Annual Report - Gorenjestatic14.gorenje.com/files/default/corporate/... · Review of Operations...

Annual Repor t

1999

C o n t e n t sA N N U A L R E P O R T 1 9 9 9

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1 S T A T E M E N T O F T H E P R E S I D E N T O F T H E M A N A G E M E N T B O A R D 2

2 M A N A G E M E N T B O A R D A N D S U P E R V I S O R Y B O A R D 4

3 R E P O R T O F T H E S U P E R V I S O R Y B O A R D 5

4 R E V I E W O F O P E R A T I O N S 6

5 I M P O R T A N T E V E N T S O F T H E Y E A R 8

6 D E V E L O P M E N T O P P O R T U N I T I E S O F T H E G O R E N J E G R O U P 1 0

7 I N V E S T M E N T S 1 2

8 E M P L O Y E E S 1 4

9 R E S E A R C H A N D D E V E L O P M E N T 1 5

1 0 C O N C E R N F O R T H E E N V I R O N M E N T 1 8

1 1 S A L E S A N D M A R K E T I N G 2 0

1 2 G O R E N J E O N T H E S T O C K E X C H A N G E 2 7

1 3 B U S I N E S S R E P O R T 3 0

1 4 A U D I T O R S ’ O P I N I O N O N T H E C O N S O L I D A T E D F I N A N C I A L

S T A T E M E N T S O F T H E G O R E N J E G R O U P A N D T H E F I N A N C I A L

S T A T E M E N T S O F G O R E N J E D . D . , T H E P A R E N T C O M P A N Y 3 7

1 5 C O N S O L I D A T E D P R O F I T A N D L O S S A C C O U N T O F T H E G O R E N J E

G R O U P A N D T H E P R O F I T A N D L O S S A C C O U N T O F G O R E N J E D . D . ,

T H E P A R E N T C O M P A N Y 3 8

1 6 C O N S O L I D A T E D B A L A N C E S H E E T O F T H E G O R E N J E G R O U P

A N D T H E B A L A N C E S H E E T O F G O R E N J E D . D . ,


1 7 C O N S O L I D A T E D C A S H F L O W S T A T E M E N T O F T H E G O R E N J E

G R O U P A N D T H E C A S H F L O W S T A T E M E N T O F G O R E N J E D . D . ,


1 8 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 4 2

1 9 P E R F O R M A N C E R A T I O S 5 3

2 0 G O R E N J E G R O U P I N Y E A R 2 0 0 0 5 4

A L L T H E B E S T . . .F R O M G O R E N J E , 5 0 Y E A R S A L R E A D Y

Statement of thePres ident of theManagement Board

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1 . Dear Shareholders,

Strengthening of competitive capabilities, increase of market share,investment in technological development to renew production capabilities,further restructuring of companies and concern for the quality of productsand business processes were the key features of Gorenje’s operations in1999. It was also the year for preparation and adoption of the StrategicPlan of the Gorenje Group until the Year 2003.

The global international and domestic economic environment differed littlefrom that of the previous year. Concentration of both manufacturers andtraders continued. The area of large distribution, which saw theconcentration of the biggest retail traders was of special relevance toGorenje. It resulted in strong pressures for price reductions of Gorenje’sproducts. Similarly domestic tax duties, related to a considerablyexpensive state administration, were as unkind as in the past. However,there was a move forward in the promotion of economic growth, whichresulted in increased demand in Europe.

In such circumstances and under such conditions Gorenje manufacturedand sold 2.1 million large household appliances in 1999 and within theGorenje Group reached SIT 111.9 billion, which is a 10 per centincrease on the previous year turnover. In 1999 Gorenje earned profits ofSIT 2.5 billion, which is 38 per cent higher than the year before. Gorenjeachieved SIT 4.3 million of added value per employee and a 6.8 per centreturn on equity.

Operating profit increased mainly on account of a higher volume of salesand higher productivity. Sales policy contributed to this by directingtowards products with more accessories and by emphasis on excellenceof design. In addition to pressures on prices, the profit growth wasadversely influenced also by higher costs of services and energy. Thelatter was under the considerable impact of rise in oil prices on worldmarkets.

The Company’s management responded to the unfavourable environmentdescribed above by motivating and directing creative professional teamsand co-workers towards a dynamic renovation of products and qualityimprovement of internal business processes, while taking into account theprinciples of simultaneous development. Re-engineering of businessprocesses began in information technology, supply and logistics, and willbe followed by the remaining sectors and business functions. In this weused the know-how of outside advisory companies.

Expansion of the volume of other activities within Gorenje’s subsidiarycompanies, using the synergy of white goods and growth potential,considerably contributed to the success of operations last year. Withinthis framework came the equisition of production capacities of MarlesFurniture, which will enable the new company Gorenje Interieri to offer anew product, a kitchen fitted with Gorenje’s appliances tailored to thecustomer’s requirement.

Statement of thePres ident of theManagement Board

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1 . Last year investments to an amount of SIT 10.9 billion were allocated tothe construction of a new production plant for refrigerators and deep-freezers and a new generation of household appliances with improvedoperation, better ecological characteristics, more functional, withattractive, user-friendly design. We also invested in the renewal of themarkets in the emerging markets of South-Eastern Europe and EasternEurope and saw the successful completion of business premises and awarehouse in Sarajevo, while a business and warehouse centre in theCzech Republic is near its finalisation.

Flexibility in all areas of activity as Gorenje’s key strategic advantage,was also supported by the renewal and modernisation of internalinformation processes. We are aware of the importance of the Internet forsales and distribution of our products, for improvement and rationalisationof the whole supply chain, from the vendors to buyers. Our direction to"intelligent" household appliances that can access the Internet will enableus to offer customers and users new services that make their householdtasks easier and help create a people-friendly home.

Finally, the view of Gorenje’s management for the year 2000. A forecastof a slight revival of European markets and a revival of markets of South-Eastern Europe is being confirmed by sales results achieved in the firstquarter of this year. We expect market conditions to be complex also inthe future, envisage a fierce battle with the competition and constant needto control costs, the latter being one of the key elements of success of amature white goods industry, which remains our core strategic orientation.

We are sure that Gorenje, with its professional staff, will know how tostimulate a constant new drive of development and innovation, which willenable further growth of the Group and an increase of added value, andin this way also in the future justify the trust of our customers,shareholders, employees and all other business partners of Gorenje.

Restructuring is a never ending process. Thus we shall work to implementthe set business direction towards strengthening and improving ourcompetitive edge, increase of market shares, business efficiency and tothe benefit of our shareholders’ investments. We are confident that loyaltyto the Company, motivation and good internal relations betweenemployees will be of great support also in the future.

Joæe Staniœ, President of the Management Board and CEO

M a n a g e m e n tB o a r d a n dS u p e r v i s o r yB o a r d

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2 . Management Board

The Company’s Management Board is composed of the President and Members:

Joæe Staniœ President of the Board of Management and CEO

Franjo Bobinac Member of the Board of Management, responsiblefor sales and marketing

Marija Miheljak Member of the Management Board, responsible for finance

Drago Bahun Member of the Board of Management,responsiblefor human resources, internal services and is an employee-elected Representative

Supervisiory boardThe Supervisory Board is composed of:

representatives of shareholders

Marko Voljœ M.Sc. ChairmanTomaæ Kuntariœ M.Sc. MemberAnton Majzelj MemberBranko Pavlin M.Sc. MemberPh.D. Alojz Soœan Member

employee-elected representatives

Ivan Ateløek Deputy ChairmanIrena Brloænik MemberPeter Kobal MemberDrago Krenker MemberPh.D. Emil Rojc Member

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In accordance with its responsibility, the Supervisory Board regularlymonitored the operations of Gorenje d.d. and the Gorenje Group lastyear. In its conclusions it took into account the general economicdevelopment in the world, in particular the consequences of concentrationof manufacturers of white goods and the related trading companies.

Gorenje’s core business is manufacturing of household appliances, whichis a mature industry, recording relatively low growth rates throughout theworld. It was hard to operate in such adverse circumstances. It is thanksto the great internal efficiency of the organisation, flexible response tocustomers’ requirements and constant improvement of product range, thatthe organisation managed to retain its further growth and achieved theplanned profitability as well as ensure shareholders an adequate growthof their investments.

The Supervisory Board paid special attention to the preparation of theStrategic Plan of the Gorenje Group until 2003 and approved it in April.The Strategic Plan aims for a very ambitious development of the GorenjeGroup, whose realisation will demand great efforts from the managementand all other employees. It will require from the Group, among otherthings, a much more active development and investment policy.

Last year the Supervisory Board supervised the area of investments,particularly as regards their future returns.

The Supervisory Board considers that the results achieved are a goodbasis for future development and that they ensure good developmentopportunities for the Gorenje Group. Further growth should be influencedby a relatively improved economic environment, which is to promoteinternational trade. To ensure further good performance it will benecessary to heavily invest in the development of the markets, products,know-how and technology, therefore the Supervisory Board supports theManagement Board in its proposals to allocate the profit to developmentand consolidation in the international economic environment.

The Supervisory Board’s attention was also drawn to the issues ofacquisitions by Gorenje, functioning of its international sales network andefficient organisation of the Gorenje Group. The Supervisory Boardconsidered the performance of Gorenje d.d. and of its ManagementBoard successful and believes the management and the other employeeswill meet the challenges brought about by their entering into the sixthdecade of operation.

Marko Voljœ M.Sc.Chairman of the Supervisory Board

R e p o r t o f t h eS u p e r v i s o r yB o a r d

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R e v i e w o fO p e r a t i o n s

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4 . From the Profit and Loss Account of the Gorenje Group:

In SIT m 1999 1998 Change in %Gross operating yield – non-consolidated 207,826.9 192,381.5 + 8 %Gross operating yield – consolidated 114,886.1 103,427.1 +11 %

Net profit after taxes 2,517.5 1,825.2 + 38 %

In the structure of gross yield net income from sales represent between 98and 99 per cent. After excluding income deriving from trade between thecompanies in the Gorenje Group we get to consolidated gross yield. Theadjustments are smaller each year due to increased direct purchases andsales.

From the Balance Sheet of the Gorenje Group:

In SIT m 1999 1998 Change in %Capital 36,997.2 31,987.3 +15.7%Share of capital in total capital and liabilities in % 44.68 46.27

In 1999 capital increased by SIT 5 billion; a good half of the increase isrepresented by consolidated net profit of the Gorenje Group, and theremaining by the effect of revalued items related to capital. Due to thegrowth of long-term provisions and long-term financial liabilities, theshare of capital in the structure of liabilities decreased by 1.6 per centcompared to the end of 1998.

Volume of Output:

1999 1998 Change in %Production of large household appliances in pieces 2,100,981 2,014,158 + 4.3 %Production per day in pieces 8,591 8,278 + 3.8 %

In 1999 Gorenje manufactured 2,100,981 household appliances, whichis 4 per cent more than in 1998. Production of hobs in the Cookersprogramme increased the most, by 30 per cent over the previous year.The complexity and diversity of the production range was bigger than theyear before as shown by the number of new types, models and newappliances.

Some Ratios Related to the Gorenje Group:

1999 1998Return on sales (ROS) in % 2.25 1.79Return on investment (ROI) in % 3.04 2.64Return on equity (ROE) in % 6.80 5.71

With a net profit of SIT 2.5 billion, which makes up 2.2 per cent of grossyield and is by 38 per cent higher than the net profit reached in 1998,the returns recorded in 1998 were considerably exceeded. A largeamount of investment and growth of fixed assets meant the return oninvestment grew the least. The effect of these investments will be seen inthe results of the future years.

1999 1998 Change in %Number of employees in the Gorenje Group as of 31 December 6,681 6,708 - 0.4 %

At the end of 1999 the Gorenje Group had 26 employees less than at thebeginning of the year. Many changes occurred among the companies asa result of the process of reorganisation.

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M E S S A G E F R O MA C R E A T I V I T Y

I m p o r t a n tE v e n t s o f t h eY e a r

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5 . 1 JANUARY• First appliances branded Körting were produced, the brand being re-

introduced to the German market.• Acquisition of a new machine for immersion erosion, which ranks among the

top computer handled machine tools.• Construction of a distribution centre in the Czech Republic began.

