Annual Report - ShipServcember 2012. The Annual Report has been prepared in accordance with the Danish Financial Statements Act. in our opinion, the parent company’s financial statements

1

Annual Report

The company Hempel A/S

Lundtoftegårdsvej 91

DK-2800 Kgs. Lyngby

Denmark

Tel.: +45 4593 3800

Fax: +45 4588 5518

Website: www.hempel.com

CVR no. 59946013

Financial year: 1 January – 31 December

Board of Directors Richard Sand, Chairman

Lars Aaen, Deputy Chairman

Peder Holk Nielsen

Ulf Lennart Holm

Anders Pettersson

Leif Jensen

Ann Louise Krüger Kofoed, elected by the employees

Henrik Bach Falkenberg, elected by the employees

Executive Board Pierre-Yves Jullien, Group President and CEO

Kim Junge Andersen, Group Executive Vice President and CFO

Auditors PricewaterhouseCoopers

Statsautoriseret Revisionspartnerselskab

Strandvejen 44

DK-2900 Hellerup

Denmark

Banker Nordea Bank Danmark A/S

HSBC Gruppen

SEB (Skandinaviska Enskilda Banken)

BNP Paribas

3

About Hempel

Hempel’s coatings help protect man-made structures –

from wind turbines and bridges to ships and homes – from

the corrosive forces of nature. With a strong focus on

R&D, advanced production techniques and professional

coating advice, we work around the globe to help keep

our customers’ assets safe, attractive and corrosion-free

for longer.

Our coatings enable structures to remain in active ser-

vice for longer by extending their product lifecycles. This

helps reduce the overall environmental impact of each

structure during its lifetime, and increases the overall

return on investment for our customers. We are also

committed to conducting business in a socially respon-

sible manner and with respect for the environment, and

so focus on developing coating solutions that both add

value to our customers and help them achieve their

environmental targets.

We supply marine coatings, for example, that help ship-

ping companies cut fuel bills and reduce emissions

from their vessels. We also produce high-performance

coatings for the protective industry that provide long-

term protection from corrosion while reducing drying

times and the number of required coats, helping cus-

tomers increase production speeds and reduce costs.

And our broad portfolio of high-performance waterborne

decorative coatings enables homeowners to protect

and bring colour to their homes.

Hempel is present in more than 80 countries around the

world. We have over 5,000 employees, 24 factories, 48

sales offices and more than 150 stock points located

strategically around the globe – and make sure our cus-

tomers enjoy great service, no matter where they are.

Learn more about Hempel at www.hempel.com

Hempel is a world-leading coatings supplier working in the decorative, protective, marine, container and yacht markets.

The Hempel FoundationThe Hempel Foundation is the sole shareholder of the Hempel Group. Established in 1948, the Foundation’s main objectives are to ensure the Group maintains a sound economic basis for its continued existence and development worldwide and to support charitable causes of a cultural, humanitarian and scientific nature.

This work focuses on two key issues: the education of children in need and research into environmentally sustainable solutions for the coatings industry.

Read more about the Hempel Foundation and its work at www.hempelfoundation.com

REPORT FiNANCiAL STATEmENTS

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Report

CEO statement: pursuing opportunities for growth 6

management’s statement 8

Board of Directors 9

independent auditor’s report 10

Key figures 12

Our segments 16

2012 in review 34

Strategy and objectives 36

Special risks 37

Research and development 38

Corporate responsibility 40

Financial statements

Accounting policies 44

income statement 52

Balance sheet as at 31 December 54

Statement of changes in equity as at 31 December 56

Cash flow statement 58

Notes to the financial statements 60

Contents


6

CEO statement: pursuing opportunities for growth

This does not mean we have changed our main goals,

which remain both ambitious and achievable. However,

we recognise that the path to success in some regions

and markets is different from the ones we established

in our strategy One Hempel – One Ambition two years

ago.

We worked hard in 2012. We adjusted our business,

while retaining the same long-term goals, values and

dedication to increasing value for our customers through

our products and services – and we expect to see our

efforts pay dividends already in 2013.

Hempel´s performance

We ended 2012 with acceptable growth of 15 per cent,

driven by a solid performance in our core Protective seg-

ment, the inclusion of Crown Paints for the full year and

the positive impact of currency exchange. Despite a sta-

bilisation of raw material prices and an improved gross

profit margin from the low level in 2011, our EBiTDA

margin was only slightly above 10 per cent. This was

below our expectations, however we have implemented

a number of initiatives to ensure that the Group reaches

more satisfactory earning levels.

i am pleased to report that our cash generation has

been satisfactory, despite the fact that collection has

been an issue in some parts of the world. This has given

us the financial capability to look at new investment op-

portunities that fit our strategy in the coming years.

As in 2011, we maintained a high level of investment

– to expand production capacity, develop new products

and acquire new business – as we know that these in-

vestments remain key to ensuring a sustainable future

for the Group.

One Hempel – One Ambition: stage 2

in 2011, we acquired Crown Paints, one of the strongest

decorative brands in the UK and ireland. The first full year

with Crown Paints as a member of the Group has been

a great success, despite tough market conditions. The

skills brought to us by Crown’s employees have started

spreading through the Group with very positive results –

and there is no doubt that we now have the right platform

to reach our ambitious goals in the decorative market.

in 2012, we acquired Blome international inc., a US-

based protective coatings manufacturer with a broad

range of high technology products. This acquisition will

help support the fast growth of Hempel US, especially

in the protective market. The company’s products will

enable us to penetrate attractive US markets, starting

with the oil & gas industry, and will also be of great value

to our protective customers around the globe.

We can already see that Hempel and Blome international

inc. are an unbeatable match. The two companies com-

plement each other well and we believe the partnership

will be a success already in 2013. i would like to take

this opportunity to welcome all our new colleagues to the

Hempel family – and thank them for their commitment,

right from the first day.

As well as acquisitions, we also achieved satisfactory

organic growth in 2012. in Europe, for example, we per-

formed well despite the pressures of a tough market.

This proves that value-creating products, professionalism,

hard work and expert service keep customers loyal in a

rapidly changing market.

in China, we faced tougher pressure in some of our tradi-

tional markets than we expected. However, the measures

As expected, 2012 was a challenging year. However, these challenges were not always in the areas we anticipated, which illustrates how important it is for us to be able to adjust our Group quickly, evolve our approach to traditional markets and seize new opportunities.

we took quickly, as well as our strong team in China and

a willingness to fight and adjust, makes me confident

that we will begin to see growth again already in 2013.

Hempel performed well in new areas in 2012. Our

Brazilian team proved that it was right to re-enter the

Brazilian market and we are now looking into investing

in a new factory in the area. in india, we grew steadily

and are planning to increase our production capacity

in the country, and our performance in South Africa

confirms that this is the right base for us on the African

continent.

Our continued business success relies on the continual

development of advanced products that add value to

our customers – and in 2012 we continued to add new

products to our portfolio. We successfully launched the

first products in our new passive fire protection range,

for example, which means we can now offer customers

both corrosion protection and fire protection. We also

launched a new range of low-solvent antifouling products,

which enable customers to reduce fuel bills and meet

increasingly tough environmental legislation.

We also continued our efforts to restructure our busi-

ness in order to become more professional and more

efficient in all areas of our company. This included the

implementation of a new global Customer Relationship

management system that will help us better understand

the markets we operate in and the needs of our customers

– so we can provide them with even better service in the

future.

We still have more to do to fully optimise our Group, but

we have shown that we have the will to change and act

when needed.

The future

The keys for our long-term success are clear. We must re-

main focused on our goals, adaptable in a fast-changing

world and quick to implement new ideas. We must also

increase our understanding of our markets and custom-

ers – and offer innovative solutions that add value to

their business. These will be our priorities as we move

ahead.

We will keep going with our investments in 2013,

including capacity expansion in india, Saudi Arabia

and Russia, the extension of sales channels in Asia,

increasing production efficiency in Decorative in the UK

and further investment in Brazil and Africa. At the same

time, we must ensure that we deliver a return on all the

initiatives we have started since 2010 to ensure they

contribute to strong growth in the years ahead.

We are aware that financing this ambitious plan requires a

certain level of earnings and cash generation. Profession-

ally managing our working capital is vital – and everyone

in the Group has a part to play in this.

i would like to thank everybody in Hempel who works

every day to make our company stronger, as well as the

Board of Directors of Hempel A/S and the Board of the

Hempel Foundation for their trust and support.

i want also to express my gratitude to all our customers,

business partners and other stakeholders for their loyalty.

i can assure you that everything we do is done to serve

you better and justify your confidence in us.

Pierre-Yves Jullien

Group President and CEO

7


8

management’s statement

The Board of Directors and the Executive Board have

today considered and adopted the Annual Report of

Hempel A/S for the financial year 1 January – 31 De-

cember 2012.

The Annual Report has been prepared in accordance

with the Danish Financial Statements Act.

in our opinion, the parent company’s financial statements

and the consolidated financial statements give a true and

fair view of the assets, liabilities and financial position at

31 December 2012 of the parent company and the Group

and of the results of the parent company’s and the Group’s

operations and the consolidated cash flows for 2012.

in our opinion, the management’s review includes a true

and fair account of the development of the Group and

the parent company’s operations and financial affairs,

the profit for the year and the Group’s and the parent

company’s financial position together with a description

of the principal risks and uncertainties that the Group

and the parent company face.

The Annual Report has been submitted for adoption at

the Annual General meeting.

Kgs. Lyngby, 3 April 2013.

Board of Directors

Executive Board

Pierre-Yves JullienGroup President and CEO

Kim Junge AndersenGroup Executive Vice President and CFO

Ulf Lennart Holm Anders Pettersson Leif Jensen

Ann Louise Krüger KofoedElected by the employees

Henrik Bach FalkenbergElected by the employees

Lars AaenDeputy Chairman

Peder Holk NielsenRichard SandChairman

Leif Jensen Richard Sand Lars AaenPeder Holk Nielsen Ulf Lennart Holm Anders Pettersson

Ann Louise Krüger KofoedHenrik Bach Falkenberg

Board of Directors

9


10

Report on the consolidated financial statements and the parent company financial statements We have audited the consolidated financial statements and

the parent company financial statements of Hempel A/S

for the financial year 1 January – 31 December 2012,

which comprise accounting policies, income statement,

balance sheet, statement of changes in equity and notes

for both the Group and the parent company as well as

the cash flow statement for the Group. The consolidated

financial statements and the parent company financial

statements have been prepared in accordance with the

Danish Financial Statements Act.

Management’s responsibility for the consolidated


statements

management is responsible for the preparation of consoli-

dated financial statements and parent company financial

statements that give a true and fair view in accordance with

the Danish Financial Statements Act, and for such internal

control as management determines is necessary to enable

the preparation of consolidated financial statements and

parent company financial statements that are free from

material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the con-

solidated financial statements and parent company fi-

nancial statements based on our audit. We conducted

our audit in accordance with international standards on

auditing and additional requirements in accordance with

Danish audit regulation. This requires that we comply

with ethical requirements and plan and perform the audit

to obtain reasonable assurance that the consolidated


statements are free from material misstatement.

