Gorenje Chief Executive: Company Needs to Change Mindset to Return to Profit

By , 02 Dec 2019, 08:22 AM Business
Dr Lan Lin, who holds a PhD in Mechanical Engineering from the University of Tennessee, USA Dr Lan Lin, who holds a PhD in Mechanical Engineering from the University of Tennessee, USA www.gorenjegroup.com

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STA, 29 November 2019 - The Velenje-based household appliances maker Gorenje, owned by the Chinese conglomerate Hisense, will finish 2019 in the red but hopes to return to profit next year. According to chief executive Lan Lin, this will require a change of mindset, and it will determine whether a TV production facility will be built in Velenje.

Gorenje last year posted a group net loss of EUR 37.7 million, and chief managing director Lin, who is also the chairman of Hisense International, expects it to be in the red at the end of this year as well.

While refusing to reveal any figures, he said Gorenje's business was worst at the beginning of the year but was improving recently due to measures to improve efficiency.

"The first quarter was very bad. In March, things started changing, and a turnaround occurred in May, then July and August were worse because of collective leave, and we were profitable again in September and October," he said.

According to Lin, Gorenje is doing well in Eastern Europe, while in western Europe, especially in Germany, it is considered a low-end brand. "We wish to change that next year. We must raise quality, and our key goal is to raise the prices Gorenje is getting on the market by at least 10%."

Revenue is expected to rise by 5.5% this year and by at least 10% next year.

Western Europe will be crucial, and Gorenje will also start selling in its network Hisense's products such as TV sets, smartphones, air conditioning and refrigerators on European markets and the Commonwealth of Independent States.

Meanwhile, Hisense will start marketing Gorenje and its Asko brand in the Hisense's sales network across Europe and overseas.

A major boost to the group's revenue is expected to be provided by the Chinese market, where Gorenje and Asko are well received. The premium brands Asko and Atag are on sale in more than 200 partner stores.

Lin expects the group to return to profit next year. "We are counting on some EUR 15 million in profit," he said, adding that the group's problems had been detected and would be tackled "step by step".

One of the measures will be to rejig the workforce, with Lin noting that "every 100 production workers support 40 people in sales, marketing, legal and finance ... while the average in our industry is 20."

According to Lin, Gorenje's profitability is crucial for all future investments. Next year some EUR 45 million should be invested in the development of new products, tools and production lines. "If we don't do that, our products will no longer be competitive in five or ten years."

The group's efficiency is also to be boosted through the separation of production in Velenje from administration, which is to relocate to Ljubljana as Hisense Gorenje Europe. "We must become leaner and integrate into Hisense."

Lin thinks Ljubljana will be a better location for attracting talent from all over Europe and is also more appropriate for meetings.

Gorenje also to plans to build a new TV manufacturing plant in Velenje that would employ 1,000 workers but this will depend on the business results, Lin warned.

The plans for the factory are ready but shareholders have put the project on hold because they want efficiency improvements first, he explained. "If all goes according to plan we will definitely realise this project."

Lin thinks the government will provide a financial incentive for the project but said it would not be substantial and noted that companies should not rely too much on government support.

He also revealed that through Asko, talks were under way for the takeover of German TV manufacturer Loewe and that the outcome of the talks should be known in the next few days.

If the takeover is carried out, the TVs would be produced in Velenje.

Asked why Gorenje is reducing its labour force if a new factory is planned, Lin said they were laying off people whom they did not need at the moment.

He would like the work for 100 people to be conducted by 80 people in the future, and they would receive extra pay for the extra workload, while the rest would work at the TV factory.

The Gorenje management is also in regular contact with trade unions, he said, adding that it had proposed a new round of talks only a few days ago. The open issues include a pay raise and the payment of a Christmas bonus.

The group plans to continue selling non-core assets, including some profitable companies, he said.

Hisense remains one of the main UEFA sponsors and next year Gorenje will be promoted at the European Football Championship in what will be its first promotion at such a level, Lin said.

All our stories on Gorenje are here

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