# Foreign Exchange Risk Management Policy

**Nordvik Industri AS**
Functional currency: NOK
Version: 1.0 (draft for Board approval)
Effective date: [on Board approval]
Next review: 12 months from approval

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## 1. Purpose and scope

This policy sets out how Nordvik Industri AS ("the Company") identifies, measures, manages and reports foreign-exchange (FX) risk. It applies to the Company and all entities it controls, and to all FX exposures arising from commercial activity, financing and cash management.

The policy is approved by the Board. It establishes the framework within which management may transact in foreign currency and hedging instruments. No FX or hedging activity may take place outside this framework.

## 2. Objectives

The Company's FX risk management objectives are to:

- reduce the volatility of cash flows arising from foreign-currency payables, receivables and highly probable forecast transactions;
- protect the foreign-exchange rates assumed in the approved budget and plan; and
- provide certainty that supports commercial decision-making.

The Company hedges only identified, underlying exposures. **The Company does not take speculative foreign-exchange positions and does not transact in FX for profit.** Hedging is undertaken solely to manage existing or highly probable commercial exposure.

## 3. Governance and responsibilities

| Body / role | Responsibility |
|---|---|
| **Board of Directors** | Approves this policy and the risk limits within it. Reviews FX risk at least annually. |
| **Treasury Committee** | CFO, Group Treasurer, and one further independent voice (an audit committee member or external adviser). Reviews hedging activity, exposure, and policy compliance quarterly, or sooner if a breach is triggered under Section 13. Minimum quorum: two members, including the CFO or Group Treasurer. Recommends any Section 7 options exception to the Board. |
| **CFO** | Owns the policy, oversees execution, and reports FX risk to the Board. Approves transactions above the delegated limit. |
| **Treasury / Finance** | Executes hedging within the policy and delegated authority; monitors exposures and limits; prepares reporting. |
| **Segregation of duties** | The functions of dealing, confirmation/settlement, and reconciliation are performed by different individuals. No single person controls a transaction end to end. |

**Delegated authority.** Treasury/Finance may execute hedges in permitted instruments within the bands in Section 5, up to a single-transaction limit of [approval limit, set by the Board]. Transactions above that limit require CFO approval. Any transaction outside this policy requires prior Board approval.

## 4. Foreign-exchange risk identification

The Company is exposed to **transaction / cash-flow FX risk** arising from:

- foreign-currency payables and receivables already on the balance sheet; and
- highly probable forecast foreign-currency revenues and costs.

Principal exposure currencies are **EUR and USD** against the NOK functional currency. Exposures are identified from the order book, the purchasing and sales ledgers, and the rolling cash-flow forecast, and are quantified monthly by currency and by maturity bucket.

A forecast exposure is treated as **highly probable** where it is supported by a firm order or contract, or by a documented forecasting track record, and is expected with high confidence consistent with IFRS 9. The Company sets and documents the evidentiary basis for this classification (for example, order-backed, or a demonstrated rolling forecast-accuracy threshold) and reviews forecast accuracy each quarter. Only exposures meeting this standard are eligible for the forecast hedge bands in Section 5.

Translation exposure (from consolidating any foreign operations) and economic exposure are monitored but are not actively hedged under this policy unless specifically approved by the Board.

## 5. Risk appetite and hedging parameters

The Company adopts a **Balanced** risk appetite. Hedging is layered over a rolling 12-month horizon, building coverage as exposures become more certain.

The following hedge-ratio bands apply by exposure type and tenor. Ratios are of net exposure per currency.

| Exposure | Horizon | Hedge ratio band |
|---|---|---|
| Committed / contracted | 0 - 12 months | 60% - 90% |
| Highly probable forecast | 6 - 12 months | 25% - 60% |
| Forecast | beyond 12 months | 0% - 30% |

Coverage is built in layers rather than as a single transaction, to average the entry rate over time and avoid concentrating execution on any single day. Net exposures are hedged; naturally offsetting flows in the same currency are netted before hedging.

**Absolute maximum tenor.** No hedge may have a maturity beyond **18 months**, regardless of how highly probable (Section 4) the underlying forecast is judged to be. This is a hard ceiling, not a target: the bands above govern how much coverage is built within it. Exposures expected beyond 18 months are monitored but are not hedged under this policy. Where the Company judges exposure highly probable beyond 18 months, that exposure is knowingly left unhedged under this policy; this trade-off is a Board-level risk-appetite decision, not an oversight.

## 6. Hedge maintenance and over-hedge remediation

Hedging a forecast exposure creates an ongoing obligation to keep the hedge matched to the exposure over the life of the hedge. Where a hedged forecast transaction is reduced, delayed or cancelled - for example where a contract falls through, a customer cancels, or volumes come in below forecast - hedge notional can come to exceed the remaining underlying exposure. Hedge notional in excess of its underlying is an open position with no economic underlying, and this policy treats it as speculative in substance regardless of how the hedge originated.