An audit involves performing procedures to obtain audit

evidence about the amounts and disclosures in the consol-

idated financial statements and the parent company finan-

cial statements. The audit procedures selected depend on

the auditor’s judgement, including the assessment of the

risk of material misstatement in the consolidated financial

statements and the parent company financial statements,

whether due to fraud or error. in making those risk as-

sessments, the auditor considers internal control relevant

to the enterprise’s preparation of consolidated financial

statements and parent company financial statements that

give a true and fair view in order to design audit procedures

that are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness of

the enterprise’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by

management, as well as evaluating the overall presenta-

tion of the consolidated financial statements and the

parent company financial statements.

We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our audit

opinion.

The audit has not resulted in any qualification.

Opinion

in our opinion, the consolidated financial statements and

the parent company financial statements give a true and

fair view of the Group’s and the parent company’s assets,

liabilities and financial position as at 31 December 2012

and of the results of the Group’s and the parent com-

pany’s activities as well as the consolidated cash flows

for the financial year 1 January – 31 December 2012 in

accordance with the Danish Financial Statements Act.

Statement on the management’s reviewWe have read the management’s review on pages 6-7

and 12-43 in accordance with the Danish Financial

Statements Act. We have not performed any procedures

additional to the audit of the consolidated financial state-

ments and the parent company financial statements. On

this basis, in our opinion, the information provided in the

management’s review is consistent with the consolidated


statements.

Kgs. Lyngby, 3 April 2013.

Søren Skov LarsenState-Authorised Public Accountant

Rasmus Friis JørgensenState-Authorised Public Accountant

PricewaterhouseCoopersStatsautoriseret Revisionspartnerselskab

independent auditor’s report To the shareholder of Hempel A/S

1111


12

Key figures

Key figures in EUR million

Profit 2012 2011 2010 2009 2008

Revenue 1,242.3 1,077.3 889.1 714.2 598.6

EBiTDA 126.2 105.1 118.3 93.0 60.8

Amortisation, depreciation and impairment 42.8 33.6 26.7 19.7 10.8

Operating profit 83.4 71.5 91.6 73.3 50.0

Share of net profits of associates 2.6 2.3 2.4 4.1 9.0

Net financials (20.8) (13.0) (7.2) (11.6) (7.7)

Profit before tax 65.3 60.9 86.8 65.8 51.2

Net profit for the year 34.6 34.8 52.9 44.4 36.1

Balance sheet

Balance sheet total 1,066.7 1,063.5 763.4 599.6 421.6

Equity 355.7 326.9 316.3 265.1 210.3

Cash flows

Cash flow from:

Operating activities 128.1 63.0 31.0 127.0 32.5

investing activities (36.4) (191.6) (59.6) (103.2) (36.9)– including investments in property, plant and equipment and intangible assets (28.4) (32.1) (39.8) (24.8) (11.4)

Financing activities (62.6) 126.6 (56.3) 67.2 (25.8)

Change in cash and cash equivalents 29.2 (2.0) (84.9) 91.0 (30.2)

Employees

Average number of employees 4,977 4,468 3,638 2,867 2,168

Ratios (%)

Gross margin 37.2 34.3 36.0 38.8 36.5

Profit margin 6.7 6.6 10.3 10.3 8.4

Return on assets 7.8 7.8 13.4 14.4 12.3

Solvency ratio 33.3 30.6 41.4 44.2 49.9

Return on equity 10.1 10.8 18.2 18.7 17.5

For definitions, see Accounting policies.

13


Revenue (EUR million)

2008

2009

2010

2011

2012

599 714 889 1,077 1,242

Average number of employees

2008

2009

2010

2011

2012

2,168 2,867 3,638 4,468 4,977

EBITDA (EUR million)2008

2009

2010

2011

2012

61 93 118 105 126

Cash fl ow from operating activities (EUR million)

2008

2009

2010

2011

2012

33 127 31 63 128

16

Decorative: high-performance solutions for homes, inside and out

Hempel’s Decorative segment saw strong growth in

2012, with revenue increasing by over 50 per cent com-

pared to 2011. While the majority of this growth came

from the integration of Crown Paints, organic growth was

also satisfactory. in all, our Decorative segment made

up 25 per cent of the Group’s total revenue in 2012,

and it will be an important growth area for Hempel in

the coming years, particularly in Europe, the middle East

and China.

Hempel acquired the UK-based company Crown Paints in

2011 and Crown Paints was successfully integrated into

the Hempel Group in 2012. This has added new exper-

tise, brands, formulations and critical mass to the Group.

The vast majority of Crown Paints’ sales are still in the

UK and in ireland. in 2012, Crown Paints strengthened

its market position following continued investment in a

strong brand portfolio and marketing activities in both

the retail and trade sectors.

Our goal now is to bring the Crown brand to new markets

outside of the UK as well as strengthening its position

in markets where Crown Paints is already established. in

some markets, we will work with a multi-brand strategy

using both the Hempel brand and brands from the Crown

portfolio, beginning in the middle East.

in the middle East, we increased the number of retail out-

lets in 2012, and our new factory in Jeddah will be opera-

tional in autumn 2013. Producing water-based coatings

mainly for the Decorative segment, the factory will help

us increase efficiency in the region.

in China, the majority of our Decorative sales are exterior

coatings for large real estate development projects. We

expect the Chinese construction market to slowdown in

the near future but, due to our current market position,

there is still room for growth. We established a new prod-

uct portfolio and organisation in 2012 to help increase

sales through distributors.

Our colourful Decorative coatings make homes and buildings around the world more beautiful while protecting them against wear and tear.


18

Decorative in focus: express yourself through colour

With TV adverts, radio slots, in-store promotions and

more, Crown Paints’ 2012 advertising campaign suc-

cessfully connected with millions of consumers across

the UK. The TV slot took a unique approach to advertis-

ing paint, using ground-breaking real-flow fluid simulation

technology to make paint literally splash and swirl across

the screen.

“Are you quirky? Cheeky? Or just wild?” the viewers are

asked.

“Whatever your personality,” they are told, “Crown can

bring it out.”

The idea behind the campaign was to create something

visually different that encouraged consumers to show

their personalities through the colours they choose. This

builds on Crown Paints’ successful “it’s not just paint.

it’s personal.” brand strategy, by showing consumers

how a room’s personality can be affected by colour.

The TV advert was seen by 19 million people in the late

summer and early autumn of 2012, but it was just one

part of coordinated advertising campaign. The campaign

included radio spots on more than 40 stations, in-store

promotions and social media initiatives on Facebook,

Twitter and video on demand. As a direct result of the

campaign, consumer awareness of Crown Paints’ prod-

ucts has risen significantly. Crown is now one of the

‘top of mind’ brands consumers mention when asked

to name various paint brands – and this has a direct

influence on the choices they make when they buy paint.

Following the completion of the integration work with

Crown Paints in 2012, we are now looking to take Crown

products to a wider international market in 2013 and

beyond.

Crown Paints made a splash in 2012 with an ad campaign that encouraged consumers to consider how they express their personality through their choice of colour.


20

Protective: advanced protection from corrosion

Global demand for protective coatings increased in gen-

eral in 2012. While traditional high-growth markets such

as China showed less growth than expected, this was

partly compensated for by growth in the rest of the Asia,

South America and Eastern Europe. much of this growth

came from the oil & gas industry, while power genera-

tion, infrastructure and civil construction also showed

moderate growth.

The Protective segment remains a key area for Hempel

and we successfully increased market share in the global

protective market in 2012. in Asia, sales increased over

previous years despite unfavourable conditions in some

core markets, while Eastern Europe, the Americas and

the middle East also contributed to our strong Protective

performance.

We continued our expansion into new markets in 2012,

including South Africa, Brazil and india. To complement

this geographical expansion, we also increased our prod-

uct portfolio via in-house product development and ac-

quisitions of key technologies.

The acquisition of US-based Blome international inc. in

2012 helped further expand our portfolio in tank linings

and other specialist areas, both in the US and around

the globe. We also launched the first products in our

new intumescent range in 2012, enabling us to offer

customers both corrosion protection and fire protection

for the first time.

Our investment in a new coordination team for multi-

national customers and projects also began to pay off

in 2012. Taking advantage of our global presence and

broad product portfolio, team provides services to pro-

jects that span a number of countries.

From bridges to power stations and windmills, our coatings protect our customers’ investments from the corrosive forces of nature.


23

Protective in focus: new fi re protection range gives customers full package

All common building materials lose strength when ex-

posed to high enough temperatures. in extreme cases,

even steel can buckle and collapse in a matter of minutes.

Launched in September 2012, our new HEmPACORE intu-

mescent coatings insulate structural steel against heat.

Applied in thin coats, the coatings expand when exposed

to high temperatures (roughly 200°C) to produce a layer

of char that insulates the steel beneath. As a result, the

steel can maintain its load-bearing capacity for up to two

hours longer, which can prove critical for firefighting and

rescue.

The two coatings, HEmPACORE ONE and HEmPACORE

ONE FD, can be used in a range of buildings – from

industrial halls and public buildings to stadiums and

supermarkets – and both have achieved excellent results

in official fire tests.

The two new products are just the first offerings in our

new intumescent range. We’ve invested in intumescent

development since 2009, and are dedicated to devel-

oping more value-adding intumescent products in the

future.

The launch of two intumescent coatings for passive fi re protection means we now offer customers the complete range of protective coatings, including both fi re protection and corrosion protection.


24

marine: advanced products and technical service for the marine maintenance and newbuilding industries

Due to a stuttering world economy, the marine market

experienced another tough year in 2012. Freight rates

remained low due to the overcapacity built up between

2007 and 2009, and orders were scarce in the marine

newbuilding market. Despite this, the number of ships

in the world fleet grew by around six per cent in 2012.

The global fleet has never been larger and the marine

maintenance market remains strong, although not strong

enough to compensate for the declining newbuilding

market.

Despite the tough market conditions, Hempel succeeded

in maintaining its market position in the marine industry

in 2012 and our strategy remains the same: to offer

efficient coating solutions for all ship segments, with

significant cost-saving benefits for ship operators.

Following this strategy, we launched a number of new

products in 2012 with special focus on decreasing costs

for customers. This included a new range of low-VOC

antifouling coatings with some of the highest volume

solids in the industry. As well as lowering paint con-

sumption, these coatings offer our customers outstand-

ing potential fuel savings and help lower the amount

of CO2 produced by each vessel. Together with our

award-winning biocide-free antifouling HEmPASiL X3,

these new products mean we are ready to support our

customers when SEEmP, the imO’s new concept for fuel

efficiency, comes into force in 2013.

in addition, we launched a new product to complete

our cargo hold coating range, gained PSPC-approval

for several coatings for crude oil carriers and received

ice-coating certification for HEmPADUR mULTi-STRENGTH

GF35870 from Lloyds Register. A growing niche market,

we expect demand for ice coatings to increase over the

coming years as the northern trade route between Europe

and Asia remains open for longer each year.

From large crude oil carriers to river-bound barges, every type of marine vessel uses Hempel products.


26

marine in focus:documented results, dependable value

As a leader in marine coatings, we know that the dif-

ference between the cheapest and the best antifouling

solution can mean a huge difference in return on

investment for our customers: a lower-cost solution may

reduce up-front costs, but this initial saving can mean

missing out on much larger savings in the long term.

To clearly illustrate the difference in fuel-saving perfor-

mance between our antifouling products, we collected

data under controlled conditions and calculated average

fuel-savings for all our antifouling coatings. Now, our cus-

tomers can clearly see how much fuel they can expect to

save between docking intervals.

