ENTERPRISE RISK MANAGEMENT

Effective risk management is important for Marel’s sustainability as well as the company’s long term relationship with its customers and other stakeholders. Marel is exposed to various risks in its operations like other multinational companies.

There are numerus activities within the organization designed to identify, monitor and control risk. Marel is taking the first steps to centralize and align this work by implementing an enterprise risk management process throughout the company. This will contribute to achieving the company’s objectives related to effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

INSURANCE POLICIES

The company maintains global and local insurance policies. The coverage includes property damage, business interruption, general and product liability, marine cargo/mounting, directors and officers liability, employers practice liability, business travel and accidents. The company believes that its current insurance coverage is adequate.

Financial risk management

Marel’s activities expose the company to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk, cash flow risk and fair-value interest rate risk.

The company’s overall financial risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the company’s financial performance. The company uses financial derivatives as instruments to hedge certain interest rates and foreign exchange risk exposure.

Risk management is carried out within the company, where applicable, under policies approved by the Board of Directors. Financial risk is monitored and managed centrally in the Treasury.

FOREIGN EXCHANGE RISK

The company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the EUR/USD and EUR/ISK on the cost side. The general policy is to apply natural currency hedging to the extent possible and prohibit any speculative trading of financial instruments.

Company funding is denominated in the main operational currencies to create natural hedging in the balance sheet. Where needed, financial exposure is hedged in accordance to the company’s general policy on permitted instruments and exposure limits.

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CREDIT RISK

The company minimizes credit risk by monitoring credit granted to customers and by assigning  collateral to cover potential claims. The company has policies in place to ensure that sales of products and services are made to customers with an acceptable credit history  and that products are not delivered until payments are secured.

Marel has banking relations with a diversified set of financial institutions around the world. There are policies in place that limit the amount of credit exposure to any one financial institution.

LIQUIDITY RISK

Due to the dynamic nature of the underlying businesses, the company has prudent liquidity risk management to ensure sufficient flexibility in funding under the revolving part of the facilities agreement and the current financial assets available.

CASH FLOW AND FAIR-VALUE INTEREST RATE RISK

The company’s income and operating cash flows are substantially independent of changes in market interest rates. The interest rates of finance leases to which the company is lessor or lessee are fixed at the inception of the lease. These leases expose the company to fair-value interest rate risk. The company reports separately an embedded 0% floor in its long term Euro borrowing. The valuation of this embedded derivative is dependent on market interest and is reported in the income statement. The company’s cash-flow interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the company to cash-flow interest rate risk, while borrowings issued at fixed rates expose it to fair-value interest rate risk.

The company manages its cash-flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The company raises long-term borrowings at floating rates and swaps a portion of them into fixed rates. The risk, measured as the potential increase in interest paid during the coming year based on a defined movement in interest rates, is monitored and evaluated regularly.