group review · continuing global success. jotun build diverse teams with respect for cultural and...

Group review2005 – 20062005 – 2006

2 w w w . j o t u n . c o m 3w w w . j o t u n . c o m

17 JOTUN PAINTS

contents

13 JOTUN DEKORATIV

21 JOTUN COATINGS

25 JOTUN POWDER COATINGS

36 DIRECTORS’ REPORT

4 Jotun protects property

5 Group key fi gures

6 A global leader

8 Milestones

9 80 years of growth

13 Jotun Dekorativ

17 Jotun Paints

21 Jotun Coatings

25 Jotun Powder Coatings

28 Focus elements (PPPI)

30 People

31 Position

32 Profi tability

33 Innovation

34 Improved performance

36 Directors’ report

41 Profi t and loss account

42 Balance sheet

T H E J O T U N G R O U P

*Member of extended group management

BOARD OF DIRECTORS

Odd Gleditsch d.y., Chairman

Einar Abrahamsen

Richard Arnesen

Terje V. Arnesen

Nicolai A. Eger

Thore Kristiansen

Torkild Nordberg

Dag J. Opedal

CORPORATE ASSEMBLY

Olav Christensen, Chairman

Birger Amundsen

Fredrikke Eger

Bjørn Ole Gleditsch

Thomas Gleditsch

Odd Inge Høyland

John Jørgensen

Rune Molteberg

Britt Paulsen

Halvor Stenstadvold

Erling Fredrik Sørhaug

Egil M. Ullebø

PRESIDENT & CEOMorten Fon

JOTUN DEKORATIVBjørn Naglestad

JOTUN PAINTSErik R. Aaberg

JOTUN COATINGSEsben Hersve

JOTUN POWDER COATINGSKnut Øivind Malmin

HUMAN RESOURCESMerete Aspaas*

COMMUNICATIONElisabeth M. Støle*

BUSINESS DEVELOPMENTTor Hatlo-Johansen*

FINANCE, IT, LEGALAudun Røneid


Respect is a key value for Jotun’s continuing global success. Jotun build diverse teams with respect for cultural and gender differences, we are honest and fair, and we respect laws and regulations. Boldness is the foundation on which Jotun’s success has been built and this value is just as important today. We are proactive, we initiate and nurture change and we are enthusiastic in seeking new opportunities in

Group key figures

2005 was Jotun’s best year yet. Major investments 2005 was Jotun’s best year yet. Major investments

provided a sound foundation ensuring we can uphold provided a sound foundation ensuring we can uphold

our values with regard to owners, customers our values with regard to owners, customers

and employees in the years to come.and employees in the years to come.

developing markets. Through the success of these endeavours we provide a solid bedrock for the company’s future.

Supporting these values, we have four focus elements – PPPI – which serve as the benchmark in our day-to-day operations: People – because our staff contribute to Jotun becoming the best company in the industry.

Position – because we are committed to being a leading player in the markets we select. Profitability – because profit is proof that we create value. Innovation – because innovative concepts ensure growth and continued market leadership.

Jotun protects property

80 years ago Jotun was founded by Odd Gleditsch sr. From the very beginning this kind, charismatic gentleman inspired a unique corporate culture that is maintained to this day. It is characterised by a sense of close-knit family, an enterprising spirit, a desire to work together and shared success. It is called Jotun’s penguin spirit. It ties Jotun’s global activities together and is reflected in our basic values: Loyalty, Care, Respect and Boldness. Loyalty is an important value for Jotun. The long-term relationship between Jotun, our colleagues and customers underlines the trust placed in our products and our people. Care is a value cherished by Jotun, signalling a willingness to help and support others and the fact that we protect our internal and external environment.

DEFINITIONS OF KEY FIGURES

Profit on ordinary activities before taxation + financial costsAverage total assets - non-interest-bearing liabilities

x 1002) Return on capital employed % =

x 100Return of assets % =1)Profit on ordinary activities before taxation + financial costs

Average total assets

Profit on ordinary activitiesAverage equity

4) x 100Return on equity % =

Operating margin % =3)Operating profit

Sales and other operating income x 100

G R O U P K E Y F I G U R E S

Jotun’s Mammut, a lead-free coating designed specially for steel structures,

is used on the Eiffel Tower.

(Figures include shares in joint ventures and are in USD million) 2005 2004 2003 2002 2001

SALES

Sales and other operating income 1 042 901 817 705 645

Export ratio (%) 74 73 73 69 71

PROFIT

Operating profit 83 73 64 58 23

Profit on ordinary activities before taxation 79 70 62 58 17

Net cash flow from operating activities 29 71 47 111 31

PROFITABILITY

Return on assets (%) 1) 12.0 12.5 12.0 13.2 5.7

Return on capital employed (%) 2) 16.9 17.1 17.3 18.7 7.8

Operating margin (%) 3) 8.0 8.1 7.7 8.3 3.5

Return on equity (%) 4) 12.6 12.9 9.6 11.9 5.2

YEAR-END FINANCIAL POSITION

Total assets 760 747 610 570 507

Capital expenditure 64 31 29 37 34

Equity (incl. minority interests) 417 424 374 324 254

Equity/assets ratio (%) 54.9 56.8 61.4 56.9 50.2

Average number of employees in group,

including share in joint ventures 4 437 4 080 3 934 3 913 3 832

Number of employees in group,

including 100 per cent in joint ventures per 31.12. 5 009 4 738 4 481 4 363 4 339


J O T U N W O R L D W I D E

L = Legal A = Agent / branch / distributor / licensee

The Jotun group consists of four business units, each with specific products and segments. Jotun Dekorativ has segment responsi bility for Jotun’s decorative paints, stains and varnish deliveries to the trade and Do It Yourself (DIY) markets in Scandinavia.

A global leaderEighty years after being established in Norway, Jotun is today a global leader in paints and coatings.

We have 67 companies and 39 production facilities on all continents. In addition Jotun has agents,

branch offices and distributors in more than 70 countries.

Jotun Paints has segment responsibility for decorative paints in all markets outside Scandinavia. This responsibility includes marine and protective coatings for markets in the Middle East and Southeast Asia. Jotun Coatings has global segment responsibility for marine and protective coatings. This responsibility includes

decorative paints in local markets in Europe and selected markets in Asia. Jotun Powder Coatings has global segment responsibility for powder coatings. The product portfolio caters to the architectu-ral, functional and industrial market segments to protect metal surfaces from corrosion and add style to their aesthetic appearance.

Ribbon cutting during the Grand Ribbon cutting during the Grand Opening in January 2006 declared the Opening in January 2006 declared the Jotun Coatings factory in Zhangjiagang, Jotun Coatings factory in Zhangjiagang, China, officially opened. China, officially opened.

JOTUN PAINTS JOTUN COATINGS JOTUN DEKORATIV JOTUN POWDER COATINGS

Marine coatings • •

Protective coatings • •

Decorative paints • • •

Powder coatings • Middle East North East Asia Scandinavia Global Southeast Asia Americas (ex. Singapore) Europe South Africa Australia Singapore

AFRICALibya AMauritius AMorocco ANamibia ASouth Africa L A

AMERICASArgentina A ABrazil LChile ACuracao APanama APeru ATrinidad AUruguay AUSA L A

ASIAAzerbaijan AChina LIndia A LIndonesia L LJapan AMalaysia L LPakistan LPhilippines A A

Singapore LSouth Korea LThailand L LVietnam L L

AUSTRALIAAustralia L L

EUROPEBulgaria A LCroatia ACyprus ACzech Republic A LDenmark L L AEstonia AFinland L AFrance LGermany LGreece L AHungary A AIceland A AIreland LItaly LLatvia ALithuania AMalta AMonaco A

Montenegro ANetherlands LNorway L L LPoland L APortugal ARomania ARussia L ASlovak Republic ASpain LSweden L L ASwitzerland A Turkey L LUkraine AU.K. L L

MIDDLE EASTBahrain AEgypt L AIran AJordan AKuwait A AOman LQatar ASaudi Arabia L LSyria AUAE L LYemen L

JOTUN COATINGS / JOTUN PAINTS JOTUN DEKORATIV JOTUN POWDER COATINGS

Production units


M I L E S T O N E S

Odd Gleditsch sr. founded Jotun Kemiske Fabrik A/S in 1926. From its beginning Jotun had connections with the wider world as a supplier to the Norwegian merchant fleet. In 1962 Jotun established its first production plant outside Norway and its international activities took on a new dimension.