This new concept coincided with the launch of a new

high-solids antifouling range in September 2012. The

range includes GLOBiC 6000 and GLOBiC 9000 – two

products that incorporate our patented nano-capsule

technology – and all the products have been reformulated

to ensure lower emissions of volatile organic compounds

during application.

Greek ship operator minerva marine chose to apply the

new high-solids version of GLOBiC 6000 to its oil tanker

m/T minerva Georgia in autumn 2012. When asked why

they chose GLOBiC 6000, the company said they were

impressed by its strong performance and the excellent

reputation of the proven technology behind it.

Choosing the right antifouling can lead to significant savings in fuel bills. But how do you choose the right one? To make this decision easier, we now state estimated fuel-savings on all our fouling control systems.


29

Container: advanced solutions for the container industry

The container market in general has been contract-

ing for a number of years. This continued in 2012,

particularly in China, which has traditionally been the

largest container-producing country in the world. in

2012, the number of containers produced worldwide

dropped compared to 2011 and manufacturers faced

increasing price pressure from buyers. As one of the

world’s leading suppliers of coatings to the container

industry, Hempel was affected by this slowdown in

2012.

Hempel is at the forefront of developing environmen-

tally sustainable solutions for the container industry.

EcoBoxcoat, for example, is a fully waterborne series

of products for the container industry first launched in

October 2010. Feedback from owners, as well as our own

inspections of EcoBoxcoat-protected containers, shows

that performance is inline with – or better than – equiva-

lent solvent-borne systems. As a result, EcoBoxcoat is

widely accepted by container manufacturers as a viable

alternative to existing solvent-borne systems.

However, container manufacturers remain unwilling to

switch to a new system during such difficult economic

times. We believe that these solutions will be widely

adopted once the industry picks up, with the change

either driven by manufacturers themselves or by the

introduction of tougher environmental regulations that

further limit emissions of volatile organic compounds.

Our coatings can be found on containers around the globe, protecting them from harsh cargoes, bad weather and rough treatment.


30

Yacht: a full range of products for sailing enthusiasts

The European coatings market for yachts can be split

into two distinct areas. in Northern Europe, the coatings

market for yachts experienced a slight decline in 2012.

The Southern European market showed signs of stabi-

lising in 2012, particularly the maintenance and boat

care markets. However, the Southern European market

is still characterised by great uncertainty.

Across the whole of Europe, the yacht newbuilding

industry experienced increasing problems in 2012, and

a number of yacht construction companies closed during

the year.

To counteract the negative trends in the industry, we

focused on upgrading our in-store materials in 2012.

This will help increase our visibility and accessibility

among shoppers, particularly those looking for mainte-

nance and boat care products, and promote our broad

product mix throughout the retail industry.

We also launched a new fouling release product for

yachts at the start of the year, which ensures the yacht

maintains a smooth and hydrodynamic hull, as well as a

number of more traditional antifouling products.

We produce products for all types of pleasure and racing boats, from small motorboats to large racing yachts.


34

2012 in review:A look at last year and our development expectations

The purchase of Blome international inc. continues our

strategy of growth through acquisitions.

The Hempel Group’s revenue rose by 15 per cent in

2012 compared to 2011, primarily due to the acquisi-

tion of Crown Paints on 1 June 2011. Hempel achieved

organic growth of 4 per cent in 2012 (adjusted for the

acquisitions of Crown Paints and Blome international

inc.), primarily due to strong growth in the markets in

North America and the middle East. There was a signifi-

cant increase in liquidity from operations during 2012,

and the overall result for the Hempel Group is seen as

satisfactory.

Total revenue rose to EUR 1,242 million in 2012 from

EUR 1,077 million the year before. The main reason

for this was the strategic acquisition of Crown Paints in

2011, which meant revenue in our Decorative segment

rose by over 50 per cent in 2012. As outlined in our One

Hempel – One Ambition strategy, revenue from our Pro-

tective segment again saw double-digit growth in 2012.

The remaining business segments saw minor declines

compared to 2011, except marine newbuilding. However,

this is not believed to be due to loss of market share in

these business segments, but rather a declining global

market.

We focused on re-establishing our gross margin through-

out 2012. This led to necessary price increases and,

combined with moderate raw material price increases,

this improved the Group’s overall gross margin in 2012.

The gross margin will continue to receive the greatest

attention, and additional projects to improve efficiency

will be initiated in the years ahead.

We launched the One Hempel – One Ambition strategy

in 2011, which sets out our goals up to 2015. The first

priority in the strategy was to establish a strong platform

for growth in the Decorative segment. This platform was

established with the acquisition of Crown Paints, and

integration continued throughout 2012. The next phase

is to ensure this acquisition is fully exploited.

Due to company acquisitions, we are continuing to focus

on EBiTDA, as amortisation of intangible assets repre-

sents a considerable amount of the total depreciation

and amortisation. EBiTDA amounted to EUR 126 million

in 2012 compared to EUR 105 million last year. The

EBiTDA recorded was the best result in the Group’s

history and was achieved in a year when major invest-

ments were made. Taking into account these strategic

investments, the financial statements are considered

satisfactory. However, a number of initiatives have been

launched to ensure the company achieves a more satis-

factory level of earnings in 2013.

Operating profit amounted to EUR 83 million compared

to EUR 72 million in 2011 – and a number of activities

have been started to support strategic growth. Adjusted

for non-recurring items, Hempel achieved operating profit

with a margin on underlying operations of 8 per cent

compared to 7 per cent last year.

After net financial expenses of EUR 21 million and cal-

culated corporation tax of EUR 19 million, net profit after

minority interests amounted to EUR 35 million for the

year. The Group’s effective tax rate was 30 per cent in

2012, compared to 31 per cent in 2011.

Hempel acquired 100 per cent of the shares in Blome international inc. in early July 2012, and the company has therefore been counted as a full member of the Hempel Group from 1 July 2012. Blome international inc. had revenue of EUR 4 million in the second half of 2012. The acquisition of Crown Paints in 2011 had a major impact on the Group’s results in 2012.

35


The company’s equity increased to EUR 356 million from

EUR 327 million in 2011, corresponding to a solvency

ratio of 33 per cent.

We began construction of our new headquarters in

Denmark in spring 2012 and this work is expected to

be completed during the summer of 2013. We also

continued clearing our former factory site in Kgs. Lyngby,

Denmark, and this should be complete in spring 2013.

The former factory site and administration buildings

have been classified as assets held for sale as a sales

agreement with final transfer in 2013 has been made.

The average number of employees increased to 4,977,

primarily as a result of the acquisition of Crown Paints,

which had full effect in 2012. Hempel’s staff, excluding

Crown Paints and Blome international inc., grew by 37

people in 2012.

Capital resources

The two main banks of the Hempel Group, Nordea and

HSBC, have made credit facilities of EUR 157 million

available for operating purposes, 52 per cent of which is

a confirmed facility to be renegotiated in 2014.

Nordea accounts for EUR 50 million, while HSBC

accounts for EUR 107 million. The bank loan of EUR

221 million with Nordea was provided in connection with

the acquisition of shares of Hempel Hai-Hong China

in 2009 and Crown Paints in 2011. The loan must be

repaid by 2016, with annual repayment of EUR 25 mil-

lion and a total repayment of EUR 145 million on expiry.

At the end of 2012, net interest-bearing debt amounted

to EUR 192 million compared to EUR 253 million at the

end of 2011.

Working capital declined during 2012, amounting to EUR

250 million at the end of 2012 compared to EUR 278

million at the end of 2011. There was constant focus

throughout 2012 on reducing receivables and inventories,

and this focus will continue into 2013.

36

Strategy

Hempel continues to pursue its five-year strategy aimed

at positioning the company as a leading player in the

global coatings industry. Our target is still to be among

the top 10 largest coatings suppliers by 2015, in order

to better leverage economies of scale across the Group.

This growth is expected to be achieved through three key

areas. We will grow our Decorative segment, increase

our market presence in the protective industry and main-

tain our current market position in the marine industry.

We have been active in the Decorative segment in a few

selected countries for a number of decades. However,

we increased focus on our Decorative segment in 2011,

and supported this work by acquiring Crown Paints, one

of the largest decorative coatings companies in the UK

and ireland. We continued to focus on integrating Crown

Paints in 2012, while also utilising Crown Paints’ exper-

tise in our other markets.

Growth in the Protective segment is based of our long-

term plan of building on our leading position in estab-

lished markets, while also establishing or expanding

operations in new growth markets. The acquisition of

Blome international inc. has significantly strengthened

our position in the US protective market. The majority of

our protective markets experienced double-digit growth

rates throughout 2012, and this is expected to continue

in 2013.

in 2012, we succeeded in maintaining our revenue level

and market position from 2011 in our marine segment.

We launched a number of new products that offer signifi-

cant cost saving opportunities for shipping companies,

and we expect these to have a positive effect on our

future market position.

Our strategy requires investments in new production

capacity and product development across business seg-

ments, and these requirements remain unchanged. We

are already working to establish new factories in india,

Saudi Arabia and Russia and this work will continue in

2013.

Expectations for the year ahead

market development expectations for next year vary

greatly. While we expect significant growth in North and

South America and the middle East, we anticipate slower

growth in Europe and Asia. We also expect that growth

will continue to be slow in China in 2013.

Hempel’s global presence across several segments

enables us to balance our business in the face of con-

siderable differences in regional growth rates. Overall,

revenue and earnings are expected to increase in 2013

compared to 2012.

Strategy and objectives

37

Special risks

Market risks

The global development in world trade is crucial to devel-

opment in the marine industry, and we expect to see an

activity level in 2013 similar to the level in 2012. How-

ever, there is uncertainty surrounding the development

in world trade in the years ahead, which causes some

uncertainty in our growth estimates.

Our growth strategy will lead to greater diversity in our

business areas, and this will reduce our reliance on

certain geographical markets and business segments.

The development in oil and metal prices continues to

have a significant impact on the price we pay for raw

materials, and so oil and metal prices remain a key risk.

Currency risks

As significant parts of the Hempel Group’s activities

are carried out outside the eurozone, there is a con-

siderable currency risk relating to the US dollar, US

dollar-linked currencies and the British pound. it is our

policy to hedge our commercial currency risk, primarily

by achieving a better natural balance between sales

and purchases. We hedge the remaining risk through

forward exchange contracts and options based on the

Group’s net cash flow positions.

As a general rule, translation risks relating to invest-

ments in foreign subsidiaries and associates are not

hedged. This is because we believe current currency

hedging of this type of long-term investment is not

optimal from an overall risk and cost perspective.

Interest rate risks

in order to limit financial cost fluctuations, the Hempel

Group’s loan financing has been obtained through a mix-

ture of medium and long-term floating-rate loans. The

interest rate risk on long-term loans is also hedged

through interest rate swaps that match the term and

repayment profile of the loan.

Credit risks

Hempel has no material risks relating to single custom-

ers or business partners, and our company policy is to

rate major customers and business partners on a current

basis.


38

Research and development: constantly innovating, always improving

Taking into account health, safety and the environment

is a natural part of our R&D work. it supports Hempel’s

environmental policy, which states that we should

promote the use of safer materials, and enables us to

deliver products that both meet technical specifica-

tions and help our customers meet strict environmental

legislation.

in 2012, we gave particular focus to reducing the use

of volatile organic compounds (VOCs) in our products

for the marine segment. As a result of this work, we

managed to reduce the average concentration of VOC in

marine products sold from 451 grams per litre in 2011

to 420 grams per litre in 2012 – a reduction of seven

per cent.

