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Risk Management Policy

1. OBJECTIVE

The Risk Management to Santa Terezinha is a fundamental tool through which all strategic risks are analyzed and monitored together with operational, financial and economic issues. Also, the same treatment is given to Environmental, Social and Governance* issues. * ASG, Portuguese abbreviation to Environment, Social and Governance.

Santa Terezinha opted to follow a Risk Management policy enforced by the criteria established by the Regulations Institutions of the Market, including on its analysis, the issues and tools that assist the construction of strategies and specific processes of ASG.

Therefore, this policy is constituted by a pool of principles and procedures. This allow a proactive posture towards the identification, analysis, evaluation and continuous monitoring of risks intrinsic to its operations. Also, minimize the threats and uncertainties, aiming the creation of new opportunities and consequently generating value to the parties concerned.


2. DEFINITIONS

RISK

The Brazilian Association of Technical Norms (ABNT) ISO 31000:2009 of Risk Management (published in Brazil) defines risk as “an effect of uncertainty on objectives”. An “effect is a deviation to what is expected – being positive or negative”. Therefore, it is defined as the impact possibility and probability of occurrence disseminated on all activities of the company and also as lack of initiatives.

Risks Categories

Santa Terezinha is subject to many risks and in order to classify them they were organized as below:

a) Strategic Risks
b) Operational Risks, including Legal Risks
c) Economical and Financial Risks (Exchange, Pricing, Credit and Liquidity)
d) ASG Risks

STRATEGIC RISKS

Related to decisions of high administration and may incur on substantial loss of current economic ratio of the company.

OPERATIONAL RISKS

It is defined as the as the potential possibility of failures to occur. Failures related to personal, contracts, documents, technologies, infrastructures, disasters, projects, external issues and relationships with the clients.

Also the Legal Risks associated to deficiency of inadequate elaboration of contracts signed by the company and sanctions due to possible legal issues.

ECONOMIC AND FINANCIAL RISKS

These risks are associated to expositions caused by inadequate administration of financial operations of the organization, cash flow, risks and specific paybacks of financial transactions, exchanges and commodities prices variation throughout the world, investments of resources or fundraising out of established policies.

ASG RISKS

ASG risks are those associated to environment, social issues and corporate governance. Santa Terezinha understands that these matters may affect the performance of its operations and, by therefore, consider theses aspects on its risk management policy.


3. BENEFITS

Among the benefits created through implantation of a Risk Management Policy, we highlight:

• Adopt and disseminate an increasing transparency to all parties concerned, through acknowledgement of risks inherent to operations, mitigation procedures and the actual efficacy;

• Contribute to maintenance and continuous improvement of corporate image, by measuring, monitoring, and managing the impacts on performance of its operations establishing an overview of reduced risks to parties concerned;

• Provide and disseminate tools and methodologies of internal controlling to facilitate an effective process of risks management;

• Provide complete data about the risks scenario to allow the company to effectively manage and allocate the capital or even reduce it.

• Stimulate communication between the different areas related to the risks categories hereby established and the High Administration divisions.


4. RISKS MANAGEMENT PROCESSES

Among the basic steps that are part of a risk management system, it is possible to highlight:

a) Creation of Risk Management policy;
b) Mapping, risks analysis and control;
c) Definition and implantation of a risks management structure;
d) Monitoring and regular evaluation.

Santa Terezinha understands, nonetheless that the main aspect of implanting a Risk management policy is to engaging internal personnel to apply all models and established procedures.

Santa Terezinha through its widely disseminated ethics behavior and a management based on high standards, administer the risks through adoption of systems and controlling procedures spread on all levels of the company.


5. RISK MANAGEMENT METHODOLOGY


Santa Terezinha considers 4 main lines to compose its Risk Management system:

a) Spread a risk culture system where procedures and controlling systems are spread throughout all operational areas with total commitment of member of the Board the Administrative Council;
b) Create a wide system that spread to all the company clearly and objectively;
c) Create a Risks Evaluation Committee to manage and ensure the correct application of risks management system.


