Raport.

GORENJE GOSPODINJSKI APARATI D.D. (14/2018) Audited consolidated and unconsolidated annual report for the year 2017

Podstawa prawna: Pursuant to the provisions of the Rules and Regulations of the Ljubljana Stock Exchange d.d., Financial Instruments Market Act (ZTFI), and the Corporate Governance Code of the Ljubljana Stock Exchange and Warsaw Stock Exchange, the company Gorenje d.d., Velenje, hereby makes the following announcement:
Issuer: Gorenje gospodinjski aparati, d.d. (short name: Gorenje, d.d.), Partizanska 12, SI-3320 Velenje, Slovenia
Announcement of the Supervised Information's is referring to Article 106 and 110 of Market in Financial Instruments Act.
At the 43rd meeting, held on March 8, 2018, the Supervisory Board of Gorenje, d.d., adopted audited Annual Report of Gorenje, d.d., and the Consolidated Annual Report of the Gorenje Group for the year 2017.
Disclaimer: The English text for all announcements is for information purposes only!
The information included in this announcement will be available at the official website of the company Gorenje d.d., Velenje, at www.gorenjegroup.com, for a period of no less than 10 years from the date of announcement.
Gorenje d.d., Management Board

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    GORENJE
    GROUP
    2 0 17
    ANNUAL
    REPORT


    1 Gorenje Group 4
    1.12017 Performance Highlights 5
    1.2 Key events in 2017 6
    1.3 President and CEO‘s Report 10
    1.4 Supervisory Board Chairman‘s Report 12
    1.5 Gorenje Group Profile 16
    2 Business Report 40
    2.1Economic Sustainability –
    Business Excellence 44
    2.2 Environmental Sustainability 78
    2.3 Social Sustainability 86
    2.4 Risk Management 96
    3 Financial Report Pursuant to the
    IFRS as Adopted by the EU 110
    4
    Compliance with the GRI
    Sustainability Guidelines and
    Integrated Reporting Principles
    194
    4.1 Disclosure of Non-financial Information 195
    4.2 Development of Gorenje Group
    Corporate Reporting 195
    4.3 GRI G4 Sustainability Reporting Content
    Index (‘In accordance’ – Core Option) 197
    4.4 Numbered Table of Contents 203
    The Annual Report is compiled in compliance with the GRI (Global Report\
    ing Initiative) Guidelines, version G4, and it is consistent
    with the select guiding principles and content elements of integrated reporting, pursuant to the fundamental concepts developed
    by the International Integrated Reporting Council (IIRC).
    Contents
    GORENJE GROUP
    IS CREATING VALUE
    FOR ITS STAKEHOLDERS
    IN THE SHORT, MEDIUM,
    AND LONG RUN.
    With the processes and activities aimed at
    economic sustainability – business excellence,
    environmental sustainability, and social
    sustainability, we efficiently use and advance
    our resources. These include six capitals that
    we employ to create and increase value for the
    Gorenje Group and our key stakeholders.


    3
    SOCIAL/
    RELATIONSHIP
    NATURAL
    CAPITAL
    MANUFACTURED
    (INFRASTRUCTURAL)
    CAPITAL
    FINANCIAL
    CAPITAL
    HUMAN
    CAPITAL
    INTELLECTUAL
    (ORGANIZATIONAL)
    CAPITAL
    THE CAPITALS − STOCKS OF VALUE
    PROCESSES AND ACTIVITIES
    aimed at economic sustainability - business excellence, environmental
    sustainability, and social sustainability. CREATED VALUE
    Goal accomplishment is
    measured with key
    performance indicators.
    SOCIAL
    SUSTAINABILITY
    ENVIRONMENTAL
    SUSTAINABILITY
    ECONOMIC
    SUSTAINABILITY –
    BUSINESS EXCELLENCE
    BUSINESS
    ACTIVITIES
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    1
    Gorenje
    Group
    1.1 2017 Performance Highlights 4
    1.2 Key events in 2017 5
    1.3 President and CEO‘s Report 8
    1.4 Supervisory Board Chairman‘s Report 10
    1.5 Gorenje Group Profile 16



    5
    Sales revenue: EUR 1.31 billion This is 4.1% more than in
    2016, and consistent with the Gorenje Group sales plans.
    We have increased the sales of premium brands Asko
    and Atag, and the share of innovative appliances in our
    total sales.
    We are focused on our core activity of Domestic
    Appliances (82.6% of total sales revenue, or 3 p.p. less than
    in 2016 due to steep growth of sales in Other Businesses).
    Sales revenue in our core activity – Domestic
    Appliances: EUR 1.082 billion, which is 0.4% more than
    in 2016.
    Our net profit amounts to EUR 1.3 million.
    EBITDA: EUR 76.4 million.
    EBITDA EBITDA margin: 5.7%
    EBIT: EUR 21.7 million.
    EBIT margin: 1.6%
    Gorenje Group's relative debt increased in 2017.
    Our net financial liabilities/EBITDA ratio in comparable
    terms has worsened, from 3.9 in 2016 to 4.7 in 2017. On the
    other hand, we cut the share of net working capital in sales
    revenue by 0.6 percentage point.
    At the IFA tradeshow in Berlin, we unveiled our virtual
    assistant Anna, smart induction hob Gorenje IQ, upgraded
    designer line of major and small domestic appliances Ora-Ïto,
    the next generation of the WaveActive washing machines,
    and we chose the new colour for the popular Gorenje Retro
    refrigerator.
    Investment into new appliance development was
    stepped up to EUR 33.3 million, which accounts for
    2.5 percent of total Gorenje Group revenue. We
    also increased our marketing and sales promotion
    investments to 2.2% of Gorenje Group's total sales
    revenue.
    Environment protection policy: Intensive adjustment to
    the requirements of the new ISO 14001:2015 standard.
    Reduction in the amount of waste, hazardous (-92%)
    and disposed (-99.6%), relative to the base year 1997.
    Decrease in the use of resources, energy and fuels
    in manufacturing processes, especially water (-83.6%),
    compressed air (-28.3%) and natural gas (-44.7%). Increase
    in power consumption (+6.6%) (all data relative to the base
    year 1997).
    Carbon footprint: 10.93 kg CO
    2 /product (10.94 kg CO 2 /
    product in 2016).
    Average number of employees: 11,039, of which 6,643
    in Slovenia.
    Employee training and education: 70.2% employees
    involved for 203,704 total hours of training and education
    (19 hours per employee).
    Key topics in training and education: Development of
    innovativeness and leadership and coaching skills for leaders;
    improving communication skills, public appearance skills,
    negotiations, and teamwork.
    Corporate University of Gorenje: 24 participants of
    the 26
    th generation of the Management Academy of
    Gorenje completed their training with a presentation of their
    business plans Graduation of the second generation of
    academy for new product development (GCA – Gorenje
    Create Academy) with 23 participants, and the third
    International Business Academy (IBAG) that included 21
    talented employees working in an international environment
    Annual conference Driving Growth Through Innovation
    organized as a part of the Executive Business
    Academy of Gorenje (EBAG) Programs within the Digital
    Business Academy of Gorenje (DBAG), which included
    more than 400 employees from across the globe. 63
    participants from 10 countries tackled the challenges of the
    digital future at the 1
    st international Gorenje Hackathon.
    1.1 2017 Performance Highlights
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    1.2 Key events in 2017
    JANUARY
    Listing of GRV05 commercial paper of the company Gorenje d. d. for tradi\
    ng
    on regulated market
    The company Gorenje d.d. successfully completed the issue of commercial paper.
    Commercial paper with the codes GRV05 bear an interest rate of 1.3 percent, and
    the total nominal value of the issue is EUR 40 million. The purpose of t\
    he commercial
    paper issue is to diversify the short-term financing sources, financing of operations
    with a pronounced seasonal dynamic, and optimization of financing costs.
    FEBRUARY
    Gorenje, a proud sponsor of the Slovenian Nordic Ski Team
    for the past 25 years
    In 2017, Gorenje celebrated a quarter century of partnership
    with the Slovenian Nordic Ski Teams – ski jumpers, cross-
    country skiers, and the Nordic combined team. Years of general
    sponsorship have turned into an inspiring and honest friendship.
    With persistent support through all these years, we made it
    possible for Slovenian ski jumping and cross-country skiing to
    be at the very top in the world today. To commemorate 25 years
    of our cooperation with the Nordic Ski Team, Gorenje prepared
    a travelling exhibition and many promotional activities. Moreover,
    we invited the buyers of our products to the grand finale of the ski
    jumping season in Planica.
    MARCH
    Asko unveils its new line Pro Home
    Laundry in Stockholm
    Asko, Gorenje Group's premium brand
    specializing in high-quality kitchen and
    laundry care appliances, announced in
    Stockholm, Sweden, the launch of a new
    line of Asko Pro Home Laundry products.
    Gorenje donates a cooking hob adapted
    for blind and visually impaired persons
    to the Iris Centre
    We donated a cooking hob from of our
    premium brand Atag, with a specially
    adapted silicone cover for safe use by
    blind and visually impaired persons, to
    the students at the Slovenian Iris – Centre
    for Education, Recovery, Inclusion, and
    Counselling for the Blind and Visually
    Impaired Persons.
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    APRIL
    Gorenje Group wins 4 new Red Dot awards for
    superior design
    In tough competition with over 5,500 product entries from
    across the globe, four Gorenje Group products – two under
    the Gorenje brand and two under the premium brand Asko
    – won this year's Red dot award. Thus, Gorenje Group
    won the international Red Dot »seal of quality« for the 18
    th
    consecutive year.
    MAY
    Gorenje a part of the European summit of electrical appliance
    manufacturers and distributors
    As a leading European home appliance manufacturer, Gorenje Group
    took part in this year's European Technical Consumer Goods Summit,
    an international forum of technical consumer goods dealers that brings
    together the world's key dealers and manufacturers of domestic
    appliances, consumer electronics, and telecommunication and IT
    equipment.
    Fire at the company Kemis
    A fire broke out at the industrial facility of Gorenje's subsidiary Kemis in
    Vrhnika, Slovenia, which also included a hazardous waste warehouse. The fire destroyed a part of the office building and a warehouse with
    less hazardous solid and liquid waste. After examination of all factors
    regarding this event, we shall adopt a decision on the future strategic
    and business policies of the company Kemis.
    Gorenje Group is the first Slovenian company to introduce a case
    of practical use of the HoloLens technology
    At the NT Conference in Portorož, Slovenia, organized by Microsoft,
    Gorenje representatives presented the Gorenje Group digital strategy
    and a case of using the HoloLens technology in the development of new
    products and appliance features.
    JUNE
    Gorenje is becoming one of largest partners of
    European handball
    By signing the sponsorship agreement for three
    competitive seasons of the VELUX EHF Champions
    League and sponsorship agreement for the EHF
    EURO 2018 and 2020, we are becoming one of the
    largest partners of European handball. Sponsorship
    of top-tier handball competition on a global scale
    further improves the recognition of the Gorenje brand
    across the world, and supports the pursuit of the
    strategy of Gorenje Group's global growth.
    Gorenje and its co-owners divest the
    environmental research company ERICo
    Eurofins Scientific, a leading global corporation
    in environmental testing, signed with the owners
    of the company ERICo (Gorenje Group, Šoštanj
    coal power plant, and Velenje Coal Mine) and sale
    and purchase agreement for the acquisition of this
    leading independent environmental testing laboratory
    in Slovenia.
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    JULY
    Corporate University of Gorenje – established to
    promote innovation
    In its UBC (University-Business Cooperation in Europe)
    project, the European Commission recognized the Corporate
    University of Gorenje as a case of sound practice that
    promotes corporate growth and development.
    AUGUST
    Gorenje and Peter Prevc donate school supplies to children in need
    Teaming up with Peter Prevc (the 2016 World Cup Ski Jumping champion),
    we made the back-to-school experience easier and more pleasant for 1,000
    children in need: Gorenje and Peter Prevc presented to the Friends of the
    Youth Association (ZPM) Ljubljana Moste-Polje, Slovenia 3,000 notebooks\
    and 1,000 sets of coloured pencils.
    SEPTEMBER
    At the IFA 2017 tradeshow, Gorenje Group
    presents new developments for more connected
    and simplified life.
    At the IFA tradeshow in Berlin – Europe's largest
    home appliance and consumer electronics tradeshow
    – Gorenje Group presented the latest achievements
    of its global Gorenje and Asko brands, and offered a
    glimpse of the future that belongs to smart connectible
    appliances and interactive technologies. With our
    products and services, which include our virtual
    assistant Anna, presented for the first time at the IFA,
    Gorenje Group proves that the needs and wishes of the users rank just as high among our priorities as design
    and technology.oblikovanje in tehnologijo
    Gorenje's SmartFlex dishwashers win gold award
    for the best Slovenian innovation
    In 2017, Gorenje's innovators won another gold
    national award of the Slovenian Chamber of Commerce
    and Industry for the most innovative enterprises and
    innovators, with their new generation of Gorenje
    SmartFlex dishwashers.
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    OCTOBER
    Gorenje Group's Atag supplies connectible appliances to equip 44 smart
    homes.
    The largest Dutch real estate investment manager Syntrus Achmea selected
    the company Atag, a subsidiary of the Gorenje Group, to equip 44 luxury smart
    apartments with Atag's smart kitchen appliances Connect Life. Thus, Gorenje Group
    entered the market segment of connectible smart appliances, and Atag's experi\
    ence
    will later be used as a platform for connectible appliances for the enti\
    re Group.
    DECEMBER
    Convocation of a Shareholders Assembly
    Based on a request by the shareholders Home Products Europe of
    Netherlands, Raiffeisenbank Austria Zagreb, and Splitska banka, both of
    Croatia, and Unicredit Bank Hungary ZRT, of Hungary, the Management
    Board convened for January 9, 2018, the 25
    th Shareholders Assembly of
    the company Gorenje d.d.
    NOVEMBER
    Gorenje actively examines the possibilities for strategic partnerships
    Based on a preliminary analysis of trends in the household appliances
    industry and related potential strategic alliance opportunities, prepared
    by Rothschild & Co, the Management Board, after informing the
    Supervisory Board in this respect, decided to start to actively search for a
    suitable strategic partner who would support Gorenje Group’s long-term
    and sustainable growth and development, which could also lead to a
    participation of the selected strategic partner in Gorenje's share capital.
    Excellent ideas at the first Gorenje Group Hackathon
    The Corporate University of Gorenje teamed up with the companies
    CorpoHub and Microsoft Slovenia to organize a Hackathon at which 63 participants from 10 countries looked to develop solutions for the
    business challenges of the digital future. Hackathon is among the activities
    we conduct as a part of the Gorenje Group digital strategy.
    Gorenje gets its postage stamp
    Pošta Slovenije (the Slovenian postal service) issued a special-edi\
    tion
    postage stamp from the Slovenian Industrial Design series, depicting the
    Gorenje Simple & Logical washing machine. The revolutionary product
    – the first touch-controlled home appliance – was a global innovation.
    For Gorenje, it meant the start of a user-centric design approach that
    emphasized simplicity of use and which Gorenje continues to pursue
    under the slogan Life Simplified.
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    1.3 President and CEO's Report
    Innovative and premium appliances generate nearly a third of our sales
    Dear shareholders,
    In the second year of executing our 2016–2020 Strategic Plan, we were off to a good start and
    we were even ahead of the budget at the half-year mark in the key categories o\
    f the annual plan.
    However, the third quarter fell well short of our expectations and we issued a warning in November
    that we most likely would not fully accomplish all our goals for 2017. A\
    t the end of the year,
    Gorenje Group revenue amounted to EUR 1.31 billion, which is 4.1 percent more than in 2016 and
    consistently with the budgeted sales. Contributing the most to such revenue growth were sales in
    the markets of Russia, Ukraine, the Netherlands, the Middle and Far East\
    , the USA and Australia.
    Operating profit reached EUR 21.7 million, and the Group's bottom line for the year was net profit of
    EUR 1.3 million.
    We continued to grow in Eastern Europe and non-European
    markets, but our sales were down significantly in our largest
    market, i.e. Germany where we changed our business
    model and sought to boost our sales of built-in and premium
    appliances, and sales through specialized retail chains that
    are better suited for sales of innovative appliances. This
    resulted in major fluctuation of sales in Germany in the
    transitory period, which had an immediate impact on our
    performance.
    There was also a considerable surge in the global prices
    of sheet metal and plastic granulate, which are key raw
    materials for our production. In addition, labour costs were
    also somewhat higher, especially on account on the increase
    of the number of employees in a period of high order volume.We responded swiftly and we are conducting sales
    promotion activities in the markets; we are looking to improve
    cost efficiency and process productivity in all areas; and
    we are looking to improve working capital turnover with
    intensified supply chain financing. At the same time, we are
    also cutting our inventories and complexity.
    We are striving for continuous creation of value for our
    stakeholders. In doing so, however, we do not focus only on
    the short-term, but rather also on the medium- and long-
    term goals.
    New generations of appliances are the
    foundation for solid sales
    In the second half of the year, we launched mass production
    of new generations of free-standing cookers, premium
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    dishwashers, washing machines and dryers, thus updating
    our offer of appliances in the majority of categories for all
    Gorenje Group brands. Thus, we are completing a few-year
    cycle of higher investments that exceeded depreciation and
    amortization.
    A suitable product assortment that is a precondition for
    boosting the sales of innovative products and premium
    brands that are more profitable, and for stepping up our
    sales beyond Europe, which alleviates our reliance on the
    mature European markets.
    Structural changes driving our growth
    It is our strategic policy to boost sales of innovative products
    and premium brands which today already for nearly 30
    percent of total Gorenje Group sales, and of course bring
    in considerably more earnings. We are focused heavily on
    markets beyond Europe, which is also where our growth was
    the steepest last year, and which already account for over
    11.5 percent of Gorenje's total sales. The most important
    markets in this segment are Australia, USA, China, and
    countries of the Middle East.
    We wish to ensure Gorenje Group's long-
    term development
    The trends of globalization and consolidation which have
    been the hallmarks of the white goods industry in recent
    years have compelled us to actively seek opportunities for
    strategic business combination. Gorenje remains one of
    the few companies in the industry, which is not yet a part
    of one of the large multinational corporations. Our products
    have found their way to the homes of end users across
    the globe while competing with the giants in the industry.
    Although we could last for a few more years on our own,
    we believe that laying the foundations of Gorenje's long-
    term competitive edge, further development, and hiring is
    the responsible thing to do.The goal of our combination with strategic partners is
    to boost sales volume, as economies of scale play an
    important role in managing the costs and the resulting
    long-term competitiveness in our industry. If we make
    more appliances, we can, for example, negotiate much
    better prices and payment terms with our suppliers.
    Similar logic applies to development that today focuses
    on digitalization and connectible appliances as a part of
    a smart home. A suitable strategic partnership would not
    only allow us to accelerate our product innovations, but
    also afford access to key distribution channels and help us
    strengthen the power of our brand.
    We have a solid foundation for sales
    growth
    Today, Gorenje Group can take pride in a very solid market
    position in Central and Eastern Europe and the former Soviet
    Union countries, suitable factory locations in Slovenia, Serbia
    and the Czech Republic, powerful development at our
    competence centres in Slovenia, Sweden, the Netherlands,
    and the Czech Republic, a comprehensive range of major
    and small domestic appliances, and of course highly skilled
    and experienced employees.
    We are successfully developing the status of a niche
    manufacturer of premium and innovative appliances and
    designer lines that set the trends in the industry. On the
    other hand, economies of scale are highly important for cost
    management and the resulting long-term competitiveness.
    By focusing on the core activity of home appliances, and
    gradually divesting companies from non-core activities, we
    shall continue to deleverage. Constant decrease of working
    capital, and of course increase in profitability, also remain an
    important source for cutting our debt – and a key goal for us
    in the future.
    Dear shareholders,
    Gorenje Group's long-term development will be driven by
    developing and strengthening of our key competence and
    development abilities and our international competitive edge.
    We will continue to think in a comprehensive and integrated
    manner, and care for sustainable creation of value for our key
    stakeholders.
    Franjo Bobinac
    PRESIDENT AND CEO
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    Supervisory Board chairman's report
    on the audit of the Annual Report of the
    company Gorenje d.d. and the Gorenje
    Group for the year 2017
    Introduction
    Within the powers and responsibilities set forth in the
    relevant legislation, company Articles of Association, Rules
    of Procedure, and Code of Conduct, the Supervisory Board
    supervised in 2017 the operations of the company Gorenje
    d.d. and the Gorenje Group, as well as performed other
    tasks and duties. The Board received regular reports on the
    company's operations, performance, and key activities, and
    adopted relevant resolutions, monitored their implementation,
    and found that the Management Board implemented all
    resolutions adopted by the Supervisory Board.
    General information
    Since the approval of the 2016 Annual Report, the
    Supervisory Board has held ten sessions, of which six were
    regular meetings and four were correspondence sessions.
    The company Supervisory Board consists of eleven
    members of which seven represent shareholder interests and
    four are employee representatives.
    Shareholder representatives:
    • Marko Voljč, chairman, •
    Bernard C. Pasquier, deputy chairman,
    • Uroš Slavinec, deputy chairman,
    • Bachtiar Djalil,
    • Corinna Claudia Graf,
    • Toshibumi Tanimoto (Supervisory Board member until
    April 21, 2017),
    • Miha Košak,
    • Karlo Kardov (Supervisory Board member since
    July 14, 2017).
    Employee representatives:
    • Krešimir Martinjak, deputy chairman,
    • Peter Kobal,
    • Drago Krenker,
    • Jurij Slemenik.
    Supervisory Board members are appointed for a term of four
    years, alternate members have been appointed for a shorter
    term, and their current term expires on July 20, 2018.
    Supervisory Board Activities
    Monitoring various aspects of operations
    and performance
    The Supervisory Board received regular reports on a number
    of aspects of operations and performance. In addition to the
    periodic quarterly business reports, the Management Board
    informed the Supervisory Board on a monthly basis about
    the key activities and business events, sales conditions in
    the markets, changes in raw and processed material prices,
    and management of all types of risk. The Management Board responded to all Supervisory Board questions or inquiries in
    reasonable time. Thus, the Supervisory Board was kept up
    to date with the most important activities at the Group, which
    in turn allowed it to perform the function assigned by the
    shareholders and the employees in the best way possible. The
    Supervisory Board monitored in detail the company operations
    and performance, and execution of the Gorenje Group
    2016–2020 Strategic Plan; sadly, the trend from 2016 of being
    on track with the strategic plan did not continue in 2017.
    Changes in the Gorenje Group
    organization
    The Supervisory Board was presented the new Gorenje Group
    business organization introduced as of February 1, 2017, and
    approved the change in Management Board areas of responsibility,
    consistently with the new organization. Moreover, the Supervisory
    Board was regularly informed about the status of implementation of
    the new Gorenje Group organization in the year 2017.
    Approving our business plans
    In January 2018, we approved the Business Plan of the
    company Gorenje d.d. and the Gorenje Group for the year
    2018. In 2018, Gorenje Group is planning further growth
    of sales revenue and net profit. The Group's sales revenue
    is budgeted at EUR 1.328 billion, which is 1.4 percent
    more than in 2017, despite the planned divestment in the
    Other Business (non-core) segment. Sales revenue in the
    core activity of Domestic Appliances shall amount to EUR
    1,188.7 million in 2018, which is 9.9 percent more than in
    2017. Budgeted gross profit in this segment exceeds the
    figure estimated for 2017 by 6.6 percent. Net profit for the
    1.4 Supervisory Board Chairman's Report
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    2018 fiscal year is planned at EUR 8.1 million. The Group is
    planning a considerable decrease of net financial liabilities,
    largely on account of planned divestments of non-core
    businesses and assets (Other Business), alignment of
    investment with depreciation and amortization, working
    capital optimization, and positive cash flow from operating
    activities. To support the improvement of profitability, the
    Group shall ensure adequate investment into marketing and
    development, and improve cost efficiency regarding raw and
    processed materials, logistics, and labour.
    Based on the activities presented in detail in all fields of
    operation, both in terms of revenue and expenses, we found
    that the Business Plan as presented by the Management
    Board was realistic and we approved it.
    Supervisory Board self-assessment – an
    important indicator of the Supervisory
    Board's work
    With assistance from the Supervisory Board secretary, the
    Supervisory Board conducted its self-assessment using the
    questionnaire from the Slovenian Director's Association.
    Based on the analysis, the Supervisory Board is devoted to
    the measures in the fields with the lowest scores. As early
    as at the next session, we have launched the activities to
    improve the work of the Supervisory Board, making it even
    more effective.
    Appointment of the President and CEO
    for the next term of office
    The Supervisory Board invited the current President and
    CEO Franjo Bobinac to head the Management Board in the
    next five-year term of office. Bobinac consented to being in
    charge of the Management Board in the next term of office,
    and thus he was appointed the Gorenje d.d. President and
    CEO for the term of office from July 20, 2018, to July 20,
    2023. At the same time, the Supervisory Board extended to him the mandate to propose future Management Board
    members and their respective areas of responsibility,
    and submit such proposal to the Supervisory Board for
    discussion and approval.
    Changes in the Management Board
    personnel
    In late February 2017, we approved the consensual
    termination of the term of office of the CFO (Management
    Board member in charge of corporate finance and the
    business area of ecology, trade, and industrial services) Peter
    Groznik. Until the appointment of a new Management Board
    member, this area was managed by Jožica Turk, executive
    vice president of corporate finance. At the Supervisory
    Board session held on April 201, 2017, Žiga Debeljak was
    appointed Management Board member in charge of the
    business area of ecology, trade, and industrial services, and
    corporate finance (the CFO), for the period from May 1,
    2017, to July 19, 2018. As of May 23, 2017, Management
    Board member Žiga Debeljak has also been in charge of IT
    and telecommunications, and organization and processes.
    Other issues addressed by the
    Supervisory Board
    The Supervisory Board approved the 2017 Internal Audit
    annual plan, and examined the new Slovenian Corporate
    Governance Code for Listed Companies, regulations on
    competition protection, report by the Gorenje d.d. Works
    Council for 2016, information about the fire at the company
    Kemis d.o.o., and other major topics concerning further
    development of the Gorenje Group operations.
    The Supervisory Board was also informed about the current
    strategic challenges faced by the Gorenje Group, and about
    the Group's intent to start systematically examining the
    opportunities for strategic partnerships, consistently with the
    currently relevant strategic policies and activities for finding a suitable strategic partner who would support the Group in its
    long-term and sustainable growth and development. These
    activities could result in such potential strategic partners
    acquiring an interest in the company equity.
    Pursuant to the provisions of the Companies Act (ZGD-1), we
    approved the contents and the signing of an agreement with
    an independent auditor, for the audit of the parent company
    and our subsidiaries.
    Supervisory Board committees
    Supervisory Board committees are an inseparable part of the
    Supervisory Board, performing important functions. Specific
    issues were first discussed by committees. Based on their
    findings and judgement, the Supervisory Board adopted
    relevant measures. Observing the relevant legislation,
    and to maintain the sound practice of Supervisory Board
    committees, the Supervisory Board approved the topics or
    issues to be addressed by its respective committees.
    Audit Committee
    Until the August session, the Audit Committee included the
    following four members: Bachtiar Djalil as chairman, and
    members Drago Krenker, Miha Košak, and Aleksander Igličar,
    as the external independent member of the Audit Committee.
    As of August 24, 2017, when Karlo Kardov was appointed
    a Committee member, the Audit Committee consists of five
    members.
    The Audit Committee operated consistently with the
    relevant powers and authorizations specified by the effective
    legislation. The Audit Committee reviewed the compliance with
    the principle of prudence and consistency of reporting
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    Since the approval of the most recent Annual Report, the
    Audit Committee has held seven sessions. In addition to
    reviewing the periodic or interim reports, the Committee
    regularly reviewed the periodic reports on the work of the
    Internal Audit, and other financial and accounting issues
    related to Gorenje Group's operations. The Committee
    proposed to the Supervisory Board a candidate for the
    company auditor for the 2017 fiscal year.
    In addition to regular issues and topics, the Audit Committee
    also discussed the following:
    • raw material purchasing procedure,
    • sponsorship and donation agreements,
    • competition protection,
    • report on the IT audit with a third-party consultant,
    • investment (capex),
    • transfer pricing,
    • succession plan for key employees in finance,
    accounting, and internal audit,
    • report on the audit at the company Gorenje Commerce,
    • ethics and compliance of operations, and the
    whistleblowing system,
    • effects of the newly adopted International Financial
    Reporting Standards,
    • repayment of the loan extended to the company Intersolar,
    • selection of an external auditor to assess the
    performance of the company's Internal Audit,
    • risk management system and the policies for managing
    the currency, interest rate, and credit risks,
    • information security risks,
    • review of implementation of recommendations from the
    auditor's management letters received to date.
    Audit Committee members conducted self-assessment and,
    based on the results, adopted measures to improve their
    work where necessary.
    Benchmark Committee
    The Benchmark Committee consists of chairwoman Corinna
    Graf and members Bernard Pasquier, Peter Kobal, Miha
    Košak, and Karlo Kardov (member since August 24, 2017).
    Toshibumi Tanimoto was a committee member until April 21,
    2017. Since the approval of the most recent Annual Report,
    the Benchmark Committee has held five sessions. It is the
    goal of the Committee to be informed about benchmarks
    against the competition in as many fields as possible. Results
    of analyses are the basis for improvement of operations and
    performance in virtually all aspects of business. The Comm
    d the benchmarks in the following fields:
    • brands,
    • business and operational excellence in production
    programs,
    • small domestic appliances,
    • market shares of the Gorenje Group and its competitors,
    • price positioning,
    • salaries and labour costs,
    • development, purchasing, quality, and logistics,
    • complexity, supply chain management, and cost efficiency,
    • attainment of our strategic goals,
    • trends in the industry,
    • business organization,
    • financial results,
    • and benchmark of other fields against the best in the
    industry.
    Remuneration Committee
    The Remuneration Committee consists of chairman Bernard
    Pasquier and members Uroš Slavinec, Marko Voljč, Drago
    Krenker, Jurij Slemenik, Miha Košak, Karlo Kardov (member
    since August 24, 2017), and Corinna Graf (member since
    August 24, 2017).
    Following the announcement of the resignation by the
    Supervisory Board member Toshibumi Tanimoto, the
    Supervisory Board authorized the Remuneration Committee
    to evaluate the candidates for the substitute Supervisory
    Board member. Based on the previously specified criteria,
    the Remuneration Committee evaluated the candidates and
    proposed Karlo Kardov as a candidate for the substitute
    Supervisory Board member. The Supervisory Board agreed
    with the proposal and proposed to the Shareholders Assembly
    to appoint Karlo Kardov as a Supervisory Board member; the
    Shareholders Assembly approved such proposal.
    The Remuneration Committee evaluated the work of the
    Management Board in 2016, and proposed, consistently with
    the adopted Management Board Performance Criteria, to the
    Supervisory Board to pay out to the Management Board a
    performance bonus for the 2016 fiscal year in the amount of
    five salaries.
    After a consensual termination of the term of office of Peter
    Groznik, CFO/Management Board member in charge of
    corporate finance and the business area of ecology, trade,
    and industrial services, the Remuneration Committee short-
    listed and evaluated the candidates for a new Management
    Board member and proposed to the Supervisory Board to
    appoint, upon proposal by the President and CEO, Žiga
    Debeljak as the CFO/Management Board member in charge
    of the business area of ecology, trade and industrial services,
    and corporate finance.
    Nomination Committee
    The Supervisory Board's term of office expires on July 20,
    2018. Therefore, a new Supervisory Board Nomination
    Committee was appointed in December 2017, consisting
    of chairman Bernard Pasquier and members Marko Voljč,
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    Miha Košak (all three are the Supervisory Board members),
    and external members Irena Prijović, Veit Walkner, Toshikazu
    Kudo, and Saša Žiković. The Nomination Committee short-
    listed and evaluate the candidates for the Supervisory Board
    members for the next term of office and proposed them to
    the Supervisory Board for approval.
    Corporate Governance Committee
    The Corporate Governance Committee consists of chairman
    Bernard Pasquier and members Marko Voljč, Peter Kobal,
    Krešimir Martinjak, and Bachtiar Djalil (member since August
    24, 2017). The Corporate Governance Committee did not
    hold any sessions in 2017.
    Annual Report review and approval
    On February 28, 2018, the company Management Board
    presented to the Supervisory Board for adoption the audited
    Annual Report of Gorenje d.d. and the Gorenje Group for the
    year 2017. The Supervisory Board reviewed and discussed
    the Annual Report at the session held on March 8, 2018.
    The Annual Report of the company Gorenje d.d. and the
    Gorenje Group for the year 2017 was audited by the auditing
    company Deloitte Revizija d.o.o. Members of the Deloitte
    network also audited the majority of Gorenje Group's material
    subsidiaries, as previously agreed upon with this auditing
    company. On February 26, 2018, 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 2017.
    Pursuant to the sound practice to date, the Audit Committee
    examined with due diligence before the Supervisory Board session the 2017 Annual Report, complete with Audit
    Report, additional Report and Management Letter, to
    propose amendments and put forth their positions and
    opinions, which were observed.
    Based on these findings, the Supervisory Board approved at
    the session held on March 8, 2018, the Annual Report for the
    company Gorenje d.d. and the consolidated Gorenje Group
    Annual Report for the fiscal year 2017, as presented by the
    Management Board.
    Distributable profit and proposal
    for its allocation
    In the calculation of the distributable profit for the year 2017,
    the Management Board and Supervisory Board observed
    the effective provisions of the Companies Act and Gorenje's
    Articles of Association. Pursuant to the Companies Act and
    the Company Articles of Association, the Management Board
    decided to allocate a part of the Company net profit for the
    fiscal year 2017, amounting to a total of EUR 473,260.16,
    for statutory reserves in the amount of EUR 47,326.02.
    The Management Board proposed that the remainder of
    the net result for 2017, amounting to EUR 425,934.14,
    retained net profits from previous years in the amount of
    EUR 54,484,284.73, decreased by EUR 56,786.43 due
    to drawing of actuarial deficit for retirement benefits, and
    release of other reserves from profit in the amount of EUR
    12,931,561.56, for the formation of distributable profit, since
    the long-term deferred development costs as at balance
    sheet date have to be recorded, pursuant to the Companies
    Act, as a debit item.
    Distributable profit as at December 31, 2017, amounts to
    EUR 0.
    The Supervisory Board proposes to the Shareholders
    Assembly to grant discharge from liability to the Management
    Board and Supervisory Board for their work in 2017.
    The Supervisory Board compiled this report in compliance
    with the provisions of Article 282 of the Companies Act
    (ZGD-1); it is intended for the Shareholders Assembly.
    Velenje, March 8, 2018
    Marko Voljč
    SUPERVISORY BOARD CHAIRMAN
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    1.5 Gorenje Group Profile
    23.6% Serbia
    Valjevo, Zaječar
    13.6% Czech Republic
    Mariánské údolí
    62.8% Slovenia
    Velenje
    Slovenia
    Velenje
    Czech Republic
    Mariánské údolí
    Netherlands
    Duiven
    Sweden
    Lidköping
    PRODUCTION FACILITIES FOR
    DOMESTIC APPLIANCES
    Design driven
    innovators.
    Gorenje Group is one of the leading home
    product manufacturers.
    CORE BUSINESS
    Major and small
    domestic appliances
    IN 90 COUNTRIES
    WORLDWIDE
    EXPORT
    95%
    GLOBAL PRESENCE
    in 90 countries worldwide, mostly in Europe (91%), also in USA,
    Australia, Middle and Far East
    Sales REVENUE (2017)
    EUR 1. 310 bilion
    EMPLOYEES
    11, 0 3 9
    RESEARCH AND DEVELOPMENT
    COMPETENCE CENTRES
    Corporate Profile
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    Brands
    In over 90 countries across the globe, customers
    trust and rely on Gorenje Group's innovative products
    that deliver simplicity of use, sophisticated aesthetics,
    and excellent quality. Products designed in such way are
    a result of in-depth knowledge of trends, user habits and
    expectations, and the possibilities of modern technologies.
    Digital transformation has become a key goal of business
    strategy at Gorenje Group as well. It means an even greater
    Gorenje Group History
    GLOBAL
    BRANDS LOCAL
    BRANDS
    körting
    PREMIUM
    MID
    BUDGET (Benelux)
    (Nordic countries) (E Europe) (Benelux)
    (SE Europe) (Benelux)
    1961
    First export (to Western Germany)
    1950
    Founded in the village Gorenje
    1958
    Manufacturing of stoves
    1971–1980
    Acquisitions of companies
    bringing synergies to the core business “Everything for
    Home“
    Setting-up own
    distribution network in Western Europe 1991–1996
    Strong
    expansion abroad
    1964
    Production in Velenje, New plant for
    cooking appliances
    1961–1970
    Production of
    washing machines and refrigerators
    1991
    Slovenia becomes
    independent, loss of the former domestic market
    1971
    First sales
    subsidiary
    abroad (Munich)
    1960 Production in
    Velenje begins
    2005
    Acquisition of
    the Chech cooking
    appliances manufacturer Mora Moravia
    2008
    Acquisition of the
    company Atag, the Netherlands
    2010
    IFC, a member of
    the World Bank,
    enters the
    ownership structure
    2012
    Restructuring of production
    facilities and sales organization
    begins, disposal of furniture
    manufacturing business
    1998
    Gorenje, d.d., becomes a public company,
    listing on the Ljubljana Stock Exchange
    2006
    New refrigerator & freezer plant in Valjevo, Serbia
    2010
    Acquisition of
    the company
    Asko, Sweden
    2013
    Strategic
    Alliance with
    Panasonic
    Listing on WSE
    2015– 2016 The beginning of
    new 2016-2020
    Strategy execution: key objectives accomplished
    2014
    Positive effects of restructuring
    focus on the end users and their needs and experiences with
    use of products and related services, which add major value.
    Simultaneously, we are in the process of building the
    Gorenje brand identity with clearly defined added value
    and unique positioning.
    Gorenje Group portfolio consists of:
    • 2 global brands (Gorenje and Asko) and
    • 6 local brands.
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    Business model
    To create value for our stakeholders, we employ
    six capitals: financial, human, intellectual, social, natural,
    and manufactured capital. By conducting our business
    activities, and consistently with our business model,
    our capitals are accumulating. We carefully measure
    the success of our efforts in this respect. We employ
    an integrated approach when considering the results of our
    operations, and we are implementing integrated reporting
    on value creation.
    Gorenje Group's business model is based on business
    excellence. It is interwoven with our corporate culture
    reflected in our values, rules, and conduct.
    Our fundamental mission is sustainable creation of value
    for the shareholders, employees, customers, and other key
    stakeholders, in the short, medium, and long run.
    In pursuit of our mission, we pursue our strategic policies.
    We are focused on the core activity of home products where
    our distinctiveness is based on design-driven innovation:
    aesthetics, ergonomics, and user-friendly controls.
    Growth will mainly be generated in markets beyond Europe.
    We shall enter strategic partnerships in order to reap the
    synergies; we shall use our competitive advantages and create
    positive effects for all Gorenje Group stakeholders.
    We are aware that employees with a wealth of knowledge
    and experience in the home appliance industry and strong
    competencies in research and development are our major
    asset. By managing our own production capacities, we
    control an important link in our value chain. For over 50
    years, we have been expanding our sales network across the
    world and closely following the trends of the global economy.
    Vision, mission, values
    Vision is the fundamental orientation of our operation.
    It is the inspiration leading us to the accomplishment of
    ambitiously set goals. The basic elements of our vision
    are innovation and design in which we have strong
    competencies. They are the source of our key competitive
    advantages.
    MISSION
    CORPORATE VALUES
    Responsibility & Innovation & Entrepreneurship
    Open-
    mindedness Team spirit Respect Efficiency Goal
    orientation Engagement
    We aim to become the most design-driven innovator of home applainces in the world
    We create innovative, design-driven and technically excellent products
    and services for home that simplify user's life
    VISION
    We are pursuing our vision and fulfilling our mission with
    integrated approach and implementation of integrated
    reporting on the creation of value at the Gorenje Group for
    our stakeholders in the short, medium, and long run.
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    Based on our competencies, our competitive advantages
    rely on our superiorly designed products in all home
    appliance product categories, and the smart portfolio of
    brands and products across a varied range of market
    segments. It is also important that our size allows flexibility
    and responsiveness on the one hand, and economies of
    scale on the other.
    In a mature industry with excess capacity, managing the
    costs of material, labour, and services, is of key importance. We strive for operational excellence with improvements in
    process management and key projects.
    Responsibility and sustainability
    mindset
    Our concept of responsibility involves responsible conduct
    and attitude towards fellow employees, business partners,
    buyers, shareholders, the society, and the environment.
    We honour committed effectiveness and goal-orientation.
    We strive for sustainable development by balancing our
    business excellence, environmental sustainability and
    social sustainability.
    In 2017, we continued to pursue our 2016–2020 Strategic
    Plan the central policy of which is global profitable growth
    by which we are looking to attain sales revenue of EUR 1.56
    billion in 2020, with 9-percent EBITDA margin.
    Integrated reporting and business
    reorganization
    On our way to integrated reporting, which in turn is
    based on integrated thinking, we carried out in 2017 a
    reorganization of our business in order to more effectively
    pursue the strategic goals laid down. This business
    reorganization allows us to manager our brands and
    programs, with all key functions, in a more integrated
    and comprehensive manner.
    Taking into account the processes and results of the
    business reorganization, we are striving to:
    • concisely present the ways in which value is
    created and added for our diverse stakeholders, i.e.
    the employees, shareholders, buyers, business partners,
    local communities, and others;
    • clearly reflect the relations between key financial
    and non-financial information about our operations
    and performance;
    exceed mere reporting about the accomplished results, and
    afford an insight into Gorenje Group‘s business future,
    i.e. strategically oriented generation of sustainable value in
    the short, medium, and long run.
    STRATEGIC DIRECTIONS
    STRATEGIC DIRECTIONS
    KEY COMPETENCIES
    OPERATIONAL EXCELLENCE
    SUSTAINABLE VALUE CREATION FOR
    SHAREHOLDERS,
    EMPLOYEES, AND CUSTOMERS
    FOCUS IN
    DOMESTIC
    APPLIENCES
    STRATEGIC ALLIANCES
    FULL PRODUCTASSORTMENT
    OWN
    PRODUCTION
    PEOPLE /
    INDUSTRIAL
    KNOW-HOW SCALE &
    FLEXIBILITY
    INTERNATIONALLY
    DRIVEN BRAND/PRODUCT
    PORTFOLIO
    RESEARCH AND DEVELOPMENT DESIGN
    GLOBALIZATION
    DIFFERENTIATION
    THROUGH DESIGN INNOVATION
    COMPETITIVE ADVANTAGES
    CULTURE = VALUES + NORM S + BEHAVIOURS
    CULTURE
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    Measuring the attainment of our
    strategic goals
    Success of our pursuit of strategic goals is measured with
    key performance indicators (KPI) that cover the financial
    and non-financial aspects of operations.
    At the Gorenje Group level, we have defined 30 indicators
    through which we monitor the pursuit of the strategic
    goals laid down. These KPIs afford a comprehensive
    insight into how Gorenje Group creates value for its stakeholders in the short, medium, and long run. The
    purpose of monitoring is to perceive in a timely manner any
    discrepancies or deviations from the specified goals, to
    identify the causes for such deviations, and to take action.
    Key performance indicators are monitored across the
    following areas:

    financial aspect,
    • market and customers aspect,
    • internal process aspect, and
    • learning and growth aspect. The range of specific indicators that we report, results for
    2017, and goals for 2018 and 2020, are presented in more
    detail in the chart Our Capitals for Sustainable Creation
    of Value and Key performance Indicators (KPI)
    (introduction to Chapter 2).
    The link between measurement of goal accomplishment and
    risk management is presented in more detail in the chart
    Risk management and key performance indicators
    (KPI) in the Risk management section.
    We are monitoring growth and business
    performance with the goal of creating value added for our owners and all others stakeholders on the short, medium and long term.
    We are monitoring
    social and
    regulatory processes, human,
    capital, social and innovation capital. We are monitoring market needs and
    trends; we are orientated towards
    increasing the satisfaction of our
    costumers.
    Financial aspect
    Learning
    and growth aspect Realizing the vision, implementing
    strategies, achieving strategic goals
    Market and
    customers aspect
    Internal process aspect
    We are monitoring the efficiency of
    procurement, logistics and production
    processes, quality, factors and changes that have influence on the entire risk management system.
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    Our Capitals and Creation of Value
    IN CREATING VALUE, GORENJE GROUP EMPLOYS SIX MUTUALLY INTERTWINED CAPITA\
    LS
    Financial capital
    financial sour ces available to an organization for pr oducing
    goods or r endering services. Financial sour ces can be obtained
    thr ough equity or debt, financing, drawing on grants, conducting
    business pr ocesses, and investing.
    Human capita l
    knowledge, competencies, and experience of our employees.
    Their dedication to innovation and impr ovements in performing
    the work duties.
    Intellectual (organization) capita l
    Gor enje Gr oup brands, intellectual pr operty (patents,
    copyrights), and tacit knowledge (systems and pr ocedures).
    Social and relationship capita l
    re lations with investors, suppliers, and business partners, buyers,
    consumers, local communities, decision-makers, expert and
    non-gove rnment organizations, media, and other stakeholders
    who have a decisive impact on our operations. Ability to
    exchange material information with the stakeholders in or der to
    generate value and advance individual and social welfa re.
    Natural capita l
    water , energy , and other natural r esources needed in the
    pr ocess of manufacturing our pr oducts.
    Manufactured (infrastructural) capita l
    pr operty , manufacturing plants, and equipment, other
    machinery and buildings, and infrastructur e (including logistics)
    needed for efficient performance of pr oduction process at our
    manufacturing plants.
    INPUTS OUTPUTS AND
    OUTCOMES
    BUSINESS MODEL
    MISSION AND VISION
    MANAGEMENT
    RISKS AND
    OPPO RTUNITIE SBUSINESS
    PERFORMANC E STRA
    TEGY
    AND RESOURCE
    ALLOCA TION
    BUSINESS
    OUTLOO K
    EXTERNAL ENVIRONMENT
    ECONOMIC
    SUSTAINABILITY –
    BUSINESS EXCELLENCE
    ENVIRONMEN TAL
    SUST AINABILITY SOCIAL
    SUST AINABILITY
    BUSINESS
    ACTIVITIES
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    Owners, shareholders, investors
    (including organized shareholder
    associations)EmployeesBusiness partners
    (buyers, suppliers etc.)
    Why do we
    communicate? Generating value for the shareholders is the fundamental
    mission of each joint stock company and the most
    important management objective. Successful performance
    and sustainable growth generate long-term value of our
    shareholders' investment. Motivated employees are the key to Gorenje's success.
    Together, we are building a culture of mutual trust, respect,
    continuous learning, and responsible and efficient work.
    Recruitment of outstanding employees, promotion and
    compensation policy is based on merit (performance) with equal
    opportunity for all. Our long-term relations with business partners (buyers,
    suppliers, contractors, partners in joint ventures) are based on
    respect, confidence, honesty, integrity and fairness.
    What do we
    communicate? (Focus 2017) We are strengthening shareholder trust and confidence with
    regular communication about the events and developments at
    the company.
    Key topics: Operations and performance: pursuit of the 2016–
    2020 Strategic Plan, major business events, interim business
    results, search for a strategic partner, fire at the subsidiary
    Kemis, activities at trade shows and fairs, awards received. We educate our employees about the pursuit of the company
    strategy and its values – communication campaign Fit for the
    Future. Information about our products, their functionality and
    services, Gorenje Group employee of the year contest, we
    plan employee development (annual reviews), we train our
    employees for use of digital technologies, we provide good
    working conditions, we encourage creativity, innovation, and
    entrepreneurial spirit among our employees, we are developing
    a dynamic management team responsive to changes in the
    environment.Information on perations, major business events, organizational
    changes and our environment protection efforts throughout the
    life cycle of a product: from conception and design, through
    production and use, to disposal after the expiry of its useful life.
    How do we communicate?
    (Communication
    channels and tools)
    Shareholders Assembly, Annual Report, Delničar.g
    (Shareholder.g) newsletter, public announcements in the
    electronic notification systems of the LSE and the WSE, website
    www.gorenjegroup.com with a dedicated page for investors,
    meetings at the company head offices, participation in investor
    conferences at home and abroad, webcasts and meetings with
    investors and analysts following the announcements of major
    business events, proactive communication and provision of
    response to reporters' inquiries. Internal online Gorenje Portal (multilingual), info.g newsletter,
    GIB magazine (information on professional achievements and
    in-depth articles by our employees), bulletin boards, e-inbox (I
    wonder ...) and inboxes for notes, proposals, and questions.
    Electronic notification, works Council and European Works
    Council, extended councils, regular worker assemblies (staff
    meetings), social dialogue, open door to the President and
    CEO's office (personal discussions). Constant contact (in person, telephone, electronic mail,
    video conferences), letter to suppliers, brand and corporate
    websites, use of B2B tools and applications, materials with
    information about our products and Group operations.
    Links to Annual Report contents 2.1.2 Creating value for the shareholders
    1.5.9 Corporate Governance Statement
    3 Financial report
    Relation to the six capitals:

    Financial capital
    • Social and relationship capital
    Risk management:
    Process/operational risks > (1) financial risks 2.3.1 Relations with employees
    2.1.1 Development of key segments
    1.5.4 Vision, mission, values
    Relation to the six capitals:

    Human capital
    Risk management:
    Process/operational risks > (2) Operational risks 2.1.1 Development of key segments
    2.1.3 Business performance
    2.2.1 Gorenje‘s eco cycle
    Relation to the six capitals:

    Intellectual (organizational) capital
    • Natural capital
    Risk management:
    Process/operational risks > (2) Operational risks
    Key stakeholders
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    Consumers, usersMediaGovernment institutions,
    local community
    Why do we
    communicate? Customer and user satisfaction is of key importance for
    company operations and performance as stagnation in sales
    will threaten the pursuit of all other objectives we have laid
    down. Our work is determined by continuous monitoring of
    needs and desires of our buyers, and a quest for safe and
    high-quality products and services, fair prices, quality and rapid
    service, and appropriate after-sales services. The media, or the press, is a key link between Gorenje and
    the broad public. Therefore, we maintain regular and proactive
    relations with them in order to provide timely and quality
    information.
    We consistently observe and regularly fulfil our obligations
    to the government or the state. We comply with all relevant
    regulations, including non-binding and non-mandatory codes
    and guidelines. We support socially beneficial activities and
    decisions with lasting positive effect which improve the quality
    of life in the local and broader environment, and contribute to
    the progress of society.
    What do we
    communicate? (Focus 2017) New developments, innovative user functions of our products,
    energy efficiency, efficiency and ergonomics, tips for safe
    and efficient use of our products, and support in after-sales
    services. Operations and performance: pursuit of the 2016–2020
    Strategic Plan, major business events, interim business results,
    search for a strategic partner, fire at the subsidiary Kemis,
    activities at trade shows and fairs, awards received.‘3
    rd development axis’, competitive conditions for economic
    development, digitization of society, internationalization
    of Slovenian economy, company activities within local
    entrepreneurship (founding of the entrepreneurs' club,
    development strategy for the local community.
    How do we communicate?
    (Communication
    channels and tools) Call centre, product websites, social media, brand magazines,
    electronic newsletter, promotional materials, user research
    Public announcements and press releases, press conferences
    and events, daily communication by telephone and electronic
    media, personal relations with the journalists/reporters, new
    innovative approaches and tools.Dialogue with the government and social partners – directly
    and via representative chambers (Chamber of Commerce
    and Industry of Slovenia, Chamber of Commerce and
    Industry of the Savinja-Šalek Region, participation in Strategic
    Development and Innovation Partnerships (clusters), round
    tables focusing on specific problems, regional development
    conference, meetings with the mayor and municipal
    administration, and inspection authorities relations with
    educational, cultural, and sports institutions.
    Links to Annual Report contents 2.3.2 Quality for our users
    2.2.3 Environmental aspects of our operations
    2.2.4 Efficient resource management
    Relation to the six capitals:

    Intellectual (organizational) capital
    • Natural capital
    Risk management:
    Process/operational risks > (2) Operational risks 2.1.2 Creating value for the shareholders
    2.1.3 Business performance
    1.2 Key events in 2015
    Relation to the six capitals:
    All six capitals
    Risk management:
    Process/operational risks > (4) Risks of reputation and goodwill
    2.3.3 Cooperation with local communities
    2.2.3 Environmental aspects of our operations
    1.5.6 Responsibility and sustainability mindset
    Relation to the six capitals:
    All six capitals
    Risk management:
    Process/operational risks > (2) Operational risks, (3) Market
    risks, (4) Risks of reputation and goodwill
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    Participation and membership in
    organizations
    Gorenje Group has a very broad arsenal of technical
    knowledge and knowledge in natural sciences and
    humanities. With membership and participation in
    professional, education and research, and business
    organizations and associations, our experts and executives
    establish professional and business ties with the key
    stakeholders as they strengthen, develop, and exchange
    knowledge and experience. Our employees are also active
    members of steering committees, boards, professional
    and strategic councils and other key bodies in several
    organizations at the international, national, and regional level.
    Gorenje is a member of representative organizations
    advancing the interests of the business community
    and employers, a member of educational and research
    institutions, national professional or expert organizations
    (key fields: marketing, maintenance, human resource
    management, engineering, library science/bibliothecography,
    tax consulting, auditing, public relations, purchasing,
    corporate finance, management, safety and security
    engineering etc.), and organizations promoting international
    cooperation and friendship among nations, development of
    metrology, quality, standardization, acoustics, innovation,
    toolmaking, electric machinery, occupational health and
    safety, industrial democracy, photovoltaics, corporate security
    studies, data identification and electronic data exchange.
    International organizations:
    • AHAM – Association of Home Appliance Manufacturers
    for USA and Canada, Washington DC, USA
    • CECED – European Committee of Domestic Equipment
    Manufacturers, Brussels, Belgium
    • HKI Industrieverband E.V., Frankfurt/Main, Germany
    • ISLA E.V., Munich, Germany •
    Slovenian Business and Research Association, Brussels,
    Belgium
    • Summit 100 – Association of Business Leaders of
    Southeastern Europe, Ljubljana (Slovenia), Belgrade
    (Serbia), Zagreb (Croatia).
    Awards received in 2017
    Gorenje Group received numerous awards for its
    activities in a variety of fields in 2017. These awards
    are important in confirming that our approach to
    planning and managing our relations with the key
    stakeholders, especially buyers and users, business
    partners, and employees.
    Gorenje’s innovators won the gold national award of the
    Slovenian Chamber of Commerce and Industry for the
    most innovative enterprises and innovators, with their
    new generation of Gorenje SmartFlex dishwashers.
    At the Design Month national award ceremony, Gorenje was
    presented a special award for persistent promotion of
    superior design in the domestic appliance industry.
    Gorenje’s commitment to design is evident in the innovative
    products that have won numerous international design
    awards and ranked among the finalists throughout the 15
    years since the first Design Month.
    At the Days of Professional and Employment Rehabilitation,
    or the REHA Days, 2017, Gorenje received an award for
    good practice of hiring disabled persons, and the Disabled-
    Friendly Company certificate.
    We won the Licensing Award 2017 for the Gorenje
    Retro Special Edition refrigerators, licensed by the German
    Volkswagen, as the winners in the best innovation category.
    The Finance daily paper and the Eko Fund awarded Gorenje
    with the title of the most environmentally friendly company.
    At Gorenje, successful pursuit of our strategy of developing
    environmentally friendly products is also accompanied by
    systematic reduction of energy and water consumption, and
    reduction of waste in manufacturing processes.
    At the Slovenian conference on digital communication
    Diggit, we won the gold award for our online promotion of
    “Gorenje Retro Special Edition: Wrong parking”.
    Gorenje Group receives the Sarajevo Business Forum
    Bridge 2017 award for innovator of the year.  
    Gorenje brand won the Top Serbian Brands 2016 award
    in Serbia, which means it was voted the most popular
    electronics brand among Serbian users.
    We were also awarded the “April 28 certificate” by the
    Serbian Ministry of Labour, Employment, Veteran and Social
    Affairs, for quality occupational health and safety system in
    Gorenje’s cooling appliance factory in Valjevo.
    Gorenje Orodjarna won the golden award at the
    International Industrial Fair 2017.   
    Gorenje Group won 4 more Red dot design awards for
    superior design. Two were awarded for products under
    Gorenje brand, and two Red Dot Best of the Best were
    awarded for products under our premium brand Asko.
    At the Muse international creative award contest,
    Asko won three Muse awards for its campaign
    #inspiredbyscandinavia: Two platinum awards in the
    categories Product or Service branding, and Social Media
    Campaign, respectively, and golden award in the category of
    Magazine Advertising.
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    RUSSIA
    THE NETHERLANDS GERMANY
    SCANDINAVIA SERBIA
    CZECH REPUBLIC
    SLOVENIA
    CROATIA
    Gorenje Group organizational structure is presented in more
    detail in the Financial Report.
    SLOVENIA, VELENJE
    High value-sdded products – cooking appliances, dishwashers, and advanced
    wahing machines and dryers, and niche refrigeration appliances
    CZECH REPUBLIC, MARIÁNSKÉ UDOLÍ
    Freestanding cookers
    SERBIA, VALJEVO, ZAJEČAR
    Cooling appliances and entry-level washing machines and dryers
    Key market map for the Domestic Appliances business
    Our most important markets are Russia, the Netherlands, and Germany.
    UKRAINE
    HUNGARY BIH
    AUSTRIA
    POLAND
    ITALY
    AUSTRALIA
    USASLOVAKIA
    RUMANIA BULGARIA
    BELGIUM FRANCE GREAT BRITAIN CHINA
    Factories of domestic appliances
    Organizational structure and geographical presence
    Organization of core activity of Domestic Appliances
    PARENT COMPANY
    Gorenje, d. d.
    HOLDING COMPANIES
    3
    SALES BUSINESS UNITS
    (incl. representative offices)
    42
    PRODUCTION COMPANIES
    5
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    Gorenje Group Other Businesses
    ETIS (business area of ecology, trade, and industrial
    services)
    The business area ETIS follows the Gorenje Group's
    strategic policy of focusing on the core activity. Therefore, we
    were searching in 2017 for potential strategic investors for
    respective companies of this segment (business area). We
    have divested Gorenje's share in the company Erico.
    In the ETIS business area, we are looking to develop those
    businesses and services that yield synergistic effects
    with the core activity, while at the same time bear the
    potential for independent development and expansion
    from Slovenia to the broad territory of Southeastern
    Europe. Maximum possible autonomy and independence of
    our subsidiaries also translates into greater possibilities when
    looking for potential strategic partners for such companies.
    Corporate values, innovativeness, and digitalization
    processes for business process, products, and services
    are, in addition to care for the brand, the foundations of
    development for the ETIS business area.
    Key policies of the ETIS business area:
    • minimum dependence on the core activity,
    • organization of all operations as independent legal
    entities,
    • independent development and expansion in their own
    fields of operation,
    • openness to business/ownership combinations,
    • preparing the companies for potential divestment,
    • integration in Gorenje Group's core activity with business
    models and specialist knowledge where possible.
    Key areas of development for the ETIS business area:
    • activities based on services and products for the core activity, or derived
    from technological or other knowledge within the core activity: hospitality
    services, toolmaking, machine building, engineering (companies: GTI, Go\
    renje
    Gostinstvo, Gorenje Orodjarna, GAIO, Gorenje Projekt, Energygor),
    • activities supporting the circular economy and entering the value chain either
    at the beginning, during, or at the end of the product's life cycle (companies:
    ZEOS, Surovina, Kemis),
    • activities in rational use of energy and renewable sources of energy
    (companies: GGE, Indop).
    HVAC BAK business area
    The HVAC BAK business area
    combines activities in manufacturing
    and marketing of products
    intended for heating, ventilation
    and air conditioning (HVAC) and
    manufacturing and marketing of
    products for sanitary equipment,
    ceramics, and kitchen and bathroom
    furniture (BAK).
    Key policies of the HVAC BAK
    business area:
    • Sales growth of appliances
    for air conditioning, heating,
    humidifying, and ventilation,
    • Expanding own development of
    heat pumps and water heaters,
    • Production of highly energy-
    efficient water heaters,
    • Boosting the marketing of
    kitchen and bathroom furniture,
    • Expanding the manufacturing
    and marketing operations for
    ceramic tiles and high-quality
    ceramic tiles made of gres
    porcelain,
    • Advancing own development
    and production of kitchen sinks
    and bathroom washbasins for
    industrial customers.
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    Corporate Governance Statement
    Management Board
    Management Board composition and appointment
    First and
    last name Function
    (president
    / CEO,
    member) Field of work within the
    Management Board
    First
    appointment
    to positionGender
    Nationality Year of
    BirthEducation
    Professional
    profileMembership in other
    supervisory bodies
    of non-associated
    companies
    Franjo
    Bobinac President and
    CEO Responsible for the major and small
    domestic appliance segment and
    for corporate support functions,
    corporate marketing, HR and general
    affairs, and joint development July 18, 2003
    MaleSlovenian 1958Bachelor of Economics, Faculty of
    Economics, University of Ljubljana
    MBA, École Supérieure de Commerce,
    Paris Economics
    IEDC – Poslovna šola Bled
    d.o.o., Supervisory Board
    member
    The Management Board consists of the President and
    CEO, and at least two Management Board members, of
    which one is a labour director. The number of Management
    Board members is specified by the Supervisory Board. The
    term of office of a Management Board lasts five years, after
    which period the Management Board may be reappointed.
    The current Management Board started their term of office
    on July 19, 2013. Their term expires on July 19, 2018. The Supervisory Board appoints the Management Board
    members based on their expertise, work experience,
    and abilities to manage and coordinate different aspects
    and fields of operations. Until February 28, 2017, the
    Management Board member had five members; thereafter,
    it had four members, and from May 1, 2017 on, it again
    consisted of five members.
    MANAGEMENT BOARD COMPOSITION IN THE FISCAL YEAR 2017
    Link to detailed presentations of Management Board members:
    http://www.gorenjegroup.com/en/gorenje-group/corporate-governance
    Franjo Bobinac Peter Kukovica Žiga Debeljak Branko Apat Drago Bahun
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    First and
    last name Function
    (president
    / CEO,
    member) Field of work within the
    Management Board
    First
    appointment
    to positionGender
    Nationality Year of
    BirthEducation
    Professional
    profileMembership in other
    supervisory bodies
    of non-associated
    companies
    Peter
    Kukovica Management
    Board member Co-responsible for the business
    segment of major and small
    domestic appliances and in charge of
    operational support functions
    (until May 23, 2017, also in charge
    of IT and telecommunications, and
    organization and processes) April 28, 2014
    MaleSlovenian 1966BS Mechanical Engineering, Faculty of
    Mechanical Engineering, University of
    Ljubljana
    Specialist in Management, Faculty of
    Economics, University of Ljubljana
    MA Business Policy and Organization,
    Faculty of Economics, University of Ljubljana
    PhD, Business Administration and
    Organization, Faculty of Economics,
    University of Ljubljana Mechanical
    engineering,
    business administration
    and organization
    /
    Žiga
    Debeljak Management
    Board member In charge of corporate finance, digital
    business, IT and organizational
    support, and the business area of
    ecology, trade, and industrial services May 1, 2017
    MaleSlovenian 1971BS computer science, Faculty of Mechanical
    Engineering, University of Ljubljana
    MA business administration and organization
    (MBA), Faculty of Economics, University of
    Ljubljana Computer engineering
    business administration
    and organization
    /
    Branko
    Apat Management
    Board member In charge of the business segment
    of heating systems, bathrooms, and
    kitchens, and corporate procurement September
    17, 2007
    Male
    Slovenian 1958BA Economics, Faculty of Economics,
    University of Maribor
    Specialist in Marketing, Cleveland State
    University, Ohio, USA Economics marketing
    /
    Drago
    Bahun Management
    Board member,
    labour director Co-responsible for HR and general
    affairs
    July 18, 2003
    MaleSlovenian 1955BA Sociology – Specialist, Faculty of
    Sociology, Political Science, and Journalism,
    University of Ljubljana Sociology
    /
    Peter
    Groznik Management
    Board member In charge of corporate finance and
    the business area of ecology, trade,
    and industrial services July 19, 2013
    Completion
    of term of
    function/ office
    February
    28, 2017 Male
    Slovenian 1973BA Economics, Faculty of Economics,
    University of Ljubljana
    MA Economics, Kelley School of Business,
    University of Indiana, USA
    PhD Finance, Kelley School of Business,
    University of Indiana, USA Economics
    Finance
    /
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    Statement of Management Responsibility
    The Management Board is responsible for the development and compilation of the Annual Report of G\
    orenje d.d. and the
    Gorenje Group, as well as the financial statements, in a manner that provides to the interested public a true and accurate
    account of the financial position and performance of the company and i\
    ts subsidiaries in 2017.
    The Management Board hereby confirms that the financial statements of Gorenje d.d. and the Gorenje Group have been
    prepared pursuant to the relevant accounting policies; that the accounting estimates have been dev\
    eloped according to the
    principles of prudence and diligence of a good manager; and that the fi\
    nancial statements of the Company and the Group give a
    true and fair account of their financial position and performance in 2\
    017.
    The Management Board is also responsible for adequate and orderly accounting and the adoption of appropriate measures
    for safeguarding property and other assets. The Management Board confirms that the financial statements of Gorenje d.d. and
    the Gorenje Group, complete with the accompanying notes and explanations, were prepared under the assumption of going
    concern and in compliance with applicable legislation and the International Financial Reporting Standards as adopted by the
    European Union.
    The Management Board confirms that, to the best of its knowledge, the financial report has been prepared in compliance
    with the accounting reporting framework, and that it provides a true and fair account of the assets and liabilities, financia\
    l
    position, and profit or loss of the parent company and other companies included in the consolidation of the Gor\
    enje Group. The
    Management Board also confirms that the Business Report delivers a fair account of th\
    e information on relevant transactions
    with related persons or parties, and that it complies with relevant legislation and International Financial Reporting Standards. The
    report follows the international Global Reporting Initiative (GRI) G4 and introduces the concept, principles, and contents elements
    of integrated reporting pursuant to the International Integrated Reporting Framework developed within the global alli\
    ance IIRC –
    International Integrated Reporting Council.
    The President and CEO, and Management Board members are familiar with the contents of integral parts of the Annual Report of
    Gorenje d.d. and the Gorenje Group for 2017, and thus also with their entire Annual Report. We approve the report and confirm
    such approval with our respective signatures.
    Franc Bobinac, Peter Kukovica, Žiga Debeljak, Branko Apat, Drago Bahun,
    PRESIDENT AND CEO MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
    BOARD MEMBER BOARD MEMBER BOARD MEMBER BOARD MEMBER
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    Supervisory Board
    Supervisory Board powers and authorizations
    In addition to its rights and obligations specified by the relevant
    law, the Supervisory Board endeavours to conduct its work
    in a manner that surpasses the prescribed, recommended
    and agreed standards. It devotes its best efforts to ensuring
    that the highest standards of corporate governance are
    implemented at the Gorenje Group. A high degree of
    transparency of operations and proper communication with
    shareholders and other stakeholders are also recognised
    in our environment as being Gorenje's values. International composition of the Supervisory Board is particularly important
    in this respect as its members are able to directly apply their
    rich international experience in practice.
    All Supervisory Board members meet the independence
    criterion as defined in the Slovenian Corporate Governance
    Code for Public Limited Companies. The powers and
    obligations of the Supervisory Board members are the
    same for each member, the only difference being that some
    members are also members of respective Supervisory Board
    committees. These committees conduct their activities in
    accordance with the relevant law and the authorizations
    granted by the Supervisory Board. The Supervisory Board is regularly involved in the development
    of the corporate governance policy which is constantly being
    upgraded and improved, also based on proposals submitted by
    its members. The Supervisory Board works transparently and
    efficiently.
    Supervisory Board composition
    The Supervisory Board consists of seven capital representatives
    elected by the shareholders, and four employee representatives
    elected by the Gorenje d.d. Works Council. The Supervisory
    Board started a new four-year term on July 20, 2014.
    Composition of the Supervisory Board and its committees in the fiscal \
    year 2017
    First and last name Marko VoljčUroš
    SlavinecBernard C.
    Pasquier Corinna
    Claudia Graf Bachtiar
    DjalilMiha Košak
    Toshibumi
    Tanimoto Karlo Kardov
    Krešimir
    MartinjakPeter
    KobalDrago
    Krenker Jurij
    Slemenik
    Function (chair,
    deputy chair,
    member) Chairman
    Deputy
    chairmanDeputy
    chairman Member
    MemberMemberMember Member Deputy
    chairmanMember
    Member Member
    First appointment to
    position July 17, 1998
    July 19, 2010July 19, 2010 July 20, 2014 July 5, 2013July 9, 2016July 20, 2014 July 14, 2017 May 15,
    2002April 7, 1997
    June 19, 1998 May 15, 2002
    Completion/end of
    term April 21, 2017
    Representative of
    capital / employees capital
    capitalcapital capital capitalcapitalcapital capital employeesemployeesemployees employees
    Attendance at SB
    sessions and total
    number of sessions
    (e.g. 5/7) 10/10
    9/1010/10 8/10 9/1010/104/4 3/4 10/109/1010/10 10/10
    Gender MaleMaleMale Female MaleMaleMale Male MaleMaleMale Male
    Nationality SlovenianSlovenianFrench German SlovenianBritish,
    SlovenianJapanese
    Croation SlovenianSlovenianSlovenian Slovenian
    Year of birth 194919511954 1979 197519681952 1975 196319531956 1960
    Education MA
    EconomicsBA
    EconomicsPublic
    administration MA Business
    administration LL.B.
    MA
    Economics
    of European
    Community
    MBABA Business
    administration
    – international
    trade
    MA Finance and
    banking
    LL.B.
    Electrical
    engineeringSales and
    purchase
    manager School,
    Mechanical
    Engineering
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    Ime in priimekMarko VoljčUroš
    SlavinecBernard C.
    Pasquier Corinna
    Claudia Graf Bachtiar
    DjalilMiha Košak
    Toshibumi
    Tanimoto Karlo Kardov
    Krešimir
    MartinjakPeter
    KobalDrago
    Krenker Jurij
    Slemenik
    Professional profile EconomicsEconomicsPublic
    administration Business,
    technology, and
    social work Law
    EconomicsBusiness
    administration Finance, banking
    LawElectrical
    engineeringCommerce
    Mechanical
    engineering
    Independence
    pursuant to Article 23
    of the Code (YES/NO) YES
    YESYES YES YESYESYES YES YESYESYES YES
    Occurrence of conflict
    of interests in the
    fiscal year
    (YES/NO) NO
    NONO NO NONONO NO NONONO NO
    Membership in
    supervisory boards of
    other companies /
    /
    IFC
    representative
    in the board
    of directors of
    Davivienda,
    Colombia, and
    Sogebank, Haiti /
    Loterija
    Slovenije d.d.
    (Lottery of
    Slovenia) Šiauliu
    Bankas,
    Lithuania
    /
    JP Elektroprivreda
    HZ HB d.d., Bosnia
    and Herzegovina
    and Infosistem d.d.,
    Zagreb, Croatia /
    // /
    Membership at
    committees (audit,
    remuneration etc.) Remuneration
    Committee
    Corporate
    Governance
    Committee
    Nomination
    CommitteeRemuneration
    Committee
    Remuneration
    Committee
    Corporate
    Governance
    Committee
    Benchmark
    Committee
    Nomination
    Committee Benchmark
    Committee
    Remuneration
    Committee
    Audit
    Committee
    Corporate
    Governance
    CommitteeAudit
    Committee
    Benchmark
    Committee
    Remuneration
    Committee
    Nomination
    CommitteeBenchmark
    Committee
    Audit Committee
    Benchmark
    Committee
    Remuneration
    Committee Corporate
    Governance
    Committee
    Benchmark
    Committee
    Audit
    Committee
    Remuneration
    Committee Remuneration
    Committee
    Chair / member Member
    Member
    Member Member
    Chairman
    Chairman
    Member
    Chairman Chairwoman
    Member
    Chairman
    MemberMember
    Member
    Member
    MemberMember
    Member
    Member
    Member Member
    MemberMember
    Member Member
    Attendance at
    committee sessions
    and total number of
    sessions (e.g. 5/7) 1/1
    1/17/7 6/7 6/613/134/4 2/2 0/05/67/7 1/1
    Third party member in committees (Audit Committee)
    First and last name Membership in
    committees Attendance at committee sessions and
    total number of sessions (e.g. 5/7) Gender
    Nationality Education Year of birthProfessional
    profile Membership in other supervisory bodies of non-associated companies
    Aleksander Igličar Audit Committee,
    member 5/6
    MaleSlovenian MA Business policy and
    organization 1962
    Economics Iskra Mehanizmi Holding, d. d.,
    Lipnica pri Kropi,
    Javni zavod RTV SLO, Ljubljana
    Supervisory Board committees
    ’ Link to detailed presentations of Supervisory Board members: http://www\
    .gorenjegroup.com/en/gorenje-group/corporate-governance/supervisory-board
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    • Audit Committee
    The Audit Committee operates according to the
    authorizations specified by Article 280 of the Companies
    Act. The Committee includes Bachtiar Djalil as chairman,
    members Drago Krenker, Miha Košak, and Karlo Kardov
    (member as of August 24, 2017), and Aleksander Igličar
    as an independent member. Mr Igličar is a senior lecturer
    of accounting and auditing at the Faculty of Economics
    in Ljubljana.
    • Benchmark Committee
    The committee has the following members: chairwoman
    Corinna Graf and members Bernard Pasquier, Peter
    Kobal, Miha Košak, and Karlo Kardov (member since
    August 24, 2017). Toshibumi Tanimoto was a committee
    member until April 21, 2017.
    The basic task of the Benchmark Committee is to identify
    the companies to which Gorenje Group will be compared
    and benchmarking. The Committee deals mostly
    with methodological issues and specifying the basic
    benchmarking criteria.
    • Corporate Governance Committee
    The committee consists of chairman Bernard Pasquier
    and members Marko Voljč, Krešimir Martinjak, Peter
    Kobal, and Bachtiar Djalil who is a member since August
    24, 2017.
    The task of the Corporate Governance Committee is
    to find the best possible way of organizing the Gorenje
    Group given its increasing international recognition
    and the need for flexibility in all areas of its business
    operations.
    • Remuneration Committee
    The committee consists of chairman Bernard Pasquier and members Uroš Slavinec, Marko Voljč, Jurij Slemenik,
    Drago Krenker, Miha Košak, Corinna Graf (since August
    24, 2017) and Karlo Kardov (since August 24, 2017).
    Powers of the Committee are specified in Corporate
    Governance Code for Publicly Traded Companies (the
    LJSE Code).