FEBRUARY• Gorenje held a successful presentation at Domotechnica, the world largest

exhibition of white goods in Cologne, Germany.• Gorenje Point was awarded the ISO 9002 certificate of quality as one of the

first among the companies in the field of information technology. In the deep-freezer plant the five millionth product was manufactured since 1972, when Gorenje started manufacturing deep-freezers.

MARCH• Satellite conferences of the American author Eliyah Goldratt were held at the

Paka Hotel under the title: The common sense Approach to business.• Gorenje obtained the award "A company encouraging life-long learning".

APRIL• The President of the Board of Management and the Chairman of the Workers

Council signed an agreement, which regulates employees’ participation inthe

management of the Company.• Gorenje Orodjarna held a presentation at the international biennial

exhibition of tool makers "Forma Tool 99" in Maribor and was awarded a gold medal for manufacturing a combined tool designed for manufacturing oil filter holders for Mercedes-Benz cars.

• Gorenje acquired new business premises in Moscow.

MAY• Topping out of the new fridge-freezer plant.• The T.C.L Institute signed an important bilateral agreement on recognition of

laboratory results with the Polish Institute from Krakow.• A new product line Gorenje-Pininfarina was agreed upon.

JUNE• Gorenje was visited by members of the management board of Eureka, which

investigates protection of the environment and consists of representatives of twenty-five European countries.

• Gorenje obtained the award "Tidy Company" in the campaign "My country - beautiful, tidy and clean".

• Gorenje Indop manufactured a robotic panel feeder for the Velenje colliery.

I m p o r t a n tE v e n t s o f t h eY e a r

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5 . 7 JULY• Gorenje’s shareholders attended the second general meeting at Hotel

Paka and approved all proposed resolutions, expressing their confidence in the Management Board and the Supervisory Board.

• The foundation stone for a completely renovated distribution warehouse was laid in Sarajevo.

• The highest sales of household appliances in the history of Gorenje was achieved.

AUGUST• Extensive modernisation and renovation of technological processes went

on in Gorenje, during the holiday period.• Gorenje Trgovina was awarded a golden medal for the "Tractor of the

Year" Zetor at the Agriculture and Food Fair in Gornja Radgona.• Emkor Rogatec started producing evaporators in new production

premises.

SEPTEMBER• Gorenje was awarded a golden medal for the built-in oven Simple &

Logical at the exhibition in Poznan, Poland.• Gorenje renewed the ISO 9002 certificate of quality.

OCTOBER• The annual planning conference was held.

NOVEMBER• Gorenje was given the award "Ecological Product of 1999" for the new

generation of cookers, width 500 mm.• Gorenje held a successful presentation at the furniture exhibition in

Salzburg, Austria with kitchens manufactured in Freistadt, Austria.

DECEMBER• The current strategic orientation places special emphasis on kitchen

furniture, therefore Gorenje acquired the assets of Marles Pohiøtvo and founded the company Gorenje Interieri.

• Gorenje acquired a stake in the local cable operator Telemach, d.o.o., from Ljubljana.

• The production of a new generation of cookers, width 500 mm, started.

D e v e l o p m e n tO p p o r t u n i t i e s o ft h e G o r e n j eG r o u p

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6 . Household Appliances

Production of household appliances remains the key strategic direction of theGroup. Within this activity Gorenje shall focus on sales of the whole range ofproducts under its own brand names. In developing products special attention willbe paid to design, user friendliness and care for ecology. The Group shallconcentrate mainly on European markets, but also look for opportunities in thegrowing markets of Asia and Latin America. In the area of South-Eastern Europe,where the Gorenje brand is well recognised, the range of products shall besupplemented with products purchased elsewhere to enrich oun trade mark.Gorenje will thus even more strongly penetrate in the field of audio and videoproduction, small household appliances, vacuum cleaners, air conditioners andother. In future the biggest growth of sales is projected in the markets of EasternEurope, especially Russia, Ukraine and Romania. The sales network of subsidiarycompanies on the European market will be gradually transformed in accordancewith challenges brought about by EU membership, sales under the single currencyand information technology. Growth in the field of the core programme isprojected also through takeovers of companies from the same industry, especiallyEastern and South-Eastern Europe.

Water heaters are presently the core programme of Gorenje TIKI, which has mademodest progress in the past ten to fifteen years. It wil further expand and developits product range within household hot water and apartment heating facilities. Dueto the ever growing importance of gas as a source of energy, Gorenje TIKI willexpand its offer of products with gas heaters (by purchase, later perhaps its owndevelopment and production), in addition they will offer customers more than justproducts. They will offer systems for supply of consumable hot water, taking intoaccount the optimum use of renewable energy sources.

Machine Construction and Tool Making

Both companies from this field of operation (Indop and Orodjarna) achievedsolid growth with a proportional increase of employees. They strengthened andexpanded their position on the market for car suppliers, which is one of thehighest growing industries, and the one which demands quality from all itssuppliers (tools, equipment, parts), rapid response and time limits andcompetitive prices. The goal of both companies is to join as many chains aspossible and thus reduce dependency on one buyer. In future a particularlyfast growth is projected for sales outside the Gorenje Group, where at presentboth companies achieve from 60 to 70 per cent of their turnover. Monitoringand development also require exceptional efforts in the development of skills,from designing to work shop services, where specialisation will have to beintroduced in addition to optimised use of standard elements in tool makingand machine construction. In any case it is an activity where Gorenje wishesto grow faster and realise an even higher added value.

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D e v e l o p m e n tO p p o r t u n i t i e s o ft h e G o r e n j eG r o u p

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6 . Services

The subsidiary companies of Gorenje provide sales services and agencyservices (Trgovina and Hyundai Auto), catering and tourist services, andGorenje Point has a special position at assembling personal computersand training for introduction of related software.

Different approaches for increased growth exist. Gorenje Trgovina willcontinually select the products to be sold, while taking into specialaccount their attraction for the market, business stability and capability ofoffering customers a complete sales and after-sale service. Theprogrammes of energy, medical equipment, warehouse and transportmechanisation should be further promoted, with special emphasis onenvironment protection.

The company Hyundai Auto Zagreb operates in Croatia and is thegeneral agent and car dealer of the whole range of cars from theHyundai programme with an organised service network. In future one ofthe goals of this activity is expansion of the concept to the remainingmarkets of South-East Europe.

Catering is at its very beginning as regards provision of services on theopen market, excluding supply of light meals to the local companies. Inthe field of tourism agency services are subject to an abundant andfragmented domestic offer, while hotel-spa tourism appears more suitable.

Gorenje Point ranks among a number of assemblers, dependent onforeign suppliers. Recent experiences have generated a proposal topromote development and considerably increase growth by forming acentre for information technology services. Investments in equipment andstaff of the centre are required, while other similar companies in Sloveniahave expressed interest in joining in with developments.

Furniture

With Gorenje Interieri Gorenje is returning to the programme of kitchenson the domestic market after ten years. The business is oriented towardsthe South-East Europe, including Slovenia. At present Gorenje Austria issuccessfully selling kitchens complete with build-in appliances on thedemanding Austrian market, with similar production and sales in theCzech Republic. The first step in returning to the domestic market was theacquisition of the assets of Marles. In the future speed and especiallyefficient accessing the before described markets will be of the greatestimportance. Among the main approaches are dispersed assembly plantsand franchised sales autlets. The offer will have to be adjusted to thepurchasing power of the markets, take advantage of the synergy of salesbetween furniture and appliances and synergy of sales network andGorenje as a whole.

The before mentioned companies will have to adopt a common approachin their efforts to increase competitive advantages and attraction, theywill have to strengthen their human resources and use modern means ofinformation-communication, systems and methods in all areas of theiractivity.

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In 1999 investments of the Gorenje Group amounted to SIT 10.9 billionand were allocated mainly to replacement of obsolete technologicalequipment, development and modernisation of product range,development of information technology supporting the business processand in long-term financial investments.

The year 1999 will be marked in particular by the construction of a newfactory of refrigerators and freezers, which will be completed by 2001and is the most extensive investment in recent years.Major intangible and tangible investments of the parent company Gorenjed.d. reached SIT 6.7 billion.

Investment activity in the field of household appliances was very activeand extensive, especially on account of the project of the new factory ofrefrigerators and freezers. The remaining investments were made inmodernisation of technology, new products with market verification and insoftware and hardware, which ensures operation in the year 2000onwards (Y2K) and ensures control and fast action as regards productionand customer care. All investments were geared towards consideration ofenvironmental standards and to flexibility of production due to orders forsmall series of a wide range of products.

Refrigerators and freezers programme:• construction of the new factory of cooling systems and order for the

major part of technological equipment (concluded contracts totalling SIT 6.1 billion, of which SIT 2.7 billion paid),

• purchase of 8 pieces of robotic injection moulding machines and reductions of bottlenecks by the purchase of a new packaging machine.

Cookers programme:• purchase of production line of ovens and production line of front

panels with all tools and purchase of a new assembly line within the project NG 500;

• completion of the glass gluing project;• purchase of robotic cell for production of supporting grids.

Washing machines, tumble driers and dish washersprogramme:• purchase of a new production line of press for reforming sheet metal

and purchase of 315 ton press;• construction of a new powder varnishing plant for varnishing cabinets

and component parts, with which we improved the varnishing process as regards ecology by complying with the regulations on emission.

Projects of common significance:• the project of reorganisation of the south sector of Gorenje was partly

realised by construction of a parking lot close to the cargo gate;• we finalised the project of expansion of activities of the parent

company for the subsidiary company Gorenje Servis;• purchase of business premises in Moscow.

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Major investments in other fields of activity of the GorenjeGroup were:• reconstruction of production plants and purchase of 25 ton gantry

crane in the company Gorenje Indop;• purchase of flat surface and profile grinding machine, two CNC

machines for vertical grinding and HW equipment and SW products for manufacturing tools in the company Gorenje Orodjarna;

• purchase of offset printing machine, construction of structured wiring and additional production premises for the programme of wire harnesses in the company Gorenje I.P.C.;

• construction of varnishing plant including a purifying system and premises for production of evaporators in the company EMKOR Rogatec (presently programme MEKOM);

• construction of a logistics centre in Prague• construction of combined warehouse-administration premises in

Sarajevo of the company Gorenje Commerce Sarajevo;• expansion of activities in the field of kitchen furniture with the founding

of the company Gorenje Interieri d.o.o. and acquisition of the company Marles Pohiøtvo, Limbuø near Maribor, manufacturers of kitchen furniture;

• expansion of services through acquiring a stake in the local cable operator Telemach d.o.o., Ljubljana.

Investments projected for the period up to 2003 are determined in theStrategic Plan of the Gorenje Group for this period and are gearedtowards the New Factory of refrigerators and freezers project, whichmeans the rounding up and replacement of obsolete lines, modernisationto remove individual bottlenecks and increase of production capacities byone third. The remaining investments in this period will be allocated tosupplementing and reconstructing the existing product range, and also tointroduction of technologies, which will ensure enough flexibility andallow for adequate cost optimisation and concern for the environment.

The Gorenje GroupIn SIT m total1. Intangible long-term assets 4942. Tangible fixed assets 9,0882.1. Land 812.2. Buildings 1,1672.3. Equipment – in use 4,3482.4. Equipment – under construction 2,6912.5. Advances 8013. Long-term financial investments 1,300

Total investments 10,882

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In 1999 the average number of employees in the Gorenje Group was6,646 (of whom 579 in the companies operating abroad), which is adecrease of 1 per cent compared to the previous year. This is the effect of flexible distribution of working time and employingstaff for a definite period of time. We have continued to improve theeducational structure, since the number of holders of university degreeincreased by as much as 17 per cent (37 employees).

Training and Personal Development of Staff

Education has become one of the key values of Gorenje, which isreflected in the need for various training programmes and in the interestof employees to attend such programmes. In 1999 the number ofemployees attending educational programmes in order to obtain higherand adequate degrees of professional education increased by over 70per cent, the number of those who successfully completed studies afterwork grew by 50 per cent, and the volume of teachers’ hours offunctional training went up by 30 per cent. Due to job assignmentrequirements the number of employees participating in programmes offoreign languages and computer training, and in training for bettercommunication and team work is constantly increasing. As a result directcosts of training and education grew by 20 per cent last year.Special attention is paid to personal development of younger, prospectivestaff, who will be able to undertake the most demanding professional andmanagement jobs in Gorenje. In the future our endeavours will be gearedtowards development and introduction of tools for better communicationand inter relations between management and employees, which willenable individuals to be creative, to gain experience and know how anddevelop in the direction in which they will be most successful.

