Internal Control and Risk Management System

The results of the business activities are highly dependent on the economic conditions of the countries of operation:

• Inflation is projected to decline gradually in 2025 (with the exception of Egypt where it is expected to increase), but is expected to remain above central bank targets in most economies. Overall inflation in world economies is expected to be 4.5% in 2025, with the advanced economies that are expected to return to their inflation targets sooner than emerging market and developing economies.
• Monetary policy will remain cautious until there are clear signs of a sustained reduction in underlying inflationary pressures.
• The slowdown in China's economy poses a significant risk to global output growth.
• Global growth is projected to be 3.3% in 2025. In the US, growth is expected to be 1.6% in 2025, while in Europe it is expected to be around 1.3%, registering modest growth.

Conflicts between Russia and Ukraine, along with those in the Middle East, continue to have a significant impact on the global economic landscape. Simultaneously, the growing rivalry between the United States and China is expected to influence global companies' strategies, particularly in relation to supply chains and markets.

Demand for construction materials is fundamentally driven by economic growth. These changes in demand may affect volumes, selling prices and the structure of the industry.

The Group, with the support of the relevant departments:

• actively monitors market conditions in order to anticipate any adverse scenarios.
• Optimises the product portfolio for growth by increasing profitable low-carbon solutions.
• aims to maintain strict cost discipline and stable prices to ensure a high contribution margin.
• establishes long-term contracts to secure favourable logistics and energy costs.

The Group operates on five continents and is exposed to political risks both locally and globally. The geopolitical instability of some of them (e.g. Turkey and Egypt) may influence demand trends.

The ongoing conflict between Israel and Palestine, which has now spread to other states in the Middle East, together with the continuing conflict between Ukraine and Russia, is currently the main factor in international geopolitical instability.

The medium-term outlook remains highly uncertain, with numerous challenges hampering efforts to identify a path towards de-escalation.

Given the strategic locations of the conflicts, the impacts on the global economy are substantial and are expected to result in the following:

• Significant uncertainty for the markets;
• Likely increases in transportation and logistics costs, affecting the Group’s procurement and sales processes;
• Sales bans to sanctioned countries affecting Group’s export volumes;
• An increase in oil prices could slow down the global economy and drive inflation higher;

Heightened social instability.
 

Continuous monitoring of the environment, mainly focused on the critical political/institutional developments and regulatory aspects which can potentially affect the business, but the geographical differentiation helps to limit the exposure to any particular market and currency.

Alternative markets.

The Group operates with ten different currencies, and fluctuations in exchange rates may impact the Group’s business, operational results, and financial condition. Among these, the Turkish Lira and the Egyptian Pound are the principal currencies influenced by a significant depreciation in the last years.

The Turkish lira is the currency that has depreciated significantly recently, by about 27% since September 2023 (September 2023: €/TRY 28.86 – January 2025: €/TRY 36.70). In March 2024, the Turkish central bank raised the rate to 50% to avoid further devaluation, marking a change of course after two years of monetary easing in which the reference rate had been reduced to 8.5% from 19% in 2021. As of April 2022, the Turkish economy is classified as hyperinflationary, according to the criteria outlined in “IAS 29 - Financial Reporting in Hyperinflationary Economies”.

The Egyptian pound also suffered a significant devaluation, weakening by around 58% since September 2023 (September 2023: €/EGP 33.01 – January 2025: €/EGP 52.29).

These unfavourable changes in the exchange rates used to translate these currencies into the reporting currency have had and will continue to have an impact on the Group’s consolidated results.

The Group continuously monitors currencies in order to seize the opportunities offered by hedging transactions.

To mitigate potential losses, the Group creates a balance between bank accounts in local currency and bank accounts in hard currency.

The Group seeks to attract new talent through specific actions, such as international mobility and career development campaigns, such as the Talent Program initiatives launched in 2022 and the Middle Management Program launched in 2024.

In May 2024, the global "Your Voice" survey was carried out to assess staff engagement across the Group. Compared to the previous edition, there was a 2% increase in employee participation rate compared to the 2022 figures (2024 = 98%) and a 1% increase in employee engagement compared to the 2022 figures (2024 = 58%).