To prevent this, Treasury/Finance reconciles hedge notional against current underlying exposure, by currency and maturity bucket, on a **monthly** basis, as part of the exposure review in Section 4.

An over-hedge exists where hedge notional for a currency and tenor exceeds 100% of the current underlying exposure for that currency and tenor, as defined in Section 4 ("highly probable"). An operational tolerance of up to **105%** of the underlying is permitted to absorb ordinary forecast variation and netting timing, and does not by itself require action. Hedge notional above the tolerance must be remediated within **30 days, or by the next reconciliation, whichever is earlier**.

On identifying an over-hedge above the tolerance, Treasury/Finance remediates the excess, in the following order of preference:

1. re-designate the excess against another highly probable forecast exposure in the same currency, where one exists within the original hedge horizon;
2. unwind or reduce the excess hedge, crystallising the resulting gain or loss; or
3. hold the excess undesignated as a short-term measure within the remediation window only, and never as a continuing position.

The Company does not hold hedge notional in excess of its underlying exposure as a standing position.

**Accounting.** The reconciliation above spans two kinds of exposure, and an over-hedge in each has a different accounting consequence.

**Forecast-hedge portion.** Where the Company applies hedge accounting to a hedge of a highly probable forecast transaction, the reconciliation has accounting consequences. If such a hedged forecast transaction is no longer highly probable but is still expected to occur, hedge accounting is discontinued prospectively for the affected portion - discontinuation follows automatically once the forecast fails the Section 4 test and is not a discretionary de-designation - and amounts already accumulated in the cash flow hedge reserve remain there until the forecast transaction affects profit or loss. If the transaction is no longer expected to occur at all, the related cumulative amount in the cash flow hedge reserve is reclassified to profit or loss immediately. Discontinuing hedge accounting does not terminate the derivative: the Company continues to hold it and, until it is unwound or re-designated, measures it at fair value through profit or loss. Whether hedge accounting is applied to a given hedge, which treatment applies to a given excess, and the accounting consequences of unwinding, holding undesignated or re-designating the derivative, are confirmed with the Company's auditors.

**Committed and contracted portion.** A committed or contracted foreign-currency monetary balance already recognised on the balance sheet - such as a booked payable or receivable - is retranslated at each reporting date through profit or loss under IAS 21, whether or not hedge accounting is applied; a derivative held against it and measured at fair value through profit or loss moves through profit or loss in the same period, so the two are already largely offsetting, and many companies do not designate hedge accounting for a hedge of a recognised item at all. Where a hedge is placed against a firm, uncancellable commitment that is not yet recognised - for example a signed order for a future delivery - IFRS 9 allows the foreign-exchange risk on that commitment to be designated as either a fair value hedge or a cash flow hedge; which designation, if any, the Company applies is a matter for the Company and its auditors. In either case an over-hedge - hedge notional exceeding the committed or contracted underlying - remains an open position in substance and is reconciled, tolerance-tested and remediated exactly as set out above; only the accounting consequence of unwinding, holding undesignated or re-designating the derivative differs, and those consequences are confirmed with the Company's auditors.

A single hedge may cross between these two treatments over its life - for example a forecast hedge that continues in place after the forecast transaction is recognised as a payable or receivable, or a single forward covering a layered exposure that is part committed and part forecast at once. Where this occurs, the point at which one treatment gives way to the other is confirmed with the Company's auditors; this policy does not attempt to fix it.

This policy does not determine the accounting treatment.

An over-hedge above the tolerance is a breach for the purposes of Section 13 and is escalated accordingly.

## 7. Permitted and prohibited instruments

**Permitted:** FX spot, FX forwards, and FX swaps, used solely to hedge identified underlying exposure.

**Prohibited:** options unless and until specifically approved by the Board; structured, leveraged, or path-dependent products; and any instrument or position that exceeds, or is not matched to, an underlying exposure. The notional and maturity of a hedge may not exceed the exposure it covers.

## 8. Counterparty and credit risk

FX and hedging transactions are executed only with the Company's approved relationship banks. The Company maintains, or will put in place, ISDA Master Agreements (and CSAs where appropriate) with its hedging counterparties [to be confirmed].

**Minimum counterparty credit standing.** Hedging counterparties are expected to hold a credit rating of [investment grade, e.g. BBB-/Baa3 or above from a major rating agency - to be confirmed by the Board], or to be one of the Company's principal relationship banks used regardless of rating where no alternative counterparty is realistically available [to be confirmed by the Board].

**Concentration.** No more than [X]% of hedge notional outstanding is held with a single counterparty [to be confirmed by the Board], other than where the Company's relationship-bank structure makes this impractical.

