Análisis del proceso de producción

Risk management

The group is exposed to various risks of a fi nancial and operational nature. The board of directors has established a framework for risk management (see fi gure) to ensure that the group has good internal controls and appropriate systems for risk mana- gement adapted to the nature of and the risks related to its operations.

2011 was a good year for the aquaculture industry. However, the increased supply of salmon from Chile and Norway lead to a temporary fall in salmon prices through 2011, and prices may remain low throug- hout 2012. It is important that the group has the fi nancial strength to carry signi- fi cant fl uctuations in profi ts as a result of price volatility or substantial production challenges such as major outbreaks of disease.

The company is engaged in both feed pro- duction and farming, which diversifi es the risk. The positive effect of this strategy is most visible in periods of low salmon prices or signifi cant production challenges, when the more stable profi ts and cash fl ows of the feed business will make up a substan- tial part of the overall profi t for the group (see fi gure). To reduce the impact of price volatility, the group has more actively pur- sued hedging of salmon prices through fi nancial contracts. Such contracts have however had limited impact on the results for 2011.

The board considers the high equity ratio and diversifi cation of risk as outlined, to be the primary foundations of the group’s fi nancial risk management. The board has decided that the group’s equity ratio should normally be at least 45 percent. At

STRONG BALANCE SHEET EXPOSURE TO A PORTFOLIO OF SALMON PRICES LOW COST PRODUCER

R&D AND PRODUCT DEVELOPMENT DIVERSION IN THE VALUE CHAIN

(FEED/FARMING) GEOGRAPHIC DIVERSIFICATION

RISK MANAGEMENT AND VALUE CREATION

50_{CERMAQ ANNUAL REPORT 2011}

the end of 2011 the equity ratio was just above 59 percent.

The group has decided that operational risks should be governed and controlled by way of management systems certifi ed according to ISO standards or equivalent standards. The group has defi ned key areas to be quality (ISO 9001), environment (ISO 14001,) food safety (ISO 22000) and health, environment and safety (HES) (OHSAS 18001). With the exception of EWOS Vietnam, which was aquired in April last year and is currently preparing a progress schedule, all compa- nies aim to be certifi ed under the remaining standards during 2012.

Every quarter the board reviews a report on development in the risk factors assumed to have the greatest fi nancial impact should they occur and on key measures that have been implemented in order to reduce these risks. The effect on reputation is also revi- ewed for operational risks relating to the environment and corporate responsibility issues.

The board undertakes a biannual review of the company’s internal reporting on sustai- nability indicators. The reporting provides information to help identify development trends and address matters that increase operational risk.

Financial risk

2011 was characterised by unstable fi nan- cial markets and increased volatility lead- ing to increased fi nancial risk.

The board and management believe that the best way to meet macroeconomic challenges is to sustain a solid balance sheet and to ensure that a good fi nancing structure with diversifi ed maturity. Risk management activities focus on regu- lar assessments of exposure and, to the extent possible, on mitigating risks by means of natural and operational hedges. This approach is in line with the group’s fi nancial policy.

A more detailed description of each risk category follows below. For further infor- mation about fi nancial risks (currency, inte-

rest rate, credit and liquidity), please refer to note 24 in the annual accounts.

Currency risk

Upon translating foreign subsidiaries’ income statements and statements of fi nan- cial position, the group’s largest exposure is to the US dollar, and assets and revenues recognised in US dollar are predominantly hedged by loans in the same currency. At the end of 2011, 59 percent (2010: 76 percent) of the group‘s interest-bearing debt was in US dollar. This provided a natural hedge for investments in Chile. 41 percent (2010: 24 percent) of the group‘s interest- bearing debt was in Norwegian krone. Currency exposure in relation to future operational cash fl ows is primarily linked to the US dollar and the euro against the Norwegian krone, and the US dollar against the Canadian dollar. Currency exposure is signifi cantly reduced by diversifi cation, as companies within the group have indivi- dual exposures that offset each other for the group as a whole. Currency exposure is further reduced by introducing cost price adjustment clauses in contracts with feed customers. Remaining net exposure is monitored regularly and is currently con- sidered to be low. For this reason, hedging through fi nancial contracts is utilised only to a limited extent.

Interest rate risk

The group is mostly exposed to interest rate risk through its funding activities and only to a limited extent through liquidity management, as cash is either reinvested in operations or used to pay down existing debt.

The group generally accepts exposure to fl oating interest rate on its fi nancial lia- bilities and will not normally use fi nancial instruments to secure fi xed rate terms, unless there is deemed to be a signifi cant risk of a breach of the group‘s loan cove- nants.

At the end of 2011 the totality of the group’s interest bearing debt was subject to fl oating interest rates.

EBIT – Mainstream EBIT – EWOS 2011 2010 2009 2008 2007 2006 2005 2004 2003 1 600 -200 0 800 1 400 1 200 600 1 000 400 200 '03 '04 '05 '06'07'08 '09'10 '11 254 250 / 188 _{182 / 504} 256 / 1 106 378 / 418 -131 / 184 380 / 175 509 / 913 625 / 772 EBIT PER BUSINESS SEGMENT NOK million

ISO-CERTIFICATION PER COMPANY per 31 December 2011 Operating company ISO 9001 ISO 22000 ISO 14001 ISO 18001

MS Norway Yes No No Yes

MS Chile Yes Yes Yes Yes

MS Canada Yes Yes Yes Yes EW Norway Yes Yes Yes Yes

EW Chile Yes Yes Yes Yes

EW Canada Yes Yes Yes Yes EW Scotland Yes Yes Yes Yes

EW Vietnam No No No No

EWOS Innovation No Yes No Yes Yes EWOS Innovation Ch Yes No Yes Yes

CERMAQ ANNUAL REPORT 2011 51

Credit risk

The board believes that the credit risk has been diversifi ed since the group’s custo- mers represent a range of industries and are located in different geographical regi- ons. The counterparty risk in relation to fi nancial institutions is also deemed to be limited. The group limits its volume of liquid assets at all times, rarely trades in derivatives and predominantly uses a small number of solid banks for fi nancing. Low salmon prices in the second half of 2011 led to an increase in the credit risk faced by the feed business as a consequ- ence of the more challenging situation for the fi sh farming industry. In order to manage the increased risk to the group, the management has further improved its proactive strategy to mitigate risk, focusing on careful customer selection and adopting a tighter credit regime. The group has also been seeking to establish additional secu- rity by obtaining pledge on biomass and parent company guarantees and by purcha- sing insurance coverage when appropriate. The group is not signifi cantly exposed to any single customer or contractual party as at 31 December 2011.

Liquidity risk

Following successful refi nancing in 2010 and 2011, the group has achieved a diver- sifi ed maturity profi le for the period 2013– 2015.

Solid cash fl ows generated in the last two years have resulted in a signifi cant reduc- tion in the group’s net interest-bearing debt and in substantial available fi nancial headroom (approx. NOK 4 billion in cash and unused credit limits as at 31 December 2011). The board and management have elected to retain a high equity ratio to be well positioned for fi nancial and operatio- nal challenges.

Operational risk

Fish health at Cermaq’s fi sh farming busi- ness has remained good throughout 2011. Emphasis on sustainable production and preventive measures has reduced the ope- rational risk and generated good biological results in all regions, particularly in Chile.

The board is being kept up-to-date with the fi sh health situation for the group and for Chile in particular, and the risk is continu- ally assessed in connection with decisions to release more salmon into marine farms and with future investments.