37 JOTUN GROUP Note 16 FINANCIAL RISK MANAGEMENT Closing rate in NOK Functional currencies Chinese renminbi (CNY) 1.204 1.002 20 % Hong Kong Dollar (HKD) 0.964 0.782 23 % Malaysian Ringgit (MYR) 2.138 1.851 15 % Thai Baht (TBH) 0.227 0.185 22 % Egyptian Pound (EGP) 1.045 0.873 20 % Omani Rial (OMR) 19.408 15.757 23 % Saudi Riyal (SAR) 1.991 1.618 23 % South Korean Won (KRW) 0.007 0.006 19 % U.S. Dollar (USD) 7.472 6.066 23 % Turkish Lira (TRY) 3.202 2.829 13 % 2014 2013 Change % Translation risk on net investment Currency translation risk arises when the financial statements of subsidiaries, presented in local currencies, are translated into NOK. The asset side of the risk is the net investment in subsidiaries, joint ventures and associated companies. Net investment is defined as the Jotun Group’s interest in the net assets of those operations. The net assets equal the booked value of equity and intercompany loans in foreign currency where settlement is neither planned nor likely to occur in the foreseeable future, adjusted for the Jotun ownership share. For 2014, a currency gain of NOK 804 million has been recognised related to the equity investment in subsidiaries, joint ventures and associated companies (2013: gain NOK 184 million). These currency effects, net after tax, are presented as part of other comprehen-sive income (OCI) in the consolidated statement of comprehensive income. The currency gain is mainly arising from the following underlying functional currencies; (NOK thousand) 2014 2013 CNY 211 267 95 198 HKD 74 743 4 846 MYR 53 796 4 236 EGP 53 757 -831 THB 52 306 1 415 OMR 48 715 11 632 SAR 42 033 15 286 KRW 41 918 17 082 IDR 40 109 -22 469 Other 185 218 57 573 Total 803 860 183 967 Furthermore, the translation difference related loans to subsidiaries classified as net investments in foreign operations amounted to a gain of NOK 149 million (2013: gain NOK 31 million). The Group uses a traditional debt instrument in terms of a USD 120 million loan, for hedging net investments in foreign subsidiaries. The net investment hedging is carried out in accordance with IAS 39. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity and offset by transla-tion differences from assets in subsidiaries. The gain or loss related to the ineffective portion is immediately recognised in the income statement. There was no ineffectiveness related to net investment hedge in 2014. The effective portion recognised in equity was a loss of NOK 120 million in ( 2013: gain NOK 3 million). The Jotun Group is exposed to financial risks like currency risk, liquidity risk and credit risk. The Jotun Group handles these risks in accordance with the Group’s Treasury policy. The responsibility for managing financial risk in the Jotun Group is divided between the individual operational entities and Group level. At Group level, Group Treasury manages risk related to centralised activities like funding and currency risk management. Furthermore, Group Treasury monitors and advises the local entities on risk issues and ensures that the Group’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. It is the Group’s policy not to trade for speculative purposes. The Board of Directors reviews and agrees pol-icies for managing each of these risks which are summarised below. As of 31 December 2014 all of the Group’s financial instruments related to hedging are owned by Jotun A/S. FOREIGN CURRENCY RISK Foreign currency risk is the risk that cash flows, profits and balance sheet items will fluctuate because of future changes in foreign exchange rates. As NOK is the functional currency for Jotun A/S and the presentation currency for the Jotun Group, the Group is exposed to currency translation risk. During 2014 the Norwegian krone (NOK) has weakened significantly compared to other functional currencies within the Group. Currency translation at year-end was based on the following key exchange rates:
Jotun Annual Report 2014
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