Corporate perspective on environmental

risks and remediation

Lars G Stenblom

2012-12-06 TRELLEBORG GROUP 2

Vice President Risk and Environment

Risk Engineering Degree

MBA

20 years in the risk industry

Risk Engineering and Underwriting

Corporate Responsibility

Environmental Management

Risk Manager

Compliance Officer

Agenda

2012-12-06 TRELLEBORG GROUP 3

Trelleborg Group

Our environmental landscape

Financial considerations | Corporate Social Responsibility

Mini cases | Morganfield, KY | Sweden | Dump site

Alternative contracting and negotiation tips

2012-12-06 TRELLEBORG GROUP 4

A world leader in engineered polymer solutions

Group profile*)

Focused polymer group

Founded in 1905

Annual sales:

about $ 3.5 billion

Employing about 16,500 people in

44 countries worldwide

~ 110 manufacturing facilities

Owns 50 percent of

TrelleborgVibracoustic with annual sales of $ 2.5 billion with 10,000

employees in about 20 countries

2015-10-23 TRELLEBORG GROUP 5

*) All data refer to year end 2014.

Our history in brief

2015-10-23 TRELLEBORG GROUP 6

Internationalization

begins

1950 2012

TrelleborgVibracoustic,

a joint venture within

antivibration solutions,

is formed

2005

Celebrating

100 years

The development of

motoring

1930

Industrial rubber

products increases.

Car and truck tires is

phased out in 1975

1970

Focus on the industrial

sector

1999

Trelleborgs

Gummifabriks AB

is founded

1905 1990

A conglomerate with

sales of SEK 25.2

billion. Mines and

metals dominated

(Boliden)

2003

Acquisition of Smiths

Group Plc’s formed the

Trelleborg Sealing

Solutions business

area

2014 Sales by business area

2015-10-23

1) Annual sales approx. EUR 1,780 M

7 TRELLEBORG GROUP

2012-12-06 TRELLEBORG GROUP 8

Our environmental landscape

2012-12-06 TRELLEBORG GROUP 9

There is a reason for risk and environment being the same function

Presently some 110 production units

Production of polymer solutions involves some interesting chemicals

The Group has legacy operations dating back to early 1900’s

Acquisitions and Divestments is in the DNA of the company

Our environmental landscape

2012-12-06 TRELLEBORG GROUP 10

Some numbers

Remediation activities at 8 polluted sites

There are 12 sites under investigation

The Group is also involved as one of many parties in 6 remediation

cases

In 2014 we performed 17 environmental assessments as part of our

acquisition and divestments processes

25%

2012-12-06 TRELLEBORG GROUP 11

Triple Bottom Line | social, environmental and financial

2012-12-06 TRELLEBORG GROUP 12

Compliance is the platform

2012-12-06 TRELLEBORG GROUP 13

Financial Considerations

2012-12-06 TRELLEBORG GROUP 14

Part of the risk assessment

Some financial parameters

Inflation

Cost of Capital (WACC)

Return of Sale

Cash flow

Qualification aspects for a financial reservations US GAAP/IFRS

Credit risk (society/authority/owner)

Time Element

2012-12-06 TRELLEBORG GROUP 15

Part of the risk assessment

Value over time

Net present value (NPV) – used for all investments

The environmental impact changes over time Plume growth

Material break down by nature

Technology changes over time Innovations e.g. Moore's law

Legislation changes over time Generally more restrictive over time e.g. less emissions higher penalties

Society changes over time What used to be isolated industrial areas now have residential next door

Old industrial estates are converted to residential areas

2012-12-06 TRELLEBORG GROUP 16

Manufacturing Facility, Morganfield, KY

2012-12-06 TRELLEBORG GROUP 17

Background

Identified impact from historic release of chlorinated solvent

(Trichloroethylene - TCE) from a former 2,000 gallon storage tank fill port;

transfer line; and

the above ground storage tank

The impact was down to 38 feet below ground in the shale bedrock.

