 1 and5)	) 51.00%	USD$ - (NT$ - ) (note 6)	USD$ - (NT$ - ) (note 4)	-

(ii) Limitation on investment in Mainland China:

Accumulated Investment in Mainland China as of December31,2018	Investment Amounts Authorized by Investment Commission,MOEA	Upper Limit on Investment
NT$ 336,987 (US$ 10,965 ) (note 4)	NT$ 336,987 (US$ 10,965 ) (note 4)	NT$ 30,482,873 (note 2)

Note 1:[The Group applied for the cessation of it operations to the local court on March 17, 2017. ]

The limit is based on the “Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China”

Financial Status, Review and Analysis of Financial Performance and Risks

Chapter Seven: Financial Status, Review and Analysis of Financial Performance and Risks

I. Financial Status

Unit: NT$K

			Unit: NT$K	Unit: NT$K
Year Account	2018	2017	Variance
			Amount	Amount
Current Assets	13,749,184	14,192,823	(443,639)	(3.13)
Property, Plants and Equipment	13,823,376	13,744,278	79,098	0.58
Intangible Assets	146,486	234,595	(88,109)	(37.56)
Other Assets	48,680,671	46,985,195	1,695,476	3.61
Total Assets	76,399,717	75,156,891	1,242,826	1.65
Current Liabilities	1,980,296	2,231,866	(251,570)	(11.27)
Non-current Liabilities	23,636,475	23,832,573	(196,098)	(0.82)
Total Liabilities	25,616,771	26,064,439	(447,668)	(1.72)
Capital	9,800,000	9,800,000	0	0.00
Paid-in Capital	2,243,635	2,232,791	10,844	0.49
Retained Earnings	37,426,654	37,094,340	332,314	0.90
Equity Attributable to Equity Holders of the ParentCompany	50,782,946	49,092,452	1,690,494	3.44
Note: The finance statements for the fical year 2017 and 2018 are attested by independent auditors. Analysis and explanation of the increase or decrease in percentage: 1. Intangible assets: Intangible assets decreased NT$88 million mainly because the loss arising from the acquisition of the brand, trademark, and goodwill of the subsidiary Taiwan Yes DeepOcean Water has been recognized.

Intangible assets: Intangible assets decreased NT$88 million mainly because the loss arising from the acquisition of the brand, trademark, and goodwill of the subsidiary Taiwan Yes Deep Ocean Water has been recognized.

304

Financial Status, Review and Analysis of Financial Performance and Risks

II. Financial Performance

(I) Financial Performance Comparison and Analysis

Unit: NT$K

				Unit: NT$K
Year Accounts	2018	2017	Increase (Decrease)	Variance %
Operation Revenue	12,215,092	11,658,986	556,106	4.77
Operation Costs	9,462,743	9,057,761	404,982	4.47
oss Margin	2,752,349	2,601,225	151,124	5.81
OperatingExpenses	1,465,847	1,373,287	92,560	6.74
OperatingIncome	1,286,502	1,227,938	58,564	4.77
Non-operating Income and Expenses	1,663,118	606,115	1,057,003	174.39
Income(loss)Before Tax	2,949,620	1,834,053	1,115,567	60.83
Income Tax Expenses(income)	668,301	214,927	453,374	210.94
Net Income(loss)	2,281,319	1,619,126	662,193	40.90
Note: The finance statements for the fical year 2017 and 2018 are attested by independent auditors. Analysis for Variance of 20% or Above: 1. Nonoperating income and expense: The nonoperating income and expense increased mainly because the investment profit recognized under the equity method has increased NT$600 million, and the gain on disposal of investment property has increased NT$ 780 million. 2. Income tax expense: The income tax expense increased mainly because the net profit before tax has increased, and the business income tax rate has increased from 17% to 20%. 3. Net profit of the current period: The net profit of the current period increased mainly because of the increase of the nonoperatingincome and expense.

Nonoperating income and expense: The nonoperating income and expense increased mainly because the investment profit recognized under the equity method has increased NT$600 million, and the gain on disposal of investment property has increased NT$ 780 million.
Income tax expense: The income tax expense increased mainly because the net profit before tax has increased, and the business income tax rate has increased from 17% to 20%.
Net profit of the current period: The net profit of the current period increased mainly because of the increase of the nonoperating income and expense.

(II) Gross Margin Variance Analysis Schedule

(II) Gross Margin Variance Analysis Schedule	(II) Gross Margin Variance Analysis Schedule	(II) Gross Margin Variance Analysis Schedule	(II) Gross Margin Variance Analysis Schedule	(II) Gross Margin Variance Analysis Schedule	(II) Gross Margin Variance Analysis Schedule
Unit: NT$ K
	Increase (Decrease)	Reasons of Difference
		Difference in Selling Price	Cost price variance	Quantity variance	others
Gross Margin	151,124	779,593	(535,944)	29,667	(122,192)
Explanation	Compared to the previous year, the gross margin increase is mainly because the gross margin of the fertilizers chemical business increased by NT$ 166 million.

305

Financial Status, Review and Analysis of Financial Performance and Risks

III. Cash Flow

Cash Flows Review and Analysis Schedule

Unit: NT$K

Cash Balance at Beginning	Cash Inflows (outflows) From Operating Activities	Cash Inflows (outflows)	Cash (insufficiency) Balance	CountermeasuresforCash Insufficiency
				Financing Plan
2,266,220	1,879,185	(704,347)	3,441,058	－
1. Movement analysis of cash flows of the current period: (1) Net Cash Inflows From Operating Activities: The main reason for cash inflows from operating activities is because of the cash dividends received from investee companies. (2) Net Cash Outflows From Investing Activities: Mainly because of the decrease in other financial assets. (3) Net Cash Outflows From Financing Activities: Because of the cash dividends received from investee companies. 2. Countermeasures for Cash Insufficiency and Liquidation Analysis: None 3. Cash Liquidation Analysis for Next Year: Unit: NT$K Cash Balance at Beginning Cash Inflows (outflows) From Operating Activities Cash Outflows Cash (insufficiency) Balance Countermeasures for Cash Insufficiency Investment Plan 3,441,058 819,125 (2,523,071) 1,737,112 －

IV. Impact to the Financial Business by the Significant Capital Expenditures in the Previous Year

(I) Utilization Status and Source of Funds for Significant Capital Expenditures in the Previous Year

Unit: NT$K

				Unit: NT$K
Actual or Expected Source of Funds	Actual or Expected Finish Date	Total Funds Needed	Actual Accumulated Disbursements as of December 31, 2018	Expected Utilization Amount in 2018
Equity Fund	June 2020	2,400,000	1,900,000	500,000
Self-owned funds and loans	June 2023	10,913,000	1,611,000	1,210,000

306

Financial Status, Review and Analysis of Financial Performance and Risks

(II) Expected Potential Benefit: Expected Sales Quantity, Value and Gross Margin Increase

Unit: NT$K

					Unit: NT$K
Year	Project	Production Quantity	Sales Quantity	Sales Value	Gross Margin
After 2021	Pei Fong Technology Co., Ltd. Project (Originally from west wharf 10 Taichung port new plantproject)	Planned Nitro-phosphorus based compound fertilizer plant, annual capacity 162,500 tons.	60,000 tons of Nitrophosphorus-based compound fertilizer is for domestic sales, all others (102,500 tons) will be exported.	Annual revenue NT$ 3,528,000 thousand.	Gross margin: 8.76%
After 2024	Nangang Business Park C2 Development Project	-	Total floor area of around 198,350 m²	Annual lease income of NT$ 800-900 million	Gross margin of NT$ 500~600 million

Note: Based on the estimation of the plan

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V. Re-investment Overview

(I) Main Reasons, Improvement Plan for Re-investment Policy, Profit or Loss for Previous Years:

1. Re-investment Policy

The goal lies in the gradual transformation of the corporate structure and the demonstration of a global outlook characterized by a firm foothold in the local market with an eye on the global market by embracing a business philosophy of consolidation, innovation, and sustainability. Development initiatives focus on the smart farming industry,organic ecological industry, and the southbound fertilizer and chemical industry in line with government policies. In the fertilizer industry, the company aims to create investment and development opportunities in overseas market by relying on operating experiences of AL-Jubail Fertilizer Company. The company also strives to expand into fertilizer markets in emerging ASEAN economies and India and catapult innovative fertilizer products onto a new international stage by embracing investment strategies characterized by sales-oriented production and priority on technical services.

