At the meeting held on November 14, 2013 the Supervisory Board of Gorenje, d.d., discussed the Gorenje Group performance in the first nine months of the year and the end-of-year performance estimate. In the first three quarters of this year, Gorenje Group increased its core activity revenue by 1% despite the drop in demand for home appliances in Europe. Thus, the Group's expanded its market share in the home appliance industry in Europe by 0.22 percentage point to 3.51%, strengthening its position of one of the leading white goods manufacturers in Europe. Furthermore, strategic relocations of manufacturing operations from Sweden to Slovenia and From Slovenia to Serbia were also successfully completed in this period. The results of improved production efficiency will be evident as early as next year. Operating profit reached EUR 23.6 million, which is nearly 6% more than in the first three quarters of last year. However, overall performance was negatively affected by non-recurring events unrelated to regular operations: impairments resulting from divestment of the furniture manufacturing subsidiaries, impairments of some of the financial investments, and currency translation differences, particularly regarding the Russian rouble, Swedish crown and Australian dollar. All these non-recurring factors resulted in a negative result for the period from January through September. According to the Group's estimate, however, last quarter performance will be positive, which will improve the overall end-of-year result.
Core activity revenue higher by 1%, market share in Europe rose to 3.51%.
In the first nine months of the year, Gorenje Group revenue amounted to EUR 897.1 million. Total revenue is 1.5% lower than in the equivalent period last year; however, this is the result of lower revenue in the ecology and portfolio Investments segment. In the core activity of manufacturing and sale of products and services for the home, the Group increased its revenue by 1% despite the drop in home appliance demand in Europe. The European home appliance market where the Group generates over 90% of all revenue shrank by 0.8% in the first nine months of the year. Adjusting for the negative effect of currency translation differences, organic growth in the core activity relative to the first nine months of last year would have stood at 2.1%. By increasing its core activity revenue, the Group also increased its market share in Europe by 0.22 percentage point to 3.51%. Relative to the first nine months of last year, the Group's revenue was higher in Ukraine, Russia, Germany, Croatia, Bulgaria, Romania, and China.
Operating profit increases; net result in the first nine months of the year negative due to non-recurring effects; positive performance expected in the last quarter
Despite the negative effects from the environment, the Group increased its EBIT over the first three quarters of last year. Operating profit amounted to EUR 23.6 million, which is 5.7% more than in the first nine months of last year.
Gorenje Group net result for the first nine months amounted to EUR -18.2 million. This figure includes non-recurring negative effects in the amount of EUR 20.1 million, pertaining to impairments from divestment of furniture business, impairments of financial investments, and negative currency translation differences. Without these non-recurring effects, Gorenje Group would have attained a positive net result of EUR 1.9 million in the first nine months of the year.
Based on higher sales plans in the core activity, improved sales structure, and lower production costs as a result of the strategic relocations of manufacturing operations, the Group estimates its net result in the last quarter of the year at EUR 9.4 million. Thus, overall result for the year will be notably improved despite the material negative non-recurring effects discussed above. Net result for the year is thus estimated at EUR -8.8 million; without the non-recurring negative effects and with the positive effects of unifying the capitalization of development costs in this year at the Group level (EUR 11 million), it would have amounted to EUR 10 million.
A new development period starts in 2014, with full effects of the strategic relocation of manufacturing operations
In the first nine months of the year, Gorenje Group successfully completed three strategic relocations of manufacturing operations: first, washing machine and dryer production was transferred from Sweden to Velenje, followed by the shift of dishwasher production along the same route; lastly, production of free standing refrigerators was moved from Velenje to Serbia. Full utilization of the production processes for washing machines and dryers in Velenje and refrigerators in Serbia was attained in the third quarter of this year. The relocated dishwasher production at the Velenje plant was launched in September and it was an important step in rounding out Gorenje's manufacturing operations in Velenje. Last year, Gorenje also relocated its cooking appliance production from Finland to the Czech Republic. Successfully completed relocations will result in notable savings in production costs, which will have a positive effect on performance and Gorenje's international competitiveness. Full positive effect of all relocations is expected to materialize in 2014 and beyond and it is estimated at EUR 20 million per year.
This year, Gorenje Group also forged a strategic partnership involving industrial cooperation with the Japanese corporation Panasonic which has already become one of Gorenje's major shareholders. Capital increase activities are still in progress. With the newly raised capital, Gorenje Group will consolidate its development capacity and financial position. With the Strategic relocations of production, optimization of business and sales processes, capital increase, and measures to improve its financial stability, Gorenje Group is building the foundations for improved performance in the coming medium term period, consistently with the strategic policies laid down.
Gorenje President and CEO Franjo Bobinac comments on this year's performance: »Due to the general economic conditions, 2013 is one of the hardest years for Gorenje. However, we invested our best effort and succeeded in increasing our market share in Europe, as well as complete the project of strategic relocations of manufacturing operations and forge a strategic partnership with the Panasonic Corporation. Hence, we find our performance in this year successful, despite the negative financial result, as we have laid solid foundations for the improvement of our results and efficiency, and for further development of the Gorenje Group in the entire medium-term period ahead."
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