Concern for Safety at Work and Social Standard

In accordance with the new Safety and Health at Work Act and out of ourown experience, we organised safety and health at work in the"European" way. A newly organised department monitors the health ofemployees by carrying out preventive medical checks. We drew up Rulesof procedure and methods for making safety lists for periodic testing ofwork processes and appliances and measurement and assessment ofmicroclimatic conditions of work. On that basis we obtained a licence tocarry on professional work related to safety and health at work. In thefield of preventive activity emphasis is mainly put on practical training ofemployees for safe work.

Employees have at their disposal various possibilities for spending theirfree time (organisation of various courses, renting of sports facilities,guided recreation, organisation of competitions, of visits of cultural eventsand other). Gorenje shows its attitude towards culture, arts and sportsalso by sponsoring cultural events, from top-level to amateur at the locallevel, and sports clubs.

1999 1998 99/98Average number of employees 6,646 6,733 - 1.3• Gorenje – Slovenia 6,064 6,144 -1.3• Gorenje – abroad 582 590 - 1.4

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World Trends

In 1999 considerably changed economic and social circumstancesprevailed in the developed part of the world, dictated by web-basedeconomy, intelligent products, growing concern of consumers for healthand vitality, personal integrity and emotional attitude towards property,entertainment and interaction in everyday life and concern forenvironment.

The web-based economy as a new economic category emerged on thebasis of practically unlimited possibilities and speed of flow andenrichment of knowledge, information and setting up of relations andexchange of ideas through the world wide web. Capable staff, ready toaccept the challenges of newly arisen global web-based circumstances,has become an indispensable asset of a corporation. The capability toconstantly innovate has definitely become a measure for assessing acorporation’s value.

Due to changed circumstances new paradigms of industrial development,which have been appearing in recent years, have definitely establishedthemselves. Know-how has established itself as the first and foremostamong the intangible competitive advantages for creating new orincreasing added value. Innovation has become one of the bases ofeconomic growth, which in turn is the basis of existence in circumstancesof cross-border mergers. Willingness to change the existing has become aprecondition for winning in the more and more ruthless battle withcompetition.

The Gorenje Group and the World Trends

The Gorenje Group is one of those corporations, which, due to theircharacteristics, depend on global circumstances also in the field ofresearch and development activities. In 1999 Gorenje followed the trendsof development, kept pace with them and in this way not only maintainedthe existing but also improved the conditions for its growth. It is of vitalimportance that appropriate activities be maintained on the level reachedin 1999 and also that they are further intensified. Gorenje intends toachieve that by an appropriate systemic approach to the year 2000.

In 1999 Gorenje developed further not only in the field of its coreactivities (household appliances, machine construction, tool making,component parts), but started researching business opportunities in otherfields, also within the newly established sectors or those beingestablished.

In the field of household appliances, within the three key product groups(cookers, refrigerators and deep-freezers, washing machines anddishwashers) new products were developed and introduced in theproduction programme, which fully comply with all established marketand consumer principles, which had been introduced already in theprevious year, but will definitely be valid for some time. They are:

• agreeable design, varied functions, emphasis on individuality and creativity during use;

• economy with all types of consumption of natural resources;• protection of the environment from design through production, use and

disposal of obsolete products.

R e s e a r c h a n dD e v e l o p m e n t

A N N U A L R E P O R T 1 9 9 9

9 .

16


A N N U A L R E P O R T 1 9 9 9

9 . New products were developed on the basis of the most advanced design,ergonomical, construction and technological solutions. Since during thephase of product development the principles of built-in top quality andprotection of the environment were taken into account to the fullestdegree, also the products, which were manufactured and introduced tothe market in 1999 were of top quality as regards value for money.

Within the product group of cookers the following new itemswere introduced in 1999:• some models of the new generation 500, which had not been realised

the year before;• new designs in stainless steel, ergo, klin and smile editions;• new and improved functions of cookers with multi-system oven,

combined and gas appliances.

The product group of refrigerators and deep-freezers offeredthe following:• electronically fed appliances;• expanded type of nostalgia evoking "old timer" appliances;• "side-by-side" edition of thicker walled refrigerator and deep-freezer;• some design novelties with the accessories of appliances.

Similarly, in the field of washing machines and dishwasherssome new items on offer:• improved control over distribution of laundry in the washing machine

with more capable hybrid programmer and larger drum volume for top price brackets;

• control of humidity of laundry after drying in a tumble dryer;• market definition of the family of dishwashers as a new product

programme.

In the field of tool makingconsiderable development was reached in 1999 in almost alltechnological areas. Developed and market effective was the technologyof two-component injection of polymeric materials. Methods of simulatingprocesses were put to practice and greatly improved, which are importantfor rapid and quality production of tools for injecting polymeric materialsand reforming of metal sheets. Special development and researchattention was paid to the activities related to the international projectEureka and concerning individual techniques of tool making.

17

In 1999 also the machine constructionresults of R & D work were successfully transferred into practice. Machineconstruction in Gorenje is becoming an important centre of developmentof new technologies for the use of polyurethane thermo-insulating foam inthe refrigerator and deep-freezer industry and industrial assemblysystems. In the production processes of the Gorenje Group a considerablenumber of technological solutions are used, which are in this respectoriginal.

In the field of manufacturing of component partsfor household appliances independent products for in-house heating arebeing developed. In 1999 in the field of component parts semi-finishedproducts were developed and introduced to production for Gorenjehousehold appliances, while fully in line with the technical developmentof such appliances.

With the plant in Rogatec Gorenje is establishing itself as an original,quality and demanded producer of pipe radiators.

Research and development activityin Gorenje is facing the important challenge of contributing considerablymore to enable the growth of added value and with it the growth of theGroup in circumstances of globalisation. With this aim in mind theprocess of parallel development was completed for shortening of reactiontime in development of new products, which will be introduced intopractice in 2000. Similarly, Gorenje has to strengthen considerably itsdevelopment-innovative drive in 2000, for the realisation of whichappropriate bases have already been prepared. Most importantly it isnecessary to ensure constant innovative activities and strengthenmotivation of the whole Group and ensure the conditions for independentwork of young experts, taking advantage of the know-how from the worldweb. In new circumstances the Gorenje’s research group will be able tocontribute much more by joining the domestic and European developmentprojects.


A N N U A L R E P O R T 1 9 9 9

9 .

18

For a number of years the principle of total commitment to theenvironment through a systemic approach has been present in Gorenje.The Strategic Plan of the Gorenje Group includes among the values forwhich we shall strive, improvement of the quality of life in our local andwider region. Protection of environment has thus become a driving forcein addition to personal development, development of the Gorenje Groupand society as a whole.

ISO 14001Such direction demands from Gorenje’s employees constant improvementsin the construction and development of products, thorough knowledge ofdevelopment of technological processes in the world and in their owncompany and the related impacts on the environment. In this fierce battle,where modern technology is available to all those who have money toinvest, the customers’ satisfaction and protection of environment havebecome more important than technical solutions. In the Gorenje Group theprinciple of sustainable development is supported and carried out, as itlinks ecology, economy and society as a whole.

With our vision and policy of environmental awareness we set thefoundations of environment-friendly operations, which contain the wholelife cycle of a product, from design, through production and disposalafter the end of its life period. Special attention is paid to economic useof natural resources (water, energy, materials) and constant reduction ofburdening emission (waste water, dumped waste, emission of liquefiers).Gorenje d.d. is ready for external assessment of our environmentsurveillance system in compliance with the ISO 14001 standard, whileGorenje Trgovina already obtained such certificate in 1999.

Environmental investments

In accordance with the Strategic Plan and annual plan as well as with theprotection of environment objectives we continued to modernise thetechnological processes (powder varnishing, renovation of the purificationsystem, completion of recycling systems of cooling water and other) in1999.

The results of investments are very encouraging from the environmentaland economic point of view. Compared to 1998 positive results wererecorded in:• reduction of volume of dangerous waste by 14 per cent per product;• unburdening of purification system by 5 per cent;• reduced water consumption by 16 per cent per product;• reduced gas consumption by 22 per cent per product.

The EU adopted a Directive on Integrated Pollution Prevention and Control(IPPC - directive), which introduces a number of guidelines andrequirements, among which the use of the Best Available Technology(BAT), which the Gorenje Group complied to in addition to otherpreparations relating to the Directive, and included in the investmentsdescribed above.

C o n c e r n f o r t h eE n v i r o n m e n t

A N N U A L R E P O R T 1 9 9 9

1 0 .

19

Environment-friendly Products

Gorenje’s main mission is manufacturing and sales of quality, user andenvironment- friendly products.

In 1999 we started with the production of a new generation of cookers,width 500 mm. In developing these products we dedicated special care toecological parameters, therefore the energy consumption of oven wasreduced, compared to the existing generation, by:• 13 per cent with classical electric oven and• 18 per cent with fan assisted oven.

We use environment-friendly insulation and recyclable artificial materials.Gorenje received the award "Ecological Product of 1999" for the newgeneration of cookers.

In developing washing machines and dishwashers we continued with thetrend for reduction of consumption of electrical energy and water,economic use of washing powder and noise reduction.

In 1999 we reduced the consumption of electric energy with refrigeratorsand deep-freezers by over 10 per cent. With innovative changes of thecooling system their noise has been considerably reduced.

Throughout the year we conducted intensive training of staff and informedour customers and business partners of our policy and key principlesregarding protection of the environment in Gorenje.

By defining the business strategy of the Gorenje Group, which includesthe philosophy of protection of the environment, we expanded the rangeof entrepreneurial values and set a new organisational culture ofbusiness.

C o n c e r n f o r t h eE n v i r o n m e n t

A N N U A L R E P O R T 1 9 9 9

1 0 .

20

Highlights of 1999

From the sales point of view the year 1999 was characterised by furtherestablishing and strengthening of key strategic guidelines of the GorenjeGroup. On this base in the second half of 1999 we changed the contentof our marketing function and started considering it by geographic areaswithin strategic marketing regions.

The new, more project-based and transparent sales organisation is tohave direct impact on better monitoring of sales regions and their costs,synergy in logistics, better flow of information, higher level of planningand stock optimisation, control of after- sale services, analysis ofdiscrepancies and faster action. With these measures we tried to improveour work with the key buyers, optimise business operations related tosales under various brands, improve information links between parentcompany – subsidiary – final buyer and economise the businessoperations of our own network.

In addition to household appliances we developed all those activitieswhich have growth potential and create synergy effect with the coreactivity. Special attention was paid to the growth of machine constructionand tool making, furniture, water heaters, computers, catering, tourism,commerce and other service activities.

Because of the above described activities in 1999 the Gorenje Groupreached a 10 per cent increase in sales by value and met the targetedobjective in full.

Marketing

Fierce competition dictates greater flexibility when introducing newproducts and improvements to the market and therefore Gorenje continuedwith such activities in 1999. The main guidelines in forming new solutionsare saving natural resources, applying ecological standards andfriendliness and simplicity in handling of demanding technology from theuser’s point of view. With this aim in mind Gorenje adopted a moreefficient system of introducing new products to the market, which is basedon simultaneous engineering. The final result of such system of activity,which has already been adopted by many companies in the world, is thatit saves time, the amount of funds invested and a much greater possibilityexists that the product will meet the market’s – user’s requirements, sinceit has been included in the very early phase of design. Such systemrequires an even more intensive knowledge of consumers’ habits andpreferences and of potential response to the innovations, therefore as partof our market research, we spent more time in analysis of final users. Dueto investments in the expansion of production of refrigerators and deep-freezers, a lot of marketing activities were oriented towards potential newproducts and towards searching for possible increases in sales of thisprogramme. Activities in the field of marketing communication wereintensified in order to strengthen the Gorenje brand and other ownbrands, and investments in this field were higher. In accordance with theposition of the brand name and its recognition in individual markets weallocated bigger investments to communication with distribution (trainingof customer sales staff, equipment of retail outlets, selective advertising)and communication with final users (intensified advertising of specialfeatures of appliances in various media).

S a l e s a n dM a r k e t i n g

A N N U A L R E P O R T 1 9 9 9

1 1 .

21

E V E R Y O N E I S A C R E A T I V E B E I N G A T H I S H E A R T H

22


A N N U A L R E P O R T 1 9 9 9

1 1 .