Main reasons, improvement plan for re-investment policy, profit or loss for previous years

previous	years
Re-invested Company	Main Reason for Profit or Loss in 2018	Improvement Plan
Al-Jubail Fertilizer Company	Global price recovery and stabilization, the plant operating smoothly and profitably.	N/A
Taiwan Yes Deep Ocean Water Co., Ltd.	Overall effects of integrated marketing and production resources of the Taihai and Hualien plants in Q3 of 2018 and effective reduction of production costs resulted in a turnaround from losses to accumulatedprofits at the end of 2018.	(1) Expenses control (2) Reduce manufacturing costs (3) Organize lean plan (4) Develop niche products

(II) Investment Plan for Next Year:

Fertilizer Chemical Industry : In view of changing demand characteristics in the domestic fertilizer market and demand for fertilizers in overseas markets, the Company plans to expand production capacities for new nitrophosphate compound fertilizers developed by the company. In addition to the satisfaction existing demands and increased domestic fertilizer consumption, the Company also aims to gradually expand into overseas fertilizer markets and extend fertilizer and chemical industry deployment. The Company constructed a nitrophosphate compound fertilizer plant with a production capacity of around 162,500 tons in the Taichung Harbor area in 2017 for the manufacture of newly developed“Hei Wang”fertilizers with added peat. In addition,three storage tanks for chemicals with a total capacity of 3,000 KL were installed. Downstream products such as MDI, TDI, and PPG derived from imported nitric acid help achieve synergy effects and create new profit sources for the company from nitric acid production capacities.

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Agricultural innovation industry: Agriculture forms the foundation of national development. In recent years, the government has actively promoted smart farming and transformation of traditional farms into modern agribusinesses. The Company has taken the initiative in the planning of collaboration projects with domestic agribusinesses with growth potential to acquire opportunities for investment and development in the agricultural technology industry. An industry platform for enhancement of R&D, production, marketing efficiency, and product values in the field of agriculture has been established by utilizing smart farming technologies or unique business models. The Company also actively develops opportunities in the field of application and development and strives to enhance profitability.

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VI. Risk Management Organization

Risk Management Organization Chart:

According to the latest internal audit development and requirements of standards, the Company has strengthened the management of corporate risks, including risk detection, assessment, reporting and following up, both cautious and strict. Three levels (mechanisms) are responsible for the risk control of the Company: The organizer or the person in charge is the “first mechanism” and must take responsibility for the mechanical design and prevention of the detection of initial risk, assessment, and control. The second mechanism is the general manager (or deputy general manager), especially the approval document or its review or appraisal committee. In addition to the feasibility assessment, it also includes various risk assessments. Legal Affairs and Auditing Office reviews and director/supervisor deliberations constitute the third mechanism. The Company has not set up the Chief Risk Officer at this time. The purpose of this is to ask all employees to perform risk control. It is the most practical approach for risk management that involves multi-level prevention rather than one-man control. See the following table:

See the following table:
Significant Risk Assessment Items	Direct Unit for Risk Control (Business In-charge Unit) (First Mechanism)	Risk Deliberation and Control (General Manager/ Deputy GM) (Second Mechanism)	Legal, Audit Office and the Board of Directors (Third Mechanism)
1. Interest Rate, Exchange Rate and Financial Risks	Financial Department	General Manager, Deputy GM, Financial Department	Board of Directors: Decision making and ultimate control of risk assessment and control Audit Office: Examination, assessment, monitoring, improvement, following up and reporting of risks.
2. Risks Such as High Risk and High Leverage Investment, Capital Lending to Others, Derivative Products Trading, Financial Wealth Management Investment, etc.	Financial Department
3. R&D Plan	R&D Department	General Manager, Deputy GM, Planning Department, Financial Department, In-Charge and Relevant Unit
4. Policy and Legal Change	Planning Department,Legal
5. Technology and Industry Change	R&D Department, Planning Department, Business Development Department
6. Coporate Image Change	Administration Department, Board of Directors Office

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Significant Risk Assessment Items	Direct Unit for Risk Control (Business In-charge Unit) (First Mechanism)	Risk Deliberation and Control (General Manager/ Deputy GM) (Second Mechanism)
7. Investment, Re-investment and Merger Benefits	Sales Department, Planning Department, Business Development Department, Real Estate Development Department, Property Management Department
8. Expansion of Plant or Production Capacity	Production Department, Trading Department	Business Meeting Report, Performance Review Meeting, Manufacturing and Sales Meeting.
9. Centralized Procurement or Sales	Sales Department, Trading Department
10. Shareholdings Transfer for Directors, Supervisors and Main Shareholders	Board of Directors Office	General Manager, Deputy GM, Board of Director Office, Legal, Planning Department
11. Management Power Change	Board of Directors Office
12. Litigation or Non-litigation Items	Legal
13. Other Operating Issues	Planning Department, Administration Department
14. Personnel Behavior, Ethics and Integrity	Various Supervisor and Administration Departments	Personnel Appraisal Committee
15. Compliance of SOP, Legal and Regulations	Various Supervisors and Legal	Planning Department
16. Management of the Board of Directors	Board of Directors Office	Legal
17. Significant Information Management and Insider Trading Prevention	Director, Supervisor, Manager and people who aware of theinformation	Spokesman System, Confidential
18. Information Security	Information Department	General Manager, DeputyGM

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Significant Risk Assessment Items	Direct Unit for Risk Control (Business In-charge Unit) (First Mechanism)	Risk Deliberation and Control (General Manager/ Deputy GM) (Second Mechanism)	Legal, Audit Office and the Board of Directors (Third Mechanism)
19. Environment Health and Safty	Safty and Health Center	General Manager

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VII. Risk Assessment

(I) Impact of Interest Rate Change, Exchange Rate Change, and Inflation on the Company’s Profit and Loss and the Countermeasures in the Future
Interest Rate Change

The net interest income of the Company for the year ending December 31, 2018 and for the quarter ending March 31, 2019 was NT$ 82,692,000 and NT$ 23,013,000 respectively, which accounted for 0.68% and 0.66% of the net operating revenue. Therefore, there was no significant impact on the Company's operations and profit. In the future, in response to the change of interest rate trends, we will actively look for higher returns and lower cost targets to reduce interest rate risk.

Exchange Rate Change

For the year ending December 31, 2018 and the quarter ending March 31, 2019, the Company's net exchange gain (loss) amounted to NT$ (42,266,000) and NT$ (5,613,000) respectively, which accounted for (0.35%) and (0.16%) of net operating revenue. Therefore, there was no significant impact on the Company's operations and profit. In the future, to reduce exchange risks, we will actively develop foreign exchange hedge strategies in response to the changes in exchange rate trends.

