Managing ur risks

annual report 2014

0.1 2014 in Review and Outlook 3INTRODUCTION 4

REPORT BY THE PRESIDENT AND CEO 8

SUPERVISORY BOARD REPORT 10

DEVELOPMENT OF KEY SEGMENTS 14

Sales by region 14

Brand development 21

Product development and design 23

Production 24

Purchasing 25

Supply chain management and complexity 26

RISK MANAGEMENT 27

CORPORATE GOVERNANCE STATEMENT 37

CREATING VALUE FOR THE SHAREHOLDERS 50

SUSTAINABLE DEVELOPMENT 53

Responsibility towards the employees 53

Responsibility to natural environment 57

Responsibility to users of our products 58

Responsibility to local and broader environment 58

0.2 Business Report 59BUSINESS PERFORMANCE 60

FINANCIAL PERFORMANCE 63

BUSINESS PLAN FOR THE YEAR 2015 65

0.3 Accounting Report 67ACCOUNTING REPORT OF THE GORENJE GROUP 69

Consolidated financial statements 69

Notes to the consolidated financial statements 77

Independent auditors report 113

ACCOUNTING REPORT OF GORENJE, D.D. 119

Financial statements 119

Notes to the financial statements 126

Independent auditors report 164

Table f c ntents

2Table of contents 2014 in review and outlook Business report Accounting report

2014 in review and outlook

0.1

Rising up to ur challenges

3Table of contents 2014 in review and outlook Business report Accounting report

INTRODUCTION 2014 PERFORMANCE HIGHLIGHTS

REVENUE GROWTH +0.4%

Group revenue (in EUR million)

1,500

1,000

500

02015 plan2013 201420122011

1,422.2 1,263.1 1,240.5 1,245.6 1,216.1

The Group increased its revenue over the 2013 figure by higher core activity revenue in Germany, Austria, Czech Republic, Slovakia, Hungary, Slovenia, Bosnia and Herzegovina, Romania, Bulgaria, markets of the Caucasus region, Australia, North America, and Russia. Moreover, sales of upmarket appliances rose by 2 percentage points. Thus, premium ap-pliances accounted for 16.4% of total major appliance sales. Performance of our portfolio companies also contributed to the revenue growth.

EBIT GROWTH +19.8%

EBIT (in EUR million) and EBIT margin

50.0

40.0

30.0

20.0

10.0

0.0

4.0 %

3.0 %

2.0 %

1.0 %

0.0 %2015 plan2013 201420122011

36.5 44.9 36.3 43.5 43.12.6 % 3.6 % 2.9 % 3.5 % 3.5 %

EBIT EBIT margin

Improvement in EBIT by 19.8% relative to 2013 is a result of improved sales structure by products and regions, restructuring of manufacturing operations and sales network that resulted especially in lower labour costs, lower costs of services, and sound management of raw and processed material prices.

IMPROVEMENT IN TERMS OF NET PROFIT

Net profit or loss (in EUR million) and ROS

20.0

10.0

0.0

-10.0

-20.0

-30.0

1.0 %

0.5 %

0.0 %

-0.5 %

-1.0 %

-1.5 %

-2.0 %

-2.5 %2015 plan2013 201420122011

9.1 0.3 -25.0 1.2 6.10.6 % 0.02 % -2.0 % 0.1 % 0.5 %

Net profit or loss ROS

Despite the dramatic aggravation of conditions in Russia and Ukraine, both of which are important markets for us in terms of sales volume and return on sales, we improved our net result and wrapped up the year 2014 with a net profit of EUR 1.2 million.

4Table of contents 2014 in review and outlook Business report Accounting report

DECREASE OF NET DEBT BY EUR 27.1 MILLION

Total and net financial liabilities (in EUR million)

600

500

400

300

200

100

02015 plan31. 12. 2013 31. 12. 201431. 12. 201231. 12. 2011

484.1 432.7 397.4 367.6 342.9382.5 379.2 358.8 331.8 321.2

Total fin. liabilities Net fin. liabilities

With improved cash flow from operating activities, lower investment, third capital increase, and lower working capital, we cut our net debt to EUR 331.8 million. As the EBITDA im-proved by 10.6% to EUR 86.5 million, the net debt to EBITDA ratio was cut to 3.8, a low of several years. This year, we are looking to bring the indicator down to 3.5.

REVENUE GROWTH OF 10.7% IN MARKETS BEYOND EUROPE

Our revenue in markets beyond Europe amounted to EUR 109,0 million in 2014. The strong, nearly 11-percent growth is a result from higher sales in the markets of North America, Australia, and the Far East.