Increasing fuel efficiency in marine coatings

in 2012, we reformulated three of our best-selling

antifoulings – GLOBiC, OCEANiC, and OLYmPiC – with a

higher-solids level to ensure lower VOC emissions during

application. We also optimised the polishing rates and

biocides in the coatings to deliver even stronger protec-

tion against fouling, ensuring a ship’s hull remains more

hydrodynamic and helping cut fuel consumption and as-

sociated CO2 emissions.

in addition to these new products, HEmPASiL X3, our

biocide-free fouling release coating with a fuel-saving

guarantee, achieved record sales figures during 2012.

This confirms that the benefits of HEmPASiL X3 – includ-

ing reduced fuel consumption, reduced CO2 emissions

and no leaching of biocides – are well accepted by our

customers.

Faster production speeds

in the Protective segment, we launched HEmPAREA, a

a new fast-drying direct-to-metal coating that provides

corrosive protection with just one coat. Developed in

close cooperation with our manufacturing customers,

the solution offers manufacturers significantly increased

production speeds compared to standard two and three-

coat systems. HEmPAREA uses polyaspartic fast-cure

technology and firmly places Hempel at the forefront of

this new technology.

Our R&D focuses on innovative technologies that add value to our customers and improve environmental performance.

39

New range of intumescent coatings

With the expansion of our R&D centre in Spain in 2011,

we intensified our focus on fire protection technologies.

Following comprehensive testing programmes during

2011 and 2012, two new fire protection solutions were

approved according to European and British standards.

The subsequent launch of these coatings in selected

countries in Europe and the middle East enables us to

offer a complete range of protective coatings, including

both fire protection and corrosion protection, and we

intend to launch the solutions in other countries in 2013.

Advanced technologies from Blome International Inc.

Hempel acquired the US-based protective linings and

coatings manufacturer Blome international inc. in mid

2012. Blome international inc. produces a range of

specialist products in a number of areas, including tank

linings and chemical resistant coatings.

Following the acquisition, we began the work of adding

Blome international inc. products to our global portfolio.

This work will continue into 2013 and will enable us to

offer an even more comprehensive product range, not

only in the US, but to customers around the world.

Reclassifying cobalt salts

Under REACH legislation, there was an environmental

reclassification of certain cobalt salts in December

2010, with the likelihood of a health reclassification

to follow in 2013 (to a category 1B carcinogen). in

response, our Decorative R&D facility in the UK refor-

mulated all solvent-based materials using alternative

drying agents in 2012. This proactive initiative gives us

an extra year to introduce these new and more environ-

mentally friendly materials into our products.


40

All our employees are required to follow our ethical rules,

which are laid out in our Code of Conduct. The Code

of Conduct provides guidelines for our employees about

how to act when dealing with our customers, our suppli-

ers, each other, and anyone else we come into contact

with. These guidelines help ensure that all Hempel em-

ployees, wherever they work, conduct business with the

same high ethical standards.

Our Code of Conduct also extends to our suppliers.

When signing a Supply Agreement with Hempel, our sup-

pliers agree to conduct their business in a way that does

not compromise our Code of Conduct. in order to ensure

that our suppliers adhere to our Supplier policy, we en-

tered into an agreement with an external partner in 2012

to audit a number of our suppliers to check compliance

with requirements and regulations.

Our coatings extend the lifecycle of man-made struc-

tures, helping reduce their overall environmental impact.

However, our products contain chemicals, so we invest

in developing low-solvent and waterborne products that

reduce the amount of chemicals released into the envi-

ronment.

in 2012, this work focused particularly on our marine

products, and we launched a number of low-solvent ver-

sions of established products that release less volatile

organic compounds into the environment during applica-

tion. in addition, we invested in solvent recovery units

and wastewater treatment in an effort to reduce waste.

This investment, along with other waste reduction pro-

jects, led to a four per cent drop in the amount of waste

produced per ton of product manufactured compared to

2011.

We also believe that we have a responsibility to contrib-

ute to positive development in the communities where

we live and work. Ending poverty and hunger by providing

universal education are part of the eight millennium De-

velopment Goals conceived by the United Nations, and

our owner, the Hempel Foundation, has joined with others

to try to make these goals a reality.

The Hempel Foundation more than doubled the number

of education projects it supports in 2012, from 8 to 18.

Spanning 12 countries, these projects are seen as im-

portant ways that we can make a small difference to

communities around the world.

Our Corporate Responsibility Report provides a detailed

account of our work and goals in these and other areas.

You can read our Corporate Responsibility Report on

www.corporate-responsibility.hempel.com

Corporate responsibility

At Hempel, we believe that a company has a responsibility that stretches beyond business – and we are committed to working in a socially and environmentally responsible manner in everything we do.


44

Accounting policies:General

The Annual Report of Hempel A/S for 2012 has been

prepared in accordance with the provisions of the Danish

Financial Statements Act (Årsregnskabsloven) applying

to large enterprises of reporting class C.

The accounting policies applied remain unchanged from

previous years. The Annual Report for 2012 is presented

in EUR thousands.

Recognition and measurement

The financial statements have been prepared under the

historical cost method.

Revenues are recognised in the income statement as

earned. Furthermore, value adjustments of financial

assets and liabilities measured at fair value or amortised

cost are recognised. moreover, all expenses incurred

to achieve the earnings for the year are recognised in

the income statement, including depreciation, amortisa-

tion, impairment losses and provisions as well as rever-

sals due to changed accounting estimates of amounts

that have previously been recognised in the income

statement. Value adjustments of financial assets and

liabilities are recognised in financial income or financial

expenses in the income statement.

Assets are recognised in the balance sheet when it is

probable that future economic benefits will flow to the

Group and the value of the asset can be measured

reliably.

Liabilities are recognised in the balance sheet when

the Group has a legal or constructive obligation due to

a past event, and it is probable that future economic

benefits will flow out of the Group, and the value of the

liability can be measured reliably.

Assets and liabilities are initially measured at cost. Sub-

sequently, assets and liabilities are measured as de-

scribed for each item below.

Recognition and measurement take into account predict-

able losses and risks occurring before the presentation

of the Annual Report which confirm or invalidate affairs

and conditions existing at the balance sheet date. EUR

is used as the measurement currency. All other curren-

cies are regarded as foreign currencies.

Basis of consolidation

The consolidated financial statements comprise Hempel

A/S (the parent company) and the enterprises (subsidi-

aries) in which the parent company exercises control,

see Group chart (note 23). Control is achieved by the

parent company directly or indirectly holding more than

50 per cent of the voting rights or otherwise being

able to exercise, or actually exercising, control. Enter-

prises in which the Group directly or indirectly exercises

significant influence but not control are classified as

associates.

The consolidated financial statements are prepared on

the basis of financial statements prepared under the

same accounting policies as those applied by Hempel

A/S and its subsidiaries. The consolidated financial

statements are prepared by combining items of a uni-

form nature. On consolidation, elimination is made of

intercompany income and expenses, accounts and divi-

dends as well as of profits and losses on transactions

between the consolidated enterprises.

The parent company's investments in the consolidated

subsidiaries are set off against the parent company's

share of the net asset value of subsidiaries stated at the

time of consolidation.

On acquisition of subsidiaries, the difference between

cost and net asset value of the enterprise acquired is

determined at the date of acquisition after the individual

assets and liabilities have been adjusted to fair value

(the purchase method). This includes allowing for any

restructuring provisions determined in relation to the en-

terprise acquired. Any remaining positive differences are

45


recognised in intangible assets in the balance sheet as

goodwill, which is amortised in the income statement on

a straight-line basis over its estimated useful life, not

exceeding 20 years.

Any remaining negative differences are recognised as

negative goodwill under deferred income in the balance

sheet. Amounts relating to expected losses or costs are

recognised as income in the income statement in line

with the realisation of the events on which such amounts

are based. in the event of negative goodwill not related

to expected losses or costs, an amount corresponding

to the fair value of non-monetary assets in the income

statement is recognised over the average useful lives of

such assets.

Positive and negative differences from enterprises ac-

quired may, due to changes to the recognition and meas-

urement of net assets, be adjusted until the end of the

financial year following the year of acquisition. These

adjustments are also reflected in the value of goodwill or

negative goodwill, including in amortisation already made.

Minority interests

On statement of Group results and Group equity, the

shares of results and equity of the subsidiaries attribut-

able to minority interests are recognised as separate

items in the income statement and the balance sheet.

On subsequent changes to minority interests, the changed

share is included in results as of the date of change.

Leases

Leases in terms of which the enterprise assumes sub-

stantially all the risks and rewards of ownership (finance

leases) are recognised in the balance sheet at the lower

of the fair value of the leased asset and the net present

value of the lease payments calculated by applying the

interest rate implicit in the lease or an approximated

value as the discount rate. Assets acquired under

finance leases are depreciated and written down for im-

pairment under the same policy as determined for the

other fixed assets of the enterprise.

The remaining lease obligation is capitalised and recog-

nised in the balance sheet under debt, and the interest

element of the lease payment is charged continuously to

the income statement.

All other leases are considered operating leases. Pay-

ments made under operating leases are recognised in

the income statement on a straight-line basis over the

lease term.

Foreign currency translation

Transactions in foreign currencies are initially translated

at the exchange rates at the dates of transaction.

Receivables, debt and other monetary items in foreign

currencies that have not been settled at the balance

sheet date are translated at the exchange rates at the

balance sheet date. Exchange adjustments arising due

to differences between the transaction date rates and

the rates at the dates of payment and the rates at the bal-

ance sheet date, respectively, are recognised in financial

income and expenses in the income statement. Fixed

assets acquired in foreign currencies are translated at

the transaction date rates.

income statements of foreign subsidiaries and associ-

ates are recognised at average exchange rates for the

months which do not differ materially from the trans-

action date rates. Balance sheet items are translated

at the exchange rates at the balance sheet date. Any

exchange adjustments arising on the translation of the

opening equity at the exchange rates at the balance

sheet date and from the translation of income state-

ments from average exchange rates to the exchange

rates at the balance sheet date are recognised directly

in equity.

Exchange adjustments of Group loans with independ-

ent foreign subsidiaries regarded as part of the total

investment in the subsidiary in question are recognised

directly in equity.

Derivative financial instruments

Derivative financial instruments are initially recognised in

the balance sheet at cost and subsequently at their fair

values. Derivative financial instruments are recognised

in other receivables and other payables, respectively.

Changes in the fair values of derivative financial instru-

ments that are designated and qualify as fair value

hedges of a recognised asset or a recognised liabil-

ity are recognised in the income statement as are any

changes in the value of the hedged asset or the hedged

liability.

Expected future cash flows are hedged where exchange

rates exceed a pre-determined level. Exchange gains and

losses on these hedging transactions are recognised di-

rectly in equity.

46

income statement

Revenue

Revenue from the sale of goods for resale and finished

goods is recognised in the income statement when

delivery has been made and risk has passed to the

purchaser, a binding sales agreement has been made,

the selling price has been determined and payment has

been received or may with reasonable certainty be ex-

pected to be received. Revenue is recognised exclusive

of VAT and net of discounts relating to sales.