POTENTIAL FOR GROW THLibya was chosen. It was a peaceful but relatively poor kingdom. However, oil had been discovered in 1959, which would clearly lead to rapid growth in the country’s economy

and, in turn, an increased requirement for paints and coatings. The process of establishing the company in a new culture was not without its problems. Jotun quickly learned the importance of understanding and respecting the culture of another country. This lesson learned became an important factor when establishing operations elsewhere, thus contributing to Jotun’s position today as one of the major paint and coating companies in Europe, the Middle East and Southeast Asia.

80 years of growthAfter 80 years of organic growth Jotun is well established as a global player. Success is

not only in products and profit; it is in Jotun’s history, people, culture and attitudes.

Morten Fon, President & CEO

1926Odd Gleditsch sr. founds Jotun Kemiske Fabrik A/S in Sandefjord, Norway.

1931Commercial breakthrough with Arcanol, a rust-inhibiting coating for ships.

1939Pension fund established for all employees.

1948 Drygolin, Norway’s most frequently purchased exterior paint from Fleischers Kjemiske Fabrikker A/S, is launched.

1951A new factory with a large laboratory is completed at Gimle in Sandefjord,Norway.

1953Fenom, a major technological advance in decora-tive paints, helps Jotun break into the retail market.

1962First factory outside Norway is opened in Libya.

1968First factory in the Far East is opened in Thailand. Formation of Corro-Coat A/S to produce powder coatings, a new concept at the time.

1970Odd Gleditsch jr. replaces his father as Chairman of the Board. He had taken over as managing director in 1968.

1972Merger of Norway’s four largest coatings producers: Alf Bjercke, FleischersKjemiske Fabrikker, Denofa Lilleborg’s paint and synthetic resin businessand Jotun Odd Gleditsch.

1975First factory in the Middle East is opened in Dubai.

1976The factory fire in Sandefjord on 15 September 1976 is the most dramatic episode in Jotun’s history. The explo-sion kills six people.

1976Multicolor tinting machines are launched, and Jotun’s first Multi color centre opens in Sandefjord.

1978New warehousing and distribution centre opens in Sandefjord. The most modern computer-controlled high-bay warehouse in Europe at that time.

1980’sFurther expansion in the Middle East.

1983Lord & Lady are presented in the Whiteline pastelles that were stylish at the time.

1985Jotashield is launched in South east Asia in 1985 and in the Middle East in 1998. Jotashield is Jotun’s most extensive range of decorative paints.

1987Jotamastic 87 is launched as a leap forward in Epoxy technology, beginning the future leadership in maintenance coatings.

1990’sMajor international growth.

1991New high-tech environmental friendly paint factory opens at Vindal, Sandefjord.

2000Third generation, Odd Gleditsch d.y., takes over as Chair -man of the Board.

2000 SeaQuantum, the world’s most advanced TBT-free, self-polishing anti-fouling is introduced to the market.

2004Two of the company’s four divisional manage-ment teams transfer to Dubai.

2004New paint factory is opened in Dubai with an annual capacity of 70 million litres.

2004HM King Harald V and HM Queen Sonja of Norway open Jotun’s expanded paint production facility in Vietnam.

2005New paint factory is opened in Indonesia.

2005New powder coatings factory is opened in India.

2005Durable, flexible and heat resistant coatings are launched as new, successful brand extensions of the Jotashield exterior product family.

2006 New paint factory is opened in China with an annual capacity of 70 million litres.

INTERNATIONALISATIONIt was the initiative of Odd Gleditsch jr. that established Jotun in Libya. He was both the driving force and the architect behind Jotun’s strategy of international expansion through organic growth. For Jotun ‘internationalisa-tion’ became, and remains, both a goal and a part of a clear strategy. After Libya, Jotun developed rapidly and was soon active in markets all over the world. As business increased, Jotun’s own production facilities were established. Now throughout the world, customers of Jotun

J O T U N G R O U P


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1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

reap the benefits of the highest standards of service and a group committed to excellence in the research, development and production of high quality products which offer value and performance.

BUILDING A BET TER FUTUREConsistent international growth means meeting the challenge of ever changing markets. Jotun is structured to meet these challenges through products, people, resources and the right business processes. Jotun continues to expand in developing markets. We remain committed to being the leader in the markets we select. Combining the strengths of state-of-the-art technology, innovative thinking, practical knowledge and experience, Jotun will deliver innovative products and market concepts. We invest in people, plants, systems and solutions and constantly strive to exceed the accepted standards of performance in product

BUSINESS UNITSHIGHLIGHTSHIGHLIGHTS

• Best result in Jotun’s history• Best result in Jotun’s history• New factories in India, Indonesia • New factories in India, Indonesia

and Chinaand China• A record number of people • A record number of people

attended the paint school in attended the paint school in Norway (Jotun Fagskole)Norway (Jotun Fagskole)

• Successful launch of Jotashield • Successful launch of Jotashield exterior decorative products in exterior decorative products in Middle East and AsiaMiddle East and Asia

• New products, such as Lady • New products, such as Lady interior wood stain, Benar varnish interior wood stain, Benar varnish and Visir Extra, launched in and Visir Extra, launched in Scandinavia Scandinavia

• SeaLion fouling release system • SeaLion fouling release system launched in the marine marketlaunched in the marine market

• Established joint venture with • Established joint venture with COSCO in ChinaCOSCO in China

13% Jotun Powder Coatings24% Jotun Dekorativ 22% Jotun Paints41% Jotun Coatings

13% Powder coatings17% Protective coatings41% Decorative paints29% Marine coatings

56% Europe16% Middle East22% Far East 6% Rest of the world

Marinecoatings

Powdercoatings

Decorativepaints

Protectivecoatings

JotunPaints

JotunPowderCoatings

JotunDekorativ

JotunCoatings

Europe

Middle East

Far East

Restof theworld

innovation and quality, and in service and technical support for our customers.

A SOLID BASE For the past eight years, the Jotun group has achieved an average annual sales growth rate of ten per cent. Results for 2005 confirm that this growth is continuing. To further strengt-hen and develop the strategy behind this success a new department for Business Development has been established. Its responsibilities will include supporting the divisions in the development of new markets and all of the group’s training activities. This organisational change will equip Jotun with improved resources to further organic growth.

Morten FonPresident & CEO

SALES

Nominal

BUSINESS SEGMENTS REGIONS

J O T U N G R O U P

The new factory in Zhangjiagang has an annual output capacity of 70 million litres. The factory, which has been built to handle the high level of growth in China, represents one of the largest single investments made by Jotun ever.


LoyaltyLoyalty is an important value for Jotun. The long-term relationship Loyalty is an important value for Jotun. The long-term relationship

between Jotun, our colleagues and customers underlines the trust placed between Jotun, our colleagues and customers underlines the trust placed

in our products and our people. in our products and our people.

J O T U N D E K O R A T I VJ O T U N B A S I C V A L U E S

2005 was a good year for Jotun Dekorativ, which is responsible for decorative paints in Scandinavia. The division recorded an operating income of NOK 1,610 million in 2005, compared with NOK 1,499 million in 2004. This healthy financial result was due to a continued growth in the interior paint market combined with a good season for outdoor paints.

GOOD REL ATIONSCustomer relations with the trade and Do It Yourself (DIY) sectors, together with good consumer understanding, are important factors in upholding our position in Scandi navia. The results confirm that Jotun’s

Strengthening customer relations

Jotun Dekorativ meets the needs of increasingly professional customers

through innovation, added value and mutual profitability.

marketing and customer relation activities are paying off. Despite tough competition in Norway, we have seen increased sales in the professional market and strong sales growth in the DIY market. Norwegians love home improve-ments! The per capita consumption of paint in Norway is one of the highest in the world reflecting a combination of the harsh climate, a keen interest in decoration and home ownership and a high standard of living. Sales in Denmark and Sweden continue to rise, and in Denmark the number of professio-nal decorators using our products continues to grow. In Sweden we are now suppliers to the Färgtema paint retail chain and we look forward to attracting new customers as

Bjørn NaglestadGroup Executive Vice President, Jotun Dekorativ


The 2006 colour palettes Spring, Summer, Fall and Winter are specially designed for the exterior brands Demidekk, Drygolin and Trebitt.