Refrigerators and deep-freezers

885

1.000

1.200

800

600

400

200

0

931946

1997

1998 / 1997 1999 / 19985.2 % 1.6 %

1998 1999

in 0

00

pcs

Sales Structure by Operational Sector

Sales in the Operational Sector of Household Appliances

Manufacturing of household appliances remained the key strategic sector ofthe Gorenje Group, which was actively realised by strengthening of ownbrands, by complete control of the demanding and saturated market,especially European market, through Gorenje’s own sales network and withthe offer of the whole product range.

The sales results in this operational sector were good. Sales of householdgoods increased in quantity by 4 per cent and in value by 9 per cent,mostly as a result of an improved structure of sold appliances.

Because in this segment of sales three programmes are marketedtogether, namely refrigerators and deep-freezers; cooking appliancesand washing machines and dishwashers, individual programmesinfluenced the total success of sales as shown in the following structureof dynamics:

•

23


A N N U A L R E P O R T 1 9 9 9

1 1 .

531

800

600

400

200

0

571

637

1997

1998 / 1997 1999 / 19987.5 % 11.6 %

1998 1999

Cookers

437

800

600

400

200

0

511 507

1997 1998 1999

Washing machines, dryers and dishwashers

1998 / 1997 1999 / 199816.9 % -1.0 %

in 0

00

pcs

in

00

0 p

cs

24

Geographic Orientation of Sales

As regards geographic orientation of sales, i.e. orientation to strategicmarketing areas, the structure of sales of household appliances in termsof quantity in the years 1998 and 1999 was as follows:

• North and Central Europe:the main programme was cookers with an 8 per cent growth rate of sales interms of quantity (improved structure and higher sales of built-in appliances),sales went up especially through the sales channels of kitchen manufacturersand specialists. The main market remains Germany, however, growth wasrecorded also in Scandinavia and Austria;

• Slovenia and South-East Europe:the share in the total sales of the Gorenje Group increased from 25 to 28 percent as a result of very good sales in Slovenia, of opening of the householdappliances market in Bosnia and Herzegovina, Kosovo and of the relativelystable business operations in Croatia. Special attention had to be paid tocollection risk and currency risk.

• South-West Europe:total sales of household appliances in terms of quantity increased by 8 percent compared to the previous year; a big problem were unstable prices,caused by large manufacturers’ aggressive action in lower price brackets ofsales. France is the biggest market in this group, while the highest growthwas recorded in Greece and Spain.

• East Europe:due to higher dynamics of growth of sales in terms of quantity in Poland andBulgaria, the region reached a total of 1.6 per cent increase. Growth wasrecorded also in Hungary and Ukraine, while sales volume remained stable inthe Czech Republic and the Slovak Republic.

• Overseas Countries and the UK:in this region total sales fell by 14 per cent in terms of quantity compared to1998 due to fall out of some appliance groups, extended testing periods insome states and to financial limitations of some buyers. The biggest marketsin this region remain the USA and the UK.


A N N U A L R E P O R T 1 9 9 9

1 1 .

80%

100%

60%

40%

20%

0%

Overseas countries and the UK 9 % 8 % 6 %East Europe 9 % 10 % 10 %South-West Europe 18 % 17 % 17 %North and Central Europe 37 % 40 % 39 %Slovenia and South-East Europe 27 % 25 % 28 %

1997 1998 1999

Slovenia and South-East Europe

North and Central Europe

South-West Europe

East Europe

Overseas countries and the UK

25

Sales in the Operational Sector of Machine Construction, ToolMaking and Manufacture of Component Parts

Last year was characterised by important movements in the product group ofmachine construction, tool making and manufacture of component parts.Organisational changes dictated preparations to be made for acquisition bythe parent company of the associated company Emkor d.o.o., whichmanufactured component parts.

In 1999 the share of sales of this product group in total consolidated sales ofthe Gorenje Group was 0.9 per cent (1.1 per cent in 1998).With regard to thesales volume of individual companies within this product group a positive salesgrowth has been established. The negative growth rate was a result of sales ofproducts of machine construction and tool making within the Gorenje Group,dictated by strong investments of the parent company in the development andexpansion of existing production capabilities, especially in the field ofrefrigerators and freezers

In spite of the above some projections from the strategic plan of developmentof this product group were accomplished. In part the middle and higher pricebrackets were reached with placing of products and services with higherdegree of invested know-how, with technological improvements and increasedcomplexity of tools. The sales volume directed outside the Group went upconsiderably, also and especially through links with strategic partners, mainlyfrom the car industry.


Sales related to products of machine construction, tool making and manufactureof component parts refer exclusively to the strategic marketing areas ofSlovenia and South-East Europe.

Sales in the Services Sector

The Group subsidiary companies in the services sector carried on catering andtourist services, commerce and agency services (agriculture and constructionmachinery, energy and medical equipment, environment protection programmeand other) and services related to assembly of personal computers andinstructing for introduction of web based software.

Sales in this sector in terms of value recorded a 69.7 per cent increase overthe previous year. The share of sales in total consolidated sales of the GorenjeGroup was 12.1 per cent (7.8 per cent in 1998). The growth dynamicsachieved is a consequence of favourable results reached by sales of individualcompanies and of increased sales outside of the Group.

Through its sales the services sector of the Group strengthened the Gorenjebrand, introduced its own distribution channels, strengthened good businessrelations with buyers and suppliers and increased market shares in its activity,while taking full advantage of possible effects of synergy of the name andfinancial potential of Gorenje.


A N N U A L R E P O R T 1 9 9 9

1 1 . •

•

26


A N N U A L R E P O R T 1 9 9 9

1 1 .

•


Sales related to services sector refer exclusively to the strategic marketingareas of Slovenia and South-East Europe.

Sales and Manufacture of Furniture

In 1999 the operational sector of manufacture and sale of furniturestrengthened its position in the Group and showed a trend of rapid growthdynamics in future years. In addition to the companies Gorenje Kuchyne,Czech Republic and Gorenje Austria, Gorenje d.d. founded the companyGorenje Interieri last September and acquired the assets of MarlesPohiøtvo.

With this acquisition the Group acquired an important and recognisedmanufacturer of kitchens and bathroom furniture and the use of its brandname. So in this segment the synergy of the Group related to householdappliances was strengthened.

The share of sales of this operational sector in total consolidated sales ofthe Gorenje Group was 1.9 per cent and follows an upward trend.Compared to the previous year sales in this sector recorded a 12.8 percent increase in terms of value.


In 1999 sales were oriented to the strategic marketing areas of the Northand Central Europe (Austria), East Europe (Czech Republic, SlovakRepublic) and Slovenia and South-East Europe.

27

G o r e n j e o n t h eS t o c k E x c h a n g e

A N N U A L R E P O R T 1 9 9 9

1 2 .

Relative price of GRVG and SBI and Turnover of Share GRVG in 1999

350000

400000

4.1

.99

18

.1.9

9

1.2

.99

16

.2.9

9

2.3

.99

16

.3.9

9

30

.3.9

9

14

.4.9

9

29

.4.9

9

13

.5.9

9

27

.5.9

9

10

.6.9

9

24

.6.9

9

9.7

.99

23

.7.9

9

6.8

.99

20

.8.9

9

3,9

.99

17

.9.9

9

1.1

0.9

9

15

.10

.99

29

.10

.99

15

.11

.99

29

.11

.99

13

.12

.99

27

.12

.99

Turnover in SIT 000

300000

250000

200000

150000

50000

0

100000

0

200

400

600

800

1000

1200

1400

1600 Indices GRVG and SBI

Relative price of GRVGSBITurnover in SIT 000

In 1999 shares of Gorenje were traded on the free market of theLjubljana Stock Exchange. On 27 January 1999 additional 846,497 C-shares, which became freely transferable after successful completion ofinternal buyout in 1998, were admitted to trading. Thus 8,515,904 of thetotal of 12,200,000 issued shares were traded on the free market of theExchange. Shares-B and shares-D totalling 3,684,096 were still undertrading restrictions, which ceased to be in effect on 31 December 1999.

With a turnover of SIT 4,986 million Gorenje shares reached a recordturnover on the free market in 1999, while compared to the total turnoverof shares on all market segments of the Ljubljana Stock Exchange itsucceeded in maintaining the 10th place held in the previous year.

The price of Gorenje shares increased throughout the year and reached arise of 33 per cent. It reached its peak value of SIT 2,467 on 18 October1999 and its lowest of SIT 1,761 on the first trading day of the year. TheSlovene Stock Index SBI reached a 5.89 per cent growth in 1999.

28

G o r e n j e o n t h eS t o c k E x c h a n g e

A N N U A L R E P O R T 1 9 9 9

1 2 .

Ownership structure by groups of shareholders as of 31.12.1999

100 %

80 %

60 %

40 %

20 %

0 %

Internal shareholders

Pension fund

Indemnity fund

Investment trusts (PID)

IndividualsOther legal entities

34.3 %

19.5 %

14.3 %

14.0 %

9.6 %8.3 %

37.0%

19.0%

12.0%

16.0%

11.0%5.0%

Upon completion of privatisation at the end of 1998 the number ofshareholders was 21,672, which in the year 1999 decreased by 2,030or 9 per cent.

Ownership structure as of 31 December

1998 1999

29

G O R E N J E H I S T O R YF I L L S U S W I T H P R I D E

30

B u s i n e s s R e p o r tA N N U A L R E P O R T 1 9 9 9

1 3 .

Net sales revenues of the Gorenje Group

172.8

91.6101.8 111.9

190.5 203.6200.0

150.0

100.0

50.0

0.0In S

IT b

1997 1998 1999

The Gorenje Group

In 1999 the Gorenje Group consisted of Gorenje, d.d., the parentcompany located in Velenje, and 35 subsidiary companies, of which 11operating in Slovenia and 24 operating abroad.

In March 1999 the company Hyundai Auto Zagreb, d.o.o. was founded,where the car business from the company Gorenje Zagreb wastransferred.

In September 1999 the company Gorenje Interieri d.o.o. was founded.The company started operations in December 1999, therefore its financialstatements are not included in the consolidated financial statements of theGorenje Group.

In 1999 also the company Gorentrade d.o.o. was founded in Bosnia andHerzegovina as a subsidiary of Gorenje Trgovina d.o.o. The companywill deal in sales of agricultural machinery and intermediation. Theconsolidated financial statements do not include its financial statementssince the company was not yet operational in 1999.

Sales and Revenues in 1999

The year 1999 was another very successful year for the Gorenje Group.

Sales of white goods, water heaters, furniture, machine construction andtool making as well as provision of services earned SIT 111.9 billion ofconsolidated net sales revenues. This represented a 10 per cent increaseover 1998.

Together with other operating revenues an additional SIT 3 billion wererecorded. Thus the gross revenue totalled SIT 114.9.

NSR - unconsolidated NSR - consolidated

31


1 3 .

80 %

100 %

60 %

40 %

20 %

0 %1997 1998 1999

The Gorenje Group - Sales by Operational Sector

0.9

87.0

12.1

ServicesMachine constr., Tools, Components Household appl.

Sales by operational sector

The operations of 36 companies in the Gorenje Group are divided intothree core operational sectors:• manufacture and sale of household appliances,• machine construction, tool making and manufacture of component parts,• services.

The most important operational sector is the manufacture and sale ofhousehold appliances. In 1999, 87 per cent of total consolidated net salesrevenues were earned in this sector. In terms of value this amounted to SIT97.3 billion of the total SIT 111.9 billion.

13 percent of total net sales revenues were earned in the services sector(12 per cent) and in the sector of machine construction, tool making andmanufacture of component parts (1 per cent).

6.4

1.6

7.8

0.8

91.492.0

32


1 3 . Manufacture and Sale of Household Appliances

This is the main operational sector, both in terms of organisation andoperations. It includes Gorenje d.d., the parent company headquartered inVelenje and 24 companies in the marketing network based in 19 foreigncountries, mainly in Europe. The marketing activity in Slovenia is carriedout by Gorenje d.d., the parent company.

This operational sector also includes the manufacture and sale of waterheaters, which is carried out by the company Gorenje Tiki, d.o.o. based inLjubljana.

In addition to household appliances, the product lines marketed bycompanies in our marketing network abroad include kitchen furniture,cooker hoods and other appliances.

The operational sector sales revenues were SIT 97.3 billion (2.1 millionpieces of appliances), which was SIT 4.8 billion over the previous year,while the share of sales revenues earned in this sector as a percentage oftotal sales fell by 4.4 per cent due to faster rise of sales in the servicessector.

