Gorenje Group 2014 Business Plan and 2013 performance estimate

Harsh business environment is expected to persist in 2014. Nevertheless, Gorenje is planning a considerable increase of revenue in core activity, improvement of the structure of sales, as well as major activities in new product development and further optimization of operations. Gorenje, d.d., Supervisory Board confirmed the Gorenje Group 2014 Business Plan and the 2013 performance estimate at today's session.

Business environment will remain extremely difficult in all markets in 2014. In addition to increasingly harsh competition, especially from Asia, and the resulting pressure on pricing, Gorenje's operations in the Group's key markets is challenged by hostile macroeconomic conditions. Moreover, they are exposed to major risks, especially regarding exchange rates.  Nevertheless, Gorenje Group is planning revenue of EUR 1.28 billion this year, which is 3.6% more than estimated for 2013. Revenue growth in this year will be based primarily on the 3.4-percent revenue growth in core activity of home products and services.

 

In addition to rising sales, a notable improvement in the structure of sales is also planned for 2014, which will lead to better performance. The highest growth of Gorenje sales is planned in the markets of Eastern Europe, Central Europe, and in non-European markets. Production output is expected to increase for all categories. Simultaneously, the share of products with higher value added, which includes premium products (designer lines and Asko and Atag brand products) will increase to 16.1% in terms of volume, compared to the 15-percent share in the sales structure in 2013. The changes in the structure of sales are a result of the pursuit of the strategy of repositioning the Gorenje Group brands and a policy to favour the sale of products with higher value added.

 

Gorenje Group will carry on the numerous development projects to boost its competitiveness. These activities include plans to expand the range of free standing fridge freezers and to develop a new generation of premium Asko washing machines and dryers. This year, the Group will also introduce a new generation of innovative built-in ovens. Investment is planned at EUR 61 million for the entire Group in 2014.

 

In this year, Gorenje will continue intensive activities in joint development of the new generation of washing machines with the Panasonic Corporation with whom Gorenje signed in 2013 a strategic partnership involving industrial cooperation. Having acquired a 10.5-percent stake in Gorenje during the equity offering in 2013, the Panasonic Corporation has also become one of the Group's largest shareholders.

 

Major activities in 2014 will also be focused on improving the Gorenje Group's financial strength. Improved performance will result in higher cash flows from operating activities; moreover, activities to improve working capital management and divestment of non-core and underperforming assets will allow the Group to deleverage further. Gross financial debt will be cut over EUR 30 million according to the 2014 plan; EBITDA, planned at EUR 93.7 million exceeds the estimated figure for 2013 by 22.3%. Thus, the ratio between net financial debt and EBITDA at the end of 2014 is planned to be driven down to 3.6.

 

In financing, the Group will continue in 2014 to diversify international financing sources and to efficiently manage its risks. Cross listing of Gorenje stock at the Warsaw Stock Exchange, started in late 2013, is a major step towards improvement of Gorenje's international recognition and reputation, and access to international financial markets.

 

In 2014, the Group is planning EBIT of EUR 46.4 million, which is a 35.9-percent increase over the estimate for 2013. Net income (profit after taxes) in 2014 is planned at EUR 12.1 million. The notable improvement of performance is to result from intensive restructuring program carried out by the Group over the last two years, which involved relocations of manufacturing operations, restructuring of sales network, cost rationalization, divestment of non-core and underperforming assets, capital increase through public equity offering, and other measures to improve the Group's financial position. Moreover, the improvement of performance in 2014 is notably affected by the planned growth of revenue, improved sales structure with an increased share of products with higher value added, and further business optimization and cost rationalization.

Conditions in the white goods markets were very harsh in 2013. Nevertheless, Gorenje Group succeeded in maintaining the revenue from its core activity of manufacturing and sale of home products and services at the same level as in the year before. According to the 2013 estimate, the Group's revenue in its core activity amounted to EUR 1.07 billion, while its market share in Europe rose from 4.00% to 4.26%. Gorenje saw the greatest improvement of its market position in Russia, Germany, Austria, and Croatia.

The Group's total revenue in 2013 is estimated at EUR 1.24 billion, which is somewhat lower than the actual result in 2012, as a result of the divestment of the furniture business and lower revenue at the companies in the Portfolio Investments segment. 

 

In 2013, the Group completed its extensive two-year restructuring program which also included strategic relocations of manufacturing operations. In 2012, Gorenje first relocated its kitchen appliance production from Finland to Czech Republic; in 2013, production of washing machines, dryers and dishwashers was shifted from Sweden to Velenje, and production of free standing refrigerators was moved from Velenje to Serbia. The successfully completed relocations have resulted in major savings in production costs, which will have a positive effect on performance in 2014 and beyond.

 

In recent years, Gorenje also restructured its sales network in order to optimize its business models and to adapt to the changes in market conditions. Notable activities in this respect were carried out in France, Turkey, USA, Croatia, Slovenia, Czech Republic, and Slovakia. The activities to restructure the sales network in order to improve the efficiency of sales activities will continue in 2014.

In recent years, cost rationalization has been implemented in all business fields, with particular emphasis on costs of material and services, which represent more than 58% of total Gorenje Group operating costs. Moreover, activities to curb the increase in labour costs and to improve labour productivity have also been carried out.

 

Concurrently with business optimization, non-core and underperforming assets are being divested; this included the divestment of the Group's furniture manufacturing business. In 2012 and 2013, Gorenje Group divested a total of EUR 36.8 million of non-core assets, which allowed the Group to cut its debt.

 

In the second half of 2013, Gorenje, d.d., carried out a public offering of newly issued stock and raised nearly EUR 27 million of fresh capital which will be used for development projects and deleveraging. These activities, along with further optimization of working capital management, allowed the Group to cut its gross financial debt in the years 2012 and 2013 by over EUR 85 million, to EUR 398.8 million at the end of 2013.

 

Gorenje Group performance in 2013 was affected by numerous non-recurring negative effects, including write-offs and impairments of financial investments (Merkur, Probanka, Cimos etc.), negative effects of divestment of the furniture segment, negative currency translation differences, and other negative effects. Total net impact of non-recurring effects (the majority of which had no impact on cash flow) in 2013 was EUR 24.6 million, which had a substantial effect on the Group's estimated results in 2013. Including these negative effects, Gorenje Group EBIT in 2013 amounted to EUR 34.2 million, while total net loss stood at EUR 25.3 million. Adjusting for these negative effects, Gorenje Group results for 2013 would have been positive with EUR 2.6 million of profit before taxes.

 

Gorenje President and CEO Franjo Bobinac commented upon the confirmation of the 2014 Business Plan: "The last two years were a watershed for Gorenje's further development. We have responded to the challenging market conditions and increasingly harsh competition by extensive restructuring and activities to boost financial stability, thus laying the foundations for the Group's enhanced efficiency and competitiveness. This year has also brought about the first full effects of our restructuring efforts which, along with higher sales with improved structure, will lead to a considerable improvement in profitability in 2014 and beyond."