Discussion of notes

Risk management

As an innovative and ambitious global company, effective risk management underpins Marel's continued growth and our position as an industry leader.

An active approach to risk management

Marel has a strong track record of growth. Detailed, holistic risk practices are the key to Marel’s sustainability and long-term relationships with customers and stakeholders. The risk management process is supported and monitored by the Board of Directors. As part of the steady expansion of its enterprise risk management process, Marel has launched a number of initiatives throughout the company.

 

Each initiative will contribute to achieving the company’s objectives with regard to efficacy and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

Risk appetite

All business operations involve some form of risk. Marel has identified ten Risk Appetite Categories and defined how they relate to its strategic operations.

The Board of Directors reviews and approves the company’s risk appetite on an annual basis, or more frequently in the event of unexpected changes to the risk environment, to ensure it remains consistent with Marel’s strategy, business and regulatory environment and stakeholder requirements. Reports on the company’s risk profile and risk appetite are presented regularly to the Board of Directors.

Taking risks is an integral part of daily business activities. By carefully balancing our objectives against the risks we are prepared to take, we strive to conduct business operations in a socially responsible and sustainable manner. This approach helps Marel attain its strategic objectives.

Risk management process

Marel has a vigorous risk management process which consists of 5 steps:

  1. Risk appetite sets out the amount of risk the company is willing to accept in pursuit of value.
  2. Risk assessment involves mechanisms for identification of risks, e.g. a brainstorming session to assess risk and controls. Risks are ranked by the likelihood of their occurrence and magnitude of their impact in a risk register.
  3. Risk treatment is the process of selecting and implementing measures to minimize the probability of identified risks materializing and alleviate their potential effects.
  4. Monitoring is done through dashboard reporting and updating of the self-assessment document.
  5. Communication of priority risks to the Board is made via a designated dashboard. Predetermined parameters are measured against the risk appetite to give a clear visual overview.

Risk categories

Marel’s activities expose the company to a variety of risks, which are grouped in five categories: strategic, operations, financial reporting, compliance, and sustainability.

Sub-categories

Each category has sub-categories that can be defined broadly as follows

Marel Risk Management Table Overview

Key risks

Our management has identified certain key risks to our business that demand attention. Of these, seven key risks are discussed below, together with an overview of corresponding mitigative actions.

Profit and earnings volatility risk

Our operational results are subject to volatility. Factors like increase in competition, geopolitical conflicts, trade restrictions, and natural disasters might influence our ability to predict revenues, costs, and expenses affecting our growth objectives.

Our business model with revenue streams generated by different industries, geographical areas, and product mix allows us to achieve and maintain strong profitability throughout economic cycles.

Innovation risk

Changes in technology, failure to understand customer needs, inability to enforce intellectual property rights, etc. can affect our expansion objectives. Our success depends on our ability to develop and successfully introduce new products in addition to ensuring the competitiveness of existing ones, including solutions and software.

Marel will continue to lead the innovation game in the food processing industry by committing significant resources to support its ambitious innovation objectives.

People management risk

A high turnover rate, disengaged employees, gaps in workforce skills or misalignment of those skills with the company’s needs, an inadequate succession plan, etc. can harm our business. Workplace instability, absenteeism, and additional stress caused by the global pandemic, coupled with changing global workforce preferences, further increase the risk of effective talent management.

Marel remains a desirable place to work that attracts and retains talented employees. Throughout the pandemic, we have implemented initiatives to maintain motivation and engage with our workforce in a personal manner. Marel is proactive in adapting its policies to align with current global trends.

Supply chain disruption risk

As a manufacturer of leading technology solutions, we rely on the timely supply of inputs, as well as continued supply of scarce resources. The global pandemic caused instability in commercial transport and saw an increase in the demand of raw materials. This can lead to increased costs as well as delays to customer delivery.

Marel makes use of its global footprint to mitigate supply chain risks, while continuing to adopt new supply chain technologies. Deliberate mitigations include the increasing of inventory levels, as well as identifying substitute suppliers. The company remains agile and proactive when prioritizing its manufacturing needs.

Reputation and compliance risk

Marel operates worldwide and needs to comply with numerous and changing laws and regulations. Failure to comply can lead to penalties and adverse publicity. The evolution of social media further increases the risk of reputational damage.

Marel strives to preserve and enhance its brand value, build resilience, and create emotionally connected customers, employees, and stakeholders, while complying with all industry, regulatory, and other general standards of significance.

Information security risk

Failure to secure our information systems and data could result in operational disruptions, financial losses, reputational damage with existing and new customers, etc.

Marel continues to invest in new facilities and infrastructure and in upgrading existing ones to ensure their integrity and availability in case of adverse events.

Foreign exchange risk

As an international company, Marel is exposed to foreign exchange risk arising from various currency movements, primarily with respect to the EUR/USD exchange rate for revenues and EUR/ISK rate on the cost side.

Marel takes advantage of natural currency hedges by matching revenues and operational costs as economically as possible. The company’s funding is denominated in its main operational currencies to create natural hedging in the balance sheet. Where necessary, financial exposure is hedged in accordance with Marel’s policy on permitted instruments and exposure limits.

Insurance policies

The company maintains both global and local insurance policies. 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 its current insurance coverage to be adequate.

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