MORE INVESTMENT INTO NEW PRODUCT DEVELOPMENT

Our investment into new appliance development was increased by 0.4 percentage point to 2.9% of total core activity revenue. New launches included the new generation of ovens, cooking hobs, and other cooking appliances under our main brand Gorenje, under the global premium brand Asko, and under the local premium brand Atag. New generation cooking appliances remain the key new products that consolidate our market position.

5Table of contents 2014 in review and outlook Business report Accounting report

CALENDAR FOR THE YEAR 2014

JANUARY

Symbolical launch of dishwasher production in Velenje

The symbolical launch of the five-station sheet metal pro-cessing conveyor line marked the successful completion of the transfer of dishwasher production from Sweden to Velen-je and the completion of the project of strategic relocation of manufacturing operations that took place in 2012 and 2013. Dishwashers have been produced in Velenje since Septem-ber 2013.

FEBRUARY

Distribution partnership with the American manufactur-er Sub-Zero Group Inc.

We signed a long-term distribution agreement with the lead-ing US premium home appliance manufacturer Sub-Zero Group Inc., for our premium brand Asko. Thus, Sub-Zero Group Inc. has been the exclusive distributor of Asko wash-ing machines, dryers and dishwashers in North America since April 1, 2014. The partnership is a part of our strategic activities aimed at boosting the Group's presence beyond Europe and promoting the sales of our upmarket products.

Design awards

The exceptional quality of design of our appliances was again recognized at the international Red Dot design contest. The forty-member expert jury was impressed twice: by the de-sign of the built-in oven with interactive colour touch screen of the Gorenje brand, and the design of the built-in oven of the Asko ProSeries line of kitchen appliances. In 2015, we received as many as 8 Red Dot awards for our appliances.

Issue of commercial paper

On March 25, we successfully issued 9-month commercial paper with a total face value of EUR 35 million and an interest rate of 4 percent.

APRIL

Asko Pro Series Asko premired

Our new line of kitchen appliances Asko Pro Series was unveiled at the Milan Design Week. The line expands our of-fer under the Asko brand which has thus far enjoyed a repu-tation of a wet appliance specialist.

MAY

Gorenje among the most trusted brands in Slovenia

Gorenje was again voted the most trusted home appliance brand in Slovenia. Such was the decision of the Reader's Digest magazine. Gorenje brand received this flattering title again in 2015, for the ninth consecutive year.

JUNE

Plus X Award for the 11th year in a row

We received the Plus X Award for the eleventh year in a row. The expert jury, consisting of representatives from 25 differ-ent industries, was impressed by the latest combined steam oven of the Gorenje+ line. This appliance won the award in the categories of quality, design, user-friendliness, and func-tionality.

JULY

Completion of the third capital increase

We carried out the last of the three capital increases approved by the shareholders at the Assembly in 2013. A debt-to-eq-uity swap agreement for 1,005,020 newly issued shares was signed with the International Finance Corporation (the IFC). Before that, Gorenjska banka also converted its receivables into 1,315,166 Gorenje shares which it subsequently sold.

Cooking appliance plant celebrates 50 years

On July 3, 1964, Gorenje held a festive opening ceremony for the cooking appliance factory in Velenje. Production of cook-ers had started in 1958, but they were initially manufactured in the village of Gorenje, and after 1960 in leased facilities in Velenje. To date, over 30 million cooking appliances have been made in Velenje.

Asko awards in Australia and France

Asko D5894 washing machine ranked second in the What to Buy? section of the most recent test by Australian inde-pendent consumer advocacy group Choice. The brand also won the French innovation award for the Asko IQcook cook-ing hob.

AUGUST

Gorenje the best choice from ethical standpoint

Gorenje brand is the winner of three recommendations for the so-called best choice as presented by the Ethical Consum-er magazine, in the categories of dishwashers, fridge freezers, microwave ovens, and washing machines.

6Table of contents 2014 in review and outlook Business report Accounting report

SEPTEMBER

Back at the IFA tradeshow

During our appearance at the world's leading consumer electronics and home appliance tradeshow IFA in Berlin, which celebrated 90 years, we unveiled the latest generation of built-in cooking appliances of the Gorenje brand. We also exhibited our new line of kitchen appliances Pro Series Asko and other new launches.

Gold for innovative refrigerators

We won the gold award presented by the Slovenian Chamber of Commerce and Industry for the new generation of free standing fridge freezers.

European Works Council

We are the first international corporation headquartered in Slovenia to have a