(II) Policy on High Risk, High Leverage Investment, Capital Lending and Others, Endorsement of Guarantee and Derivative Products Trading, and Main Reasons for Profit or Loss and Countermeasures in the Future
High Risk, High Leverage Investment, Capital Lending and Other Derivative Products Trading: N/A, the Company never engaged in these businesses.
Endorsement and Guarantee: As of March 31, 2019, the total balance of endorsement and guarantee is NT$ 13,500,000.

(III) Future R&D Plan and Estimate of R&D Expenses

R&D for the next two years will concentrate on:

Microbiological material R&D and establishment of application technology.
Strawberry (fertilizer, medium) material development plan.
Algae polysaccharide extraction technology research and development.
Deep seawater for aquaculture application development.
Miaoli Plant wastewater process technique improvement.
Research on Cyclopentanone purification process technologies.

To enable sustainable growth, Taiwan Fertilizer Co., Ltd. will continue to strengthen research and development. The estimated total R&D budget will be about NT$ 50-60 million each year. The R&D plan for the next two years is summarized as follows:

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1. Microbiological Material R&D and Establishment of Application Technology

With industry-academia cooperation and the transfer of technology, combined with the Company's internal microbial fermentation core technology, establish a fermentation mass production technology for beneficial crop antagonistic bacteria, using organic materials and fertilizer materials to develop biotechnology fertilizer and biopesticides that combine both fertilizer effectiveness and the prevention of insect pests. In addition, in coordination with the government's agricultural recycling economy policy, renewable energy, venous industries, local production and marketing, and innovation of various types of waste recycling and recycling industries and transformation into reusable organic material products, combined with various activities of the Sales Department, aggressively promote the organic fertilizer market and expand the promotion of organic materials; with established crop cultivation techniques developed by the Company, we will continue to look for cooperation with outside organic demo farms as an exchange base, to expand the promotion of organic and friendly agriculture. Total R&D disbursement for the next two years will be NT$ 15 million.

2. Strawberry (fertilizer, medium) Material Development Plan

In the next two years, total related technical verification and R&D disbursement for fertilizer materials will be about NT$ 5 million. Based on the industry-academia collaboration project titled Trial Planting of Strawberries by Utilizing Japanese-style Safe Cultivation Methods conducted in cooperation with Yuanpei University of Medical Technology from 2017-2018, it has been verified by the Company that excellent results and positive effects on strawberry growth can be achieved through utilization of production technologies and complementary materials of the Miura Farm in Japan. The Company will attempt to develop relevant materials coupled with the promotion of existing materials to promote the vibrant development of the strawberry industry.

3. Algae Polysaccharide Extraction Technology Research and

Development

The Company cooperates with external organizations in the development of Algae Polysaccharide Extraction Technologies and algae species with a focus on sea lettuce. The market potential of Algae Polysaccharide as a raw material is fully assessed. In the future, the Company will maintain its commitment to the research and development of Algae Polysaccharide Extraction Technologies for macroalgae cultivated in the Hualien Plant. The Company develops functional Algae Polysaccharide materials and healthy detrivatives. R&D investments in the next two years are projected to amount to NT$ 10 million.

4. Deep Seawater for Aquaculture Application Development

Optimize the utilization of deep ocean water, and employ the characteristics of purity and nutrient-richness of deep seawater salt in multi-stage tandem for large-scale algae, fish, and shrimp aquaculture, further demonstrating the specific diversification of deep ocean water cooling energy. In 2018, the Company will establish a complete algae breeding and production module and a primary processing production chain, and research

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in-depth and develop the sexual reproduction technology of various algae and develop derivative foods at the same time to increase the characteristics and richness of algae products. In the shrimp growing sector, acquire shrimp seed of white shrimp from Fisheries Research Institutes or other vendors that can produce high-yield and Specific Pathogen Free (SPF) shrimp to increase aquaculture production quantity and reduce the risk of aquaculture; For tiger prawns, in cooperation with National Cheng Kung University, we will utilize the existing production module culture ponds in the company's Hualien Plant area to establish tiger prawn breeding techniques and produce high quality, healthy and safe aquatic products. The total R&D disbursement in the next two years will be about NT$ 20 million.

5. Miaoli Plant Wastewater Process Technique Improvement

The Company continues to cooperate with National Cheng Kung University in the implementation of improvements in two major dimensions for the Miaoli Plant Wastewater Treatment System: 1. Treatment of wastewater with a high COD concentration to reduce such concentrations to a reasonable range before conveying it to the original wastewater treatment system with the goal of preventing the death of the bacterial flora in biological tanks; 2. Stable reduction of nitrate nitrogen concentrations in effluents. R&D investments in the next two years are projected to amount to NT$ 2 million.

6. Research on Cyclopentanone purification process technologies

In 2018, The Company concluded an agreement to conduct research on Cyclopentanone purification process technologies in cooperation with the Industrial Technology Research Institute to create new niche products in the field of electronic chemicals and integrate and enhance existing distillation and purification technologies. Based on cost considerations, it is planned to conduct testing in the following order: waste liquid → industrial-grade CPN → electronic-grade CPN. R&D investments in the next two years are projected to amount to NT$ 7 million.

7. The main factors affecting the success of R&D are

(1) The leading edge of technology.
(2) Integration of internal and external resources.
(3) Product marketing ability and market feedback mechanism.

(IV) Impact of Important Policies and Legal Changes at Home and Abroad on the Company's Financial Business and Response Countermeasures

To take care of the farmer, lessening the burden of the cost of fertilizer for the farmer, the government has implemented a subsidy policy for fertilizers since 2008. Meanwhile, the “Fertilizer Prices Review Group” was established by the Council of Agriculture (COA) to review the domestic factory price of chemical fertilizers on a monthly basis based on the costs of international fertilizer raw materials. The fertilizer producer's factory price was regulated. However, due to the price decrease in the global raw materials in 2017, the government terminated the phase task of subsidizing chemical fertilizer spreads in July of 2017. In the future, the Company will continue to seize sources of raw materials and set the goal to reduce the impact of price fluctuations.