J O T U N D E K O R A T I V

HIGHLIGHTSHIGHLIGHTS

• A record number of people • A record number of people attended the paint school in attended the paint school in Norway (Jotun Fagskole)Norway (Jotun Fagskole)

• Jotun awarded 2005 Byggevare-• Jotun awarded 2005 Byggevare-prisen as best supplier in the prisen as best supplier in the building sectorbuilding sector

• Launch of Lady interior wood stain• Launch of Lady interior wood stain• Launch of Benar furniture varnish • Launch of Benar furniture varnish

and Visir Extraand Visir Extra• Development of new packaging for • Development of new packaging for

Demidekk OptimalDemidekk Optimal• Implementation of a new Enterprise • Implementation of a new Enterprise

Resource Planning (ERP) systemResource Planning (ERP) system• A key account programme • A key account programme

strengthe ning customer relation- strengthe ning customer relation-shipsships

• Meeting customers at different • Meeting customers at different arenas such as Folkefesten, arenas such as Folkefesten, involving concerts across Norwayinvolving concerts across Norway

INTERNET SUCCESSThe number of customers surfing the Internet in search for information continues to grow at a remarkable rate. Jotun aims to meet consumers’ needs by offering the best website in its category. In 2005 www.jotun.no received 400,000 hits. The website has quickly been identified as an extremely useful resource in helping the consumer decide on colours, products and type of applications that most suits their needs. On-going develop-ment, refinement and updating of the website continues in order to satisfy customer requirements and to provide information on new products, innovations and opportunities to add colour and style to their lives.

JOTUN DEKOR ATIV 696 employees per 31.12.05

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Demidekk Optimal launched in new packaging and with separate lid opener.

A new white base, with a 30–40 per cent increased covering ability, was launched by Jotun Dekorativ during the spring 2006. The launch strengthens Jotun’s position and competitiveness.

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SALESSEGMENTS

5% Miscellaneous

48% Interior

47% Exterior

partner, offering new and innovative products, staying one step ahead of the competition, providing excellent marketing and information activities and added value opportunities. Jotun’s key account programme for the professional market is one example of this. It is designed to help improve the efficiency, and hence the profitability, of the customer’s

organisation and enhance the skills of its employees. This carefully devised and effective programme can be a major influence on a customer’s choice of Jotun as a supplier. We are humbled by our customers’ loyalty. The long-term relationship between the company, its customers and employees underlines the trust placed in our products and our people.

approved supplier to the nationwide Spektrum chain.

KEY ACCOUNT CUSTOMERSThrough these chains our customers are becoming bigger, fewer and more professio-nal. They know their market well, and they know what appeals to their customers. Jotun’s success is due, in part, to being a good

NEW CONCEPTS A number of new Jotun Dekorativ concepts will be introduced in 2006, including the introduction of Demidekk Optimal (exterior wood stain) in new packaging with an integral lid opener and a new Lady concept (interior paint) with more and clearer benefits for consumers. The customer is always at the heart of the Jotun Dekorativ innovation process. We believe and insist that any additions and improvements to our products and services must offer more value to our customers – innovation is at the heart of Jotun’s growth.

PRODUC TION UNITS

Norway


RespectJotun has 5 000 employees with a variety of cultural backgrounds. We build diverse Jotun has 5 000 employees with a variety of cultural backgrounds. We build diverse

teams with respect for cultural and gender differences; we are honest and fair, and respect teams with respect for cultural and gender differences; we are honest and fair, and respect

laws and regulations. This is absolutely vital to ensure continued growth and development. laws and regulations. This is absolutely vital to ensure continued growth and development.

Our common basis is the penguin spirit. It makes us strong – together. Our common basis is the penguin spirit. It makes us strong – together.

J O T U N P A I N T S

Jotun Paints comprises all paint activities in the Middle East and Southeast Asia. Jotun is market leader in decorative paints in the Middle East, with these paints accounting for around 70 per cent of the division’s business. Overall results were good and on target. The Middle East achieved better than expected growth, whilst some Southeast Asia results were poorer than anticipated. Increased raw material prices in particular had a negative effect. The division’s operating revenues were NOK 2,122, compared with NOK 1,959 in 2004 (including 100 per cent share of JV).

STRONG GROW TH Increased distribution of decorative products in all markets has been achieved by creating a growing number of Multicolor retailers, many of which sell exclusively Jotun products. Multicolor, Jotun’s well-known ‘shop-in-shop’ colour tinting system, including machines, software and shop material, is a very effective sales tool for retailers. The Multicolor system, together with marketing, sales and service at local level, are under constant development to ensure that we stay ahead of our competitors and meet the demands of the market.

The colour of successJotun Paints continued to achieve good results and sales growth. Jotun is

the market leader in the Middle East, and has strengthened its position in the

market for decorative paints in particular. There has been a major focus

on innovation and development of the Multicolor concept.

The marketing strategies and product development of the marine and protective coatings segments are co-ordinated with the Jotun Coatings division. Both business segments have achieved healthy growth in most of the Middle East and Southeast Asian markets. Marine clients include local and regional companies as well as a number of major international customers in Egypt, United Arab Emirates, Malaysia and Thailand. Over the years Jotun has achieved a strong position with architects, consultants, contractors and developers. As a conse-quence, Jotun Paints has a large market share in the constructions market in several regions in Southeast Asia and the Middle East, and is involved in supplies to several landmark projects.

EXPANSIONTo meet the increased demand for our products a new factory opened in Indonesia in late 2005. A new factory was completed in Yemen at the beginning of 2006 and further investment programmes are underway in Saudi Arabia and Egypt. Jotun’s expansion strategy is to enter markets with a potential for strong growth. By entering these markets early, persevering

in our efforts and implementing sound pro-active marketing and organisational plans, experience has proved that we can achieve a leading position. For example Jotun was the first international paint company to establish production units in Libya, Thailand and the United Arab Emirates, and now in Yemen. As the company in a new market progresses, the care and development of its employees becomes of great importance. Jotun allows its employees a great degree of freedom of action within established

Erik R. AabergGroup Executive Vice President, Jotun Paints

J O T U N B A S I C V A L U E S


J O T U N P A I N T S

2,000 villas on the famous Palm Jumeirah in the United Arab Emirates. Establishing and building the customer’s trust, whether contractor, building owner or painting contractor, requires continuous innovation, development and improvement in all areas of Jotun’s business. We have a policy of constant investment and upgrading of regional marketing departments and laborato-ries in the Middle East and Southeast Asia


• Position as leading paint • Position as leading paint manufacturer in the Middle East manufacturer in the Middle East strengthenedstrengthened

• New factory in Indonesia • New factory in Indonesia • Upgrading of factories in Saudi • Upgrading of factories in Saudi

Arabia, Egypt and MalaysiaArabia, Egypt and Malaysia• New factory in Yemen• New factory in Yemen• New successful brand extensions • New successful brand extensions

of the Jotashield exterior product of the Jotashield exterior product family with durable, flexible and family with durable, flexible and heat resistant coatingsheat resistant coatings

• Strengthened distribution chain in • Strengthened distribution chain in the Middle East and Southeast Asiathe Middle East and Southeast Asia

• Major contracts secured and • Major contracts secured and effectedeffected

• Skills upgrading of the sales force • Skills upgrading of the sales force through the Commercial Paint through the Commercial Paint SchoolSchool

• Further improvements within Health, • Further improvements within Health, Safety and Environment (HSE)Safety and Environment (HSE)

INSPIR ATION CENTREFor many years Jotun’s Multicolor Centre has provided a unique method of selling paint, making available an advanced colour mixing system and a multitude of paint systems and painting techniques. Jotun has now taken the Multicolor Centre concept one step further. Jotun Inspiration Centres provide expertise within decoration, interior and painting techniques and the consumer is able to stroll around displays of kitchens, bathrooms, bedrooms and living rooms, gaining inspiration for painting systems and interior solutions in general. Inspiration Centres have already been built in Oman, Dubai, Saudi Arabia and Kuwait.

to strengthen and improve the innovation process. They maintain close contact with all segments of their markets to both initiate and identify new trends and needs. Trust requires respect, and respect is an absolute necessity for Jotun’s continuing global success. Jotun builds diverse teams with respect for cultural and gender differen-ces, believes in honesty and fairness, and respects laws and regulations.

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BUILDING REL ATIONSHIPSJotun places great emphasis on building relationships through expertise. Training for all our sales staff is primarily provided at Jotun’s Commercial Paint School, and we are currently developing a training programme to further strengthen our relationships with our distributors and assist them in improving their sales.

JOTUN PAINTS 1 884 employees per 31.12.05

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SALESSEGMENTS

9% Marine coatings

22% Protective coatings

69% Decorative paints

PRODUC TION UNITS

Egypt

Indonesia

Malaysia

Oman

Saudi Arabia

Thailand

United Arab Emirates

Vietnam

Yemen

strategies and guidelines. We believe it is important for our employees to have a clear understanding of the overall situation and appreciate what factors lead to growth and profitability. In return our employees are reliable, competent and loyal. Jotun also attaches great importance to building long-term relationships with customers, and to ensuring that both parties benefit from the collaboration. We have

many examples of successful relationships where customers have grown hand in hand with Jotun.

