Fiven Annual Report 2022 Operational risk The Group’s business includes several operational risks associated with the running of the industrial factories. The manufacturing of silicon carbide is highly depending on raw material such as petroleum coke and sand as well energy for production and processing. Through forward contracts on energy, Fiven entities are able to secure a stable supply of power for production. For petroleum coke there is no forward market, but through multiple sourcing, the Group has what is considered a steady supply. Fiven has its own sand mine in Brazil. The Group’s high consumption of petroleum coke in the production of silicon carbide has led to exposure against different types of emission such as dust, PAH, B(a)P and SO2 and related costs to satisfy local laws and regulation. From September 6 2022, the Norwegian Environment Agency (NEA) announced temporary stoppage of 2 furnace groups equating to 25 percent of the furnace capacity in Fiven’s plant in Lillesand (Norway) for the rest of 2022 based on projections of SO2 emissions for 2022. As a mitigating step Fiven Norge AS has accelerated implementation of gas cleaning of two additional furnace groups to be completed in Q1 2023. The total furnace groups with a gas cleaning system will then be six. Fiven is confident that the investment into the technology developed by Fiven itself will enable full compliance to requirements. Compared to the previous years, the Group has increased its capital expenditures in relation with emissions control in order to secure and achieve overall compliance with laws and permits. Safety is a key priority to Fiven, and the manufacturing locations have established routines and procedures designed to minimize overall operational risk. KPIs are recorded, analyzed and actioned systematically. Health, environment and safety performance is reviewed monthly on management level and with owners. Political risk Since the Group is present in several geographic markets, Fiven is also subject to external risks, such as political risks. In 2022 Fiven sold its two entities in Venezuela reducing risk from institutional and social unrest in the country. The Group's operations in Brazil are subject to detailed regulation and complicated rules regarding, inter alia, tax, labor, financing, the environment and other regulatory requirements. The complexity of the legislative framework may expose the Group to risks such as legal uncertainties, increased costs in the compliance work and a lack of foreseeability, which could have a material adverse effect on the Group's business and financial position. The Group has managed well the challenges in Brazil, and 2022 was the best ever year for the local entity in Brazil. Financial risk Fiven is exposed to different risks in the various market it operates. The objective is to minimize the impact from such risks to the financial statement. Fiven operates in an international industry which exposes the business to a variety of financial risks. Through its global operations, Fiven is impacted by fluctuations in exchange rates of other currencies. Major trading currencies are USD, EUR and BRL. Fiven Group’s reporting currency is EUR, and the Group both hedges through financial instruments and actively uses natural hedge to reduce the risk for currency exposure. Similarly, denomination of currency for loans and bonds seeks to reduce the impact of fluctuations in exchange rates. Customer credit risk is considered low, and credit management ensures that a big portion of the receivables is insured against credit risk. Fiven Norge and Fiven Belgium (Matériaux Céramiques S.A) have a factoring arrangement where there is no recourse. Liquidity risk is related to difficulty in meeting financial obligations. In 2021 the Group was refinanced through a new Bond of 70 mEUR being listed on the NASDAQ Stockholm and Frankfurt Open Market stock exchanges. Through strong cash generation in 2022 bondholders accepted the repayment of a shareholder loan from 2019. In parallel, the factoring agreement for Fiven Norge and Fiven Belgium constitutes another source for funding. There is also an export credit facility in Brazil. Other than that, liquidity needs are covered through cash generated from operation. Insurance for board members and general manager The Group has procured Directors and Officers liability insurance on behalf of the members of the Board of Directors and Fiven management. This is standard insurance to protect against certain risks including (but not limited to) civil fines and penalties, emergency costs, public relations expenses, tax extensions, foreign corruption and securities claims. Corporate Social Responsibility General End of 2022, Fiven performed the second ESG self-assessment by the company Ecovadis. Ecovadis awarded Fiven in January 2023 for the 2nd time with the Silver Medal with a score of 59/100 compared to 56/100 in 2021. The silver rating places Fiven in the top 25 percent of all companies assessed by EcoVadis. The progress made in 2022 was mostly performed on the business ethics axis. Fiven will be reassessed beginning of 2024 Sustainability linked bond key performance indicators which are CO2 and SO2 emissions (expressed in tons/tons of crude produced) , volume of water withdrawals (in absolute value) achievement for 2022 will be reported in the Sustainability Linked Bond progress report 2022 that will be published on 22 Board of Directors’ Report
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