    Nomination Committee
    The Supervisory Board's Nomination Committee was
    appointed in December 2017 and it consists of chairman
    Bernard Pasquier and members Marko Voljč, Miha
    Košak (all three are the Supervisory Board members),
    and external members, Irena Prijović, Veit Walkner,
    Toshikazu Kudo, and Saša Žiković. The responsibility of
    the Nomination Committee is to support the Supervisory
    Board and to prepare proposals regarding criteria
    and selection of candidates for membership in the
    Supervisory Board.
    Management Board and Supervisory Board
    compensation and rewards
    The President and CEO, and Management Board members
    signed new employment contracts for the new term lasting
    from July 19, 2013, to July 19, 2018, according to which
    the receipts of the President and CEO and Management
    Board members consist of fixed and variable part. At the
    37th session held on June 25, 2013, the Supervisory Board
    adopted the Management Board Performance Criteria. The
    criteria pertain to the variable part of the reward, and they
    include both quantitative and qualitative criteria. Performance
    criteria also include sustainable development and non-
    financial criteria of relevance for generating long-term
    company value. Variable part of the reward may amount
    to no more than two thirds of the annual compensation of
    the President and CEO or respective Management Board member. In case of satisfactory results, the President and
    CEO and Management Board members shall be entitled to
    reward amounting to base salary multiplied by up to one;
    in case of successful results, salary bonus multiplier shall
    be from at least one to no more than three; in case of very
    successful results, it shall be four to eight. The qualitative
    part of the criteria pertains to new product development
    and innovation, business criteria, financial criteria, and
    criteria regarding the organization and human resource
    management. Quantitative criteria are defined by specific
    quantitative goals.
    Considering the fact that Gorenje Group is organized as a
    corporate group and that Management Board members
    are also tasked with supervising the operations of Gorenje
    Group subsidiaries through their formal membership in
    the Supervisory Board of the holding company Gorenje
    Beteiligungs GmbH, Vienna, Gorenje Supervisory Board
    agreed that they receive a reward for their supervisory
    work at this holding company. President and CEO, and
    Management Board members (Drago Bahun has been a
    Supervisory Board member since September 14, 2016),
    had been receiving since the start of their current term
    compensation for their work in the Supervisory Board of the
    company Gorenje Beteiligungs GmbH, Vienna. All taxes and
    contributions related to this compensation are duly paid,
    as disclosed in the Annual Report. Pursuant to Supervisory
    Board resolution dated August 29, 2013 the President and
    CEO, and the Management Board members were entitled to
    the payment of session fees for supervision of the companies
    Gorenje Beteiligungs GmbH and Gorenje Nederland B.V.
    Consistently with reorganization in which the tasks and
    powers of holding companies were also changed, and the
    change in the business model within the Gorenje Group, the
    President and CEO and Management Board members no
    longer receive any compensation for supervision of holding
    companies Gorenje Beteiligungs and Gorenje Nederland
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    since June 1, 2017, pursuant to the relevant resolution
    by the Supervisory Board. Therefore, gross salaries at the
    parent company were adjusted, following Supervisory Board
    approval, in such way that the changes have a neutral effect
    * For the purpose of this disclosure, travel expenses, reimbursed expenses, and daily allowances do not have to be disclosed as \
    they do not represent compensation to the Management Board.
    on the net receipts of the Management Board members. The
    Company has not adopted a stock option remuneration plan.
    Composition and amount of compensation* of
    Management Board members in the fiscal year 2017, in EUR
    First and last
    name Function
    Fixed
    compensation – gross
    (1) Variable compensation – gross
    Deferred
    compensation
    (3) Severance
    payment
    (4) Benefits /
    perquisites (5)Return of paid-out
    bonus – „claw- back“
    (6) Total gross
    (1+2+3+4+5-6) Total net
    Based on
    quantitative criteria Based on
    qualitative criteria Total
    (2)
    Franc Bobinac President and CEO 339,88242,362 92,543134,905 0031,146 0505,933 205,310
    Žiga Debeljak Member since
    May 1, 2017 196,718
    000 0 05,912 0202,630 82,671
    Branko Apat Member 279,46734,665 78,097112,762 0022,977 0415,206 176,509
    Peter Kukovica Member 278,19234,333 77,600111,933 005,295 0395,420 188,334
    Drago Bahun Member 252,133 34,379 58,09492,473 0019,808 0364,414 151,204
    Peter Groznik Member until
    February 28, 2017 48,671
    39,259 84,989124,248 0234,911 1,080 0408,910 188,850
    Skupaj   1,395,063184,998 391,323576,321 0234,911 86,218 02,292,513 992,878
    Diversity policy
    The company has not adopted diversity policy with regard
    to representation in the managerial or supervisory bodies.
    When recruiting candidates for members of managerial
    and supervisory bodies, the company focuses on expert
    knowledge, work experience, and competences, and does
    not discriminate based on gender, age, or education.
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    Transactions with Gorenje (GRVG) shares conducted
    by Management Board and Supervisory Board
    members
    Pursuant to relevant laws and the Company rules and
    regulations, all recipients of insider information, i.e. members
    of the Management Board, Supervisory Board and the Audit
    Composition and amount of compensation of Supervisory Board and Committe\
    e members in the fiscal year 2017, in EUR
    EURFunction Function-related payments
    – gross per year (1) Attendance fees of SB and Com-
    mittees – gross per year (2) Total gross (1+2)Total netCommuting al-
    lowances (gross) Commuting
    allowance (net)
    Uroš Slavinec Deputy Chairman of the Supervisory Board 20,2503,02523,27516,928 2,0141,465
    Miha Košak Supervisory Board member 18,7505,88524,63517,917 17,15112,474
    Bachtiar Djalil Supervisory Board member 20,6253,90524,53017,841 148108
    Bernard C. Pasquier Deputy Chairman of the Supervisory Board 22,1254,56526,69019,412 15,98311,625
    Corinna Claudia Graf Supervisory Board member 20,6253,63024,25517,641 13,039 9,483
    Toshibumi Tanimoto Supervisory Board member since 21 April 2017 5,7811,7057,4865,445 8,3366,063
    Marko Voljč Chairman of the Supervisory Baord 26,2503,24529,49521,452 42,00830,553
    Jure Slemenik Supervisory Board member 18,7503,24521,99515,997 287209
    Drago Krenker Supervisory Board member 18,7504,56523,31516,957 287209
    Krešimir Martinjak Deputy Chairman of the Supervisory Board 20,2502,58522,83516,608 00
    Peter Kobal Supervisory Board member 18,7502,97021,72015,797 00
    Aleksander Igličar Audit Committee member 12,0001,32013,3209,688 449327
    Karlo Kardov Supervisory Board member since 14 July 2017 8,3061,4309,7367,081 3,5702,596
    Total 231,21242,075273,287198,764 103,272 75,112
    * Amount transferred to the individual‘s current account as payment after withholding of personal income tax; the amo\
    unt does not take into account any subsequent additional payments of the individual‘s personal income tax
    For their work, the Supervisory board members are entitled to
    regular monthly payments, session attendance fees, training
    and the reimbursement of expenses for meeting attendance.
    These expenses are funded from the company's current
    operations. At the 22
    nd Shareholders Assembly held on July
    3, 2015, the Shareholders Assembly adopted the resolution
    on the payments to the Supervisory Board members, which
    brings the payments into line with the provisions of the
    Corporate Governance Code for Companies with State Capital
    Investments, as adopted on December 19, 2014, by Slovenski
    državni holding d.d. (Slovenian Sovereign Holding Company).
    As a result, the sum of shares held by the Supervisory Board
    members increased by 33,566 shares compared to the
    situation as at December 31, 2016.
    As at December 31, 2017, Management Board members
    held a total of 22,848 Gorenje d.d. shares. Peter Groznik,
    who as of February 28, 2017, no longer serves as the
    Management Board in charge of corporate finance and the
    business area of ecology, trade, and industrial services,
    held 7,140 Gorenje d.d. shares upon the end of his
    appointment. Since May 1, 2017, Žiga Debeljak has been the
    Management Board member in charge of corporate finance,
    digital business, IT and organizational support, and the
    business area of ecology, trade, and industrial services. He
    acquired the shares he holds prior to his appointment as the
    Management Board member. As a result, the sum of shares
    held by the Management Board members increased by 1,904
    shares compared to the situation as at December 31, 2016.
    Committee, are required to observe special rules for trading
    in Gorenje d.d., shares, which are commonly referred to as
    trading windows. Such persons are not allowed to trade
    company shares thirty days prior to the announcement of
    periodical results or other information that could affect the
    price per share. In case of any other information that may
    affect the price per share, the restriction of trading shall be
    valid for the entire duration until such information has been
    made public. Secretary to the Management Board shall be
    responsible for compliance with the Rules and Regulations
    on Insider Information and for informing the relevant persons
    with regard to trading windows and trading restrictions.
    As at December 31, 2017, Supervisory Board members
    held a total of 37,136 Gorenje d.d. shares. Karlo Kardov has
    been a Supervisory Board member since July 14, 2017, and
    he holds 33,566 shares which he had acquired prior to his
    appointment as the company Supervisory Board member.
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    GRVG share transactions by Management and Supervisory Board Members Audit
    External audit
    Pursuant to the Companies Act, audit of financial statements
    is mandatory for Gorenje Group companies. Audit has been
    conducted at the Gorenje Group since 1994. The purpose
    of the audit is to increase the level of confidence among the
    users of financial information. The auditor employs relevant
    auditing procedures and methods to review the financial
    statements of the controlling company and the Group, and
    provides opinion on whether such statements comply in all
    material aspects with the International Financial Reporting
    Standards (IFRS) as adopted by the European Union, and
    with the provisions and requirements of the Companies Act.
    The financial statements of the parent company and
    consolidated financial statements of the Group for the 2017
    fiscal year were audited by the auditing company Deloitte
    Revizija d.o.o. that was appointed as the company auditor
    at the Gorenje Shareholders Assembly held on July 14,
    2017. Members of the Deloitte network also audited most
    of the subsidiaries for the 2017 fiscal year. Third-party
    (external) auditors report their findings to the Management
    Board, Supervisory Board, and the Audit Committee of the
    Supervisory Board. The transactions of the parent company
    and the Gorenje Group with the company Deloitte Revizija
    d.o.o. are presented in the Notes to Financial Statements.
    Internal audit
    Also active at the company is the Internal Audit department
    which organizationally reports directly to the President
    and CEO, and functionally to the Audit Committee or the
    Supervisory Board. Internal audits are conducted throughout
    the Gorenje Group in compliance with the International Ownership Net acquisition in the year
      20162017 20162017
    Supervisory Board total 3,57037,136 ––
    Marko Voljč
    1 – – ––
    Uroš Slavinec
    1 – – ––
    Bernard Pasquier
    1 – – ––
    Corinna Graf
    1 – – ––
    Toshibumi Tanimoto
    1,2 – – ––
    Bachtiar Djalil
    1 – – ––
    Krešimir Martinjak
    1 115 115 ––
    Drago Krenker
    1 – – ––
    Jurij Slemenik
    1 2,038 2,038 ––
    Peter Kobal
    1 1,355 1,355 ––
    Miha Košak
    3 62 62– –
    Karlo Kardov
    4 – 33,566 ––
    Management Board total 20,94422,848 ––
    Franjo Bobinac 4,0964,096 ––
    Drago Bahun 9,0829,082 ––
    Peter Groznik
    5 7,140 –––
    Branko Apat 626626 ––
    Peter Kukovica –– ––
    Žiga Debeljak
    6 9,044
    1 Supervisory Board in the term from July 20, 2014, to July 20, 2018.
    2 Toshibumi Tanimoto was a Supervisory Board member until April 21, 2017.
    3 Miha Košak has been a Supervisory Board member since July 9, 2016.
    4 Karlo Kardov has been a Supervisory Board member since July 14, 2017.
    5 Peter Groznik was a Management Board member until February 28, 2017.
    6 Žiga Debeljak has been a Management Board member since May 1, 2017.
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    Standards and Core Principles for the Professional Practice
    of Internal Auditing. The department is pursuing its mission
    based on a work plan spanning several years. Internal Audit
    provides objective assurances to the Management Board
    and the Audit Committee, and conducts consulting tasks.
    With their operation, they support the pursuit of strategic
    and business goals, and contribute to mitigation of risks to
    an acceptable level. It regularly reports on its work to the
    Management Board, and it reports at least on a quarterly
    basis to the Supervisory Board's Audit Committee. Pursuant
    to the Internal Auditing Standard 1110, organizational
    independence of the internal audit department is periodically
    reviewed and confirmed.
    The Internal Audit also contributes added value by
    constructive cooperation with the Audit Committee,
    external auditor, and other functions at the Gorenje Group,
    which conduct a preventive and supervisory role. Value
    added is also generated by providing assessments about
    the comprehensiveness of the business process system.
    Assurances and evaluations or assessments of particular
    processes allow a more reliable risk assessment for each
    process, which in turn yields better foundations for audit
    planning and preparation for each audit.
    Improvement in the quality of internal auditing at the Gorenje
    Group is evident in the attainment of strategic goals and in the
    implementation of Internal Audit's the quality assurance and
    improvement program. The program involves regular internal
    and external assessments as we make sure the operations
    of internal audit meets the expectations of the Management
    Board and the Audit Committee. Pursuant to the Standards
    1300, we can confirm compliance with the International
    Standards for the Professional Practice of Internal Auditing.
    By consulting on setting up and improvement of the internal
    controls system, we have improved transparency, traceability, and responsibility in many processes, which in turn has
    improved our operations and overall performance. We are
    working with the Organization Department and the Risk
    Management Department to align and harmonize the internal
    control systems, which will lead to their comprehensiveness
    and simplify monitoring and control testing.
    In 2017, a certified IT system auditor joined the department
    and thus the scope of department competencies increased
    accordingly. In addition to the increase in the number of
    employees and educational profile in recent years, we used
    an application to automate many support activities, which in
    turn allowed a greater number of audits per employee and a
    shorter auditing cycle.
    In the future, we will continue the activities that lead
    the department towards continuous auditing, key risk
    management, and key control monitoring.
    Compliance with the Slovenian Corporate
    Governance Code for Public Limited
    Companies
    The company Management Board and the Supervisory
    Board hereby declare that Gorenje d.d., observes in its
    work and operations the Slovenian Corporate Governance
    Code for Public Limited Companies as defined and adopted
    in 2016 by Ljubljanska borza d.d. (the Ljubljana Stock
    Exchange) and the Slovenian Director's Association, which
    is available at the Ljubljana Stock Exchange website at
    http://www.ljse.si in Slovenian and English, with particular
    discrepancies or deviations disclosed and explained below.
    The contents of the statement pertain to the period from
    January 1, 2017 when the new Code was adopted, to
    March 8, 2018, when its contents were jointly drawn up and adopted by the Gorenje d.d., Management Board and
    Supervisory Board.
    Recommendation 1
    The fundamental goals of the company are not specified in the
    Articles of Association; however, they are clearly specified in
    the company mission: »We create innovative, technologically
    superior products and services for the home, inspired by
    design, which bring simplicity to the lives of our users.«
    Recommendation 4
    The company has not adopted a diversity policy with regard
    to representation in the managerial or supervisory bodies.
    When recruiting candidates for members of managerial
    and supervisory bodies, the company focuses on expert
    knowledge, work experience, and competences, and does
    not discriminate based on gender, age, education, or other
    personality traits.
    Recommendation 8.8
    According to the current practice, the General Meeting of
    Shareholders votes on the discharge to the members of the
    Management Board and Supervisory Board simultaneously.
    This has been proven appropriate and consistent with the
    method of work employed so far, the high standards of
    cooperation of the two bodies in their joint response to issues
    of relevance for the Company and its development, the
    reasonable equal treatment of the duties and responsibilities
    of their members as stipulated by law, and the attained level
    of trust.
    Recommendation 12.9
    The company has not established processes for ordering of
    third-party services required for the work of the Supervisory
    Board, separately for services in which the company is
    represented by the Management Board, and services in
    which the company is represented by the Supervisory Board
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    chairman, as this is not reasonable considering the frequency
    of ordering of such services.
    Recommendation 13.1
    The Supervisory Board does not adopt an annual plan
    for Supervisory Board member training and approximate
    training costs, since Supervisory Board members take part in
    training and education programs based on currently available
    courses and seminars.
    Recommendation 15.4
    The Supervisory Board has three deputy chairs; two are
    representatives of capital, and one is a representative of
    employees.
    Recommendation 15.5
    Pursuant to the effective Supervisory Board Rules of
    Procedure, expansion of agenda at the session is permissible
    if it is proposed in writing with relevant explanation or
    justification, and complete with resolution proposals, and
    if none of the Supervisory Board members oppose such
    expansion of the agenda.
    Recommendation 18.1
    The issue of Supervisory Board committee founding is
    regulated by the Supervisory Board Rules of Procedure.
    The Supervisory Board includes an Audit Committee,
    Corporate Governance Committee, Benchmark Committee,
    Remuneration Committee, and Nomination Committee
    appointed in December 2017.
    Recommendation 21.3
    Recommendation on severance payments to the
    Management Board shall be observed and implemented to
    the greatest extent possible, except for the case of dismissal
    pursuant to Article 268, Paragraph 2, Section 4 of the
    Companies Act.
    Corporate governance rules for companies
    listed on the Warsaw Stock Exchange
    Best Practices for WSE Listed Companies are a set of
    corporate governance rules that apply to companies listed
    on the Warsaw Stock Exchange. The purpose of the said
    Best Practices is to improve transparency of WSE-listed
    companies, to improve communication between companies
    and investors, and to protect the rights of shareholders,
    including the rights not regulated by law, without imposing
    unnecessary burden on the WSE-listed companies to
    an extent when such burden would exceed the benefits
    resulting from market requirements. The Best Practices for
    WSE Listed Companies are available at the Warsaw Stock
    Exchange website at https://www.gpw.pl/root_en in English
    and Polish.
    The Management Board and the Supervisory Board
    hereby declare that Gorenje d.d. complies with the
    Best Practices for WSE Listed Companies in its work
    and operations, with particular discrepancies or
    deviations disclosed and explained hereinafter.
    The contents of the statement pertain to the period from the
    adoption of the previous Statement on the compliance with
    the Best Practices for WSE Listed Companies, i.e. from April
    20, 2017, to March 8, 2018, when its contents were jointly
    drawn up and adopted by the Gorenje d.d., Management
    Board and Supervisory Board.
    • Detailed principle I.Z.1.15: announcement of
    information on the company website about the
    diversity in the managerial and supervisory bodies,
    and in key positions:
    The company has not adopted any document specifying
    or providing a policy of diversity in the managerial or
    supervisory bodies and key positions. •
    Detailed principle I.Z.1.16: announcement of
    information on the company website regarding the
    planned broadcast of the Shareholders Assembly:
    The company does not offer a Shareholders Assembly
    broadcast; therefore, such information is not provided.
    • Detailed principle I.Z.1.20: release of audio or video
    recording of the Shareholders Assembly on the
    company website.
    Neither the Companies Act nor the Corporate
    Governance Code (the LJSE Code) or the Rules of
    Procedure of the Shareholders Assembly require the
    Company to record the Shareholders Meeting in any
    other form than in writing; therefore, the company does
    not publish such recordings in audio and/or video format.
    • Recommendation IV.R.2: regarding the provision
    of possibilities to the shareholders to attend
    the Shareholders Assembly by means of a live
    broadcast of the Shareholders Assembly and the
    possibility of direct communication during the
    Shareholders Assembly, despite the fact that the
    shareholder is at another location, other than the
    location of the assembly.
    The Company does not offer such options to its
    shareholders.
    • Detailed principle IV.Z.2: regarding provision of a
    publicly available broadcast of the Shareholders
    Assembly:
    According to the Shareholders Assembly Rules of
    Procedure, only shareholders (and their representatives
    or proxies) and members of the Management Board and
    Supervisory Board may be present at the Shareholders
    Assemblies. This is due to the fact that during the
    Shareholders Assembly sessions, discussions on matters
    that are classified as company's business or professional
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    secret may take place, which the company is not willing
    to share with the general public. Therefore, the Company
    does not allow a publicly available broadcast of the
    Shareholders Assembly.
    • Detailed principle IV.Z.3: allowing the presence
    of the press (media representatives) at the
    Shareholders Assembly:
    According to the Shareholders Assembly Rules of
    Procedure, only shareholders (and their representatives
    or proxies) and members of the Management Board and
    Supervisory Board may be present at the Shareholders
    Assemblies. This is due to the fact that during the
    Shareholders Assembly sessions, discussions on matters
    that are classified as company's business or professional
    secret may take place, which the company is not willing
    to share with the general public.
    • Detailed principle IV.Z.17 regarding the conditional
    dividend payment does not apply to the Company
    due to the fact that under the Slovenian Companies Act,
    the Shareholders Assembly may not vote on or adopt
    decisions on conditional dividend payment.
    • Detailed principle IV.Z.18 regarding the minimum
    possible nominal value of the shares following the
    share split does not apply to the company due to the
    fact that company shares are no par value shares.
    • Recommendation VI.R.1: in part which refers to the
    Company adopting rules defining the remuneration
    policy for the Supervisory Board members:
    The Company has not adopted rules for defining
    the remuneration of the members of the Supervisory
    Board. According to the Articles of Association and
    the Shareholders Assembly Rules or Procedure, the
    Shareholders Assembly shall be entitled to set forth the remuneration of the members of the Supervisory Board
    upon their sole discretion. The Management Board
    does not have any influence on the decisions of the
    Shareholders Assembly regarding the remuneration of
    the Supervisory Board members.

    Recommendation VI.Z.2, pertaining to the options
    and other instruments related to company shares is
    not in use since the company has not adopted a plan for
    rewarding the Management Board with options.
    Shareholders Assembly
    The Shareholders Assembly is the highest body of corporate
    governance at the company. It consists of shareholders who
    vote and adopt resolutions on all issues specified by law, the
    most important being the appropriation of accumulated profit
    (allocation of distributable profit) and statutory issues. The
    Management Board convenes the Shareholders Assembly
    at least once per year. The Assembly session takes place
    in Velenje at the company headquarters. All shareholders
    have equal voting rights as all shares of the company are of
    the same class and each share bears the right to one vote.
    Treasury shares (or own shares) are an exception in this
    respect as they do not bear voting rights pursuant to the
    relevant law.
    Shareholders may participate in the Shareholders Assembly
    sessions directly or indirectly by selecting one of the
    proposed proxies who collect shareholder authorizations in
    accordance with the law. The option of indirect participation
    in Shareholders Assemblies, which the Company has been
    providing for several years now, is in particular to encourage
    minority shareholders to exercise their voting rights. Proposed resolutions and explanations thereof, as well as
    information on the resolutions adopted by the Shareholders
    Assembly, are announced pursuant to the Rules and
    Regulations of the Ljubljana Stock Exchange on the
    LJSE website (http://seonet.ljse.si/, at the Warsaw Stock
    Exchange website (www.gpw.pl), and on the Gorenje Group
    corporate website (http://www.gorenjegroup.com). Moreover,
    information on Shareholders Assembly convocation and
    resolutions are announced in the Delo daily newspaper
    (http://www.delo.si/). Such communication ensures equal
    treatment and information to all shareholders and the
    interested public.
    Official language of the Shareholders Assembly is Slovenian.
    Simultaneous translation into English and from English to
    Slovenian is also provided.
    Shareholders Assembly sessions are closed to the public
    and only the shareholders present are aware of the entire
    contents and the course of the meetings. After the Assembly
    session, the adopted resolutions are publicly announced and
    any other events at the session are explained as required in a
    press release or a public announcement.
    Shareholders Assembly in 2017
    At the 24
    th Shareholders Assembly which took place on
    July 14, 2017, the shareholders were presented the 2016
    Annual Report, receipts by the Management Board and
    Supervisory Board members, Auditor's Report, and the
    Supervisory Board Report on the results of Annual Report
    audit for the year 2016, and its approval. The company
    Shareholders Assembly approved the proposal to allocate
    the distributable profit for the 2016 fiscal year, in the amount
    of EUR 2,430,330.20, to dividend payment. Dividend
    amounted to EUR 0.10 gross per share. The shareholders
    granted discharge to the company Management Board and
    2017 PERFORMANCE HIGHLIGHTSKEY EVENTS IN 2017PRESIDENT AND CEO'S REPORT SUPERVISORY BOARD CHAIRMAN'S REPORT GORENJE GROUP PROFILE
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    39
    Supervisory Board for the 2016 fiscal year. The shareholders
    appointed the company Deloitte revizija d.o.o. Dunajska
    cesta 165, Ljubljana, as the company auditor for the 2017
    fiscal year. The company Shareholders Assembly appointed
    Karlo Kardov as Supervisory Board member representing
    the interests of the shareholders, with a term of office from
    July 14, 2017, to July 20, 2018. No challenging action was
    announced at the Assembly.
    Shareholders Assembly in 2018
    Based to the request by the shareholder Home Products
    Europe B.V., shareholder Raiffeisenbank Austria d.d., Zagreb,
    shareholder Splitska banka d.d., and shareholder Unicredit
    Bank Hungary ZRT for the convocation of the Shareholders
    Assembly of the company Gorenje d.d., filed pursuant
    to Article 295, Paragraph 3, of the Companies (ZGD-1),
    and Article 27, Paragraph 2 of the Company Articles of
    Association, the Management Board of the company Gorenje
    d.d. convened the 25th Shareholders Assembly that took
    place on January 9, 2018. In the request for convocation,
    the shareholders proposed to terminate the term of office of
    two Supervisory Board members, and to appoint two new
    Supervisory Board members. The Shareholders Assembly
    did not vote in favour of the proposal to replace the two
    Supervisory Board members. No challenging action was
    announced at the Assembly.
    2017 PERFORMANCE HIGHLIGHTSKEY EVENTS IN 2017PRESIDENT AND CEO'S REPORT SUPERVISORY BOARD CHAIRMAN'S REPORT GORENJE GROUP PROFILE
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    Business
    Report
    2.1 Economic Sustainability – Business Excellence 40
    2.2 Environmental Sustainability 78
    2.3 Social Sustainability 86
    2.4 Risk Management 96