ADVANCED PROJEC TSComplex projects require holistic solutions. To ensure optimum results for the customer, Jotun increasingly not only delivers paint to the agreed specification, but also provides technical consultancy services and undertakes

The Kinda showroom is one of the most exclusive Jotun Paints showrooms in Saudi Arabia.

inspection during application, whether the surface being decorated or protected is wood, concrete or steel. Jotun’s Single Source Solution ensures that most of a customer’s paint and coating needs are covered by a single supplier, simplifying the supply chain and avoiding duplication of effort. Examples include the supply of paint to 37 tower blocks at Jumeirah Beach Residence in Dubai – more than 1.5 million m2 – and

The Palm Jumeirah, United Arab Emirates: A 5 km long man-made island has been built off the coastline of Dubai. 2,000 villas are nowadays being protected with Jotashield.

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CareCare is at the heart of Jotun’s corporate culture in terms of willingness to help and support Care is at the heart of Jotun’s corporate culture in terms of willingness to help and support

others, to display trust and empathy and to protect our internal and external environment. others, to display trust and empathy and to protect our internal and external environment.

We do this by working as a team, by creating innovative, environmentally friendly products, We do this by working as a team, by creating innovative, environmentally friendly products,

and by always doing our utmost to accommodate our customers’ requirements. and by always doing our utmost to accommodate our customers’ requirements.

J O T U N C O A T I N G S

Jotun Coatings has global responsibility for coating systems designed for the shipping, industrial and offshore sectors. In 2005 the division strengthened its position and increased volumes both within the marine and the protective segments. Jotun Coatings posted an operating income of NOK 2,945 million, compared with NOK 2,506 million in 2004 (including 100 per cent share of JV). Despite the increase in profits, this result is not yet on a par with the group’s long-term requirements in terms of margins and profitability. As in most markets high raw material costs were a factor, which, together with stiffer competition in both the marine and protective segments, put pressure on margins. Conversely higher oil prices and general global growth helped boost activity in the form of new investments and increased maintenance for both ships and industrial plants. The rise in global trade and the resulting increased transportation require-ments benefited both segments.

POSIT IONING FOR THE FUTUREVolumes and sales are growing rapidly, particularly in Asia. A new factory has been built in China to handle the high level of growth. The factory, which was officially

Profitable growth Favourable market conditions and a growth strategy in selected

markets have contributed to increased volumes and many new projects.

Jotun Coatings plans to consolidate its position further by focusing

more on markets offering high levels of potential.

opened on 12 January 2006, represents one of the largest single investments ever made by Jotun. Also in China, we have strengthened our co-operation with COSCO during the year and our mutual ambition is to be the country’s number one marine coatings supplier. Profitability in Europe is too low, and we have responded to this challenge by selecting


Esben HersveGroup Executive Vice President, Jotun Coatings

Jotun Coatings has been been chosen as coating supplier for corrosion protection of SSP Piranema, the world’s first cylinder shaped unit for production, storage and offloading of crude oil (FPSO). The platform is designed by the Norwegian offshore technology company Sevan Marine.


J O T U N C O A T I N G S

SeaLion fouling release coating was Jotun Coatings’ most important 2005 global launch.

specific markets for particular attention. Protective coatings represent a good opportunity in several of these markets, and we have concentrated on improving sales capacity and competence. Together with a considerable improvement during the year in the delivery service from our U.K. factory, we expect these changes will help increase profitability in the long term.

STRONG BR ANDS Jotun Coatings has a clear growth strategy, and has defined several areas in which we wish further expansion. Brazil, India, Turkey and the Black Sea region, Russia, South Africa and China represent major opportuni-ties. Our growth strategy also involves further consolidation of our position with the largest and most complex customers. During 2006 we will be focusing on improving internal cross-border cooperation. Our ability to cooperate internally and learn from each other has placed us in an even better position to handle major projects. We will concentrate operations and future innovation on fewer, but stronger, brands.

KEY ACCOUNT PROGR AMMEAt the same time, we have established a key account programme. This programme provides us with more focused communica-tion with our major customers and allows us a clearer overview of sales and profit for each

customer, irrespective of national borders. It will increase our understanding of each of our customers’ requirements and enable us to provide them with better and more efficient service. Major customers are getting bigger and are making decisions at a global level, which makes it all the more important for us to con solidate Jotun’s position as a global player. Jotun is committed to act as a responsible corporate citizen. This includes protecting the internal and external environment.

A CROSS -BORDER SUCCESSOver the next two years Jotun Coatings will be supplying coating systems to the world’s largest offshore oil field, Kashagan, located in the remote shallows of the Caspian Sea. Securing such a project enhances and strengthens Jotun’s strong position in the Oil & Gas sector. The contracts were secured thanks to cooperation between Jotun Coatings companies in Norway, Italy, U.K. and Turkey. Jotun’s part of the project includes supply vessels, offshore barges, tanks, pipe racks and industrial buildings.


• 20 per cent growth • 20 per cent growth • Joint venture with COSCO in China• Joint venture with COSCO in China• New, modern factory opened in • New, modern factory opened in

Zhangjiagang, ChinaZhangjiagang, China• Record high on new marine and • Record high on new marine and

protective contractsprotective contracts• SeaLion launched• SeaLion launched• Strengthened cooperation on • Strengthened cooperation on

cross-border projectscross-border projects• High activity in the Oil & Gas • High activity in the Oil & Gas

sector, in particular in Middle Eastsector, in particular in Middle East• Large projects secured for • Large projects secured for

Kashagan by Jotun in Turkey, Kashagan by Jotun in Turkey, Norway and ItalyNorway and Italy

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WITH SEALIONSeaLion fouling release coating was Jotun Coatings’ most important 2005 global launch. The product is ideally suited for fast and high activity vessels, keeping hulls, propellers and rudders free from fouling without releasing any biocides. SeaLion creates a very smooth surface enabling higher vessel speed and/or reduced consumption of heavy fuel oil. SeaLion fouling release coating creates less dry spray (loss) during application than other coatings of this type. This results in less paint wastage, reduced volume and reduced application costs – all of which benefit the customer.

The semi-submersible drilling rig Leiv Eiriksson is used for exploration and development drilling in ultra deep water. The rig is protected against its harsh environments by coating systems manufactured by Jotun.

JOTUN COATINGS 1 707 employees per 31.12.05

0

500

1000

1500

2000

2500

3000

MILL NOK

2001

2 774

2 4572 292

2 506

2 945

2003 2004 20052002

SALESSEGMENTS

6% Decorative paints

26% Protective coatings

68% Marine coatings

PRODUC TION UNITS

Australia

China

Finland

Italy

Singapore

South Africa

South Korea

Spain

Turkey

U.K.

USA


BoldnessBoldness is the foundation on which Jotun’s success has been built, and this value is Boldness is the foundation on which Jotun’s success has been built, and this value is

just as important today. We are proactive, we initiate and nurture change, and we just as important today. We are proactive, we initiate and nurture change, and we

are enthusiastic in seeking new opportunities in developing markets. Through the are enthusiastic in seeking new opportunities in developing markets. Through the

success of these endeavours we provide a solid bedrock for the group’s future. success of these endeavours we provide a solid bedrock for the group’s future.

J O T U N P O W D E R C O A T I N G S

Jotun Powder Coatings is the world’s fourth largest supplier of powder coatings for the industrial surface treatment of metal. With more than 35 years of solid experience in the powder industry, 11 manufacturing facilities and an extensive network covering 75 countries, Jotun Powder Coatings is a solution provider dedicated to meeting the need for corrosion resistance and solvent-free powder coatings. The headquarters is in Dubai, U.A.E., and the division’s operations are split into three market segments: Architectural, functional and industrial and specialties.

CONTINUED GROW THIn 2005 Jotun Powder Coatings continued to grow in terms of volume and operating income, but higher raw material prices and fierce competition in existing markets led to lower margins for the division. Maintaining costs at an acceptable level continues to be an important task. The division posted an operating income of NOK 979 million, compared with NOK 898 million in 2004 (including 100 per cent share of JV).

Local approachIn 2005 Jotun Powder Coatings established a new organisational structure.

The division aims to be in an even better position to satisfy the market’s

requirements in terms of innovative quality products and market segments.

