At yesterday's session, Gorenje Supervisory Board discussed the business report of the Gorenje Group and its parent company for the first nine months of this year. Particularly in the first two months of the third quarter, performance was marred by further aggravation of conditions in Gorenje Group's key markets. Operations were also affected by higher costs, especially those of transport services and costs related to relocation of manufacturing plants. Gorenje succeeded in reversing the sales trend in September by sales promotion activities and by improving the sales composition in terms of regions and products sold. The company has kept the momentum in the beginning of the last quarter. Orders for October and November have rebounded in countries where Gorenje's profitability is higher (Ukraine, Slovenia, Russia, Czech Republic, Croatia, and Serbia). Also, some measures like new product launches, cost optimization, divestment, and relocation of manufacturing operations from Finland to Czech Republic have yielded positive effects on performance. Therefore, Gorenje estimates that the Group will generate profit by the end of the year.
Worsened market conditions in the third quarter
Economic conditions in Europe became more severe in the third quarter, which translated into lower demand for home appliances. The white goods market shrunk by 2 percent in Western Europe. Circumstances in Slovenia grew worse as well, as expenses for durables, including home appliances, dropped by 8% and investment spending plummeted by 22%. These problems were even more acute in Western Balkans and Ukraine. Gorenje relies on these markets for attaining the required volume and profitability.
Gorenje's third quarter sales were the lowest in July and August. Moreover, expenses for some services saw the highest surge of the nine-month period in the third quarter. Cost of transport and logistics, in particular, rose by EUR 4.9 million relative to the first nine months of the year before (of which EUR 2.7million in the third quarter).
Some higher costs and transient negative effects on performance also pertained to the restructuring of manufacturing plants and the related shifts of manufacturing operations. Gorenje started these activities earlier this year and they will mostly be completed in the second half of 2013 when some effects arising from them will start to positively affect performance. Savings generated by relocating manufacturing operations from Finland to Czech Republic will be manifest as early as in the last quarter of this year and they will exceed the initial expectations.
As a result, revenue and profitability of the Gorenje Group in the first nine months of the year were lower; however, the Group managed to rebound in September. Sales revenue after three quarters of the year, amounting to EUR 929.5 million, was 2.7 percent lower than in the equivalent period last year. EBITDA of EUR 51.1 million was 17% below the last year's figure for the first nine months, and EBIT at EUR 15.2 million lagged behind the last year's result by 34.8%. Net result was negative for the first time after 2009; the loss amounted to EUR 6.4 million.
After a slow summer, performance bounces back in September due to operating measures and higher sales
In the middle of the third quarter, Gorenje stepped up its efforts regarding some cost-cutting measures and, paired with solid sales in September, improved performance in this month. Sales revenue in September was 12.6% higher than the average consolidated Group revenue in the first eight months of the year, topping August results by 21.5%. Highest increase in sales in September, relative to the average for the first eight months of the year, was seen in markets that contribute not only volume, but also profit margins: Ukraine, Russia, Slovenia, Serbia, Austria, Germany, and Czech Republic.
Positive development of performance persists in the last quarter
Gorenje has kept the momentum of September's positive trend in the last quarter of the year. Orders of considerable magnitude for the fourth quarter come from countries where the Group's profitability is higher.
President and CEO Franjo Bobinac commented on the results in the second half of the year: "Macroeconomic conditions in the markets are still very harsh. In the third quarter, they were even further aggravated and we do not expect any improvement in the coming months as the business environment remains highly unpredictable. Consumers are conservative in their shopping decisions regarding durable goods and the prices of raw materials and energy remain high. However, activities were launched this year at Gorenje to restructure our manufacturing plants in order to boost our long-term competitiveness. In the first stage, we are incurring additional expenses in this regard; when the shifts are completed at the end of next year, we expect to see considerable savings. Development of our operations and performance in the last quarter is looking up. The Management Board thus estimates that strong sales in the last months and solid cost management will allow us to end the year with profit. At the same time, efficient management of working capital and intensive divestment will allow us to further decrease our debt and generate positive free cash flow.«
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