The favourable trend from 1998 continued in 1999, when sales in terms ofvalue increased faster than sales in terms of quantity. This was mostly dueto changes in the range of products sold, especially high increase in salesof cookers and partly due to the impact of tolar exchange rate fluctuations.

In 1999 Gorenje exported 91 per cent of the total production, of which 80per cent to the European Union. The major markets were the countries ofthe North and Central Europe, where 39 per cent of the total productionwas sold. These markets were Germany, Austria and the Scandinaviancountries.

Additional 28 percent of production was sold domestically and on themarkets of South-Eastern Europe, especially Croatia, Bosnia andHerzegovina and Macedonia. 17 per cent was exported to France, Spain,Italy and Greece, 10 per cent to the countries of Eastern-Europe – Poland,Czech Republic, Slovak Republic and Hungary, the remaining 6 per centwent to the overseas countries.

Machine Construction, Tool Making and Manufacture ofComponent Parts

This operational sector includes Gorenje orodjarna, d.o.o., Gorenje Indop,d.o.o., Gorenje I.P.C, d.o.o., Emkor, d.o.o., and Biterm, d.o.o.

Net sales revenues earned in this sector represent 4.1 per cent ofunconsolidated net sales revenues of the Gorenje Group or, in terms ofvalue SIT 8.4 billion, which is a 29 per cent rise over 1998. Most of theserevenues were earned within the Gorenje Group. Gorenje Indop, d.o.o.andGorenje Orodjarna, d.o.o contributed with their activities in machineconstruction and tool making to the processes of production modernisationin Gorenje d.d. With these activities they realised over 80 per cent of theirsales.

Emkor, d.o.o. and Gorenje I.P.C, d.o.o. contributed over 90 per cent oftheir production to Gorenje d.d., the parent company.

This operational sector earned SIT 1 billion of sales outside the GorenjeGroup, thus maintaining the share in sales from 1998.

•

•

33


1 3 .

80 %

100 %

60 %

40 %

20 %

0 %1997 1998 1999

Gorenje Group – Proportion of Major Categories to Gross Operating Yield

3.8

15.8

73.3

Operating profitOtherProvisionsWrite-offsDepreciationLabourCosts of Goods, materials, services

5.04.6

15.5

74.9

5,94.2

15.4

74.5

Services

The services sector includes Gorenje Trgovina, d.o.o., Gorenje Gostinstvo,d.o.o. Gorenje Servis, d.o.o., Gorenje Point, d.o.o and Linea, d.o.o.In 1999 the share of this sector increased by 4.4 per cent over the previousyear. Sales in terms of absolute value increased by SIT 6.6 billion, whichrepresented a 70 per cent increase in sales. Most of this increase wascontributed by Gorenje Trgovina, d.o.o., (SIT 5 billion) with large sales ofcoal, and part of the increase was due to a change in invoicing oftransactions.

Important to the increase in the share of sales were also the companiesGorenje Gostinstvo, which expanded its operations in Hotel Paka, built in1998, Gorenje Point, d.o.o., which increased the sales of computerequipment by 100 per cent due to the preparations for the changeover to theyear 2000 and the newly founded company Hyundai Auto Zagreb, d.o.o.After the spring crisis due to low purchasing power and difficult economiccircumstances in Croatia, this company compensated for the lostopportunities in the autumn months of 1999.

On the other hand, great impact was felt in this sector by the transfer ofoperations with component parts from the company Gorenje Servis, d.o.o. toGorenje d.d., the parent company, carried out at the beginning of 1999.Only one tenth of the previous volume of operations remained in GorenjeServis, d.o.o. The main operation of the company in 1999 was office securityservices and letting out business premises.

Costs

The most important costs, in terms of proportion, in the consolidated profitand loss account of the Gorenje Group are costs of materials, goods andservices, labour costs and depreciation costs. These costs represent as muchas 94.1 per cent of the gross operating yield.

Write-offs of receivables and inventories, costs of provisions and otheroperating expenses represent an additional 3.1 per cent.

2.8 per cent of gross yield remains as operating profit.

•

7.1

34


1 3 .

Financial Items of Gorenje Group

2.180,0

3.520,2

1.685,4

3.105,02.317,6

3.062,2

4.000

3.000

2.000

1.000

0In S

IT m

1997 1998 1999

In 1999 the rise in costs of materials, goods and services was by 0.6 percent higher than the rise in net revenues, and by 0.6 per cent lower thanthe rise in gross operating yield. The rise in labour costs moved within asimilar framework. Such conditions required the establishment ofprovisions, especially for sales guarantees and for penetrating newmarkets.

Financial items

1999 was a very good year with regard to financial items. The negativebalance of financial items was reduced by half compared to the balancein 1998.

The balance of exchange rate differences, which was negative in 1998,was positive in 1999 and amounted to SIT 65 million in the GorenjeGroup.

Revaluation deficit represented an important part of financial expensesalso in 1999. It amounted to SIT 738 million and as a cashless expensepositively influenced liquidity.

Financial revenues Financial expenses

Extraordinary items

The balance of extraordinary items was positive in 1999 and amounted toSIT 240 million. This is due to high revenues from use and release ofprovisions.

35


1 3 .

80 %

100 %

60 %

40 %

20 %

0 %1997 1998 1999

Gorenje Group – Structure of Assets

Short-term receivables and other current assets Inventories Long-term receivablesFixed assets

The increase in fixed assets is due to investments in 1999, mainly inbuildings, production equipment and other equipment. These investmentsamounted to SIT 9.1 billion, of which SIT 5.6 of fixed assets wereactivated.

Inventories represented 20.5 per cent in the structure of assets. Comparedto 1998 they increased by SIT 2.3 billion or by 15.5 per cent; inventoriesof materials by SIT 1 billion and inventories of products and merchandiseby SIT 1.3 billion. Since inventories increased faster than sales, theinventory turnover worsened from 50 days per year in 1998 to 51 days in1999.

Tax on Profits

Tax on profits was SIT 213 million and was lower than in 1998, in spite ofconsiderably higher profit in nominal terms.

On the level of individual companies we optimised the tax on profits andmade optimum use of tax allowances on account of high investments,employment of invalids, additional employment and tax related losses fromprevious years.

Consolidated net profit of the Gorenje Group for the financial year 1999amounted to SIT 2,517 million, which was an increase of 38 per cent overthe previous year figure. It includes the profit of minority shareholders in theamount of SIT 24 million.

Changes in Balance Sheet Structure

The balance sheet total in the consolidated balance sheet of the GorenjeGroup as of 31 December 1999 amounted to SIT 82.8 billion and showed anincrease by 19.8 per cent over end of 1998.

Fixed assets grew by 26.6 per cent and current assets by 15.1 per cent.

36


1 3 .

80 %

100 %

60 %

40 %

20 %

0 %1997 1998 1999

Gorenje Group – Structure of Liabilities

Operating liabilitiesFinancial liabilities Long-term provisions Capital

Receivables due from customers nominally increased by SIT 3.4, whichrepresents a 18 per cent growth compared to the end of 1998 or a 9 percent growth of average receivables due from customers, while the salesvolume increased by 9.9 per cent. The average receivables turnover interms of days was 65 days and remained unchanged compared to 1998.

Introduction of value added tax in Slovenia had an important impact onthe increase of all short-term receivables in 1999, since the balance ofreceivables on the balance sheet date amounted to SIT 947 million ofreceivables with applicable entry VAT, of which SIT 928 million inGorenje, d.d.

The structure of liabilities recorded the following increases compared tothe end of 1998: capital rose by 15.7 per cent, long-term provisions by52 per cent, short-term liabilities by 15 per cent and long-term liabilitiesby 109 per cent.

The increase in capital is due to net profit for the year 1999, whichamounted to SIT 2,517 million and revaluation, which amounted to SIT2,411 million. Capital structure also changed due to reserves, whichgrew on account of profits from previous years.

1999 recorded a considerable increase in long-term provisions forwarranties and an increase of provisions for major repairs.

Financial liabilities increased by SIT 3.7 billion – long-term financialliabilities by SIT 2.1 billion and short-term liabilities by SIT 1.6 billion.

Short-term payables to suppliers rose by SIT 3.1 billion as at the end of1999, however, their share in the structure remained almost unchangeddue to increase in other items of liabilities. Liabilities turnover ratio interms of days increased from 64 days per year to 67 days in 1999.Part of the increase is due to the value added tax, which was introduced inSlovenia on 1 July 1999.

37

Auditors’ Opinion onthe ConsolidatedFinancial Statements ofthe Gorenje Group andthe FinancialStatements of Gorenje d.d., the Parent Company

A N N U A L R E P O R T 1 9 9 9

1 4 .

Audit opinion consolidated financial statements for the financial year ended 31 December 1999

We have audited the accompanying consolidated financial statements of the Gorenje d.d. andits subsidiaries companies (Gorenje Group), consisting of the consolidated balance sheet as of31 December 1999, the consolidated profit and loss statement as well as the consolidated cash flow statement for the year then ended. These financial statements are the responsibilityof the management of the Company. Our responsibility is to express an opinion on thesefinancial statements on our audits.

We conducted our audit in accordance with the fundamental auditing principles and theInternational Auditing Standards. Those principles and standards require that we plan andperform our audit to obtain reasonable assurance about whether the financial statements arefree of material misstatements. The audit included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. The audit also includedassessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We belive that our auditprovides a resonable basis for our opinion.

In our opinion, the financial statements referred to above give a true and fair view of thefinancial position of the Gorenje Group as of 31 December 1999, the results of its operationsand its funds flow for the year then ended, in conformity with the Slovenian AccountingStandards issued by Slovenian Institute of Auditors.

KPMG SLOVENIJA d.o.o.,management, consulting in revizija, Ljubljana

Partner Managing Directorand Certified Auditor: and Certified Auditor:Vera Menard, B.Sc.Ec Marjan Mahniœ, B.Sc.Ec.

Velenje, April 2000

KKPPMMGG

Audit opinion financial statements for the financial year ended 31 December 1999

We have audited the accompanying financial statements of Gorenje, d.d., Velenje,consisting of the balance sheet as of 31 December 1999, the profit and loss statement aswell the cash flow statement for the year then ended. these financial statements are theresponsibility of the management of the Company. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audit in accordance with the fundamental auditing principles and theInternational Auditing Standards. Those principles and standards require that we plan andperform our audit to obtain resonable assurance about whether the financial statements arefree of material misstatements. The audit included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. The audit also includedassessing the accounting principles used and significant estimates made by management, aswell as evaluating the overal financial statement presentation. We belive that our auditprovides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above give a true and fair view of thefinancial position of the Company as of 31 December 1999, the results of its operations andits funds flow for the year then ended, in conformity with the Slovenian AccountingStandards issued by Slovenian Institute of Auditors.

KPMG SLOVENIJA d.o.o.,management, consulting in revizija,

Partner Managing Directorand Certified Auditor: and Certified Auditor:Vera Menard, B.Sc.Ec Marjan Mahniœ, B.Sc.Ec.

Velenje, April 2000

KKPPMMGG

38

In SIT mGorenje Group Gorenje, d.d.

Notes 1999 1998 1999 1998Net sales revenues 111,876.4 101,826.2 73,090.1 64,864.5Changes in the value of inventories 923.9 317.7 894.1 220.5Value of capitalised own product and/or services 639.6 357.5 558.2 233.9Other operating revenues 1 1,446.2 925.7 629.4 36.1

Gross operating yield 114,886.1 103,427.1 75,171.8 65,355.0

Costs of goods, material and services -85,618.2 -77,507.1 -57,888.5 -50,847.0Labour costs -17,656.6 -15,981.2 -10,103.0 -8,678.1Depreciation -4,810.6 -4,719.1 -3,450.7 -3,453.0Other operating expenses 2 -3,565.7 -2,412.5 -1,855.8 -851.9

Operating profit 3,235.0 2,807.2 1,873.8 1,525.0

Revenues from investments 2,317.6 1,685.4 2,423.1 1,644.7Financial expenses -3,062.2 -3,105.0 -1,852.7 -1,734.9

Profit or loss from ordinary activities 2,490.4 1,387.6 2,444.2 1,434.8

Extraordinary revenues 3 634.0 1,159.6 279.5 1,089.0Extraordinary expenses 4 -393.6 -430.4 -201.9 -337.1

Total profit 2,730.8 2,116.8 2,521.8 2,186.7

Tax on profits 5 -213.3 -291.6 0 -52.8

Net profit for the financial year 2,517.5 1,825.2 2,521.8 2,133.9

Profit or loss of minority shareholders 14.0 10.3

Consolidated Profitand Loss Account ofthe Gorenje Groupand the Profit andLoss Account ofGorenje d.d., theParent Company

A N N U A L R E P O R T 1 9 9 9

1 5 .