Jotun’s response to the increased compe tition is the development of new products and concepts, and investment in boosting production efficiency and production capacity, demonstrated by the recent inauguration of its new factory in India.

SEGMENTS IN THE SPOTLIGHTThe magnitude and pace of today’s environ-mental changes have highlighted the need for a more flexible structure, which is why a new organisational structure has been introduced, delegating responsibility from regional to local level in order to increase market proximity. General managers in 11 countries, spread across Europe, Southeast Asia and the Middle East, now report directly to the CEO, with support and follow-up from divisional managers. The new organisation will provide us with a better platform for developing new, innovative products and concepts, based on market requirements and needs. A newly formed Innovation Board will now monitor the innovation process and

Knut Øivind MalminGroup Executive Vice President, Jotun Powder Coatings



J O T U N P O W D E R C O A T I N G S

the R&D efforts, ensuring greater internal cooperation whilst also placing Jotun Powder Coatings in an even better position to launch new products ahead of our competitors.

COMMON APPROACHIn recent years the Jotun brand has been strengthened very successfully. 2006 will see our segments consolidated further with the appointment of category managers, who will coordinate our sales and marketing activities. This will ensure a common approach ensuring that all companies project the same image and meet our customers’ needs.

RISING SKILL LEVELSIn 2005 we increased our activities to raise the skill levels within sales and R&D. The effort directed to developing the Jotun Powder School was a milestone in 2005 and the school will be an extremely important tool in consolidating Jotun’s position in the market. Improving the sales force’s technical knowledge and competence will enable us to provide even better technical service and customer support. Added value will provide Jotun Powder Coatings with a key advantage in the market. Training at the Jotun Powder School will also be offered to our customers with a view to increasing their interest in selecting powder coatings and improve their ability to apply the technology correctly and with


• New organisation with stronger • New organisation with stronger local focus and divisional supportlocal focus and divisional support

• Jotun Powder Coatings in India • Jotun Powder Coatings in India started up productionstarted up production

• Jotun Toz Boya in Turkey attained • Jotun Toz Boya in Turkey attained all-time-high production and sales all-time-high production and sales record in the Powder Division’s record in the Powder Division’s history history

• Innovation Process strengthened• Innovation Process strengthened• Strengthening the cooperation • Strengthening the cooperation

with all other divisions in marke-with all other divisions in marke-ting, communication, sales and ting, communication, sales and R&DR&D

HIGH TEMPER ATURE, LOW CORROSION H.O.T. 150 is a new line of Fusion Bond Epoxy (FBE) coatings specifically designed to meet the demands for corrosion resistance at elevated operating temperatures for pipelines. This is a niche market in which Jotun Powder Coatings has a first entrant’s edge over its competitors. The launch campaign in 2005 included a direct mail campaign to the target group in 25 countries, followed up by customer visits and conference participation reinforced through trade media advertising and advertorials.

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cost efficiency. Not least, the training will assure them that Jotun provides quality. Their improved knowledge gained through Jotun Powder School will lay the foundation for long-term customer relations. By rising our own and our customers’ skill levels, Jotun nurtures change. Together we shall create the future.

OUTSTANDING SUPPLIER 2005Out of 186 suppliers, Mitsubishi Heavy Industries-Mahajak Air Conditioners (MACO) selected Jotun Powder Coatings Thailand as their Outstanding Supplier of the Year 2005. The award was given in the High Quality Product category, Grade A, with a total performance score of 99 per cent. MACO is amongst the top ten manufactu-rers of air-conditioners in Thailand and has been Jotun Powder Coatings’ largest customer for over 15 years.

The Fairmont Dubai hotel is decorated and protected by powder coatings manufactured by Jotun.

Innovation is critical to safeguard our position and profitability.

JOTUN POWDER COATINGS 665 employees per 31.12.05

0

500

1000

1500

2000

2500

3000

MILL NOK

2001

832 797 756898 979

2003 2004 20052002

SALESSEGMENTS

14% Architectural

15% Functional

71% Industrial and specialties

PRODUC TION UNITS

Czech Republic

India

Indonesia

Malaysia

Norway

Pakistan

Saudi Arabia

Thailand

Turkey

United Arab Emirates

Vietnam

Fusion Bond Epoxy (FBE) coatings provide excellent protection against corrosion and can meet all pipeline specifications for the transportation of hot or cold material.


We use four focus elements, PPPI, as a guide in

our day-to-day operations. These are used as a

benchmark for all decisions we make.

I N N O V A T I O N

To grow we must develop new products

and marketing concepts and improve our

work processes. Our customers should feel

that we drive the markets and innovate.

P R O F I T A B I L I T Y

All actions should either bring value to

the customers or reduce costs for Jotun.

Profitability is proof that we are creating

value.

PPPI

F O C U S E L E M E N T S

To meet customer needs we must have the

right business processes. It is essential to

develop and recruit the necessary compe-

tence and skills to perform these processes.

A strong position gives us the opportunity

to influence and drive the markets. We are

committed to being a leading player in the

markets we select.

P O S I T I O NP E O P L E



Position

Stena Arctica is the world’s largest 1A Super ice classed oil tanker in service. 21st Century Tower in Dubai is one of the tallest residential buildings in the world.

Jotun’s aim is to be a leading player in defined market segments worldwide.

We achieve this by building long-term relationships with customers, suppliers

and employees.

Jotun is a group driven by organic growth. We have established our position through patience and by implementing a long-term strategy devised by the company.

SUCCESSFUL GROW THJotun Egypt is a typical example of Jotun’s growth strategy. We started by exporting from Jotun’s plant in Dubai. In 1986, when the business in Egypt had reached a certain level, a factory was opened. Today Jotun Egypt is market leader in the protective and marine segments and number three in the decorative segment. It has taken many years to achieve this position but as the market shares have increased the company has also become very profitable.

ENVIRONMENTAL RESPONSIBILITYAs a global leader in paints and coatings Jotun recognises its particular responsibilities for the environment and for ensuring that the

products we supply comply with, or even exceed, international environmental require-ments. Our business involves resources, which result in emissions being discharged into the ground, sea and air. We are conscious of our increasing production volumes and are actively implementing efficiency improve-ments that can provide both environmental and financial benefits. Jotun has also made great strides in developing innovative waterborne industrial and alkyd paints for the residential market, and our new silicone-based fouling release coatings are less harmful for the environment than conventional products on the market. To continue our success we must develop highly skilled staff, innovative products and market concepts and expand into new markets. This will provide us with a sound basis for future organic growth.

At Jotun we pay great attention to the development of our employees. We have now taken this one step further by setting up a new department for Competence Manage-ment. Its responsibilities will include all of Jotun’s corporate training programmes, e.g. management, technical, sales, HSE and purchasing training, and a new trainee programme for younger employees showing management potential. REGIONAL NET WORKOur internal training programmes bring together people from every part of our organisation. This helps to improve skills, reinforces the team spirit and increases mutual respect. To share best practice Jotun is building regional networks across divisions and business areas. This contributes to develop-ment and improvement, which in turn strengthens the organisation.

PeopleRegional networks, training programmes, common values and business guidelines ensure

that Jotun projects a uniform image across the world. This helps us to consolidate our

position as a global player.

COMMON PL ATFORMBuilding networks and cross-cultural teams is of great importance for Jotun’s success. Jotun’s corporate culture has developed gradually from when Jotun was founded 80 years ago and has been introduced to every country in which we have established operations. We have integrated our corporate culture, core values and general business principles into a formal framework. This enables us to ensure that our employees and companies have a uniform basis for behaviour and business activities right across the world. Thanks to our strong corporate values Jotun is seen as a dependable, responsible player. We will continue to secure and develop the corporate culture which has laid the founda-tion for Jotun’s growth to date, and to which we will remain committed in the future.

Our employees and companies have a uniform basis for behaviour and business activities right across Our employees and companies have a uniform basis for behaviour and business activities right across the world.the world.

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Products don’t just happen, they are the result of dedicated research and development (R&D) geared to legislation and market needs.

UNIQUE INSIGHTAll of our products have been developed using extensive knowledge of local markets and our selected segments. We acquire this background knowledge through having representatives in all our markets and by communicating with our customers. Products adapted to particular regions are created in our regional laboratories across the world. In 2005 the Jotun group spent NOK 125 million on R&D. Around the world 200 people work continuously to meet our customers’ needs and to keep Jotun one step ahead of our competitors. Our R&D centre in Sandefjord, Norway, is the largest in its kind in the Nordic countries. In addition we have regional paint laboratories in the United Arab Emirates, Malaysia, South Korea and

Innovation

Jotashield Flex. Products adapted to particular regions are created in our regional laboratories across the world.

