6 BOARD OF DIRECTORS FINANCIAL POSITION, CAPITAL STRUCTURE AND RISK The Jotun Group generated a net cash flow from operating activities of NOK 2 027 million in 2016, an increase of NOK 527 million compared to 2015. The stronger cash flow is tied to a reduction in working capital and higher dividends received from associated companies and joint ventures. The net cash flow from operating activities funded both investments of NOK 1 133 million and dividend payments of in total NOK 551 million. The Jotun Group had a positive cash position of NOK 1 586 million at year end 2016 compared to NOK 1 521 million as of 31 December 2015. The Group increased its investments in 2016 to NOK 1 133 million from NOK 922 million in 2015. Investment activity in 2016 has mainly been related to new production facilities in Oman, the Philippines, Myanmar and Malaysia, in addition to a new R&D centre and office buildings in Sandefjord, Norway. The net interest bearing debt for the Group was NOK 1 523 million as of 31 December 2016, compared to NOK 1 591 million as of 31 December 2015. At year end, Jotun A/S had NOK 1 000 million in outstanding bonds, of which all were long-term. In addition, Jotun A/S had NOK 1 036 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 short-term certificate loans as well as a strategic reserve for financing of the Group. At year end, these credit lines were unused. The Group’s equity ratio was 53 per cent at the end of the year as compared to 52 per cent the previous year. The increase in equity ratio is attributable to profit for the year exceeding declared and paid dividends during 2016. 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 professional contractors through a global network of about 7 500 dealer shops. Despite political unrest in Turkey and economic turmoil in Egypt, Jotun recorded good growth in 2016, especially in the Middle East and South East Asia. To reach more consumers and generate more business, Jotun is working to develop and expand its dealer network to raise the standard of their shops. Other initiatives, such as the launch of the 2016 Global Colour Trends (Home Living), regional launches of both premium and medium range products, and local sales and marketing efforts helped generate sales volume and strengthened Jotun’s brand in key markets. Jotun is also active in the project market, working with owners, architects, and designers to ensure Jotun products are specified for hotels, residential complexes, hospitals, stadiums, convention centres and airports. Jotun has also implemented a more structured approach to helping owners achieve “green building” certification to meet demand for more environmentally sustainable buildings. By continuing to invest in new products, and building long-term relationships with retailers and project owners, the Board is confident that the company will continue to enjoy steady growth in the Decorative Paints segment. JOTUN PROTECTIVE COATINGS Growth slowed in the Protective Coatings segment following a period of low crude oil prices, resulting in a decline in investments in offshore construction projects. In 2016, Jotun focused on launching products and solutions to help owners save money by extending maintenance intervals for existing offshore assets, and shifted resources to other industrial segments, such as the infrastructure, energy, and the hydrocarbon processing industries. Jotun’s successful development of thin-film intumescent steel protection coatings products helped Jotun achieve positive growth in supplying to infrastructure projects (stadiums, airports, convention centres, hospitals etc.) in key markets. Jotun has also devoted more resources to serving the hydrocarbon processing industry (HPI). In 2016, Jotun introduced functional coatings, including Jotachar 1709, a mesh-free epoxy passive fire protection material for pool fires and Jotatemp 250, a two-component glass flake reinforced epoxy coating for service in high temperature operations. Jotun has also identified significant potential in the maintenance market for refineries, petrochemical plants and gas processing facilities. To serve these projects more effectively, Jotun has launched an initiative to expand its dealer and distributor networks to make protective coatings products more available, closer to where they are needed. Growth in the Energy concept (wind towers, thermal, hydropower etc.) remains stable. JOTUN MARINE COATINGS Sales of Jotun Marine Coatings declined in 2016 compared to the year before, consistent with expectations. However, the company has retained its leading market share in antifoulings and secured about 150 contracts for its premium offering, Hull Performance Solutions (HPS), launched in 2011. The Board notes that with freight rates near historic lows, newbuilding activity has slowed dramatically, which will impact Jotun’s business going forward. To offset expected declines in the newbuilding market, Jotun has shifted resources to concentrate on maintenance, developing new products to help owners preserve assets, reduce waste and extend periods between dry dockings. Jotun also continues to gain market share in the specialised tank coating concept and is working to secure a larger share of business within the leisure boat and yachting markets.
Jotun Annual Report 2016
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