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Jotun - Annual Report 2015

6 BOARD OF DIRECTORS NOK 581 million compared to 2014. Higher profits offset cash outflows tied to working capital, and net cash flow from operating activities funded cash outflows related to both investments in non-current assets of NOK 875 million, as well as dividend payments of in total NOK 561 million. At year end 2015, the Jotun Group had a cash position of NOK 1 521 million compared to NOK 1 421 million at year end 2014. The net interest bearing debt for the Group was NOK 1 591 million at year end 2015 compared to NOK 1 702 million as of 31 December 2014. Net interest bearing debt relative to the operating profit before amortisation and depreciation (EBITDA) was 0.6 as of 31 December 2015 (2014: 1.0). At year end, Jotun A/S had NOK 1 300 million in bonds, of which NOK 1 000 million were long term and NOK 1 057 million in non-current bank debt outstanding. External borrowing in the subsidiaries is primarily short-term and through local banks. Jotun A/S has NOK 800 million in long-term credit lines. This committed funding serves as a backstop for certificate loans, as well as a strategic reserve for short-term financing of the Group. At year end, all of these credit lines were unused. The Group’s equity ratio was 52 per cent at the end of the year as opposed to 51 per cent the previous year. The increase in equity ratio is attributable to profit for the year exceeding paid out dividends in 2015. The Group is in a sound financial position. In its regular business operations, Jotun is exposed to risks relating to credit, interest rates, commodity prices and currency exchange rates. The company has established procedures for currency and commodity hedging as well as customer credit rating. The Group hedges its currency risk connected to the USD, USD-related currencies and the EUR through forward contracts, options and foreign currency loans. Jotun’s procedures and measures in this respect are considered satisfactory in relation to the Group’s exposure to risk. 3. THE MARKET DECORATIVE PAINTS Jotun manages the sale of interior and exterior paints to both consumers and contractors through a global network of about 7,500 dealer shops. In 2015, Jotun achieved good results, especially in the Middle East and South East Asia. In Scandinavia, slow sales in the exterior paints market were offset by good growth in the interior segment. In Turkey, Jotun recovered from a slow start to end the year with double-digit growth. Jotun’s growth in the consumer decorative paints market has been supported by an increased focus on improving the consumer shopping experience in existing stores, an expanded dealer network, and product innovation. Jotun is recognised globally as a manufacturer of premium products. However, in 2015, the company launched a number of medium-range interior and exterior products in South East Asia and the Middle East to compete with low-cost suppliers active in some markets. In the project market, Jotun stepped up its efforts to work more closely with professionals. In addition to the launch of a new B2B website specifically designed to inspire and inform professionals, the company introduced a new concept (Green Building Solutions) to highlight Jotun’s range of more environmentally friendly paints. Both the new website and concept were developed in cooperation with Jotun Protective and Powder Coatings segments to appeal to owners seeking “green building” certification. The Decorative Paints segment remains an important part of the company’s portfolio. The Board is encouraged by developments in 2015 and is confident the company is on the right track. JOTUN PROTECTIVE COATINGS The company managed to record modest overall growth in the Protective Coatings segment, despite facing significant challenges both in the offshore market globally and the general slowdown in the Chinese market. Low oil prices have caused many planned offshore projects to be delayed or cancelled, resulting in fewer orders for new units, particularly in yards in the Asia Pacific region. These trends have and will continue to impact Jotun’s business going forward. To offset expected declines in new-construction orders, Jotun is devoting more resources to secure offshore maintenance and repair projects. The company has had success in developing new, specialised products (e.g. Jotachar JF750, launched in 2013) and will continue to invest the time and resources to maintain the company’s edge in product development. Jotun’s overall performance was strengthened by good results in other market segments. For example, for the infrastructure concept, Jotun recorded strong growth, especially in the Middle East, India, select countries in South East Asia and China, where Jotun has a leading market position. Jotun also performed well in the energy concept, where the company has had success providing specialised coatings for wind towers and blade coatings in some markets. Rising demand for fuel in some market has also placed significant demands on refineries. Combined with improved margins for refined products this has delayed scheduled maintenance and repair work, thus creating an opportunity for Jotun to expand its market share in this concept. The company is also working more closely with dealers to make protective coatings available to more users, and in some markets, enabling them to sell protective coatings directly to equipment manufacturers. While encouraged by results in 2015, the Board believes the company is in a strong position to accelerate growth in this segment. JOTUN MARINE COATINGS Jotun’s leading market position and excellent product range, combined with favourable raw materials prices and effective cost controls, helped Jotun achieve good results in the Marine Coatings segment in 2015. Growth was especially strong in China and South Korea, but the company also had good results in other markets, including Denmark and the United States. Jotun’s success in the Marine Coatings segment has been driven in part by a sharp increase in newbuilding orders over the last


Jotun - Annual Report 2015
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