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Report of the Supervisory Board

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REPORT OF THE SUPERVISORY BOARD OF GORENJE, d.d.
ON THE REVIEW OF THE 2009 ANNUAL REPORT

Dear shareholders,

In 2009 the Supervisory Board supervised the business operation of Gorenje, d.d. and the Gorenje Group within the scope of powers and authorisations bestowed by applicable legal regulations and the Articles of Association of the Company, and also performed other tasks within its competences.

The Supervisory Board carried out its tasks in 2009 in the following composition: Dr. Jože Zagožen as Chairman, Ivan Atelšek as Deputy Chairman, Peter Ješovnik, M.Sc., Milan Podpecan, Andrej Presecnik, Gregor Sluga, M.Sc., Peter Kobal, Drago Krenker, Krešimir Martinjak, and Jurij Slemenik.

ACTIVITIES OF THE SUPERVISORY BOARD

At ten meetings (one of which was a correspondence meeting) held in 2009, the Supervisory Board devoted most of its attention to the business and financial development of the Gorenje Group and the parent company, significant business events, and the implementation of general strategic and business policies.

In line with its established practice, the Supervisory Board adopted the business plan of the parent company and the Gorenje Group in December 2008. Given the uncertainty prevailing at the time, the Supervisory Board assessed the plan as appropriate and at the same time sufficiently flexible considering the various possible scenarios of development of the financial crisis, as it enabled the Group to promptly respond to the rapid changes in operating conditions. The Management Board reported to the Supervisory Board, on a quarterly basis, on the day-to-day business operations and financial position of the Gorenje Group and the parent Company. The Management Board also regularly and promptly informed the Supervisory Board on the operating conditions, particularly the situation in world markets, changes in the prices of materials and raw materials, risk management, and the business operations of competitors. It was established that in 2009 the Management Board implemented all the resolutions adopted by the Supervisory Board.

Issues related to the education and age structure of employees, as well as working conditions, played an important role in discussions. The Supervisory Board dealt with these issues from the aspect of crisis conditions in the economy and the fulfilment of expectations of employees and all stakeholders.

Business operations were extremely difficult in the first quarter of 2009. It was impossible to predict the end of the financial crisis and when the crisis would reach its lowest level. The Supervisory Board carefully monitored the business operations of the Company and movements in world markets, and promptly drew attention to:

  • the management of operating current assets, particularly receivables (which increased due to declining liquidity in the market),
  • the preservation of market shares and penetration into new markets,
  • the changed sales structure of home appliances.

Business operations were successful in the third quarter, when the Management Board successfully mitigated the losses suffered in the first and, to a smaller extent, second quarter. The results attained in the last quarter were in line with expectations, while the joint result for 2009 is better than the estimates made at the beginning of the year, which may undoubtedly be attributed to the hard work of all employees of the Company.

The Supervisory Board devoted special attention to the work stoppage that occurred in Gorenje on 15 September 2009. It took note of the reasons for the stoppage, and positively assessed the measures taken by the Management Board, stressing the significance of open communication with all employees. The Management Board was instructed to prepare a plan of measures aimed at bringing it as close as possible to employees in order to reduce social distress, as well as protecting the Gorenje brand name and its further development. The Supervisory Board further instructed the Management Board to prepare a communication plan specifying the manner in which various contents would be presented to the public in future, and to ensure social peace through negotiations with trade unions and representatives of employees, taking into account the interests of all stakeholders. At one of the next meetings, the Management Board informed the Supervisory Board on the course and conclusion of negotiations and presented the agreement reached.

The Supervisory Board discussed the earnings of the Management Board and, on its proposal, reduced them by ten percent alongside the introduction of a 36-hour work week in the beginning of 2009. In November, the Supervisory Board repeatedly reduced the earnings of Management Board members on average by an additional twenty-five percent.

At the end of 2009, the Supervisory Board bound itself to carry out the following: if the conditions related to the Company's business operations are not at least similar to those in the first half of 2008, the Supervisory Board shall not propose the payment of incentive bonus to members of the Supervisory Board for the year 2009. When approving the 2009 Annual Report, the Supervisory Board did not, on the proposal of the Management Board, decide on the payment of incentive bonus to members of the Management Board for the 2009 financial year as a sign of solidarity with employees in a strained economic situation.