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As of 2018, publicly announced land values must be reassessed once every two years instead of every three years pursuant to the amended Article 14 of the Equalization of Land Rights Act. Pursuant to the regulations set forth in the House Tax Act, standard values of houses must be reassessed every three years. If local governments increase housing and land taxes, it is difficult to recover tax expenses through rent hikes when leases are renewed, which in turn will affect ROI for commercial real estate.
The Department of Land Administration of the Ministry of the Interior and Lands Division amended the “Regulations for the Implementation of Cadastral Surveys” mainly to respond to the public regarding the expectations of improving the issue of virtual ping of buildings, to remove awnings and canopies based on the regulations of the surveying and mapping regulations for accessory building, and to change the boundaries of surveying and mapping of underground buildings to the floor area (wall center) boundary contained in the floor plan. New construction of a building that has applied for a construction permit prior to its implementation on January 1, 2018 may be handled in accordance with the old regulations; new construction licenses applied for by the Company after effective date in the future will apply new regulations and shall be subject to be adjusted for the sales ping.
Amended Articles of the “Standards for Determining Specific Items and Scope of Environmental Impact Assessments for Development Activities” (promulgated by EPA on April 11, 2018) that affect real estate development are as follows: (1) In line with urban planning and enhancement of building technologies, the regulations for environmental impact assessments were relaxed to 120m or more for high-rise buildings and the necessity of assessments is no longer determined by usage purpose and number of floors. (2) Change of industrial land to non-industrial development purposes is now governed by the “Soil and Groundwater Pollution Remediation Act”. The necessity of environmental impact assessments is determined based on development activities following land use change. The provsion in Table 4 attached to Article 31 stipulating environmental impact assessments if fertilizer industry land is changed to non-fertlizer industry purposes has therefore been deleted.
Due to legal amendments, no environmental impact assessment is required for the Nangang Business Park C2 and C4 Development Projects in Taipei City since the building height is below 120m, which will significantly shorten the development schedule. In addition, Kaohsiung City Government has already canceled the environmental impact assessment for plot 7C of the Kaohsiung Multifunctional Commerce & Trade Park in response to the early recovery of the replotted land. Comprehensive planning and feasibility assessments have been initiated ahead of schedule to accelerate follow-up business recruitment and development operations.
(V) Impact of Technological Changes and Industrial Changes to the Company’s Financial Business and the Countermeasures
With the change of Taiwan’s agricultural structure and the increasing emphasis on environmental protection and health preservation awareness

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of the citizens, the Company has started to build an organic fertilizer plant for the production of organic fertilizers; with the superior material supply system and fermentation technology and taking advantage of the Company’s excellent brand image it will reshape the image of the “Known-You” brand of organic fertilizer and to enter the domestic and foreign organic fertilizer market. Continue to improve the formula and introduce a variety of beneficial microorganisms; also, introduce a post-fermentation process to improve the quality of organic fertilizer products.

Due to the severe impact of international raw material and energy price fluctuations on the production of fertilizers and chemical products of the Company, for the purpose of grasping the sources of raw materials and reducing the impact of price fluctuations, the Company has strengthened supply contracts with manufacturers and continued the investment contract with SABIC in Saudi Arabia; also, it has actively implemented a downstream related product integration investment plan and energy transfer investment plan in order to improve the overall operating synergy of the Company.

(VI) Impact of Corporate Image Change on Corporate Crisis Management and the Countermeasures

The Company was originally a state-owned enterprise and has been transformed into a private Company since September 1, 1999. The Company has continued to reform its business with a diversified operation implemented to improve operating performance; also, it has changed people’s stereotyped images of a company with a state-owned business operation. The Company’s corporate image has been positively promoted; however, while pursuing reasonable profits, the Company still fully cooperates with the government to take care of the farmers and uphold the downstream chemical industry policies, to stably supply domestically-needed fertilizers and chemical products at a reasonable price, and to execute various industrial pollution prevention tasks and care for the benefit of employees. The Company established the Taiwan Fertilizer Foundation in 2007 to take care of farmers and underprivileged individuals; also, it aims to exercise corporate social responsibility in order to fulfill the three operating objectives, including “promoting stable development of the Company’s operations,” “protecting the interest of the Shareholders of the Company,” and “performing the social responsibility of the Company.”

(VII) Expected Benefits, Possible Risks, and Countermeasures of Mergers and Acquisitions

There are not any mergers and acquisitions planned this year.

(VIII) Expected Benefits, Possible Risks, and Countermeasures of Expansion of Plants

The plans for the relocation of the Company’s factories to Taichung Port were completed in 2015 and the development will be carried out in three phases. The first phase will be for land filling and geology improvement, harbor loading and storage facilities, raw material storage systems, public systems, other infrastructure constructions, and new construction projects

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for nitric acid and nitrate-phosphorus plants. The second phase will be for the construction of phosphonium and ammonium sulfate plants and the relocation of an old nitrate-phosphorus plant. The third phase will be for the construction of a new phosphate fertilizer plant. The production in each old plant will be ceased gradually and the relevant production machinery and equipment will be relocated to the new plants in accordance with the principle of “build new plants, relocate old plants” to continue the overall operation of the Company and ensure that the fertilizer supply business will not be interrupted due to the development of this plan.

The Company has been producing fertilizers for more than 72 years and is quite skilled in various fertilizer production processes. The business product items in this plan are all current business items on the production line:

Chemical Products: liquid ammonia, urea, phosphoric acid, nitric acid, sulfamic acid, and other chemicals.
Fertilizer Products: Potassium chloride, heavy superphosphate, superphosphate, nitrate-based compound fertilizer, cerium-phosphorus compound fertilizer, organic compound fertilizer, biotech microbial fertilizer, instant compound fertilizer, biotechnology nutrient solution, ammonium sulfate, calcium ammonium nitrate, and various fertilizers.
Warehoused Products: In line with the increase in the utilization rate of the harbor unloading business, the Company will actively strive to apply to the Port of Taichung to become a qualified statutory unloading and storage company to undertake the customs declaration and tally business of the import and export goods of the fertilizer industry or other businesses.

In line with the implementation of this plan, in addition to screening the world’s excellent manufacturing processes, the Company will strictly request these international manufacturers to provide patent technology guarantee in compliance with production specifications; also, combine each plant’s many years of operating experience in the design improvement to refine the production process in order to lay a foundation for future successful business operation. Moving the production of each plant to Taichung Port, will help increase productivity, efficiency, product portfolio, unloading management efficiency, and complementary use of raw materials in order to reduce costs. In particular, the production site is close to major fertilizer markets, such as, Taichung, Nantou, Yunlin, Chiayi, and Tainan, which are highly beneficial to the management of sales channels, reduction of transportation costs, and market integration and competition.

(IX) Risks of Purchases or Sales Concentration and Countermeasures

The main suppliers of the Company are SABIC Fertilizer Company, Sabic Asia Pacific, and Arab Potash Co. Ltd., among which SABIC Fertilizer Company is a company jointly invested in by the Company and Sabic in Saudi Arabia. The Company has urea supplied and shipped according to the cooperation contract. Sabic Asia Pacific sells liquid ammonia to the

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Company on behalf of various companies in Saudi Arabia. Arab Potash Co. Ltd. is an important global manufacturer of potassium chloride. The three companies have had good business relations with the Company for years. Apart from paying attention to the supply quality and goodwill of each raw material supplier, the Company also judges business conditions, prepares safety stocks, and follows-up on shipping lead time; therefore, the risk of facing purchase concentration is insignificant.

The Company’s major customers for fertilizer products are farmers’ associations in all counties and cities of the country, with dispersion of sales, and there is no risk of concentration of sales.
(X) Impact of Significant Equity Transfer of Directors, Supervisors, or Major Shareholders Holding More than 10% of the Shares of the Company, the Risks, and the Countermeasures: N/A
(XI) Impact of Changes in Operating Rights of the Company, the Risks, and the Countermeasures: N/A