Licensing income is recognised on the basis of the ac-

crued revenue of licensees and is recognised in the

income statement in the period to which it relates.

A breakdown of revenue on geographical markets is pro-

vided.

Production costs

Production costs comprise direct and indirect costs in-

curred to achieve revenue for the year. Production costs

comprise raw materials, consumables as well as produc-

tion labour costs and indirect production costs such as

maintenance, depreciation of plant etc. as well as costs

relating to the operation, administration and manage-

ment of factories.

Production costs also include research and development

costs that do not qualify for recognition in the balance

sheet as well as amortisation of recognised develop-

ment projects.

Selling and distribution expenses

Selling and distribution expenses comprise expenses

incurred to distribute sales and for sales campaigns,

including expenses for sales and distribution staff, ad-

vertising expenses and depreciation.

Administrative expenses

Administrative expenses comprise expenses incurred for

management and administration of the Group, including

expenses for administrative staff and management as

well as office expenses and depreciation.

Income from investments in subsidiaries and associates

The items ‘income from investments in subsidiaries’ and

‘income from investments in associates’ in the income

statement include the proportionate share of the profit

before tax for the year less goodwill amortisation.

Financial income and expenses

Financial income and expenses comprise interest in-

come and interest expenses, realised and unrealised

exchange gains and losses on current asset investments,

debt and transactions in foreign currencies, amortisa-

tion premium relating to mortgage debt, cash discounts

etc. as well as extra payments and repayment under the

on account taxation scheme.

Tax

Tax for the year consists of current tax for the year and

changes in deferred tax. The tax attributable to the prof-

it for the year is recognised in the income statement,

whereas the tax attributable to equity transactions is

recognised directly in equity. Extra payments or repay-

ment in connection with payment of the tax are classified

as financial income and expenses and are not included

in the tax expense.

Withholding tax arising on repatriation of dividends from

foreign subsidiaries is expensed in the year of receipt.

Current tax liabilities and receivables, respectively, are

recognised in the balance sheet at the amount calcu-

lated on the basis of the taxable income for the year

adjusted for tax paid on account.

Deferred tax is recognised and measured under the

balance sheet liability method on the basis of all tem-

porary differences between the carrying amount and

tax base of assets and liabilities. The tax value of the

assets is calculated on the basis of the planned use of

the individual assets.

47

Deferred tax is measured on the basis of the tax rules

and tax rates of the respective countries that will be

effective under the legislation at the balance sheet

date when the deferred tax is expected to crystallise as

current tax. Changes to deferred tax due to changed tax

rates are recognised in the income statement.

Deferred tax assets, including the tax base of tax loss

carry-forwards, are measured at the value at which the

asset is expected to be realised, either by elimination

in tax on future earnings or by a set-off against deferred

tax liabilities.

Hempel A/S is jointly taxed with the Danish consolidated

enterprises. Foreign subsidiaries are not subject to the

joint taxation.


48

Balance sheet

Intangible assets

Goodwill is amortised on a straight-line basis over the

estimated useful life determined on the basis of manage-

ment’s experience within the individual business areas.

The maximum amortisation period is 5-20 years, the long-

est period being applicable to acquired enterprises with a

strong market position and a long-term earnings profile.

Development projects concerning products, processes

and software that are clearly defined and identifiable

and in respect of which technical feasibility, sufficient

resources and a potential future market or development

opportunity in the enterprise can be demonstrated, and

where it is the intention to manufacture, market or use

the product or process in question, are recognised as

intangible assets. Other development costs are recog-

nised as costs in the income statement as incurred.

Development costs comprise expenses, including sala-

ries and amortisation, directly or indirectly attributable

to the development projects.

Upon completion of the development project, develop-

ment costs are amortised on a straight-line basis over

the estimated useful life. The usual amortisation period

is 4-5 years.

Customer relations are measured at cost less accumu-

lated amortisation and impairment losses. The period of

amortisation is 3-17 years.

Other intangible assets are measured at cost less ac-

cumulated amortisation and impairment losses. The as-

sets are amortised on a straight-line basis over their

estimated useful lives.

Property, plant and equipment

Land and buildings, plant and machinery as well as other

fixtures and fittings, tools and equipment are measured

at cost less accumulated depreciation and impairment

losses. Land is not depreciated.

Cost comprises the cost of acquisition and expenses

directly related to the acquisition as well as expenses

for making the asset ready for use. in the case of assets

of own construction, cost comprises direct and indirect

expenses for materials, components, sub-suppliers and

labour.

interest expenses on loans for financing the construction

of property, plant and equipment are recognised in cost

if they relate to the period of construction. Any other

finance costs are recognised in the income statement.

Depreciation is based on cost reduced by any estimated

residual value at the end of the useful life. The assets

are depreciated on a straight-line basis over their ex-

pected useful lives, which are:

Leasehold improvements are included in other operating

equipment and are recognised at cost and depreciated

over the term of the lease; however, not exceeding 10

years.

Depreciation is recognised in production costs, selling

and distribution expenses and administrative expenses

in the income statement.

Assets costing less than EUR 3,500 per unit are ex-

pensed in the year of acquisition.

Profits and losses on the sale of property, plant and

equipment are calculated as the difference between sell-

ing price less costs to sell and carrying amount at the

date of sale. Any difference between selling price and

carrying amount at the date of sale is recognised as a

profit or loss in production costs, selling and distribu-

Buildings max. 50 years

Laboratory equipment 10 years

Plant and machinery 10 years

Other fixtures and fittings, tools and equipment 3-5 years

49

tion expenses or administrative expenses in the income

statement.

Impairment of fixed assets

The carrying amounts of intangible assets and property,

plant and equipment are reviewed on an annual basis

to determine whether there is any indication of impair-

ment other than that expressed by amortisation and

depreciation. if so, an impairment test is carried out

to determine whether the recoverable amount is lower

than the carrying amount, and the asset is written down

to its lower recoverable amount.

The impairment test is performed on an annual basis

for development projects in progress irrespective of any

indication of impairment.

The recoverable amount of the asset is calculated as

the higher of net selling price and value in use. Where

a recoverable amount cannot be determined for the in-

dividual asset, the assets are assessed in the smallest

group of assets for which a reliable recoverable amount

can be determined based on a total assessment.

Goodwill and other assets for which a separate value

in use cannot be determined as the asset does not on

an individual basis generate future cash flows are re-

viewed for impairment together with the group of assets

to which they are attributable.

Investments in subsidiaries and associates

investments in subsidiaries and associates are recog-

nised and measured under the equity method. This im-

plies that the investments are measured in the balance

sheet at the proportionate ownership share of the net

asset value of the enterprises with deduction or addition

of shares of unrealised intercompany profits and losses.

The total net revaluation of investments in subsidiaries

and associates is transferred upon distribution of profit

to ‘Reserve for net revaluation under the equity method’

under equity. The reserve is reduced by dividend distrib-

uted to the parent company and adjusted for other equity

movements in subsidiaries and associates.

Subsidiaries and associates with a negative net asset

value are recognised at EUR 0. Any legal or constructive

obligation of the parent company to cover the negative

balance of the enterprise is recognised in provisions.

Inventories

inventories are measured at the lower of cost under the

FiFO method and net realisable value.

The cost of goods for resale, raw materials and consum-

ables comprises the purchase price plus landing costs.

The cost of finished goods and work in progress com-

prises the cost of raw materials, consumables and direct

labour as well as indirect production costs.

indirect production costs comprise the cost of materials

and labour and of maintenance, depreciation and impair-

ment of the machinery, factory buildings and equipment

used in the manufacturing process as well as costs of

factory administration and management. Finance costs

are not recognised in cost.

Obsolete and slow-moving items are written down to net

realisable value.

The net realisable value of inventories is calculated as

estimated selling price less costs of completion and ex-

penses incurred to realise the sale.

Receivables

Receivables are measured at amortised cost, which sub-

stantially corresponds to nominal value, less provisions

for bad debts. Provisions for bad debts are determined

on the basis of an individual assessment of each receiv-

able, and in respect of trade receivables, a general provi-

sion by group is also made based on experience from

previous years.


50

Prepayments

Prepayments comprise expenses incurred relating to

subsequent financial years such as rent, insurance pre-

miums, interest as well as unrealised exchange adjust-

ments relating to financial instruments. Prepayments are

measured at amortised cost, which usually corresponds

to nominal value.

Current asset investments

Current asset investments comprising primarily listed

bonds are measured at their fair values (market price)

at the balance sheet date. Both realised and unrealised

exchange adjustments are recognised in the income

statement.

Equity

Dividend is recognised as a liability at the time of adop-

tion at the General meeting. Dividend proposed for the

year is disclosed as a separate equity item.

Provisions

Provisions are recognised when – in consequence of an

event having occurred before or on the balance sheet date

– the Group has a legal or constructive obligation and it

is probable that economic benefits must be given up to

settle the obligation. Pension obligations are measured

at net present value based on an actuarial calculation.

Actuarial gains and losses are amortised and recognised

in the balance sheet over the remaining period until deliv-

ery of the service.

Other provisions comprising provisions for environmen-

tal, warranty and restructuring obligations as well as

other obligations not covered by insurance are recog-

nised and measured based on a best estimate of the

expenses necessary to fulfil the obligations at the bal-

ance sheet date. Provisions with an expected maturity

exceeding one year from the balance sheet date are

discounted at the average bond yield.

Financial debt

Fixed interest loans, such as mortgage loans and loans

from credit institutions, are recognised initially at the

value of the proceeds received net of transaction ex-

penses incurred. Subsequently, the loans are meas-

ured at amortised cost corresponding to the capitalised

value under the effective interest method. Other debt is

measured at amortised cost, substantially correspond-

ing to nominal value.

51

Cash flow statement

The consolidated cash flow statement is presented un-

der the indirect method and shows cash flows from

operating, investing and financing activities for the year

as well as the Group’s cash and cash equivalents at

the beginning and end of the year. No separate cash

flow statement has been prepared for the parent com-

pany as this is included in the consolidated cash flow

statement.

Cash flows from operating activities are calculated as

profit from operating activities adjusted for non-cash

operating items, changes in working capital as well as

income tax paid.

Cash flows from investing activities comprise payments

relating to acquisitions and disposals of intangible assets,

property, plant and equipment as well as fixed asset in-

vestments.

Cash flows from financing activities comprise changes to

the amount or composition of the Group’s share capital

and related expenses as well as long-term borrowing and

repayment of long-term loans and payment of dividend.

Cash and cash equivalents comprise cash at bank and

in hand as well as current asset investments with an

insignificant price risk with deduction of overdraft facili-

ties.

