Friday, 29th November 2019, Velenje

Gorenje improves performance in second half; after this year's loss, profit planned for next year

Gorenje improves performance in second half; after this year's loss, profit planned for next year

In the second half of the year, Gorenje Group has already turned the performance trend upwards and wrapped up the third quarter of 2019 with a significantly better result than in the equivalent period of the year before, while fourth-quarter results are estimated to considerably exceed the last year's figures. Although the bottom line at the end of this year will still be negative, we are planning to end the next year with a profit as we improve our efficiency, reshape the company, and boost production and sales.

Despite the greatly improved performance in the second half of the year, the expected negative result for the year is a result of very low sales in the first half of 2019 and the related underutilization of production capacity, which in turn was related to the revision of our sales strategy, local reorganization of sales, tightening of our credit management policy, optimization of inventory levels, introduction of numerous changes in management etc. Conversely, profit is driven mainly by increase in production based on higher sales, as evident from the considerably better results in September. Higher sales also tend to decrease the share of selling and administration expenses in sales revenue, which we pay particular attention to. Material purchasing costs were still higher than planned this year, although they were cut by 2.4% relative to the equivalent period of the preceding year. In this respect, we also expect additional synergistic effects within the Hisense Group, while some positive effects will be evident in performance with a time lag, i.e. next year. The bottom line was also affected by the fact that the pace of business integration was not high enough, as well as by its sheer complexity of this process. As a result, we did not succeed in many segments in launching or increasing the sales of Gorenje products in the Hisense sales network, nor sales of Hisense products (TV sets, smart phones, air conditioners) through Gorenje's sales network. In this field, progress was only made in the second half of the year as well, but it will be further accelerated as the company is reshaped, which includes regionalization of our international sales business units.

In this year, we considerably improved our working capital management, particularly receivables and inventories, and successfully continued to divest our non-core businesses (Gorenje Surovina, Gorenje Tiki, GGE, Gorenje Projekt). Hisense provided the necessary financial support to Gorenje Group (Hisense Group provides a third of Gorenje's total borrowings) and thus secured its long-term financial stability and solvency. The owner will maintain such internal financing for as long as it is deemed necessary.

In order to improve our profitability, we shall continue to strive to improve our operating efficiency, further cut our expenses, optimize administration, cut problematic capital etc. With such measures, we are planning to increase our revenue by approximately 10 percent next year and end the year with a profit for the first time after the takeover. The emerging Chinese market, where we are marketing our Gorenje and the premium Asko brand, is also expected to contribute considerably to total revenue. We will start selling our Gorenje and high-end Asko appliances in China in over 200 stores that we have already opened in cooperation with our local partners.

We also continue our activities for improving production efficiency and eliminating problems with quality. This involves harmonizing and integrating our production techniques and processes with Hisense, executing quality improvement projects, improving production efficiency with the total cost productivity project, and managing complexity. In 2020, we are planning to invest extensively into new product development and production updates.

Our operations will be optimized and Gorenje Group will be fully integrated into the Hisense Group. This includes reshaping of the company and separation of its manufacturing part from the management part, as Gorenje d.o.o. becomes Hisense's production and development centre, while a new company Hisense Gorenje Europe Services will be founded in Ljubljana, which will be the headquarters for Hisense operations for the entire Europe. Reshaping of the company will also involve establishing shared regional service centres and combining Gorenje's and Hisense's sales business units abroad. Gorenje Group will become a part of the Hisense Europe Group that will also include seven Hisense Group companies headquartered in Europe. Following the withdrawal of shares from the stock market as of November 29, 2019, Gorenje is also no longer a public company.

"In the last year, we have carried out and we continue to carry out measures to improve our operations and performance, while also reshaping the company. This has already yielded positive results, and we are planning a business turnaround in 2020 when we have to make profit," said Gorenje chief management director Dr Lan Lin. "We shall continue to strive to improve efficiency, as this is the key prerequisite for the company's success and profitability, as well as for further investments, including the new TV set factory in Velenje. By reshaping the company, we will become leaner and more responsive, as Gorenje and the new company Gorenje Hisense Europe Services become Hisense's production, development, and management centre in Europe. In the long run, this will also mean new jobs."