In the first
half of 2019, Gorenje Group's sale revenue reached EUR 567.5 million,
topping the last year's first-half figure by 1.6%. Of this amount,
EUR 523.4 million or 92.2 percent was generated in our core activity
of home appliances. We achieved growth mostly in the markets of Eastern Europe
(Romania Hungary, Czech Republic), also in somewhat smaller scale we increased
our sales across Scandinavia, France and Spain. Unfavourable sales trends were seen
mostly on the markets of Russia, Germany and the Netherlands. In addition to
harsh competition and pricing pressures on our key markets we also faced the
concentration of sales channels (mergers of big retailers).
Gorenje Group's
business performance in 2019 is still materially affected by the process of
integrating the Gorenje Group into the Hisense Group, which includes many
activities and measures for improvement of efficiency and profitability of
operations. Activities to cut inventories and trade receivables as well as tightened
credit risk management policy are exceptionally important for improvement of
our performance in the long run; however, in the short run, they caused lower production
output volume.
Our first-half
business performance was also negatively affected by persistent amount of fixed
costs that could not be adjusted to the lower dynamics of production and sales
in the short run, pressure on labour costs, and additional operating expenses
resulting from integration and optimization of business processes and
reorganization of the entire Group.
In 2019, we
considerably improved net working capital management – by more than
EUR 74 million, which is a result of the lower inventories and trade
receivables, as noted above. Indeed, this is one area that we are particularly
focused on in the integration process. By cutting our investments into net
working capital and divesting some of our non-core businesses we improved our
net cash flow from operating and investing activities by nearly
EUR 42 million.
Hence, after a
challenging start to the year, our overall result for the first half of the
year is a loss of EUR 29.5 million. Adjusting for the effect of
changes in accounting methodologies due to harmonization with the Hisense Group
accounting policies, and for the results of the disinvested companies (five
companies from the Ecology business area and the coal business), comparable
loss would have amounted to EUR 22.8 million. In addition to the
improving performance trend in the second quarter, business results will also
be positively affected by the traditionally higher sales in the second half of
the year.
In the long
run, expansive integration activities that are also under way in all our
international markets, will have a beneficial effect on sales performance as
well. These include a variety of pricing positioning adjustments, restriction
of sales for products with inadequate returns, expansion of product portfolio
made at other Hisense Group companies, business integration in the markets
where both Gorenje and Hisense operate sales business units, commercial
investments to preserve our positioning and presence in certain distribution
channels, and other activities.
Gorenje chief managing director Chao
Liu: "The start of the year was
challenging, as we struggled with losses for several months. However, our goal
has always been clear: to effectively integrate Gorenje into the Hisense Group
and thus enable long-term savings, optimize operations, and utilize appropriate
measures to improve efficiency and profitability. This will not only lead to
improved overall business performance but also allow for extensive investments
we are planning in Gorenje locations in Slovenia and Serbia. We are pleased to
see the joint efforts of both, the owner and all employees, lead to positive
results after only a few months; this indicates that we are on the right path.
Of
course, we must keep working to improve the key performance indicators and to
continue to reduce complexity and improve quality, production efficiency, and
profitability. With consistent reaping of synergies with Hisense, there is
still a lot of potential for further savings, e.g. in purchasing; moreover, the
reorganization of the entire company has laid down the foundations for more
efficient operations.
The
months ahead are the busiest of the year for production, and we shall increase
our production output considerably before autumn, so we can meet the orders
from our markets. At the same time, we are investing our efforts into numerous
activities to sustain the positive trend of sales growth achieved in June, and
to strengthen it further. "