FINANCIAL POSITION, CAPITAL STRUCTURE AND RISK
Net cash flow from operating activities improved by NOK 824 million to
NOK 3 272 million following a strong increase in operating profit and
reduced operating working capital. Due to the elevated uncertainty
following the coronavirus pandemic, Jotun intensified its efforts to manage
liquidity and working capital. This led to an overall reduction of working
capital, and at year-end the Group had a positive cash position of
NOK 2 956 million compared to NOK 1 903 million as of 31 December 2019.
The Group continued to invest in production capacity and R&D facilities
in 2020, with total investments amounting to NOK 1 407 million
compared to NOK 1 464 million in 2019. Investment activity has mostly
been related new production facilities in Vietnam and Egypt, production
facility upgrades in Norway and the Czech Republic, construction of a
new regional headquarter and Research and Development (R&D) facility
in Dubai and finalisation of the new headquarters and R&D centre in
Norway.
The net interest-bearing debt for the Group was NOK 1 514 million as of
31 December 2020, compared to NOK 2 581 million as of 31 December
2019. The reduction in net interest-bearing debt is primarily driven by
the strong increase in cash flow from operations. At year-end, Jotun A/S
had NOK 2 400 million in outstanding bonds, of which NOK 400 million
was short-term. In addition, Jotun A/S had NOK 552 million in bank
debt outstanding, of which NOK 158 million was short-term. External
borrowing in the subsidiaries is primarily short-term and through local
banks.
Jotun A/S has NOK 1 700 million in long-term credit lines. This committed
funding serves as a strategic reserve for financing of the Group as well as
a backstop for short-term certificate loans. At year-end, these credit lines
were unused.
The Group is in a sound financial position with an equity ratio of 54 per
cent at the end of the year (50 per cent in 2019) and a leverage ratio
(Net debt/EBITDA) at 0.4 (0.8 in 2020).
In its regular business operations, Jotun is exposed to financial risks
relating to customer credit and fluctuations in raw material prices,
currency exchange rates, and interest rates. Procedures and guidelines
for managing these risks are established in the Group’s Treasury policy.
Companies in the Group primarily manage financial risks through their
normal operations, for example by increasing prices, when possible,
to compensate for higher raw material costs and utilising credit
management systems to reduce credit risk.
In addition, the parent company Jotun A/S hedges currency risk related to
net cash flows in foreign currencies using forward contracts, options and
foreign currency loans. Currency risk related to the parent company’s net
investments in subsidiaries, associates and joint ventures, is generally not
hedged. Jotun’s procedures and measures are considered satisfactory in
relation to the Group’s exposure to financial risks.
3. THE MARKET
DECORATIVE PAINTS
The COVID-19 pandemic resulted in significant declines in sales activity in
the second quarter of 2020, especially in South East Asia and the Middle
East, where Jotun has a strong market presence. However, by quickly
implementing business continuity measures at company factories and
offices and utilising digital technologies to strengthen relationships with
key stakeholders, the company posted another year of positive results in
the Decorative Paints segment.
Jotun’s regional diversity allowed the company offset weak demand in
some markets with strong demand in others. For example, slow sales in
Malaysia in the spring were offset by strong market activity in Norway,
where consumer demand during the lockdown period reached record
highs. Likewise, Jotun made up for some postponed mega-projects in the
UAE with excellent results in some other countries.
Jotun successfully managed the digital launch of the 2021 Global
Colour Card Collection. In addition the company launched a new, global
consumer website with enhanced functionalities to showcase both
interior and exterior decorative paints. While the COVID-19 pandemic’s
effects may continue to create uncertainty in some countries, the
company is confident that as more markets open up, consumer spending
will increase and many delayed projects will resume, supporting more
robust growth in the years ahead.
PROTECTIVE COATINGS
In the Protective Coatings segment, Jotun interacts with multiple
industries in different regions, allowing the company to offset weak
demand in some markets with strong demand in others. This allowed the
company to match last year’s top line sales and deliver good profitability,
even as the COVID-19 pandemic impacted different markets at different
times.
Jotun experienced a decline in demand in the offshore industry, which
was negatively impacted by declining investments in the construction
of new units. However, despite construction delays in some countries,
Jotun continued to supply to infrastructure projects, especially in China
and Turkey, where activity accelerated as markets reopened in the second
half of the year. Jotun also found success serving the energy industry,
especially in China, where the government has incentivised investments in
renewable energy projects, such as offshore and land-based wind farms.
In the Hydrocarbon Processing Industry (HPI), Jotun performed well,
securing an important maintenance contract with a leading US-based
global energy company.
In anticipation of higher costs for raw materials in 2021, Jotun will take
a more proactive approach to price increases and continue to focus on
efficiency. Internally, Jotun will accelerate investments in competence
development and digital tools. While Jotun acknowledges that the
impacts of the COVID-19 pandemic may continue to create market
uncertainties into the first half of 2021, the company is confident that
demand for Jotun’s protective coatings will accelerate as conditions in
more countries improve.
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Board of Directors
10 I Jotun Annual Report 2020