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issue: December 2011 ApplianceMagazine.com


Gorenje's New Strategy


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Appliance maker Gorenje focuses on products for the home, and looks for growth in markets outside of Europe.

Velenje Slovenia-based appliance maker Gorenje Group unveiled a new strategic plan that will put the group's focus on products and services for the home. The new plan came about as a result of the challenging global business environment and as a result of the company's composition after recent acquisitions and divestitures.

The company did not announce any specific manufacturing restructuring initiatives.

The new strategic plan for 2012 to 2015 put more focus on the core activity of products and services for the home, intended to be 90% of total Gorenje operations in 2015.

Key performance goals by 2015:
• profit of 5% in 2015
• increasing sales to 1.5 billion euros/year by maintaining a compound annual growth rate of 3.8% (which would have the company outpacing European appliance market growth, which it estimates will be 2.1%)
• increase in free cash flow to at least 40 million euros
• decreased overall debt

The Group unveiled a strategic plan in 2010, but said the unstable economy has since created different markets conditions that are particularly challenging for the home appliance industry. The 2010 strategic plan also did not take into account changes in the company itself – in particular the divestment of energy engineering company Istrabenz Gorenje and the acquisition of Swedish appliance company Asko.

The new strategy also seeks to take into account "consumer megatrends" such as:
• demographic change
• higher ecological or environmental awareness
• focus on a healthy lifestyle
• technological advances (such as smart appliances)
• changes in the rankings of the most promising economies for the home appliance industry

Noting that "Even the best strategy on paper falls short of being anything more than a piece of fiction if it is not implemented, " Gorenje President and CEO Franjo Bobinac said implementation activities will be monitored monthly and the plan will be updated annually if needed.

New Group Structure

The structure of Gorenje Group is being reorganized with "home" designated as the group's core activity. This focus will include home products, such as major and small appliances and HVAC equipment, and home services. Kitchen furniture is assigned a "support role."

Business field "Ecology," in which Gorenje will continue to develop services for comprehensive waste management in Slovenia and South-eastern Europe, is seen as a supplementary activity in the new strategy.

All other Group activities will be considered portfolio investments.

Management board member responsibilities will be shifted as of Jan. 1 2012, shifting the board from a divisional to a functional organizational structure.

• Branko Apat, currently the management board member in charge of the Home Appliance Division, will assume responsibility for home appliance and heating equipment operations
• Uroš Marolt, currently the management board member in charge of the Home Interior Division, will be responsible for the field of corporate services and the kitchen program
• Drago Bahun, currently in charge of human resources and education and serving as the worker representative, will perform the role of worker representative in the management board as of Jan. 1, 2012
• Marko Mrzel, in charge of finance and economics (CFO), will be in charge of sales of major and small appliances and remain in charge of finance and economics for the time being.

The Supervisory Board requested that Bobinac propose a new CFO by the end of February 2012.

Gorenje Goes to Global Megacities. Gorenje is planning to expand its pan-European market to a global one, to take advantage of what it sees as promising markets such as China and Brazil. It plans to increase sales in markets outside Europe to 150 million euros. Gorenje plans to build up its presence in the megacities of these markets, where purchasing power is strongest.

Gorenje Goes High-End. Profits will also be pushed by driving the group's share of up-market brands to over 25% of total sales by volume. Emphasis will go to higher value-added products like built-in appliances. Gorenje will continue to rely on design and product innovation to build distinction from the competition.

Gorenje Goes Multi-Brand. A multi-brand strategy will be put in place, with efforts to clearly delineate the brands.

Divesting Non-Core Business. The group intents to divest non-core assets and activities by 2015, as well as normalize the cash flow to generate at least 40 million euros of free cash flow in 2015. This will improve the group's self-financing capacity and reduce overall debt.

Business Plan for 2012

Gorenje also announced a business plan for 2012, which takes into account a hostile business environment. Negative impacts include:
• euro debt crisis
• negative impact of exchange rates of the Serbian, Czech, Polish, Russian, and Scandinavian currencies
• commodity prices that could not be passed on
• unemployment
• frugal consumers
• payment defaults

The group expects to generate 1.4 billion euros of sales revenue in 2011, with lower-than-expected profits of 9.2 million euros. It expect to end the year with a free cash flow of 11.4 million euros.

Gorenje expects to face severe challenges in 2012, with the economic conditions of 2011 expected to persist. It plans 2012 revenue of nearly 1.4 billion euros and revenue growth of 7.4%.

Gorenje Brands

Gorenje detailed the positioning of its brands:
• ATAG: premium, specializing in built-in appliances
• Akso: premium, specializing in wet appliances
• Pelgrim: mid-plus local brand, specializing in built-in appliances
• Gorenje+: mid-plus brand, specializing in built-in appliances
• Gorenje: mid-range brand
• Upo: mid-range local brand
• Mora: mid-range local brand of built-in/freestanding appliances
• Körting: budget brand
• Etna: budget brand for Benelux region

 

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