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PSI-190/09

GORENJE, d.d., Velenje

Explanation of the Gorenje Strategic Orientations as response of the incorrect statements in the Media

Gorenje's Major Strategic Milestones

On February 12th 2009, Finance daily paper published an article headlined "Gorenje Acts Again Today" which includes a number of false statements. More precisely, it comprises incorrect presentation of facts related to the business events in or regarding Gorenje, incorrect presentation of these business events, and inappropriate interpretation of the effect of these events on Gorenje's operations. As a result, said article threatened standing and reputation of Gorenje and its management. As the article is dealing with strategic policies of Gorenje Group, we believe true facts should be publicly stated in order to provide equal information to all shareholders. The facts herein are hence related to false statements included in the article mentioned above.

One of the strategic orientations of Gorenje is internationalization of production

Mora Moravia
Mora contributed considerably to Gorenje's profit throughout of the last five years. Synergies with the parent company in the field of sales, purchasing, production, R&D, logistics and investments yielded positive economic results already in the first year. The investment in new generation of cooking appliances under the Mora brand, effected in 2008, has paved the way for the growth of our market shares in 2009 in the region of Czech Republic and Slovakia, despite the economic crisis. Since acquisition, Mora's market share was stepped up from 50 to 52% in segment of free standing cookers. At the same time, Mora has become market-leading provider of built-in appliances and hoods-a segment in which Mora was previously not present. The IT system is integrated into that of the entire Group, both with SAP and other control systems. Hence, we are able to monitor performance daily.

Valjevo Plant
By setting up manufacturing plant in Serbia, Gorenje obtained the status of a local manufacturer, hence improving its odds and establishing conditions for retaining its market shares in the long run. An extensive network of local suppliers is being developed, currently totalling at 38 entities that already provide over a third of all supplies required by the plant. Suppliers from Serbia have proven dependable by providing high quality products on time at competitive prices; therefore, some of the components are already being imported to Slovenia as well. Several new models were introduced at Valjevo plant since planned capacity enables further development and growth in terms of production volume. Appliances from Valjevo are manufactured for all markets and all Gorenje brands with costs that are 11% lower than costs of producing in Velenje. 91% of goods are dispatched from Valjevo directly to the customers while only 9 percent are combined with dispatches from Velenje. After 2 years operations in Valjevo are sound and profitable.

Gorenje wants' to play active connection roll within the white goods industry

Acquisition of Atag
Merging the company Atag in 2008 has contributed considerably to the growth of the indicators of Gorenje Group performance. By this acquisition, Gorenje has covered the last remaining grey area in Europe as it entered the 27 million strong market of Benelux. Gorenje obtained prestigious brand Atag ranked in top class of household appliance brands, thus entering highest price segment in some of western markets. As early as midway through the year, numerous synergies were reaped between two companies in terms of marketing, purchasing/procurement, product management, and manufacturing. Acquisition was carried out in a transparent manner and in compliance with the rules and regulations effective in the industry, supported by reputable global consulting and auditing companies and law firms. The purchase price in the amount of EUR 130 m was app. in the middle of interval of value estimations. Gorenje paid for a part of the purchase price in the amount of EUR 39,408,100 with Gorenje shares where a price of EUR 36.83 per share was negotiated. This transaction alone generated app. EUR 15 m of capital gain for all shareholders. In 2008, the company's profit reached planned level; hence, we expect dividend will be paid in the app. amount of EUR 10 m, of which 6 m was already paid out in 2008.

Gorenje want to become the most innovative, designed minded creator of home appliances

Design Mindedness
In a mature business where offer exceeds demand, and particularly in the crisis, it is of key importance to differ. The assortment of Gorenje's products is rather complex and versatile, and it reaches into all price segments. Innovative design is the differentiating competitive advantage of the Gorenje brand. This strategy shall remain unchanged as we remain determined to stay the trend setter in white goods design. The share of niche appliance segment in total sales by value has risen from 6 to 12% in last 3 years while its contribution to the total profitability is even higher. However, we also seek to impress customers with high quality and technical perfection. Some of Gorenje's unique technological solutions are also patent protected.

Very important strategic orientation is the mastering of the expanding of the Gorenje Group activities

Patria
In addition to its core activity, Gorenje is also engaged in operations that draw on the company's vast experience, know-how, technology, and manufacturing capacity. Hence, production of armoured vehicles was launched in Nov 2007 in 1/3 of newly built plant. This plant was a part of our strategic plan to expand the machine building capacity, devised as early as in 2001. The investment into this program amounted to 1 m euros which is 1.3% of Gorenje's total investments which amounted to EUR 74.1 m previous year. We resolutely deny false allegations of nepotism in effecting this deal. Gorenje was awarded the contract solely on the grounds of Patria's belief that it is only manufacturing plant in Slovenia capable-both in terms of technology and organization-of completing the manufacturing of armoured vehicles in such short period of time.

Entry of the broaden management into the Gorenje ownership structure of Gorenje

Ingor
Ingor was established in order to meet the EBRD's conditions for its contribution in the company's capital increase. For the EBRD to take part in the capital increase, this process had to involve the company management while governement was not allowed to take part. Since the EBRD was ruled out due to KAD's participation, Ingor entered into Gorenje's ownership to complete the capital increase. Managers with interest in Ingor took the risk of obtaining individual personal loans, believing in company's successful performance. Economic crisis is a time of uncertainty and this naturally applies to Gorenje and its employees as well. For this reason, we enhanced and upgraded the communication between the employees at all levels in order to ensure coordinated pursuit of our common goals. Gorenje, d.d., currently employs 5,187 people which is 295 less compared to the same period last year. Throughout the last year, we reduced number of employees by employing "soft" methods, natural fluctuation, retiring, and consensual termination of labour contracts; it is our intention to carry on these activities to decrease number of our employees by another 400-500 by end of this year.

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, gorenje.com, at least 5 years from the date of the announcement.

 

 
Management Board of Gorenje, d.d.

 

Date: 16. 2. 2009