    41
    We employ the six capitals to generate value in the short,
    medium, and long run.
    We are striving to balance the business, environmental,
    and social aspects of our operations. In doing so, we are
    pursuing the goals laid down in the Strategic Plan for the
    period 2016–2020. Success in the pursuit of our goals is
    measured with the following key performance indicators:
    Focusing on the core activity of Domestic
    Appliances (share of sales revenue from core
    activity in total Group revenue)
    RESULTS IN 2017
    82.6%
    2018 PLAN
    Gorenje Group revenue growth +1.4%
    Growth of revenue from sales in the core activity of Domestic
    Appliances +9.9% (89.5% share)
    TARGET BY 2020
    92,3%
    1 ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence / Performance
    Revenue from sales beyond Europe and its
    share in total revenue in the core activity
    Domestic Appliances
    RESULTS IN 2017
    Revenue from sales beyond Europe:
    EUR 125.3 million; share: 11.6%
    2018 PLAN
    In 2018, further revenue growth is planned
    in markets outside Europe.
    TARGET BY 2020
    Revenue EUR 196 million; share 14%
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence / Performance
    Revenue from sales of the premium brand
    Asko and its share in total revenue in the core
    activity Domestic Appliances
    RESULTS IN 2017
    Revenue EUR 120.6 million; share: 11.2%
    Sales of the premium brand Asko in 2017 was successful as
    it was higher relative to 2016 in all geographic segments.
    2018 PLAN
    We are planning further growth of sales for the products
    of the premium brand Asko, consistently with the goals
    specified in the Strategic Plan.
    TARGET BY 2020
    Revenue EUR 205.6 million; share 14.3%
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence / Performance
    Share of revenue from sales of premium
    products in major domestic appliance revenue,
    within the core activity of Domestic Appliances
    RESULTS IN 2017
    28.8%
    2018 PLAN
    Growth of revenue from sales of premium appliances will be
    supported by investment into marketing and development.
    TARGET BY 2020
    30%
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence / Performance
    Financial capital
    Human capital
    Intellectual (organizational) capital
    Social/relationship capital
    Natural capital
    Manufactured (infrastructural) capital
    Economic Sustainability – Business Excellence
    Environmental responsibility
    Corporate social responsibility
    Our capitals for sustainable
    creation of value and key
    performance indicators (KPI)
    1 The figures are not entirely comparable as pursuant to the change in Gorenje
    Group organization the core activity of Domestic Appliances since 2017 no longer
    includes the HVAC segment (production and marketing or products for heating,
    ventilation, and air conditioning) that was included in the core activity Home during
    the development of the Strategic Plan for the period until 2020.
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    42
    Gorenje Group revenue
    RESULTS IN 2017
    EUR 1.31 billion
    2018 PLAN
    1.33 billion
    TARGET BY 2020
    1.56 billion
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Performance
    Attainment of EBITDA margin
    RESULTS IN 2017
    5.7%
    2018 PLAN
    6.5%
    TARGET BY 2020
    9%
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Performance
    Net financial liabilities to EBITDA ratio
    RESULTS IN 2017
    4.7
    2018 PLAN
    3.2
    TARGET BY 2020
    <2.5
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Performance
    Attainment of cash flow from operating and
    investing activities
    RESULTS IN 2017
    EUR -14.5 million
    2018 PLAN
    We shall continue to optimize our working capital and
    generate positive cash flow.
    TARGET BY 2020
    Goal for 2019 is EUR 25 million.
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Performance
    Share of employees participating in training
    and education
    RESULTS IN 2017
    70.2%
    2018 PLAN
    We shall strive to keep the approaches, activities and various
    training programs we conduct modern and innovative, and
    that they will allow our employees to better connect, transfer
    their knowledge, and develop the required skills for their
    personal and career development, and of course for the
    growth of the company.
    TARGET BY 2020
    90%
    ’ Link to Annual Report contents
    Social sustainability/Relations with employees
    Number of work accidents
    RESULTS IN 2017
    Increase in the number of work accidents by 5%
    (relative to 2016).
    2018 PLAN
    We shall strive for decrease of the number of work accidents
    as a part of zero-tolerance policy for work accidents and
    encouragement of a healthy lifestyle.
    ’ Link to Annual Report contents
    Social sustainability/Relations with employees (occupational safety
    and health)
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    43
    Investments into product development
    (% of Gorenje Group total revenue)
    RESULTS IN 2017
    2.5%
    2018 PLAN
    2.9%
    TARGET BY 2020
    Consistently with our strategic policies, we support the
    growth of sales with targeted investment into new product
    development.
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Development of key areas
    Retailer satisfaction (measured indirectly
    through sales representative satisfaction
    with the Salesforce tool)
    RESULTS IN 2017
    Our sales representatives find during their visits to our key
    accounts (in terms of revenue generated with them) that the
    share of those who are very pleased about Gorenje (rating 5
    or 4) has increased by 5 p.p. relative to the year before.
    2018 PLAN
    Our goal is to improve the satisfaction of our sales
    representatives and thereby indirectly the satisfaction of
    our retailers (buyers). Satisfaction is measured using the
    Salesforce tool which was introduced at the end of 2017 in
    35 countries, while in 2018 we intend to implement it in some
    markets beyond Europe, as we come even closer to the
    customer, consistently with our strategy.
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Quality for the users
    Hazardous waste
    (kg/unit)
    RESULTS IN 2017
    0.044
    2018 PLAN
    0.05
    TARGET BY 2020
    0.05
    ’ Link to Annual Report contents
    Environmental sustainability / Efficient resource management
    Waste for disposal
    (kg/unit)
    RESULTS IN 2017
    0.005
    2018 PLAN
    0.005
    TARGET BY 2020
    0.005
    ’ Link to Annual Report contents
    Environmental sustainability / Efficient resource management
    Manufacturing
    plants
    RESULTS IN 2017
    Key manufacturing plants and information about domestic
    appliance production volume: Slovenia (62.8%), Serbia
    (23.6%), and Czech Republic (13.6%).
    2018 PLAN
    We shall develop and optimize the Gorenje Group
    manufacturing plants and provide their cost efficiency and
    competitiveness.
    ’ Link to Annual Report contents
    Economic Sustainability – Business Excellence/Development of key areas
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    2.1 Economic Sustainability – Business Excellence
    Business excellence – results 2017 and plans/budgets 2018, complete w\
    ith outlook until 2020:
    Focus on the core activity
    Domestic Appliances
    Our core activity Domestic Appliances generated 82.6 percent
    of total Group sales revenue in 2017 Consistently with our
    strategic focus on our core activity, our plans for 2018 include
    increasing the share of sales revenue in the core activity
    Domestic Appliances by 6.9 percentage point (89.5 percent
    of total Group sales revenue), and the revenue at the Group
    level by 1.4 percent. By 2020, revenue in the core activity will
    account for over 92
    2 percent of total Gorenje Group revenue.
    82.6% 89.5%
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    92.3%
    Revenue from sales beyond Europe and its share in total revenue in the
    core activity Domestic Appliances
    Our sales revenue in markets beyond Europe (Rest of
    World) in 2017 amounted to EUR 125.3 million, which is
    12.4 percent more than in 2016. The share of sales outside
    Europe in total revenue of the core business of Domestic
    Appliances increased relative to 2016 by 1.2 percentage
    point, to 11.6 percent. In addition to the change in currency
    exchange rates, sales in non-European markets were affected by the change in dynamics of orders from industrial/
    OEM deal partners and lower sales in some markets of
    South America. We saw significant growth in Australia, North
    America, some markets in South America, Asia, and in the
    markets of the Middle and Far East (especially Saudi Arabia).
    2 The figures are not entirely comparable as pursuant to the change in Gorenje
    Group organization the core activity of Domestic Appliances since 2017 no longer
    includes the HVAC segment (production and marketing or products for heating,
    ventilation, and air conditioning) that was included in the core activity Home
    during the development of the Strategic Plan for the period until 2020.
    125,3 EURm
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    196 EURm
    Further growth of
    revenue in markets beyond Europe
    Sales beyond Europe
    (Rest of World) Share of the core activity
    Domestic Appliances revenue (%)
    11.6%
    14%
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    45
    In 2018, we are planning a significant increase in sales in the
    following markets:
    • Australia: due to growth of sales of the new generation
    of washing machines and dryers, with higher average
    sales prices, higher sales of washing machines and
    dishwashers with higher average sales prices, and sales
    of cooking appliances;
    • Middle and Far East: due to sales of kitchen appliances
    on account of expansion, with higher average sales
    prices, sales growth of the new generation of washing
    machines and dryers, and washing machines and
    dishwashers;
    • Thailand: on account of rapid growth of sales of cooking
    appliances with higher average sales prices, sales growth
    for refrigerator freezers, with higher average sales prices;
    and sales growth in other programs;
    • Rest of Asia: on account of rapid growth of sales of
    cooking appliances with higher average sales prices,
    sales growth for washing machines and dryers from the
    new generation, with higher average sales prices; and
    rapid sales growth of dishwashers.
    By expanding our sales to markets beyond Europe, our
    revenue in this sales region will reach EUR 196 million by
    2020, or 14 percent of total sales in the Domestic Appliances
    business. This will have a positive effect of reducing our
    reliance on the mature European markets.
    Revenue from Asko brand sales
    and its share in total revenue
    in the core activity Domestic
    Appliances
    By increasing our sales under the Asko brand, we are
    increasing sales of our products in the premium segment. In
    the structure of sales in our core activity segment Domestic
    Appliances, sales of products under the Asko premium
    platform accounted for 11.2 percent in 2017 (+1 percentage
    point relative to 2016).
    Significant growth of sales under the Asko brand was seen
    in the markets of Australia, Russia, the USA, Asia, and
    Scandinavia.
    By 2020, we will reach by marketing the products of the
    Asko premium platform revenue of EUR 206 million. Thus,
    the figure will have been doubled relative to 2015 as the base
    year for development of the 2016–2020 Strategic Plan.
    Share of sales of the
    premium segment
    In 2017, we further increased the share of sales of premium
    and innovative products. In the structure of revenue from
    sales of major domestic appliances within the core activity
    Domestic Appliances, premium appliances account for a
    28.8-percent share.
    In 2018, we shall gradually further development and add new
    product platforms in all key MDA product categories. We are
    planning to increase the share of premium appliances in total
    sales revenue from major domestic appliances within the
    core activity Domestic Appliances to 30.4 percent in 2018.
    Thus, the goal of reaching a 30-percent share of MDA sales
    revenue within the Domestic Appliances activity by 2020 will
    already have been exceeded at the end of 2018.
    11.2%
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    14.3%
    We shall continue to
    increase the sales of
    products under the
    Asko brand and thus
    increase our sales in the
    premium segment and
    boost Gorenje Group’s
    profitability.
    Revenue from Asko brand sales and its share in total
    revenue in the core activity Domestic Appliances (%)
    Innovative appliances: appliances within respective product categories (or
    groups of products) with so-called “innovative functionalities” are more
    energy-efficient, afford greater load capacities, lower power consumption,
    water consumption etc.
    Premium appliances: appliances of the brands Atag, Asko, and Gorenje’s
    designer lines (Gorenje Simplicity, Gorenje Ora-Ïto, Gorenje Pininfarina,
    Gorenje Classico, Gorenje One, Gorenje Karim Rashid, Gorenje Color Edition,
    Gorenje+, Gorenje Retro, and Gorenje by Starck).
    28.8%
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    30%
    Sales growth for premium
    and innovative appliances is
    supported by investment into
    marketing and developmentj.
    Share of premium segment salesin major domestic
    appliance revenue in the core activity
    Domestic Appliances (%)
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    Gorenje Group revenue
    In 2017, Gorenje Group's sales revenue amounted to EUR
    1.31 billion, which is 4.1 percent more than in the year before
    and consistent with the 2017 sales budget.
    In 2018, sales revenue is planned to increase by 1.4 percent
    to EUR 1.33 billion. The 2018 annual plan does not include
    the revenue from the companies in the Ecology business
    (Gorenje Surovina, Kemis BiH, Kemis Valjevo, Surovina
    RECE) for the second half of the year, and companies from
    the heating equipment business (Gorenje Tiki Stara Pazova)
    for the last quarter.
    Strategic plan by the year 2020 did not include the
    companies from the Ecology area which were in the process
    of divestment at the time of Strategic Plan development. Our
    main goal is profitable growth by which we are aiming for
    revenue of EUR 1.56 billion by the year 2020.
    Attainment of EBITDA margin
    EBITDA in 2017 amounted to EUR 76.4 million, which is
    4.8 percent less than the comparable EBITDA 3 for 2016.
    EBITDA margin was at 5.7 percent, which is 0.5 p.p. less
    than the comparable EBITDA in 2016.
    We reached 78.7 percent of the planned EBITDA. In 2018,
    we are planning to increase our EBITDA margin to 6.5
    percent. By 2020, we are planning to reach EBITDA margin
    of over 9 percent.
    Net financial liabilities to
    EBITDA ratio
    Net financial liabilities stood at EUR 358.7 million at the end
    of 2017, which is EUR 17.1 million higher than as at the end
    of 2016. Our net financial liabilities to comparable EBITDA
    ratio worsened by 0.4, which is mostly a result of the fact
    that the Group's profitability is lower than budgeted.
    By the end of 2020, we intend to cut the net debt to EBITDA
    ratio to less than 2.5.
    1,310
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    1,562
    1,328
    Gorenje Group revenue, EUR million
    5.7%
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    9%
    EBITDA margin (%)
    6.5%
    3 In the performance analysis, data for previous years is presented in
    terms that are comparable to the data for 2017; therefore, it deviates
    from the data (other operating income and expenses, EBITDA, and
    EBIT) reported for 2016 in the financial report within this Annual Report.
    Comparable figures for previous years are adjusted for the effect of
    revaluation adjustment to receivables, which were reported in previous
    years as finance income and expenses, while in 2017, they are reported
    as other operating income and expenses.
    4.7
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    <2.5
    Net financial liabilities / EBITDA ratio
    3.2
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    Attainment of cash flow
    from operating and investing
    activities
    Our cash flow from operating and investing activities was
    negative at EUR 14.5 million, which, in absolute terms, is
    EUR 0.2 million worse than in the equivalent period of last
    year, and which is a result of poorer Group profitability than
    budgeted. The amount of funds tied up in net working capital
    is EUR 1.6 million lower than as at the end of 2016.
    Investments into product
    development (% of Gorenje
    Group total revenue)
    • Consistently with our strategic goal, we invested 3.1
    percent of total sales revenue from the core activity
    Domestic Appliances, and 2.5 percent of total
    Group revenue, into new product development.
    • Key development achievements in 2017 included the
    following:
    - new generation of free standing cookers,
    - new generation of premium washing machines and
    dryers,
    - new generation of premium dishwashers,
    - new generation of gas hobs,
    - Gorenje Retro Special Edition refrigirators,
    - new versions of dishwashers for our OEM customers,
    - line of kitchen appliances Ora-Ïto 2.
    New built-in cooling appliances and connectible appliances
    are in the final stage of development, undergoing intensive
    -14.5
    RESULT
    2017
    PLAN
    2018 STRATEGIC
    GOAL 2020
    25
    We shall continue to
    optimize our working
    capital and improve our
    cash flows from operating
    and investing activities.
    Cash flow from operating and investing activities (EUR million)
    Manufacturing plants
    Gorenje Group products are made in Europe, which means
    they conform to the very strict European standards and often
    exceed the international standards of quality and responsible
    environmental management.
    European manufacturing location also means shorter delivery
    time for final products to our sales business units and direct
    buyers. Thus, we are looking to get closer to our customers
    and improve their satisfaction.
    2.5%
    RESULT
    2017 PLAN
    2018 STRATEGIC
    GOAL 2020
    2.9% Consistently with our
    strategic policies, we
    support the growth
    of sales with targeted
    investment into new
    product development.
    Share of development investments in Gorenje Group total revenue
    testing and system optimization. We started supplying
    connectible appliances under the Atag brand to our partners
    for installation in smart homes in the Netherlands.
    In 2018, we are planning to increase the share of total
    Gorenje Group sales revenue allocated to investment
    into development, to 2.9 percent. We intend to launch
    new products in all product categories, with innovative,
    simple and user-friendly features and functions.
    Production output will grow in the period of the 2020
    Strategic Plan execution; it will be developed in all current
    locations (Slovenia, Serbia, Czech Republic). In volume
    terms, 62.8 percent of all our appliances were made in
    Slovenia, 23.6 percent in Serbia, and 13.6 percent in the
    Czech Republic in 2017.
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    2.1.1 Development of key segments
    2.1.1.1 Brands
    Gorenje Group has a carefully developed portfolio of brands
    spanning all price segments. We are focused in particular
    on the upper-mid (Gorenje) and the premium segment
    (Asko and Atag). Global brands Gorenje and Asko are
    supplemented by European regional brands.
    Our technologically perfected, innovative, energy-efficient
    and superiorly designed domestic appliances offer users
    in 90 countries across the globe a simple, intuitive user
    experience and simplify their lives.
    Appliances sold under the Asko brand accounted for 5.2
    percent of major domestic appliances sales volume in
    2017. Due to higher price positioning, they account for 12.5
    percent of sales revenue from major domestic appliances.
    Gorenje Group
    Management Board
    GORENJEB RAND ASKO
    BRAND ATAG –
    PELGRIIM – ETNA
    BRANDS
    COOKING
    PROGRAM LAUNDRY
    PROGRAM COOLING
    PROGRAM DISH-
    WASHING
    PROGRAM
    SDA
    PROGRAM
    MAJOR AND SMALL DOMESTIC APPLIANCES (M&SDA) BUSINESS AREA
    Structure of sales of in-house major domestic appliance
    brands relative to total revenue from sales of major domestic
    appliances within the core activity Domestic Appliances
    (2016; value terms)
    Structure of sales of in-house major domestic appliance
    brands relative to total revenue from sales of major domestic
    appliances within the core activity Domestic Appliances
    (2017; value terms)
    6 7. 5 % 4.4%
    4.2%
    3.5%3.4%
    11.9%
    12.5%
    4.4%4.0%
    5.5%5.6% 1.9%1.8% 0.7%
    0.6%
    0.1%
    0.1%
    Gorenje
    MoraAskoEtnaPelgrimAtagUpo KörtingOthers
    6 7. 8 %
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    Western
    Europe
    41.5%
    Western
    Europe
    38.5%
    Eastern
    Europe
    48.1%
    Eastern
    Europe
    49.9% Rest of world /
    Overseas
    10.4%
    Rest of world /
    Overseas
    11.6%
    CONDITIONS IN THE MARKETS
    WESTERN EUROPE
    Region definition: Western Europe includes Austria,
    Germany, Italy, France, Denmark, Sweden, Belgium,
    Finland, Great Britain, Greece, Norway, Netherlands, Spain,
    Switzerland, Ireland, Luxembourg, Malta, and Portugal.
    Operations and performance in 2017: The basic
    economic indicators for Western European markets were
    improved, which led to an increase of demand for home
    appliances. Due to increasingly harsh competition and
    excessive supply in the industry and in retail, average price
    in the market continued to drop, regardless of the fact that
    home appliances are increasingly advanced products. A
    general drop in prices was the most pronounced in Germany,
    Austria, Norway, and Sweden.
    For Western Europe, shrinking of traditional distribution
    and rise of online trade remain a characteristic feature.
    Users mostly demand energy-efficient appliances and
    appliances with innovative product features (e.g. NoFrost,
    pyrolytic cleaning, induction).
    EASTERN EUROPE
    Region definition: Eastern Europe includes Ukraine,
    Russia, Macedonia, Croatia, Serbia, Montenegro, Albania,
    Bosnia and Herzegovina, Belarus, Kosovo, Moldavia, Latvia,
    Lithuania, Estonia, Slovenia, Czech Republic, Hungary,
    Poland, Bulgaria, Romania, Slovakia, and Kazakhstan.
    Operations and performance in 2017: Countries of the
    Eastern European region vary considerably in terms of
    the level of economic development. On the one hand,
    there are highly developed economies strongly integrated
    into international trade (Czech Republic, Slovakia, Poland,
    Hungary, Slovenia); on the other hand, there are countries
    with feeble economies (Albania, Montenegro, Macedonia). The region of the Commonwealth of Independent States
    (CIS) includes the following countries: Russia, Belarus,
    Ukraine, Moldavia, Kazakhstan, Kyrgyzstan, and the
    countries of the Caucasus region (Armenia, Georgia,
    Azerbaijan, Tajikistan, Turkmenistan, and Uzbekistan).
    The characteristics of countries in this region include political
    instability, fluctuation of local currencies, import and other
    duties, and special requirements for appliance certification.
    Competition in the market is further tightened by local
    manufacturing by major Western players in the industry.
    The home appliance sales trend was positive as sales in
    volume terms were higher than in 2016 in nearly all Eastern
    European countries (the Czech Republic, Slovenia, Hungary,
    Slovakia, Bulgaria, Croatia, Albania, Montenegro, and
    Macedonia).
    The
    trend of rising online sales and shrinking sales
    in traditional channels applies to this region as well. The
    shares of appliances with innovative product features and
    the share of energy-efficient appliances are not as high as
    in Western Europe, but they are also on the rise. Moreover,
    some countries in the region are politically highly unstable. REST OF WORLD
    Region definition: The Rest of World sales region includes
    all countries outside Europe: North America, Australia and
    the Pacific region, Middle East and Africa, Far East, and
    South America.
    Operations and performance in 2017: This is an extensive
    and diverse region consisting of highly developed economies
    like USA and Australia, underdeveloped countries, and
    developing countries and emerging markets (like China
    and India) characterized by a rapid pace of urbanization.
    Just like the regions and segments differ, so do the trends
    in home appliance demand. According to the most recent macroeconomic forecasts, stable growth is anticipated
    for the USA, China, and India in the period 2017–2018,
    while Brazil is expected to bounce back to growth after
    several negative years.
    Structure of sales
    revenue in the core activity Domestic
    Appliances by regions in 2016
    Structure of sales
    revenue in the core activity Domestic
    Appliances by regions in 2017
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    Gorenje brand
    Sales results
    Our position in the markets of Western Europe was still
    affected by the process of sales structure optimization,
    improvement of support to sales teams by introduction of a
    uniform and advanced customer relationship management
    system, and systematic brand and sales channel management.
    Relative to the year before, sales of domestic appliances
    under our own brands were 0.3 percent higher in value
    terms than in the year before. Due to repositioning, our
    sales were lower in Germany, Scandinavia, and Great Britain.
    Our revenue was higher than in the year before in many
    Eastern European markets and markets beyond Europe. After
    the harsh economic conditions in the last three years, sales in
    the CIS region (Commonwealth of Independent States) were
    stabilized again in 2017 as they grew by 5.1 percent relative to
    the preceding year.
    Consistently with the Gorenje Group strategic plan, we sought
    to drive up the sales of appliances with higher value added.
    These include innovative appliances, with sales up 4.1 percent;
    their share in total sales revenue increased to 15.1 percent (+1
    percentage point relative to last year in comparable terms).
    In most markets, we pursued the policy of pricing
    repositioning, and improved our sales structure. This
    was reflected in sales growth in the innovative segment. We
    successfully launched new products that consolidate our
    market position. The year 2017 was also the first year of sale
    of dishwashers from our own production.
    With higher sales of appliances under the Gorenje brand,
    we decreased our inventories, which in turn improved the
    utilization of working capital. Despite the new generations of cooking and dishwashing
    programs, we succeeded in decreasing product complexity
    and wrapping up the year by shrinking the range of active
    products by 20 percent.
    The
    upward trend in online sales of domestic appliances
    has persisted and this channel now accounts for a fifth of all
    technical consumer goods sales in Europe. Considering the
    expectations of further online retail growth, we adapted our
    sales and marketing strategies to this segment.
    In Eastern Europe, sales of major domestic appliances
    have grown in 2017 by 2.6 percent in volume terms.
    Growth was mostly fuelled by the exceptional sales increase
    in Croatia where they were up by 8.6 percent. In addition to
    Croatia, the growth of our sales was the highest in Hungary,
    the Czech Republic, and Bulgaria. Sales in the Commonwealth
    of Independent States (CIS) was also increased considerably in
    the period: in Russia by 2.2 percent, in Kazakhstan by 11
    percent, in Ukraine and Moldavia by 25 and 12 percent,
    respectively in volume terms, which consolidated our
    market positions there. In 2017, Gorenje increased its market
    shares in Ukraine, Bulgaria, Slovakia, Hungary, and Austria,
    and lost a part of its market share in Croatia and Germany.
    We reached a higher profit margin and recovered our market
    shares where we had lost them the year before.
    In terms of market share, our position in the region differs from
    country to country:
    • on the one hand, there are markets where our market
    share greatly exceeds 30 percent despite the harsh
    competition (Slovenia, Serbia, Bosnia and Herzegovina,
    Croatia);
    • there are some countries where market shares are
    between 10 and 20 percent (Czech Republic, Hungary,
    Slovakia, Macedonia);
    • in other countries, market shares are below 10 percent and in these markets we see the potential for growth in
    the years ahead.
    In all markets in the region, we are offering a uniform
    regional product range. This considerably reduces
    complexity on the one hand, but at the same time gives us a
    broader range of appliances available in each country.
    In 2017, we carried out in the summer months for the first time
    at Gorenje Group a uniform regional marketing campaign
    for the No-Frost refrigerators and dishwashers. The result
    was a bump in sales of these appliances across all markets.
    Despite the uncertain conditions, Russia was a key market
    for the Gorenje Group. In 2017, we continued to use a variety
    of sales channels: retail stores, major retailers, kitchen studios,
    and online sales which accounted for over 20 percent of our
    sales in the CIS region last year and for 10 percent of all major
    appliances in Russia.
    In 2017, we faced currency risks throughout the year, as well
    as the merger of two of the largest electric retail chains that,
    combined, account for nearly 60 percent of the white goods
    market. This brought about some additional challenges for us,
    compared to some of our competitors who manufacture
    their products locally. Nevertheless, we succeeded
    in retaining or increasing our market shares and
    strengthen our competitive position in both Russia and
    Ukraine.
    Dramatic currency depreciation was also seen in Kazakhstan,
    and competition, especially from China and South Korea,
    exerted additional pressure. Despite this fact, we increased
    our sales in Kazakhstan relative to 2016 and gained market
    shares. Similar development was also seen in the Caucasus
    region where we wrapped up the year 2017 with higher sales
    revenue than in 2016.
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    Gorenje brand is positioned in the mid-range or upper-
    mid price segment in all markets of this region.
    In the Middle East and North Africa, we succeeded in increasing
    our market shares despite the harsh political and economic
    conditions. Sales growth of major domestic appliances in
    volume terms reached 41 percent. We are focused on our
    strategic markets (Saudi Arabia, United Arab Emirates, Iran, Iraq,
    and Egypt) and we worked with our business partners in charge
    of our distribution in these markets to develop a sales strategy
    that will allow us to efficiently tackle the local challenges.
    Our sales in Australia rose by 8 percent in 2017.
    In the Far East, where our sales in 2017 nearly doubled
    relative to the year before, our activities are focused on
    sales in the sector of contractual supplies and construction
    projects where we have the status of a European premium
    home appliance provider. Key markets for us are Hong
    Kong, Thailand, Singapore, Malaysia, and Vietnam. In 2016, we
    employed a comprehensive sales approach to also enter the
    market of China where we are working with our distribution
    partner and a selection of appliances to pave our way to better
    recognition and sales in the premium segment. To this end,
    we have our sales company in Shanghai. In 2017, we also
    opened a sales company in Bangkok, which will allow us to
    pursue our sales plans in the years ahead, and to better manage
    the markets and improve our cooperation with our partners.
    In South America, we operate our own representative offices in
    Brazil and Chile. Due to complicated import procedures, high
    import duties, and stringent appliance certification requirements,
    we are only present with our products of the high-end price
    segment in Brazil. In 2016, we started working with one of
    the major retail chains, which had a significant effect on the
    growth of sales revenue, and we founded a sales company in
    Chile from where we will conduct our sales operations for the neighbouring Spanish-speaking countries. The focus of course
    remains on the market of Chile which is highly competitive, but
    also the most similar to the developed European markets.
    In OEM and industrial deals, we saw a 20-percent drop
    relative to the year before, especially due to discontinuation of
    cooperation with Panasonic and poorer cooperation with the
    Swedish partner Electroscandia.
    Targets for 2018
    We expect the demand for our products to increase in
    Western Europe. Germany will still head the list in terms of
    sales, yet taking into account the synergies in Gorenje brand
    management along with Austria. In the first half of the year, we are
    introducing the sales of a new generation of washing machines
    and cookers. We continue to sell our small domestic appliances.
    We are pursuing the path of sales and business process
    restructuring in Germany, as laid down in 2017. Considering
    the positive changes and the introduction of new, innovative
    appliances, we expect our position to improve in 2018.
    In Eastern Europe, we shall focus on revenue growth and
    strengthening of our market position by introducing new
    products (new generation of 60-cm-wide cooking hobs
    and cookers, washing machines) and by optimizing our
    business processes.
    Our biggest challenges in the near future will be the slowdown
    in real estate development, adjustment of products to local
    legislation and regulations, and increasing our brand recognition.
    Consistently with our strategic goals, we are looking to boost
    our sales in all select markets around the world. In 2018, we are
    planning significant revenue growth compared to 2017, betting
    in particular on the markets of Australia, China, Hong Kong,
    Vietnam, Thailand, Iran, United Arab Emirates, Iraq, Chile, and
    the USA.
    New products in 2017
    We presented many new developments at the IFA tradeshow
    in Berlin.
    Hot (cooking) appliances:

    Launch of a new generation of cookers with a width of 50
    cm and 60 cm. Key highlights included remarkable volume
    in the 50-cm category, which reached, depending on the
    configuration, up to 75 litres.
    • Innovation: possibility to use the grill function in gas ovens
    with the door closed, which previously had not been
    possible in products with a width of 50 and 60 cm.
    • Presentation of a new generation of ovens of the Pro
    Series with new colour control displays, which won the
    Red Dot Award 2017.
    • New gas hobs, also winners of the Red Dot Award 2017.
    • Start of sales of the second generation of the design line
    Ora-Ïto.
    • Cooling appliances:
    • Start of sales of the entirely revised line of built-in
    refrigerators
    • Ability to cover all standard dimensions of built-in
    refrigerators
    • Successful start of sales of the Gorenje Retro Special
    Edition refrigerators
    • Presentation of new refrigerator colours
    • Presentation of new generation refrigerators with a height
    of 85 and 143 cm from our supplementary program
    • Awards: free standing refrigerator Retro ONRK193BK – 1st
    place in the test by the Slovenian Consumers Association;
    free standing refrigerator NRK6192 CX – ocean rating
    »good« in the German consumer journal ETM Testmagazin;
    refrigerator Gorenje Retro Special Edition – award for
    the best licensed product in the category of innovative
    products in the market of Great Britain
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    Washing machines and dryers:
    • Preparation for the new generation of washing machines
    and dryers; start of registration / certification
    • Managing and adding special appliances according to
    the requirements of the markets and customers
    • Expanding the range of washing machines with inverter
    motors
    • Award by the Slovenian Consumers Association for the
    washing machine W8665K for the best washing result
    among tested appliances.
    Dishwashing appliances:
    • We added special models to the new generation of
    dishwashers (launched in 2016), depending on the needs
    of the markets and retailers.
    • Adding models with cam hinge on the door
    • Launch of sales of dishwashers with a width of 45 cm
    with an inverter motor in the Russian market
    • Launch of new dishwashers under the brands Mora and Upo
    • Awards: for the dishwasher GV66160, rating »good«
    at the test by the Slovenian Consumers Association for
    the dishwasher with the best dishwashing effect among
    those tested; for the dishwasher GV66260UK, Best Buy
    award in the consumer magazine ETM Testmagazin.
    Marketing communications
    At the central market communication department for the
    Gorenje brand, we developed all-around communication
    support for all new product launches and related
    services in 2017 (integrated online and offline solutions).
    Media lease, local adaptations, and printing of catalogues
    were left to respective markets. Taking into account the
    position and recognition of the brand in respective markets,
    we are working with the headquarters to specify concrete
    goals and performance indicators.
    At the end of 2017, we successfully carried out, consistently
    with the development vision of the brand's market communication department, a regional ATL communication
    campaign for six countries of the Adriatic region, which
    was entirely managed and monitored form the headquarters for
    the first time in our corporate history.
    We continued to operationalize our strategy of content
    marketing to support the identity of the Life Simplified
    brand.
    To attain uniform brand recognition across all
    markets, we developed a sonic (audio) signature and music
    that supports the brand promise. We also defined the photo
    approach of the brand for the needs of communication in
    both online and offline communication. Consistently with
    the relevant starting points, we prepared packages of
    communication solutions to support sales upon launching
    new products in the markets.
    Our recommendations for media distribution and preparation
    of contents are focused on digital channels and BTL
    marketing in combination with ATL marketing, especially in
    markets where Gorenje brand recognition is high.
    Key activities
    We paid the most attention to market communication
    support of two product categories in the global market:
    NoFrost refrigerators and new DW 30 dishwashers. We also
    prepared communication packages to support other new
    product launches:
    • built-in refrigerator freezers,
    • new generation of free standing cookers, and
    • gas hobs.
    We started to develop communication solutions to support
    the new generation of washing machines and dryers to be
    launched in the first half of 2018, and whose launch will
    be supported globally. For the tenth time in a row, we took
    part in the largest consumer electronics and white goods
    tradeshow IFA 2017 in Berlin. We developed comprehensive
    communication support for this important event: concept,
    graphic solutions, activations at the tradeshow venue in Berlin, printed material, and communication support online
    and in social media.
    In the summer, we launched Gorenje's virtual shopping
    assistant Anna for whom we developed contents and
    communication support.
    In the second half of the year, we intensively developed
    promotional support and communication for the sponsorship
    of the EHF Champions League, and the Men's European
    Championship EHF EURO 2018, which took place in early
    2018. We approached the project with long-term strategic
    concept and clear communication goals.
    Asko brand
    Asko is the Swedish premium brand of major appliances
    that aims at achieving a leading position in the upper market
    segment on selected markets worldwide by supplying a full
    range of premium domestic MDAs and a limited professional
    range of wet products.
    Asko objective is to meet and exceed customers'
    expectations with its products and services. The product
    design, sleek and minimalist, brings to life the Scandinavian
    philosophy and makes every piece stand out from the
    competition.
    Sales performance (by regions)
    Asko recorded a successful 2017 in terms of sales.
    Compared to 2016, there was a +10.8% revenue growth
    in all geographical segments. The share of Asko premium
    appliances sales in total domestic appliances revenue
    accounts for 11.2 percent, which is consistent with the goals
    defined in the Strategic Plan for the period 2016–2020.
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    Growth was particularly important in Asia (+74%), followed
    by Russia (+39.8%), USA (+14.6%) and Australia (+5.8%). In
    Europe, particularly in the Nordic countries, the growth was
    +7.8%. This result was affected by an important operation
    of pricing repositioning that led to a margin improvement.
    In terms of product category, the wet products account for
    approximately 75% of the business (Washing Machines,
    Tumble Dryers, Dishwashers). The cooking range, that was
    launched in 2014, has now reached the mark of 25% and
    keeps growing at high rate, making Asko a key player in the
    Built In market.
    USA 16%USA 16%
    Russia 4% Russia 5%
    EU 40% EU 37%
    Azia 5% Azia 8%
    Australia 35%
    20162017Australia 33%
    Structure of Asko sales revenue by regions in 2017, value terms
    New product launches in 2017

    Asko Pro Home Laundry started to roll-out in November
    2017. Awarded with the Red Dot Design − Best of the
    Best during the spring in 2017.
    • Dishwashers with Sliding door solution and new user
    interface. New solutions for lower water and energy
    consumption as well as new faster programs. •
    Launch of the auto dosing machines (end Q1)
    • Expansion in the kitchen retail channel, expanding the
    built-in products. The key moment for this strategy will be
    Eurocucina (April 2018)
    • Opening of new markets (Spain, UK, Germany) and
    steady growth in established markets (Australia, USA,
    Nordics, Benelux, France)
    • Aggressive expansion in Asia (China, Taiwan, Hong Kong)
    and Oceania (New Zeland)
    Focus 2018
    • Asko will continue to grow in the cooking segment in
    2018. The first quarter will see a big focus in this area
    with the preparation of the second exhibition of Asko at
    the Eurocucina fair in Milan.
    • The strongest markets - Scandinavia, Australia, and the
    USA − will improve the sales rate in dishwashing and
    continue to take shares from the competition. We will
    also see the rapid growth in Asia, especially in China,
    with the cooking appliences. In 2017, 15 showrooms
    were opened in China and in 2018, 10 to 15 showrooms
    are planned.
    • Thanks to our agreements with many of our distributors,
    in 2018 we will be able to improve dramatically the
    presence of Asko in retail. Store displays will be created
    around the world, along with smaller product displays in
    both electrical retail and in kitchen dealer’s showrooms.
    • At IFA Berlin 2017 we presented the full laundry range
    for the first time. This new range of design awarded
    laundry products will increase Asko’s market shares in
    the premium laundry segment. With auto dosing and the
    new Pro Wash system Asko now has a very competitive
    laundry line with great appeal to all the markets in 2018.
    • In 2018, Asko will also launch Connect Life appliances.
    Products include both cooking and dishwashing. For
    this project the focus is all on the Elements Cooking
    range, along with the new built-in refrigeration and fully
    • Roll-out of the HIG1944MD - gas and induction
    combined in a design awarded cooktop with unique
    touch user interface controlling both gas and induction.
    Marketing communications
    • A digital agency has been appointed in order to redefine
    the online experience and convey the value of the
    brand and its Scandinavian heritage. The objective
    is to redesign the websites and leverage a new
    communication concept.
    • A PR agency has been appointed in order to boost the
    social media reach. The objectives are to reach 10.000
    likes of Facebook and 5.000 followers on Instagram by
    June 2018.
    • Asko will keep focusing on opinion leaders such as
    interior designers and architects with the objective to
    create a proprietary international database for direct
    marketing activities. The objective is to reach 5.000
    names by June 2018.
    • On the products side, the new platform of Asko washing
    machines and dryers will complete the international roll-
    out by the month of April 2018.
    • Asko will be present at the Eurocucina in Milan from
    April 17 to 22, with a big stand (250sqm) to showcase
    4 kitchens and a kitchen for a Swedish show cooking.
    Events ‘fuorisalone’ (in the city of Milan) will be organized
    to cater to actual and prospect clients and opinion leaders.
    • In the second half of 2018 Asko will be again present at
    the IFA fair in Berlin.
    • A new unique service has been launched in Australia,
    which provides a 7-days-a-week technical assistance to
    all clients.
    Sales Targets 2018
    Asko forecasts a turnover increase of 18% thanks to:
    • Finalization of the launch of the new range of WM, TD
    and DW
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    integrated dishwashers. This strategic project will position
    Asko in the forefront of innovation.
    Atag brand
    We sell household appliances under three Dutch brands -
    Atag, Pelgrim and Etna - in the following segments: kitchen
    retail, replacement market (electro retail, DIY, e-tail) and
    construction market (projects). With clear segmentation
    - Atag high-end, Pelgrim middle and Etna low / entry
    price segment - each brand addresses different target
    groups. The premium high-end Atag brand offers the best
    appliances and services for exciting cooking experiences
    driven by innovation and superior design, while Pelgrim
    offers cooking appliances that are practical and efficient
    and make life easier in the kitchen. Etna offers appliances
    for price-conscious customer looking for the best value for
    money price.
    User benefits
    The promise of the Atag brand from the very beginning is
    based on passion for cooking. In the Gorenje Group R&D
    competence centre for cooking appliances in Duiven, the
    Netherlands, we pay great attention to the fact that the
    device offers sufficient value to the end user. We do this
    through consumer panels. Consumer insights and clearly
    expressed opinions are crucial for the correct orientation in
    the field of development and innovation. Only in this way
    we can create cooking hobs that support the user in the
    cooking process and make the work as easy as possible.
    We pay a lot of attention to the selection of appropriate and
    high-quality materials and thoughtful design, not only when
    it comes to the exterior of the appliances, but also for their
    interior (e. g. ovens, refrigerators, dishwashers). Thus, the
    Atag brand for the pronounced balance between robust and sophisticated, craftsmanship and technology, has been
    receiving various design awards for many years (Red Dot,
    GIO ...).
    Sales performance (by market segments)
    In 2017, Atag’s sales through kitchen retail were more
    successful than in 2016, but the performance stayed behind
    the growth of the market in this sales channel. Due to very
    strong competition in the field of replacement purchases,
    Atag lost some market share compared to 2016 and
    stayed behind the 2017 budget. Sales in the segment of
    construction projects stayed at the level of 2016 and reached
    the 2017 budget.
    Marketing Communications & New Product
    Launches
    To promote sales activities, we conducted sales campaigns
    throughout the year both for retail and for end customers.
    In the first quarter of 2017, we participated at the Batibouw
    exhibition in Brussels (approximately 300,000 visitors),
    where we introduced new appliances and market concepts
    (including the 8-year warranty for Atag and Pelgrim brands).
    During the annual house fair Benelux House Show, which
    was attended by a record number of traders and other
    business partners in recent years (approximately 3000), we
    introduced the innovations: a hob-in-hood, a new series of
    refrigerators and Connect Life (Connectivity) appliances. All
    the presented innovations were accepted with enthusiasm.
    Although we focus on the Benelux region, we have
    considered various aspects of European legislation when
    developing connectivity appliances, which is important
    for the whole Gorenje Group. In the Netherlands, the
    governmental Authority for Consumers and Markets (ACM)
    regulates issues related to consumer and privacy laws. The
    Legal Department, including the Director of Compliance and Data Protection and Privacy, monitors compliance with
    sector-specific legislation and regulations and other local
    requirements.
    Targets for 2018

    revenue increase of around 13.5 percent
    • introduction of the renewed strategy of brands Atag,
    Pelgrim and Etna; Atag will be marketed as a consumer
    brand with an emphasis on broad visibility and
    positioning in a high-end price range. We will sell Pelgrim
    through specialized retail, while we will promote Etna
    through both online and off-line activities.
    • restructuring of the sales team with emphasis on kitchen
    retail, replacement purchases and construction projects
    • optimization of after-sales and service processes,
    including user experience
    • installation of the first connectivity appliances in the pilot
    project (Hof van Holland, Hilversum, Netherlands)
    • an ambitious plan to regain market share and a premium
    position in Belgium
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    2.1.1.2 Programmes
    Consistently with the announced pursuit of strategic policy
    of lean and efficient organizational structure, Gorenje Group
    revised its organization as of February 1, 2017. The purpose
    of the revision was to round off the product categories of cooking, laundry, cooling, and dishwashing appliances and
    small domestic appliances into separate programs. This
    allows us to focus more efficiently on the performance of
    each program as a whole.
    DOMESTIC APPLIANCE SALES REVENUE, STRUCTURE BY RESPECTIVE PROGRAMS
    Cooking appliances
    42.7%
    Cooling
    appliances 24% Laundry care
    appliances 16.7% Dishwashing
    appliances 12.1%Small domestic
    appliances 4.5%
    Hot (cooking) appliances
    Program presentation
    The Cooking Appliances program with development and
    production units in Slovenia, the Czech Republic, and
    Netherlands, and to a small extent in Serbia, accounts
    for 42.7 percent of total sales revenue in the Domestic
    Appliances business and has about 1600 employees.
    Annually, we sell 2.4 million cooking appliances in markets
    across the globe, of which 1.5 million are produced in-house,
    while nearly 1 million are supplementary program appliances,
    which mostly include kitchen hoods and free standing
    microwave ovens.
    In Gorenje Group's new business model, the Cooking
    Appliance program manages centrally and in a coordinated
    manner all business processes of development and research, and the entire business process related to product supply.
    The program's vision is to provide the best solutions in
    cooking technology for our brands and end users. The
    cooking appliance program sees its mission in the care
    for people, environment, and business stakeholders. The
    program's key values include the following:

    Functional connection of the international team
    • Striving for constant improvement
    • Open communication
    The program includes the following product categories:
    • Free-standing cookers
    • Built-in cookers and ovens
    • Built-in cooking hobs
    • Kitchen hoods
    • Microwave ovens
    • Built-in warming drawers The 1.5 million appliances that are made in-house are
    produced in Slovenia (Velenje) and in the Czech Republic
    (Mariánské údolí), while a small part is also made in Zaje\
    čar
    (Serbia) and Duiven (the Netherlands).
    Focus 2017
    We provide safe, quality, and efficient products with
    advanced features for the end users. Moreover, program
    goals include the following:

    Strengthening the competitive edge of our range of
    cooking appliances through investment into research and
    development
    • Launching new products in key markets
    • Improving cost efficiency of the use of assets
    • Improving the level of innovation in all business functions
    of the program
    In business terms, 2017 was one of the more challenging
    years, not only due to organizational changes, but also due
    to transitions to new platforms and technological updates
    to manufacturing plants. Nevertheless, we have proven our
    commitment to the attainment of our goals.
    Research and development: Sale under our own brand
    requires focus on research and development. Compliance
    and alignment of development procedures, production, and
    documentation allow access to demanding markets and
    thus ensures timely launch of a new product in the market.
    Currently, projects are under way that are related to new
    technologies and cooking concepts, energy efficiency and
    alternative heating sources. In new product development
    based on meeting the expectations of the market or the end
    user, we also observe from the start of the planning process
    the production aspect of increased automation level and
    support to modular manufacturing.
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    In 2017, we launched two new platforms:
    • new generation of free standing cookers, with a width of
    50, 60, and 70 cm; and
    • new gas built-in hobs in the medium price range, with a
    width of 60 cm.
    Both platforms were received very well in the market.
    Production: The main focus of production in 2017 was
    technological update to manufacturing locations for production
    of new product platforms aimed at cost optimization, efficient
    use of all resources, provision of high product quality, and
    faster adjustment to customer needs.
    In the third quarter, we had some problems at our Czech
    plant, which saw a complete technological overhaul in 2017,
    when establishing regular production of the new platform of
    free standing cookers, which were related especially to the
    required quick increase in production output and attainment of
    adequate quality. With rapid measures in all fields, we stabilized
    the situation in the fourth quarter, so that the factory was able
    to deliver consistently with the approved production plan. In
    our production process, we follow the best production practice
    and continuously improve our processes to cut throughput
    time throughout the supply chain.
    Quality management: Product quality and continuous
    improvement of key quality assurance processes are among
    the strategic policies of the program. Quality as a process is
    set up as systematic management of the following processes:
    • input deliveries,
    • user requirements,
    • development and research for provision of quality, safe,
    and efficient product,
    • quality in production process, and
    • customer satisfaction monitoring.
    We constantly monitor feedback on customer satisfaction
    with our products through indirect indicators, like customer complaints, warranty claims, or product recalls. Key indicator
    of quality, monitored according to the TCR (technical call rate)
    method, is the rate of appliance failures in the market during
    warranty period. The program is on track with the goals laid
    down regarding quality in the market.
    Targets 2018
    In the fiscal year 2018, we will employ a well-coordinated
    approach to the management of business processes for
    product development and production and solid cooperation
    with sales departments of respective brands to try to further
    improve the competitiveness of the program. We shall focus on
    the following:

    timely development of innovative products,
    • optimization of production processes, in order to cut costs
    and improve quality, and
    • reduce risks related especially to our supplier base.
    Refrigeration appliances
    Program presentation
    Most appliances of this program are made in the factory in
    Valjevo, Serbia, which is Gorenje Group's largest manufacturing
    plant outside Slovenia, with 1,300 employees. A part of the
    cooling appliance production also takes place at the Velenje
    plant, which belongs to the dishwasher factory in organizational
    terms. The share of complementary program is 12 percent. The
    largest markets for this program are Germany and Serbia.
    Predominant part of cooling appliances made under the
    Gorenje brand is followed by OEM brands and the brands Atag,
    Etna, Pelgrim, and Asko. The program's development and
    competence centre with 52 employees is located in Velenje.
    The program includes the following organizational units:
    development and competence center, performance management, quality management, product management, and
    Valjevo factory.
    Focus 2017
    Revenue amounted to EUR 235 million in 2017, which is less
    than in the year before. In total, we sold 950,000 appliances,
    of which 807,000 were appliances of our own production and
    143,000 were appliances from the complementary program.
    Research and development: The majority of activities was
    targeted at development and introduction of a new generation
    of built-in refrigerators with a width of 54 centimetres. The
    project is progressing in respective stages: in 2017, we
    introduced appliances with a height of 178 cm; in 2018, we will
    introduce appliances of other heights.
    Production:
    We saw a drop in production, resulting from lower
    sales, especially in Germany. Manufacturing output volumes
    lagged behind the plan; therefore, a large part of program
    activities included adjusting the costs to lower production
    volume. In this respect, we cut the number of directly and
    indirectly employed, and conducted activities to cut the costs
    of basic and auxiliary material.
    Quality management: With regard to quality, we conducted
    corrective activities to reduce errors on the NoFrost appliances,
    related to formation of ice in the cooling system, and appliance
    noise.
    Targets 2018
    Key activities in 2018 will be targeted at further reduction of
    costs and new product development.
    Cost-cutting activities:
    • Optimizing the costs of direct and auxiliary material
    • Improvement of productivity by implementing the principles
    of lean manufacturing
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    • Reduction of complexity – discontinuation of the NGC-540
    platform
    New product development:
    • Preparation of the project for revision of combined fridge
    freezers with a width of 60 cm
    • Introduction of a new generation of free-standing
    refrigerators with a width of 54 cm from the complementary
    program, and gradual phasing out of own production
    • Extension of the range of built-in refrigerators with a width
    of 54 cm (heights 88/102/122/140 cm)
    • Implementation of integrated handle on free standing
    refrigerators with a width of 60 cm
    • Preparation of the project for revision of chest freezers
    • Preparation of the project for revision of under-counter
    appliances for an OEM buyer
    Washing machines and dryers
    Program presentation
    We follow the policies laid down in the Gorenje Group's
    strategic plan, with the focus on sales growth for premium
    and innovative appliances under the brands Gorenje,
    Atag, and Asko. Washing machines and dryers are made
    in two manufacturing plants, mostly in Slovenia and small
    part (Washing machines) in Serbia (Zaječar). The share of
    production in Serbia is lower than 10 percent, and it mostly
    includes appliances for the Russian market. The program
    employs in average 620 people. In all markets combined, we
    sell around 700,000 appliances each year.
    Our production range includes:
    • Washing machines of various dimensions (normal, slim
    etc.), technical characteristics, and lines
    • Tumble dryers
    Our offer is expanded with combined washing and drying
    machines and drying cabinets, which are sourced from third-
    party manufacturers and then marketed under our own brands.
    Focus 2017
    In 2017, the program was at the milestone of changing the
    appliance generations. We launched mass production of
    the new generation for the Asko brand already in June; new
    generation of appliances under the Gorenje brand will be
    available next year. The project is therefore in its closing stage.
    Test series is already in progress, and mass production will be
    launched in 2018 as planned.
    The new generation of appliances will improve our
    competitiveness and program profitability. In the product
    category in the medium segment, we developed two new
    washing machine platforms that are already in the testing
    stage. We have set up a new lab for durability testing of
    washing machines and dryers.
    Research and development:
    Premium product category:
    • We are also launching other types of appliances, as a part
    of the new generation of washing machines and dryers
    (WMD 75/85)
    • Development of professional appliances
    • Development of a drying cabinet
    Medium price range product category
    • Development of a new generation of washing machines
    and dryers
    • Development of a new generation of the successful line
    Simplicity 2.1
    Production: Main production activities are oriented towards
    improvement of productivity and optimum use of resources.
    Consistently with the lean manufacturing system, continuous improvements are in progress in technological processes that,
    along with process automation, support the optimization of
    production process and improvement of product quality for
    the end user.
    In 2017, we adapted technologically to the introduction of new
    generations of platforms for the premium and medium range of
    the washing machines and dryers. We continued to optimize
    appliance production and to improve the material flow in order
    to
    make production even more efficient, with minimum
    inventories of raw materials and semi-products in all
    production processes.
    With regard to human resource training, we carried out in 2017
    a workshop Ambassadors of Efficiency, which is based on
    the improvement of competencies of direct managers in the
    production process for efficient leader communication.
    In 2017, we continued our activities to decrease production
    costs and the share of scrap or waste.
    Quality management: By defining the internal quality goals,
    we are pursuing the strategic plan for the period 2016–2020
    in which we also highlight improvement in quality and reliability
    of our appliances. In 2017, our quality management was
    focused predominantly on the processes of new product
    implementation, and activities related thereto. We held video
    conferences with our key customers for all brands to improve
    our processes of communication with the market, so that we
    can resolve problems faster and more efficiently, and improve
    customer satisfaction. Revision of product testing system
    and improved control over testing have contributed to the
    improvement of reliability of our appliances.
    We followed the increasingly demanding needs of our
    customers by:
    • implementing modern user interfaces for our appliances,
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    • innovations that simplify the users' lives,
    • custom design,
    • energy efficiency.
    Targets 2018
    In the 2018 fiscal year, we shall carry on our activities to
    improve productivity, appliance quality, and cost efficiency, and
    to optimize processes. The focus will be on the following:
    • completion of the project and implementation of the
    new washing machines and dryers generation under the
    Gorenje brand for all markets,
    • launch of the remaining appliance models as a part of the
    new generation of premium washing machines and dryers
    under the Asko brand, and
    • full integration of operational purchasing into the program.
    Dishwashers
    Program presentation
    This is the youngest program within the Gorenje Group, and
    currently the smallest in terms of volume. However, it has seen
    high growth of production output and sales, and stable level of
    supplementary program in comparison to the previous year.
    The program includes the following departments: dishwasher
    development department, in Sweden (Lidköping); dishwasher
    and cooling appliance production; quality management
    department; dishwasher product management department;
    and program performance monitoring department in Slovenia
    (Velenje). In 2018, we will add the purchasing department for
    the supplementary program.
    The independent development department located in
    Lidköping, Sweden, plays an important role in the program.
    There, we employ 42 highly trained experts who develop
    dishwashers with excellent technological equipment. In their work, they are supported by operational development located
    in Velenje, Slovenia.
    Focus 2017
    Research and development (Lidköping): In the dishwasher
    program, we have launched in the last year an entirely new
    generation of dishwashers developed at our own development
    department in Sweden. The appliances are built on the platform
    with a width of 60 cm – DW30 that represents the medium
    range of appliances and which is mostly made for the Gorenje
    brand. All types of appliances are already available in the market,
    and the market response has been very good. The platform has
    also won several major innovation and market awards.
    Our development activities are now targeted at the launch of a
    new premium platform with a width of 60 cm – DW40. In 2017,
    we prepared the first part of the project, and we shall complete
    it presumably in 2018 when we launch the basic version of the
    DW40 premium class. A version of the premium appliance will
    also be intended for professional use. Working on the same
    platform, our development is also active on the connectible
    appliance project. In this regard, our plan is to launch in the first
    half of 2018 an appliance that can connect to other appliances
    via WiFi protocol.
    As we complete the DW40 project, capacities will be released,
    and we will be able to focus on the development of a new
    generation of appliances that are expected to hit the markets
    in 2020/21.
    The pre-development department is developing new
    solutions in which we will be able to add into our appliances
    new technologies and extras that will make our appliances
    competitive in the long run.
    Our dishwashers have scored very high in a variety of tests:

    Testing by the European consumer organization, 159 European dishwashers: Gorenje in 29th place; in Slovenia,
    top place for the best dishwashing effect
    • TestBild (consumer supplement of the Bild newspaper):
    SmartFlex generation ranked 5th in Germany among
    all cleaning appliances, and 2nd in the category of
    dishwashers
    • Chamber of Commerce and Industry of Slovenia – golden
    award for innovativeness
    • Chamber of Commerce and Industry of the Šalek region –
    golden award for innovation
    Production (Velenje): The year 2017 was a watershed in
    production growth as we increased production by 20 percent
    relative to the preceding year. We launched all remaining
    dishwashers of our medium range – DW30 SmartFlex and
    appliances of our premium class Asko DW40. The appliances are
    targeted especially at the markets of Australia, USA, and the EU.
    Production plant in Velenje has a capacity of 280,000
    dishwashers per year. Currently, this capacity is not fully
    utilized, but we expect it to be fully utilized in two years, and
    increased thereafter.
    The results of sale of the new DW30 platform are excellent,
    and we expect the same from the new premium appliance
    platform. Production and sale of DW30 dishwashers have
    exceeded the budgeted volumes for 2017 by 60 percent.
    Overall results of our own production of all dishwashers in 2017
    exceeded the budgeted figures by 12 percent. In comparison
    to 2016, dishwasher production was increased by 31 percent.
    Targets 2018
    The fundamental goal of the program is profitable operation
    consistently with the adopted strategic and annual plan for the
    Gorenje Group. Within this, we shall strive to:
    • improve productivity;
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    • optimize the processes in production consistently with the
    company policies;
    • launch new products consistently with the adopted
    development document, as follows:
    - DW40.C – new platform for a semi-professional
    dishwasher
    - DW40.1 – entry level for the new premium platform
    - DW40.2 – connectivity – connectible, smart appliances
    - DW40 Outdoor – dishwasher for outdoor use
    (outdoor kitchens)
    - introduction of a new mini detergent and rinse aid
    dispenser
    - introduction of an inverter motor for all dishwashers
    • integrate purchasing of supplementary program into the
    dishwasher program.
    Small domestic appliances (SDA)
    Program presentation
    The SDA program continued its rapid growth of sales in 2017,
    which rose by as much as 18 percent in comparison to 2016. The
    fastest growth was seen in the markets of Russia and Ukraine.
    By sale of small domestic appliances, we were focused
    especially on European markets and the CIS region: sales in
    the EU markets accounted for approximately 40 percent, while
    sales in markets beyond Europe accounted for 60 percent. The
    most important markets for sale of small domestic appliances
    under the Gorenje brand are Serbia, Russia, Ukraine, Romania,
    Slovenia and Croatia.
    Sale of small domestic appliances has a seasonal component.
    In 2017, it again peaked in the last quarter which accounted
    for approximately 32 percent of annual sales; sales in the third
    quarter amount to 25 percent, and sales in the first half of the
    year accounts for 43 percent.
    Focus 2017
    Research and development: We invested intensively into
    new product development. We launched around 50 new
    products that considerably improve the competitiveness
    of our product portfolio. We started to intensively invest
    into development of new product platforms and new
    product collections, like Gorenje by Karim, Gorenje Retro,
    and Gorenje Ora-Ïto. We developed and launched a new
    platform of the G-Force vacuum cleaners adapted to the
    new EU energy regulations, and which notably improves the
    competitiveness of our range of vacuum cleaners.
    Our new collections and developed platforms are the basis
    for strengthening our positions in the markets where we
    are strongly represented. This is the foundation for further
    expansion of the SDA program to new markets, especially in
    the Western Europe and in overseas markets.
    We have also developed an entirely new segment or
    products in which Gorenje brand had not been present
    before. This is the segment of personal care products,
    intended above all to women. We have developed a
    distinctive concept of colourful products and packaging
    aimed at younger consumers. We continued to introduce
    the Gorenje by Karim collection which was created in
    cooperation with the globally renowned New-York-based
    designed Karim Rashid, and the Chef's Collection line
    intended for more demanding customers.
    Considering the success of the Classico line among major
    domestic appliances, we included small domestic appliances
    into this line: a new kettle and a toaster (sandwich press). We
    also introduced the Infinity line that rounds off the namesake
    line of major domestic appliances.
    We continued to develop the cookware segment and
    introduced two new lines: Black Collection (high-quality aluminium cookware) and Deep Red Collection (a line of cast
    iron pots and a cast iron griddle).
    We further expanded the sales range with new free standing
    induction tabletop cookers, kitchen scales, contact grills, hand
    mixers, stick blenders, kitchen robots, citrus reamers, bread
    makers, and vacuum sealers.
    Quality management: We carried out a range of measures
    for further improvement of quality of small domestic appliances
    to comply with the industry standards.
    Market communication: In market communication, we
    continued to redesign the product packaging (for all new
    products), and we developed all-around solutions for points
    of sale. We were focused on development of quality contents
    (especially video contents) for the launch of new products,
    which allow even more efficient launch of products and
    promotion of their sales.
    In 2017, we conducted loyalty programs in cooperation with
    major trade chains. We will continue to do so in 2018.
    Targets 2018

    Introduction of a new product generation/collection:
    Gorenje Ora-Ïto Collection, Retro Collection, and new
    models of the G-Force vacuum cleaners
    • Further improvement of product assortment and
    competitiveness
    • Increasing our market shares in Eastern Europe, and
    more intensive entry into new markets
    • More efficient supply chain management
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    2.1.1.3 Strategic procurement/
    sourcing
    Focus 2017
    In raw and processed material purchasing, we were
    focused on finding extra savings in material costs, further
    implementation of IT into the ordering and recall system,
    expansion of upstream/procurement markets, risk
    management, and working capital management by extension
    of payment terms and inventory optimization.
    We were introducing the principles of category management
    and reorganized our procurement in Velenje.
    Key activities
    • We have successfully negotiated considerable decreases
    of prices with our suppliers. Thus, we have alleviated the
    effect of a strong upward trend in the prices of base raw
    materials, which was present throughout the year 2017.
    • We continued to develop a network of stable and
    competitive suppliers, paying particular attention to the
    analysis of any new upstream or sourcing markets. We
    continued our activities in SE Asia (Vietnam, Thailand)
    and SE Europe (Romania, Bulgaria, Hungary). At the
    same time, we cut the number of suppliers to reduce
    complexity (the number of suppliers was reduced by 5.6
    percent).
    • We managed risks by securing timely forwards on
    coloured metals, implementation of new – substitute
    suppliers, and expanding the supplier base for steel
    sheet and plastic materials.
    • We continued to optimize the supply chain parameters:
    reducing material inventories, reducing supply
    interruptions etc. We also paid a lot of attention to
    automation of the ordering and recall process.
    • We reorganized the purchasing department in Velenje.
    We moved the operational part of purchasing to respective programs (see section Development of
    Key Segments/Programs). Thus, we optimized the
    flow of information between the material end user and
    employees responsible for smooth operation of our
    factories.
    • Strategic part of purchasing is now focused on category
    management. We conducted several workshops with
    »inside customers« (employees from research and
    development, production, quality management etc.) in
    order to align the strategies and activities with respect to
    particular material categories.
    • We actively invested in expansion of knowledge and
    skills of our employees (category management, sourcing
    methods, negotiations techniques). Situation in the raw material market in 2017
    • The decline in prices in 2015 was followed by raw
    material price hike in 2016 which continued in 2017.
    Due to force majeure (when hurricane Harvey caused a
    2 months block of supply chain in basic feedstock for
    production of styrene plastics) and many extraordinary
    situations, we saw a drastic increase in the prices of
    styrene plastics, which peaked in February and March
    of 2017. The price growth trend settled thereafter, but
    the price of basic raw materials for thermoplastics in the
    period from January to December 2017 was on average
    higher than in the comparable period of 2016 by 5.3
    percent. Due to the chronic scarcity of a component
    of isocyanate (MDI) which has lasted since November
    2016, the price of polyurethane insulation increased
    considerably as well (by 30 percent).
    • Relative to the year 2016, the prices of sheet metal
    increased on average by 10 percent. The main cause of
    this was scaling down of production due to tightening
    of environment protection standards in China, which
    is looking to cut its steel production in the period
    2016–2020 by 20 percent. Another important factor was consolidation in the industry, and rising prices of iron ore
    and energy and fuels.

    We sought to alleviate these trends in the raw materials
    markets with timely forwards for the relevant raw materials
    (sheet metal and coloured metals), with a different
    approach to negotiations (signing contracts with a variety
    of price validity options) and global diversification of our
    sources. We sought to compensate for the price hikes in
    basic raw materials with intensive pressure on decrease
    of prices for those materials and components on which
    basic raw materials do not have a significant impact.
    • Key information on the price increases in EUR terms
    relative to December 2016:
    - Brent Crude +12.1 percent (+54 EUR/t)
    - Styrene Monomer +5.02 percent (+60 EUR/t)
    - Copper +12.9 percent (+698 EUR/t)
    - Aluminium +27.3 percent (+408 EUR/t)
    - Nickel +12.8 percent (+1,419 EUR/t)
    - Steel sheet (average of the CRU EUR area) +29
    percent (+120 EUR/t)
    • Most raw materials are traded in US dollars. Dollar
    appreciated relative to euro by 7.1 percent in 2017 (year-
    on-year average, USD 1.1 = EUR 1 in 2016, and USD
    1.1291 = EUR 1 in 2017).
    Following were the key characteristics of raw
    material markets in 2017:
    • recovery of the global economic growth: in particular,
    strong recovery of the automotive industry, cooling off
    in the Chinese economy and, as a result, of trade with
    export-oriented economies and resource-rich developing
    or emerging countries, closing down of factories due to
    environmental standards or accidents;
    • increase of oil prices: lower production quotas for
    OPEC members, joined by Russia; oil price forecast to
    grow to up to USD 65 per barrel (in December 2017, the
    price was USD 59 per barrel, or EUR 52.53 per barrel);
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    • dollar depreciation (December 2017: USD 1.18 = EUR
    1) resulting in a slight decrease of commodity prices in
    other currency terms; expected further interest rate hikes
    in the USA could reverse the dollar depreciation trend;
    • scarcity of basic resource for polyurethane,
    reduction of production capacities in China, restoration
    of anti-dumping tariffs on imports of sheet metal from
    non-EU countries, and consolidation of the carbon and
    stainless steel sheet metal markets.
    2.1.1.4 Activities for pursuit
    of strategic goals (operational
    support functions)
    Monitoring the attainment of strategic
    goals
    Focus 2017
    At the Group level, we monitored the accomplishment of
    strategic goals from the 2016–2020 Strategic Plan, and
    execution of strategic projects, with the balanced scorecard
    system. Key performance indicators were monitored from
    the financial aspect, market and customer aspect, internal
    process aspect, and the aspect of learning and growth.
    Key activities
    We monitored the accomplishment of goals on a quarterly
    basis, and we pointed out any deviations. In order to improve
    operational excellence and to best satisfy the needs of our
    customers, we devoted our attention to the attainment of
    required returns, management of working capital in relation to
    supply chain management, financial leverage management,
    and increase in value-added.
    Targets for 2018
    We shall continue to monitor on a quarterly level the
    accomplishment of key strategic goals, to point out any
    deviations, and to request from those in charge to take
    action consistently with our vision and strategy. At the same
    time, we shall seek to individualize our targets to the greatest
    extent possible.
    Product complexity management
    Focus 2017
    We are focused on developing a product portfolio for
    our own brands, which allows a diverse offer of products
    in the markets where we do business. We introduced
    improvements in terms of product complexity, which in turn
    improves our competitive edge and contributes to long-term
    growth of profitability.
    Key activities
    Based on in-depth analyses, we optimized our product
    offer, monitored the profitability of our products, and sought
    potential for their improvement without threatening their
    quality or sales potential. We pursued the target that we also
    carefully monitored and attained during the year. Optimizing
    our product portfolio remains a priority for the future.
    Supply chain management
    Focus 2017
    Gorenje Group supply chain operation improved at all levels
    in 2017. Our activities were aimed at the customers, and
    we responded to the needs in sales. By optimizing and
    stabilizing the processes, we attained the goals related to
    the improvement of the quality of our services. In order to
    improve customer satisfaction, we continued our efforts
    for the best possible utilization of our efforts for optimum
    utilization of fixed assets (property, plant, and equipment), our working capital, and the costs for optimum operation of our
    supply chain.
    Key activities
    In 2017, we were focused on the following:

    integration of additional appliance categories into the
    supply chain;
    • understanding the importance of efficient planning,
    • optimum material sourcing,
    • measures for a stable plan with the fewest possible
    critical and non-critical interventions,
    • activities for the attainment of the specified supply chain
    indicators, and
    • further improvement of inventory turnover.
    Planning
    Purchasing
    Producing
    Warehousing TransportDistribution
    Selling
    Inventory
    management
    SUPPLY CHAIN
    Supply chain coordination includes efforts for optimum
    sales forecasting. This contributes to more even production
    capacity utilization and, in turn, improvement in production
    process efficiency.
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    Taking into account all key elements of the supply chain affords
    a comprehensive all-around view of the entire supply chain,
    which in turn allows us to effectively manage it.
    In logistics, we optimized (selecting the most favourable
    transport methods, selecting the best service providers, and
    establishing new logistics models) our operations in 2017 to
    keep the prices at the lowest level in recent years. This has
    resulted in savings and a decrease in logistics costs relative
    to sales revenue. Most activities were aimed at preparing and
    conducting tenders for logistics services, and at negotiations
    and preparation of contracts with secondary logistics service
    providers in the Gorenje business system. Particular attention
    was paid to supply chain optimization, the operation of which is
    reflected in the logistics costs.
    Our efforts are targeted at working capital management, and
    we paid particular attention to cutting the material and finished
    products inventories. We closely monitor the sales dynamics
    of merchandise and finished product inventories, and we take
    relevant measures in case of any lagging behind the goals set
    forth. We are striving for even dispatch of finished products
    throughout the month. We wish to improve the satisfaction of
    our customers by timely supply of appliances.
    We resolve any critical problems in supply chain at regular
    monthly meetings with the departments of purchasing,
    production, logistics, and sales.
    Improved cost efficiency
    Focus 2017
    We continued to coordinate the cost management activities.
    By active cooperation with those responsible at respective
    organizational units, we monitored and coordinated the cost-
    cutting activities by the end of the year. We monitored the costs
    by natural categories within respective organizational areas. With regard to attainment of the goals laid down, we conducted
    benchmarks against the competition and sought to identify
    positive practices. By pointing out any deviations, we pursued
    the goals laid down in the strategic plan.
    Key activities
    As a result of our active negotiations with the suppliers,
    strategic futures of raw materials, and hedging against the
    effects of currency and price volatility, the purchasing prices for
    basic material purchases were comparable or only slightly
    higher than in the year before or relative to the budget, despite
    a comparable scope of purchases.
    We continued to introduce modular production and to
    optimize production processes, including as a part of supply
    chain cost management. We sought to ensure rational use of
    resources and energy with our energy consumption system. We
    sought to ensure rational use of resources and energy with our
    energy consumption system.
    Improvement of
    cost efficiency and profitability
    We monitor and note thesavings in expenses
    We analyze expenses
    and draw attention to any discrepancies
    We conduct benchmarksagainst our competition We take part in development
    of measures required for better cost management
    We are looking for opportunities
    to cut and prevent the
    occurrence of expenses
    In maintenance, we take constant care to cut heat consumption,
    and we conduct activities to cut the consumption of compressed
    air. We are also constantly negotiating with third-party service
    providers. We worked with responsible persons at respective
    organizational unit (areas) to actively look for possibilities to
    cut the costs of services. Particular attention was paid to
    optimization of service costs related to support functions. We
    monitored the progress of activities aimed at cutting the costs
    and accomplishing the goals laid down for the year.
    Targets for 2018
    In 2018, we shall continue our activities to attain long-term
    cost efficiency. We shall boost cooperation with respective
    organizational units in order to find shared solutions, sound
    practices, and opportunities for further improvement of cost
    efficiency. We shall focus in particular on the preventive
    measures for cutting the costs to avoid their increase. Particular
    attention will be paid to variable costs, and we shall strive,
    consistently with our strategic policies, to keep their
    growth rate
    below the growth rate of our sales revenue.
    Gorenje Group's approach to
    attainment of long-term cost
    efficiency (and improved
    profitability)
    CORRECTIVE MEASURES PREVENTIVE
    MEASURES
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    2.1.1.5 Digital transformation
    Responding to the many changes brought about by the
    information era, Gorenje Group developed its digital
    transformation strategy at the level of the entire Group,
    which includes all areas of our operations.
    Our digital business strategy is to generate value by offering
    innovative digital business services to connected communities
    of our stakeholders, and to employ digital business solutions
    to improve the efficiency of our operations.
    Connected communities of our stakeholders to whom
    we will offer our digital business solutions include the
    following:
    • consumers,
    • commercial and other business partners,
    • financial partners, including shareholders,
    • employees, and
    • broad social environment.
    Our digital business model includes the following:
    • digital services for various communities,
    • connectible appliances for smart homes,
    • business processes supported with digital technologies.
    The above aspects will be supported by digital skills, digital
    systems, digital contents, and digital technologies. Digital transformation conducted at the Gorenje Group in the
    last two years, is focused on six areas, and each area
    involves numerous activities.

