Profitability of Operations of HA Division

Contribution margin (gross margin) at the level of costs of goods and material worsened by 0.5 percentage points (from 43.4 percent to 42.9 percent) or quality – amounted to EUR 4.7 mio in comparison with 2010.

Larger sales volume (activity variance) resulted in a higher gross margin for the Division by EUR 33.0 mio, thus the total improvement by considering both effects – in terms of quality and activity – amounted to EUR 28.3 mio.

The comparable gross margin of the Division declined by 41.7 percent (i.e. by 1.7 percentage points) or by EUR 15.5 mio in quality terms, while it was improved by the sales volume in the amount of EUR 3.6 mio. Compared to 2010, the Division's gross margin is lower by EUR 11.9 mio in the reporting period. The impaired gross margin 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 of home appliances. The annual movement of the gross margin 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 fourth quarters of the reporting period.

Under consideration of the period January – December in 2010, costs of services increased by EUR 20.6 mio or by 13.6 percent, at a comparable level by EUR 5.0 mio or 3.6 percent. This increase is mostly a result of higher costs of logistics due to a change in the operational sales model in the Russian market.

Added value per employee improved over the previous year from EUR 33,482 to EUR 33,848 or by 1.1 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 9.8 percent in view of total generated added value growth by EUR 3.3 mio (to EUR 301.5 mio). Accordingly, the share of employee benefits expense within added value grew from 66.2 percent to 73.3 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 32,615 to EUR 31,794 or by -2.5 percent. The decline is basically attributable to the total added value generated in 2011, which is lower because of the impaired gross margin. Consequently, the economic labour productivity declined by 1.6 percent if compared to the comparable period in 2010. Hence, the share of employee benefits expense within added value grew from 68.3 percent to 69.4 percent.

Lower amortisation and depreciation expense by EUR 1.5 mio or 3.3 percent and at a comparable level by EUR 5.0 mio or 12.1 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 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 33.4 mio (comparable) and in view of 2010 (EUR 23.9 mio) indicates an increase which is attributable 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 3.0 mio), and to income from the reversal of provisions. In terms of the statement of financial position, other operating income is recorded at EUR 44.2 mio, which is practically the same amount as in 2010 (EUR 44.3 mio), when it was increased by the value of negative goodwill amounting to EUR 13.3 mio.

Other operating expenses (comparable) in the amount of EUR 13.9 mio decreased over the previous period (2010: EUR 14.7 mio) as a result of lower charges for recycling of household appliances (WEEE Directive). In terms of the statement of financial positions, other operating expenses amounted to EUR 20.5 mio (2010: EUR 14.7 mio).

Negative result from financing activities in the amount of EUR 23.5 mio was lowered by EUR 9.5 mio or by 28.8 percent if compared to 2010. In spite of higher interest expense by EUR 5.2 mio, the said lowering of the negative result is attributable mostly to income from the 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 24.1 mio.

Income tax expense maintained its level with EUR 1.1 mio that was reached in the comparable period last year, mostly due to a more favourable tax treatment of Atag-related development costs.
With the amount of EUR 2.9 mio at a comparable level it reached the level that is by EUR 0.9 mio higher than the one achieved in the year 2010 due to the elimination of the positive tax effects of the Asko Group.

Net income is recorded at EUR 13.2 mio (ROS of 1.2 percent) and lower than the previous period's result by 41.6 percent.
At the comparable level, the profit for 2011 amounts to EUR 15.3 mio (ROS of 1.7 %) and is higher by EUR 8.8 mio if compared to 2010. . The movement of net income is outlined in individual categories of profitability, whereas in 2010 it was mostly influenced by the positive effect of negative goodwill relating to the Asko Group takeover (EUR 13.3 mio).