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Jotun Annual Report 2014

67 JOTUN A/S Note 21 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ORGANISATION OF FINANCIAL RISK MANAGEMENT Jotun operates internationally and is exposed to financial risks like currency risk, interest rate risk, commodity price risk, liquidity risk and credit risk. Jotun A/S uses financial instruments to reduce these risks in accordance with the Group’s Treasury policy. CATEGORIES OF FINANCIAL RISKS AND RISK POLICIES FOR JOTUN A/S Foreign currency risk on net investments As NOK is the functional currency for Jotun A/S and the presenta-tion currency, Jotun A/S is exposed to currency translation risk for net investments in foreign operations. Jotun A/S finances most of the investments for the Jotun Group, and therefore has a substantial intercompany loan portfolio in different currencies, see table below. From 2013 Jotun A/S has a USD 120 million external loan, see note 15. The currency gain/losses are presented as part of net finance costs in the income statement, see note 4 for more information. Jotun Group’s note 16 gives additional information on the financial risk management. The table below gives an overview of loan given in foreign currency from Jotun A/S to its subsidaries, joint ventures and associates. It refers to long term loans of NOK 1 869 million and installments be paid in 2015 of NOK 131 million. The main currency exposes are specified. 31.12.2014 31.12.2013 Local currency (NOK thousands) Currency amount NOK Currency amount NOK USD 101 275 756 725 98 016 594 595 MYR 108 000 230 893 108 000 199 930 EUR 19 837 179 307 19 837 165 411 IDR 283 025 000 170 834 259 525 000 129 477 RUB 902 358 121 187 427 358 78 805 SGD 16 347 92 120 16 347 78 485 GBP 7 700 89 335 7 700 77 301 BRL 31 000 87 178 8 000 20 548 TRY 22 676 72 611 22 676 64 146 KRW 8 928 590 60 893 13 392 885 76 875 Other 139 581 123 222 Total 2 000 664 1 608 795 The table below gives an overview of long term debt in foreign currency for Jotun A/S. 31.12.2014 31.12.2013 Currency (NOK thousands) Currency amount NOK Currency amount NOK USD 120 000 898 660 120 000 729 596 Foreign currency risk on operational cash flows Jotun A/S has inflows and outflows of foreign currency related to product sales and raw material purchases. The currency risk arises when the movements in currency rates can not immediately be passed on to the product prices. This creates an impact on the operational result. Jotun A/S has a policy to hedge against this effect when the effect is significant. Foreign currency risk on financial cash flows Foreign currency financial cash flows such as dividend payments, royalty payments, interest payments, installments and issuing of loans and equity, gives a currency exposure. The policy is to hedge this exposure. Interest rate risk Jotun A/S has low net interest bearing debt with the seasonal peaks within one billion NOK. The interest rate risk is not regarded as a critical factor. Based on the present net debt situation, Jotun’s policy is not to hedge interest rate risk. If the net debt should increase and become permanently substantially higher than the present level, the policy will be reviewed. Liquidity risk Cash flow from Jotun’s operations has seasonal cycles. There is a substantial build up of working capital during winter and spring in preparation for the summer sales season. Other drivers in the liquidi-ty development are the investments within the Jotun Group which is mostly financed from Jotun A/S. See note 15 for more information. Credit risk The management of credit risk related to accounts receivable and other operating receivables is handled as part of the business risk and is continuously monitored. There is a slight concentration of credit risk in respect of single counterparts, but the risk is moderate. The losses on accounts receivables have been insignificant through Jotun’s history. Jotun A/S has International Swap Dealers Association (ISDA) agreements with its counterparts for derivative transactions, and transactions are made only with Jotun’s core relationship banks with satisfactory ratings. Commodity price risk Jotun A/S is exposed to a significant price risk in respect of a num-ber of raw materials. Raw material purchases accounts for almost 60 per cent of total sales revenue. The volatile raw material prices the last years have had a significant impact. Large short term increases in the raw material prices can not be compensated immediately in the product prices, and in the period until product prices can be increased, the profit will suffer.


Jotun Annual Report 2014
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