Among the major players in the industry with publicly disclosed results, Gorenje was the only company to generate positive free cash flow; it amounted to EUR 35.8 million. Thus, the actual free cash flow beat the plan by 23%. In addition, Gorenje succeeded in surpassing the targets for decrease of debt and improvement of the maturity of borrowings, thus improving the Group's overall financial condition. The unaudited financial statement of the Group and the parent company was presented to the Supervisory Board at their regular meeting on Friday, March 9th 2012.
In 2011, Gorenje Group profitability was severely challenged by the record-breaking growth of prices of raw and processed materials, which could not be neutralized by a hike in appliance retail prices, and weak demand for appliances as the consumers, their confidence shattered by the aggravation of the financial crisis in the European Union and high unemployment, took on a very conservative stance. According to the information by the European Committee of Domestic Equipment Manufacturers (CECED), the European market fell by 1.3% last year, after seeing growth of 2.1% in 2010. The volume and composition of Gorenje Group sales were less favourable particularly in Southeastern and Eastern Europe, and in the Middle East. Group profitability was also pulled back by the negative results at the Scandinavian Asko Group – these are expected to be balanced out in this year – and at Gorenje Home Interior (Gorenje Notranja oprema) where restructuring activities were launched this year.
Operating profit (EBIT) at EUR 36.5 million was 35.3% lower than in the year before; in comparable terms, it matched the 2010 figure. Namely, in order to render the annual and quarterly performance information for the last two years comparable, the effects of the Asko takeover and the divestment of Istrabenz Gorenje should be adjusted for. Such adjustment yields an EBIT of EUR 41.1 million in 2011, which is virtually the same as in 2010 (EUR 41.9 million).
Net profit for the period (after taxes) in the amount of EUR 9.1 million is consistent with the estimate for the year; however, as a result of the said business circumstances (raw material price shocks, weak demand, change in the structure of sales in terms of regions and products, and negative results at Asko and Gorenje Home Interior), this figure falls short of the plan. After adjusting for the effects of Asko and Istrabenz Gorenje, profit for the period amounts to EUR 11.3 million.
Gorenje Group met the three key goals in financing operations: it generated a positive free cash flow, reduced the level of debt, and shifted the average maturity of financial liabilities towards long-term; indeed, the results in these three aspects were ahead of the planned figures.
Free cash flow of EUR 35.8 million was EUR 6.7 million or 23% above the plan and EUR 18 million above the 2010 figure. Improvement in this respect was a result of optimization of working capital, especially receivables and inventories, and selective investment focused above all on new products such as the HomeChef oven with innovative slide control and the new generation of washing machines and dryers. Also contributing notably to the higher free cash flow was the divestment of our interest in the company Istrabenz Gorenje.
Gorenje Group debt at the end of 2011 was 4.7 percent lower than in 2010 which is an improvement of 9% relative to the plan. Debt was decreased by intensive divestment of non-core assets as confirmed by the Supervisory Board. This also included divesting the interest in the company Istrabenz Gorenje. Compared to 2010, the share of long-term loans rose from 53.9% to 62.5%. Considering the persistently restricted access to financial sources, this is an important achievement in terms of financial consolidation of our operations.
Gorenje President and CEO Mr. Franjo Bobinac: "Home appliance manufacturers have seen harsh operating conditions since the onset of the global economic and financial crisis in 2008; in 2011, these have grown even more challenging. At Gorenje Group, we are happy to see our plans attained and exceeded with regard to free cash flow, reduction of debt, and restructuring of the maturity of borrowings with a shift towards the long term. Thus, we were able to consolidate our financial position in a time when negative circumstances in financial markets are escalating, in part due to the uncertain outcome of the European sovereign debt crisis. Home appliance manufacturers can hardly expect to be afforded a breather in this year. Generating free cash flow, reducing the debt and restructuring of financial liabilities by maturity, in addition to cost optimization, restructuring of manufacturing sites, improvement of the volume and structure of sales, and thereby a boost in profitability of operations remain the our key goals as mapped out in the 2012 Business Plan. One important aspect of the attainment of these goals is successful completion of the Group reorganization and revision of corporate governance commenced last year."
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