Anticipated profit or loss in the strategic period

Strategic time frame by the year 2015

The main strategic objectives of the Gorenje Group and the implemented strategic and operative objectives of operation at lower levels of operation in the period from the year 2012 through the year 2015 have been based on the key strategic objectives of (1) financial-business nature, (2) market-marketing nature and (3) targets of the so-called business platform.

Objectives of the business platform create conditions for the achievement of other groups of strategic objectives. They include (1) the introduction of the new organisation structure of operation of the Gorenje Group, (2) the introduction of the new business model, (3) the up-grade of corporate management and (4) a new model of human resource management. The achievement of these objectives is of high importance and urgency. Without their implementation, the realisation of other objectives would be slowed, which would significantly change the trends of the Gorenje Group as a business system.

Key market-business strategic objectives represent a business up-grade of objectives of the business platform that co-create key financial – business objectives of the operation of the Gorenje Group. The planned (1) focus of operation of Gorenje on the basic activity of the Home Appliances Segment will increase its share to about 90 percent by the year 2015. This will have an important impact on the level of investing, disinvesting and the capability of achievement of profitability and the capability of cash flow generation in terms of target values outlined in the strategic plan. Increases in (2) sales outside Europe exceeding EUR 150 mio by the year 2015 will also have an important impact on profitability and a moderate influence on increases in sales volume. Thus, other possibilities will open up and result in an increase in added value of products and new development – innovative cycle. The most important objective of this group of key strategic objectives is certainly (3) an increase in the share of trademarks / concepts in high price brackets to a share of more than 25 percent, starting in 2015. This means a simultaneous increase in the volume of business activities along with improvements in profitability and services. In addition to all the objectives enumerated, the economy of scale will develop and increase the operational efficiencies of production centres that will be included in the portfolio of the Gorenje Group.

By achieving the above-mentioned objectives, the Gorenje Group will generate net sales amounting to minimally EUR 1.5 billion by the year 2015, with average annual growth of 3.8 percent and an EBIT margin of 5 percent. Such development of profitability and simultaneous investments in fixed assets (Capex) in the amount up to EUR 51 mio annually (the level of the year 2015) and the planned scope of disinvestments of unnecessary property will mean generated cash flows, in the annual amount of EUR 40 mio (year 2015), for Gorenje. Such cash flows will enable important deleverage of Gorenje to the level of Net finance debt to EBITDA ratio below 3.0-multiplier from the year 2014 on. The achievement of the budgeted key strategic financial - business objectives of the operation of the Gorenje Group will lead and consolidate the Gorenje Group in the top section of the average in the line of business in the world.

Operative time frame of the strategic plan – year 2012

Based on the estimates of analysts, 2012 will be the first and the most important year of the strategic period , as it will be at least as demanding as 2009, the first crisis year. This is also shown in sales volume forecasts for the first quarter of the year that have already showed lagging behind the year 2010, the year of important business recovery of the Gorenje Group.

Sales

In 2012, revenue amounting to EUR 1,391.4 mio has been budgeted, of which the basic segment of Home Appliances will generate EUR 1,202.4 mio and thus reach a share of 86.4 percent of total sales of the Gorenje Group (comparable year 2011 = 80.1 percent ). The Gorenje Group will grow the fastest in Eastern Europe since those markets are the most important sales areas of Gorenje in terms of profitability. Sales growth in other areas has gained a drive mostly due to the effect of sales in the US and Australia, where Gorenje has again started operations after the takeover of the Asko Group, the Swedish producer of household appliances.

The Gorenje Group plans to maintain its leading position in the markets of South-Eastern Europe. Due to high recognisability and a solid reputation, Gorenje's market share in these markets exceeds 50 percent. In Eastern Europe, Gorenje will maintain its position of a market share ranging from 4 percent to 30 percent. In Western Europe, it will keep its trademark position of a market share ranging from 4 percent in Germany, and exceeding 10 percent in the Benelux countries.  

Sales profitability

The budgeted sales profitability of Gorenje at the level of a difference between revenue and costs of goods and materials (gross margin) will reach a level of 42.1 percent, 4.5 percentage points higher than the level reached in the year 2011. Improvements in the gross margin will increase profitability by EUR 62.6 mio, and reductions in sales volume will decrease profitability by EUR 11.2 mio. In total, profitability will improve by EUR 51.4 mio at this level. Quality improvement in gross margin will be achieved in the segments of Ecology and Portfolio investments and a worsening of the situation will be observed in the Home Appliances segment. Anticipated increases in the prices of raw materials by 1.5 percent, along with the maintenance of unchanged levels of sales price evaluation, will have a negative effect on gross margin . The transfer of these negative effects to sales prices has not been planned due mostly to the danger of increased competition.

Value generation

The budgeted generated added value, amounting to EUR 369.5 mio at 4.8 percent growth, has already improved focusing of its consumption on development and deleverage ,and less on consumption (labour costs). This will be achieved by the planned improvement in the economic productivity of work, which means an interim improvement of the ratio of generated added value to labour costs. The highest positive effect relating to value generation is expected in the basic segment of Home Appliances.

Profitability at the level of EBIT and EBITDA

Planned structural changes in the sales segment (geographic and product structures), higher value generation capabilities and effects of process optimisations will improve EBIT to the level of EUR 50.0 mio over the year 2011 (36.8 percent growth) at 3.6 percent EBIT margin. EBITDA will reach the level of EUR 101.3 mio at 7.3 percent EBITDA margin.

Net profitability

The anticipated level of debt and the planned circumstances of financing will increase the negative result of financial movements to EUR 34.0 mio. In spite of that, improvements in the business segment of profitability and, to a small extent, a more favourable position in taxation of profit will result in improved profitability at the level of profit to the level of EUR 13.4 mio at 1.0 percent ROS