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GORENJE, d.o.o.

After a slow start of the year, Gorenje Group makes profit in June

Pursuant to the provisions of the Rules and Regulations of the Ljubljana Stock Exchange (Ljubljanska borza, d. d.), and the relevant legislation, the company Gorenje, d. o. o., hereby makes the following announcement:

Issuer: Gorenje gospodinjski aparati, d. o. o. (short name: Gorenje, d. o. o.), Partizanska 12, SI-3320 Velenje, Slovenia

Announcement of the Supervised Information’s is referring to Article 106, 112 and 113 of Market in Financial Instruments Act (ZTFI – Semi annual report).

Despite a challenging start to the year, positive effects of generating synergies within the Hisense Group (gradual savings in purchasing, launch of products made at Hisense factories), adjusted marketing and sales policies, and other measures adopted in all areas of our operations have by the end of the first half of 2019 already shown positive results. In April performance started to improve in relation to the equivalent period of the previous year. Comparable sales revenue in the second quarter of 2019 was already 6.6 percent higher than in the second quarter of 2018, while in the first quarter revenue still lagged behind last year's by 3.7 percent. Thus, after months of seeing loss, in June Gorenje Group bounced back to making profit.

In the first half of 2019, Gorenje Group's sale revenue reached EUR 567.5 million, topping the last year's first-half figure by 1.6%. Of this amount, EUR 523.4 million or 92.2 percent was generated in our core activity of home appliances. We achieved growth mostly in the markets of Eastern Europe (Romania Hungary, Czech Republic), also in somewhat smaller scale we increased our sales across Scandinavia, France and Spain. Unfavourable sales trends were seen mostly on the markets of Russia, Germany and the Netherlands. In addition to harsh competition and pricing pressures on our key markets we also faced the concentration of sales channels (mergers of big retailers).

Gorenje Group's business performance in 2019 is still materially affected by the process of integrating the Gorenje Group into the Hisense Group, which includes many activities and measures for improvement of efficiency and profitability of operations. Activities to cut inventories and trade receivables as well as tightened credit risk management policy are exceptionally important for improvement of our performance in the long run; however, in the short run, they caused lower production output volume.

Our first-half business performance was also negatively affected by persistent amount of fixed costs that could not be adjusted to the lower dynamics of production and sales in the short run, pressure on labour costs, and additional operating expenses resulting from integration and optimization of business processes and reorganization of the entire Group.

In 2019, we considerably improved net working capital management – by more than EUR 74 million, which is a result of the lower inventories and trade receivables, as noted above. Indeed, this is one area that we are particularly focused on in the integration process. By cutting our investments into net working capital and divesting some of our non-core businesses we improved our net cash flow from operating and investing activities by nearly EUR 42 million.

Hence, after a challenging start to the year, our overall result for the first half of the year is a loss of EUR 29.5 million. Adjusting for the effect of changes in accounting methodologies due to harmonization with the Hisense Group accounting policies, and for the results of the disinvested companies (five companies from the Ecology business area and the coal business), comparable loss would have amounted to EUR 22.8 million. In addition to the improving performance trend in the second quarter, business results will also be positively affected by the traditionally higher sales in the second half of the year.

In the long run, expansive integration activities that are also under way in all our international markets, will have a beneficial effect on sales performance as well. These include a variety of pricing positioning adjustments, restriction of sales for products with inadequate returns, expansion of product portfolio made at other Hisense Group companies, business integration in the markets where both Gorenje and Hisense operate sales business units, commercial investments to preserve our positioning and presence in certain distribution channels, and other activities. 

Gorenje chief managing director Chao Liu: "The start of the year was challenging, as we struggled with losses for several months. However, our goal has always been clear: to effectively integrate Gorenje into the Hisense Group and thus enable long-term savings, optimize operations, and utilize appropriate measures to improve efficiency and profitability. This will not only lead to improved overall business performance but also allow for extensive investments we are planning in Gorenje locations in Slovenia and Serbia. We are pleased to see the joint efforts of both, the owner and all employees, lead to positive results after only a few months; this indicates that we are on the right path.

Of course, we must keep working to improve the key performance indicators and to continue to reduce complexity and improve quality, production efficiency, and profitability. With consistent reaping of synergies with Hisense, there is still a lot of potential for further savings, e.g. in purchasing; moreover, the reorganization of the entire company has laid down the foundations for more efficient operations.

The months ahead are the busiest of the year for production, and we shall increase our production output considerably before autumn, so we can meet the orders from our markets. At the same time, we are investing our efforts into numerous activities to sustain the positive trend of sales growth achieved in June, and to strengthen it further."

Disclaimer: The English text for all announcements is for information purposes only!

The information in this announcement will be available on the official web site of the company Gorenje, d. o. o., Velenje, Slovenia, www.gorenjegoup.com, for at least 10 years from the date of this announcement.

The management of Gorenje, d. o. o.
Date: 26.07.2019