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."