6 BOARD OF DIRECTORS as of 31 December 2013. Jotun Group is mainly funded by bilateral loans from the Group’s relationship banks and loans in the Norwegian bond market. At year end, Jotun A/S had NOK 1 300 million in bonds and NOK 1 111 million in non-current bank debt outstanding. The subsidiaries main source of funding is equity and loans from Jotun A/S. The Group’s equity ratio remains stable from last year at 51 per cent. The Group is in a sound financial position. In its regular business operations Jotun is exposed to a variety of risks, and the Board of Directors is committed to ensure that risk is managed in a systematic and complete manner through the Group. Key operational risks relates to HSE, corporate responsibility and compliance, reputation and political risk. From a financial perspective, the main risks are relating to credit, interest rates, currency exchange rates and commodity prices. The Group’s credit risk is mainly related to markets with generally long customer payment terms. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. The net interest-bearing debt for Jotun is considered to be low, and the Group’s policy is not to hedge this exposure. This policy will be re-considered if the debt increases to a significantly higher level. The company has established procedures for currency hedging related to financial cash flows such as dividend payments, royalty payments, interest payments, instalments and issuing of loans and equity. Operational cash flows is only hedged if the related risk is found significant. The Group is exposed to a commodity price risk in respect of a number of raw materials, the hedging by financial instruments of this risk is limited. In general, Jotun’s geographical footprint and presences within its different business segments reduce the Group’s net exposure by way of natural hedge. Jotun’s procedures and measures in this respect are considered satisfactory in relation to the Group’s exposure to risk. 3. THE MARKET Jotun Decorative Paints Jotun manages the sale of both interior and exterior paints to the consumer and professional market through a global network of about 7 000 shops around the world. In 2014, Jotun achieved satisfactory growth in the Decorative segment, driven primarily by strong sales in the Middle East, South East Asia and Turkey. Despite fierce competition and challenging market conditions, Jotun’s results in Scandinavia improved over 2013. Jotun’s strength in the Decorative segment is driven in part by product innovation to meet rising consumer demand for healthier and “greener” ways to protect and beautify their homes. In 2014, Jotun successfully completed a launch in South East Asia of a premium interior paint, Majestic True Beauty. In the Middle East, Jotun introduced a new series of premium exterior products - Jotashield ColourLast and Jotashield ColourXtreme. In 2014, Jotun worked to improve the end user shopping experience by providing retail shops and other shopkeepers with enhanced service and in-store tools and material. Jotun also strengthened awareness and knowledge of the Jotun brand through social media campaigns and produced a series of global TV commercials that aired in multiple countries simultaneously. The stronghold of Jotun’s business in the Decorative segment remains the BIY and DIY homeowner market, but a significant portion of Jotun’s business is derived from the project market, which includes malls, hotels, large housing projects, airports and hospitals, etc. To secure these contracts, Jotun has a structured approach to win and manage the projects. Jotun will continue to pursue contracts in the project market, expand its global retail network and build more awareness of the Jotun brand. Jotun Protective Coatings Jotun sells protective coatings to multiple industries and companies active in offshore, energy, infrastructure, the hydrocarbon processing industry and mining industries. In 2014, Jotun introduced a number of products to help differentiate Jotun from competing coatings manufacturers. In response to increased public awareness of environmental issues, Jotun has developed a broad range of water borne products, and is developing several pipeline solutions that combine both protective and powder coatings. Jotun’s Passive Fire Protection (PFP) coating system Jotachar JF750 has been embraced by leading offshore companies and yards. Jotun has also identified significant opportunities in the maintenance market. In 2014, launched a number of products, systems and support functions to provide customers with cost-effective maintenance solutions. While most of Jotun’s sales in the Protective Coatings segment are generated locally, a growing share of the business involves multinational stakeholders. To capture a greater share of this market, Jotun has strengthened its International Specification Management (ISM) team. In 2014, Jotun’s ISM team were involved in a significant share of Jotun’s business in the Protective Coatings segment. While ISM contributions to Jotun’s bottom line are influenced by macro-economic trends, the company anticipates that growth in this highly specialised area will continue over the next few years. Despite market uncertainties, the Protective Coatings segment remains a growth opportunity. By making the necessary adjustments to the strategy to match a changing world, Jotun is in a strong position to capture a greater share of this growing market. Jotun Marine Coatings A weak newbuilding market had an impacting on Jotun’s Marine Coatings business in 2014. Yet with a slight improvement in world trade recorded in the second half the year and incremental growth projected in 2015, the industry may experience a modest recovery. Despite challenging markets, Jotun has retained its leading market share in the marine coatings market. While continuing to compete for a limited number of newbuilding contracts, Jotun has focused more resources on the maintenance market, launching coatings systems that are easy to use and reduce paint consumption. The company has also launched more environmentally friendly topcoats, antifoulings and anticorrosives.
Jotun Annual Report 2014
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