Notes 1999 1998 1999 1998Assets 82,802.7 69,132.9 59,947.9 49,525.2

Fixed assets 35,510.9 28,058.0 33,704.4 26,330.6Intangible fixed assets 1,072.7 747.0 370.0 182.9Tangible fixed assets 6 32,244.2 26,205.7 20,563.5 16,240.6Long-term investments 7 2,194.0 1,105.3 12,770.9 9,907.1

Current Assets 47,291.8 41,074.9 26,243.5 23,194.6Inventories 8 16,977.4 14,696.9 7,622.8 5,856.8Long-term operating receivables 495.3 778.4 388.8 981.1Short-term operating receivables 9 24,596.9 20,597.8 15,712.1 13,540.8Short-term investments 2,479.3 2,506.6 2,311.6 2,769.6Cash 2,296.5 2,273.7 150.7 9.9Deferred costs and accrued revenues 10 446.4 221.5 57.5 36.4

Liabilities and capital 82,802.7 69,132.9 59,947.9 49,525.2

Capital 36,997.2 31,987.3 36,657.4 31,724.5Share capital 12,200.0 12,200.0 12,200.0 12,200.0Reserves 5,013.3 3,126.3 4,049.7 2,243.4Capital revaluation adjustment 16,079.7 13,668.7 16,079.7 13,668.6Retained net profit from previous years 858.9 845.2 1,806.2 1,478.6Loss from previous yearsUndistributed net profit for the year 2,503.5 1,825.2 2,521.8 2,133.9Minority interest 341.8 321.9

Long-term provisions 11 5,453.7 3,582.6 3,250.1 1,737.7

Long-term liabilities 4,063.7 1,939.3 2,351.1 2,136.4Long-term financial liabilities 12 4,053.2 1,924.9 2,350.4 1,838.7Long-term operating liabilities 10.5 14.4 0.7 297.7

Short-term liabilities 36,288.1 31,623.7 17,689.3 13,926.6Short-term financial liabilities 13 14,475.2 12,897.7 4,130.5 3,944.2Short-term operating liabilities 14 20,591.6 17,619.4 13,200.2 9,623.4Accrued costs and deferred revenues 15 1,221.3 1,106.6 358.6 359.0

39

Consolidated BalanceSheet of the GorenjeGroup and theBalance Sheet ofGorenje, d.d., the Parent Company

A N N U A L R E P O R T 1 9 9 9

1 6 .

40


1999 1998 1999 1998Opening balance of cash as at 1 January 2,273.7 2,064.0 9.9 7.2

Cash flow from operating activityNet profit 2,503.4 1,825.2 2,521.8 2,133.9Depreciation 4,810.6 4,694.4 3,450.7 3,452.9Long-term operating receivables 283.1 333.6 592.3 201.5Short-term operating receivables -3,999.2 -565.3 -2,171.3 293.7Inventories -2,280.5 -1,410.5 -1,766.1 -758.3Long-term operating liabilities -3.9 -87.0 -297.0 -143.4Short-term operating liabilities 2,972.2 1,914.3 3,576.8 50.3Deferred costs and accrued revenues -224.9 -87.3 -21.0 -8.6Accrued costs and deferred revenues 114.8 81.5 -0.5 77.8

Total 4,175.6 6,698.9 5,885.7 5,299.8

Cash flow from investment activityIntangible fixed assets -522.0 -400.8 -231.2 -152.3Tangible fixed assets -10,652.9 -5,471.4 -7,729.5 -3,476.7Long-term investments -1,088.6 117.4 -2,863.8 -1,067.6Short-term investments 27.3 -1,976.9 458.0 -1,504.8

Total -12,236.2 -7,731.7 -10,366.5 -6,201.4

Cash flow from financial activity

Share capital 0 0 0 0Reserves 1,886.9 1,593.8 1,806.2 1,247.4Retained profit from previous years -1,811.5 -1,459.7 -1,806.2 -1,099.3Capital revaluation adjustment 2,411.1 1,916.3 2,411.1 1,916.3Minority interest 20.0 32.0Long-term provisions 1,871.1 279.0 1,512.4 -47.3Long-term financial liabilities 2,128.3 -666.5 511.7 -764.1Short-term financial liabilities 1,577.5 -452.4 186.3 -348.7

Total 8,083.4 1,242.5 4,621.5 904.3

Total cash flow 22.8 209.7 140.7 2.7

Closing balance of cash as at 31 Dec. 2,296.5 2,273.7 150.7 9.9

Consolidated CashFlow Statement of theGorenje Group andthe Cash FlowStatement of Gorenje, d.d., the Parent Company

A N N U A L R E P O R T 1 9 9 9

1 7 .

41

M A N M U S T K N O W W H A T T O T A K EF R O M N A T U R E A N D G I V E I T E N R I C H E DB A C K

42

N o t e s t o t h eF i n a n c i a lS t a t e m e n t s

A N N U A L R E P O R T 1 9 9 9

1 8 . Gorenje Group

According to the Slovenian Accounting Standards a group of companiesis comprised of a parent company and its subsidiaries in which the parentcompany has control and is the majority shareholder.

The financial statements of the parent company Gorenje, d.d. and thefinancial statements of 35 subsidiaries operating in Slovenia and abroadare included in the consolidated financial statements of the GorenjeGroup.

Subsidiaries operating in Slovenia Share in equity capital - %Gorenje Orodjarna, d.o.o., Velenje 100.00Gorenje Indop, d.o.o., Velenje 100.00EMKOR, d.o.o., Rogatec 100.00Gorenje I.P.C, d.o.o., Velenje 100.00Gorenje POINT, d.o.o., Velenje 100.00Gorenje Trgovina, d.o.o., Velenje 100.00Gorenje Gostinstvo, d.o.o., Velenje 100.00LINEA, d.o.o., Velenje 81.88Gorenje Servis, d.o.o., Velenje 100.00Gorenje TIKI, d.o.o., Ljubljana 51.00Biterm, d.o.o., Bistrica ob Sotli 75.00

Subsidiaries operating abroad Share in equity capital - %Gorenje Beteiligungsgesellschaft m.b.H., Austria 100.00Gorenje Austria Handelsgesellschaft m.b.H., Austria 100.00Gorenje Vertriebsgesellschaft m.b.H., Germany 100.00Gorenje Körting Electronic GmbH, Germany 100.00Gorenje Körting Italia S.r.l., Italy 100.00Gorenje France SA, France 100.00Gorenje BELUX S.a.r.l., Belgium 100.00Gorenje UK Ltd., Great Britain 100.00Gorenje Skandinavien A/S, Denmark 100.00Gorenje Sverige AB, Sweden 100.00Gorenje Pacific Pty. Ltd., Australia 100.00Gorenje USA Inc., USA 100.00Gorenje Spol. s r.o., Czech Republic 100.00Gorenje Kuchyne Spol. s r.o. Czech Republic 100.00Gorenje Slovakia Spol.s r.o., Slovak Republic 100.00Gorenje Budapest Kft., Hungary 100.00Gorenje Polska Sp. Z o.o., Poland 100.00Gorenje Bulgaria EOOD, Bulgaria 100.00Gorenje Split, d.o.o., Croatia 100.00Gorenje Zagreb, d.o.o., Croatia 100.00Hyundai Auto d.o.o., Zagreb, Croatia 100.00Gorenje Skopje, d.o.o., Macedonia 100.00Gorenje Commerce, d.j.l., Bosnia and Herzegovina 100.00Goretrade Beograd, d.o.o., F.R. of Yugoslavia 100.00

43


A N N U A L R E P O R T 1 9 9 9

1 8 . The financial year of all companies in the Group is equivalent to acalendar year.

Principles of Preparation of Consolidated Financial StatementsThe consolidated balance sheet as of 31 December 1999 and theconsolidated profit and loss account for the year then ended wereprepared in accordance with fundamental accounting principles andSlovenian Accounting Standards.

Translation of the Financial Statements of SubsidiariesOperating AbroadThe financial statements of Gorenje, d.d. were prepared in SlovenianTolars in accordance with the Slovenian Accounting Standards.

The balance sheets of subsidiaries operating abroad were translated intoSlovenian Tolars at the middle exchange rate of the Bank of Sloveniaeffective on 31 December 1999 and the profit and loss accounts at theaverage exchange rate in 1999.

Foreign exchange gains and/or losses resulting from the translation of thefinancial statements at different exchange rates are accounted for andrecorded as reserves under capital. Exchange gains and/or losses mainlyresult from the translation of the balance sheets at the middle exchangerate effective on the balance sheet date and the profit and loss accountsat the average exchange rate in the accounting period.

Accounting Policies of the Gorenje GroupItems in the financial statements are recorded and valued in accordancewith the provisions of the Slovenian Accounting Standards, except forthose items that may be, in accordance with the respective standards,accounted for at freely selected methods. We have in these cases selectedthe more conservative method.

The straight-line method of depreciation is applied to tangible andintangible fixed assets. The selected depreciation rates are based on theuseful life of a depreciable assets.Long-term investments are recorded at revalued costs of purchase ormarket value, whichever is lower as of the balance sheet date.Inventories of materials and merchandise are valued at the latest costs ofpurchase. Inventories of semi-finished and finished products are valued atcosts of production.

Receivables and liabilities denominated in foreign currency are translatedin Slovenian Tolars at the middle exchange rate of the Bank of Sloveniaeffective on 31 December 1999. Adjustments for bad debts are formed onthe basis of estimated recovery of debts.

Principles of ConsolidationThe consolidated financial statements are prepared in accordance withSlovenian Accounting Standards that follow International AccountingStandards.

• Consolidation of CapitalInvestments in companies in the Gorenje Group operating in Slovenia areaccounted for by using the equity method and charged against theproportionate interest of these companies in the capital of the Group.Investments of Gorenje Beteiligungsgesellschaft m.b.H. in companies inthe Gorenje Group are accounted for by using the purchase method andcharged against the proportionate interest of these companies in thecapital. The difference between investments and capital is adequatelyaccounted for and recorded under reserves.

44


A N N U A L R E P O R T 1 9 9 9

1 8 . • Minority Interests

Minority interests as at 31 December 1999 were:

Share in Minority interests Share in net profit/losscapital in % in SIT 000 in SIT 000

Gorenje Tiki, d.o.o., Ljubljana 49.00 301,843 8,555Biterm, d.o.o., Bistrica ob Sotli 25.00 34,859 4,593Linea, d.o.o., Velenje 18.12 5,147 876Total 341,849 14,024

in SIT 0001999 1998

Total receivables 22,872,406 21,345,812Total liabilities 22,901,417 21,397,136Difference between eliminated receivables and liabilities 29,011 51,324

in SIT 0001999 1998

Balance at the beginning of the year 51,324 297,766Balance at the end of the year 29,011 51,324Difference 22,313 246,442

• Consolidation of Receivables and Liabilities

Intragroup receivables and liabilities were eliminated on consolidation. Adifference between receivables and liabilities mainly results from thediscrepancies in the recording of transactions. These discrepancies tend todecrease through the years.

Intragroup receivables and liabilities as at 31 December 1999:

The consolidated profit and loss account for the year ended 31 December1999 has only been influenced by the change in the difference betweeneliminated receivables and liabilities at the beginning and at the end of theyear which amounts to:

The difference between consolidated receivables and liabilities wasaccounted for in the consolidated profit and loss account. Because thebalance at the end of the year was lower than at the beginning of theyear, yet liabilities were higher than receivables, the effect in the amountof SIT 22,313 thousand was recorded under the item other operatingexpenses.

45


A N N U A L R E P O R T 1 9 9 9

1 8 . • Consolidation of Inventories and Elimination of Intragroup Profits

Profits resulting from intragroup sales of materials and products that werestill included in inventories of individual companies in the Gorenje Groupas of 31 December 1999 were eliminated from the consolidated financialstatements.