    E-communication includes information platforms
    and management of websites and social media, digital
    advertising, and web analytics.
    • We are introducing new digital services for the
    consumers. In this respect, we have already developed
    voice-controlled virtual shopping assistants, Anna for the
    Gorenje brand and Elsa for the Asko brand.
    We shall also offer consumers mobile applications
    for simplified registration and control of connectible
    appliances, selection of recipes, tips and instructions for
    appliance maintenance and troubleshooting, as well as a
    store finder, price comparison feature, remote assistance,
    interactive instructions for use etc.
    • The Group's digital transformation also includes
    e-services for our business partners, which include
    improvements to product and marketing and other
    important contents for our B2B partners, improved
    support for their digital platforms (product descriptions,
    possibility of virtual viewing of products in 3D etc.).
    • An important part of our digital transformation is
    certainly the support to processes at Gorenje with
    digital technologies – digitalization and automation
    of production. Concurrently with modern digital
    technologies, we also support all other processes
    in order to be quicker and simpler (digitalization of
    development processes, purchasing and supply chain,
    sales and after-sales processes etc.). In development
    and information technology we are already implementing
    the Microsoft HoloLens that allows a more advanced
    and efficient development of products with the
    help of augmented reality. This can cut the new
    product development time and the costs for specimen
    production. •
    Employees, too, are a digitally connected community.
    Therefore, it is important to provide modern digital
    services to them. The latest e-service for the Gorenje
    Group employees is the new career point that we have
    introduced as a part of the human resource management
    transformation. This will be further upgraded with new,
    additional digital services for the employees.
    • A field that is of key importance for the Gorenje Group
    is the connectible smart appliances and devices.
    In late 2017, we launched in the Dutch market Atag's
    first smart kitchen and thus entered the market segment
    of connectible smart appliances. Atag Connect Life
    connectible appliances allow the user to download an
    app to her smart phone or tablet and use it to remotely
    control and monitor appliance operation. The app is
    based on the user's lifestyle and it will adapt to it. It
    will allow the users to get the very best out of their
    appliances. Later on, the experience from Atag will be
    used as a platform for connectible appliances for the
    entire Group.
    One of the sources driving the digital transformation at
    the Gorenje Group is knowledge. Systematic acquisition
    of required knowledge is already under way at Gorenje.
    Therefore, Digital Business Academy programs have
    been in progress as a part of the Corporate University
    of Gorenje for two years. General training programs
    are intended for key employees with important roles
    in establishing the culture that is conducive to digital
    transformation and its successful execution. In addition, we
    also conduct training on digitalization for managerial and
    executive personnel. Specialized programs are intended
    to groups of experts involved in a wide range of products
    related to digitization; and innovation workshops are
    conducted with experts from respective fields within and
    beyond the company, whose use of digital technology can
    enhance innovation and improve performance.
    e-communication
    e-partner services
    e-employee services e-skils
    e-content e-technologies e-processes e-appliances
    e-systems e-consumer services
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    2.1.2 Creating value for the
    shareholders
    Strategic goal
    Fundamental principle of investor relations: equal
    treatment for all shareholders and potential investors,
    and timely provision of relevant information about the
    Gorenje Group.
    Gorenje Group strategy by 2020 and its dividend policy
    ensure generation of added value for all stakeholders,
    and, in accordance with performance, provides dividend
    of up to one third of net profit. We are generating value for
    all stakeholders; we care for our employees, and we are
    pursuing the corporation's sustainable development.
    Communication strategy and investor relations goals:
    (1) competent share valuation, (2) improvement in
    corporate disclosures, (3) adequate coverage of
    analysts and pundits, (4) improving Management
    Board recognition, (5) developing relations with the
    shareholders, (6) improving the coverage by financial
    media/press, and (7) correct presentation of company/
    Group information in professional databases.
    Transparency of operations and equal
    treatment
    We maintain transparency of our operations through
    communication with the shareholders, financial analysts and
    institutions, the media, and the general public. We provide
    information about the company position and major changes
    in its operations in a regular and timely fashion. The central
    goal of our communication with the financial community is
    provision of suitably structured, transparent, reliable and
    currently relevant up-to-date information about the business
    development of the Group and its financial position. We treat all existing and prospective shareholders
    equally,
    providing them the best possible foundation for their
    investment decisions.
    All regulated and price-sensitive information is disclosed in:
    • Slovenian (a total of 39 public announcements) and
    English language (a total of 39 public announcements)
    in the Ljubljana Stock Exchange electronic information
    dissemination system, the SEOnet (www.ljse.si),
    • Polish language (a total of 39 public announcements) on the
    Warsaw Stock Exchange via the ESPI system (www.gpw.pl),
    for easier communication with the public in Poland, and
    • on our corporate website at www.gorenjegroup.com.
    • Convocation of the Shareholders Assembly and
    announcement of the Shareholders Assembly resolutions
    are, pursuant to Gorenje d.d. Articles of Association and
    Rules of Procedure for the Shareholders Assembly, also
    announced in the Slovenian daily paper Delo.
    Public announcements (or press releases) are sent to international
    press agencies, the media, investors, and analysts via electronic
    mail distribution system which in 2017 included 230 international
    and 125 domestic recipients. Investors and other representatives
    of the financial community may subscribe to our electronic news
    feed (e bulletin) (http://www.gorenjegroup.com/en/media ).
    We also continue our silent period policy. Thus, we do not
    organize any meetings with members of the press, investors,
    or pundits, and we do not disclose any information that could
    hint at our results in the period of fifteen days prior to public
    announcement of interim reports.
    Investor relations
    Relations with domestic investors are maintained on
    a daily basis. We are available every day to all investors
    (major a
    nd minor, domestic and international), and we regularly
    respond to all of their queries. We mostly communicate with
    our minority shareholders via telephone and e-mail. We communicate with both international and domestic
    investors
    at meetings abroad, organized by investment
    banks, the Ljubljana Stock Exchange, the Zagreb Stock
    Exchange, and others. Presentations held at the meetings
    with investors are available at the following link: http://www.
    gorenjegroup.com/en/investors/19077. We addressed over
    200 institutional investors at seven conferences and
    webcasts in 2017. We also held several conference calls,
    especially after announcements of interim, or quarterly, results.
    We actively encourage meetings with potential investors.
    We communicate with investors via conferences, individual
    or group meetings and conference calls (especially following
    the announcement of results), as well as via modern channels
    such as our website at www.gorenjegroup.com, e-distribution
    channel, and other electronic channels.
    We are working with a number of Slovenian associations
    of minority shareholders, which are involved as proxies in
    organized collection of proxy authorizations and which take part
    in resolution of any problems regarding minority shareholders.
    Our strategic goal in investor relations is to increase coverage
    by analysts. Therefore, we encourage them to work with us
    more actively. We are available to them for comments, replies
    to their questions, and additional explanations of our public
    announcements, in order to make sure the information in their
    analyses is objective.
    We are available by e-mail and telephone for any questions
    from investors, analysts, and other members of the financial
    community (http://www.gorenjegroup.com/en/investors/
    contact-for-investors).
    Contact person for investor relations is Bojana Rojc,
    tel.: +386 (0)3 899 1345, e mail: [email protected]
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    Gorenje share in 2017
    Focus 2017
    Gorenje share at the Ljubljana and Warsaw Stock Exchange
    The closing price per Gorenje share at the Ljubljana
    Stock Exchange as the exchange of its primary listing (code
    GRVG) on the last trading day in December 2017 was EUR
    5.10, which is 14.9 percent below the price as at the last
    trading day in 2016 (EUR 6.00). The SBI TOP stock market
    index rose by 12.4 percent in the same period.
    GRVG price per
    share and daily
    trading volume
    at the Ljubljana
    Stock Exchange
    in 2017
    GRVG closing price
    per share, EUR Trading volume, kEUR
    GRV closing price
    per share, PLN Trading volume, kPLN
    GRV price per
    share and daily
    trading volume
    at the Warsaw
    Stock Exchange
    in 2017
    At the Warsaw Stock Exchange, the closing price per share
    declined by 13 percent relative to the end of 2016 (from PLN
    25.51 or EUR 6.01 to PLN 22.20 or EUR 5.32).
    Gorenje share's total trading volume on the Ljubljana
    Stock Exchange and the Warsaw Stock Exchange amounted
    to 2,102,098 shares, which is 39.9 percent more than in
    2016 (3,495,901 shares). Average daily trading volume
    was 8,542 shares at the Ljubljana Stock Exchange, and 144
    shares per day at the Warsaw Stock Exchange.
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    Trading with the GRVG share and its return and performance relative to 2\
    013
    20172016201520142013
    Number of shares issued 24,424,613
    +11% 24,424,613
    24,424,61324,424,61322,104,427
    Number of treasury shares 121,311
    = 121,311
    121,311121,311121,311
    Number of shareholders 12,247
    -30% 13,415
    16,24817,00017,438
    Annual value of stock traded (EUR) 13,213,000
    +52% 23,029,500
    12,433,01427,269,030 8,716,644
    Average market capitalization (EUR) 152,064,613
    +126% 149,582,558
    130,914,600133,101,585 67,252,797
    Turnover (value of stock traded/average market
    capitalization) 0.09
    -33% 0.15
    0.100.200.13
    Indicators on Gorenje share and its performance in comparison to 2013
      31. 12. 201731. 12. 201631. 12. 201531. 12. 201431. 12. 2013
    Closing price per share (EUR) 5.10
    +21% 6.00
    4.605.624.20
    Maximum price per share in the course of the year (EUR) 7.25
    +57% 9.15
    6.307.204.62
    Minimum price per share in the course of the year (EUR) 5.10
    +34% 4.10
    3.853.963.80
    Basic and diluted earnings per share (in EUR) 0.040.33-0.36 0.04-1.51
    Share book value (in EUR) 15.1315.4015.1415.6517.32
    Dividend (EUR) n/a0.10 -0.06 -
    P/E (price to earnings ratio) 127.5018.19 ---2.78
    P/B (price to book ratio) 0.34 0.390.300.360.24
    Dividend yield, % n/a1.67% -1.07% -
    Earnings per share: calculated as the ratio between profit
    or loss of the parent company and the average number of
    shares outstanding minus the average number of treasury
    shares held by the company (24,303,302 shares) amounted
    to EUR 0.04 (EUR 0.33 for the entire year 2016). Share book value: Book value of GRVG share as at
    December 31, 2017, amounted to EUR 15.13 (EUR 15.40 as
    at December 31, 2016). It is calculated as the ratio between
    book value of Gorenje d.d. ordinary share capital and the
    number of shares issued, minus the number of treasury shares, as at the last day of the period at hand (24,303,302
    shares).
    The ratio between market and book value per GRVG share
    amounts to 0.34 (0.39 as at December 31, 2016).
    Dividend policy: Gorenje Group strategy by 2020 and
    its dividend policy ensure generation of added value for
    all stakeholders, and, in accordance with performance,
    provides dividend of up to one third of net profit. In
    2016, dividend amounted to EUR 0.10 gross per share.
    Ownership Structure
    As at December 31, 2017, there were 12,247
    shareholders entered in the share register, which is
    8.7 percent less than at the end of 2016 (when there
    were 13,415).
    The number of treasury shares relative to the last day of
    2016 remains the same at 121,311 shares, which is 0.4967
    percent of total share capital.
    As laid down by the company Articles of Association, one
    share bears the right to one vote; treasury shares do not bear
    voting rights.
    Slovenia,
    35,07%
    USA, 13,01%
    Croatia,
    15.28%
    Japan, 10.81%
    Poland, 7,70%
    Netherlands, 5,03%
    Austria, 4,01%
    France, 3,69%
    Luxembourg 2,94%
    Hungary, 1,96%
    Other countries, 0,50%
    Ownership structure by
    countries per 31 Dec. 2017
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    Ten largest Gorenje shareholders
    Ten largest shareholdersNumber of shares
    (Dec 31, 2017) Shareholding
    in %
    KAPITALSKA DRUŽBA D.D. 3,998,65316.37%
    INTERNATIONAL FINANCE CORPORATION 2,881,89611.80%
    PANASONIC CORPORATION 2,623,66410.74%
    KDPW – FIDUCIARY ACCOUNT 1,879,8987.70%
    HOME PRODUCTS EUROPE B.V. 1,221,2315.00%
    RAIFFEISEN BANK AUSTRIA D.D. – FIDUCIARY ACCOUNT 1,134,0734.64%
    ZAGREBAČKA BANKA D.D. - FIDUCIARY ACCOUNT 927,5423.80%
    BNP PARIBAS SECURITIES SERVICES S.C.A. 900,1003.69%
    UNICREDIT BANK AUSTRIA AG – FIDUCIARY ACCOUNT 856,9263.51%
    ADDIKO BANK D.D. - FIDUCIARY ACCOUNT 642,9532.63%
    Ten largest shareholders combined 17,066,89669.88%
    Treasury shares 121,3110.50%
    Other shareholders 7,236,31629.62%
    Total 24,424,613100%
    Ownership structure as at December 31, 2016 Ownership structure as at December 31, 2017
    2.1.3 Business performance
    2.1.3.1 Gorenje Group
    performance highlights
    In the performance analysis, data for previous years is
    presented in terms that are comparable to the data for 2017;
    therefore, it deviates from the data (other operating income
    and expenses, EBITDA, and EBIT) reported for 2016 in the
    financial report within this Annual Report. Comparable figures
    for previous years are adjusted for the effect of revaluation
    adjustment to receivables, which were reported in previous
    years as finance income and expenses, while in 2017, they
    are reported as other operating income and expenses.
    • We generated sales revenue of EUR 1.31 billion,
    which is 4.1 percent more than in 2016. The actual
    sales revenue accounts for 99.6 percent of Gorenje
    Groups budgeted annual sales revenue.
    • Sales revenue in Domestic Appliances reached EUR
    1.082 billion, which is 0.4 percent more than in 2016,
    and accounts for 95.8 percent of the annual plan.
    Kapitalska družba, d. d. 16.37%
    IFC 11.80%
    Panasonic 10.74%
    KDPW − Fiduciary account 7.75%
    Other financial investors 38.51%
    Individuals 11.49%
    Employees 2.84%
    Treasury shares 0.50% Kapitalska družba, d. d. 16.37%
    IFC
    11.80%
    Panasonic 10,74%
    KDPW - Fiduciary account 7.70%
    Other financial investors 39.28%
    Individuals 11.41%
    Employees 2.20%
    Treasury shares 0.50% 1,251.9
    2013 20142015 20162017
    1,253.7
    1,225.01,258.11,309.9
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    • Sales revenue grew in particular in the markets of
    Eastern Europe and in markets beyond Europe, while
    in some Western European markets, particularly
    Germany and the UK, our sales declined, mostly
    as a result of repositioning in terms of pricing, lower
    sales of products with inadequate returns, and harsh
    competition.
    • In 2017, we completed a several-year cycle of intensive
    investments that included new generations of products
    in all product categories for all key brands marketed in
    the Domestic Appliance segment. Thus, we launched in
    2017 mass production and sales of new generations of
    freestanding cookers, premium washing machines and
    dryers, and premium dishwashers. New built-in cooling
    appliances and connectible appliances are in the final
    stage of development, undergoing intensive testing
    and system optimization. We started our deliveries of
    connectible appliances under the Atag brand to our
    business partners in the Netherlands (installation in smart
    homes, or apartments, in the Netherlands).
    • We boosted our sales of premium appliances. Their
    share in total major domestic appliance sales revenue
    increased to 28.8 percent (1.7 percentage point relative
    to 2016). Our sales of innovative appliances grew as
    well. Their share in total major domestic appliance
    sales revenue increased to 21 percent (increase by 1.6
    percentage point relative to 2016).
    • Gorenje Group continued to increase its investments
    into development and marketing to support the
    growth and structural advancement of sales. We invested
    EUR 33.3 million into development (EUR 2 more
    than in 2016), which accounts for 2.5 percent of total
    Gorenje Group revenue (increase of 0.06 percentage
    point relative to 2016).
    • We invested EUR 29 million into marketing, or 2.2
    percent of total Gorenje Group revenue (increase of
    0.1 percentage point relative to 2016). •
    EBITDA amounted to EUR 76.4 million, which is 4.8
    percent less than the comparable EBITDA for 2016. We
    reached 78.7 percent of the budgeted annual EBITDA.
    • EBIT stands at EUR 21.7 million, which is 34.5
    percent less than the comparable EBIT for 2016. We
    reached 54.8 percent of the budgeted EBIT for 2017.
    In comparison to 2016, EBIT in comparable terms is
    lower by EUR 11.5 million, which is mostly on account of
    depreciation and amortization that increased by EUR 7.6
    million.
    • Net profit for the year 2017 amounts to EUR 1.3 million,
    which is EUR 7.1 million less than in 2016, and represents
    10.3 percent of the annual plan.
    • Operations and performance in the first half of 2017 were
    consistent with the planned dynamics. Performance
    was negatively affected, especially in the last quarter
    of the year, by lower sales in the Domestic Appliance
    segment, which were lower than the dynamic budget;
    harsh competition in the Western European markets;
    labour cost pressures; increase of prices in upstream
    (procurement) markets; and higher production costs
    related to the start of mass production of new generation
    products.
    • As at December 31, 2017, net financial liabilities
    amounted to EUR 358.7 million, which is 5 percent
    more than last year. The increase is predominantly
    a result of the failure to reach the budgeted sales in Domestic Appliances, labour cost pressures, increase of
    prices in upstream (procurement) markets (in the second
    half of 2017), and higher production costs.
    2.1.3.2 Sales and markets
    Gorenje Group sales revenue amounted to EUR 1.31
    billion, which is 4.1 percent more than in 2016.
    Gorenje Group revenue, in mio EUR
    Group revenue, broken down by activities, in mio EUR
    2016
    2017
    20132014 2015 2016
    1.6%
    2.4%
    1.6%
    2,7%
    2.6%
    2017
    19.933.8 30.8 33.221.7
    1,258.1 1,309.9
    2016 2017
    Domestic Appliances 1.076,9 1.081,7
    Other Businesses 181,2 228,2
    397.4367.6 362.0376.8 383.8
    357.9 331.5330.4 341.6358.7
    4.7
    4.3
    4.3
    4.3
    5.8
    31. 12. 2013
    Total financial liabilities Net financial liabilities
    Net financial liabilities/EBITDA
    31. 12. 2014
    31. 12. 201531. 12. 201631. 12. 2017
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    Revenue in the activity Domestic Appliances amounted to
    EUR 1.082 billion, which is 0.4 percent more than in 2016.
    In Other Businesses, our revenue amounted to EUR 228.2
    million, which is 25.9 percent more than in 2016. Higher
    revenue is a result of higher revenue in the fields of ecology,
    hospitality services, medical equipment, heating equipment,
    and sale of coal.
    Group revenue, broken down by activities
    Structure of revenue by activities indicates that 82.6
    percent of total Group revenue was generated in the core
    activity Domestic Appliances (-3 percentage points relative to
    2016). The change in this share is a result of above-average
    growth of revenue in Other Businesses, and lower sales in
    Domestic Appliances in some Western European markets.
    In 2017, Gorenje Group’s sales revenue increased
    by 4.1 percent relative to the comparable figure for the
    preceding year. Higher sales were seen in geographical
    segments Rest of World (Overseas) and Eastern Europe.
    Sales revenue was lower in Western Europe within the core
    activity of Domestic Appliances.
    2016 2017
    Domestic Appliances 85.6% 82.6%
    Other Businesses 14.4% 17.4%
    Revenue by geographical segments
    EUR million 2016%2017 %Change (%)
    Western Europe 468.737.2439.6 33.6-6.2
    Eastern Europe 677.653.9744.7 56.8+9.9
    Rest of world 111.88.9125.6 9.612.3
    Group Total 1,258.1100.01,309.9 100.0+4.1
    Western Europe 447.341.5416.6 38.5-6.9
    Eastern Europe 518.148.1539.8 49.94.2
    Rest of world 111.510.4125.3 11.6+12.4
    Total domestic appliances 1,076.9100.01,081.7 100.0+0.4
    Western Europe includes Austria, Germany, Italy, France, Denmark, Sweden, Belgium, Finland, Great Britain, Greece, Norway, Netherlands, Spain,
    Switzerland, Ireland, Luxembourg, Malta, and Portugal. / Eastern Europe includes Ukraine, Russia, Macedonia, Croatia, Serbia, Montenegro, Albania, Bosnia
    and Herzegovina, Belarus, Kosovo, Moldavia, Latvia, Lithuania, Estonia, \
    Slovenia, Czech Republic, Hungary, Poland, Bulgaria, Romania, and Slovakia;
    Rest of World includes all other countries outside Europe.
    with the sales of the premium brand Atag. Sales also
    increased in Austria, Scandinavia (Asko brand), and
    France. Sales revenue was lower in the markets of
    Germany and Great Britain, which is a result of pricing
    repositioning in these markets, a change in the structure
    of sales channels, adjustment of sales and pricing policy,
    restriction of sales of products with inadequate returns,
    and harsh competition.
    • By increasing our sales under the Asko brand, we are
    increasing sales in the premium segment. In the
    structure of sales revenue in our core activity Domestic
    Appliances, sales of products under the Asko
    premium platform accounted for 11.2 percent
    in 2017 (+1.0 percentage point relative to 2016).
    Sales under the Asko brand were up in the markets of
    Australia, the USA, Scandinavia, and Asia.
    • Sales revenue of small domestic appliances grew
    by 18 percent. In the structure of revenue from sales of
    major and small domestic appliances within the Domestic
    Appliances business, sales of small domestic appliances
    • The Domestic Appliances business generated sales
    revenue of EUR 1.082 billion, which is 0.4 percent
    more than in 2017.
    • As our sales continued to grow in the Rest of World
    region, we continued to decrease our reliance on
    the European markets and to improve our sales
    structure (higher share of premium appliances and
    premium brands). In the Rest of World segment, we saw
    significant growth in North America, Australia, Asia,
    and the Middle East. In the structure of sales revenue
    in Domestic Appliances, the Rest of World segment
    accounted for more than 11.6-percent share (1.2
    percentage point more than in 2016).
    • In 2017, our sales increased in the Domestic Appliances
    business in the following markets of Eastern Europe:
    Slovakia, Ukraine, Hungary, Croatia, Slovenia,
    Bulgaria, Bosnia and Herzegovina, Macedonia,
    Albania, and Russia.
    • In Western Europe, our sales increased in the
    markets of Benelux, especially in the Netherlands
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    accounted for 4.5 percent (+0.7 percentage point
    relative to the comparable figure for last year). Our
    sales revenue increased in the markets of Hungary, Czech
    Republic, Slovakia, Slovenia, Croatia, Romania,
    Bulgaria, and Serbia. Very high growth of small domestic
    appliance sales was seen in Russia and Ukraine.
    • We increased our sales of innovative appliances.
    Their share in total major domestic appliance sales
    revenue in the activity of Domestic Appliances increased
    to 21 percent (1.6 percentage point relative to 2016).
    We also increased our sales of premium appliances.
    Their share in total major domestic appliance sales
    revenue increased to 28.8 percent (1.7 percentage
    point relative to 2017).
    • We invested EUR 29 million into marketing, or 2.2
    percent of total Gorenje Group revenue (increase of
    0.1 percentage point relative to 2016).
    2.1.3.3 Development and
    investment
    Consistently with our strategic goal, we invested 3.1
    percent of total sales revenue from the core activity
    Domestic Appliances, and 2.5 percent of total Group
    revenue, into new product development.
    Key development achievements in 2017 included the
    following: new generation of free standing cookers,
    new
    generation of premium washing machines and dryers,
    new
    generation of premium dishwashers, new generation of
    gas hobs, Gorenje Retro Special Edition refrigerators (co-
    branding with Volkswagen), new versions of dishwashers for
    our OEM customers, line of kitchen appliances Ora-Ïto 2.
    New built-in cooling appliances and connectible appliances
    are in the final stage of development, undergoing intensive
    testing and system optimization. We started supplying connectible appliances under the Atag brand to our partners
    for installation in smart homes in the Netherlands.
    Investment in 2017 amounted to EUR 75.7 million,
    which is EUR 7.5 million less than in 2016. Investment
    into property, plant, and equipment amounted to EUR
    50 million, of which a major part of EUR 39.7 million
    accounted for investment into technological equipment,
    mostly in the process of new product development. The
    largest share of investments was carried out in the core
    activity of Domestic Appliances where investment totalled
    at EUR 67.4 million. Among total investments, EUR 24.9
    million pertains to intangible investments. Majority of
    these, in turn (EUR 20.4 million), pertains to investments into
    new product development (capitalized development costs).
    With regard to investment within the Domestic Appliances
    business, we completed the investments into a new platform
    of free standing cookers at the factory in the Czech Republic
    and two new generations of washing machines and dryers,
    and thus completed a several-year intensive investment cycle
    in which the amount of investment exceeded the annual
    depreciation and amortization expense. Thus, we revised
    in the past few years the platforms and appliances in most
    product categories for all brands in the Domestic Appliances
    business. Within Other Businesses, we allocated EUR
    8.3 million to investments, the majority of which (EUR 2.5
    million) was used in the segment of ecology.
    The Group introduced uniform capitalization of new product
    development costs in 2013; before, development costs
    were only capitalized at the companies headquartered in
    the Netherlands. In addition to harmonization of accounting
    policies across the entire Group, the key reason for
    capitalization of new product development costs is the
    Group's decision to considerably increase investments into
    new product development in order to maintain or improve its
    competitiveness. A part of the change in the development and product management policy was to hire extra
    development engineers whose number increased from 202 at
    the end of 2009 to 380 at the end of 2017 (increase by 88%).
    After 2012, the field of development was reorganized into
    competence centres in Slovenia, Sweden, the Netherlands,
    and the Czech Republic. At the same time, a decision was
    made to increase the investments into development of
    premium appliances that afford a considerably higher value
    added. This was also a result of operations of companies in
    the Netherlands and Sweden, by which the Group acquired
    two important premium brands Atag and Asko. The success
    of the adopted development strategy is evident in the fact that
    the share of premium appliances in total sales revenue of the
    Domestic Appliances business area in 2017 was close to 30
    percent. The largest share of development cost capitalization
    pertains to development of new appliance platforms based on
    modularity principles, which are the foundation for production
    of appliances under both Gorenje brand, which accounts
    for the largest share of the Group's sales revenue, and the
    premium brands Asko and Atag.
    2016 2017
    Domestic Appliances 75.7 67.4
    Other Businesses 7.5 8.3
    CAPEX margin, % 0.7% 0.6%
    Total 83.2 75.7
    Investment by activities, in mio EUR
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    2.1.3.4 Gorenje Group operating performance analysis
    EUR million 2016* 2017 Indeks Načrt 2017 Dos. načrta 2017
    Sales revenue 1,258.11,309.9 104.11,315.3 99.6
    Gross profit 1,285.41,334.3 103.81,330.4 100.3
    Value added 315.6325.4103.1336.4 96.7
    VA margin (%) 24.5 24.4 / 25.3 /
    EBITDA 80.276.495.297.178.7
    EBITDA Margin (%) 6.2 5.7 / 7.3 /
    EBIT 33.221.765.439.754.7
    EBIT margin (%) 2.6 1.6 / 3.0 /
    Profit before taxes 13.24.533.9 19.523.1
    Net income (profit) for the period 8.41.315.9 13.110.3
    ROS (%) 0.7 0.1 / 1.0 /
    * Comparable figures for 2016 are adjusted for the effect of revaluation adjustment to receivables, which were reported in last year as finance income and
    expenses, while in this year, they are reported as other operating income and expenses. Values of non-adjusted categories for 2016 are as follows: va-
    lue-added EUR 322.6 million; EBITDA EUR 87.2 million; and EBIT EUR 40.2 \
    million.
    The value added in the amount of EUR 325.4 million
    (3.1-percent growth relative to 2016, 96.7-percent
    fulfilment of annual plan) was affected, from the aspect of
    sales, especially by the following:
    • More favourable geographical structure of sales in the
    Domestic Appliances business; the highest sales growth
    was attained in the Rest of World geographical segment
    (12.4-percent growth) and in the markets of Eastern
    Europe (4.2-percent growth) where our contribution
    margins are higher;
    • Favourable structure of sales by brands, with higher
    sales especially of the brands Asko (10.8-percent
    growth), Atag, Pelgrim, and Etna (0.6-percent
    growth);
    • Favourable structure of sales in terms of products;
    higher sales of premium appliances (6-percent sales
    revenue growth), innovative appliances (5.9-percent
    sales revenue growth), dishwashers (14.3-percent sales revenue growth) and small domestic appliances
    (18-percent
    sales revenue growth), with unchanged
    sales of cooking appliances relative to 2016; these
    appliance categories are important from the aspect of
    contributions;
    • Higher sales revenue in Other Businesses: ecology,
    coal sales, hospitality services, heating equipment,
    and medical equipment.
    • Value added in sales was, on the other hand, negatively
    affected by the drop in sales in Western Europe, which
    mostly pertains to the markets of Germany and United
    Kingdom, and is reflected in lower sales of cooling
    appliances, washing machines and dryers.
    • The share of cost of goods sold (in the actual amount
    of EUR 261.6 million) in gross profit remained roughly the
    same as last year in comparable terms, but exceeds the
    annual plan by 1.4 percentage point. The reason for a
    higher relative share of cost of goods sold relative to the
    budgeted relative share lies in the business area of Other Businesses where our sales was higher than planned,
    with a different structure.
    • Costs of material amounted to EUR 489.1 million (2.8
    percent growth relative to 2016, 98.3 percent of the
    budgeted annual cost). The share of costs of material in
    gross operating profit is lower by 0.3 percentage point
    relative to last year. Efficient negotiations, adjustment
    of purchasing sources, and timely futures for raw
    material, as well as activities related to sourcing of
    components from the Best Competitive Countries, we
    adjusted our costs of raw and processed materials
    in the activity of Domestic Appliances to the
    volume of sales and production, and largely neutralized
    the increase in the prices of raw and processed materials
    in the global markets. Also contributing in this respect
    were the activities related to supply chain optimization.
    Favourable trends in upstream markets, seen at the
    start of the year, were soon reversed. Especially in the
    second half of the year, this had a negative effect on our
    performance. Within the activity of Domestic Appliances,
    we exceeded the budgeted relative share of material
    costs by 0.2 percentage point, on account of higher
    input prices of raw and processed materials in the
    second half of 2017.
    • Costs of services, amounting to EUR 230.7 million,
    were higher by 6.8 percent or EUR 14.7 million relative
    to 2016, and reached 99.6 percent of the annual
    budget. Costs of services in Other Businesses were EUR
    13 million higher than in 2016. Higher costs of services in
    Other Businesses are related to high growth of business
    activities, especially in ecology and hospitality services,
    and with execution of projects in medicine, ecology,
    and communal / utility projects; at the same time, these
    projects increased the sales revenue in this area.
    - Within the activity Domestic Appliances, costs of
    services were higher by EUR 1.7 million than in
    2016. The increase mostly pertains to adjustment of
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    72
    comparable EBITDA for 2016. We reached 78.7 percent of
    the budgeted EBITDA for the year.
    EBITDA and EBITDA margin, in mio EUR
    Operating profit (EBIT): our EBIT amounted to EUR 21.7
    million. Relative to last year, in comparable terms, the
    comparable actual EBIT was lower by EUR 11.5 million
    or 34.6 percent, and it represents 54.7 percent of the
    budgeted annual figure. The drop in EBIT was a result of
    high growth of depreciation and amortization expense
    in the amount of EUR 7.6 million, resulting in turn from
    the dynamics of capitalization of development costs and
    intensive cycle of investments into new generations of
    products in preceding periods.
    EBIT and EBIT margi, in mio EUR
    Result from financing is negative in the amount of
    EUR 17.4 million is EUR 2.7 million better than in 2016.
    The result from financing activities was favourably affected
    accounting reporting of the costs of quality related
    to warranty repairs. Namely, in the past, these costs
    were at some subsidiaries partly recorded as costs
    of material and partly as labour costs. Costs of
    services also include costs of logistics services and
    quality, which are lower than in 2016, and costs of
    marketing services that are deliberately increased in
    order to ensure the Group‘s long-term competitive
    edge. Within the Domestic Appliances activity,
    we also saw an increase in the costs related to
    maintenance, costs of workers temporarily hired via
    private employment agencies (related to the launch of
    production of new generations of products), costs of
    services rendered within the production process, and
    rental expenses.
    • Labour costs amounted to EUR 249 million, which
    is EUR 13.7 million or 5.8 percent more than labour
    costs in 2016. The figure accounts for 104 percent of
    the budgeted figure for the year. Within the Domestic
    Appliances activity, labour costs were higher by EUR
    10.3 million. Labour costs were affected by the following:
    alignment of salaries during the year, pursuant to the
    collective labour agreement (bonus for total years of
    service, loyalty, and promotion); signed social agreements
    in respective production plants in Slovenia, Serbia,
    and the Czech Republic; higher average number of
    employees in production due to poorer productivity upon
    introduction of new generations of products (cooking
    appliances, dishwashers); and higher annual bonuses
    and severance packages.
    - In the third quarter of 2017, we further stepped up
    our activities to cut labour costs in administration
    (“white-collar employees”) at the Gorenje Group level.
    We specified a goal to cut labour costs in Gorenje
    Group administration by 10 percent relative to June
    1, 2017. At the Gorenje Group level, the number of
    employees in administration (white collars) was cut by 120 in the period from June 1, 2017, until the
    end of the year. White collar employees are actively
    encouraged to retire or to take the option of furlough
    until retirement, and we seek not to replace the
    retired employees if possible.
    - On average, Gorenje Group had 11,039
    employees in 2017, which is on average 150 more
    than in 2016. Average number of employees in
    the Domestic Appliances activity increased by 99,
    while the number of employees in Other Businesses
    increased by 51. The cause for the increase in
    the number of employees in the business area
    of Domestic Appliances is above all the structure
    of manufacturing operations and failure to attain
    the planned productivity upon introduction of
    manufacturing of new generation products. In Other
    Businesses, growth was a result of expansion of
    operations in hospitality services.
    Average number of employees by activities
    Our EBITDA (profit from operating activities before
    depreciation and amortization) amounted to EUR 76.4
    million which is EUR 3.9 million or 4.8 percent less than the
    2016 2017 Domestic Appliances 8,895 8,994
    Other Businesses 1,994 2,045
    Total 10,889 11,039
    2016
    6.2%
    5.7%
    2017
    80.2
    76.4
    2016
    2.6%
    1.6%
    2017
    33.2
    21.7
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    73
    2016
    0.7%
    0.1%2017
    by interest expense which was 15.2 percent (EUR 2.3
    million) lower than last year. Considerably better result from
    financing operations is also a result of the effect of transfer
    of revaluation adjustments related to trade receivables to
    operating part of the income statement; this figure amounted
    to EUR 7 millions in 2016. Negative effect of currency
    translation differences amounted to EUR 0.3 million in 2017,
    which is on a par with the figure for 2016.
    Corporate income tax, reported at EUR 3.1 million, is EUR
    1.7 million lower than in 2016, and it includes both currently
    levied and deferred corporate income tax. Contributing the
    most to the decrease in corporate income tax is the favourable
    decision in the fiscal control (tax audit) procedure regarding
    transfer pricing at one of the Western European countries.
    The amount was charged in 2016, and as a result, released in
    2017. Also contributing to lower corporate income tax were the
    deferred tax assets resulting from investments, which allow tax
    reliefs in subsequent fiscal periods.
    Gorenje Group‘s net profit for the period amounted to EUR
    1.3 million, which is EUR 7.1 million less than in 2016.
    Net income (profit) for the period and ROS, in mio EUR
    8.4
    1.3
    Worsening of performance in the second half of
    the year:
    Performance was negatively affected, especially in the last
    quarter of the year, by the following developments: lower-than-
    planned sales in the domestic appliance segment, especially
    on account of price repositioning in Germany; pressures
    related to labour costs; increase of prices in upstream
    markets; and higher production costs related to the start of
    mass production of new generation products.
    2.1.3.5 Financial performance
    Focus 2017
    We failed to reach the Group‘s fundamental financial
    goal, i.e. decrease in relative debt. The financial debt
    indicator, calculated as the ratio between net financial
    liabilities and operating profit before depreciation
    and amortization (EBITDA) was at 4.7 at the end of
    2017, which is 0.4 more than the comparable figure for the
    preceding year.
    The goal of providing short-term and long-term financial
    stability through timely refinancing of currently maturing
    liabilities with the lowest interest expense and risk
    possible, was accomplished. Pursuant to the financial plan,
    particular attention was paid again in 2017 to refinancing of
    the currently maturing portions of long-term financial liabilities,
    renewal of existing, and increasing of short-term and long-
    term credit facilities, and to cutting our finance expenses.
    Our long-term borrowings are regularly repaid and partly
    refinanced, while short-term borrowings are regularly renewed.
    Key activities
    In 2017, we repaid a total of EUR 95.3 million of maturing
    long-term borrowings. Although the financial liabilities at the
    end of 2017 did not decrease relative to the year before, we maintained a stable maturity profile of financing sources (over
    76 percent are long-term sources), and preserved an adequate
    diversification of financing sources to banking and non-banking
    sources. The result of these activities is a considerably lower
    amount of currently maturing portions of long-term financial
    liabilities in 2018, amounting to EUR 71.8 million.
    In 2017, we cut our interest expense by 15.2 percent.
    Total and net financial liabilities in the years 2013–2017, in EUR
    million; net financial liabilities to EBITDA ratio; and changes in the\
    maturity profile of financial liabilities
    31. 12. 2013
    31. 12. 2013 Total financial debt
    Non-current financial liabilities Net financial liabilities
    Current financial liabilities
    Net financial liabilities/EBITDA
    31. 12. 2014
    31. 12. 2014 31. 12. 2015
    31. 12. 2015 31. 12. 2016
    31. 12. 2016 31. 12. 2017
    31. 12. 2017
    5.8 4.3 4.34.34.7
    397.4
    367.6 362.0376.8383.8
    357.9 331.5 330.4341.6358.7
    50%
    50%73.5% 74.9% 73.1%76.4%
    26.5%
    25.1%26.9%23.6%
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    74
    • Total financial liabilities as at December 31, 2017,
    amounted to EUR 383.8 million, which is EUR 7 more
    than on the same day a year earlier.
    - In the maturity profile of our financial liabilities, long-term
    financing sources account for 76.4 percent; the rest are
    short-term sources.
    - Net financial liabilities (measured as the difference
    between total financial liabilities, and cash and cash
    equivalents) at the end of 2017 amounted to EUR 358.7
    million, which was EUR 17.1 more than at the end of
    2016.
    - As at December 31, 2017, the Group‘s available liquidity
    reserve amounted to EUR 100.8 million and it included
    approved yet unused long-term and short-term credit
    facilities and cash in bank accounts, which can also be
    used to bridge any payments of the maturing liabilities.
    Quite importantly, we secured EUR 40 million worth
    of long-term revolving lines in 2017, which additionally
    improved Gorenje Group‘s financial stability.
    None of the Group's borrowings are secured by any collateral;
    in most of the agreements with banking partners, financial
    covenants are specified. The Group agreed on standard
    financial covenants in most of its loan agreements. In addition
    to the debt indicator, according to which the ratio of net
    financial liabilities to EBITDA should be lower than 4, these
    also include the following covenants: EBITDA to net interest
    expense ratio has to be higher than 4; difference between total
    and minority capital should be higher than EUR 220 million; and
    the ratio between net financial debt and the difference between
    total capital an equity should be lower than 1.2.
    Due to worsened Gorenje Group performance, especially in the
    second half of 2017, we failed to meet at the end of 2017 our
    financial covenant regarding financial debt (it stood at 4.7) as
    agreed in the loan agreement with the Gorenje Group's financial
    partners. We complied with all other financial covenants. We received the necessary covenant waivers for 2017 from our
    financial partners. When requesting the covenant waivers,
    we proposed to our financial partners the following further
    commitments or covenants that confirm our devotion to pursuit
    of the goals laid down with regard to decrease of Gorenje
    Group's debt:

    divestment of non-operating assets and non-core
    business assets in Other Businesses in the amount of no
    less than EUR 50 million, with a target of EUR 80 million,
    with proceeds allocated to debt repayment;
    • aligning the annual investments with depreciation and
    amortization so they do not exceed EUR 65 million;
    • the company Management Board shall not propose any
    dividend payment until the financial covenants are met;
    • we shall organized a meeting with financial partners every
    quarter.
    Structure of Gorenje Group's net financial liabilities (v mio EUR)
    Changes in the Group‘s total and net financial liabilities
    is for the most part related to the changes in net
    working capital. Thus, EUR 143.3 million or 40 percent of
    net financial liabilities pertains as at December 31, 2017, to
    financing of Gorenje Group‘s net working capital, while EUR
    215.4 million (60 percent) of net financial liabilities pertains
    to financing of long-term assets. High level of net working
    capital during the year is released or decreased in the last
    quarter as we sell off our inventories and collect a major part
    of our receivables. Thus, net working capital represents the
    assets that increase as the actual sales revenue increases,
    and which have a very short period of transformation into
    cash, which significantly reduces the level of net financial
    liabilities in the last quarter of the year.
    The short transformation cycle is evident in the average
    turnover of respective net working capital items: 69 days for
    inventories, 56 days for trade receivables, and 68 days for
    trade payables, which is on a par with the comparable period
    of the year before. We introduced supplier factoring to extend
    the days payables outstanding. The number of included
    suppliers whose payment terms were extended, and the
    related purchasing volume, increased considerably in the last
    quarter of 2017, which will positively affect the net working
    capital, and thereby the net financial liabilities, in 2018.
    The ratio between net financial liabilities intended for financing
    of long-term assets and EBITDA as at December 31, 2017,
    amounted to 2.8, while the ratio between total net financial
    liabilities and EBITDA as at December 31, 2017, was at 4.7.
    2013 2014201520162017
    150.4
    156.5188.1196.7215.4
    207.5
    175.1142.3144.9143.3
    NFL for fin. NWC** NFL* for long-term purposes
    NFL/EBITDA (total) NFL for long-term purposes/EBITDA
    *Net financial liabilities **Net working capital
    1
    0 2 3
    4
    5 6
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    Cash flow
    Cash flow from operating and investing activities, in mio EUR
    In 2017, the Group reported a negative cash flow from operating and investing activities in the amount of EUR 14.5 million,\
    which
    is EUR 0.2 million worse than in the preceding year.
    Working capital management
    Investment into net working capital
    v mio EURDec 31, 2013Dec 31, 2014Dec 31, 2015Dec 31, 2016Dec 31, 2017 Difference
    Dec 31, 2017 / Dec 31, 2018
    + Inventories 236.4219.8225.9225.9220.6 -5.3
    + Trade receivables 208.6182.6161.0165.8180.5 14.7
    + Other current assets 51.348.952.258.861.0 2.2
    – Trade payables -214.0-202.6-221.0-223.7-229.4 -5.7
    – Other current liabilities -74.8-73.6-75.8-81.9-89.4 -7.5
    = Net working capital 207.5175.1142.3144.9143.3 -1.6
    Changes in net working capital in EUR million in the years 2013–2018,\
    and its share in sales revenue (%)
    Q1 2016 -65.4
    -66.4-5.1
    -1.558.5
    -18.8 6.3
    63.7
    -14.3 -14.5
    Q1 2017
    Q2 2016 Q2 2017
    Q3 2016 Q3 2017
    Q4 2016 Q4 2017
    2016 2017
    As at December 31, 2017, the Group‘s investments into net
    working capital 1 were reported at EUR 143.3 million, which
    is EUR 1.6 less than as at December 31, 2016. Taking into
    account the higher sales and production capacity utilization,
    the share of investments into net working capital relative to
    Group revenue decreased relative to the end of 2016 by 0.6
    percentage point, to 10.9 percent.
    • As at December 31, 2017, trade payables amounted to
    EUR 220.6 million, which is EUR 5.3 million less than as
    at December 31, 2016. On average, days in inventory
    were at 69, which is the same as in 2016.
    • As at December 31, 2017, trade receivables amounted
    to EUR 180.5 million, which is EUR 14.7 million more
    than as at December 31, 2016. On average, days sales
    outstanding were at 56, which is the same as in 2016.
    • As at December 31, 2017, trade payables amounted to
    EUR 229.4 million, which is EUR 5.7 million more than
    as at December 31, 2016. On average, days payables
    outstanding were at 68, which is 1 day less than in the
    year before.
    1 Net working capital = inventories + trade receivables + other current
    assets – trade payables – other current liabilities 31. 12. 2013 207.5
    16.6%
    14%11.6% 11.5% 10.9%
    175.1 142.3 144.9143.3
    31. 12. 2014 31. 12. 201531. 12. 201631. 12. 2017
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    76
    2.1.3.6 Plan for the year 2018
    One of Gorenje Group‘s key policies in 2017 was focusing
    on the home appliance segment as the Group‘s core activity.
    Therefore, we examined the possibilities of divestment of
    companies and assets from non-core operations. We started
    with the divestment process for Gorenje Surovina, the largest
    company among Other Businesses (planned elimination
    from the Group early in the third quarter). Early in 2018,
    we shall also launch the divestment process for the water
    heater production activity Gorenje Tiki (planned elimination
    from the Group early in the last quarter). Moreover, we have
    also launched intensive activities of sale and monetization of
    real property. We are planning to source EUR 65 million of
    funds from divestment in 2018, which will be allocated for
    cutting the Gorenje Group‘s debt. Due to formal procedures
    in divestment processes, a part of the funds from these
    activities is budgeted for 2019. We shall also continue our
    digital transformation as mapped out in the company‘s digital
    business strategy.
    Sales revenue is budgeted at EUR 1.33 billion, which
    is 1.4 percent more than in 2017 despite the planned
    divestment in the non-core segment. Revenue in the core
    activity of Domestic Appliances shall amount to EUR
    1.189 billion in 2018, which is 9.9 percent more than in
    2017. Budgeted gross profit in this activity, at EUR 1.179
    million, exceeds the figure for 2017 by 7.5 percent. Higher
    budgeted growth of revenue and gross return is a result of
    further optimization of inventories of finished products and
    merchandise. Higher revenue will mostly result from higher
    sales of innovative and premium appliances, and further
    expansion to markets outside Europe.
    Breaking down by brands, the highest growth is
    expected with the premium brand Asko for which sales
    are budgeted to increase by over 18 percent on account of Asia, Australia and Russia. Atag brand sales are budgeted
    to grow by 13 percent while sales of Gorenje brand
    products will rise by 8 percent. Within the European Union,
    our sales growth will be the steepest in Germany, Poland,
    Hungary, Slovenia and Croatia, while beyond EU, we are
    planning the highest growth in the markets of Russia,
    Ukraine, Bosnia, Serbia, the Middle and Far East.
    New products warrant higher sales prices and higher
    revenue
    In domestic appliances, the highest sales growth is
    expected with washing machines and dryers (14.5
    percent growth). The year 2018 will be the first full year
    of sales of the new generation of laundry care appliances
    under the Asko brand, which is why we are budgeting a
    considerable increase in average downstream prices. Under
    Gorenje brand, we shall launch the sales of a new generation
    of washing machines and dryers this year, which will account
    for as much as one half of total production and sales. By
    increasing the share of advanced appliances under the
    Gorenje brand, we will see our total revenue increase notably
    in Germany, Croatia, Poland, Russia, Slovenia, and Ukraine.
    We are also planning a nearly 13-percent increase in sales
    of cooking appliances, and 7.5-percent growth of sales
    of dishwashers for the Gorenje and Asko brands.
    Our plans for 2018 also include important investments
    into development, for which we will earmark around
    2.9 percent of total Group revenue. This will include
    development of built-in induction, gas, and electric hobs,
    new platforms for built-in ovens and premium hobs, upgrade
    of Asko washing machines and dryers, development of a
    new generation of Asko Professional washing machines and
    dryers, development of the Simplicity 2.1 designer line, and
    development of a new platform of free-standing refrigerators.
    We shall also continue to develop connectible appliances.In addition to the activities and measures defined in 2017,
    additional measures aimed at:

    increase of average prices of finished products in the
    markets due to improved structure,
    • selective increase of sales prices of products due to
    increase in material prices,
    • further optimization of production processes,
    • cost efficiency at all levels of operations,
    • lower labour costs, both due to lower number of
    employees in support functions and due to improvement
    in productivity in direct production,
    • further divestment of non-operating assets and
    businesses, and activities in Other Businesses,
    • we shall ensure the accomplishment of the planned goals
    for 2018.
    EBITDA for 2018 is budgeted at EUR 86.3 million, which
    is 13.1 percent more than the actual EBITDA for 2017.
    Budgeted EBIT of EUR 25.3 million is 16.6 percent higher
    than in 2017. Our net profit for 2018 is budgeted at EUR
    8.1 million.
    In 2018, we continue to pursue Gorenje Group‘s fundamental
    long-term goal in finance, i.e. decrease of net financial liabilities
    and relative indebtedness, and maintaining a favourable
    maturity profile of our financial liabilities. In 2018, we are
    planning to considerably decrease our net financial liabilities
    which will amount to EUR 274.4 million at the end of the year,
    or EUR 84,3 less than at the end of 2017. The budgeted
    decrease of financial liabilities largely results from the planned
    divestments of non-core businesses and assets, alignment of
    investment with depreciation and amortization, working capital
    optimization, and positive cash flow from operating activities.
    In 2018, we shall repay a total of EUR 71.8 million of
    maturing long-term debt, while our short-term sources will
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    77
    be currently renewed, as usual. In addition, we shall continue
    to obtain financial sources for replacement financing.
    Consistently with our policy of partial financial sourcing from
    the capital market, we issued in late January short-term
    commercial paper with a total nominal value of EUR 11.5
    million and interest rate of 1.9 percent p.a., to accommodate
    the cash flow dynamics within each year (in the first quarter
    of each year, cash flow is always negative).
    According to our plans, total financial liabilities at the end of
    2018 will amount to EUR 294.2 million; net financial liabilities
    will amount to EUR 274.4 million; and the net financial
    debt to EBITDA will amount to 3.2. In 2018, we expect our
    comparable interest expense to be on a par with the figure
    for 2017, from the aspect of average finance expenses.
    We are planning to generate positive free cash flow from
    operating and investing activities in 2018. The actual figure
    will be affected notably by the budgeted investments into
    tangible and intangible assets, for which we shall allocated
    EUR 62.5 million, consistently with the budgeted depreciation
    and amortization.
    We shall also continue to optimize our net working capital.
    The most attention will be paid to better management of
    finished product and merchandise inventories (reduction of
    complexity, improved forecasting etc.). We shall continue to
    implement our supply chain financing measures with non-
    recourse factoring of trade receivables and reverse factoring,
    which we offer to the Group‘s suppliers in exchange for
    extension of payment terms.Gorenje Group‘s main operating objectives for the year
    2018 include the following:
    • sales revenue of EUR 1.328 billion (1.4 percent growth
    of revenue relative to the actual revenue in 2017)
    • EBITDA of EUR 86.3 million (13.1 percent growth relative
    to the actual EBITDA in 2017)
    • EBITDA margin at 6.5 percent (0.8 percentage point
    more than the actual margin in 2017 when it was at
    5.7 percent)
    • EBIT of EUR 25.3 million (16.6 percent higher than
    in 2017)
    • Net profit of EUR 8.1 million,
    • net financial liabilities/EBITDA: 3.2 (ratio in 2017
    was at 4.7).
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    Environmental
    Sustainability
    Environment protection is a
    constituent part of Gorenje
    Group's corporate management
    policy and organizational
    culture. We identify, monitor,
    and improve the environment
    aspects throughout the entire life
    cycle of our products. Particular
    attention is paid to efficient
    resource management (water,
    power), waste management, and
    reduction of carbon footprint.


