Postage Velenje, Slovenia, 20 December 2017 paid Gorenje shareholder delničar.g newsletter Published by: Gorenje d. d. / editor-in-chief: Uršula Menih Dokl / content development: Mateja Celin, Anja Rejc, Bojana Rojc / design: Marko Marinšek / print: Eurograf LETTER FROM THE PRESIDENT AND CEO FRANJO BOBINAC “Innovative and prestigious appliances are our future – today, they already account for almost a third of our sales” Dear shareholders, In the first year of our pursuit of the 2016–2020 Strategic Plan, Gorenje Group attained and exceeded its plans for both revenue and profit. This year, we were again off to a good start and at the half-year mark we were, compared to the last year’s results, ahead in all key categories of the annual plan. However, the third quarter fell well short of our expectations and we issued a warning in November that it would not be possible to fully attain all of our key goals for 2017. While we continued to grow in Eastern Europe and in non-European markets, our sales were down significantly in Germany, our largest market, where we changed our business model. We are looking to sell more built-in and premium appliances, and to sell through specialized retail chains that are better suited for sales of innovative appliances. This resulted in major fluctuation of sales in Germany in the transitory period, which had an immediate impact on our performance. Global prices of steel sheet metal and plastic granulate, key raw materials for our manufacturing processes, which had been relatively low for several years, increased steeply with this year’s economic growth. Costs of material account for the largest share of the cost of our products, and if these prices only increase by a few percent, the resulting negative effect can wash way our entire profit. Moreover, labour costs increased, especially on account of higher number of employees during the delničar.g 2 today account for nearly a third of total Gorenje Group sales, and bring in considerably more earnings. The third step was focusing on markets beyond Europe. This is where our growth was the steepest in this year. Today, we sell over 12 percent of our products in Australia, USA, China and the Middle East. We wish to ensure Gorenje Group’s long-term development Globalization and consolidation that have been the hallmarks of the period of high orders, as well as due to the elimination of white goods industry in recent years have compelled salary disproportions. us to actively seek opportunities for strategic business We responded swiftly. We are focused on sales combination. Gorenje remains one of the few companies promotion in key markets; we are improving our cost in the industry, which is not a part of a major multinational efficiency and process productivity in all areas; and we corporation. Our products have found their way to the are looking to improve working capital turnover with homes of end users across the globe while competing intensified supply chain financing. We are also decreasing with giants like Samsung, LG and Electrolux. Gorenje our inventories and complexity of our operations. could remain independent for some time, but we believe that laying the foundations of Gorenje’s long-term future New generations of appliances are the foundation for and competitive edge is the responsible thing to do. solid sales Especially for our further development and hiring. In the second half of the year, we launched mass production of new generations of free-standing cookers Why do we need a strategic partner? and premium dishwashers, washing machines and The main goal is to increase the scale of our dryers. This is an exceptional technological step for operations. Economies of scale are highly important Gorenje. Introduction of new technologies and solutions for cost management and the resulting long-term that are important for the future of the company caused competitiveness in our industry. If we make more some short delivery delays, but these were resolved and appliances, we can negotiate much better prices and partly made up for by the end of the year. Thus, we are payment terms with our suppliers on account of greater completing a few-year cycle of higher investments that volume. Similar logic applies to development that today exceeded depreciation and amortization. focuses on digitalization and connectible appliances Updated cookers, dishwashers, washing machines as a part of a smart home. In addition to acceleration and dryers for all Gorenje Group brands are our future. of product innovations, a suitable strategic partnership Only advanced appliances will allow us to boost sales of would also afford access to new markets, and we innovative products and premium brands that are more could work with a partner to reinforce the power of our profitable and mostly marketed beyond Europe, which brands. decreases our reliance on the mature European markets. We have a solid foundation for sales growth Takeovers, relocations, premium products and Operations are highly challenging in this year. We global growth still have a lot to do to improve our position, but we have Execution of strategic policies was particularly proven that we can do it. In the last ten years, we have important after the onset of the global financial and completed important acquisitions and relocations that economic crisis. If we had not completed major structural have enabled growth and development. changes then, we would have been obliterated to the ash In Central and Eastern Europe, and the countries of the heap of history by now. Italian Merloni, Spanish Fagor former Soviet Union, Gorenje Group is an esteemed and and the French Thomson-Brandt, once our competitors reputed company. Our factories in Slovenia, Serbia and the due to comparable size, have all failed. One of the most Czech Republic are strategically positioned. Development important moves we made following the acquisition of at our competence centres in Slovenia, Sweden, the the Czech company Mora, Dutch company Atag, and Netherlands, and the Czech Republic keep abreast of the Swedish company Asko, was shifting the manufacturing global trends and sometimes even set them. The range operations form Scandinavia to Slovenia and the Czech of all major and small domestic appliances of all brands Republic, and from Slovenia to Serbia. Our annual savings is competitive. Highly skilled and experienced employees on account of this move amount to 20 million euros. bind all this into Gorenje Group’s story of success. Another strategically important decision was to boost Gorenje is the only brand from the Western Balkans, sales of innovative products and premium brands that which not only survived, but consolidated its position. 2017 Today, we are present in households in four continents improve our supply chain management, as well as labour and 90 countries around the world. We are one of the cost management as we intend to cut the number of largest manufacturing companies in Slovenia and we are employees in support services. After the completion of a aware of our social responsibility. Therefore, our efforts major investment cycle, investments in the coming years are always dedicated to preservation of productive jobs, will be at the level of depreciation and amortization, or both within the company and at our many suppliers. approximately 20 million euros lower than in recent years. We are successfully developing the status of a niche manufacturer of premium and innovative appliances Dear shareholders, and designer lines that set the trends in the industry. On Creating value for the shareholders, employees, the other hand, economies of scale are highly important business partners, and the environment remains for cost management and the resulting long-term at the heart of our mission. Rapid development competitiveness. of digitalization, volatile environment, and shifting consumer behaviour are the motors of changes Deleveraging a key task for better profitability that lead us in the creation of sustainable innovative At its core, Gorenje is a domestic appliance products and services that make everyday easier manufacturer. Therefore, we shall continue to gradually and improve the quality of our lives. Successful divest some of our non-core businesses and thus transformation into a global and sustainably continue to cut our debt, and we shall restructure any competitive domestic appliance manufacturer will companies failing to deliver adequate returns. Constant be of key importance for Gorenje Group’s further decrease of working capital, and of course increase in development. I believe that we are together on the profitability, remain the other important way of cutting right path. our debt – and a key goal for us in the future. Further increase in sales of innovative appliances and appliances On behalf of Gorenje d. d. Management Board, under premium brands Asko and Atag will improve our sales structure, and we expect the improvement of Franjo Bobinac, geographical structure of sales to result in even steeper President and CEO growth in the markets outside Europe. By increasing our market shares, we shall considerably increase the utilization of our production capacity. Moreover, we shall On November 21, 2017, the Supervisory Board publicly presented its position regarding the request for convocation of extraordinary Extraordinary general meeting. It is the Supervisory Board’s mission to always work in the best interest of the company, while keeping in mind Gorenje’s importance for a variety of stakeholders. Every Shareholders shareholder has the right to propose changes in the Supervisory Board if she or he is unhappy with the Supervisory Board’s work. Assembly Gorenje prides in its very solid corporate governance. It is understandable that respective Supervisory Board members’ JANUARY 9, STARTING AT 10.00 A.M. views on a variety of issues pertaining to Gorenje’s challenges HOTEL PAKA, VELENJE may deviate; however, such views have always been exchanged in a sharp, yet respectable dialogue.