Optimisation of operation of performance

Increase in the volume of business activities

In increase in the volume of business activities, coupled with strong profitability, is the key area of improvement in performance. It serves as a basis for other activities, mostly in the field of process optimisation and, thus, increases cost-effectiveness. On one hand, this simply means an increase in sales volume of those products and services where added value can be increased and on the other one of those products which will help us achieve a reasonable level of the economy of scale.

The new organisation of the Gorenje Group, with an emphasis on the Home Appliances Division (at the beginning of 2012 it was renamed the Home Appliances Segment), has also simplified the processes of performance of sales activities, thus increasing the operational efficiencies of all main and supporting sales processes, development and production.

Such an organisation platform represents a starting point focused on (1) the search and development of products (built-in appliances, etc.) and geographic niches (emerging markets - BRIC and other overseas countries), (2) increased focus on design accomplishments and innovativeness, (3) strategy of several trademarks for all price brackets and (4) movement from a Pan-European to global presence, mostly with niche products.

Creation of value

Improvements in profitability and, indirectly, cash flows are directly linked to process improvements, mostly in the field of sales, development and production. It is a segment that represents an increase in economic productivity of operation through reductions in the share of labour costs in added value. Thus, the share of generated value for purposes of financing and deleveraging will directly increase.

By introducing and strengthening the active role of product and trademark management, the process from the market through development, and the process of production back to the market has improved, which will have an important impact on (1) improvements in the product and geographic structure at rather modest growth in the volume of the business activities and (2) possible increases in the volume of activities relating to products with higher added value that strengthen the economy of scale, thus enabling improvements in the yield level of existing development and production capacities.

This simultaneously enables process and, thus, cost-optimisation of all afore mentioned and other supporting processes; the most significant effects are expected mainly in relation to the optimisation of production centres and the search for synergy effects in this section of operation of the Gorenje Group (Home Appliances Segment) that have been strengthened as a focus point of activities of the operation of the Gorenje Group.

In the segment of net working capital, the planned process improvements will be additionally supported by up-graded, supplemented activities as well as by new activities that encourage faster turnover of operating receivables and inventories, and optimal turnover of operating liabilities. This is key in achieving target levels for free cash flow, and it will be possible to achieve this in a shorter period of time if profitability improves.

Improvement in financial resistance

An increase in self-financing capabilities in terms of (1) development financing and (2) deleverage will be the resultant of three main elements: (1) increases in profitability from operation, (2) focused investing and (3) management of elements of net working capital.

In recent years, after the first crisis year, the Gorenje Group primarily focused its investment policy on investments with high added value and short repayment periods. In this way, the level of investment financing (Capex) reached an amount ranging from EUR 45 to 51 mio (the target level in the year 2015), which is sufficient for the financing of key development projects that are components of the strategic plan. In this context, disinvesting procedures were discussed and represent a strong support to the increase in capability of self-financing and deleverage in the period by the year 2015 and in the period of planned achievement of a 5 percent EBIT margin.

The elements of net working capital directly depend on the arrangement and connection of processes in an efficiently operating unit. In accordance with the strategic plan, enumerated process-organisational changes will also shorten the amount of time from order to delivery and systemise procedures. Procedures will become completely transparent, regardless of the number of legal entities involved from the time the order is placed at the production centre until delivery to the outside buyer. This means introducing a pure process principle to the performance of Gorenje's main activity, the Home Appliances Segment. The most important segment in this context is the optimisation of operation of production centres and their efficient connection to the processes of purchasing and sales (logistics).

Functional strategies and monitoring of the strategic plan implementation

The measures improving performance are discussed in the strategic plan in a special appendix, where detailed plans by individual processes (functions) of the Group's operation and the schedule of their implementation have been prepared. Their implementation will be systematically monitored and valued. Due to this fact, the so-called project office has been established since the beginning of 2012 and it currently monitors activities, co-ordinates activities for their implementation and regularly reports to the company management. The S upervisory B oard of the C ompany will monitor the implementation of the strategy at every meeting.

The strategic plan has been prepared on a floating annual basis which means that its status will be checked every year, and any possible changes in the main strategic policies will be discussed in case of major changes in the environment and in the strategic objectives within the Gorenje system. In case of significant changes, the strategic plan will be adjusted accordingly.