Inventories of companies in the Gorenje Group as at 31 December 1999:

in SIT 000Inventories before elimination Elimination of Inventories after

of intragroup profits intragroup profits elimination of intragroup profits

Material 5,646,744 77,335 5,569,409Work in process 762,258 0 762,258Products and merchandise 11,834,156 1,437,039 10,397,117Advances 248,783 164 248,619Total 18,491,941 1,514,538 16,977,403

in SIT 000 1999 1998

Intragroup profits at the beginning of the year 1,423,843 1,286,216Intragroup profits at the end of the year 1,514,374 1,423,843Difference 90,531 137,627

The consolidated profit and loss account for the year ended 31 December1999 has only been influenced by the change in intragroup profits at thebeginning and at the end of the year which amounts to:

Because intragroup profits in inventories at the end of the year are higherthat at the beginning of the year, the difference in the amount of SIT90,531 thousand represents a negative effect in the consolidated profitand loss account. The difference is recorded as an increase in costs ofgoods, materials and services.

Upon the elimination of intragroup profits, merchandise supplied bycompanies in the Gorenje Group and recorded under inventories wasreposted to the balance sheet item Products. Merchandise supplied bycompanies outside the Gorenje Group are recorded under inventories ofmerchandise.

• Consolidation of Revenues and Expenses

Intragroup revenues and expenses in the amount disclosed by separatecompanies in the Gorenje Group were eliminated from the consolidatedprofit and loss account.

The elimination of intragroup revenues and expenses has no effect on theconsolidated results of operations.

Notes on some items of the financial statements are shown below:

46


A N N U A L R E P O R T 1 9 9 9

1 8 . Note 1 – Other Operating Revenues SIT 1,446,177 thousand

In the consolidated profit and loss account of the Gorenje Group, themajor item under operating revenues related to revenues from use ofprovisions. In 1999 revenues from use of provisions amounted to SIT634,157 thousand, of which in Gorenje d.d., SIT 277,853 thousand wereset up for estimated servicing in extended warranty period, in GorenjeZagreb, d.o.o. SIT 99,782 thousand for warranties, and in Gorenje IPC,d.o.o. SIT 137,081 thousand for covering depreciation costs.

Under other revenues SIT 319 million derive from Gorenje, d.d. onaccount of suppliers bonuses, re-invoiced costs, over calculated suppliers’interests, out-of-court settlements and revenues from rents.

in SIT 0001999 1998

Revenues from subsidies, grants, compensations 29,219 31,322Revenues from leases and rents 93,762 93,663Revenues from disposal and addition of tangible fixed assets 0 4,036Revenues from use of provisions 634,157 462,315Other revenues 689,039 334,385Total 1,446,177 925,721

in SIT 0001999 1998

Adjustments and write-offs of receivables 776,415 700,374Adjustments and write-offs of inventories 80,846 97,340Taxes and duties independent of the operating result 226,617 179,251Other operating expenses 283,838 267,843Difference between consolidated receivables and liabilities 22,313 246,442Establishing of provisions 2,175,651 921,227Total 3,565,680 2,412,477

Note 2 – Other Operating Expenses SIT 3,565,680 thousand

Adjustments of receivables and inventories remained on the level of 1998.The major item under other operating expenses relates to establishing ofprovisions in the amount of SIT 2,175,651 thousand.

The major part of the amount related to establishing of provisions wascontributed by Gorenje, d.d., the parent company, which set up additionalprovisions for warranties in the amount of SIT 1,586,809 thousand.Gorenje Zagreb, d.o.o. set up provisions for warranties in the amount ofSIT 262,265 thousand.

Adjustment and write-offs of receivables include SIT 81,271 thousandrecorded by Gorenje, d.d. which refer to receivables due from customers inBosnia and Herzegovina.Adjustments of receivables were also recorded by Gorenje AustriaHandelsges. m.b.H in the amount of SIT 186,098 thousand and by GorenjeServis, d.o.o. in the amount of SIT 128,297 million.

47


A N N U A L R E P O R T 1 9 9 9

1 8 . Note 3 – Extraordinary Revenues SIT 634,027 thousand

in SIT 0001999 1998

Release of provisions 70,470 591,086Recovered bad debts 133,289 101,111Profit on disposal of fixed assets 88,497 28,957Other extraordinary revenues 341,771 438,507Total 634,027 1,159,661

Extraordinary revenues were reduced almost by half compared to 1998.Almost half of the amount derives from the profit and loss account ofGorenje, d.d., the parent company. Provisions for environmentalprogrammes in the amount of SIT 62,339 thousand, which were set upwithin the programme of the company’s ownership transformation, wereno longer required in 1999.

Other items under extraordinary revenues include SIT 73,958 thousand ofindemnity settlements, SIT 48,936 thousand of revenues from sale of fixedassets and SIT 94,304 thousand of other extraordinary revenues. Themajor item under other extraordinary revenues refers to grants from theMinistry of Labour for preserving jobs in the amount of SIT 42,504thousand.

Note 4 – Extraordinary Expenses SIT 393,635 thousand

in SIT 0001999 1998

Extraordinary expenses 393,635 430,418

Extraordinary expenses include SIT 201,891 thousand recorded byGorenje, d.d., the parent company. This amount includes expenses fromprevious years in the amount of SIT 179,194 thousand resulting fromexcessive costs of customer services, additional liabilities from pendinglegal actions and other subsequently established liabilities.

This item is followed by expenses from previous periods in the amount ofSIT 84,742 thousand from the profit and loss account of Gorenje Tiki,d.o.o., resulting from legal actions of employees and suppliers.

Note 5 – Tax on Profits SIT 213,350 thousand

in SIT 0001999 1998

Tax on profits 213,350 291,618

The proportion of tax on profits in the total profit was 7.81 per cent in1999 and showed a considerable improvement over the previous year,when it was 13.78 per cent.

Two-thirds of tax on profits result from the profit and loss accounts ofcompanies operating abroad and one-third from the profit and lossaccounts of companies operating in Slovenia, where tax allowances havebeen fully used.

48


A N N U A L R E P O R T 1 9 9 9

1 8 . Note 6 – Tangible Fixed Assets SIT 32,244,232 thousand

in SIT 0001999 1998

Land 3,403,843 3,084,589Buildings 12,781,532 11,784,216Plant and equipment 11,828,580 10,652,265Tangible fixed assets under construction 3,219,329 436,242Advances 1,010,948 248,390Total 32,244,232 26,205,702

Item Net book Additions Disposals Effect of Depreciation Net bookvalue revaluation, value

as at 31 Dec. 1998 exchange differences as at 31 Dec. 1999and transfers

Intangible fixed assets 746,945 259,484 11,380 272,344 194,679 1,072,714

Tangible fixed assets 26,205,702 9,306,308 592,711 1,690,842 4,365,909 32,244,232

Long-term investments 1,105,317 1,295,684 211,124 4,086 2,193,963

Total fixed assets 28,057,964 10,861,476 815,215 1,967,272 4,560,588 35,510,909

In the consolidated balance sheet of the Gorenje Group, the proportion oftangible fixed assets to assets is 39 per cent or, in value terms, SIT32,244,232 thousand. The largest share of tangible fixed assets in theamount of SIT 20,563,473 thousand was held by Gorenje, d.d., Velenje.Gorenje Servis, d.o.o. recorded tangible fixed assets in the amount of SIT1,855,338 thousand, Gorenje Gostinstvo, d.o.o. in the amount of SIT1,430,834 thousand and Gorenje Tiki, d.o.o. in the amount of SIT1,177,736 thousand. Among the companies operating abroad GorenjeSpol. s r.o. held the largest tangible fixed assets in the amount of SIT1,479,180 thousand, followed by Gorenje France SA in the amount of SIT822,108 thousand and Gorenje Austria Handelsges. m.b.H. in the amountof SIT 622,207 thousand.

The major additions to tangible fixed assets in 1999 included buildingsand equipment. The item buildings included the new factory of refrigeratorsand freezers, additions to equipment included SIT 3,474,059 thousandwere recorded by Gorenje, d.d., where investments in productionprogrammes represent as much as 85 percent.

Fixed asset movement schedule also includes movement of intangible fixedassets and long-term investments. Intangible fixed assets mainly includeinvestments in computer hardware and its updating to the year-2000requirements, and partly start-up costs of a new investment.

49


A N N U A L R E P O R T 1 9 9 9

1 8 . Note 7 – Long-term Investments SIT 2,193,963 thousand

in SIT 0001999 1998

Shares 922,484 582,498Loans 1,188,256 449,360Deposits 83,223 73,459Total 2,193,963 1,105,317

The major item under long-term investments were loans in the amount ofSIT 1,188,256 thousand. This amount includes SIT 616,121 thousand oflong-term credit to Gorenje Interieri, d.o.o., which was not included in theconsolidation of the Gorenje Group, as the company started operatingonly in December 1999.

Shares in the amount of SIT 922,484 thousand include SIT 287,634thousand recorded by Gorenje, d.d. representing shares in banks andother enterprises, shares in associated companies and other investmentssuch as SIT 102,927 thousand in Gorenje Interieri, d.o.o.

Note 8 – Inventories SIT 16,977,403 thousand

in SIT 0001999 1998

Materials 5,569,408 4,605,011Work in process 762,258 533,754Products 7,901,624 6,867,413Merchandise 2,495,493 2,142,427Advances 248,619 548,265Total 16,977,403 14,696,870

Inventories as at the end of 1999 increased by SIT 2,280,533 thousandover the previous year. Increase in inventories resulted from an increasein products and materials and partly in an increase in merchandise. Inincrease in inventories of products the amount of SIT 700 million wasrecorded in Gorenje, d.d., the rest of the increase was recorded inGorenje Commerce, Gorenje Budapest, Gorenje Polska, Gorenje Austriaand Gorenje Trgovina.

50


A N N U A L R E P O R T 1 9 9 9

1 8 . Note 9 – Short-term Operating Receivables SIT 24,596,920 thousand

in SIT 0001999 1998

Short-term receivables due from customers 20,740,329 17,171,793Short-term guarantee money 223,703 651,921Other short-term receivables 2,533,791 1,479,557Bills receivable 1,009,097 1,294,481Total 24,596,920 20,597,752

Short-term operating receivables recorded in the consolidated balance sheet ofthe Gorenje Group as of 31 December 1999 amounted to SIT 24,596,920thousand or 30 per cent of the assets and the second major item under assets.The item mostly included short-term receivables due from customers in theamount of SIT 20,740,329 thousand. The major amounts of short-term operatingreceivables were recorded by the following companies in the Gorenje Group:Gorenje Vertriebsges. m.b.H in the amount of SIT 4,189,069 thousand,Gorenje, d.d., in the amount of SIT 3,320,366 thousand, GorenjeZagreb,d.o.o. in the amount of SIT 1,899,352 thousand, Gorenje Trgovina,d.o.o. in the amount of SIT 1,493,672 thousand and Gorenje AustriaHandelsges. m.b.H in the amount of SIT 1,453,654 thousand.

The major amount of the item other short-term receivables refers to short-termreceivables due on account of entry VAT, which in Gorenje,d.d. amounted toSIT 927,543 thousand as of the balance sheet date.

Note 10 – Deferred Costs and Accrued Revenues SIT 446,372 thousand

in SIT 0001999 1998

Short-term deferred costs and expenses 423,213 195,185Accrued revenues 23,159 26,329Total 446,372 221,514

Most of the deferred costs and accrued revenues consist of short-termdeferred costs and expenses in the amount of SIT 423,213 thousand. Halfthe amount was recorded by Hyundai Auto Zagreb, d.o.o. on account ofdeferred costs related to the use of the brand name Hyundai.

Note 11 – Long-term Provisions SIT 5,453,737 thousand

in SIT 0001999 1998

Warranties 2,709,373 1,045,080Opening up new markets 656,437 739,712Major repairs 631,516 472,202Environmental programmes 0 114,981Other long-term provisions 1,456,411 1,210,662Total 5,453,737 3,582,637

In the consolidated balance sheet of the Gorenje Group as at the balancesheet date, long-term provisions amounted to SIT 5,453,737 thousand or6.6 per cent of capital and liabilities.

Warranties with SIT 2,709,373 thousand is the most important item, ofwhich SIT 1,987,430 thousand was recorded in the balance sheet ofGorenje,d.d. These provisions refer to expected excessive costs of servicesunder warranty, exchange of household appliances and other indemnities.

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A N N U A L R E P O R T 1 9 9 9

1 8 .

