25
JOTUN GROUP
in the near term. This category includes derivative financial instruments
entered into by the Group that are not designated as hedging instruments
in hedge relationships as defined by IAS 39.
Gains or losses on liabilities held for trading are recognised in the income
statement.
LOANS AND BORROWINGS
After initial recognition, interest bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest rate
method. Gains and losses are recognised in the income statement when
the liabilities are derecognised as well as through the effective interest rate
method (EIR) amortisation process. Amortised cost is calculated by taking
into account any discount or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortisation is included in finance
costs in the income statement.
FINANCIAL GUARANTEE CONTRACTS
Financial guarantee contracts issued by the Group are those contracts
that require a payment to be made to reimburse the holder for a loss it
incurs because the specified debtor fails to make a payment when due
in accordance with the terms of a debt instrument. Financial guarantee
contracts are recognised initially as a liability at fair value, adjusted for
transaction costs that are directly attributable to the issuance of the
guarantee. Subsequently, the liability is measured at the higher of the best
estimate of the expenditure required to settle the present obligation at the
reporting date and the amount recognised less cumulative amortisation.
DERECOGNITION
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires. When an existing financial liability
is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in the income statement.
OFFSETTING OF FINANCIAL INSTRUMENTS:
Financial assets and financial liabilities are offset and the net amount
reported in the consolidated statement of financial position if, and only
if, there is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis, or to realise the
assets and settle the liabilities simultaneously.
DERIVATIVE FINANCIAL INSTRUMENTS:
HEDGES OF CASH FLOW
Cash flows from operational activities in Scandinavia and global intragroup
financial cash flows in foreign currency are hedged based on the future
expected net cash flow in Jotun A/S. Financial cash flows are typically
royalty income, dividend income and cash flows related to internal loans
and equity transactions between Jotun A/S and subsidiaries. Instruments
used for hedging of cash flows are forwards and options. Any gains or
losses on these instruments are accumulated and recognised as realised
or unrealised currency effects in net financial items in the consolidated
income statement. Refer to note 11 for more details.
13. HEDGE ACCOUNTING
HEDGES OF NET INVESTMENT
Hedges of a net investment in a foreign operation, including a hedge of
a monetary item that is accounted for as part of the net investment, are
accounted for in a way similar to cash flow hedges. Gains or losses on
the hedging instrument relating to the effective portion of the hedge are
recognised as other comprehensive income while any gains or losses relating
to the ineffective portion are recognised in the income statement. On
disposal of the foreign operation, the cumulative value of any such gains or
losses recorded in equity is transferred to the income statement. Currently,
the only hedge of this nature is the USD denominated loan used by the
Group as a hedge of its exposure to foreign exchange risk on its investments
in foreign subsidiaries. Refer to note 11 and 15 for more details.
14. INVENTORIES
Inventories are recognised at the lowest of cost and net realisable value.
The cost incurred in bringing each product to its present location and
condition is accounted for as follows:
RAW MATERIALS
The cost of raw material inventories is determined using the weighted
average cost method as an overall principle within the Group. This involves
the computation of an average unit cost by dividing the total cost of units
by the number of units.
FINISHED GOODS
The cost of finished goods includes cost of direct materials and labour
and a proportion of manufacturing overheads based on normal operating
capacity and excludes any borrowing costs.
Net realisable value is the estimated selling price in the ordinary course
of business, less estimated costs of completion and the estimated costs
necessary to make the sale. Allowances are made for inventories with a
net realisable value less than cost, or which are slow moving.
15. CASH AND CASH EQUIVALENTS
Cash includes cash in hand and cash deposits in banks. Cash equivalents
are short-term liquid investments that can immediately be converted into
a known amount of cash and have a maximum term to maturity of three
months.
16. POST EMPLOYMENT BENEFITS
Post-employment benefits are recognised in accordance with IAS 19
Employee Benefits. Defined contribution plans represent the majority of
the Groups pension plans. However, the Group also has a few, remaining
defined benefit plans with net pension obligations, as further described in
note 4.
DEFINED CONTRIBUTION PLANS
The pension cost related to a defined contribution plan is equal to the
contributions to the employee’s pension savings in the accounting period.
The annual contributions related to the defined contribution pension plan
have been made for all employees, and equal an agreed percentage of the
employee’s salary. (In Norway, the rate is 5% of annual basic salary, limited
up to twelve times the social security basic amount. In addition, 18.1 % of
annual basic salary between 7,1-12 times the social security basic amount).
The pension contributions are charged to expenses as they are incurred.
The return on the pension funds will affect the size of the employees’
pension, and the risk of returns lies with the employees.
DEFINED BENEFIT PLANS
In the defined benefit plans the company is responsible for paying an
agreed pension to the employee based on his or her final pay. Defined
benefit plans are valued at the present value of accrued future pension
obligations at the end of the reporting period. Pension plan assets are
valued at their fair value.
The capitalised net liability is the sum of the accrued pension liability minus
the fair value of the associated pension fund asset.
Actuarial gains and losses are recognised in other comprehensive income.
Introduction of new or changes to existing defined benefit plans that will
lead to changes in pension liabilities are recognised in the statement of
income as they occur. Gains or losses linked to changes or terminations of
pension plans are also recognised in the consolidated income statement
when they arise.
MULTI-EMPLOYER PLANS
Multi-employer plans are accounted for as defined contribution plans.
These are collectively bargained plans maintained by more than one
employer, within the same or related industries, and a labour union. The
pension contributions are determined independently of the demographic
profile in the individual companies.
OTHER SEVERANCE SCHEMES
Other severance schemes mainly comprise obligations to employees
in companies outside of Norway that fall due for payment when the
employees leave a Jotun company, as required by local regulations. The
size of the obligation depends on how many years the employees have
worked in the company. Obligations related to other severance schemes
are recognised as other non-current liabilities.
17. PROVISIONS
A provision is, in general, recognised when the Jotun Group has an
obligation, either legal or constructive, as a result of a past event, it is
probable that a financial settlement will take place and the size of the
amount can be reliably estimated. The amount recognised is the best
estimate of the expenditure required. If the effect is material, the future
cash flows will be discounted using a pre-tax interest rate reflecting the
risks specific to the obligation.
A provision for a claim is recognised when it is probable that there will
be a financial settlement and the amount of the claim can be reliably
estimated. The provision is assessed and estimated based on information
from the customer, and technical, legal and sales departments.