Among the initiatives launched by the Group to mitigate the risk there is also:

• continuing education activities (e.g. Linkedin Learning and the Cementir Academy);
• Specific actions related to internal communication, employer branding and relations with local institutions, schools and universities (e.g. the Concrete programme in Turkey);
• Leadership programme in the Group's main subsidiaries (Aalborg Portland, CCB and Cimentas);
• Constructive relations with unions representing employees: the Group has also updated the collective agreement with the European Working Council for the next four years;

Constant updating of succession plans to ensure business continuity.

The Group's activities operate in a sector that presents inherent health and safety risks, including, for example, driving heavy vehicles, working at height, working in confined spaces, handling live equipment, etc.

Failure to ensure safe workplaces could result in a deterioration in the Group's safety performance and consequent negative regulatory actions or legal liabilities. Health and safety incidents could have a significant impact on the Group's operational and financial performance, as well as its reputation.

Risk of accidents due to unsafe behaviour or conditions, which may cause consequences on the health of workers and/or problems in production processes.

The Group has defined a specific roadmap to 2030, focusing on increasing employee awareness and involvement and strengthening internal procedures and related controls..

Improvement of the Group's safety culture by sharing best practices and common rules across the Group (e.g. Golden Rules).

Regular risk assessment by all plants to eliminate/mitigate risks (annual action plans).

Group monitoring of H&S performance and effectiveness of corrective measures.

Periodic verification of the effectiveness of the main H&S processes for all plants (e.g. work permits, incident management, etc.).

Variable pay of managers based on H&S indicators and performance.

The Group increasingly relies on information technology and cloud services to manage and support its operations and relationships with suppliers and customers.

This trend increases a company's exposure to cyber attacks, security breaches, data loss, data theft (including confidential data), also making it more vulnerable to damage caused by uncontrollable events (e.g. power outages, natural disasters, network failures).

In recent years, the frequency, complexity and impact of cyber attacks have increased compared to the past.

The Group is taking prompt action to mitigate and reduce the effects of this risk.

Looking to the future, information technology will play a key role in the Group's strategy, resulting in further exposure to related risks.
 

• Strengthening of the network infrastructure
• Strengthening of protection systems
• Constant updating of internal procedures
• Continuous training for all staff to strengthen the corporate culture on cyber security issues.

In relation to these risks, the Legal Department implements targeted programs with guidelines, procedures and training to ensure compliance with the above regulations. The Organisation and Control Models required under Legislative Decree 231/2001 are periodically updated.

The Internal Audit function carries out specific audits on compliance with regulations.

Technology is the main driver to significantly reduce the company's CO₂ emissions in the medium to long term. The adoption of breakthrough technologies is essential to achieve 'net zero emissions' cement production.

The Company places emphasis on the development and implementation of carbon capture and storage (CCS) technology as a key component in achieving its CO₂ emission reduction targets. Currently, the Group is exploring various opportunities, mainly in Denmark and Belgium.

In October 2024, the carbon capture and storage project developed by Aalborg Portland and Air Liquide was selected by the European Commission to receive a EUR 220 million contribution under the EU Innovation Fund.

The project, which is scheduled to be operational by the end of 2028, will reduce emissions from Aalborg Portland by approximately 1.5 million tons per year.

Previously, Aalborg Portland's target was to capture at least 400,000 tons of CO₂ per year, thereby contributing to both the company's emission reduction targets and the Danish government's objectives to reduce Denmark's greenhouse gas emissions by 70% by 2030 compared to 1990 levels.

The know-how acquired by the Group in this area can be used to develop a carbon capture and storage system at its Belgian subsidiary, CCB, from 2032.

The successful implementation of this innovative technology also depends on exogenous factors outside the company's control, such as CO₂ transport and storage infrastructure, public acceptance and climate regulations, which could directly influence and potentially delay the project.

Additionally, a direct risk associated with this new technology is its performance, as no facility to date has successfully operated it worldwide. If the technology does not function as expected, it could compromise the planned CO₂ reductions.