In a market where competition is getting fiercer, and margins are decreasing,

innovation is critical to safeguard our position and profitability.

the US, and regional laboratories for powder coatings in the Czech republic, the UAE and Thailand. Our innovation potential increased even more with the opening of a new regional paint laboratory in China in December.

INNOVATIVE COOPER ATIONInnovation is one of Jotun’s most important tools for winning market shares. To be even more efficient in our innovations we have

Jotamastic Smart Pack. Jotamastic Smart Pack. Jotun’s comprehensive key account system enables us to provide optimum follow-up and service.Jotun’s comprehensive key account system enables us to provide optimum follow-up and service.

Profitability

To continue our growth in selected markets we need to direct our attention at profitability. We have a number of resources to help us in this task.

ADDED VALUESales training enhances expertise and helps our companies develop employees who can contribute to growth. In parallel we develop products closely related to the needs of our markets. This results in locally adapted products, which help to boost sales and strengthen Jotun’s position. Training provides our customers with added value whilst also building loyalty. The paint school in Norway (Jotun Fagskole) offers training for staff working in retail shops. Over 5,000 people from more than 1,000 companies have to date used this oppor tunity to gain competence. This has equipped them to provide their customers with an even better service, as they are now more competent to sell Jotun products.

During the last eight years Jotun has had an average annual sales growth rate

of ten per cent and an even higher growth in profitability.

Customer training is an important investment for Jotun.

SERVICE AND FOLLOW-UPThe level of service delivered by our dedicated and competent employees is second to none. In the marine segment our technical service staff ensure the owners’ confidence when maintaining ships and building new ones. They take responsibility for the entire process, from before delivery of the paint until the application process is complete. Jotun has a comprehensive key account system for managing our main customers. This system enables us to coordinate all the resources we employ for our customers and equips us to provide optimum follow-up and service. The benefits are combined with our constant efforts to deliver a more efficient use of our own resources. Overall, this produces greater profitability in the long term, both for Jotun and our customers.

Jotun’s Multicolor Centre provides a unique method of selling paint.

introduced Jotun Innovation Process, managing innovations as cross-disciplinary cooperation, involving marketing, R&D, production, purchasing, sales and divisional management, making sure that new products are launched in a targeted, strategic manner. This will enable us to create innovative quality products that are appropriate to selected markets and segments because they meet customers’ requirements.


B O A R D O F D I R E C T O R S

Odd Gleditsch d.y. took up the post of Chairman of the Board in 2000. Five years on he can confirm that the group is financially strong and has consolidated its position in a number of markets. “Jotun has always developed one step at a time within a long-term perspective. One of our strengths is in creating the right conditions for organic growth, which has produced positive results. Not least, Jotun has good products and concepts and a large number of competent and devoted employees.”

LONG-TERM OWNERSHIPJotun was founded by Odd Gleditsch d.y.’s grandfather, and the ownership structure of the company has remained stable ever since. “The family has been involved in the company’s ownership for 80 years, and Orkla – one of Norway’s largest companies – for 30 years. This proves that the company has long-term owners,” he confirms. According to Mr Gleditsch d.y., the Board of Directors is pleased with the financial results for 2005, and envisages continued

2005 was a good year for Jotun despite many years of rising raw material prices. “We are now starting

to reap the rewards of several years of constant improvements, much to the delight of the Board of

Directors,” says Chairman of the Board, Odd Gleditsch d.y.

Improved performanceOdd Gleditsch d.y.

Chairman of the BoardEinar Abrahamsen Thore Kristiansen Nicolai A. Eger

Terje V. Arnesen Torkild Nordberg Dag J. Opedal Richard Arnesen

growth in both volume and sales. The Board also anticipates even better results in 2006. “We are confident that the new CEO will help Jotun to reach new heights.”

WILLINGNESS TO CHANGEThe Chairman of the Board believes that the group is faced with a number of challenges. “Our greatest challenge is perhaps to drive the innovation process forward with sufficient force. We need to continue to be willing to make changes, and not rest on our laurels due to the positive results we have achieved. Now that we have a sound financial platform, we need to prepare ourselves against even stiffer competition. In order to maintain the profitability of our operations we must constantly evaluate how we organise and run our business. This will also require a great deal of effort from our employees,” he states.

UNIQUE PENGUIN SPIRITOdd Gleditsch d.y. points out that Jotun has

an extremely strong corporate culture, which is known as Jotun’s penguin spirit. ”It includes entrepreneurship, loyalty, the ability to delegate authority, a willingness to take responsibility and making our customers’ needs a top priority. The synergy that this produces helps Jotun to exceed customers’ expectations. This is what will help us conquer future challenges”

DIVIDEND POLIC YAfter Odd Gleditsch d.y. took over as Chairman of the Board in 2000, the dividend policy changed somewhat. “We have had a deliberate policy of increasing dividends in order to give the shareholders an ongoing return that better reflects the assets that Jotun is managing for its shareholders. At the same time, we must maintain Jotun’s ability to finance expansion. Our ownership structure dictates that all investments must be covered by Jotun’s income. This will continue to be the case in the foreseeable future.”

B O A R D O F D I R E C T O R S


D I R E C T O R S ’ R E P O R T

The marine and protective business segments improved their positions and increased sales in 2005. The business has benefited from the upturn in global trade and the resulting increase in demand for transport and a generally higher level of investment and maintenance activity linked to vessels and industrial plant. Systematic steps taken to implement improvements are also being reflected in higher profitability. Effective innovations developed specifi-cally to meet customer needs have contributed to the improved performance. Enhanced expertise in sales and a greater focus on large and complex clients within selected core areas resulted in many new projects in 2005. Some increase in the pace of growth is expected over the next few years as a result of new and further developments in rapidly expanding markets such as Russia, Brazil, India, Turkey, the Black Sea region, South Africa and China. Jotun Coatings opened a new factory in China in January 2006. This factory represents a major single investment and is designed to meet growth in China in particular and in North Asia in general. Jotun has strengthened its collaboration with the Chinese company COSCO, which has one of the world’s largest fleets. This venture in the marine segment will increase sales and enable a good foothold to be established locally.

Jotun PaintsJotun Paints has three business segments; decorative, marine and protective, of which decorative is the most important in terms of sales and profit. All three segments have good profitability, especially decorative in the Middle East. The division is expanding and continues to be the market leader in the central Middle East.

The Multicolor concept (Jotun’s colour-mixing system) provides Jotun with one of its competitive advantages. Further development of the concept and its applications has helped to boost distribution and establish a strong position. Steps are also being taken to strengthen sales and marketing expertise within the local companies.

The division is also very active in the project market throughout the Middle East and Southeast Asia and has established a good position amongst architects and contractors who have won many large prestige projects. Jotun has achieved success by establishing an early presence in markets with growth potential. A strategic focus on marketing and organisational development has led to the establishment and reinforcement of strong

positions in markets such as Saudi Arabia, the United Arab Emirates and Malaysia. Jotun Paints is continually assessing potential new markets in the light of this strategy. Strong growth has led to the need for increased production capacity. In November 2005 Jotun opened a modern new factory in Jakarta, Indonesia, and a new manufacturing facility in Yemen was completed at the end of the year. Investments are also being made to expand the group’s plants in Saudi Arabia and Egypt.

Jotun DekorativThe division’s sales was again at a record level in 2005. Higher sales of interior paints combined with a good season for outdoor paints contributed to a satisfactory result for 2005. The year was marked by the introduction of a new ERP system, which affected deliveries to some extent during the high season. This situation was however rectified, and the division is again able to deliver reliably and meet customer requirements. Jotun has a strong position in Norway, reflecting its good customer relations. The progress being made in sales is evident within the professional trade and in the building commodities market. Jotun has also retained its strong position within the trade market. The number of chains selling the division’s products has fallen, but at the same time they have become bigger and more professional. Jotun seeks to be an attractive partner, not only by offering a sound profit on sales of its products, but also by providing better products, services and total solutions. In Denmark, Jotun made excellent progress in sales to professional users. The progress made in Sweden was largely due to an increase in distribution to Färgtema.