The Audit Committee of the Supervisory Board carried out its tasks in 2009 in the following composition: Milan Podpecan, Chairman, Peter Ješovnik, M.Sc., Gregor Sluga, Drago Krenker, and Mateja Vrankar. The committee devoted most of its attention to harmonising the materials for meetings of the Supervisory Board with all relevant standards, taking into account the principle of consistent reporting and similar issues. In 2009 the Audit Committee met at five meetings and discussed periodical reports, internal audit in the parent company, the risk management system in the parent company, and the issue of transfer prices in the Gorenje Group. It also conducted a meeting with the representatives of the auditing company KPMG Slovenija, d.o.o. regarding pre-audit and audit procedures in 2009.

ANNUAL REPORT

On 7 April 2010 the Management Board of the Company presented the audited Annual Report of Gorenje, d.d. and the Gorenje Group for the year 2009 to the Supervisory Board for approval. The Supervisory Board discussed the Annual Report at a meeting held on 16 April 2010.

The Annual Report of Gorenje, d.d. and the Gorenje Group for the year 2009 was audited by the auditing company KPMG Slovenija, d.o.o.. The audit was also performed in all subsidiary companies of the Gorenje Group. On 2 April 2010 the auditing company issued an unqualified opinion on the Annual Report of Gorenje, d.d. and the Consolidated Annual Report of the Gorenje Group for the year 2009.

The Audit Committee of the Supervisory Board examined the 2009 Annual Report together with the Auditor's Report and the Letter to the Management, and presented its comments and opinion in connection therewith.

The Supervisory Board consistently monitored the management and business operations of the Company and the Gorenje Group, and regularly discussed the operating results, financial position and assets, as well as the changed circumstances in the markets where Gorenje is present. In reviewing the submitted Annual Report for the year 2009, the Supervisory Board established the following:

  • Given the financial crisis, recession, and the difficult position in the Group's key markets, the Company's business operation in 2009 was satisfactory despite the loss. The Management Board's responses to the strained conditions were timely and appropriate. By reducing costs on several levels, the Company created significant savings and alleviated the negative result that would have occurred if such measures had not been implemented. In future, the Management Board must endeavour to ensure social peace while considering the interests of all stakeholders, and communicate openly with the public in connection with current issues;
  • In 2009 the Company operated less successfully than planned, but nevertheless much better than estimated at the beginning of the year. This points to a significant improvement in operations in the second half of the year as the consequence of appropriate and prompt measures. The negative result was the consequence of the very low demand for durable consumer goods, poor liquidity of buyers, a poor financial situation in some of the Group's key markets, devaluation of currencies in non-euro countries, declining value of investments, and increased interest rates.

The Supervisory Board has established that the Annual Report for 2009, as prepared by the Management Board and reviewed by the auditing company, has been compiled clearly, transparently and in line with the provisions of the Companies Act and applicable International Financial Reporting Standards. The Supervisory Board has also examined and approved the Auditor's Report and has no comments in connection therewith. On the basis thereof, the Supervisory Board has assessed that the Annual Report presents a true and fair picture of the assets, liabilities, financial position and operating results of the parent company and the Gorenje Group.

On the basis of the above-mentioned findings, the Supervisory Board approved at its meeting held on 16 April 2010 the Annual Report of Gorenje, d.d. and the Consolidated Annual Report of the Gorenje Group for the year 2009 as proposed by the Management Board.

DETERMINATION AND PROPOSED APPROPRIATION OF ACCUMULATED PROFIT

In line with the Companies Act and the Articles of Association of Gorenje, d.d., the Management Board decided that the net loss for the 2009 financial year in the amount of EUR 6,083,995.50 would be charged against retained net profit in the amount of EUR 7,012,593.42, which has been approved by the Supervisory Board.

The Management Board and the Supervisory Board of the Company have proposed to the General Meeting of Shareholders that the accumulated profit for the 2009 financial year in the amount of EUR 928,597.92 remain unappropriated.

In preparing the proposed resolution on the covering of losses for 2009, the Management Board and the Supervisory Board gave due consideration to the applicable provisions of the Companies Act and the Articles of Association of Gorenje, d.d.. Given the fact that the Company operated with losses in 2009, the Management Board and the Supervisory Board propose that dividends not be paid out in 2010.

The Supervisory Board further proposes to the General Meeting of Shareholders that the members of the Management Board be discharged of their duties in 2009.

This report was prepared by the Supervisory Board in accordance with the provisions of Article 282 of the Companies Act (ZGD-1) and is addressed to the General Meeting of Shareholders.

Velenje, 16 April 2010

Dr. Jože Zagožen
Chairman of the Supervisory Board