At yesterday's session, Gorenje, d.d., Supervisory Board was presented the unaudited financial statements of the Gorenje Group and its parent company for the fiscal year 2014. Despite the dramatic aggravation of conditions in Ukraine and Russia, the Group wrapped up the year 2014 with a positive result that is a considerable improvement over 2013. Revenue was up by 0.4% to EUR 1.24 billion, and EBIT was increased by 19.8% to EUR 43.5 million. After recording a loss of EUR 25 million in 2013, the Group generated net profit of EUR 1.2 in 2014. The Group also deleveraged by EUR 27.1 million to cut its net debt and improve its financial stability. Investment into development was beefed up by 0.4 percentage points to 2.9% of core activity revenue, and new products were launched, including the latest ovens and other cooking appliances that boost the Group's reputation and market positioning.
Revenue increase in many markets
In 2014, Gorenje Group revenue amounted to EUR 1.24 billion, which is 0.4% more than in 2013. Core activity revenue, including home products and services, reached EUR 1.06 billion, an improvement of 0.1% over 2013. Adjusting for currency translation differences, core revenue growth amounts to 3.8 percent.
The Group increased its revenue in a number of markets, including Germany, Austria, Czech Republic, Slovakia, Hungary, Slovenia, Bosnia and Herzegovina, Romania, Bulgaria, markets of the Caucasus region, Australia, North America, and Russia. Moreover, sales of upmarket appliances rose by 2 percentage points. Thus, premium appliances accounted for 16.4% of total major appliance sales volume.
Improved structure of sales and restructuring effects contribute to better results
The Group's EBIT in 2014 was at EUR 43.5 million, or 19.8 percent more than in the year before. The improvement is a result of improved structure of sales, both in terms of products and regions, restructuring of manufacturing operations and sales network which has resulted especially in lower labour costs, improved management of raw and processed material prices and lower service costs.
Performance impacted by the Ukrainian crisis and the historical rouble depreciation
Gorenje Group operations in 2014 were affected by the year-long crisis in Ukraine, which resulted in a drop of the Group's revenue in this market by nearly a half relative to 2013 (EUR -26.9 million). Despite lower revenue, solid market position was retained and operations in the market were stabilized, which provides a sound platform for the time when the political turmoil subsides.
In addition to the Ukrainian crisis, Gorenje's plans were impeded by the dramatic aggravation of economic conditions in Russia in the second half of the year, including the largest rouble depreciation in recent years. In the course of 2014, rouble lost 37% relative to the euro, most of which took place in the last quarter. Gorenje Group 2014 revenue in Russia rose relative to the year before; however, the extreme rouble depreciation resulted in actual revenue falling short of the plan.
Persistence of the Ukrainian crisis and deterioration of macroeconomic conditions in Russia are also the key reasons why Gorenje Group, after seeing positive results for three consecutive quarters and generating net profit of EUR 4 million, performed below expectations in the last quarter which is the strongest in terms of sales in the white goods industry. The Group's profit for the year amounted to EUR 1.2 million, which is a considerable improvement over the EUR 25 million of net loss reported in 2013.
President and CEO Franjo Bobinac comments on the 2014 results: "Restructuring effects, improvement of sales structure, cost optimization, and prompt response of the Gorenje team to the dramatic aggravation of the situation in Ukraine and Russia contributed to the fact that our performance last year improved notably despite the hostile business environment. This year, we have intensified the activities to alleviate such negative effects and to attain our goals. The first half of this year will be especially challenging, but we are striving to launch new products, to invest in our own brands, to optimize working capital, decrease complexity, improve process efficiency, and develop operations in a number of markets in Europe and overseas."
Higher R&D investment
In 2014, the Group boosted its investment into research and development by 0.4 percentage point to 2.9% of the core activity revenue, and expanded its offer with new appliances, developed in-house. New launches included the new generation of ovens, cooking hobs, and other cooking appliances under the main brand Gorenje, under the global premium brand Asko, and under the local premium brand Atag. New generation cooking appliances remain the key new products that consolidate Gorenje's market position.
The Group's investment in 2014 totalled at EUR 61.6, most of which was allocated to new product development and update of technological equipment.
The Group improves its financial shape for 2015
In 2014, Gorenje Group cut its net debt by further EUR 27.1 million to a total of EUR 331.8 million. As the EBITDA improved by 10.6% to EUR 86.5 million, the net debt to EBITDA ratio was cut to 3.8, a low of several years. This year, Gorenje Group is looking to bring the indicator down to 3.5.
Plans for 2015
Russia is the paramount source of uncertainty in this year. For the first time after a decade of continuous growth, Gorenje Group is expecting a drop in revenue in Russia relative to the year before. The Group has introduced a variety of measures to minimize the effects of harsher macroeconomic conditions expected especially in the first half of the year. Pricing policy is being adjusted, operating costs are being optimized, and product assortment has been expanded with a new generation of built-in cooking appliances which carry most of Gorenje's recognition and distinctiveness also in Russia. As in 2014, the Group has hedged most of its 2015 rouble cash flow.
Due to the uncertainty in the Russian market, the Group has developed several scenarios for this year's business plan. According to the realistic scenario, sales are planned at EUR 1.22 billion, EBITDA at EUR 92.9 million, and EBIT is planned at EUR 43.1 million. Net profit for the year is anticipated at EUR 6.1 million.