6. RISKS MANAGEMENT STRUCTURE

A correct structuring of risks management results on opportune and appropriate decisions that assure the efficient usage of resources. Minimizing uncertainties and maximizing opportunities.

The structuring model of Risks Management will comprehend, among other activities:

a) Elaboration and proposition of specific procedures and standards
b) Constitution of Risks Evaluation Committees
c) Development of a methodology to prospect systemic solutions and mitigating systems
d) Implantation of an Internal Controlling System, based on specific procedures that provide the adequate environment of control (regulations, manuals, norms, among others)


7. APPLIED METHODOLOGY ON RISKS MANAGEMENT

The Risks Evaluation Committee, assisted by the Administrative Council and Board of Directors will be responsible for application of Risks Management methodology.

RISKS IDENTIFICATION

As the main tool of this methodology, Santa Terezinha intends to identify the risks to which the company is subject on performing its operations. This will result on a Risk Matrix which will locate the risks and make appointments of mitigations or elimination of risk.

RISKS EVALUATION

Within this analysis process Santa Terezinha uses the Risk Matrix which consists on prioritizing and filtrate to appoint those with higher or lesser probability of impact on performance of company`s operations.

Through this analysis process, it is possible to identify the probabilities of obtaining unwanted results e its consequences.

RISKS TREATMENT

A total synergy between strategic objectives and a controlling structure is the main target to creation of this plan and the company`s position in face of the risks analyzed.

The alternatives to risks treatment recommended by many different organ and institutes of risk analysis which are adopted by Santa Terezinha are as follows:

a) Avoid: Decision of not getting involved or act in order to find the way out of a risky situation.
b) Accept: In this case, there are three alternatives. Retain, reduce or transfer/share
a. Retain: Keep the risk at the current level of impact and probability;
b. Reduce: Actions are taken to minimize the probability and/or risk impact;
c. Transfer/share: Procedures that intend to reduce the impact or probability of the risk by transferring it to, or, in some cases, sharing it.

At this stage of the process, the exposition to the risk is limited, although, when reasonable, actions to implement or improve the procedures are considered in order to reduce or mitigate the risk, or, transfer it or share such risks, according to each scenario.

Also, the costs to implement such action plan are considered, through a balance between the actions towards the risks and its potential impact.

SEASONAL MONITORING

Santa Terezinha adopts a seasonal monitoring model of risk management evaluating the efficaciousness of the objectives initially traced and identifying eventual flaws on the plans previously elaborated.

Such monitoring has cyclic and dynamic features which makes possible a proactive conduct towards eventual new risks or any other changes on the potential of the risk itself.

INFORMATION AND COMMUNICATION

Santa Terezinha has a conduct to make public and communicate to all staff of Administrative Council, Board, Managers and Committees about its Risk Management

When it comes to risks, a communication system is the best and efficacious way to assure agile evaluations and transparency to all decisions sectors within the company.

RISK MANAGEMENT TOOLS

This represents the Risk Matrix where the mains risks and its mitigation aspects are presented.

GENERAL

The main Standards procedures constituted by this policy are checked by the Administrative Council and the Board and are followed by the remaining areas of Santa Terezinha intending to improve and update it continuously as long as necessary based on this policy.


8. INSTRUMENTS OF RISK MANAGEMENT

On each Risk Matrix are presented the main risks and reducers. The Risks Committees are advisors and counseling divisions instituted by Administrative Counsel.



9. GENERAL

The current policy has its content and format revised and followed by Administrative Counsel and Board from time to time and it is supported by all areas of Santa Terezinha to be enhanced and updated continuously.

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corporate address: Avenida Marcelo Messias Busíquia, 847 – Parque Industrial II
Maringá-PR - Phone: +55 (0x44) 3218-1900

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