(XII) Litigation or Non-litigation Events

Starting from 2015, the Company planned to carry out the “New construction of the D7 Science and Technology Business District residential building of the Taiwan Fertilizer Company in Hsinchu City” at D7 Street (Dongming Section 967 and land lot No. 1026) of the Science and Technology Business District in Hsinchu City, including “Residence Stage 1” (29 floors, 3 floors underground), “Residence Stage 2” (29 floors, 3 floors underground), “Office Stage 1” (13 floors, 3 floors underground), and “Office Stage 2” (16 floors, 3 floors underground). HCCH & Associates Architects Planners & Engineers has been commissioned to apply for four building permits and four urban design reviews from April to June 2015. Unexpectedly, Hsinchu City Government rejected the aforementioned four building permit and delayed review applications as well as the four urban design review applications on June 7, December 2, December 23, 2016, respectively, pursuant to the regulations set forth in Article 36 of the Construction Act due to the company’s failure to provide the urban design review decisions within a period of six months. Due to the new regulations which came in effect on July 1, 2015 (limitation to a statutory floor area ratio (FAR) of 120% and encouragement to reduce the FAR upper limit from 50% to 20%), reapplication for building permits and urban design reviews will be required for the fourth stage of the project upon rejection of applications by the government. Application of new regulations will result in a floor area loss of 28,594.12 m² and an estimated loss of around NT$ 3 billion in land development value and ownership rights in the D7 Technology & Commerce District. The Company therefore commissioned Attorney Jin-Cheng Li from Yuan He Law Firm on May 4, 2017, to file a petition requesting rescission of disciplinary action and approval of continued review of the four urban design review applications and the four building permit applications through “approved extension of review deadlines”. The written decision of rejection of this petition by the Ministry of the Interior was received on January 24, 2018. Within two months upon receipt of this decision, the Company

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commissioned Attorney Jia-Fu Xiao from Hong Yu Law Firm to file administrative litigation on March 23, 2018. Taipei High Administrative Court initiated preliminary court hearings on July 24, 2018 (case number Su-Zi No. 369/2018). At 11:00 am on October 2, 2018 the judge announced the conclusion of preliminary court hearings. Oral arguments and the final verdict were scheduled for December 6 and December 17, 2018, respectively. However, Attorney Jia-Fu Xiao submitted an Official Letter issued by Miaoli County Government on November 25, 2015 notifying the Architects Association of the impact of amended regulations on submission of required documents on December 17, 2018. Since this document which is favorable to the applicant had not been considered for the building permit reviews, the judge announced the resumption of preliminary court hearings for March 5, 2019.

The Company established Cayman Xuchang Chemistry Technology Co., Ltd. (hereinafter referred to as “Cayman Xuchang”) as a joint venture with Samoa Jinqun International Co., Ltd. (hereinafter referred to as “Jinqun”) in early 2012. Cayman Xuchang took out a loan of US$ 10 million from the Hsinchu Branch of Shanghai Commercial and Savings Bank in early 2012 with this Company and Jinqun serving as joint guarantors. Due to the fact that Cayman Xuchang was unable to repay the loan, this Company paid back a total of US$ 10,017, 062 (4.57 million, 3.3 million, and 2,147,065 on June 26, 2014, April 23, 2015, and March 31, 2016, respectively) to avoid the generation of overdue records at the Joint Credit Information Center. Pursuant to the regulations set forth in Article 281 of the Civil Code, this Company is entitled, as one of the joint debtors, to “demand from the other debtors the reimbursement of their respective shares in the prestation (US$ 5,008,532 each), plus interest from the date of release, due to release from the obligation by virtue of its performance.” Jinqun is a Samoa-based foreign company not recognized in Taiwan. The credit and joint guarantee agreement signatories with legal capacity (Chien-Liang Chao, Sung-Hua Chiang, Hsuan Hsing Chemistry, Che-Yen Chu, Lien-Hsiang Wu Chang, and Jen-Chun Chao) were listed as defendants in this case pursuant to Article 15 of the Enforcement Act of the Part of General Principles of the Civil Code which stipulated that “the actor shall be jointly liable for this legal act with the foreign legal person”. This Company commissioned Attorney Yong-Yu Li to file repayment litigation with the Taipei District Court on July 18, 2017 in addition to payment of court costs totaling NT$ 1.3 million on August 10 (case number Chong-Su-Zi No. 1012/2017 Yonggu). The first preliminary court hearing was held at 9:40 am on February 8, 2018 by Taipei District Court. Defendant Chien-Liang Chao claimed that the shareholders had never engaged in any legal acts with “others” (this Company) in the name of Jinqun and that Article 15 of the Enforcement Act of the Part of General Principles of the Civil Code was therefore not applicable. He further stated that Cayman Xuchang had agreed to transfer creditor’s rights (datio in solutum) amounting to US$ 4.685 million to Taiwan Fertilizer on July 6, 2015 and that the remaining balance of joint liabilities was therefore US$ 5,332,065 instead of the claimed US$ 10 million. The presiding judge found these arguments credible. Judge Si-Yu Guo announced the final

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verdict on December 17, 2018. The court verdict (Chong-Su-Zi No. 1012/2017) states that the defendants Jinqun and Chao, Chien-Liang shall pay US$ 2,666,032 to Taiwan Fertilizer. The claims by this Company to the other shareholders were dismissed (partial victory of the Company).

On July 31, 2011, Fulian International Property Co., Ltd. purchased 3 units (including 6 parking spaces) of the Building “Sun & Moon” from the Company, including A2/A3 on the 17th floor A2 on the 14th floor, and A5 on the 11th floor with 8 payments made up to December 19, 2014 (when the building use permit was obtained), but the mortgages and building ownership transfer registration were not completed before April 4, 2015. The Company had Fulian International Property Co., Ltd. reminded repeatedly, but Fulian International Property Co., Ltd. refused to perform the contract by asserting that the external walls of the building were poor in color and the building materials and landscape in the public area was gaudy. The Company could not help but send a legal attest letter on December 1, 2015 to cancel the contract for the purchase of the three properties and to charge a penalty for a breach of contract for an amount equivalent to 15% of the total purchase amount, NT$47,157,000. Fulian International Property Co., Ltd. thought that the penalty for an amount equivalent to 15% of the total purchase amount was too high and had “decrease of penalty” litigation filed with the Taipei District Court on December 29, 2015, claiming that the Company should have the penalty for a breach of contract reduced to an amount not more than 7% of the total purchase and demanding the Company to refund an amount of NT$37,939,406. The Company commissioned Attorney Maojun Wu to file the (105) Chong.Su.Zi No. 148 plea before February 2016 to detail the total amount of derivative expenses and damages incurred due to the cancellation of the contract for more than NT$100 million, accounting for approximately 32.14% of the total price of the three units in dispute, and to indicate that the Company had not collected excessive punitive fines. The Taipei District Court dismissed the plaintiff’s lawsuit and the plea for provisional injunction with the (105) Chong-Su.Zi No. 148 civil judgment issued on July 1, 2016. The written judgment stated that: “Since the termination of the contract, the defendant did suffer loss of interest, that is, the defendant has a net profit of NT$31,438,000 generated from the property in dispute purchased by the plaintiff and has suffered a loss in property value for an amount of NT$24,206,756 due to the breach of contract committed by the plaintiff, a grand total of NT$55,644,756. Under the circumstance, the penalty for an amount of NT$47,157,000 charged by the defendant should not be considered as excessive. For the defendant received the aforementioned penalty amount according to the agreement in dispute has profound legal support. Therefore, the plaintiff’s claiming that the penalty for a breach of contract charged by the defendant was too high and this Court should rule to have it decreased is hereby declined.” Fulian International Property Co., Ltd. objected to the court judgment of the first instance and filed an appeal on July 22, 2016. The Company commissioned Attorney Tienshen Chen of Yangran Law Office to serve as the appellee’s action agent. The High Court had the case number of Chong.Sun.Zi No. 778 dated 2016 assigned and the first

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judiciary proceedings scheduled on October 22. The appeal was dismissed by the High Court in the final verdict on August 7, 2018 for the same reason as stated in the first ruling. Fulian International Property Co., Ltd. does not accept the second ruling and has therefore filed a third appeal. Upon receipt of the aforementioned dismissal of the defendant’s claim that the breach penalty should be decreased on July 2016, Fulian International Property Co., Ltd. commissioned Attorney Jian-Guo Zheng from Rongyu International Law Firm to file reimbursement litigation with Taipei District Court on September 14, 2016. The complaint states that it was detected during public facility handover of the Wushuang project on July 2016 that the building was constructed with slag and fraudulent conduct including misleading advertising was present. Pursuant to the regulations set forth in Article 359 of the Civil Code, three purchase agreements were rescinded and price reductions totaling NT$ 47,157,000 were requested. Article 20, Paragraph 3 of the purchase agreement further stipulated that Party A shall not delay payment based on the handover of public facilities. This Company has appointed Attorney Tian-Xin Chen as its litigation representative. After mediation failed, Taipei District Court initiated proceedings in 2016 (case number Xiao-Zi No. 35). The results of an appraisal by the Taipei Professional Civil Engineers Association requested in August 2017 are still pending.