Kentucky Department of Environmental Protection (KDEP) allows for

site-specific cleanup levels considering the degree of potential risk to

human health and environment

In the middle of a sales transaction – Joint Venture

2012-12-06 TRELLEBORG GROUP 18

The Options

2012-12-06 TRELLEBORG GROUP 19

Initial option analysis | White paper

No Action

Applicable if small/stable

No risks

$ 550,000

Passive

Containment with PRB

Off site exposures

$ 1,800,000

Passive/Aggressive

PRB and source injection

Limited on/off site exposure

$ 2,800,000

Aggressive

Electrical Resistive Heating

High exposure - Removal

$ 6,300,000

Consideration should also be taken regarding potential insurance cover. The selection

might be affected by the available cover e.g. need to aligned with the insurance carrier(s).

Technology changes over time

2012-12-06 TRELLEBORG GROUP 20

Passive system elected

Cost estimate was $ 1,8 million

The cost for the PBR was actually reduced to $ 900,000 (50%) due to new methods proving successful treatment at other contaminated properties | 2011-2015

Option Initial investment* 5 years 10 years 15 years 20 years

WACC (8%) WACC (8%) WACC (8%) WACC (8%)

1 $ 550 000

2 $ 1 800 000

3 $ 2 800 000 $ 469 328 $ 1 158 925 $ 1 826 316 $ 3 660 957

4 $ 6 300 000 $ 2 111 976 $ 5 215 162 $ 9 774 761 $ 16 474 307

2012-12-06 TRELLEBORG GROUP 21

Norrahammar, Sweden

2012-12-06 TRELLEBORG GROUP 22

Some of the unforeseen issues

In 1618 industrial activities in small scale began

The foundry was established in 1877 – stoves, pots and farm equipment

Husqvarna a Swedish weapon producer bought the business in 1918

In 1928 production focused more on boilers and furnaces

Trelleborg acquired a small production unit as part of a larger acqusition in

1986 and closed the production in 1989

The industrial estate was gradually abandoned during the 1980-1990

Joint and Several responsibility by Law

Legacy Site, Sweden

2012-12-06 TRELLEBORG GROUP 23

Norrahammar, Sweden | Legacy site

2012-12-06 TRELLEBORG GROUP 24

No Trelleborg documents available regarding the old production

Indicated to have used Chlorinated solvents by old supplier records

The main issue at the site is NOT the solvents | studies from 2006

HOWEVER, nearby creek that is affected and the authorities are now looking for entities to approach

If you get involved in the case then you will have to share the expense of investigation and clean up. [Deep pocket]

Potential liability is excess of USD 5 million and expense to date is USD 130,000 (Legal costs)

Widdifield, VA | Private estate

2012-12-06 TRELLEBORG GROUP 25

Trelleborg acquired Reeves Brothers in 2006 Producing rubber coated textile material

Fully aware of several old polluted sites when we acquired the business

The known liability was sold off to a “clean-up” company

An insurance policy with Chubb was put in place

A new environmental case appeared the Executrix of the Widdifield Estate wanted to sell a 23.75 acre estate.

The realtor was vaguely aware of “burning material” on the estate

We got an email

2012-12-06 TRELLEBORG GROUP 26

18 months after closing the deal

Use and occupancy

2012-12-06 TRELLEBORG GROUP 27

Rent was $600/year

2012-12-06 TRELLEBORG GROUP 28

Dump

site

2012-12-06 TRELLEBORG GROUP 29

Widdifield estate

2012-12-06 TRELLEBORG GROUP 30

Main building

2012-12-06 TRELLEBORG GROUP 31

The dump area

2012-12-06 TRELLEBORG GROUP 32

The dump area

2012-12-06 TRELLEBORG GROUP 33

Outcome

2012-12-06 TRELLEBORG GROUP 34

Site leased between 1966 - 1976 to dump rubber waste and solvents

Insurance only cover known properties | No cover

We manage to get an agreement with the family which allowed us to

manage the case and apply restrictions

Remediation involved soil/material removal and then restrict use of

the land.

The remediation cost was more than USD 2 million

Some more financial aspects

2012-12-06 TRELLEBORG GROUP 35

Widdifield $2 million

Norrahammar $5 million

Morganfield $1 million

Converted to Sales: 80 – 150 million depending on the expected return