Friday, 30th August 2013, Velenje, Slovenia

Performance affected by macroeconomic conditions, currency translation differences, and strategic shifts of manufacturing operations

In the first half of the year, Gorenje Group performance was affected by four key factors: 1.2-percent drop of the European home appliance market; depreciation of some currencies, especially the Russian rouble, Swedish crown, Serbian dinar, and Australian dollar relative to the euro; activities and investments related to the strategic relocations of manufacturing operations; and impairment of some investments. Group revenue in the amount of EUR 590.1 million was 2.7% lower than in the first half of 2012.

The drop is a result of lower operating volume in the fields of Ecology and Portfolio Investments. In the core activity of home products, which generates as much as 85% of total Gorenje revenue, the company saw a 0.9-percent increase in revenue, as well as an increase in market shares despite the shrinking of the European market. Adjusting for the negative effect of the currency translation differences, organic growth of revenue generated with home product sales would have been 1.4-percent. Gorenje's growth was fuelled especially by sales in the Eastern Europe.

Gorenje sales in Eastern Europe increased by 7.6 percent in the first half of the year relative to the last year's equivalent period. However, negative currency translation differences cut the actual growth to 7.1 percent. The Group's revenue rose in Russia, Ukraine, Slovenia, Croatia, as well as in Germany which is, along with Russia, one of the largest and most important markets for the Group. By boosting its sales, Gorenje consolidated its position in Europe and increased its market share by 0.29 percentage point to 3.56 percent.
In Western Europe, Gorenje sales were lower than in the first half of the year before (-2.8 percent). The drop in this region is a result of harsh conditions in the market. Sales beyond Europe were also lower, dropping by 7.5 percent especially due to lower volume of OEM deals in the USA and Australia. In Australian market, operations were also challenged by exchange rate fluctuations. Adjusting for the currency translation differences, the drop in sales in non-European markets would have been 5 percent.
Higher sales in Eastern Europe and improved structure of sales as the share of appliances with higher profit margin (small and cooking appliances) increased, along with successful divestment of non-core assets, had a positive impact on the EBIT which amounted to EUR 15.5 million, as planned. Had it not been for currency translation differences, EBIT would have been higher by EUR 2.4 million, which would have improved the EBIT margin of 2.6 percent for the quarter by 0.4 percentage point.
Due to lower other revenue and higher costs of logistics and labour, EBIT was 27.3 percent below the figure from the last year's first half. Since some production relocation processes have not been completed in the first half of the year, the number of employees at the Velenje plant exceeded the actually required figure; this, in turn, resulted in extra labour costs. However, labour costs were already 1.9 percent lower than in last year's equivalent period.
Gorenje was successful in divestment of non-core assets and exceeded the annual plan in this respect. The Group withdrew from furniture manufacturing which had run a loss for several years, placing a strain on the entire Group performance. Full results of the exit from the furniture industry will be evident by the end of the year. Gorenje also divested some real property in Slovenia, Sweden, France, and the Czech Republic. Proceeds from divestment were allocated for deleveraging.
Gorenje Group wrapped up the first half of the year with negative net income of EUR -7.8 million, which is consistent with the planned interim dynamics for the year. Currency translation differences had a strong impact on the negative net result (more than EUR 6.5million).
Gorenje President and CEO Franjo Bobinac: "Contrary to the forecasts made early this year, the European white goods market shrunk in the first half of the year as feeble demand for home appliances has persisted. Nevertheless, we succeeded in increasing our sales in our core activity, improving its structure in terms of geographical distribution and products, and in increasing our market shares. Exchange rate fluctuations were a heavy burden for our performance in the first half of the year, as were the strategic shifts of manufacturing operations which require buffer inventory, double employee teams until all relocation processes are completed etc. In addition, attainment of this year's plan will be challenged by impairments pertaining to divestment of furniture manufacturing and some financial investments. The magnitude of such impairments cannot be accurately estimated at the moment for various reasons; it will, however, be evident by the end of the year. As a result of the circumstances described, this year is different and more challenging from the previous ones. However, the measures aimed at deleveraging, which we have introduced in addition to the restructuring of manufacturing operations, and other activities to improve financial stability, develop new products, and boost sales, are laying the foundations for Gorenje's long-term growth and a sharper competitive edge. Partnership with the Panasonic Corporation will also contribute in this regard."
Currently, Gorenje Group is in the closing stage of restructuring of manufacturing operations. This summer, the last remaining parts of equipment were transferred and mass production of dishwashers moved from Sweden will be launched in the coming days. Thus, Gorenje will manufacture dishwashers for the first time in the 63 years of its history.
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