Ms. Li-Ren Wang purchased one presold unit (B2-4F including two parking spaces) of the Building “Sun & Moon” from this Company on March 3, 2011. The total value of this unit was NT$ 162.5 million with initial payments totaling NT$ 37.5 million (signing and commencement amount). As the usage permit for the Wushuang project was acquired on December 4, 2014 and closing was scheduled, Ms. Wang refused to complete her follow-up payments, mortgage application, and closing payments. She also failed to provide the Registration of Ownership Transfer and did not execute her closing obligations. Pursuant to the provisions set forth in Article 26, Paragraph 1 of the purchase agreement (failure to execute obligations within a prescribed time limit upon written notice), the right of rescission was executed and a breach penalty equivalent to 15% of the total purchase amount (NT$ 12,198,000) was charged by official correspondence on December 1, 2015. Ms. Wang commissioned Attorney Jian-Guo Zheng from Rongyu International Law Firm to file litigation with the Taipei District Court on September, 2016. He stated in his complaint the detection of major flaws such as ready mixed concrete adulterated with slag and uncompleted facilities such as a wooded area covering 5000 m² constituting fraudulent behavior and false advertising during public facility handover in July 2016. He therefore stated the plaintiff’s intention to cancel the purchase and claimed rescission of the purchase agreement and return of all payments by this Company pursuant to the regulations set forth in Article 92 and 359 of the Civil Code. This Company appointed Attorney Tian-Xin Chen as its litigation representative. On November 28, 2017, Taipei District Court dismissed the plaintiff’s lawsuit stating the following reason: “the plaintiff claimed in the submitted complaint the occurrence of serious flaws such as

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ready mixed concrete adulterated with slag. This does not constitute sufficient reason for rescission of the contentious contract on October 30, 2015.” (for more details refer to the reasons column on pp. 10-16 of the civil verdict No. 36/2016 of Taipei District Court). The plaintiff has filed a second instance appeal (case number 12/2018). This Company again appointed Attorney Tian-Xin Chen from Yangran Law Firm as its litigation representative.

City Bon Company, Kwong Tsuen Construction Co., Ltd., and Da Shon Company jointly purchased Building “Sun & Moon” A3-09F (including 2 parking spaces) from the Company for an amount of NT$79,500,000 on March 18, 2011. Mr. Guo-Zhi Liao also purchased two presold units (B1-11 and B5-11) of the Building “Sun & Moon”. Pursuant to the contract provisions stipulating notification within 6 months upon acquisition of the usage permit (prior to June 14, 2015), this Company notified the aforementioned three companies and Mr. Liao to complete closing procedures on June 2, 2015. Ownership transfer for the aforementioned three units had already been completed. Unexpectedly, Mr. Liao and the three companies filed joint litigation with the Taipei District Court in August 2016 stating the detection of countless black cracks on the structural pillars and suspecting the presence of slag components. They requested a purchase price reduction by NT$ 24.2 million (Mr. Liao requested a reduction by NT$ 7,950,000 and the three other plaintiffs requested a total reduction of NT$ 16,250,000) due to illegal construction, unsafe building structure (public facility flaws), and false advertising pursuant to Article 359 of the Civil Code. Taipei District Court scheduled the first session of oral arguments (Chong-Su-Zi No. 1090) for November 22, 2016. The Company appointed Attorney Tian-Xin Chen as its litigation representative. Taipei District Court commissioned the Taipei Professional Civil Engineers Association to conduct an appraisal with the goal of clarifying whether slag components are present in the concrete used for structural pillars or diaphragm walls of the B1, B2, and B3 parking lot area in an official letter issued on July 26, 2017. The Association notified the court on October 18, 2017 that appraisal fees totaled NT$ 1.08 million. The Company bore 55% of the appraisal costs (NT$ 600,000) to determine whether contents are within the scope of safe usage, whether structural safety and building lifespan are affected, and whether repairs are possible. In view of the complexity of litigation, the Company appointed Attorney Zong-Xian Li from Jingzhao International Law Firm as its litigation representative in the second half of 2017.

(XIII) Other Important Risks and Countermeasures

Evaluation and Analysis of Information Security

Risk evaluation and analysis of cyber attack: In spite of the constantly changing cyber attacks and invasion types, the Company has established a multi-level information security protection system through various gateway security equipment and end point security system in order to protect or maintain the Company’s manufacturing operation, accounting, and other critical operating functions. Data backups and standby systems are in place according to the operating procedure. But there is no guarantee that the

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Company’s intranet will be completely free from any illegal invasion and cyber attack, or any activity that will destruct the Company’s operation and damage the goodwill. Malicious attack may also try to implant a computer virus, ransomware, or other malicious program into the Company’s network and information system, interrupting with the Company’s operation, acquiring the control over the computer system, extort the Company or intruding the confidential information. These attacks may cause a temporary paralyze of the Company’s network and information system for a period of time, or require additional expenses to implement remedial and improvement measures, or may leave the Company to some legal disputes or supervisory investigations associated with significant liability due to the divulge of the information belonged to a customer or a third party to which the Company owes the obligation of confidentiality.

Risk evaluation and analysis of social engineering attack: The Company constructs the defense mechanism of social engineering attacks with various algorithms and information and intelligence sources, but cannot guarantee that the social engineering attacks or BEC from a third party will be completely prevented.
Risk evaluation and analysis of denial-of-service attack: The Company has established the multi-line load and redundancy system for important internet services, but cannot guarantee that the all third-party internet attacks paralyzing the system will be completely prevented.
Risk evaluation and analysis of information divulge: External attacks or internal employees may attempt to steal the Company’s trade secrets, other intellectual property and confidential information, such as the proprietary information of customers, or other stakeholders, and employees’ personal data.
The Company retains a third party to perform the audit of the information environment and internal control, and to inspect and evaluate the information operating procedure every year to ensure the adequacy and effectiveness. However, this does not guarantee that the Company will be free from any unknown risk and attack from the constantly changing security threat. During 2018 and as of the publication date of the annual report, the Company has not discovered any material internet attack or event which may cast significant and adverse impact on the Company’s business and operation, nor been involved in any relating lawsuit or supervisory investigation.

VIII. Other Important Matters: None

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Special Records

Chapter Eight: Special Records

I. Affiliate Information

(I) Consolidated revenue report of affiliates

Organizational chart of affiliates

TAIWAN FERTILIZER CO., LTD.