1. PRINCIPAL AC TIVIT IESAt the end of 2005, the Jotun group was engaged in the development, manufacture, marketing and sale of paint/coating systems and surface treatment products through four divisions: Jotun Coatings: Marine and protective coatings for industrial and offshore use in Europe, the USA, South Africa, Australia and North East Asia, and decorative products for local customers in the same regions. Jotun Paints: Decorative products in the Middle East and South East Asia, and marine and protective coatings for local customers in the same regions. Jotun Dekorativ: Decorative paints, stains and varnishes for the trade and DIY markets in Norway, Sweden, Denmark and Iceland, and the manufacture of binders. Jotun Powder Coatings: Powder coatings for industrial and decorative purposes, and corrosion protection systems for steel reinforcing rods and oil and gas pipelines. Jotun has a global network and is represented on every continent through its various subsidiaries and joint ventures. The group comprises 54 active legal entities spread across 35 countries, including 39 manufacturing plants. The parent company Jotun A/S has its head office in Sandefjord, Norway.

2. THE ACCOUNTSThe 2005 accounts have been prepared on a going concern basis. The consolidated accounts comprise the results posted by subsidiaries and all joint ventures in which Jotun A/S directly or indirectly owns a stake of 20 per cent or more, with consolidation based on the gross method.


ResultsGroup operating income totalled NOK 6,710 million, against NOK 6,075 million in 2004. The group recorded pre-tax profits of NOK 490 million, against NOK 471 million in 2004. The overall tax charge for the year was NOK 151 million, against NOK 142 million in 2004. The group profit after tax but before minority interests was NOK 339 million, against NOK 329 million in 2004. The parent company – Jotun A/S – posted pre-tax profits of NOK 451 million, against NOK 372 million in 2004. After tax totalling NOK 102 million, the parent company accounts show a profit of NOK 349 million, compared with NOK 299 million in 2004. Financial position and capital structureThe group is exposed to credit, interest rate and exchange rate risks in its ordinary business operations, and active steps are taken to keep these risks at acceptable levels. In addition to credit insurance, procedures have been established to assess customer creditworthiness in order to reduce the credit risk. Net interest-bearing debt increased by NOK 328 million from net deposits of NOK 77 million to interest-bearing debt of NOK 251 million at the end of 2005. The group’s interest rate exposure therefore remains limited. The primary exchange rate exposure relates to the USD and USD-related curren-cies, the EUR and the TAB. Exchange rate exposure in the group’s balance sheet and net cash flows is hedged through currency loans, forward contracts, foreign exchange swaps and options. Group investments totalled NOK 431 million in 2005.

On behalf of the group, Jotun A/S had overdraft facilities and other committed short-term and long-term lines of credit amounting to NOK 1,275 million at year-end, none of which had been utilised. At the same time, Jotun A/S had liquid reserves (committed lines of credit, cash, bank deposits, etc.) totalling NOK 1,407 million. The group’s net cash flow in 2005 was NOK -183 million, against NOK 187 million in 2004. The cash flow from operations was NOK 188 million. The group’s equity ratio stood at 54.9 per cent at year-end, against 56.8 per cent a year earlier. Liquid reserves and the capital base are considered to be satisfactory, for both the group and the parent company.

Allocation of profitJotun A/S recorded a net profit of NOK 349,009,000 for 2005, with the proposed allocation for approval by the AGM as follows:

Provision for dividends (NOK 450 per share) NOK 153,900,000Allocation to other equity NOK 195,109,000Total allocation NOK 349,009,000

On this basis, free equity at year-end 2005 totalled NOK 2,075 million, against NOK 1,903 million a year earlier.

3. THE MARKETJotun CoatingsThe division is expanding and both sales and net profits have increased since 2004. Nevertheless, profits remain unsatisfactory, given the group’s long-term margin and profitability requirements.



Jotun is now also an approved supplier to the Swedish Spektrum chain, which will broaden the customer base. Innovation is the key to Jotun’s growth. In 2006, Demidekk Optimal will be launched in new and practical packaging with a separate lid-opener. The Lady concept is also set for further development, with further and more obvious consumer benefits. Customer requirements are always central to the Jotun Dekorativ innovation process.

Jotun Powder CoatingsJotun Powder Coatings is the world’s fourth largest supplier of powder coatings for the industrial surface treatment of metal. In 2005, Jotun Powder Coatings continued to grow in terms of volume and operating income, but higher raw material prices and fierce competi-tion in existing markets led to lower margins. Jotun is responding to the increased competition by developing new products and concepts, while production capacity is being increased to enable existing plants to meet higher demand for products. Jotun Powder Coatings has recently started production in India. It is important to adapt the structure to altered markets. In 2005, the division’s regional organisation was replaced by a segment-based structure with a stronger local focus. This will establish closer proximity to the markets and enable the division to be more responsive to different customers and product requirements across national boundaries. The division’s competitive position is being strengthened by targeting on research and development, improved innovation processes and brand building. Expertise provides an important competi-tive advantage and this is reflected in

importance that is attached to the develop-ment of professional skills. Among the group’s initiatives in this area is the Jotun Powder School which provides technical and sales training. This facility will also be offered to our customers to increase their understanding of powders and help them to select the most appropriate products and use

them correctly. This gives added value for the customer and is part of the process of strengthening long-term relationships.

4. HEALTH, SAFET Y AND THE ENVIRONMENT (HSE)Objectives and activitiesThe world around us demands continuous work on technical and operational initiatives

to safeguard health, safety and the environ-ment (HSE). In its approach to HSE, Jotun seeks to ensure that its activities satisfy both internal and external parties. Jotun aims to become more competitive through an active and responsible approach to HSE. Priority shall be given to ensuring that initiatives aimed at improving group profitability are not at the expense of HSE. The ten audits conducted by HSE personnel in 2005 revealed that most of the group’s factories, laboratories and ware-houses meet acceptable HSE standards. However, some facilities require upgrading and action plans have been prepared for improvements.

CostsThe overall cost of HSE measures and initiatives shows a slight downward trend over the past five years, most of the decrease being due to lower operating costs related to the external environment. HSE-related operating costs were 38.7 per cent up at NOK 24 million. The increase was partly due to the costs relating to purchase of workware with antistatic and anti flame properties and higher waste management costs arising from increased production. HSE-related operating costs totalled NOK 19.5 million, against NOK 16.5 million in 2004.

Working environmentSafety has always been a priority at Jotun, and the group’s aim is to work continuously to safeguard the lives and health of employees. Jotun considers preventive work to be the most important tool as regards the working environment and health.

GroupThe overall incidence of sick leave within the group stood at 1.8 per cent in 2005. This represents an increase from approximately 1.5 per cent in 2004. There is some uncer-tainty attached to these figures due to differing sick pay schemes, employment conditions and the recording of absence due to illness at the various plants. The real figure for sick leave is probably higher. A total of 872 working days were lost as a result of injuries, equivalent to 0.1 per cent of total working hours. There were 11 accidents involving damage to property in 2005. The group experienced two tragic deaths in 2005 in connection with a hotel fire. Two employees in Korea died in the fire while on a business trip. A total of NOK 11.8 million was invested in improvements to the working environment in 2005. This included the installation of dust filters, ventilation systems, first aid stations and air conditioning. The total number of lost-time injuries due to accidents was 53. The frequency of injuries resulting in absence of at least one day was 7.19 per million working hours. This is higher than is desirable and slightly above the statistical value set by the Federation of Norwegian Process Industries (PIL) for the chemical sector. The accidents related mainly to crushing injuries, cuts and burns. Initiatives aimed at reducing injuries are under continu-ous assessment.

Jotun A/SThe incidence of sick leave Jotun A/S stood at 4 per cent in 2005, against 5.1 per cent in 2004. The Board and management consider the working environment to be satisfactory.

EnvironmentEmissions to the air consist of dust from the production of powder coatings and solvents from paint production. A total of 54,100 tonnes of solvents were used in 2005, against 49,000 tonnes in 2004. The increase was mainly due to a higher production volume. The group generated 12,400 tonnes of waste in 2005, of which 4,200 tonnes were classified as hazardous waste. The total waste volume represent 2.9 per cent of the production volume, compared with 3.6 per cent in 2004. A total of 64,300 tonnes of water-based emissions were released from production (against 83,100 tonnes in 2004). Of this, 47,300 tonnes were treated (against 63,400 tonnes in 2004). The authorities regard discharges into public sewerage systems to be a local problem at six of the group’s factories. A total of NOK 2.9 million was invested in measures to prevent or reduce adverse environmental effects (unchanged from 2004). These measures included equipment to reduce waste volumes and treat process water.

Future challengesThe recruitment, training and the expertise of employees are of crucial importance for realisation of the group’s goals and visions. Particular attention will be given to preventive maintenance of manufacturing equipment and buildings over the next few years.

5. DIVERSIT YJotun’s success is due in no small measure to respect, understanding and adaptation to local conditions and cultural differences.

