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Jotun - Annual Report 2015

40 JOTUN GROUP B) INTEREST RATE RISK Jotun Group’s exposure to the risk of changes in market interest rates relates to the Group’s long-term debt obligations with floating interest rates. In 2015 Jotun Group has maintained its bond funding of NOK 1 300 million, of which NOK 1 000 million is long-term and NOK 300 million matures in 2016. One of the long-term bond agreements entered into in 2014, with a carrying amount of NOK 400 million, is based on a fixed interest rate of 3.9%. In addition, Jotun Group has a bilateral loan with Nordic Investment Bank (NIB) of USD 120 million. This financial instrument is accounted for based on amortised cost. The Jotun Group has low net interest-bearing debt, and the Group’s policy is to not hedge this exposure. This policy will be re-considered if the debt increases to a significantly higher level. C) FUNDING AND LIQUIDITY RISK The Group monitors its risk by using cash flow forecasts. The main elements of the funding strategy are the establishment of long-term loans and credit facilities with a minimum average of two years to maturity and maintaining a strategic financing reserve equivalent to five per cent of consolidated sales. See note 14 for further details on the Group’s funding. Cash flow from operations has seasonal cycles, especially following the sales of exterior decorative paints in Scandinavia, and sales of protective coatings in Eastern Europe and Central Asia. Through the first months of the year the Group has substantial build-up of working capital as a preparation for the spring and summer sales season. This is an expected cyclical movement and is taken into account when planning the Group’s financing. Other drivers of the liquidity development are investments in new factories and changes in working capital in the individual companies. Investments are financed mostly from Jotun A/S and the cash flows are predictable as the financing for each project is planned well in advance. D) 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 by the operating entities. Jotun Group’s credit risk is mainly related to markets with generally high DSO (Days Sales Outstanding). 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. Credit quality of a customer is assessed by the respective business unit and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and credit risk assessments are undertaken. There is no significant concentration of credit risk in respect of single counterparts. Some groups of counterparts can be viewed as significant: Shipyards, shipowners, real estate developers and some larger retail chains in Scandinavia. In combination with a geographical distribution and few large single accounts, the credit risk in the Jotun Group is viewed to be well diversified. The requirement for impairment is analysed at each reporting date on an individual customer basis. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in note 11. The Group does not hold collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries and operate in largely independent markets. Jotun A/S has International Swap Dealers Association (ISDA) agreements with its counterparts for derivative transactions, and transactions are made only with the Jotun Group core relationship banks with satisfactory ratings. E) COMMODITY PRICE RISK The Group is exposed to a significant price risk in respect of a number of raw materials. Raw material purchases accounts for approximately 55 per cent of total sales revenue. The volatile raw material prices over the past years have had a significant impact. Large short-term increases in the raw material prices cannot be compensated immediately in the product prices, and in the period until product prices can be increased, the profit will be negatively impacted. 17 SHARE CAPITAL AND SHAREHOLDER INFORMATION The share capital in Jotun A/S at 31 December 2015 consists of the following share classes: (NOK THOUSAND) QUANTITY FACE VALUE BALANCE SHEET A-shares 114 000 300 34 200 B-shares 228 000 300 68 400 Total 342 000 300 102 600 At the annual general meeting, each A-share has ten votes and each B-share has one vote. There are no changes from last year.


Jotun - Annual Report 2015
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