TAIWAN YES DEEP PEIFENG TAIZHUANG ASSETS TAIFER (CAYMAN) TAIFER (CAMBODIA) OCEAN WATER TECHNOLOGY CO., MANAGEMENT & INTERNATIONAL CO., LTD. CO., LTD. 100% LTD. DEVELOPMENT CO., LTD. GROUP CO., LTD. 100% 100% 100% 100% TAIFER TR ELECTRONIC INTERNATIONAL CHEMICAL CO., LTD. (SAMOA) GROUP CO., 51% LTD. 100% TAIFER CHEMICAL XUCHANG CHEMICAL INTERNATIONAL CO., TECHNOLOGY (KUNSHAN) LTD. COMPANY 100% 100%

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Special Records

2. Basic information of affiliates

Company	Establishment date	Address	Paid-in capital	Business/production item
TAIWAN YES DEEP OCEAN WATER CO., LTD.	September 25, 2006	No.15, Huadong, Hualien City, Hualien County, Taiwan (R.O.C.)	NT$ 257,632,000	Production, manufacturing and sale of deep sea bottled water, concentrated fluid, cosmetics, healthcare products
PEIFENG TECHNOLOGY CO., LTD.	June 6, 2017	8F., No.88, Sec. 2, Nanjing E. Rd., Zhongshan Dist., Taipei City 104, Taiwan(R.O.C.)	NT$ 1,900,000,000	Manufacture and sales of fertilizer
TAIZHUANG ASSETS MANAGEMENT & DEVELOPMENT CO.,LTD.	September 9, 1999	8F., No.88, Sec. 2, Nanjing E. Rd., Zhongshan Dist., Taipei City 104, Taiwan (R.O.C.)	NT$ 55,000,000	Development, rent, and sale of land, houses and buildings; gas station
TAIFER INTERNATIONAL (SAMOA) GROUP CO.,LTD.	February 25, 2013	TMF Chambers, P.O. Box3269, Apia, Samoa	US$ 1,415,000	Investment and share holding
TAIFER CHEMICAL INTERNATIONAL CO., LTD.	October 19, 2001	No. 38, Tourist Street, 3rd Sub-District, Qingertai District, Ulaanbaatar, Mongolia	US$ 1,333,000	Leasing of buildings and real estate
TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD.	February 1, 2011	P.O. Box 32052, Grand Cayman Ky1-1208, Cayman Island, British West Indies	US$ 10,965,000	Investment and share holding
TR ELECTRONIC CHEMICAL CO., LTD.	November 3, 2010	P.O. Box 2804, George Town, Grand Cayman, Cayman Island, British West Indies	US$ 21,500,000	Investment and share holding
XUCHANG CHEMICAL TECHNOLOGY (KUNSHAN) COMPANY	December 19, 2011	No. 66, Puzhong Rd., Shipuwen, Qiandeng Township, Kunshan City, Jiangsu Province, China	US$ 21,500,000	Production and sale of nitric acid, hydrofluoric acid, ammonium water, phosphoric acid, oxalic acid, ammonium fluoride, LCD-grade and IC-grade photoresist stripper
TAIFER (CAMBODIA) CO., LTD.	December 22, 2014	No.11 Street 3, Sangkat Teuk Loak 3,Khan Tuol Kork, Phnom Penh. Cambodia	US$ 1,255,000	Sale and production of fertilizer

Information of the same shareholders presumed having a control or affiliating relationship: None
Industries generally covered by the business of the affiliates:

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The principal business cover the manufacturing, sale, import and export trade of fertilizers, chemicals, healthcare products, deep sea water and its derivatives, as well as the development, lease and sale of lands, residential property, and buildings.

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5. Information of the directors, supervisors and presidents of the affiliates.

March 31, 2019

Unit: NT$; share; %

Company	Title	Name or representative	No. of shared held	No. of shared held
			Shares (contribution)	Shareholding ratio
TAIWAN YES DEEP OCEAN WATER CO., LTD.	Chairman	TAIWAN FERTILIZER CO., LTD. Representative:KuochungCheng	25,763,200 shares	100.00
	Director	TAIWAN FERTILIZER CO., LTD. Representative: KuoyingLiu
	Director	TAIWAN FERTILIZER CO., LTD. Representative: ShenglungPeng
	Supervisor	TAIWAN FERTILIZER CO., LTD. Representative: Wei Liu
	President	ShenglungPeng
PEIFENG TECHNOLOGY CO., LTD.	Chairman	TAIWAN FERTILIZER CO., LTD. Representative: YaohsingHuang	190,000,000 shares	100.00
	Director	TAIWAN FERTILIZER CO., LTD. Representative: Shihjih Luo
	Director	TAIWAN FERTILIZER CO., LTD. Representative: ChanglangChang
	Supervisor	TAIWAN FERTILIZER CO., LTD. Representative: MeilingHuang
	President	YaohsingHuang
TAIZHUANG ASSETS MANAGEMENT & DEVELOPMENT CO., LTD.	Chairman	TAIWAN FERTILIZER CO., LTD. Representative: HsinhongKang	5,500,000 shares	100.00
	Director	TAIWAN FERTILIZER CO., LTD. Representative: ChanglangChang
	Director	TAIWAN FERTILIZER CO., LTD. Representative: RaichengHuang
	Supervisor	TAIWAN FERTILIZER CO., LTD. Representative: Wei Liu
	President	ChanglangChang
TAIFER INTERNATIONAL (SAMOA) GROUP CO.,LTD.	Corporate representative of director	TAIZHUANG ASSETS MANAGEMENT & DEVELOPMENT CO., LTD. Representative: ChanglangChang	1,414,989 shares	100.00
TAIFER CHEMICAL INTERNATIONAL CO.,LTD.	President	Chikai Lee	US$ 1,333,494	100.00
TAIFER (CAYMAN) INTERNATIONAL GROUP CO.,LTD.	Corporate representative of director	TAIWAN FERTILIZER CO., LTD. Representative: Chunhsiung Wang	10,965 shares	100.00
TR ELECTRONIC CHEMICAL CO., LTD.	Chairman	TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD Representative: ChunhsiungWang	10,965,000 shares	51.00
	Director	TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD Representative: WenhsiungHsieh
	Director	Jinqun International Corp. Representative: ChienliangChao
	Director	TAIFER (CAYMAN) INTERNATIONAL

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Special Records

Company	Title	Name or representative	No. of shared held	No. of shared held
			Shares (contribution)	Shareholding ratio
		GROUP CO., LTD Representative: ShihchangHsu
	Supervisor	TAIFER (CAYMAN) INTERNATIONAL GROUP CO., LTD Representative: Chaojen Chien
	President	ChienliangChao
XUCHANG CHEMICAL TECHNOLOGY (KUNSHAN) COMPANY	Chairman	TR ELECTRONIC CHEMICAL CO., LTD. Representative: ChunhsiungWang	US$ 10,965,000	51.00
	Director	TR ELECTRONIC CHEMICAL CO., LTD. Representative: WenhsiungHsieh
	Director	TR ELECTRONIC CHEMICAL CO., LTD. Representative: ChienliangChao
	Director	TR ELECTRONIC CHEMICAL CO., LTD. Representative: ShihchangHsu
	Supervisor	TR ELECTRONIC CHEMICAL CO., LTD. Representative: Chaojen Chien
	President	ChienliangChao
TAIFER (CAMBODIA) CO., LTD.	Chairman	TAIWAN FERTILIZER CO., LTD. Representative: YaohsingHuang	1,000 shares	100.00
	Director	TAIWAN FERTILIZER CO., LTD. Representative: Shihjih Luo
	Director	TAIWAN FERTILIZER CO., LTD. Representative: ChiyingChuang
	President	Yaohsing Huang

