Friday, 24th August 2012, Velenje / Slovenia

Despite a hostile environment, Gorenje generates profit and reduces debt in the first half of the year

At yesterday's session, Gorenje Supervisory Board was presented the business report of the Gorenje Group and its parent company for the first half of this year. Gorenje's operations in Europe were pressured by the aggravation of the debt crisis and dwindling consumer confidence. Western Europe saw the worst of circumstances as home appliance markets there slumped by 4.2%. In comparable terms, Gorenje Group revenue was 3.3% lower than in the equivalent period last year, which had a negative impact on profitability. However, the Group managed to maintain and even increase sales in markets where the rate of profitability is higher, most notably Germany, Russia, USA, and Australia. By reducing net debt by EUR 22 million, the Group improved its financial stability; the same pace of debt reduction will be maintained by the end of the year. Higher sales, rationalization and optimization of operations, and strengthening of financial stability remain the key activities in this year. 

Second quarter sales outdo the first quarter figure
Debt crisis, high level of unemployment, high prices of raw and processed material that could not be levied onto the downstream prices, as well as payment delinquency and foreign currency risk were the key factors affecting Gorenje Group operations and performance in the first half of the year. Adjusting for the effects of the company Istrabenz Gorenje divested in July last year, revenue in the first half of this year, reaching EUR 618.6 million, was 3.3% lower than in the first half of 2011. 
Sales in the second quarter were higher than in the first three months of this year, and only 1% behind the figure from the second quarter of 2011, after adjusting for revenue of Istrabenz Gorenje.
Operating profit (EBIT) of EUR 16.5 million is 7.2% lower than last year's first half; EBIT margin, however, rises to 2.7% (last year: 2.4%)
Although Gorenje Group succeeded in keeping and indeed hiking up the sales in the more profitable markets such as Germany, Russia, USA, and Australia, profitability in the first half of the year was under pressure from lower overall sales volumes, as well as the developments in some Southeastern European markets, especially regarding furniture sales. Performance in Scandinavia is improving; however, restructuring costs of Asko continued to bear negative impact on the results in the first half of the year. Regardless of the fact that profit from operations (EBIT) is merely 7.2 % lower than in the last year after, after adjusting for revenue of Istrabenz Gorenje, net income (profit after taxes), amounting to EUR 2.3 million, is notably lower than last year, mostly due to negative currency translation differences and finance expenses.  
Gorenje rounds off the second quarter with positive free cash flow, lower debt, and better structure of financing sources
In the second quarter, Gorenje generated EUR 11.9 million of net cash flow and EUR 0.9 million of free cash flow. The positive trend of generating free cash flow is expected to continue in the second half of the year, especially due to further divestment activities and decrease in working capital.
Net financial debt was cut by EUR 22 million relative to the corresponding period last year, which is a major step in improving the financial stability.
Composition of financial liabilities in the first half was notably improved as the share of long-term financial liabilities rose from 52.4% in last year to nearly 59%.
Gorenje sees its highest growth rate in non-European markets
In the first half of the year, Gorenje's growth was the steepest in Russia and non-European markets, especially USA, Australia, and the Middle and Far East. Growth in markets beyond Europe reached 6.6%; in Eastern Europe, it amounted to 3.2%.
Gorenje President and CEO Mr. Franjo Bobinac: »Conditions in upstream, downstream, and financial markets remain highly unpredictable and pose many challenges. The struggle for market shares in suitable sales structure on one hand, and intensified optimization of manufacturing operations and cost control on the other are the key activities we shall be focused on for the rest of the year. We shall continue to build the financial stability of our business system and to reduce our debt by sound management of inventories and receivables, and divestment activities«.
This year's key activities for attainment of the relevant goals also include optimization of manufacturing sites, which is in full swing. Shift of cooker manufacturing from Finland to Czech Republic has been completed; next year, manufacturing facilities for washing machines, dryers, and dishwashers will be full relocated from Sweden to Velenje, Slovenia. Extension of manufacturing facilities for refrigerator freezers in Valjevo, Serbia, announced by Gorenje in April, has already been started as well. Higher production of refrigerator freezers in Valjevo will improve competitiveness and profitability for this category of appliances; the expansion of manufacturing operations in Valjevo will not affect the employees in Slovenia.

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