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Managing ur risks

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  • 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

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