Annual Report Gorenje Group 2009

As for our traditional markets in Europe, most operations were recorded with Germany and Austria,
whereas Serbia proved the best in the West Balkan area. By signing an agreement with the largest
distribution company for home appliances and consumer electronics in the Middle East, we have set up
a base for breakthrough into this prospective region.
With the use of soft methods, we managed to reduce the average number of employees in the Gorenje
Group by 525 persons, thus adequately adapting costs to the decline in sales in this segment as well.
Instead of dismissals, we introduced shortened working hours and implemented the government
measure of temporary layoffs, which also meant slightly lower salaries for employees. In September,
social distress and nonacceptance of the endless quick responses and adjustments to crisis situations
in the market led to a work stoppage in production. During negotiations with social partners, we
ensured the resumption of work within two days. We managed to balance and protect the interests of
various participants and thus prevent any further operating loss affecting all stakeholders.
Despite the difficult circumstances, we managed in 2009 to duly fulfil our obligations towards banks
and, by adopting adequate measures, reduced the Group's indebtedness by EUR 37.2 million. At the
same time, we improved the structure of borrowings in terms of maturity, with long-term borrowings
accounting for 54.4 percent at the end of 2009 as opposed to 46 percent at the end of 2008.
Sales in the amount of almost EUR 1.2 billion were almost 11 percent below the 2008 figure. This
decline would have been even greater without the acquisition of the Dutch company Atag in 2008.
It was indeed a very challenging year, but thanks to a clear anti-crisis strategy, we managed to attain
the set goals and conclude the year in better condition than was expected after the initial months of the
year. In the second half of the year, we brought the operating profit or loss (EBIT) back into the positive
sphere. Alongside restructuring and optimisation of sales, such development of ROI was largely due to
economy measures in the areas of materials, services and improved productivity. In the first half of the
year, the operating profit or loss before depreciation and amortisation (EBITDA) declined substantially
over the previous year, approaching the 2008 level in the third quarter and even surpassing it in the
last quarter.
The attainment of positive free cash flow was in the forefront in 2009 as one of the most important
building blocks in restructuring the sources of financing the business activities of the Gorenje Group.
By focusing our investments exclusively on development projects and efficiently managing our net
current assets, we generated more than EUR 33 million of free cash flow despite the negative net
profitability, and considerably surpassed the estimates made at the beginning of the year.
The market conditions in 2010 are gradually stabilising. This is also evident in the slight growth of
orders in comparison with the first months of 2009, though one cannot speak of real recovery as yet.
The growing unemployment rate in European countries is preserving a low volume of orders, and
budget problems in some countries of Eastern and Southeastern Europe are nourishing the fear of
further declines in the value of currencies.
Gorenje's plans for 2010 include increasing the volume of sales by conquering new, emerging markets
and other development activities. Our four-year strategic plan lays down guidelines for the long-term
stability of business operations of the Gorenje Group in a globalised business environment. Our goal is
to create, by the year 2013, an operating margin on the level of 5-6 percent, increase added value per
employee to at least EUR 40 thousand, and exceed the basic financial indicators on the average level
of competitors.
Dear shareholders, I thank you for the trust you have shown us in spite of the strained economic
conditions. I firmly believe that, together with co-workers, we shall meet all your expectations in the
upcoming period, and continue to regularly and proactively inform you of our further steps and
achievements on this path.
Franjo Bobinac, MBA,
President of the Management Board
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Annual Report Gorenje Group 2009