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GORENJE, d.d., Velenje

Tiki to shut down water heater plant in Ljubljana

Based on the regulations of the Ljubljana Stock Exchange and the legislation in force, the company Gorenje, d.d., is publishing the following announcement:

Ljubljana/Velenje, June 18, 2010  – At yesterday's meeting, the Gorenje Management Board decided to call a general annual meeting of the subsidiary company Gorenje Tiki, d.o.o., to be held on July 30, 2010, to discuss the subject of starting the procedure to shut down the company. The main reasons for such a decision were the losses which have been increasing since last year. In spite of the various measures taken to improve business performance, this negative trend has shown no sign of improvement whatsoever. Hence, the decision was made to prepare the winding down procedure in a timely manner, so to prevent further business losses or the risk of insolvency.

Water heaters are the core business of Tiki, and after the global economic crisis and a substantial drop in sales, the water heater market has yet to recover. Orders have not met production plans; sales in the first five months of this year have fallen by an additional 10% compared to the same period last year; and, income in 2009 was 27% lower than the previous year. Despite reducing logistics costs, the cost of purchase and of managing poor-quality, optimizing the products and cutting overhead costs along with increasing productivity, we were not able to compensate for the negative effects of the drop in sales.

Last year, the reduction in labour costs did not reach the value of the reduction in income (-16%); while this year, labour costs have even been increasing following the rise of the minimum wage. The high cost of wages, salaries, and operational costs (one of the highest on a worldwide level) is yet another factor affecting the business performance and competitiveness of the company. Therefore, the production of water heaters at the Ljubljana plant is no longer economically viable.

For the last four years, Gorenje Tiki has been producing simple models of water heaters with lower value-added in Serbia. The production costs in the Stara Pazova plant are lower, and there we have a »break-even« situation. Our plans are thus to increase its profitability by constantly increasing the volume of production to assure significant financial gain by the end of this year.

In these harsh economic times, insofar as there has been a constant loss in profits, the management has decided to start the procedure for winding down in order to prevent an incapacitating insolvency in which the company could not settle its obligations to its creditors.

The plant will be shut down by the end of November. All workers currently employed in Tiki (270 of them) will receive their wages and all related allowances (including holiday allowances). After shutting down, the company will reimburse the employees with a complete severance pay package according to the law, and will continue to assist them in finding new jobs or jobs within the Gorenje Group.

Disclaimer: All announcements in English language are only for information purposes!

The information of this announcement will be available on the official web site of the company Gorenje, d.d., Velenje, Slovenia, www.gorenje.com, at least 5 years from the date of the announcement.

Gorenje, d.d.,
The Management Board
Date: 18.06.2010