Cash flow statement

Financial highlights

Financial ratios have

been calculated as

follows:

Gross margin = Gross profit x 100

Revenue

Profit margin = Operating profit x 100

Revenue

Return on assets = Operating profit x 100

Average assets

Solvency ratio = Equity at year-end x 100

Total assets

Return on equity = Net profit for the year x 100

Average equity


52

income statement

In EUR thousands GRouP PaREnt ComPany

Note 2012 2011 2012 2011

1 Revenue 1,242,254 1,077,324 82,430 86,461

Production costs -780,498 -707,959 -42,805 -44,380

Gross profit 461,756 369,365 39,625 42,081

Selling and distribution expenses -259,802 -212,526 -12,688 -11,292

Administrative expenses -118,519 -85,338 -23,407 -24,029

operating profit 83,435 71,501 3,530 6,760

7 income from investments in subsidiaries 37,039 34,068

8 income from investments in associates 2,581 2,314

Profit before financial income and expenses 86,016 73,815 40,569 40,828

2 Net financials -20,756 -12,951 -1,673 -2,036

Profit before tax 65,260 60,864 38,896 38,792

4 income tax -18,800 -18,031 -4,309 -3,946

Profit after tax 46,460 42,833 34,587 34,846

minority interests’ share of the profit in subsidiaries -11,873 -7,987

net profit for the year 34,587 34,846 34,587 34,846

PaREnt ComPany

Distribution of profit 2012 2011

Proposed distribution of profit:

Proposed dividend 25,000 66

Reserve for net revaluation under the equity method 37,193 34,771

Retained earnings -27,606 9

34,587 34,846


54


Note 2012 2011 2012 2011

Fixed assets

Goodwill 69,359 68,232 – –

Software 6,832 5,002 1,385 913

Software under development 3,430 5,762 2,066 5,251

Customer relationships 40,704 49,834 – –

Other intangible assets 46,018 47,683 4,809 4,191

5 Intangible assets 166,343 176,513 8,260 10,355

Land and buildings 108,513 105,139 8,597 8,846

Land and buildings for sale 5,662 5,685 5,665 5,685

Assets under construction 15,882 17,009 8,035 388

Plant and machinery 48,723 40,493 301 431

Other fixed assets 14,429 15,585 236 107

6 Property, plant and equipment 193,209 183,911 22,834 15,457

7 investments in subsidiaries 293,830 299,341

8 investments in associates 12,312 11,015 – –

Loans to Group enterprises 69,463 53,795

12 Deferred tax assets 25,784 10,108 – –

13 Pension assets 5,600 4,986 – –

Deposits etc. 3,205 3,103 546 492

Fixed asset investments 46,901 29,212 363,839 353,628

Fixed assets 406,453 389,636 394,933 379,440

Raw materials and consumables 53,316 63,664 1,156 1,527

Work in progress 1,846 2,464 – –

Finished goods 110,203 118,260 5,136 5,783

Inventories 165,365 184,388 6,292 7,310

Trade receivables 324,391 341,799 3,734 3,043

Receivables from Group enterprises 109,754 110,802

income tax 4,219 3,715 – –

Other receivables 28,599 27,565 14,257 11,339

10 Prepayments 10,664 10,103 2,184 1,526

9 Receivables 367,873 383,182 129,929 126,710

Cash at bank and in hand 127,010 106,288 3,441 11,720

Current assets 660,248 673,858 139,662 145,740

assets 1,066,701 1,063,494 534,595 525,180

Balance sheet as at 31 December – assets

55


Note 2012 2011 2012 2011

11 Share capital 15,414 15,468 15,414 15,468Reserve for net revaluation under the equity method – – – 11,142

Retained earnings 315,320 311,319 315,320 300,177

Proposed dividend for the year 25,000 66 25,000 66

total equity 355,734 326,853 355,734 326,853

minority interests 43,149 37,005

12 Provision for deferred tax 34,286 28,602 – –

13 Pension obligations 10,893 10,066 749 759

7 Subsidiaries with negative equity 285 863

14 Other provisions 35,192 34,592 1,498 2,522

Provisions 80,371 73,260 2,532 4,144

15 Bank loans etc. 199,967 223,781 104,127 117,973

15 Derivative financial instruments 10,301 7,990 6,539 4,851

Long-term debt 210,268 231,771 110,666 122,824

Overdraft facilities 91,740 100,629 18,843 24,672

15 Short-term part of bank loans etc. 27,173 34,798 13,847 21,347

15 Derivative financial instruments 1,209 1,107 767 569

Trade payables 123,815 142,806 2,212 1,726

Payables to Group enterprises 13,021 2,988

income tax 18,642 10,316 707 1,706

Other payables 114,600 104,949 16,266 18,351

Short-term debt 377,179 394,605 65,663 71,359

Debt 587,447 626,376 176,329 194,183

Equity and liabilities 1,066,701 1,063,494 534,595 525,180

16 Fee to the auditors appointed by the General meeting 20 Change in working capital

17 Contingent liabilities and other financial obligations 21 Balance sheet items of acquired enterprises

18 Related parties 22 Cash and cash equivalents, net

19 Adjustment for non-cash operating items 23 The Hempel Group including foreign branches

Balance sheet as at 31 December – equity and liabilities


56

In EUR thousands GRouP

NoteShare

capital

Reserve for net

revaluationRetained earnings

Proposed dividend total

Equity

Equity at 1 January 2011 15,426 – 275,842 25,000 316,268

Net profit for the year 34,846 34,846

Exchange adjustment at year-end rate 42 8,289 8,331

Hedging of future transactions -7,592 -7,592

Dividend distributed -25,000 -25,000

Proposed dividend -66 66 –

11 Equity at 31 December 2011 15,468 – 311,319 66 326,853

Net profit for the year 34,587 34,587

Exchange adjustment at year-end rate -54 -2,360 -2,414


Dividend distributed -66 -66

Proposed dividend -25,000 25,000 –

11 Equity at 31 December 2012 15,414 – 315,320 25,000 355,734

Statement of changes in equity as at 31 December

57

In EUR thousands PaREnt ComPany

NoteShare

capital

Reserve for net

revaluationRetained earnings

Proposed dividend total

Equity

Equity at 1 January 2011 15,426 3,101 272,741 25,000 316,268

Net profits of subsidiaries 34,771 34,771

Dividend received -32,084 32,084 –

Exchange adjustment at year-end rate 42 8,315 -26 8,331

Hedging of future transactions -2,961 -4,631 -7,592

Net profit of parent company 75 75

Dividend distributed -25,000 -25,000

Proposed dividend -66 66 –

11 Equity at 31 December 2011 15,468 11,142 300,177 66 326,853

Net profits of subsidiaries 37,193 37,193

Dividend received -46,614 46,614 –

Exchange adjustment at year-end rate -54 -1,838 -522 -2,414

Hedging of future transactions -1,321 -1,905 -3,226

Retained earnings 1,438 -1,438 –

Net loss of parent company -2,606 -2,606

Dividend distributed -66 -66

Proposed dividend -25,000 25,000 –

11 Equity at 31 December 2012 15,414 – 315,320 25,000 355,734


58


Note 2012 2011

Cash flows from operating activities

Operating profit 83,435 71,501

19 Adjustment for non-cash operating items 43,022 37,765

20 Change in working capital 23,986 -13,466

income tax paid -22,310 -32,834

total cash flows from operating activities 128,133 62,967

Cash flows from investing activities

21 Acquisition of enterprises -9,844 -160,683

21 Divestment of enterprises 691 –

6 Purchase of property, plant and equipment -26,532 -28,758

5 Purchase of intangible assets -2,881 -4,672

Sale of property, plant and equipment 1,033 1,158

Sale of intangible assets – 155

8 Dividend received from associates 1,174 1,243

total cash flows from investing activities -36,359 -191,557

Cash flows from financing activities

Change in bank borrowings etc. -35,406 167,280

interest income and expenses, net -15,673 -12,355

Change in minority shares (dividend distributed etc.) -4,376 -5,114

Other financial assets -704 607

Dividend distributed to shareholders -66 -25,000

Capital losses and gains, net -6,338 1,158

total cash flows from financing activities -62,563 126,576

Change in cash and cash equivalents 29,211 -2,014

22 Cash at bank and in hand and current asset investments less overdraft facilities, beginning of year 5,659 2,713

Exchange adjustment 400 4,96022 Cash at bank and in hand and current asset investments

less overdraft facilities, end of year 35,270 5,659

Bank facilities available 169,605 190,554

Capital resources available 204,875 196,213

Cash flow statement


60


Note 2012 2011 2012 2011

1 Segment information

Geographical markets: 1)

Europe 615,018 487,040 82,430 86,461

North and South America 93,310 71,317 – –

Asia and Oceania 379,485 388,832 – –

middle East 154,441 130,135 – –

1,242,254 1,077,324 82,430 86,461

2 net financials

External interest income 2,473 2,667 907 1,361

interest income from subsidiaries 6,559 4,965

External interest expenses -18,400 -14,956 -6,780 -7,186

interest paid to subsidiaries -101 -117

Dividend 116 100 116 100

Realised and unrealised exchange gains/losses, net -4,945 -762 -2,374 -1,159

-20,756 -12,951 -1,673 -2,036

3 Staff

Average number of employees 4,977 4,468 226 237

Staff expenses:

Directors’ fees 715 649

Remuneration of the Executive Board 2,264 1,985

Wages and salaries etc. 197,997 159,245 20,806 19,822

Pension contributions 11,613 8,687 1,822 1,866

209,610 167,932 25,607 24,322

Staff expenses have been recognised in the income statement as follows:

Production costs 51,174 40,518 7,509 7,232

Selling and distribution expenses 115,516 93,557 5,803 5,931

Administrative expenses 42,920 33,857 12,295 11,159

209,610 167,932 25,607 24,322

1) For competitive reasons, a breakdown of revenue on activities has been left out (in accordance with section 96 of the Danish Financial Statements Act).

Notes to the financial statements

61


Note 2012 2011 2012 2011

4 Calculated income tax

Hempel Group:

Profit for the year before tax 65,260 61,083

income from investments in associates -2,581 -2,314

62,679 58,769

Tax on profit for the year:

Total tax -18,964 -18,251 -18,964 -18,251

Tax in respect of subsidiaries 14,655 14,305

Tax in respect of associates 164 220 – –

-18,800 -18,031 -4,309 -3,946

Current tax for the year -27,026 -25,656 – _

Deferred tax for the year 5,186 6,126 – _

Adjustment in respect of previous years 3,040 1,499 – –

Income tax -18,800 -18,031 -4,309 -3,946

Effective tax rate of the Group 30.0% 30.7%

Reconciliation of tax rate:

Danish tax rate 25.0% 25.0%

Higher/(lower) tax rates of foreign subsidiaries -4.0% -3.6%

Weighted tax rate of the Group: 21.0% 21.4%

Permanent differences 4.2% 2.8%

Non-capitalised losses 3.3% 3.7%

Utilisation of non-capitalised losses -2.1% -1.3%

Adjustments in respect of previous years -4.8% -2.5%

Dividend tax and other taxes at source 8.4% 6.6%

Effective tax rate of the Group 30.0% 30.7%

At 31 December 2012, the Group has a non-recognised tax asset of EUR 28 million (2011: EUR 27 million), of which the parent company represents EUR 13 million (2011: EUR 11 million).