Note 12 – Long-term Financial Liabilities SIT 4,053,229 thousand

in SIT 0001999 1998

Long-term bank loans 3,517,787 1,651,147Other long-term loans 535,442 273,775Total 4,053,229 1,924,922

Long-term bank loans increased in 1999 over the previous year by SIT1,867 million, mostly in Gorenje Spol. s.r.o.- by SIT 1,321 million and inGorenje, d.d. by SIT 536 million, due to investments in production andwarehouse infrastructure.

Note 13 – Short-term Financial Liabilities SIT 14,475,150 thousand

in SIT 0001999 1998

Short-term bank loans 14,107,138 12,621,874Other short-term loans 327,957 250,124Short-term liabilities from interest payable 40,055 25,673Total 14,475,150 12,897,671

Short-term bank loans in the Gorenje Group decreased by SIT 1.485million: in Gorenje Beteiligungsges. m.b.H. by SIT 936 million, in GorenjeVertriebs München by SIT 441 million, in Gorenje France by SIT 413million, in Gorenje Trgovina by SIT 345 million and in Gorenje AustriaHandelsges.m.b.H. by SIT 241 million.

Note 14 – Short-term Operating Liabilities SIT 20,591,627 thousand

in SIT 0001999 1998

Suppliers 17,457,520 14,297,264Interest payable 20,944 24,301Employees 570,320 526,236State 1,175.765 1,237,802Other payables 1,367,077 1,533,834Total 20,591,627 17,619,437

Short-term payables to suppliers increased as at the end of 1999 over theprevious year by SIT 3 billion, by SIT 2 billion to suppliers in Sloveniaand by SIT 1 billion to suppliers abroad, as recorded in the balance sheetof Gorenje, d.d., the parent company. The increase refers in part to thevalue added tax, introduced in Slovenia on 1 July 1999.

Other payables included payables for advances, payables associated withissued bills and other short-term liabilities.

Long-term provisions were set up for financing marketing activities onselected markets of East Europe for the period from 1999 to 2002.Other long-term provisions included provisions for termination pay,pensions, salaries in arrears, taxes, grants for fixed assets and other.

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A N N U A L R E P O R T 1 9 9 9

1 8 . Note 15 – Accrued Costs and Deferred Revenues SIT 1,221,330 thousand

in SIT 0001999 1998

Deferred revenues 210,255 306,778Accrued costs and expenses 881,079 289,579Other 129,996 510,201Total 1,221,330 1,106,558

In the consolidated balance sheet of the Gorenje Group as at 31December 1999, accrued costs and deferred revenues were the amountof SIT 1,221,330.

Deferred revenues were recorded by Gorenje, d.d. in the amount of SIT 19,456 thousand, Gorenje Gostinstvo, d.o.o. in the amount of SIT 58,948 thousand, Gorenje Zagreb, d.o.o. in the amount of SIT30,445 thousand, Gorenje Servis, d.o.o. in the amount of SIT 29,929thousand and Gorenje Trgovina, d.o.o. in the amount of SIT 19,765thousand.

Accrued costs and deferred revenues in Gorenje Gostinstvo, d.o.o.include deferred revenues on account of subsidised meals for employees.In the other above mentioned companies they referred to interest chargedto customers but not yet paid.

Accrued costs and expenses as at the end of the year increased by SIT 591 million, mostly as a result of re-classification from other long-termprovisions for accrued costs and deferred revenues in 1999. The actualincrease amounted to only SIT 80 million. In terms of content it mostlyreferred to provisions for discounts, commissions, quantity bonuses andunused employees’ leave.

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P e r f o r m a n c eR a t i o s

A N N U A L R E P O R T 1 9 9 9

1 9 .

Return on sales = (Net profit / Net sales revenues) * 100Return on assets = (Net profit / Assets) * 100Return on equity = ( Net profit / Capital) * 100Assets turnover ratio = (Net sales revenues / Assets) * 100 Participation rate of current assets = (Current assets / Assets) * 100Participation rate of short-term liabilities = [(Short-term financial liabilities

+ Short-term operating liabilities+ Accrued costs and deferred revenues) / Liabilities] * 100

Long-term liabilities to long-term assets = (Capital + Long-term provisions+ Long term liabilities) / Long-term assets

Added value per employee = (Gross operating yield-Costs of materials, goods and services- Other operating expenses (exclusive of provisions and current assets write-offs) / Average number of employees

Earnings per share = Consolidated net profit after tax / Number of issued shares

Note: to calculate performance ratios, data from the balance sheet as of year end is used.

Performance ratios - Gorenje Group

1998 1999

Return on sales (in %) 1.79 2.25

Return on assets (in %) 2.64 3.04

Return on equity (in %) 5.71 6.80

Assets turnover ratio (in %) 1.47 1.35

Participation rate of current assets (in %) 59.41 57.11

Participation rate of short-term liabilities (in %) 45.74 43.82

Long-term liabilities to long-term assets (in %) 1.30 1.29

Added value per employee (in SIT) 3,746,682 4,323,662

Number of employees as of year end 6,708 6,691

Average number of employees 6,733 6,646

Earnings per share (in SIT) 149.61 206.35

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G o r e n j e G r o u p i nY e a r 2 0 0 0

A N N U A L R E P O R T 1 9 9 9

2 0 . Gorenje, d.d.Partizanska 123503 VelenjeTel: 03 899 00 00Fax: 03 899 28 00

Companies in the production division

Gorenje Tiki, d.o.o.Elektrostrojno podjetjeMagistrova 1 1521 LjubljanaTel: 01 519 41 53Fax: 01 519 30 78

Gorenje Orodjarna, d.o.o.Partizanska 123503 VelenjeTel: 03 899 00 00Fax: 03 899 26 31

Biterm,Proizvodnja termostatov, d.o.o.Hrastje 2a3256 Bistrica ob SotliTel: 03 800 13 00Fax: 03 800 13 20

Gorenje Indop, d.o.o.Partizanska 123503 VelenjeTel: 03 586 43 60Fax: 03 586 44 79

Gorenje I.P.C.Invalidsko podjetniøki center, d.o.o.Partizanska 12 3503 VelenjeTel: 03 899 00 00Fax: 03 899 26 35

Gorenje Interieriproizvodnja in træenje, d.o.o.Limbuøka cesta 22010 MariborTel.: 02 429 44 00Fax: 02 429 44 20

Companies in the services division

Gorenje Servis, d.o.o. Partizanska 12 3503 VelenjeTel: 03 899 00 00Fax: 03 899 26 75

Gorenje Gostinstvo, d.o.o.Partizanska 12 3503 VelenjeTel: 03 899 00 00Fax: 03 899 26 67

Gorenje Pointpodjetje za informacijsko tehnologijo,d.o.o.Partizanska 12 3503 VelenjeTel: 03 899 28 81Fax: 03 899 28 93

Gorenje Trgovina, d.o.o.Partizanska 12 3320 VelenjeTel: 03 899 00 00Fax: 03 899 26 06

LineaStanovanjsko podjetje, d.o.o.Cesta Frantiøka Foita 6 3320 VelenjeTel: 03 586 94 35Fax: 03 586 94 36

Velenje

Maribor

Avstrija

Italija

Madæarska

Hrvatska

Ljubljana

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A N N U A L R E P O R T 1 9 9 9

2 0 . Companies operating abroad

Gorenje Beteiligungsgesellschaft mbHKeplerplatz 12A-1100 WienAustriaTel: +43 1 607 00 70Fax: +43 1 607 00 709

Gorenje Vertriebs GmbHGarmischer Strasse 4-6D-80339 MünchenPostfach 120626, 80032GermanyTel: +49 89 502 070Fax: +49 89 502 07100

Gorenje Skandinavien A/SRoskildevej 2902610 RødovreDenmarkTel: +45 36 723 388Fax: +45 36 722 555

Gorenje France S.A.85, rue Edouard Vaillant – B.P. 22892306 Levallois – Perret CedexFranceTel: +33 1 45 193 008 Fax: +33 1 45 193 029

Gorenje Pacific Pty. Ltd.Unit 6, Briens RoadNothmead NSW 2152Australia Tel.: +61 2 894 55 39Fax: +61 2 899 42 53

Gorenje USA Inc.P.O. BOX 457Port Jefferson, N.Y. 11777-0457New YorkUSA Tel: +1 631 476 0498Fax: +1 631 476 0497

Gorenje Kuchynê Spol. s r.o.Viønova 207262 61 okres PribramCzech RepublicTel: +420 306 690 191 Fax: +420 306 690 121

Gorenje Budapest Kft.Mányoki út. 5Budabox 700/8 15351118 BudapestHungaryTel: +36 1 466 45 23 Fax: +36 1 466 93 71

Gorenje Polska Sp. Zo. O.Aleja Wilanowska 37202-665 WarszawaPolandTel: +48 22 85 73 749 Fax: +48 22 85 73 958

Gorenje Austria Handelsges. mbHSüdbahnhofgelande, Strasse CA-1100 WienAustriaTel: +43 1 601 31Fax: +43 1 603 3104

Gorenje Körting Italia S.r.l.Via Trento 1I-34132 TriesteItalyTel: +390 40 37 52 111Fax: +390 40 66 21 21

Gorenje Sverige ABNorra Vallgatan 64S – 211 22 MalmöSwedenTel: +46 200 22 33 88Fax: +46 200 22 33 80

Gorenje BELUX S.a.r.l.Hoevestraat 25 A11755 GooikBelgiumTel: + 32 54 56 97 61Fax: + 32 54 56 97 63

Gorenje UK Ltd.Morley House314/322 Regent Street London W1R 5ABGreat BritainTel: +44 171 43 60 676 Fax: +44 171 43 69 450

Gorenje Spol. s r. o.Poboœná 1/139514100 Praha 4 – MichleCzech RepublicTel: +420 2 612 17 878 Fax: +420 2 612 17 887

Gorenje Slovakia Spol. s r. o.Krajinska cesta 192101 PieøtanySlovak RepublicTel: +421 838 77 25 535Fax: +421 838 77 25 535

Gorenje Bulgaria EOODSolunska 35, 5 FloorSofiaBulgariaTel: +35 929 81 05 17Fax: +35 929 86 35 14

Gorenje Zagreb, d.o.o.Gruøka 1810000 ZagrebCroatiaTel: +385 1 6000 510 Fax: +385 1 6000 515

Velenje

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A N N U A L R E P O R T 1 9 9 9

2 0 . Hyundai Auto, d.o.o.Prilaz Gjure Deæeliœa 3010000 ZagrebCroatiaTel: +385 1 4890 600 Fax: +385 1 4890 695

Goretrade, d.o.o.Uzun Mirkova 3/411000 BeogradFederal Republic of YugoslaviaTel: +381 11 328 33 91Fax: +381 11 328 31 74

Gorenje Commerce, d.j.l.Blaæujski drum b.b.71000 SarajevoBosnia and HerzegovinaTel: +387 71 475 050Fax: +387 71 475 060

Gorenje Skopje, d.o.o.Partizanski odredi 9991000 SkopjeMacedoniaTel: +389 91 361 178Fax: +389 91 364 177

Gorenje Split, d.o.o.Spinœiåeva 2521000 SplitCroatiaTel: +385 21 504 500Fax: +385 21 512 333

Gorenje Novi Sad, d.o.o.Pavla Simiåa 1021000 Novi SadFederal Republic of YugoslaviaTel: +381 21 616 808Fax: +381 21 512 786

Gorentrade d.o.o.Albina Herljeviåa 1775000 TuzlaBosnia and HerzegovinaTel./fax: +387 75 283 220, 283 420

Gorenje Podgorica, d.o.o.Mitra Bakiåa 15081000 PodgoricaMonte NegroFederal Republic of YugoslaviaTel: +381 81 620 524Fax: +381 81 621 929

Representative offices

Gorenje Moskva1. Smolenski per., dom 5, str.1121099 MoscowRussiaTel: +7 502 937 97 35, 36, 37Fax: +7 502 937 97 38

Gorenje Athens67, Daskaroli Str. Centrum Buildings A-6166 75 GlyfadaAthensGreeceTel: +30 1 96 41 666Fax: +30 1 96 26 207

Gorenje KievMuzeinij Prov. 8B/Ap. 38252001 KievUkraineTel: +380 44 228 69 68Fax: +380 44 228 69 68

Text: Gorenje, d.d.Design: Studio BregMay 2000

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