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6. Operating status of affiliates

December 31, 2018 Unit: NT$K

Company	Capital	Total property	Total liability	Net value	Operating revenue	Operating profit	Current pofit/loss	EPS (dollar)
TAIWAN YES DEEP OCEAN WATER CO.,LTD.	257,632	255,856	50,746	205,110	94,258	(5,338)	(3,533)	(0.14)
PEIFENG TECHNOLOGY CO.,LTD.	1,900,000	1,904,352	13,721	1,890,631	0	(7,860)	(7,287)	(0.04)
TAIZHUANG ASSETS MANAGEMENT & DEVELOPMENT CO.,LTD.	55,000	98,967	7,918	91,049	211,426	2,430	9,919	1.80
TAIFER INTERNATIONAL (SAMOA) GROUP CO.,LTD.	42,797	58,958	0	58,958	0	(294)	7,988	-
TAIFER CHEMICAL INTERNATIONAL CO.,LTD.	45,630	59,585	882	58,703	7,040	2,688	7,988	-
TAIFER (CAYMAN) INTERNATIONAL GROUP CO.,LTD.	321, 900	0	0	0	0	0	0	-
TAIFER (CAMBODIA) CO., LTD.	40,052	32,187	1,317	30,870	7,128	1,415	2,248	-

Note 1: Taifer Biotechnology (Xiamen) Import and Export Co., Ltd. has been dormant, and was dissolved and liquidated in February 2019. After the liquidation procedure, TAIFER INTERNATIONAL (SAMOA) CO., LTD., the holding parent of this company was also dissolved and liquidated in March 2019.
Note 2: XUCHANG CHEMICAL TECHNOLOGY (KUNSHAN) COMPANY has been dormant and is now in the liquidation procedure after declaring bankruptcy. TR ELECTRONIC CHEMICAL CO., LTD.,the holding parent of this company, will proceed to liquidation after the completeion of the bankruptcy procedure of this company.
1. Affiliates providing endorsement/guarantee, loaning funds to other, and engaging in transaction of derivatives: （ Information to December 31 2018 ） The 25th session of the 32nd Board of Directors of the Company held on July 29 2014 passed the motion of offering guarantee in favor of TAIZHUANG ASSETS MANAGEMENT &DEVELOPMENT CO., LTD.(hereinafter referred to as “Taizhuang”) in the purchase of petroleum products amounting to NT$13.5 million. As of December 31 2018, the Company continued to pledge certificates of deposits as surety for the guarantee of Taizhuang in the purchase of petroleum products.
(II) Consolidated Financial Statements of Affiliates: The companies to be included in the consolidated financial statements under the “Criteria Governing Preparation of Affilation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” and the companies to be included in the compilation of consolidated financial statemetns of the parent company and subsidiaires under IFRS 10 recongized by the Financial Supervisory Commission in

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2018 (from January 1 2018 to December 31 1028) are identical. In addition, information of the consolidated financial statement required for disclosure has already been disclosed in the aforementioned consolidated financial statements of the parent company and subisdiaries. As such, it will not be necessary to compile consolidated financial statements of affiliates.

(III) Affilation Report: None

II. Private placements of securities in the most recent year and as of the printing date of the annual report: None
III. Shares of the Company that are held or disposed by a subsidiary in the most recent year and as of the printing date of the annual report: None

IV. Other necessary descriptions: None

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Chapter Nine: Events of significant influence on shareholders equity or stock price under Subparagraph 2, Paragraph 2 in Article 36 of the Securities and Exchange Act: None

TAIWAN FERTILIZER CO., LTD.

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Chairman: Hsinhong Kang

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使用環保再生紙與大豆油墨印製，致力於珍惜資源與環境保護。

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AI assistant

TFC — Annual Report 2018

51902_rns_2019-07-09_c3bf20ca-a1e4-4c1f-9d6e-75f57948882e.pdf

I. Company Spokesman:

General Administration Department:

Table of Contents

Chapter One: Report to Shareholders

Overview of operations in 2018:

Summary of operating plan in 2019:

Summary of future business development strategies:

Chapter Two: Company Profile

I. Incorporation Date:

II. Company History:

Chapter Three: Corporate Governance Report

I. Organization System

(I) Corporation Organization

(II) Affairs in charge for each major department

II. Information on Directors, Supervisors, President, Vice Presidents, and Management Team

(I) Director information

Director information (One)

Form 1: Key Shareholders of Corporate Shareholders

Director information (Two)

(II) Information on the President, Vice Presidents and Management Team

III Remuneration paid to directors, supervisors, president and vice presidents for the recent years

(I) Remuneration for directors of the board (including independent directors) (Summary of ways for coordinative disclosure of names)

Remuneration Scale Table

(II) Remuneration for Supervisors (Summary of ways for coordinative disclosure of names)

Remuneration Scale Table

(III) Remuneration for the President and Vice Presidents (Summary of ways for coordinative disclosure of names)

Remuneration Scale Table

(IV) Names of Management Team for the Allotment of Employee Remuneration, and Allotment Conditions

IV. Corporate Governance Conditions

(I) Operation of the Board of Directors

(II) Operation of the Audit Committee or the Participation in the Board of Directors by Supervisors

1. Operation of the audit committee:

(IV) The Company should disclose the composition, function, and operation circumstances of compensation committee, if any.

(V) Performance of Social Responsibilities:

(VI) Conditions for performing good faith management and measurement by the Company

(IX) Status of the Execution of the Internal Control System

2. Important solutions at the board of directors meeting

V. Information on CPA Professional Fees

(I) Information of Professional Fees to CPA By Fee Range

CPA expense information

VI. Information on replacement of certified public accountant: N/A

(I) Information on transfer of shares:

(II) Information on pledge of equity interests:

IX. Top 10 shareholders who are close associates, spouses, or relatives witin two degrees of consanguinity

Chapter Four: Capital Overview

I. Capital and Shares

(I) Source of Capital Stock

(II) Structure of Shareholders

(III) Shareholding Distribution Status

1. Common stocks

(IV) List of Major Shareholders

(V) Market Price, Net Value, Earnings, Dividends Per Share of the Latest Two Fiscal Years, and Related Information

(VI) Dividend Policy and Implementation

(VIII) Remuneration for Employees and Directors

(IX) Buyback of the Shares of the Company

II. Corporate Bonds: None

III. Preferred Stocks: None

VII. Financing Plans and Implementation: N/A

Chapter Five: Operation Highlights

I. Business Content

(I) Scope of Business

currently.

(2) Business Investments:

(II) Industry Overview

1. General Economic Environment

(III) Technology and R&D overview

1. R&D expenditure

(1) Development of biotech fertilizer

(2) Development of biological pesticides

(3) R&D of micronutrients fertilizer

(4) Strawberry (fertilizer, medium) agent development plan

(5) Multi-species cultivation in different sections of deep ocean water

(6) Evaluation of the Application of “HAP Natural Soft Beads” in Cosmetics Products

(7) Algae Polysaccharide Extraction Technology Research and Development

(8) Electrical-Grade NMP Purification Research and Development

(9) Improvement of the Wastewater Process Technology in the Miaoli Plant

(10) Study on the Purification Process Technology of Cyclopentane

TFC Annual Report 2018