62


Note Goodwill Software

Software under

develop-ment

Customer relation-

ships

other intangible

assets total

5 Intangible assets

Costs, beginning of year 79,011 10,112 5,762 76,667 52,781 224,333

Exchange adjustment at year-end rate 572 66 -13 199 970 1,794

Acquisition of enterprises 6,627 – – 1,577 1,669 9,873

Additions for the year – 1,779 1,055 – 47 2,881

Disposals for the year – -41 – – – -41

Transfer to/from other items – 4,037 -3,374 – -663 –

Costs, end of year 86,210 15,953 3,430 78,443 54,804 238,840

Accumulated amortisation, beginning of year 10,779 5,110 – 26,833 5,098 47,820

Exchange adjustment at year-end rate -95 25 – -396 55 -411

Amortisation for the year 6,280 3,688 – 11,554 4,009 25,531Exchange adjustment between average rate and year-end rate -113 -11 – -252 -26 -402Reversal of amortisation of assets sold – -41 – – – -41

Transfer to/from other items – 350 – – -350 –

accumulated amortisation, end of year 16,851 9,121 – 37,739 8,786 72,497

Carrying amount, end of year 69,359 6,832 3,430 40,704 46,018 166,343


63


Note Goodwill Software

Software under

develop-ment

Customer relation-

ships

other intangible

assets total

5 Intangible assets

Costs, beginning of year 401 3,612 5,251 – 7,131 16,395

Exchange adjustment at year-end rate -1 -14 -18 – -25 -58

Acquisition of enterprises – – – – 1,669 1,669

Additions for the year – 1,059 – – 25 1,084

Disposals for the year – – -3,167 – – -3,167

Transfer to/from other items – – – – – –

Costs, end of year 400 4,657 2,066 – 8,800 15,923

Accumulated amortisation, beginning of year 401 2,699 – – 2,940 6,040

Exchange adjustment at year-end rate -1 -12 – – -11 -24

Amortisation for the year – 585 – – 1,064 1,649Exchange adjustment between average rate and year-end rate – – – – -2 -2Reversal of amortisation of assets sold – – – – – –

accumulated amortisation, end of year 400 3,272 – – 3,991 7,663

Carrying amount, end of year – 1,385 2,066 – 4,809 8,260

GRouP PaREnt ComPany

2012 2011 2012 2011

Amortisation and impairment are specified as follows:

Production costs 128 151 94 140

Selling and distribution expenses 324 230 65 81

Administrative expenses 25,079 18,666 1,490 1,257

25,531 19,047 1,649 1,478


64



NoteLand and buildings

Land and buildings

for salePlant and

machineryother fixed

assets

assets under con-

struction total

6 Property, plant and equipment

Costs, beginning of year 150,218 10,339 165,422 79,696 17,009 422,684

Exchange adjustment at year-end rate 437 -39 1,258 592 -953 1,295

Acquisition of enterprises – – 503 254 – 757

Divestment of enterprises – – -355 -278 – -633

Additions for the year 1,160 – 4,657 3,665 17,050 26,532

Disposals for the year -473 -3,200 -4,372 -4,999 -671 -13,715

Transfer to/from other items 6,645 – 9,148 760 -16,553 –

Costs, end of year 157,987 7,100 176,261 79,690 15,882 436,920

Accumulated depreciation, beginning of year 45,079 4,654 124,929 64,111 – 238,773

Exchange adjustment at year-end rate -143 -16 532 464 – 837

Acquisition of enterprises – – 368 180 – 548

Depreciation for the year 4,765 – 7,443 5,057 – 17,265Exchange adjustment between average rate and year-end rate -73 – -76 -65 – -214

Divestment of enterprises – – -306 -267 – -573Reversal of depreciation of assets sold -154 -3,200 -5,352 -4,219 – -12,925

Transfer to/from other items – – – – – –

accumulated depreciation, end of year 49,474 1,438 127,538 65,261 – 243,711

Carrying amount, end of year 108,513 5,662 48,723 14,429 15,882 193,209

including leased assets of 3,645 – – – – 3,645

including interest expenses of 166 – 116 2 – 284

65


NoteLand and buildings

Land and buildings

for salePlant and

machineryother fixed

assets

assets under con-

struction total

6 Property, plant and equipment

Costs, beginning of year 11,617 10,339 5,483 1,606 388 29,433

Exchange adjustment at year-end rate -38 -36 -22 -5 -1 -102

Additions for the year – – 82 299 7,648 8,029

Disposals for the year – -3,200 -262 -124 – -3,586

Transfer to other items – – – – – –

Costs, end of year 11,579 7,103 5,281 1,776 8,035 33,774

Accumulated depreciation, beginning of year 2,771 4,654 5,052 1,499 – 13,976

Exchange adjustment at year-end rate -10 -16 -18 -5 – -49

Depreciation for the year 221 – 79 170 – 470Reversal of depreciation of assets sold – -3,200 -133 -124 – -3,457

Transfer to other items – – – – – –

accumulated depreciation, end of year 2,982 1,438 4,980 1,540 – 10,940

Carrying amount, end of year 8,597 5,665 301 236 8,035 22,834

including leased assets of – – – – – –

including interest expenses of – – – – – –


2012 2011 2012 2011

Depreciation and impairment are specified as follows:

Production costs 9,552 7,909 258 282

Selling and distribution expenses 4,756 4,119 51 208

Administrative expenses 2,957 2,527 161 413

17,265 14,555 470 903


66



Note 2012 2011 2012 2011

7 Investments in subsidiaries

Costs, beginning of year 285,571 277,919

Additions for the year 7,674 7,652

Disposals for the year -347 –

Costs, end of year 292,898 285,571

Net revaluations, beginning of year 11,142 3,101

Exchange adjustment at year-end rate -1,838 8,315


Profit before tax 57,793 52,973

Amortisation of goodwill -6,280 -4,600

Tax for the year -14,320 -13,602

Dividend received -46,614 -32,084

net revaluations, end of year -1,438 11,142

Carrying amount, end of year 291,460 296,713

Recognised in the balance sheet as follows:

Subsidiaries with negative equity -2,370 -2,628

investments in subsidiaries 293,830 299,341

291,460 296,713

Subsidiaries with negative equity are recognised in the balance sheet as follows:

Recognised in provisions -285 -863

Recognised in receivables from subsidiaries -2,085 -1,765

net value, end of year -2,370 -2,628


68


Note 2012 2011 2012 2011

8 Investments in associates

Costs, beginning of year 84 84 – –

Costs, end of year 84 84 – –

Net revaluations, beginning of year 10,931 9,209 – –

Exchange adjustment at year-end rate -274 431 – –

Net profit 2,745 2,534 – –

Dividend received -1,174 -1,243 – –

net revaluations, end of year 12,228 10,931 – –

Carrying amount, end of year 12,312 11,015 – –

9 Receivables

Receivables 367,873 383,182 129,929 126,710of which due more than one year from the balance sheet date 6,180 4,906 – 1,109

10 Prepayments

Prepayments comprise prepaid expenses relating to rent, insurance premium and interest as well as unrealised exchange adjustments relating to financial instruments.x

11 Share capital

The share capital amounts to DKK 115 million comprising 110 A shares of DKK 1 million each, one A share of DKK 900,000, four B shares of DKK 1 million each and four B shares of DKK 25,000 each. B shareholders enjoy special dividend rights.


69


Note 2012 2011 2012 2011

12 Deferred tax

Deferred tax (net) relates to the following items:

intangible assets -18,704 -22,464

Property, plant and equipment -1,039 -3,314

Fixed asset investments -1,015 -568

inventories 761 962

Trade receivables 2,375 868

Provisions and other payables 3,746 4,139

Tax losses 5,374 1,883

-8,502 -18,494 – –

The net value is recognised in the balance sheet as follows:

Deferred tax assets 25,784 10,108

Deferred tax liabilities -34,286 -28,602

-8,502 -18,494 – –


70


In EUR thousands

Note

13 Pension assets and liabilities

The majority of the employees are covered by defined-contribution plans. Only a few employees are covered by

defined-benefit plans. Defined-benefit plans are primarily used in the UK, ireland and Germany.


2012 2011 2012 2011

Pension obligations comprise:

Pension obligations 45,968 38,423 749 759

Fair value of assets related to the plans -33,434 -30,192 – –

Unhedged pension obligations (net) 12,534 8,231 749 759

Non-recognised actuarial gains/(losses) -7,241 -3,151 – –

Pension obligations recognised in the balance sheet (net) 5,293 5,080 749 759

Relating to:

Defined-contribution plans 7,385 6,659 – –

Defined-benefit plans -2,092 -1,579 749 759

Pension obligations recognised in the balance sheet 5,293 5,080 749 759

Defined-benefit plans

Specification of plan assets:

Shares and properties 42% 40% – –

Fixed interest current asset investments 53% 56% – –

Cash at bank and in hand 5% 4% – –

Total 100% 100% – –

Weighted average assumptions:

Discount rate 3.9% 5.0% 4.3% 4.3%

Expected return on assets 4.6% 4.3% – –

General wage inflation 2.9% 3.2% – –

General price inflation 1.8% 1.9% – –

71


Note

Environ-mental

obligations

Warranty commit-

mentsother

provisions total

14 Provisions

Total provisions, beginning of year 24,017 6,449 4,126 34,592

Exchange adjustments 81 – 45 126

Additions for the year – 3,765 142 3,907

Reversed -381 – -1,766 -2,147

Disposals for the year -1,015 – -271 -1,286

total provisions, end of year 22,702 10,214 2,276 35,192

Maturities are expected to be:

Within 1 year 1,498 – – 1,498

Between 1 and 5 years 21,204 10,214 2,276 33,694

22,702 10,214 2,276 35,192


72


In EUR thousands

Note

15 Bank loans and derivative financial instruments:Risk management policy of the Group:

Due to its operations, investments and financing, the Group is exposed to changes in exchange rates and interest

rates. The Group’s financial management is focused only on managing financial risks relating to operations and

financing. Accordingly, it is Group policy not to speculate actively in financial risks. For further information on the

Group’s exchange and interest rate risks and the management of these risks, see the management’s review.


2012 2011 2012 2011

Long-term bank borrowings etc. including short-term part:

Due within 1 year 27,173 34,798 13,847 21,347

Due within 1 to 5 years 199,967 223,589 104,127 117,973

Due after 5 years – 192 – –

227,140 258,579 117,974 139,320


2012 2011 2012 2011

Bank borrowings etc. 3.8% 3.9% 4.0% 4.0%

Bank borrowings etc. Cash flow terms

Financial instruments at 31 December 2012 227,140

Average term to maturity 2.6 years

Average fixed interest rate

of 3.8%

Total payables of EUR 227.1 million comprise loans denominated in EUR of EUR 122.9 million and loans denomi-

nated in other currencies, primarily GBP, of EUR 104.2 million. The effect of interest rate swaps of EUR 117.7

million and GBP 84.6 million (EUR 103.5 million), respectively, is included in the calculated interest. The fair value

adjustment of interest rate swaps of EUR -11.5 million in total at 31 December 2012 is recognised directly in

equity. The weighted average effective interest rates as at the balance sheet date were as follows:

73


In EUR thousands

Note

15 Bank loans and derivative financial instruments (continued):Currency risks:

Open foreign currency hedges at 31 December 2012 entered into in order to hedge future purchases and sales

as well as receivables and payables in foreign currencies are specified as follows:

EuR millionContract amount based

on exercise price1) Fair valueterm to matu-

rity (months)

PLN -24.5 0.1 1

ZAR -2.2 0.0 4

USD -48.0 -0.1 1

0.0

1) Positive principal amounts equal a purchase of the currency in question and negative amounts equal a sale.

Value adjustments of derivative financial instruments are recognised in the income statement except for fair

value adjustment of sale of a total of EUR 4.6 million of USD against KRW. Gains on these contracts, totalling

EUR 0.2 million, have been recognised in equity.

Credit risks:

The Group has no material risks relating to a single customer or business partner. it is the Group’s credit policy to

rate major customers and other business partners on a current basis. For further information on the Group’s credit

risks and covering of these risks, see the Special risks section of the management’s review (page 37).

