67 JOTUN A/S 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 presentation 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. Jotun A/S has a USD 120 million external loan established in 2013, see note 15. The currency gains/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 regarding financial risk management. Total loans given in foreign currency from Jotun A/S to its subsidaries, joint ventures and associates as of 31 December 2016 was NOK 2 512 million, of which NOK 2 442 million was in foreign currency. The table below gives an overview of the main currency exposures related to internal loans in foreign currency. LOCAL CURRENCY 31.12.2016 31.12.2015 (NOK THOUSAND) CURRENCY AMOUNT NOK CURRENCY AMOUNT NOK USD 88 952 765 949 98 490 865 373 IDR 532 775 000 340 603 589 775 000 375 923 MYR 168 875 324 261 108 000 221 195 EUR 24 837 225 504 24 837 238 041 RUB 1 607 358 224 788 1 167 358 138 916 CNY 129 540 160 578 64 540 87 310 GBP 7 700 81 570 7 700 100 216 SGD 10 000 59 614 16 347 101 619 TRY 22 676 55 414 22 676 68 103 PHP 280 000 48 560 200 000 37 500 BRL 18 000 47 644 26 000 57 699 AUD 5 386 33 498 5 386 34 596 KRW - - 4 464 295 33 348 Other 74 461 52 338 Total 2 442 444 2 412 175 The table below gives an overview of long term debt in foreign currency for Jotun A/S. CURRENCY 31.12.2016 31.12.2015 (NOK THOUSAND) CURRENCY AMOUNT NOK CURRENCY AMOUNT NOK USD 120 270 1 035 624 120 270 1 056 744 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 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, give a currency exposure. The policy is to hedge this exposure. INTEREST RATE RISK Jotun A/S has low net interest bearing debt with a seasonal peak 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 liquidity development are investments within the Jotun Group which are 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 Annual Report 2016
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