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JOTUN A/S
10 FINANCIAL AND COMMERCIAL RISK MANAGEMENT
Jotun A/S is exposed to market risks like fluctuations in prices of
raw materials, currency exchange rates and interest rates. 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
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 13. 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 11 gives
additional information regarding financial risk management.
Total loans given in foreign currency from Jotun A/S to its
subsidiaries, joint ventures and associates as of 31 December
2017 was NOK 2 586 million, of which NOK 2 516 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 31.12.2017 31.12.2016
(NOK THOUSAND) CURRENCY AMOUNT NOK CURRENCY AMOUNT NOK
USD 76 390 626 933 88 952 765 949
MYR 173 900 352 917 168 875 324 261
RUB 2 207 358 314 186 1 607 358 224 788
IDR 472 775 000 286 029 532 775 000 340 603
EUR 27 837 274 151 24 837 225 504
CNY 191 540 241 589 129 540 160 578
PHP 678 900 111 486 280 000 48 560
GBP 8 000 88 658 7 700 81 570
SGD 10 000 61 352 10 000 59 614
TRY 22 676 49 116 22 676 55 414
AUD 5 386 34 481 5 386 33 498
BRL – – 18 000 47 644
Other – 74 956 – 74 461
Total 2 515 855 2 442 444
The table below gives an overview of long term debt in foreign currency for Jotun A/S.
CURRENCY 31.12.2017 31.12.2016
(NOK THOUSAND) CURRENCY AMOUNT NOK CURRENCY AMOUNT NOK
USD 101 767 835 204 120 270 1 035 624
FOREIGN CURRENCY RISK ON OPERATIONAL AND FINANCIAL
CASH FLOWS
Jotun A/S has inflows and outflows of foreign currency related
to product sales and raw material purchases. 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 financial cash flows such as dividend payments,
royalty payments, interest payments, instalments and issuing of
loans and equity, give a currency exposure. The policy is to hedge
this exposure.
Jotun A/S’ financial and operational foreign exchange income
and costs are hedged as a net position according to the Group
policy. As of December 2017, Jotun A/S had hedged 88 % of its
expected net cash flow next 12 months.
Jotun A/S does not apply hedge accounting for cash flow
hedging. Realised and unrealised gains/losses on hedges are
brought to Jotun A/S’ financial result, ref. note 4. Realised and
unrealised currency gains/losses on short term and long term
loans are also brought to the financial result.
RAW MATERIAL PRICE RISK
Jotun A/S is exposed to a significant price risk in a number of
raw materials. Raw material purchases account for almost
60 % of total sales revenue. Volatility in raw material prices can
have significant impact on the results. Large increases in the raw
material prices cannot be compensated immediately through
increases in the product prices. Until the product prices can be
increased, the profit will be impacted. Currently, Jotun does not
hedge this risk.