**Downgrade.** Where a counterparty is downgraded below the minimum standing above, the Company does not enter into new transactions with that counterparty until its standing has been reviewed by the CFO [or Board]. Existing positions with the downgraded counterparty are assessed but are not automatically unwound: an unwind can itself crystallise a loss at a badly-timed moment, so any unwind decision is made deliberately by the CFO [or Board], not triggered automatically by the downgrade alone.

Exposure is spread across more than one counterparty where practical to avoid undue concentration, and counterparty standing is reviewed at least annually, or sooner if market conditions or the counterparty's public credit standing changes materially.

Where either of the above exceptions applies - the minimum-rating carve-out or the concentration carve-out - the Board confirms at least annually that the exception remains necessary and that the resulting concentration is understood and accepted, rather than the exception becoming the default position by inaction.

## 9. Execution standards and independent oversight

The Company executes FX on a **best-execution** basis and aligns its dealing conduct with the principles of the **FX Global Code**.

The cost of FX is embedded in the rate the Company is offered and is not separately invoiced. The Company cannot manage a cost it does not independently measure. The Company therefore **measures its realised execution cost against fair, tradable reference rates** (expressed in PPM of traded notional, referenced to executable rates and never to the mid) and reports it to the Board (Section 10).

## 10. Measurement, valuation and reporting

The Company measures and reports the following on a **quarterly** basis to the Board (and monitors them monthly internally):

- **Hedge ratio** by currency and maturity bucket, against the bands in Section 5;
- **Mark-to-market** of the open hedge portfolio;
- **Downside sensitivity** of the unhedged residual exposure to a defined adverse move (for example a 10% move in each principal pair), reported as the cash impact. Where the Company computes Value at Risk, it is stated with its confidence level, horizon and basis (for example 95%, one month, historical simulation), not as a bare figure; and
- **Realised FX execution cost** versus the independent benchmark (Section 9).

In addition, the Company tracks the following supporting indicators, reported to the Board on the same quarterly cadence:

- **Forecast accuracy** - actual foreign-currency flows versus the forecast on which hedges were based, by currency, supporting the highly probable standard in Section 4;
- **Cost of carry** - the total cost of hedging (forward points and any fees) as a percentage of hedged notional;
- **Achieved hedge rate versus budget rate** - the time-weighted rate achieved on hedged flows against the rate assumed in the approved budget; and
- **Hedge effectiveness** - where hedge accounting is applied (Section 12), the effectiveness of designated hedging relationships as measured for accounting purposes.

Material breaches of the policy bands or limits are reported to the CFO immediately and to the Board at the next meeting.

## 11. Stress testing

In addition to the downside-sensitivity metric in Section 10, the Company stress-tests its FX risk against a small set of adverse scenarios at least annually, or when its risk profile changes materially - for example a significant change in exposure, counterparty base, or market conditions. This is a broader check on resilience than the standing sensitivity metric, which measures a single defined shock; stress testing considers scenarios that could compound.

As a minimum, the Company's stress testing covers:

- the same defined adverse FX move used in the downside-sensitivity metric (Section 10), applied across the full hedged and unhedged portfolio; and
- at least one combined scenario, such as the defined adverse FX move occurring at the same time as a delayed payment from a major foreign-currency customer, or at the same time as a credit event at a hedging counterparty.

Results are reviewed by the CFO and reported to the Board at least annually, or sooner if a stress test identifies a material vulnerability.

## 12. Accounting treatment

The Company may apply hedge accounting under IFRS 9 where hedges qualify and where doing so reduces accounting volatility. The specific designation and documentation are to be confirmed with the Company's auditors. This policy does not determine the accounting treatment.

## 13. Compliance, limits and breach escalation

Treasury/Finance monitors exposures, hedge ratios and limits against this policy and records compliance. A **breach** is any hedge ratio outside the approved band, any transaction in a prohibited instrument, any position exceeding its underlying exposure (including an over-hedge above the tolerance in Section 6), any hedge with a maturity beyond the absolute maximum tenor in Section 5, or any transaction above the delegated authority without the required approval.

On identifying a breach, Treasury/Finance escalates to the CFO without delay. The CFO determines remedial action and reports the breach and remedy to the Board at the next meeting. Repeated or material breaches trigger a review of controls.

## 14. Policy review and approval

This policy is reviewed at least annually by the CFO and re-approved by the Board, or earlier if there is a material change in the Company's exposures, strategy, or the market environment.

| | |
|---|---|
| Policy owner | CFO |
| Approved by | Board of Directors |
| Approval date | [date] |
| Version | 1.0 |
| Next review | [approval date + 12 months] |

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*This policy is a template to be reviewed and adopted by the Company's board and advisers. It is not legal, accounting, or investment advice.*