74


Note 2012 2011 2012 2011

16 Fee to the auditors appointed at the General meeting

Audit fee 958 1,009 218 166

Other assurance engagements 24 38 – –

Tax advice 198 208 48 2

Other fees 727 184 568 43

1,907 1,439 834 211

17 Contingent liabilities and other financial obligations

Rental and lease obligations:

Due within 1 year from the balance sheet date 9,050 9,456 358 324

Due within 1 to 5 years from the balance sheet date 22,594 17,906 532 432

Due more than 5 years from the balance sheet date 9,404 5,735 – –

41,048 33,097 890 756

Guarantees:

For local loans and bank credits to subsidiaries1) 214,827 223,745

Other guarantees 3,163 3,697 189 710

3,163 3,697 215,016 224,455

1) Unutilised guarantees for local loans and bank credits to subsidiaries amount to EUR 21,822 thousand (2011: EUR 29,435 thousand).

Security

mortgages registered to owners of EUR 4,035 thousand at 31 December 2011 to cover bank borrowings of EUR

7,500 thousand at 31 December 2011 have been cancelled in 2012 through a repayment of the borrowings.

Other contingent liabilities:

As part of its current operations, the Group is a party to certain legal disputes, and certain claims have been

advanced against the Group concerning complaints, pollution and environmental issues. it is management’s

assessment that these disputes and claims will have no material effect on the Group’s financial position.

Hempel A/S is jointly taxed with the Danish companies of the Hempel Holding Group.

The Group’s Danish enterprises are jointly and severally liable for Danish taxes at source and income taxes.


75


In EUR thousands

Note Basis

18 Related parties and ownership

Controlling influence:

Hempel Foundation, Amaliegade 8, 1256 Copenhagen K, Denmark Ultimate parent companyHempel Holding A/S, Amaliegade 8, 1256 Copenhagen K, Denmark majority shareholder

(100%)

members of the Executive Board and Board of Directors of Hempel A/S as well

as the Board of Directors of the Hempel Foundation and Hempel Holding A/S

are also regarded as related parties. The members of the Boards of Directors of

the Hempel Foundation and Hempel Holding coincide.

Other related parties:

Saudi Arabian Packaging industry WL.L, P .O. Box 1966, Dammam 31441, Saudi Arabia Associate

Sapin United Arab Emirates L.L.C., P .O. Box 115132, United Arab Emirates Associate

Hempels medarbejderfond, Amaliegade 8, 1256 Copenhagen K, Denmark Related party

Hempels Kulturfond, Amaliegade 8, 1256 Copenhagen K, Denmark Related party

Brænderupvænge ApS, Amaliegade 8, 1256 Copenhagen K, Denmark Related party

Keldskov ApS, Amaliegade 8, 1256 Copenhagen K, Denmark Related party

76



Note 2012 2011

19 adjustment for non-cash operating items

Amortisation, depreciation and impairment, including goodwill 42,796 35,052

Provisions 1,373 87

Exchange rate adjustment, operating profit -893 3,469

Gains and losses on the sale of fixed assets -254 -843

43,022 37,765

20 Change in working capital

Change in receivables 14,782 -7,458

Change in inventories 19,420 2,535

Change in trade payables -10,216 -8,543

23,986 -13,466

77


Note 2012 2011

21 Balance sheet items of acquired enterprises

intangible assets 8,204 128,890

Property, plant and equipment 209 15,719

Fixed asset investments 1 4,986

inventories 532 32,855

Receivables 1,619 40,686

Cash at bank and in hand 508 12,338

Provisions – -27,878

Long-term payables -1,160 –

Short-term payables -1,206 -56,997

Net assets 8,707 150,599

intangible assets of parent company 1,669 –

Property, plant and equipment of parent company – 21,836

Acquisition costs 10,376 172,435

Cash at bank and in hand -532 -12,338

Exchange adjustment – 586

net cash flows from acquisitions 9,844 160,683

Balance sheet items of divested enterprises

Property, plant and equipment 60 –

inventories 854 –

Receivables 581 –

Short-term bank borrowings -344 –

Short-term payables -653 –

minority interests -173 –

Selling price 325 –

Net overdraft facility of divested enterprise 344 –

Exchange adjustment 22 –

net cash flows from divestment 691 –


78



Note 2012 2011

22 Cash and cash equivalents, net

Cash at bank and in hand, beginning of year 106,288 72,764

Bonds, beginning of year – 31

Overdraft facilities, beginning of year -100,629 -70,082

5,659 2,713

Cash, end of year 127,010 106,288

Overdraft facilities, end of year -91,740 -100,629

35,270 5,659


80

The Hempel Group including foreign branches

Note 23 name Currency Share capital ownership

Denmark Hempel A/S DKK 115,000,000Argentina Hempel Argentina S.R.L. ARS 71,524,200 100%Australia Hempel (Australia) Pty. Ltd. AUD 700,000 100%Bahrain Hempel Paints (Bahrain) W.L.L. BHD 300,000 51%Bahrain Dahna Paint middle East Holding B.S.C. (closed) USD 65,637,500 51%Belgium Hempel (Belgium) N.V. EUR 62,000 100%Brazil Hempel Tintas do Brasil Ltda. BRL 6,045,670 100%Canada Hempel (Canada) inc. CAD 1,776,005 100%Chile Hempel A/S (Chile) Ltda. CLP 6,558,960 100%Cyprus Hempel (Cyprus) Ltd. EUR 17,100 100%Cyprus Hempel Coatings (Cyprus) Limited EUR 1,000 100%Denmark Hempel Decorative Paints A/S DKK 1,000,000 100%Denmark Hempel Properties A/S DKK 1,000,000 100%Denmark HSA (Danmark) A/S DKK 10,000,000 100%Ecuador Hempel (Ecuador) S.A. USD 100,000 100%Egypt Hempel Egypt L.L.C. EGP 200,000 100%Finland OY Hempel (Finland) AB EUR 63,000 100%United Arab Emirates Hempel Paints (Abu Dhabi) L.L.C. AED 150,000 23%United Arab Emirates Hempel Paints (Emirates) L.L.C. AED 4,000,000 29%United Arab Emirates Sapin United Arab Emirates L.L.C.* AED 1,000,000 18%France Hempel (France) S.A. EUR 1,220,000 100%Greece Hempel Coatings (Hellas) S.A. EUR 7,800,000 100%The Netherlands Hempel (The Netherlands) B.V. EUR 250,000 100%india Hempel Paints (india) Pvt. Ltd. iNR 200,000,000 100%indonesia P.T. Hempel indonesia USD 2,000,000 100%ireland Crown Paints ireland Ltd. EUR 127 100%italy Hempel (italy) s.r.l. EUR 50,000 100%China Hempel (China) Limited HKD 106,000,000 100%China Hempel (Kunshan) Coatings Co. Ltd. CNY 38,400,015 100%China Hempel (Yantai) Coatings Co. Ltd. CNY 17,860,466 100%China Hempel (Guangzhou) Coatings Co. Ltd. CNY 185,327,620 100%China Hempel-Hai Hong Coatings (Shenzhen) Co. Ltd. HKD 40,000,000 100%China Hempel (Seagull) Coatings Co. Ltd. HKD 20,000,000 100%Korea Hempel Korea Co. Ltd. KRW 1,450,000,000 100%Croatia Hempel Coatings (Croatia) Ltd. HRK 31,019,200 98%Kuwait Hempel Paints (Kuwait) K.S.C.C. KWD 600,000 51%malaysia Hempel (malaysia) Sdn. Bhd. mYR 5,000,000 100%malaysia Hempel manufacturing (malaysia) Sdn. Bhd. mYR 9,500,000 100%morocco Hempel (morocco) SARL mAD 2,500,000 99%mexico Hempel (mexico) S.A. de C.V. mXN 50,000 100%mexico Pinturas Hempel de mexico S.A. de C.V. mXN 9,935,870 100%New Zealand Hempel (New Zealand) Ltd. NZD 300,000 100%

81

Note 23 name Currency Share capital ownership

Norway Hempel (Norway) AS NOK 4,981,428 100%Oman Hempel (Oman) L.L.C OmR 500,000 20%Poland Hempel (Poland) Sp. z o.o. PLN 5,000,000 100%Poland Hempel manufacturing (Poland) Sp. z o.o. PLN 55,500,000 100%Portugal Hempel (Portugal) Lda. EUR 1,246,995 100%Qatar Hempel Paints (Qatar) W.L.L. QAR 4,000,000 29%Romania Hempel (Romania) S.R.L. EUR 420,100 100%Russia ZAO Hempel RUR 95,000 100%Saudi Arabia Hempel Paints (Saudi Arabia) W.L.L. SAR 24,500,000 51%Saudi Arabia Saudi Arabian Packaging industry W.L.L.* SAR 20,000,000 18%Singapore Hempel (Singapore) Pte. Ltd. SGD 2,700,000 100%Spain Pinturas Hempel S.A. (Spain) EUR 1,202,000 100%UK Crown Brands Ltd. GBP 1 100%UK Crown Darwen Ltd. GBP 200 100%UK Crown Decorative Production Ltd. GBP 2 100%UK Crown Paints Ltd. GBP 1 100%UK Grown Paints Group Ltd. GBP 1,000,000 100%UK Crown Paints Holding Ltd. GBP 1,000,000 100%UK Donald macpherson And Company Ltd. GBP 50,000 100%UK Hempel Decorative Paints UK Ltd. GBP 2,000 100%UK Hempel UK Ltd. GBP 4,100,000 100%UK Reebor Ltd. GBP 100 100%Sweden Hempel (Sweden) AB SEK 2,500,000 100%South Africa Hempel Paints (South Africa) Pty Ltd. ZAR 15,999,475 100%Syria Hempel Paints (Syria) L.L.C. SYP 121,600,000 49%Taiwan Hempel (Taiwan) Co. Ltd. TWD 20,000,000 100%Thailand Hempel (Thailand) Ltd. THB 3,000,000 100%Czech Republic Hempel (Czech Republic) s.r.o. CZK 30,000,000 100%Turkey Hempel Coatings San. Ve Tic Ltd. Sti. TRY 2,789,300 100%Germany Hempel (Germany) GmbH EUR 1,533,876 100%Ukraine Hempel Ukraine LLC UAH 121,000 100%Uruguay Hempel (Uruguay) S.A. UYU 8,000,000 100%USA Hempel (USA) inc. USD 9,000,000 100%USA Blome international, inc. USD 18,314 100%Vietnam Hempel Vietnam Company Limited USD 2,690,017 100%

* AssociateForeign branchesCuba Pinturas Hempel (Cuba)Hungary Hempel (Czech Republic) s.r.o. magyarorszagi FioktelepeSlovakia Hempel (Czech Republic) s.r.o. org. zlozka SlovenskoVietnam Hempel (Singapore) Pte. Ltd. Vietnam Representative Officeindia Hempel (india) Liaison Office

HEmPEL A/S

Lundtoftegårdsvej 91

DK-2800 Kgs. Lyngby

Tel: +45 4593 3800

Fax: +45 4588 5518

www.hempel.com

Documents

Annual Report - ShipServcember 2012. The Annual Report has been prepared in accordance with the Danish Financial Statements Act. in our opinion, the parent company’s financial statements