After the coronavirus epidemic hit Europe, we saw a significant decrease in orders already in March (by one third), in April the orders decreased even by two thirds and the trend of at least 25% order decrease will continue also in May and June. Global economic crisis we’re facing in the aftermath of the coronavirus pandemic will be seriously affecting the market demand across Europe for a longer period of time.
Although the company concluded 2019 with over EUR 40 million loss and was still in the process of restructuring, change of business models and reorganization, the measures we implemented last year to improve efficiency and profitability gave good results in January and February 2020. The first two months were better, compared with 2019, but because of the epidemic things changed completely in March. The company was expected to generate EUR 1.1 million profit, instead it generated EUR 11 million loss, totalling EUR 20 million loss in the first quarter. In the first half of the year due to market demand drop and consequential drop of orders we expect over EUR 40 million losses.
Crisis measures include shifting to e-commerce and salary deacrease for management
We implemented several crises measures to mitigate the consequences of the severe revenue drop. We are focusing on sales increase, shifting to e-commerce and online sales, we are cutting costs, continuing to increase production efficiency and lowering the material costs. The entire Hisense Group management salaries were reduced by 20% - 50%. The final and the most difficult measure we need to take is decreasing the number of employees.
We already introduced waiting for work at home for 450 employees from the production and using the annual leave days and timebank hours for white collar employees. Through state intervention law (salary compensation for waiting at home covered by the government, from 13. 3. - 31. 5. 2020 and social contributions (pension and disability) covered by the government for employees who work from 13. 3. -31. 5. 2020, with the obligation to pay the crisis allowance), we are entitled to total EUR 5,2 million in government aid for the period from 13. 3. to the end of May. The losses we need to recover from in this period will be over EUR 41 million. The government aid alone does not suffice for the company to survive.
Redundancies a difficult but necessary step to take
“There is a global economic crisis ahead of us and we need to make sure the company survives. In order to compensate the profit loss there are only two things to do: one is to sell more with a bigger margin, the second one is to cut cost,” says dr. Lan Lin, the Chairman of Hisense International. “This is a tough job. This year the overall reduction of the number of employees has to be done to maintain healthy operation conditions. We need to do this hard work and save every penny we can. Of course, we are aware this will have a negative effect, with our workers and with the general public. We don't want to do that, but we are forced to because of the situation, not only ours, but many other companies are facing as well, throughout Europe and the world.”
Hisense Europe Group will do everything to try to reduce the number of employees using various soft methods as much as possible in all its companies. In the entire European part, there will be 1250 redundancies out of 9309 employees, and in Slovenian part out of 5580 employees, 828 will be made redundant in the companies Gorenje (544), Hisense Gorenje Europe (155), IPC (84) and Gorenje Gostinstvo (45). Through the redundancies programs we hope for a constructive cooperation of the trade union in setting the redundancies criteria and in consultation on mitigating the consequences of final redundancies.
Hisense Gorenje is here to stay
“There is no doubt that despite these necessary adjustments, we will continue production in Velenje,” assures dr. Lin. “Don't forget, Velenje is still the key, the center of our production and also the R&D center, especially important to the entire Hisense Group for the cooking appliances. We are still investing here, over EUR 50 million in this year, mostly in new products development and technical improvements. On the other hand, Hisense Gorenje is pushing very hard to establish the new TV factory. This is still a commitment, as long as our efficiency is at the right level. We still want to have this factory built in this year. I feel quite confident after these past two very difficult months, that taking all the necessary measures immediately, we will recover and grow.”