Through a deliberate strategy, Jotun has developed strong management teams with a varied cultural background in the global network. A number of women hold important managerial positions within the group. At Jotun A/S, two of the nine group directors are women, and women hold 25 per cent of the positions with personnel responsibility (unchanged since 2004). 7.5 per cent of blue-collar staff and 29 per cent of white-collar staff are women (against 8 per cent and 30 per cent, respectively, in 2004).

6. GROW TH AND OUTLOOKJotun has a sound market position in Scandinavia, the Middle East and Asia. The group’s strategy is to achieve organic growth within existing and new markets. The focus is on more and improved innova-tion of concepts and products, as well as market investments. Jotun is selective in its choice of markets, and special emphasis is given to investment in developing markets with good growth potential. Volume growth in 2005 was in line with the levels achieved in recent years and is expected to be main-tained. Jotun is investing for the future. This means investment in manufacturing facilities, research and development and the expertise and skills of the employees. Investments in 2005 were at a record level, partly due to the construction of new factories in China, Indonesia and Yemen. Further major investment is anticipated in 2006, with the upgrading and expansion of Jotun’s manufacturing facilities in Saudi Arabia, Egypt and Turkey. The planning of new manufacturing units in Brazil and India is also under way.



P R O F I T A N D L O S S A C C O U N TD I R E C T O R S ’ R E P O R T

Sandefjord, 16 February 2006 The Board of DirectorsJotun A/S

Odd Gleditsch d.y. Chairman

Einar Abrahamsen Richard Arnesen Nicolai A. Eger Thore Kristiansen

Terje V. Arnesen Torkild Nordberg Dag J. Opedal

Morten Fon President & CEO

At the beginning of 2006, the world economy is experiencing strong underlying growth. The Chinese economy is still growing strongly, with good growth in the Middle East and an increasing rate of growth in Southeast Asia. The American economy is also performing well, and activity in Western Europe is increasing. Interest rates are at a record low and the price of oil is high. The USD has strengthened slightly, and the prices of most raw materials have stabilised following the sharp increase in prices during 2004 and the first six months of 2005. The prices of some metal-based raw materials have risen significantly in recent months. All these elements impact on Jotun’s business

and profits. However, it is difficult to measure the net effect of such external factors. A weakening of the USD would have an adverse impact on Jotun’s profits in the short term. On the other hand, further volume growth is expected, which would boost profits and further strengthen Jotun’s market positions. Jotun has both a reputation and a tradition for operating in an ethically sound manner and for its healthy attitudes in all cultures. A common framework for ethical attitudes and group values is being systematically com-municated throughout the organisation. The Jotun group’s breadth in terms of business areas and geographical regions

makes it less vulnerable to fluctuations in individual markets. Based on experience, there is likely to be consolidation within some of our business areas. Jotun has the financial strength needed to adapt to changing market conditions and to expand further. In view of ongoing steps being taken to improve efficiency and given Jotun’s strong market positions, the Board believes that the group can look forward to a satisfactory level of development in the coming years. At the same time, it should be stressed that there is scope for improvement in a number of areas and that this must be addressed as a matter of importance.

Jotun A/S Group (NOK thousand) Note 2005 2004 2005 2004

Sales and other operating income 1,2 2 052 541 1 828 671 6 710 212 6 075 394Cost of goods sold 4 1 027 121 894 086 3 563 835 3 121 784Staff costs 5,7 464 160 439 186 1 178 163 1 071 838Depreciation and amortisation 8 62 948 57 395 205 579 203 667Bad debts 3 765 153 23 444 19 865Other operating costs 6 329 630 368 241 1 204 544 1 165 489Operating profit 167 917 69 610 534 647 492 751

Dividends etc. from subsidiaries 6 168 716 195 086 - -Dividends from joint ventures 6 128 727 69 400 - -Interest receivable 31 117 21 188 17 424 15 968Other financial income 2 197 44 549 28 124 31 850Interest payable -18 516 -14 227 -41 860 -26 905Other financial costs -28 714 -13 724 -48 320 -42 923Profit on ordinary activities before taxation 451 444 371 882 490 015 470 741

Tax payable on profit on ordinary activities 14 -102 435 -72 508 -150 879 -141 960Profit on ordinary activities 349 009 299 374 339 136 328 781

Minority interests 15 - - -34 387 -34 041Net profit for the year 349 009 299 374 304 749 294 740

Distribution of profit Allocated to dividends 15 153 900 136 800 - -Other equity 15 195 109 162 574 - -Total 349 009 299 374 - -


B A L A N C E S H E E T B A L A N C E S H E E T

Jotun A/S Group (NOK thousand) Note 31.12.05 31.12.04 31.12.05 31.12.04 ASSETS FIXED ASSETS Intangible assets Deferred tax assets 14 26 686 19 290 68 603 40 269 Intangible assets 8 63 289 52 602 147 422 153 358 Total intangible assets 89 975 71 892 216 025 193 627

Tangible fixed assets Land 8 14 469 14 469 92 003 80 852 Buildings and plant 8 157 231 165 877 692 606 516 599 Machinery, vehicles and equipment 8 138 823 163 925 601 312 545 669 Plant under construction 8 27 776 - 53 911 37 378Total tangible fixed assets 338 299 344 271 1 439 833 1 180 498 Financial fixed assets Investments in subsidiaries 9 990 746 912 661 - -Amounts owed by subsidiaries 18 796 663 598 527 - -Investments in joint ventures 10 180 137 180 137 - -Investments in shares and other interests 11 8 442 8 192 8 442 8 192Pension assets 7 56 974 53 534 77 311 74 403 Other long-term debtors 18 2 555 2 575 40 727 17 674 Total financial fixed assets 2 035 517 1 755 626 126 480 100 269

Total fixed assets 2 463 791 2 171 789 1 782 337 1 474 394 CURRENT ASSETS Stocks 4 358 968 312 236 1 209 961 1 085 779

Debtors Trade debtors 3,18 190 218 187 305 1 496 293 1 220 959 Amounts owed by subsidiaries 18 68 800 8 600 - -Other current debtors 18 196 629 142 801 230 442 174 253 Total debtors 455 647 338 706 1 726 735 1 395 212 Cash, bank deposits, etc. 132 453 356 475 402 044 584 980 Total current assets 947 068 1 007 417 3 338 740 3 065 971 Total assets 3 410 859 3 179 206 5 121 078 4 540 365

Jotun A/S Group

(NOK thousand) Note 31.12.05 31.12.04 31.12.05 31.12.04

EQUITY AND LIABILITIES EQUITY Injected equity Share capital 15,16 102 600 102 600 102 600 102 600Total injected equity 102 600 102 600 102 600 102 600 Earned equity Other equity 15 2 313 041 2 117 930 2 592 288 2 368 636Total earned equity 2 313 041 2 117 930 2 592 288 2 368 636 Minority interests 15 - - 116 054 107 104Total equity 2 415 641 2 220 530 2 810 942 2 578 340 LIABILITIES Provisions for liabilities Pension liabilities 7 75 726 74 174 118 325 107 448Other provisions for liabilities 7 662 14 817 7 960 18 067Total provisions for liabilities 83 388 88 991 126 284 125 515 Other long-term liabilities Amounts owed to credit institutions 12,17 96 787 109 721 144 086 131 828Other long-term liabilities - - 38 309 28 957Total long-term liabilities 96 787 109 721 182 395 160 785 Current liabilities Short-term loans - - 301 993 178 856Short-term loans to subsidiaries 18 124 900 126 500 - -Bank overdrafts 21 - - 206 713 196 818Trade creditors 206 531 242 365 704 478 633 742Tax payable 14 78 640 52 585 99 364 74 416Public duties payable 82 834 79 600 104 309 102 753Allocated to dividends 15 153 900 136 800 153 900 136 800Other current liabilities 13,18 168 238 122 114 430 700 352 339Total current liabilities 815 043 759 964 2 001 457 1 675 725 Total liabilities 995 218 958 676 2 310 136 1 962 025

Total equity and liabilities 3 410 859 3 179 206 5 121 078 4 540 365

Sandefjord, 16 February 2006The Board of Jotun A/S

Odd Gleditsch d.y. Chairman

Einar Abrahamsen Richard Arnesen Nicolai A. Eger Thore Kristiansen

Terje V. Arnesen Torkild Nordberg Dag J. Opedal Morten Fon President & CEO

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JOTUN A/SP.O.Box 2021 • N-3248 Sandefjord, NorwayTel. +47 33 45 70 00 • Fax +47 33 45 72 42

www.jotun.com

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