Profitability of Operations of Gorenje Group

At the level of costs of goods and material, the contribution (gross ) is lower by 0.4 percentage points (from 38.0 percent to 37.6 percent) if compared to the previous year's figures. Thus, the contribution declined by EUR 6.4 mio.

Larger sales volume (activity variance) resulted in a higher gross for the Gorenje Group by EUR 15.2 mio, thus the total improvement by considering both effects – in terms of quality and activity – amounted to EUR 8.8 mio.

The comparable gross declined to 36.1 percent (i.e. by 4.1 percentage points) or by EUR 53.0 mio in quality terms, while it was improved by the sales volume in the amount of EUR 26.6 mio. Compared to 2010, the Gorenje Group' gross is lower by EUR 26.4 mio. The impaired gross is attributable to (1) the movement of cost for material and raw material and its negative impact, (2) worsening of the geographical and product sales structure in the Home Appliances Division, and to (3) the lowering of the gross of the Ecology, Energy and Services Division as a result of declining profitability in companies engaged in the industrial and trade part of the Services segment. The of the Home Interior Division dropped as well, but the effect of its impairment as a result of its low share in the Gorenje Group's total sales structure is less significant.

The annual movement of the gross was most strongly influenced by the third quarter of 2011, which was in view of volume and structure (geographic, product) of sales, as well as in view of its profitability, lower not only from last year's comparable quarter, but also from the second and last quarter of the reporting period.

Cost of services increased over the previous year by EUR 11.3 mio or by 5.7 percent, and decreased by EUR 1.1 mio or 0.6 percent at the comparable level, despite higher sales by 5.4 percent. The net decrease is a result of the optimisation process and partly refers also to lower sales of medical equipment; part of sales costs relating to medical equipment was disclosed in the 2010 financial statements as costs of other services.

Added value per employee improved over the previous year from EUR 31,602 to EUR 32,250 or by 2.1 percent. As employee benefits expense growth exceeded the added value growth, the economic labour productivity (change in the ratio of added value to labour cost per employee) dropped by 8.2 percent in view of total generated added value. Accordingly, the share of employee benefits expense within added value grew from 69.2 percent to 75. 4 percent.
Comparable i.e. without the effect of events that have an impact on the comparability of information, the added value per employee went down from EUR 30,982 to EUR 30,485 or by 1.6 percent. The decline is basically attributable to the total added value generated in 2011, which is lower because of the impaired gross . Consequently, economic labour productivity declined by 1.7 percent if compared to the comparable period in 2010. Hence, the share of employee benefits expense within added value grew from 71.2 percent to 72.4 percent.

Lowering amortisation and depreciation expense by EUR 2.0 mio or 3.9 percent and at a comparable level by EUR 5.2 mio or 10.4 percent is attributable to the minor scope of investments made in the past three years and the extended useful lives (already in 2010) of some property, plant and equipment, referring in particular to the production centres of the Home Appliances Division. The useful lives were extended based on regular assessments of accuracy of valuations made to property, plant and equipment.

Other operating income in the amount of EUR 41.8 mio (comparable) and compared to 2010 (EUR 26.9 mio) indicates an increase which is attributable to the compensation for damages received in connection with the Patria project (EUR 4.1 mio from the total value of EUR 5.0 mio), to the amount of subsidies and grants received for providing employment in the Republic of Serbia (EUR 2.9 mio), to profits generated on the sale of unnecessary property (EUR 3.6 mio), and to income from the reversal of provisions. In terms of consolidated financial statements, other operating income is recorded at EUR 52.5 mio and grew over the previous year, mostly as a result of subsidies received for providing employment in the Republic of Serbia and compensation for damages referring to the Patria project.

Other operating expenses (comparable) in the amount of EUR 15.7 mio decreased over the previous period (2010: EUR 16.3 mio) as a result of lower charges for recycling of household appliances (WEEE Directive). In terms of consolidated financial statements, other operating expenses are recorded at EUR 22.3 mio (2010: EUR 16.9 mio).

Negative result from financing activities in the amount of EUR 25.4 mio was lowered by EUR 8.6 mio or by 25.3 percent if compared to 2010. In spite of higher interest expense by EUR 4.4 mio, the said lowering of the negative result is attributable mostly to income from liquidation of the company Gorenje Tiki, Slovenia (EUR 3.7 mio), to profit on the sale of the company Istrabenz Gorenje (EUR 2.9 mio), and to allowances (EUR 6.8 mio) formed in a lower amount than in 2010 (last year's negative balance included also allowances for receivables and loans relating to the company Merkur).

At the comparable level, the negative result from financing activities amounts to EUR 26.0 mio.

Income tax expense of EUR 2.0 mio shows a decrease of EUR 0.4 mio if compared to 2010, which is mostly the result of a more favourable tax treatment of Atag-related development costs.

Comparable level with EUR 3.8 mio indicates an increase of EUR 0.8 mio over the previous year's result due to the elimination of positive tax effects of the Asko Group.

Net income is recorded at EUR 9.1 mio (ROS of 0.6 %) lower than the previous period's result by 54.5 percent.

At the comparable level, the profit for 2011 amounts to EUR 11.3 mio (ROS of 0.9 percent) and is higher by EUR 6.3 mio if compared to 2010. Movement of the net income is outlined in individual categories of profitability, whereas in 2010 it was mostly influenced by the positive effect of bad will relating to the Asko Group takeover (EUR 13.3 mio).