Gorenje wraps up the first three quarters with profit
Gorenje Group's results in the first nine months of this year are better than in the corresponding period of the year before. Profitability and financial strength were both improved. Operating profit (EBIT) amounted to EUR 32.7 million, which is 38.1% more than in the first nine months of last year. Net profit stood at EUR 4 million, which is EUR 22.2 million better than last year when the Group wrapped up the first nine months of the year with a loss of EUR 18.2 million. Net debt was cut by EUR 49.6 million. Gorenje's bottom line was in the black in all three quarters of the year, despite some unexpected circumstances that exerted a notably negative effect on its operations and performance (political crisis in Ukraine, depreciation of Easter European currencies, particularly the rouble, and lower demand for white goods in Russia).
Revenue up by 1.3%
Conditions in the European white goods market where Gorenje Group generates good 92% of its revenue were challenging in the first nine months of the year. A significant decline in consumer confidence was seen especially in Eastern Europe. Nevertheless, Gorenje succeeded in increasing its revenue to EUR 909.2 million, which is 1.3% more than in the corresponding period of the year before. The Group saw revenue growth in all three quarters of the year.
Relative to the first nine months of 2013, Gorenje Group revenue from home appliance sales rose in Germany where the Group generated good 10% of its total revenue last year, as well as in the Czech Republic, Slovakia, Hungary, Great Britain, Bosnia and Herzegovina, Romania, and Bulgaria. Group revenue also grew in markets outside Europe: the Far East, countries of the Caucasus region, and especially in the USA where the Asko brand is marketed. Revenue in non-European markets increased by 14.9% over the figure for the last year's equivalent period, which is consistent with the Group's strategic goal of advancing operations in these markets. Revenue from sales of upmarket appliances was also higher, accounting for 16.7% of total major home appliance sales, which is 2.4 percentage points more than in the corresponding period of last year.
Operating profit soars by 38.1%; net profit at EUR 4 million
Gorenje Group notably improved the profitability of its operations in the first nine months of this year. Operating profit (EBIT) amounted to EUR 32.7 million, which is 38.1% more than in the first nine months of last year. This growth is a result of higher sales of upmarket appliances and sales in markets beyond Europe, solid management of raw and processed material prices, and positive effects of manufacturing operations relocations that resulted in lower labour and, to some extent, energy costs. EBITDA of EUR 64.9 million is a 17.1% improvement over the last year's figure.
Gorenje's bottom line was positive in all three quarters of the year and the Group recorded a net profit of EUR 4 million at the end of the 9-month period. This is a considerable improvement of net profit relative to the first nine months of last year when a loss of EUR 18.2 million was reported.
Gorenje President and CEO Franjo Bobinac: "Conditions in some of our key markets took a dramatic turn for the worse this year, turning out much worse than initially expected. Nevertheless, our performance in the first nine months of the year is much better than in the corresponding period of the year before. The results are an effect of the strategic restructuring completed in the last two years, and all current activities aimed at alleviating the negative external effects and at compliance with our plans. Further improvement of our performance relies on several important aspects: new product launches such as the new generation of upmarket ovens, higher sales of Asko premium brand, and optimization of all types of costs."
Net debt cut by EUR 49.6 million
Gorenje Group has successfully improved its financial position in the last two years. In the first nine months of the year, higher cash flow from operating activities, lower working capital, lower investment, and successful capital increases allowed the Group to decrease its net debt by EUR 49.6. As a result, the net financial debt to EBITDA ratio was improved by 0.2, to 4.4.
By the end of the year, Gorenje Group is planning to shave further 25 million off its net debt, also by better working capital management.
Performance challenged especially by turmoil in Ukraine and Russia, and currency depreciation
Gorenje Group performance in the first nine months of the year was negatively affected by the political turmoil in Ukraine, lasing for several months, which resulted in a decline in demand for white goods in this market. Gorenje succeeded in adjusting its operating costs to the lower operating volume and decreasing its trade receivables in a timely manner, thus putting itself in a good position for the time when the situation is normalized and the Ukrainian appliance markets starts to recover.
In the third quarter, considerable economic slowdown and currency depreciation were seen in Russia which, like Ukraine, is a very important market for Gorenje. Last year, Russia accounted for good 11% of the Group's total sales.
In addition to the Russian rouble whose drop had the greatest negative effect on Gorenje revenue, depreciation of the Ukrainian hryvnia, Czech koruna, and Australian dollar also chipped away at it. The drop of Eastern European currencies alone took EUR 19.5 million away from Gorenje Group revenue in the first nine months of the year in comparable terms. Negative currency translation differences were partly alleviated by currency hedging, selective increase of prices, higher sales in markets outside Europe, and higher sales of upmarket appliances.
Outlook for the rest of 2014
Gorenje Group is carefully monitoring the development of events in Ukraine and Russia. Circumstances remain highly unpredictable in both markets. According to current estimates, revenue in Ukraine will reach approximately a half of the last year's figure, while in Russia, sales are expected to be at a level comparable to that of 2013. Thus, revenue in both markets will be lower than planned due to unexpected external effects. In addition, the effect on performance will also be negative.
Considering the current orders placed for the period by the end of the year, Gorenje Group estimates that revenue will be roughly the same as last year while the end-of-year bottom line will remain positive.
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