    79
    2.2 Environmental Sustainability
    Environmental sustainability – results 2017 and plans for 2018,
    complete with outlook until 2020: Quick overview – 2017 results
    -91% in -99,6%
    Reducing the amount of waste*
    (in kg/unit, relative to 1997)
    • hazardous waste: -92%
    • waste to be disposed: -99.6%
    -83,6%
    Decrease in water consumption*
    (in m3/unit, relative to 1997)
    -83.6%
    +6.6%
    Increase in the use of electricity*
    (in kWh/unit, relative to 1997):
    +6.6%
    -44.7%
    Decrease in natural gas consumption
    (excluding combined heat and power/co-generation)*
    (in kWh/unit, relative to 1997)
    -44.7%
    10.93
    Carbon footprint*
    10.93 kg CO
    2/product
    * All information pertains to the company Gorenje d.d., Velenje plant.
    1997 RESULT
    2017 STRATEGIC
    GOAL 2020 0.05 kg per product We shall seek to
    maintain the amount
    of hazardous waste
    at the lowest level
    attained to date, i.e.
    0.05 kg per
    product.
    -92%
    Hazardous waste
    In the period from 1997 to 2017, we reduced the amount
    of hazardous waste by 92 percent. In the period of
    execution of the Strategic Plan until the year 2020, we shall
    seek to maintain the amount of hazardous waste at the
    lowest level attained to date, i.e. 0.05 kg per product.
    Disposed waste
    In the period from 1997 to 2017, we decreased the
    amount of disposed waste by 99.6 percent. In 2017,
    the amount of waste to be disposed decreased somewhat
    relative to the years before at the companies Gorenje d.d.
    and Gorenje I.P.C. d.
    o.o., compared to last year.
    Our strategic guideline until 2020 is to keep the amount
    of disposed waste at the same level, i.e. 0.005 kg per
    product.
    1997 RESULT
    2017
    0,006 kg per product We shall seek to
    keep the amount
    of disposed waste
    at the same level,
    i.e. 0.006 kg per
    product.
    -99.6%
    STRATEGIC
    GOAL 2020
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    80
    2.2.1 Gorenje's Eco Cycle
    Environmental aspects of our operations are identified,
    monitored, and continuously improved throughout the entire
    life cycle of our products. This is referred to as the Gorenje
    eco cycle. The eco cycle can be divided into four main
    stages as follows:
    • input material stage,
    • production stage,
    • product use stage,
    • recycling stage.
    Choice of input materials
    Starting from the very beginnings, each Gorenje product
    is developed to comply with all legal and environmental
    requirements. Therefore, the product planning stage is very
    important as up to 80 percent of all environmental impact
    of a product is determined then. The composition of our
    products differs in terms of the materials used, depending
    on the type of domestic appliance. However, all are made
    of superior and environmentally sound and degradable
    materials, making sure they are easy to disassemble and
    recycle at the end of their useful life.
    Production
    Or products are made of environmentally friendly and
    recyclable materials, and with environmentally friendly
    technological procedures. Investment into updates to
    technological processes and equipment has translated into
    positive environmental trends. Detailed information for 2017
    for the two companies from the core activity of domestic
    appliances, entered in the EMAS register, is provided below.
    Use of products
    Gorenje domestic appliances are designed to meet the
    varying needs of users with varying lifestyles. From a broader
    environmental aspect, these appliances have the following
    advantages:
    • they include components that are harmless to the
    environment and health, and which are almost
    completely recyclable;
    • their operation requires less power, water, and detergent
    than the comparable products of our competitors;
    • they rank among the most economical domestic
    appliances in the market as they meet and exceed the
    criteria for the highest energy classes, as specified by the
    relevant European standards;
    • noise during operation is at the lowest possible level;
    • entire technological development and improvements are
    adapted to the requirements of environmental protection
    and respect for the general social interests.
    Following is the general information that applies to the
    Gorenje Group. Detailed information for the two companies
    from the core activity of domestic appliances, entered in the
    EMAS register, is provided below.
    Recycling
    As early as in the stage of product planning, we consider
    the very last stage of its life cycle when it is no longer in
    use. Therefore, the very first steps in Gorenje product development also include a consideration of the requirements
    of product handling after the end of its useful life, when it is
    discarded as waste. Our products are planned and produced
    to allow the simplest possible disassembly and recycling
    in the last stage of their life cycle. We seek to incorporate
    in the products as few versions of the same material as
    possible, thus reducing the need for waste separation in the
    recycling process. The products are made of materials and
    components that are at least 80-percent recyclable.
    Recycling of materials allows us to reduce the amount of
    waste and the need for production of base materials (such
    as metals), which requires a lot of energy and results in
    emissions of harmful substances. Recycling procedures can
    reduce the use of natural resources, as waste plastics and
    metal can be reused in a variety of production processes.
    Described characteristics of Gorenje product eco cycle
    pertain to all Gorenje Group companies. The environmental
    aspects and impact identified and presented below only
    pertain to the two companies from the core activity of
    domestic appliances, which are entered into the EMAS
    register.
    2.2.2 Environmental management
    quality assurance policy
    The environmental management quality assurance policy is
    based on Gorenje Group’s vision and mission. It is consistent
    with the sustainability policies of our operations, which are
    also reflected in our environmental responsibility.
    Effort for environmental responsibility is at the core of our
    sustainable conduct at all levels:

    in pursuit of responsible attitude to the population and
    the environment in which we operate,
    1
    4 2
    3
    GORENJE ECO CYCLE
    FROM PLANNING TO RECYCLING
    recycling production
    process
    use of products
    selection of materials
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    81
    • in caring for occupational health and safety at production
    units and in the offices, and
    • in attaining production efficiency.
    For years, Gorenje Group companies have held the
    environmental management system certificate ISO 14001.
    Moreover, most companies also hold the occupational health
    and safety certificate OHSAS 18001.
    Two Gorenje Group companies – Gorenje d.d. (since 2004)
    and Gorenje I.P.C. d.o.o. (since 2007) – have been included
    for many years in the Eco-Management and Audit Scheme
    (EMAS) intended to encourage a more suitable environmental
    management and communication with the public about
    Sistemi ravnanja z okoljem ter sistemi upravljanja varnosti in zdravja p\
    ri delu Skupine Gorenje (stanje za leto 2017)
    ISO 14001 EMASOHSAS 18001
    Gorenje d.d., Velenje plant, Slovenia Ye sYe sYe s
    Gorenje d.d., Šoštanj plant, Slovenia Ye sYe sYe s
    Gorenje d.d., Rogatec plant, Slovenia Ye sYe sYe s
    Gorenje IPC d.o.o., Velenje plant, Slovenia Ye sYe sYe s
    Gorenje IPC d.o.o., Šoštanj plant, Slovenia Ye sYe sYe s
    Gorenje Orodjarna d.o.o., Slovenia Ye sNoYe s
    Gorenje GAIO d.o.o., Slovenia Ye sNoYe s
    Gorenje d.o.o., Valjevo, Serbia Ye sNoYe s
    Gorenje Surovina d.o.o., Slovenia Ye sNoYe s
    Kemis d.o.o., Slovenia Ye sYe sYe s
    Mora Moravia, s.r.o., Czech Republic Ye sNoNo
    Asko, Appliances AB, Sweden Ye sNoNo
    Gorenje Gostinstvo d.o.o., Slovenia Ye sNoNo
    Indop d.o.o., Slovenia Ye sNoYe s
    Gorenje Home d.o.o., Zaječar, Serbia Ye sNoYe s
    Gorenje Tiki d.o.o., Stara Pazova, Serbia Ye sNoYe s
    Gorenje MDM d.o.o., Kragujevac, Serbia Ye sNoYe s
    the effects of their operations on the environment; it is
    an upgrade to the ISO 14001 system. In 2015, the two
    companies were joined by Kemis d.o.o.
    Focus 2017
    In 2017, the companies certified their environmental
    management systems in accordance with the requirements
    of the new standard ISO 14001:2015. Two more Gorenje
    Group companies obtained the certificate (Gorenje Tiki
    d.o.o., Stara Pazova and Gorenje MDM, d.o.o., Kragujevac)
    At the Environmental Meeting (»Okoljsko srečanje«),
    traditionally organized by the Finance daily paper and the
    Eko Fund, Gorenje was presented the award for the most
    environmentally friendly company in Slovenia.
    2.2.3 Environmental aspects of our
    operations
    At most Gorenje Group companies (especially those with the
    ISO 14001 certificate or which are included in the EMAS),
    elements of activities, products, and services interacting
    with the environment are called environmental aspects. The
    analysis of environmental aspects includes all stages of the
    production process, products, and activities, both in normal
    operation and in operation under extraordinary conditions. The
    following criteria are applied to identify a particular aspect:
    • environment policy and legislative requirements;
    • opinion of interested parties and stakeholders;
    • risk assessment;
    • own assessments; and
    • assessments pertaining to extraordinary conditions and
    states of emergency.
    Criteria to define environmental aspects at the Gorenje Group
    Environment
    policy
    Assessment
    (extraordinary conditions) Legal
    requirements
    Stakeholder opinion
    DEFINING THE
    ENVIRONMENT EFFECTS
    criteria
    Risk
    assessment
    Own
    assessment
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    82
    In assessing the environmental impacts which include
    every change to the environment, favourable or detrimental,
    resulting in part or entirely from the activities, products, and
    services being produced or taking place at the Gorenje
    Group, the following was considered:
    • direct impact, i.e. direct results of our own activities and
    operations over which we have direct control; and
    • indirect impact, i.e. the effects caused directly by
    other parties, the occurrence, scope, and the nature
    of pollution of which, however, may be affected by our
    activities (e.g. use of our products, logistics, power
    production, etc.).
    Framework and operative environmental targets and
    programs have been defined for major environmental
    aspects and the identified environmental aspects are being
    adapted in compliance with the legislation (raw materials,
    emissions into air, water, and ground, noise, waste etc.) and
    environmental policy. At the Gorenje Group level, we are
    also monitoring the use of energy resources that represent
    a vital part of environment protection for the holders of the
    Integrated Pollution Prevention and Control Permit (who are
    liable to comply with the relevant requirements).
    The chart presents the comprehensive range of
    environmental effects. The set of specific environmental
    effects monitored at respective companies is specific to their
    activity and their interaction with the environment.
    Overview of identified and estimated environmental aspects of the oper\
    ation of Gorenje Group companies
    IDENTIFIED ENVIRONMENTAL ASPECTS AT GORENJE GROUP COMPANIES
    1. RAW MATERIALS
    • sheet metal
    • components of non-metal and
    metal origin
    • chemicals
    • thermal and sound insulation
    • rubber and plastic semi-products
    • packaging
    2. ENERGY RESOURCES
    • electricity
    • heat
    • natural gas
    • compressed air
    • water
    3. OTHER
    • stationery
    • auxiliary material
    4. EMISSIONS
    • emissions into air
    • emissions into soil
    • noise emissions
    • emissions into water
    - industrial wastewater
    - cooling wastewater
    - communal wastewater
    - sewage system
    • light pollution
    • odours
    5. WASTE
    • hazardous waste
    • waste packaging
    • municipal/communal solid waste
    • other non-hazardous waste
    6. PRODUCTS
    • product/service
    • own parts
    7. MISCELLANEOUS
    Special area properties
    • natural heritage, biotic diversity, Natura 2000 • cultural heritage
    INPUT ENVIRONMENTAL ASPECTS
    OUTPUT ENVIRONMENTAL ASPECTS
    MISCELLANEOUS
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    83
    2.2.4 Efficient resource management
    At Gorenje Group, a number of measures, especially changes
    in the technological processes, organization of operations, and
    responsible management of hazardous chemicals and packaging,
    have resulted in notable improvement of environmental aspects of
    our operations in the period since 1997.
    Regardless of the excellent results to date, which are difficult to
    further improve, we continue to lay down the goals regarding
    reduction of our environment impact. Thus, we are planning to decrease the consumption of electric energy in the next two
    years by investments into technological processes, updating
    the lighting fixtures, and implementing combined heat and
    power generation – which will, on the other hand, increase
    the consumption of natural gas. With regard to some other
    sources of energy, we shall seek to maintain the current level
    of consumption. Regarding the decrease of the amount of
    waste, we no longer set any goals; however, we diligently and
    continuously monitor the amounts.
    Reducing the amount of waste and use of fuel and energy at Gorenje d.
    d., Velenje plant
    Aspect Unit1997 2017Ratio
    1997/2017 Target 2018
    Reducing the quantity of
    - hazardous waste
    - waste to be disposed kg/unit
    kg/unit0.55
    1.140.044
    0.005 -92%
    -99.6% 0.05
    0.005
    Rational use of energy
    - water consumption
    - power consumption
    - consumption of compressed air
    - natural gas consumption (excluding combined heat and
    power/co-generation) m3/unit
    kWh/unit m3/unit
    S m3/unit 0.56
    21.41
    21.37
    20.61 0.092
    22.83
    16.32
    11.40 -83.6%
    6.6%
    -28.35% -44.7% 0.080
    22.50
    16.30
    11.00
    Consistently with the environment protection policy, Gorenje
    Group has defined at all manufacturing plants its long-
    term and annual goals that also pertain to management of
    environmental aspects of our operations.
    The key environmental aspects presented in more detail by
    respective companies hereinafter, are the following:

    reducing the amount of waste;
    • reducing water consumption, and
    • efficient use of fuels and energy (data is provided on the
    use of electric energy as the main source of energy for
    product manufacturing). Group companies have all environmental permits required.
    They are regularly controlled by the national inspectorates
    and their operations are compliant with the environmental
    legislation.
    Reducing the amount of waste
    Focus 2017
    In 2017, the amount of waste to be disposed decreased
    somewhat relative to the years before at the companies
    Gorenje d.d. and Gorenje I.P.C. d.o.o.
    Disposed waste from Gorenje d.d., Velenje plant (in t)
    2013
    2014201520162017
    41.6 11.38.9111.610.2
    Disposed waste from Gorenje I.P.C. d.o.o. (in t)
    2013 2014201520162017
    1.85 0.360.713.830.79
    Key activities
    As in previous years, we were dedicated to consistent waste
    separation in 2017.
    Water consumption
    Focus 2017
    At Gorenje d.d., water consumption was increased from
    177,084 m 3 in 2016 to 187,606 m 3 in 2017. At Gorenje
    I.P.C. d. o. o., the amount of water used per unit of aspect
    per 1 EUR of net revenue was reduced from 1.680 l /EUR NR
    in 2016 to 1.582 l /EUR NR in 2017.
    Water consumption at Gorenje d.d., Velenje plant (in m 3/unit)
    2013 2014201520162017Target 2018
    0.079 0.0840.0830.0870.092 0.080
    Water consumption at Gorenje I.P.C. d.o.o. (in l/€ NR*)
    2013 2014201520162017Target 2018
    1.423 1.4801.5511.6801.582 1.566
    * measurement unit for the aspect per EUR of net revenue
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    84
    Water consumption at the Mora Moravia production company in the
    Czech Republic (in m
    3/unit)
    20132014201520162017Target 2018
    0.103 0.0850.0660.0630.061 0.066
    Water consumption at the production company in Valjevo, Serbia
    (in m 3/unit)
    2013 2014201520162017Target 2018
    0.046 0.0350.0370.0360.038 0.038
    Water consumption at the production company in Zaječar, Serbia
    (in m 3/unit)
    2013 2014201520162017Target 2018
    0.05419 0.005000.006550.058300.05239 0.05350
    Key activities
    Water consumption was reduced at some companies
    by introduction of technological lines with water-efficient
    rinsing processes, keeping records of water consumption,
    systematic monitoring of water consumption, and education
    and awareness campaigns among the employees. Water
    consumption was monitored with meters installed at the
    entry to the company and at particular manufacturing lines.
    At some companies, water consumption increased in 2017
    due to technological tests upon new product type launches.
    Electricity consumption
    Focus 2017
    At the company Gorenje d.d., Velenje plant, use of electric
    energy decreased from 23.24 kWh/unit (in 2016) to 22.83
    kWh/unit (in 2017). Use of electric energy was also lower at
    the company Gorenje I.P.C. d.o.o. and at our companies in
    Valjevo and Zaječar, Serbia.
    Electric energy consumption at Gorenje d.d., Velenje plant
    (in kWh/unit)
    2013 2014201520162017Target 2018
    24.03 23.0923.9823.2422.83 22.50
    Electric energy consumption at Gorenje I.P.C. d.o.o. (in kWh/€ NR*)\
    20132014201520162017Target 2018
    0.138 0.1340.1500.1380.118 0.128
    *Measurement unit for the aspect per EUR of net revenue
    Electric energy consumption at the production company in the
    Czech Republic (in kWh/unit)
    2013 2014201520162017Target 2018
    11.33 11.0010.8313.6515.36 12.52
    Poraba električne energije v proizvodni družbi v Valjevu v Srbiji
    (in kWh/unit)
    2013 2014201520162017Target 2018
    24.3 21.00 21.45 20.923.52 24.25
    Poraba električne energije v proizvodni družbi v Zaječarju v Sr\
    biji
    (in kWh/unit)
    Poraba el. energije pri proizvodnji sanitarne opreme
    2013 2014201520162017Target 2018
    45.70 29.533.13 25.021.24 23.00
    Poraba el. energije pri proizvodnji pralnih strojev
    2013 2014201520162017Target 2018
    0.48 0.400.490.500.48 0.60
    Key activities
    Decrease of power consumption in recent years is a result of
    optimization of power consumption in production processes.
    At the production company in the Czech Republic,
    power consumption increased due to introduction of new
    technologies and new product types.
    2.2.5 Carbon footprint
    Climate change has been identified as a major threat to
    human kind. It is at least partially caused by greenhouse
    gas emissions into the atmosphere. Despite the numerous
    adopted international agreements, these emissions are not
    decreasing. Globally, the largest share of CO
    2 emissions is
    generated in production of electric energy, in manufacturing,
    agriculture, transport, and as a result of deforestation.
    Although the CO
    2 emissions resulting from activities of
    Gorenje Group companies are not considerable, we carefully
    monitor them in keeping with our sustainable attitude to
    environmental responsibility, and seek to reduce them.
    Emissions of CO
    2 into the atmosphere are monitored at the
    parent company Gorenje d.d. at the Velenje plants, and in
    Valjevo and Stara Pazova.
    Focus 2017
    Carbon footprint, measured in kg of CO 2 emissions per
    product, was somewhat lower in 2017 than in the year
    before, at 10.93 kg/product.
    Information on CO 2 emissions for the Velenje plant (kg/product)
    2011 201220132014201520162017Target 2018
    12.50 12.3312.2611.8311.8810.9410.93 10.90
    Key activities
    CO 2 emissions from our production activities are largely
    affected by consumption of electric energy and natural gas.
    Total use of these fuels or forms of energy has been reducing
    in recent years. Specific use of these fuels decreased slightly
    in 2017 (detailed data on power consumption is provided in
    this chapter).
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    85
    2.2.6 Pursuit of environment
    responsibility – our goals
    Improvement of production processes and diligent
    management of natural resources contribute notably towards
    decreasing the impact of our companies on the environment.
    In addition, our costs are optimized in the process, which
    leads to greater value for the shareholders. Therefore, we
    shall continue to:
    • monitor and measure the environmental aspects
    and introduce relevant measures in case of any
    discrepancies;
    • plan and introduce new technologies and products in
    compliance with the environment protection principles;
    • use materials and components that will comply with the
    strictest of domestic and international environmental
    regulations;
    • plan new products in compliance with the requirements
    of environmental design that includes the entire life cycle
    of the product – from development, manufacturing and
    use, to processing after the end of useful life;
    • reduce the volume of waste generated and rationalize the
    use of energy resources;
    • educate, train, and raise awareness of our employees
    and partners about the responsibility to the working and
    broad environment;
    • cooperate with interested internal and general public
    to contribute to the success of common environment
    protection and occupational safety and health efforts;
    • inform the public of its achievements in environment
    protection.
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    Social
    Sustainability
    Motivated employees are the
    key to success. Together, we are
    building a culture of mutual trust,
    respect, continuous learning,
    and responsible and efficient
    work. Motivating creativity,
    improvement of interpersonal
    relations, and staying abreast
    with new development in
    leadership are constituent parts
    of the Gorenje Group's corporate
    culture.


    87
    2.3 Social Sustainability
    Social sustainability – results 2017 and plans for 2018, complete wit\
    h outlook until 2020:
    Share of employees
    participating in training and
    education
    In 2017, 70.2 percent of employees were involved in training
    and education processes. We carried out a total of 203,704
    training and education hours (19 hours per employee at
    Gorenje Group level). Moreover, 257,148 hours were dedicated
    to on-the-job training for acquisition of new skills.
    In the period until 2020, we will deliberately advance
    employee training and education. We shall establish a
    reward system for all executive and key employees based on
    their performance. In the 2016–2020 Strategic Plan, we defined
    a human resource development strategy with emphasis
    on values, corporate culture, leadership, and knowledge.
    We are aware that employees with relevant knowledge and
    experience are motivated as they recognize the opportunities
    for their personal and professional development within the
    Gorenje Group. This is our major competitive advantage.
    Number of work
    accidents
    In 2017, the number of work accidents was 5 percent higher
    than in the year before; however, the number of accidents in the
    last five years dropped by 35 percent. At the company Gorenje
    d.d., the number of employees increased, and the number of
    hours of work in 2017 is also higher than in the preceding year.
    Our goals in occupational safety and health at the Gorenje
    Group, as we pursue the policy of zero-tolerance to work
    accidents, include the following:
    • cut the number of work accidents and dangerous
    incidents by 5 percent in each year of the Strategic Plan
    execution by the year 2020,
    • cut the expenses related to sick leaves resulting
    from work accidents, and
    • improve organization of work from the aspect of
    occupational safety and health, and safety of the working
    environment.
    We shall strive to keep the approaches,
    activities and various training programs
    we conduct modern and innovative, and
    that they will allow our employees to better
    connect, transfer their knowledge, and
    develop the required skills for their personal
    and career development, and of course for
    the growth of the company.
    Decrease of the number of work
    accidents as a part of zero-tolerance
    for work accidents, through
    preventive workplace measures and
    encouragement of a healthy lifestyle Increase in the
    number of work
    accidents by 5%
    (relative to 2016)
    201770.2%
    90%
    Strategic goal 2020
    Plan 2018
    Retailer satisfaction
    (measured indirectly
    through sales
    representative satisfaction
    with the Salesforce tool)
    Satisfaction of our sales representatives with visits at retailers,
    and consequently the satisfaction of retailers, is measured
    with the Salesforce tool, which is a mobile customer
    relationship management solution that allows us, in the digital
    age,
    to increase our focus on our customers faster and
    in a simpler manner.
    Use of the Salesforce tool was expanded in 2017 to
    our units in the Middle East. Moreover, we built
    additional program extensions into the current version,
    thus improving communication between us and our
    customers. We can now respond more promptly to the
    current conditions in the market. At the same time, we collect
    and store at a single place all important information about our
    partners. Planning of visits and their contents or agendas is
    also simpler, more transparent, faster, and more efficient with
    the new options.
    In 2018, we will roll out the application to our representatives
    in Asia and South America, thus making it available to all of
    our sales managers.
    Results in 2017 Plan 2018
    Overview until 2020
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    Quick overview – 2017 results:
    Average number of employees
    11,039
    Scope of education and training
    70.2 percent of all employees involved in the processes
    Total of 203,704 training and education hours annually (19
    hours per employee at Gorenje Group level)
    Complaints regarding interpersonal relationships
    No complaints were filed
    Number of scholarship holders and development of
    academic work placement
    90 scholarship holders (mostly technical studies)
    Developing the academic work placement programs
    (practical training provided for 247 high school students and
    113 college students)
    Occupational safety and health
    5% more accidents than in the year before; activities
    throughout the year: lectures, presentations, measurements,
    improvements and upgrades to the occupational safety
    system, searching for alternative personal protective
    equipment
    Key topics in training and education
    Development of innovativeness and leadership and coaching
    skills for leaders; improving communication skills, public
    appearance skills, negotiations, and teamwork
    Corporate University of Gorenje
    24 participants of the 26th generation of the Management
    Academy of Gorenje completed their training with a
    presentation of their business plans
    Graduation of the second generation of academy for new
    product development (GCA – Gorenje Create Academy)
    with 23 participants, and the third International Business
    Academy (IBAG) that included 21 talented employees
    working in an international environment
    Annual conference Driving Growth Through Innovation
    organized as a part of the Executive Business Academy of
    Gorenje (EBAG)
    A variety of programs within the Digital Business Academy
    of Gorenje (DBAG) for the development of knowledge and
    skills required for attainment of goals in digitalization, with
    participation of more than 400 employees from across
    the globe. 63 participants from 10 countries tackled the
    challenges of the digital future at the 1st international Gorenje
    Hackathon.
    Product quality
    No recalls of our products from the market
    A wide range of certificates awarded by national certification
    bodies gives our products internationally approved technical
    and production credibility.
    Defined goals for further improvement of product reliability
    Marketing and market communication
    Development of all-around communication support for all
    new product launches in 2017 (integrated online and offline
    solutions)
    We did not have any cases of non-compliance of our
    marketing and market communication approaches with the
    legislation or local codes.
    After-sales services
    Focusing on further improvement of all quality indicators for
    after-sales services, and on cost management
    Establishing service network for connectible appliances
    User satisfaction with our after-sales services, as measured
    in the key markets, was consistent with the strategic plan.
    Relations with communities
    Support to activities (cultural, recreational, social etc.) of the
    Gorenje Culture Society, Gorenje Retiree Society, and other
    societies and organizations in the region
    Support to the 25th Design Biennial BIO 25
    More than 7000 active members of the Gorenje Sports
    Society
    Results of key sports sponsorships in handball and Nordic
    skiing, and other sponsorships depending on the goals laid
    down for respective markets, especially for improvement of
    recognition of the brand and sales promotion
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    89
    2.3.1 Relations with employees
    We are active in a mature industry where one can only win
    with knowledge, innovation, and committed employees.
    Every employee matters to Gorenje, and the fundamental
    principle in our care for them is their fair and equal treatment.
    Number of employees
    Focus 2017
    The number of employees at the Gorenje Group was
    adapted especially to the needs of manufacturing
    companies. We increased the number of employees during
    the summer and autumn when demand for home appliances
    was higher. Due to lower production needs, the number of
    employees decreased in the last quarter.
    Key activities
    For greater flexibility, we mostly hired employees on fixed-
    term employment contracts. In this year, we again faced
    a scarcity of labour force in the market, especially at the
    company Mora Moravia. In order to acquire the necessary
    labour force, we therefore also used the services of private
    employment agencies.
    Number of employees at Gorenje Group at the end of 2017 (relative to 20\
    16)
      Dec 31, 2016 Dec 31, 2017  
      numbersharenumber share
    Gorenje Group 10,962100.0% 11,014100.0%
    Core activity 9,02782.3% 8,95581.3%
    Non-core activities 1,93517.7% 2,05918.7%
    Employees in Slovenia 6,62960.5% 6,71761.0%
    Employees abroad 4,33339.5% 4,29739.0%
    By countries:     
    Slovenia 6,62960.5% 6,71761.0%
    Serbia 2,30321.0% 2,26320.5%
    Czech Republic 6315.8% 6245.7%
    Sweden 600.5% 580.5%
    Netherlands 4053.7% 4283.9%
    Croatia 1341.2% 1311.2%
    Russia 1151.0% 1151.0%
    Other countries 6856.2% 6786.2%
    EU countries 8,24575.2% 8,32875.6%
    Average number of employees 10,889 11,039
    Education-based hiring and recruitment
    Focus 2017
    In 2017, we continued the activities at our parent company to
    recruit scarce human resources, especially for development,
    IT, and sales in an international environment.
    In recent years, we observe a slow, yet constant increase
    in the share of employees with completed secondary and
    tertiary education, which also pertains to manufacturing
    companies. The largest share of employees at Gorenje
    Group has vocational or technical (high-school) education.
    Key activities
    At the parent company, we worked actively with high
    schools and universities, especially in technical sciences and IT, as well as in business and economics. We set up our
    employment/hiring portals in the LinkedIn and SuccessFactor
    networks.
    We worked with the local branches of the National
    Employment Agency to hire production workers. We advertised
    our needs for labour force in the media, and we used the
    Facebook social network to this end for the first time.
    We sourced our strategic human resources via our
    employment/hiring portals, and we also included the portals
    Moje delo (‘My Work’) and Moja Zaposlitev (»My Employment«).
    We took part in career fairs, including the largest fair of this type
    in Slovenia, organized by the Moje Delo portal in Ljubljana.
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    90
    Employees by age
    Focus 2017
    In comparison to the year 2016, average age of employees
    at the Gorenje Group increased by about half a year. At the
    end of 2017, it was at 42 years and 9 months.
    The share of employees in all age groups is increasing.
    Higher average age is also reflected in a higher share of
    sick leaves and the share of employees with the status
    of a person with disabilities. This is a major problem for
    companies in labour-intensive industries.
    Key activities
    Considering the high share of elderly employees, the
    company Gorenje d.d. dedicates a lot of attention to age
    management with the goal of providing active ageing for
    our employees, as this results in better business results and
    competitive advantage.
    We are conducting a number of activities to promote health
    and we carefully manage the continuous improvement
    process to provide ergonomically sound workplaces. Elderly employees are also invited to take part in a number of
    educational workshops and training courses.
    Employees by gender
    Focus 2017
    In 2017, the share of women and men at manufacturing
    companies was equal; at sales companies and in non-core
    businesses, the share of men exceeded the share of women.
    Men are more likely to opt for technical education; therefore,
    they are predominantly employed at companies whose
    activities require more technical skills, such as toolmaking,
    machine building, development, planning, engineering,
    logistics and warehousing, which also require greater
    physical strength. Where the work process involves physically
    less demanding work and work requiring precision and hand
    dexterity, such as in mass production, the share of female
    employees is higher.
    Regardless of gender, all employees are granted equal pay
    for work in jobs with equal complexity or difficulty.
    Protection of employee rights
    Focus 2017
    Gorenje Group is an international corporation that provides
    the same rights and fundamental freedoms to all employees
    regardless of nationality and religion.
    Care for human rights is evident throughout the supply chain.
    We only work with business partners who comply with lawful,
    moral, and fair business practice in relation to their stakeholders.
    Key activities
    We are aware of the importance of communication with the
    employees and provision of up-to-date information about
    operations and performance, and other major events.
    Therefore, a variety of activities were conducted in this field at
    the parent company Gorenje d.d.
    We held regular annual interviews among leaders and
    employees, and communicated regularly with the employees,
    15–20 21–25 26–30 31–35 36–40 41–45 46–50 51–55 56–60 nad 60
    0% 5%
    10%
    50%
    50%37%
    63%
    30.4%
    69.6%
    men men
    women women
    15%
    20%
    Composition of Gorenje Group employees by age Production
    companies Sales companies
    Non-core activities
    Employee structure by gender, 2017
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    91
    also via the HR department to which the employees turn with
    of their personal problems (medical, social etc.). We offered
    them support in career development and provided guidance
    consistently with the company needs.
    In 2017, did not receive any reports of workplace mobbing.
    Some individuals requested explanations from the mobbing
    report contact officer regarding potential reports.
    Occupational safety and health
    Focus 2017
    Gorenje Group does not merely comply with the legal
    requirements, but also strives to raise the bar in terms of safe
    and healthy work standards (occupational safety and health).
    Numerous mechanisms have been put into place through the
    decades in this area, and many activities have been carried
    out. There are still many opportunities ahead of us as both
    the working environment and the broader social conditions
    are permanently changing. This brings pressure and
    challenges that we have to manage. This is the responsibility
    of our expert services and interdisciplinary teams.
    We conducted many activities to reaffirm among our
    employees the belief that health is a basic human value
    and responsibility of all of us, toward which we should all
    strive. It is our commitment to do all we can to prevent work
    accidents both by creating safe working conditions and by
    responsible conduct of every individual.
    Therefore, we encourage every individual to maintain physical
    and mental health. We also promote awareness among our
    employees of the importance of a healthy lifestyle, and thus
    look to transfer the good example of a healthy lifestyle to their
    family members and others whom they meet in their private life.
    Following are the goals in the field of occupational safety and health at the Gorenje Group:

    decrease the number of work-related accidents and
    dangerous incidents;
    • cut the expenses related to sick leaves resulting from
    work accidents,
    • improve organization of work from the aspect of
    occupational safety and health, and improve safety of
    working environment;
    • improve awareness of the responsibilities for
    occupational health and safety among employees;
    • promote a healthy lifestyle and spread the knowledge on
    safe and healthy work.
    Key activities
    • Lectures, presentations, measurements, publications,
    announcements, releases, improvements, and
    occupational health and safety system upgrades took
    place throughout the year.
    • Operation of the medical absenteeism team whose
    regular annual activities promote health among
    employees, e.g. through interviews with employees after
    their return from a sick leave, and by promoting exercise
    in the workplace.
    • Attractive Health Promotion project in cooperation with
    third-party health experts (occupational healthcare,
    sports medicine, physiotherapy, physical education) in
    order to maintain and upgrade with targeted activities
    and systematic approach the active health promotion
    among employees. Within the project that we continue
    in 2018, employees are actively encouraged to improve
    their physical and mental health, to maintain healthy
    interpersonal relationships, and experts on employee
    health management are encouraged to continue their
    training and education and acquire new knowledge. At the Days of Professional and Employment Rehabilitation,
    or the REHA Days, 2017, Gorenje d.d. received an award for
    good practice of hiring disabled persons, and the Disabled-
    Friendly Company certificate. In April 2017, Gorenje d.o.o.,
    Valjevo, received the »April 28 Certificate« by the Serbian
    Ministry of Labour, Employment, Veteran and Social Affairs,
    for quality occupational health and safety system in Gorenje's
    cooling appliance factory.
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    Human resource development and
    Corporate University of Gorenje
    Focus 2017
    Well thought-out and planned investment into knowledge
    and development of our employees is of key importance
    for the pursuit of our strategic policies. Cooperation with
    educational institutions, innovative approaches, and
    openness to changes in designing and executing the human
    resource development programs allow further growth,
    competitiveness, and sustainable development.
    In 2017, our programs were aimed especially at development
    of innovativeness in the field of looking for new business
    opportunities, search of digital business solutions, and
    development of new products and services. With regard
    to leadership skills development, we placed efficiency and
    creation of environment for promotion of innovation to the
    fore.
    Key activities
    Scope of education and training
    Approximately 7,500 employees were included in education
    and training. A total of 203,704 hours were devoted to
    organized forms of education and training, which is, on
    average, 19 hours per employee. Moreover, 257,148 hours
    of on-the-job training was provided for our employees. 540
    employees were included in our CUG (Corporate University
    of Gorenje) programs.
    At the Gorenje Group level, we invested EUR 2,079,013 into
    employee training and education.
    CUG − Corporate University of Gorenje: CUG is an
    important piece of leverage for the pursuit of business
    strategy, and it is a key tool for human resource
    development. With its original approach, the University also gained recognition on a European scale. In its UBC
    (University-Business Cooperation in Europe), the European
    Commission identified CUG as an example of good practice
    promoting corporate growth and development through
    cooperation between reputable European universities and the
    industry.
    The
    2
    nd generation of academy for new product
    development, called the Gorenje Create Academy,
    started their training with a revised program. 23 participants
    from 3 competence centres (Sweden, Netherlands, and
    Slovenia) and all business areas participating in the process
    of creating new products and services, built state-of-the-art
    knowledge and approaches in the development process
    through practical workshops. These approaches take
    into account the users‘ needs in the earliest stage of the
    development cycle.
    We carried out the 3rd International Business Academy
    of Gorenje (IBAG), intended for talented employees working
    internationally.
    The 26th generation of the Management Academy of
    Gorenje (MAG) graduated early in 2017 by presenting their
    business plans to management.
    Portfolio approach to innovation and continuous leadership
    development with personal growth have become vital
    aspects of success in the modern business world of
    uncertainty and complexity. Therefore, we carried out as a
    part of our Executive Business Academy of Gorenje
    (EBAG) the annual conference titled „Driving Growth through
    Innovation“. The conference was attended by 57 managers.
    We shed some light on how to develop an efficient strategic
    decision-making process for our innovation portfolio, and
    how to contribute to the pursuit of the G4 Strategy, Gorenje
    Group Grows Global.
    At the Digital Business Academy of Gorenje (DBAG), we
    develop the knowledge and skills for the pursuit of our digital
    business strategy. In 2017, we were dedicated to improvement
    of productivity using the Office 365 tool. It was attended by 360
    employees. In order to acquire specialized skills, we conducted
    programs intended in particular for better knowledge of the
    consumers and their shopping paths, improvement of employer
    brand reputation, and talent recruitment.
    As a part of gradual introduction of the building blocks
    of the fourth industrial revolution to manufacturing and
    development of smart and connectible appliances, we
    organized training for implementation of lean manufacturing,
    , and programs for quality improvement and optimization
    of processes, products, and services. We included lean
    manufacturing experts in the training program for the use of
    digital tools for advanced manufacturing process simulation.
    We also conducted the first international Gorenje
    hackathon at which 63 participants from ten countries
    tackled the business challenges of the digital future. Also
    taking part were 12 mentors from the Gorenje and five
    mentors from Microsoft, all of whom were experts in the fields
    related to digital services, products, marketing, and product
    development. The presented projects mostly confirmed the
    initiatives from our digital strategy and digital trends. Despite
    harsh competition, many solutions were fresh and innovative.
    Online learning: The number of visitors of the online learning
    portal is increasing each year. Since the number of users from
    Gorenje‘s international operations is increasing, contents
    are also created in English, Serbian, and other languages.
    The most contents pertain to servicing, product information,
    environment protection, and occupational safety and health.
    We enhanced our online learning portal with video contents on
    digitalization, which is available to employees throughout the
    Gorenje Group.
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    Transfer of knowledge to the team: Development needs
    and planned changes in operations are the guiding principles
    for designing our training programs. For larger groups of
    employees, we organize workshops within the company, with
    visiting and in-house lecturers. In addition, our employees also
    attend educational events at home and abroad. Our programs
    follow the latest trends and introduce many new features.
    Leadership and coaching: We paid a lot of attention to
    development of leadership and coaching: skills. We organized
    training programs for development of collaboration skills, public
    appearance skills, negotiations, and teamwork.
    Cooperation in competence centres: The company
    Gorenje d.d. partnered with Knowledge Competence Centres
    in the field of electric industry and design management. The
    purpose of such cooperation is to acquire the latest skills
    and knowledge, to share good practices among participating
    companies, and to support respective industries in strategic
    development at the national level.
    Work induction programs: Work induction programs are our
    way of integrating new employees hired for more complex jobs
    or positions. During the induction, they are mentored by our
    experts to acquire the relevant information which allows them
    to integrate more quickly into the new working environment. An
    in-depth induction seminar for new employees is also offered
    on a quarterly basis.
    Lifelong learning: Programs in this field allow the employees
    to quickly adapt to a new environment, including outside the
    company. The program for acquiring the basic and professional
    competencies, organized in partnership with Ljudska univerza
    (People‘s University) Velenje, has included more than 220
    employees working in production. Employees acquired new
    skills and knowledge on computers and English. Scholarships and part-time studies: The guiding principle
    for our scholarship policy is recruitment of talent with technical
    skills, currently in the education process in high schools and
    colleges. We actively work with our scholarship recipients during
    their studies. They are included in development projects though
    their vacation work; they are offered academic work placement,
    and the possibility to write their graduation or master‘s theses.
    Our employees are provided opportunities for acquiring higher
    levels of formal education through part time studies. Majority
    of part-time students are enrolled in undergraduate programs.
    This includes various study programs, with majority being
    mechanical engineering.
    In the countries with a large number of employees at the
    Gorenje Group, we work with high schools and colleges from
    the local environment to plan the programs for compulsory
    academic work placement. Practical training is offered to
    students in higher-education programs and high school
    students. In terms of the number of completed academic work
    placement programs, technical programs of Šolski center
    Velenje (the Velenje School Centre) are at the top.
    Cooperation with research and educational institutions
    (“knowledge centres”): We are looking to develop a brand
    of an appealing employer for technical talent. Therefore, we
    worked with technical high schools, colleges at both Slovenian
    Universities, and the Jožef Stefan Institute. In Serbia, we signed
    with the Ministry of Education and Technological Development a
    memorandum on practical training (academic work placement)
    for high school and college students at our companies.
    Targets 2018
    Activities at all levels of management and career development
    at the corporate level will be aimed at establishment of a
    succession policy.
    We shall launch a talent development program for successful
    integration into work in the global market, and design
    competence models for all key positions at Gorenje Group.
    We shall upgrade our training and education programs with
    systematic direction towards job rotation training programs.
    Therefore, we shall establish an efficient mentorship system at
    all Gorenje Group companies. This will improve the transfer of
    knowledge and cooperation between generations.
    In order to improve our position in the fight for talent from
    schools of business and economics, we will work more closely
    with business/economics and social science schools.
    We will use a revised instrument to measure again after a
    number of years the culture at all Gorenje Group companies.
    We shall strive to keep the programs of Corporate University
    of Gorenje and functional training modern and open, and
    that they will allow our employees to connect, to transfer
    knowledge, and to develop the skills require for their personal
    growth and the growth of the company.
    2.3.2 Quality for our users
    Concurrently with the technological progress in the market,
    the needs and habits of our customers are changing as
    well. We seek to follow them and indeed co-shape them by
    adjusting our products with modern consumer interfaces
    and functionality. We employ techniques such as Consumer
    Insights that allow efficient transfer of values for the
    customer to our products. We seek to improve the quality of
    our products and services by:
    • technological innovation that simplifies the users‘ lives;
    • carefully thought-out and advanced design;
    • energy efficiency of our products;
    • new materials that improve the functionality of our
    products while reducing the burden to the environment.
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    Assuring the quality of our products
    Focus 2017
    In the Strategic Plan for the period 2016–2020, we specified
    goals regarding improvements to our products' reliability.
    We approached the pursuit of these goals by identifying and
    improving the parts of the processes that contribute the most
    to incurrence of costs and quality failures. Activities in 2017
    were also focused on the following:
    • process of component implementation and approval;
    • processes related to electronic components which are
    becoming a key element of our products.
    Last year, there were no recalls of our products from the
    market.
    Key activities
    We were improving the processes related to the concept
    development and implementation of electronic components.
    Particular attention was paid to all processes of changes
    on the products, as these are one of the most common
    sources of non-compliance. Preventive activities are a part
    of standard quality assurance mechanisms in place at
    production and development processes.
    A wide range of certificates awarded by national certification
    bodies from many countries around the world gives our
    products internationally approved technical and product
    credibility.
    Responsible marketing and market
    communication
    Focus 2017
    At the central market communication department, we have
    developed all-around support for all new product launches
    in 2017 (integrated online and offline solutions). Last year,
    media lease, localization, and catalogue printing were, as before, the responsibility of respective markets. Their tasks
    also involved specifying the goals and monitoring the results,
    taking into account the brand position and recognition in the
    relevant market.
    Compliance with the legislation and relevant
    codes of conduct
    In 2017, we did not identify any cases of non-compliance of
    our marketing and market communication approaches with
    the legislation or specific codes of conduct. As to date, design
    of solutions involved checking and reviewing any problematic
    or disputable communication elements. Solutions submitted
    from the central Market Communication Department to
    particular markets were additionally checked locally and
    adjusted as necessary to local requirements or expectations.
    After-sales services (servicing)
    Focus 2017
    We were focused on improvement of all quality indicators
    for after-sales services, and on cost management. We
    established a service network for connectible appliances.
    User satisfaction with our after-sales services, as measured
    in the key markets, was consistent with the strategic plan.
    Key activities
    We continued our activities within ongoing projects in after-
    sales services, especially the following:

    improvement of user satisfaction with all brands,
    • introduction of connectible appliances,
    • managing the costs of after-sales activities in the Group.
    Plans for the future
    Mutual dependence and cooperation between sales and
    after-sales activities are focused on providing maximum
    customer satisfaction. Our goals are targeted in particular at
    the following: •
    Focus on customer satisfaction
    • New business models in after sales
    • Further improvements in quality and cost optimization in
    after-sales activities
    • Introduction of after-sales support for connectible
    appliances (CAP project) in target markets
    • Preparation for upgrade of service activities in China
    2.3.3 Cooperation with local
    communities
    Since the very beginnings, integration into the local environment
    and close relations with various communities within the society
    were major priorities for Gorenje, and of great importance for
    the development and functioning of both the Group and the
    local communities. We are still aware of this message from
    previous generations. Therefore, we tend to carry over the
    practice of solid and sustainably oriented relations with the local
    communities to all local environments in which Gorenje Group
    companies operate or will operate. Such cooperation is of
    course the strongest in our key manufacturing locations.
    In the local environments in which we operate and cohabit, we
    have built sound relations that we nurture with care. We seek
    to co-create environments for quality and pleasant living as
    most of our employees come from the local environment. We
    invest into the development of communities with mandatory
    taxes and contributions, and additionally by supporting, within
    our possibilities, the various institutions and organizations in
    the local environments.
    Gorenje Group has corporate social responsibility written in its
    genetic code; a major part of managers, executives, and other
    employees are active in this respect, not only professionally,
    but also during their leisure time.
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    Creative industries, culture, and
    tradition
    Focus 2017
    As a globally renowned innovator and trendsetter in design
    and technology, Gorenje Group is aware how important it
    is to nurture culture that we believe is an important building
    block of (in)formal knowledge and a remarkable source of
    inspiration for innovation and development.
    Gorenje Cultural Society was very active in promoting
    the corporate culture and fostering innovativeness. With
    the newly appointed board in 2017 it again organized
    many cultural events, exhibitions, lectures and debates,
    workshops, cultural trips etc.
    Our efforts to maintain the ties to our tradition and culture in
    our local environment and beyond also include supporting
    the activities of the Gorenje Retiree Society.
    Key activities
    In 2017, Gorenje Group supported BIO25, or the 25th
    Design Biennial that combined design-oriented events in
    Slovenia in neighbouring countries.
    We also supported the international conference Material
    Culture: How Things Make People, and the guest lecture by
    the globally renowned anthropologist Daniel Miller. We also
    hosted him at the Velenje Gallery where he held a lecture
    titled »Effect of Modern Technologies on People«.
    We supported filming of »Hansel and Gretel« under the
    auspices of the Silvan Furlan Foundation, and many other
    institutes, activities, and projects in the local environment and
    at the state level.
    Partnership in sports
    Focus 2017
    Gorenje remains the proud general sponsor of the Slovenian
    Nordic Ski Team, Handball Club Gorenje Velenje, and the
    Slovenian Handball Association. In 2017, we also became
    the general sponsor of the Champions League and the
    men's European handball championship EHF EURO 2018.
    Key activities
    We celebrated the 25th anniversary of support to Slovenian
    Nordic Ski Team, which we have commemorated with a
    special travelling exhibition honouring our partnership. We
    traditionally supported the World ski jumping championship
    in Planica.
    Depending on the goals laid down for respective markets
    (brand recognition improvement, sales promotion etc.),
    Gorenje Group occasionally also sponsors other sports
    disciplines, events, and clubs internationally. Notable
    sponsorships also include Football Club Spartak of Moscow.
    As we are aware of the importance of an active and healthy
    leisure time, Gorenje Group lends its support to the Gorenje
    Sports and Recreation Society whose membership numbers
    over 7,000 and includes both our employees and other
    members, and to local sports and recreational events. Thus,
    we supported in 2017, among others, the Velenje Swimming
    Club, a group of children with special needs, who took part in
    this year's European swimming championship, and a variety
    of other minor sports activities and projects in the local
    environment.
    Humanitarian activities
    Focus 2017
    As an important player in the economy, both country-wide
    and at the local level, Gorenje Group is striving to contribute,
    within its means, to improvement of conditions for living
    and growth, professional and personal, in our environment.
    Consistently with our corporate culture values, we fostered
    and contributed to mutual relations, cooperation, and
    solidarity among our employees and in our local environment.
    Key activities
    Working with Slovenian humanitarian organizations (e.g.
    Friends of the Youth Association of Slovenia), we responded
    to several applications and granted several requests for aid,
    donated many domestic appliances, and thus sought to
    alleviate the hardship of many individuals and groups in need
    of such aid.
    This included donating a cooking appliance fitted with
    an accessory that helps provide safe use of the cooking
    appliance for the blind and visually impaired persons
    (donation to the Association of Blind and Visually Impaired
    Youth – Iris Centre); we supported the project Food Surplus
    (»Viški hrane«) by donating freezers; we provided a material
    donation to the operation of the SOS Telephone Line Society
    for women and children – victims of violence; and supported
    other humanitarian initiatives.
    Moreover, we contributed minor material donations to help
    improve educational, sports and recreational, and cultural
    activities for the young and elderly population in our local
    community and beyond.
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    Risk
    Management
    Risk management is a constituent
    part of business processes.
    Therefore, Gorenje Group has
    established a risk management
    process at the strategic, project,
    and process level. Thus, we are
    monitoring and we proactively
    respond to the risks and
    opportunities that could affect our
    operations, business processes, and
    attainment of goals.


    97
    2.4 Risk Management
    Risk management is a constituent part of business processes. Therefore, Gorenje Group has established a risk management process at the strategic, project, and process level. Thus, we are
    monitoring and we proactively respond to the risks and opportunities that could affect our operations, business processes, and attainment of goals.
    The chart below presents the relation between respective process (operational) risks and key performance indicators at Gorenje Group as disclosed in this Annual Report.
    Process/operational risks and relation to the KPI, broken down by three \
    areas of sustainable creation of value at Gorenje Group
    Economic Sustainability – Business ExcellenceEnvironmental
    sustainability Social sustainability
      TVEGANJA
    B1B2B3B4B5B6B7B8B9B 10 E1E2S1 S2S3
    Operational
    risks Currency risks
     
    •   ••   • •••   •       
    Credit risks  
     
    ••   •  •  •  •  •   
         
      •
    Liquidity risks        ••         
    Interest rate risks       
    ••    
          
    Production
    risks Procurement risks
     
    •  •  ••     •• •••   •       
    IT risks      
    ••••    
      
      •   •
    Product quality
    risks human resource availability
         
    •  •••     
      ••  
    materials and supply      
    •••   •    ••     •
    technological equipment       •••••     ••   •   
    work process methods       
    •  •  •  •   ••     •  
    Product quality risks  
     
    •• ••   ••••   •   
        •
    Development risks   •  •  •  ••   •  •  •      •   
    Human resource risks        
    •  •     ••  
    Logistics risks    
    •  ••     •• •  ••  •     • 
    Legislative and regulatory risks  
     
    ••     •   ••   •  ••     •   •  
    Market risks  
     
    •  •• •••  ••   •  •       •
    Reputation and goodwill risks
      •  •• •••  •• •  •• •   •  ••
    Legend:
    Economic Sustainability – Business Excellence (B)
    B1 Focus on the core activity Domestic Appliances
    (share of total Group revenue)
    B2 Revenue from sales beyond Europe and its share in total
    revenue in the core activity Domestic Appliances
    B3 Revenue from Asko brand sales and its share in total revenue in the
    core activity Domestic Appliances
    B4 Share of revenue from sales of innovative and premium products B5
    Gorenje Group sales revenue (* with and without divested Ecology)
    B6 Attainment of EBITDA margin
    B7 Net financial debt / EBITDA ratio
    B8 Attainment of cash flow from operating and investing activities
    B9 Investments into product development
    (% of Gorenje Group total revenue)
    B10 Manufacturing plants Environmental sustainability (E)
    E1
    Hazardous waste (kg/unit)
    E2 Waste for disposal (kg/unit)
    Social sustainability (S)
    S1 Share of employees participating in training and education
    S2 Number of work accidents
    S3 Retailer satisfaction
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    Decision-making and entrepreneurial processes involve risks
    which are a part of the business processes. Gorenje Group
    has in place an appropriately documented risk management
    process by which we define the risk levels that we assume,
    and the risks that we systematically manage pursuant to the
    defined methodology.
    Thus, we are making sure the business decisions and
    the risks related to them are identified in a controlled
    and balanced manner, and that they are measured and
    monitored at the strategic, operational (process), and
    project level. The risk management process involves all
    Gorenje Group employees who are, in adopting their business
    decisions within their powers and responsibilities, exposed
    to risks and opportunities brought about by their business
    decisions. Systematic approach to risk management ensures
    adequate bases for long-term stability of operations,
    long-term growth, and generation of value for all
    stakeholders.
    2.4.1 Risk management process
    and organization
    Risk management process was established to provide
    continuous monitoring and active response to risks that
    could negatively affect the operations of the entire Group,
    particular business processes, and attainment of their
    goals. The risks are assessed based on the assessment of
    probability of a certain risk to be realized, and based on the
    effect that realization of a particular risk would have for the
    assessed process. Given the level of assessed effects and the
    probability, the risk level is specified as the basis for assigning
    priorities in the field of risk management. Operating at the top
    level of the Gorenje Group's business management is the
    risk management council that adopts the risk management
    methodology and policy and examines the Group's key risks. The risk management process is also integrated into all
    business processes through risk management task forces.
    The process of risk assessment and management takes place
    at the level where specific risks are actually present. This
    allows expert analysis of a particular risk and development
    of appropriate and adequate expertly selected controls and
    measures to attain an acceptable level of risk. Establishment of
    the operational part of risk management ensures the execution
    of risk management at the level of a process, as a constituent
    part of process management.
    Gorenje Group has in place an appropriate and adequate
    organization for effective risk management. Risks are assessed
    where they are manifest: at the level of a process, project, or
    strategy. The assessment is made by area risk management
    task forces, while the risk management department provides
    relevant expert assistance in the use of tools and methodology.
    In case of process risk assessments, the risk management
    task force consists of process owners; in case of project risk
    assessments, it consists of the project team. In assessment of
    the risks pertaining to the Strategic Plan, the risk management
    task force includes the members of the risk management
    department, and the Management Board member in charge
    of Strategic Plan development, as well as other top managers
    who actively participate in the Strategic Plan. One important
    link in provision of information about the assessed risks to
    the top management is the risk management committee. The
    committee holds quarterly meetings as a part of the Gorenje
    Group Management Committee, and makes sure the Gorenje
    Group top management is informed about and up to date with
    the current status regarding the risks the Group is facing.
    Following are the goals of the risk management department
    and risk management task forces:

    reducing the risks of business goal attainment to
    acceptable levels; •
    providing up-to-date review of the most critical risks,
    complete with prepared and implemented controls and
    the measures for their mitigation and maintenance of
    acceptable levels thereof;
    • maintaining steady and uninterrupted operations and
    reducing the element of unforeseen events and related
    costs, interruptions, and failures;
    • development, establishment, and adjustment of the
    risk management model that is the best match for the
    Group's business needs and goals;
    • monitoring risk management and comparing select risks
    to the competitors within the industry;
    • improvement of capital and asset allocation to decrease
    their overall exposure in comparison to the preceding
    period;
    • promoting employee awareness that risk management
    is a constituent part of any process and making sure the
    employees understand and conduct their work and their
    tasks consistently with the risk management guideline,
    which in turn promotes the risk management culture at
    the Gorenje Group.
    Methodology for specifying the risk level: Risk level
    is calculated as the product of probability (likelihood) and
    magnitude of impact. Both probability and impact are
    assessed on a 5-step scale. Based on the analysis of
    probability, which in turn is the basis for specifying the
    probability of a particular risk, the assessor decides on the
    probability or frequency of occurrence of the risk at hand.
    The part of the assessment scale, pertaining to the level of
    probability of each risk observed, is based in particular on
    experience and the opinion of the assessor; nevertheless, it
    is clearly defined with the scale (or level) of historical data on
    the occurrence of the risk at hand. A part of the assessment
    scale, intended for the assessment of the frequency of
    occurrence of the risk at hand, is a clearly delineated scale
    of anticipated occurrence of an event in the future. For
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    the assessor, the assessment of the level of probability is
    therefore clearly determined by two parameters based on
    which he or she can read the estimated value.
    Depending on the analysis of effect and the specified risk
    level, the assessor then specifies the scope of effect brought
    about by each risk, and the type of impact that a particular
    risk can cause. Following were the discussed types of
    impact:
    • financial impact,
    • impact on health and safety
    • impact on business continuity
    (discontinuation of operation)
    • impact on Gorenje Group reputation, and
    • impact on the goals the risk at hand could cause
    (or threaten).
    Each of the impacts has a certain scale based on which the
    assessor can specify the assessed level of risk. Ultimate risk
    level is then determined as the level at which the assessed
    risk reached highest impact.
    Based on the methodology used, risk mitigation measures
    are specified for every risk that has a level the same or higher
    than the default risk threshold set at level 12. The assessor
    may, based on the analysis of the risk contents, change
    this level; thus, risk threshold may be higher or lower for
    certain risks. A change in the risk management threshold
    or acceptability level is approved by the risk management
    committee consisting of representatives of Gorenje Group's
    top management.
    Risk management committee holds quarterly meetings.
    At these meetings, the committee is presented the risks
    and measures adopted and executed or which are being
    executed or which are in place in order to hedge or mitigate
    the risks. Consistently with the change in the Group organization, the
    risk management task forces and composition thereof were
    reorganized as well. Moreover, all risks were reassessed
    for all processes, as the change in the Gorenje Group
    organization also brought about changes to the context of
    virtually all processes in the Group.
    2.4.2 Risk management in 2017
    Risks at the Gorenje Group are assessed and managed at all levels of lea\
    dership and management.
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    Key changes affecting the accomplishment of goals in 2017
    External factors and changing environment in which Gorenje Group is operating affect the progress of planned activities and
    attainment of operational, functional, and strategic goals. Effects on goal attainment in 2017 were both negative and positive.
    Based on observation of external business environment affecting the Gorenje Group operations, we assess the impact of changes on the risks we are
    managing. The graph presents the effect of change in case of its occurrence, and the probability of such change occurring. The magnitude is therefore the
    magnitude, or level, of risk that a certain change in the environment will bring with regard to Gorenje Group operations, and with regard to risks related to
    operations.
    External and internal events
    Focus 2017
    External events:
    • External events with the most material effect on Gorenje
    Group operations and performance include the increase in
    the prices of materials (steel sheet and plastic granulates).
    As the downstream prices of appliances could not be
    adjusted at the same time, this factor had a significant
    impact on Gorenje Group's performance.
    • Domestic appliance markets are growing; harsh
    competition is exerting a downward pressure on the prices
    in the market.
    • Economic growth has also lead to scarcity of some
    types of human resources, which in turn led to mounting
    pressures on labour costs.
    • A major external event of 2017 which has affected and
    will continue to affect Gorenje Group's operations and
    performance is the parliamentary elections in Germany.
    Germany's political and economic stability notably affects
    the economic activity in the entire European Union;
    moreover, Germany is an important market for Gorenje
    Group products.
    • The year 2017 was also an election year in the Netherlands
    (parliamentary election) and France (presidential election);
    along with Germany, these three countries account for no
    less than 56 percent of the European Union's economy.
    The year 2017 was also a year of presidential election in
    the Republic of Slovenia. The results of the 2017 election
    did not have and do not have a major impact on Gorenje
    Group's operations and performance.
    • As a result of Great Britain's decision to leave the European
    Union in 2016, the British pound has depreciated by
    nearly 10 percent in 2017. Such depreciation also means
    a 10-percent decrease in sales revenue for the Gorenje
    Group.
    • The referendum on Catalonia's independence does
    Effect of changes on the risks
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    not have a direct economic effect on Gorenje Group's
    operations and performance. It is, however, a new event
    that speaks to the political volatility of the environment
    in which the Gorenje Group conducts the majority of its
    operations.
    • Notable events or conditions in the territory of Gorenje
    Group's operations continue to include the issue of
    migrations, terrorism, and general economic situation of
    the environment in which Gorenje Group conducts its
    business.
    • In the Russian market, which is highly important to Gorenje
    Group, GDP growth was recorded in 2017 for the first time
    since 2014.
    Internal events:
    • We changed Gorenje Group's organization in 2017, which
    is an important tool for attainment of the Group's strategic
    goals. Consistently with the change in organization, risk
    management task forces were also transformed, and a risk
    management committee was appointed, which is active at
    the level of the Gorenje Group Management Committee.
    • The business model was changed towards a stronger
    segment of built-in and premium appliances, with a focus
    on premium (prestigious) appliance sales in the German
    market.
    • The launch of mass production of new generations of
    free-standing cookers and premium dishwashers, washing
    machines and dryers was completed late in the year.
    Problems related to the start of mass production resulted
    in delays in appliance delivery to the markets.
    • In 2017, Gorenje Group continued its efforts to establish
    and maintain its strategic partnerships.
    Key activities
    • In the second half of 2017, we reappointed the risk
    management task forces that are in charge of risk
    management at the process level. Relevant training and education on methodology and the risk management
    process was provided for new risk management
    committee and task force members.
    • Moreover, we developed self-study materials for training
    and education on the contents of risk management.
    The materials are available via our electronic training and
    education system.
    • Certification audit for compliance with the requirements
    of the ISO9001:2015 standard included an audit of the
    risk management process; the audit found this process
    compliant with the standard.
    2.4.3 Risk catalogue
    The risk catalogue is a comprehensive collection of the risks
    at hand at the process level at the Gorenje Group. Risk
    categories (or groups of risks) and their current assessment
    are presented in a graph that presents the main risk
    categories, acceptability threshold, anticipated scenario of
    action, and their current assessed value. In the catalogue,
    the risks are broken down into the following categories:
    • financial risks,
    • operational risks,
    • market risks, and
    • reputation and goodwill risks.
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    Based on the risk being assessed, four
    basic risk management scenarios
    are used:
    • accept the risk
    • accept and manage the risk
    • accept and transfer the risk
    • eliminate the risk
    A particular measure can also involve a
    combination of the four scenarios.
    Uniform risk management methodology
    can be used at both strategic and
    project, as well as process level.
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    Strategic risks
    Strategic risks are risks at the highest level of the Group.
    Their realization has a direct effect on the value of the entire
    Group.
    Focus 2017
    Risk assessment for the projects supporting the attainment
    of Gorenje Group's strategic goals is a constituent part
    of planning and execution of these projects. Due to the
    changes in the external environment and within the Gorenje
    Group, we periodically reassess the Strategic Plan risks. This
    activity is also planned for 2018.
    Project risks
    Major project management risks involve the risks of project
    performance, risks related to project work methods (project
    delays and exceeding other needs for planned resources
    – human, material, and others), risks of technological
    procedures, production and development risks, and risks of
    ensuring the competitiveness of end products as a result of
    respective projects.
    Focus 2017
    Risk assessment transfer is conducted at the Group level.
    In 2016, the focus was on assessment of risk for a variety of
    project types; project risk assessment was focused on the
    projects carried out at the company Gorenje d.d. In 2017,
    project risk assessment was gradually introduced to the level
    of the entire Gorenje Group.
    Process /operational risks
    Key process or operational risks include financial risks,
    operational risks, market risks, compliance risks, and
    reputation and goodwill risks. Financial and operational risks in particular are further broken down into several types of
    risks as presented below.
    Focus 2017
    Assessment of process / operational risks in 2017 was
    adjusted to the reorganized Gorenje Group operations.
    Thus, we appointed new risk management task forces at the
    process level, and provided relevant training and education
    for task force members. After the training, we also reassessed
    the risks. Due to the changes in organization, the entire risk
    management cycle had to be repeated. Hence, we carried
    out the process of risk identification, risk analysis, and risk
    assessment. We also reviewed the status of the implemented
    measures; we specified additional risk management measures.
    The risk management process was defined in such way that
    risk management task forces prepare risk assessments at least
    on a quarterly basis. These assessments are then presented to
    the risk management committee that consists of members of
    the Gorenje Group Management Committee. Thus, we make
    sure the top management is informed of and kept up to date
    with the current risk assessments and status.
    FINANCIAL RISKS
    Currency risks
    As our operations are broadly internationalized, we are
    exposed to the risk of changes in exchange rates. Namely, a
    change in the exchange rate between a particular currency
    and the Group's functional value (the euro) could result in a
    decrease of economic benefits for the Group. Our greatest
    currency risks pertain to our business activities in the markets
    of Russia, Serbia, Australia, Great Britain, Czech Republic,
    Poland, Hungary, Croatia, Ukraine, and all US dollar markets.
    In these currencies, the Group balance sheet reports and
    excess of assets over liabilities, which is treated as a long currency position. Key accounting categories constituting a
    currency position include trade receivables (from end users)
    and trade payables (to suppliers). The exception is the US
    dollar for which we have an excess of liabilities over assets
    as the purchases from the dollar markets exceed our sales
    in this currency. To a lesser extent, the exposure of financial
    position is related to our debt in local currencies.
    Currency risks are managed consistently with the Currency
    Risk Management Policy that specifies the following:

    currency risk exposure measurement,
    • powers and responsibilities in currency risk management;
    • methods and required scope of currency risk
    management hedging;
    • acceptable currency risk hedging instruments;
    • acceptable currency risk hedging partners; and
    • method for evaluating the performance of currency risk
    management.
    In 2017, we adjusted our currency risk management policy
    by including in the hedging mechanism the characteristics of
    respective currencies, from the following aspects:
    • possibility of adjustment of the prices of our products to
    the changes in foreign exchange rates,
    • convertibility of respective currencies and availability of
    effective currency risk hedging instruments.
    In addition to natural currency risk hedging with internal
    techniques (which involves adjusting the purchases and sales
    in respective currencies, taking out loans in the currencies
    with asset exposure, and other internal mechanisms), we
    also actively hedge our currency risks. We regularly hedge
    against the risk of a change in the foreign exchange rate
    by using acceptable currency risk hedging instruments for
    the currency pairs that require such measures consistently
    with our revised policy. The level of protection is at least
    80 percent of the budgeted cash flows. Currency risks are
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    managed in a centralized manner, which results in the best
    currency risk hedging effects.
    Credit risks
    Due to global presence, Gorenje Group has many buyers,
    or customers. Most of these are legal persons; there
    are very few natural persons among them. As a general
    principle, we again worked in 2017 only with customers
    with a satisfactory credit rating which is regularly monitored.
    Credit risks are managed consistently with our Receivables
    Management Policy, amended in 2017, which specifies
    the procedures for credit limit monitoring and approval,
    responsible persons, and permissible instruments for credit
    risk insurance (or security). The policy has been established
    and implemented at the Gorenje Group level.
    Volatile macroeconomic environment affects our business
    partners as it can cause instant changes in their credit
    rating, liquidity or solvency. Therefore, there is still some
    probability of payment delinquency or default on the part
    of our customers, or even their insolvency, despite the
    receivables management process in place at the Group.
    Hence, the Group employs a highly diversified sales
    model that does not involve any major concentration of
    receivables with a single buyer or a group of affiliated
    buyers (connected through ownership).
    No single customer or a group of affiliated customers
    related through mutual equity ownership accounts for 10
    percent or more of the Group's total sales, and exposure
    to a particular customer or group of customers does not
    represent 10 percent of the Group's total receivables.
    Most trade receivables are insured by SID – Prva kreditna
    zavarovalnica. A part of the receivables is also insured by
    credit insurance companies in respective local markets,
    and by other acceptable insurance instruments. Credit risk is carefully monitored in all segments of our operations.
    Short-term surplus of funds and cash in commercial bank
    accounts is allocated in compliance with our corporate
    policies that also include the methodology of determining
    acceptable financial partners or parties. These policies also
    specify the methodology of determining the acceptable
    financial partners in signing derivative financial instruments.
    Liquidity risks
    Liquidity risk is the risk that the Group will fail to meet
    commitments in stipulated period of time due to the lack of
    available funds.
    Liquidity depends on efficient cash management and
    investment dynamics. At Gorenje Group, we actively
    manage the liquidity risk by centralized monitoring and
    balancing the liquidity of our assets (especially receivables
    and inventories), liabilities, and cash flows from operating
    and investing activities. Cash management for the
    entire Group is centralized and supported by cash flow
    planning and daily monitoring software. A lot of attention
    is paid to drawing up and monitoring of the cash flow
    plan. Successful liquidity planning allows us optimum
    management of any short-term surpluses or deficits of liquid
    assets. Any short-term imbalances are offset by drawing
    on approved revolving credit lines agreed with commercial
    banks in Slovenia and abroad. In addition to cash (deposits)
    in bank accounts, this is also a part of Gorenje Group's
    liquidity reserve.
    The Group has in place a long-term plan for servicing its
    financial liabilities which is regularly updated. In 2017, we
    maintained a rather high share of long-term borrowings
    by replacing the current (or maturing) portions of long-
    term borrowings; at the same time, we cut our financing
    expenses.
    Interest rate risks
    Financing of the Group's current operations and its
    investment activities involves interest rate risk, since a good
    part of the loans taken out depends on the variable interest
    rate EURIBOR or other local variable reference interest rates.
    Interest rate risk exposure thus includes in particular the
    changes (increase) in the EURIBOR that are unfavourable
    in terms of the Group's financial liabilities. A large part of
    financial liabilities involve a variable interest rate that depends
    on the 3-month or 6-month EURIBOR.
    The interest structure of financial assets and liabilities is not
    balanced as the Group has considerably more financial
    liabilities than interest-earning financial assets.
    In 2017, we increased our financial liabilities with a fixed interest
    rate as we signed both new long-term financial agreements
    with a fixed interest rate, as well as interest rate hedging
    instruments (interest rate swaps). In 2017, we signed EUR 290
    million worth of interest rate swap agreements, the effect of
    which is contractually agreed to be gradual for the period from
    the end of 2018 to 2022. Signed interest rate swaps allow
    long-term stability of the Group's interest rates for the entire
    period until the end of 2022. As at December 31, 2017, the
    part of financial liabilities with a fixed interest rate accounted for
    71.1 percent of total interest-accruing financial liabilities.
    OPERATIONAL RISKS
    Operational risks include the following: purchasing risks, IT
    system risks, manufacturing risks, product quality assurance
    risks, development, HR, and logistics risks, and risks of
    legislation and regulation.
    Procurement risks
    In addition to price and currency risks, which are affected
    especially by external factors, efficient and successful
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    operation of the purchasing function also requires effective
    supply chain organization. In 2017, we continued to source
    our raw materials, components, and goods from a large
    number of third-party suppliers. In doing so, we are always
    exposed to the risk that expected deliveries will not comply
    with the agreed standards in terms of both suitable amount
    and quality, and to timeliness of supply.
    This risk was managed by systematically observing the
    rule of two or more alternative suppliers, except for some
    strategic suppliers who are involved as early as in the
    pre-development activities. The risk of continuous, or
    uninterrupted, availability of raw and processed material and
    components was managed by continuous implementation
    of new suppliers and by building up (and maintaining) an
    adequate safety stock for uninterrupted production process.
    Gorenje Group has in place a supplier evaluation model
    which evaluates the suppliers based on a number of aspects
    and criteria. The process includes quality controls for input
    materials and products, and frequency of such controls.
    Purchase price risks, related to macroeconomic
    developments and changes in prices of raw materials,
    currency fluctuations, and competitive position of our
    suppliers, are managed by:
    • forward deals for some materials,
    • negotiations with suppliers from various geographical
    segments,
    • supplier diversification,
    • implementation of global suppliers, including suppliers
    from the most competitive countries, and
    • currency risk management.
    Effective supply chain management and the level of reliability
    of production planning and product sales have a major
    impact on the Group's operations. We continue to revise
    our supply chain management process to further optimize
    our purchasing costs, ensure an adequate level of inventory in the supply chain and increase the throughput of related
    business processes. In strategic procurement, we have
    implemented a special software solution for monitoring
    the risks related to particular materials or components and
    therefore Gorenje Group exposure related to particular raw
    and processed materials.
    In 2017, we completed a project aimed at alleviating the
    dependence on individual suppliers. Thus, we start the year
    2018 with an improved base of implemented suppliers, with
    better quality, which positively affects both the reliability of
    manufacturing operations and business performance.
    IT risks
    Risks of IT system operation stem from the risks related to
    operational aspects of the IT system (system infrastructure),
    support at the level of services, and development of solutions
    that comprise the IT system.
    IT system is established based on a high reliability principle,
    and it also includes infrastructure at a secondary computer
    centre location. Reliability of IT system operation in some
    special-purpose areas is improved by use of cloud services
    by service providers who have been proven and tested with
    regard to security.
    Risks of IT system operation were also managed by signing
    maintenance contracts with business partners, in which we
    specified the parameters of service quality and availability.
    In 2017, we launched the revision of operating processes
    at the IT and Telecommunication department, where the
    goal was to provide more effective and more controlled and
    comparable processes for the department's operation. We
    also revised the data and information security management
    system, completing the project by issuing a revised security
    policy for the field of data and information security. In revision of the security policy, we observed the recommendations
    and policies of the ISO27001 standard.
    Production risks
    Group production processes depend on timely and adequate
    availability of resources which are the precondition for the
    operation of the production process. Although the production
    processes are generally modern and well maintained, there
    can be no full assurance that there will not be faults in
    technological processes or breakdowns in machinery and
    equipment used in the production process. Production risks
    are further broken down as follows:

    risks related to availability of human resources,
    • risks related to materials and supply,
    • risks related to technological equipment, and
    • risks related to work procedure methods.
    - Risks related to availability of human resources
    are a result of both the nature of processes and
    project work. At the process level, risks related to
    human resource availability are related on the one
    hand to the fluctuations in the required or planned
    production volume; on the other hand, they may be
    a result of human resource shortage due to force
    majeure (natural disaster, broken traffic connections
    etc.). Such risks are managed by reallocation of
    human resources between production programs in
    place at the same manufacturing site. At the same
    time, constant training and education of employees
    that results in greater flexibility of our workforce plays
    a very important role.
    - Risks related to materials and supply are divided
    into risks related to supply timing (delivery delays)
    and risks related to supply volume and quality
    (deliveries of non-compliant volume or quality).
    Through optimization of our production processes,
    we established a system of minimum inventory.
    Therefore, there is a possibility that untimely or
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    inadequate supply will result in interruptions in
    production. Related risks are managed by clearly
    specified contractual relationships with our suppliers.
    Untimely supply may occur due to incapacity of the
    supplier, as well as due to disturbances in logistics
    between the supplier and Gorenje. Such risks are
    managed by well-managed process of purchasing
    and logistics, which involves systems of both
    alternative supplies and suppliers, and alternative
    logistics routes.
    - Risks related to technological equipment include
    risks stemming directly from the technological
    processes. These risks include the following:
    - risks pertaining to failures of machinery that
    is essential for production processes; these
    risks are managed with regular preventive
    inspections and maintenance;
    - risks of supply failures for key energy sources
    or fuels (gas, electric energy, heat); these
    risks are managed within our contractual
    relationships with the suppliers; and
    - risks pertaining to provision of compliance
    with the effective technical and legal norms;
    this is maintained with regular inspections
    and compliance tests (internal and external
    controls), and immediate response to any
    discrepancies observed.
    - Risks related to the work procedure methods
    are a very important segment of risks related
    to the production process. Work methods and
    procedures have a strong effect on the quality of
    the final product. Therefore, quality management
    is involved in all production stages of a product.
    Required quality levels are attained with tried and
    tested work procedures that are regularly monitored,
    reviewed and revised as necessary. Technological
    procedures have a major impact on the quality of the final product, and quality products allow us to retain
    our current customers and inspire and convince new
    ones. Changes in work procedures affecting the
    quality of the business process, its cost efficiency
    and provision of safe and worker-friendly environment
    are monitored through indicators of production
    process quality, which are also constituent parts of
    the quality management system. Risks related to
    production processes were increased in the first two
    quarter of our operations when ill-fitting methods and
    work procedures resulted in delays in the launches of
    new generations of appliances. In the second half of
    2017, the risks were mitigated to an acceptable level
    as the production of new generation appliances was
    launched. We also partly managed to make up for
    the delivery delays resulting from the unsuitable work
    methods and procedures in the first half of 2017.
    Product quality risks
    Appliances manufactured at the Gorenje Group are subject
    to quality standards and regulations. Standards ensure that
    an adequate level of quality and safety for the user is attained
    and maintained; changes of such standards and changes
    in regulations introduce a constant need for changes to
    the production process or changes in the components or
    materials managed. Therefore, we continue to improve our
    production practices and observe the relevant protocols
    and standards in quality assurance. Consistently with the
    established model of systematic monitoring of poor product
    quality costs and the rates and causes of product failure,
    we manage the risks of inadequate product operation
    already during the production process. The purpose of such
    monitoring is to perceive or identify and eliminate the risks of
    inadequate product operation within all processes that affect
    the quality of the final product. The risks are mitigated with
    appropriate development and quality assurance systems as a
    part of the production, sales, and after-sales processes.As an additional mechanism for discovering any faults in
    appliance operation, we have put into place at all process
    levels a quality management system compliant with the
    requirements of the ISO 9001 standard, system of certified
    methods according to ISO 17025, and the Six Sigma
    system. The use IT tools allowed us in 2017 to cut the time
    required to identify any extensive failures and thus to limit
    the costs that would be incurred in case of an epidemic
    defect. At the same time, we were constantly expanding the
    set of tests in the purchasing, development, and production
    process.
    In addition to the internal product risk mitigation measures,
    we have also obtained in 2017 insurance coverage from
    an international insurance company, which also includes
    coverage for manufacturer's liability for damage resulting
    from any faults or operation failures, in the amount which we
    deem sufficient to provide adequate coverage for any loss
    events.
    In addition to the direct financial effect, product failures and
    potential loss events pertaining thereto also have a significant
    negative impact on the reputation of the Gorenje Group, our
    brands, and the relations with our customers in the wholesale
    and retail process.
    Development risks
    Development risks are broken down into risks related to
    compliance and risks related to new product development.
    With regard to provision of compliance, the most important
    risks include those that affect product development or
    which are related to attainment and provision of security and
    technical standards stipulated by the field of activity. In 2017,
    we continued to mitigate the risks with continuous training
    and education, and cooperation with renowned international
    institutions and development centres.
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    As our presence in the global markets, which we also pursued
    in 2017, expands, so increases the complexity of managing the
    locally effective legislation and the regulations related thereto,
    specifying the legislative provisions on product specifications
    for respective target markets, which have to be complied
    with and observed already in the development stage of the
    final product. An important set of risks representing a part of
    legislative compliance pertains to observing intellectual and
    patent protection. Major emphasis is placed on attaining and
    exceeding the security requirements to ensure safe use of our
    products for our customers. Failure in terms of any aspect
    of compliance may have a grave impact on our operations
    and performance, and on the reputation of the Group and its
    brands.
    The new product development process includes checkpoints
    and tests. By observing this procedure, we are keeping in
    check any discrepancies between the planned and actually
    accomplished goals for each product. We also included in
    the development procedures the required measurements and
    monitoring of product development in its respective stages.
    Scenarios have been laid down for cases of discrepancies,
    which involve – in addition to development activities – the
    measure of replacement of a non-compliant or unsuitable
    component.
    In order to obtain feedback regarding quality and usefulness
    of our products, in addition to our measurements, the
    product testing stage also includes independent consumer
    organizations and individual final product users. Tests are
    planned in the annual development plans and they involve
    relevant sets of products.
    Risks with direct effect on the new product development
    include risks of availability of the development department.
    Such department availability may be restricted due to lack
    of key personnel, inclusion of unplanned development projects, expressed or identified additional requirements in the
    course of the development project, or even a finding that the
    development concept is inappropriate. Risks pertaining to the
    product development process are managed by careful project
    planning during the annual planning which in turn is a part of
    the medium-term new product development planning.
    The risk with the greatest potential effect occurring in the
    development process and cannot be managed with internal
    controls is the risk of an unsuccessful product concept. In
    product development, the Group therefore has no assurance
    that the product we develop will find commercial success
    or that the consumers will recognize the useful value of the
    product features we develop. The effect of this risk is all
    the bigger if we observe it from the aspect of new product
    categories and platforms. These risks are managed by
    monitoring consumer habits, needs, and trends, by conducting
    market analyses, and by monitoring the trends in the industry.
    Human resource risks
    Quality human resources are especially important at the
    Gorenje Group as they represent an important asset that
    makes our operations possible.
    In 2017, we continued the succession planning project which
    is to assure uninterrupted operations despite any losses of key
    personnel. Particular attention was paid to employee training
    and to maintaining and developing their competencies. We
    built up our pool of new human resources with scholarships.
    Training and education and human resource development
    are carefully planned and regularly monitored. This includes
    the annual interview model that we have in place. At the
    same time, we encourage our employees to pursue the
    Group's fundamental values of responsibility, innovation,
    and entrepreneurship at all levels of operations. In 2017, we
    stepped up our cooperation with educational institutions,
    including universities.Economic growth has resulted in scarcity of certain human
    resources in the regions where Gorenje Group conducts
    its manufacturing operations. Such scarcity in turn resulted
    in an upward pressure on labour costs at Gorenje Group's
    manufacturing plants. Regardless of the requests for an
    increase in labour costs, suitable human resources are simply
    impossible to recruit in certain environment for particular tasks.
    In the field of occupational safety and health we used our
    own methodology to assess the probability of occurrence of a
    particular accident and the probability of occurrence of health-
    related problems for each job or workplace. Based on the
    findings, we adopted relevant measures intended to decrease
    the probability of damaging effects on our employees, from
    the aspect of precisely directed investment into workplace
    improvement and adjustment of work processes, and from
    the aspect of training and education of employees, preventive
    examinations, and sports activities.
    Logistics risks
    Logistics risks are related to ensuring the operation of the
    logistics process, to changes in logistics operations and
    services of contractual carriers (or logistics service providers),
    and to operation of logistics infrastructure. In dealing with the
    risks of logistics process operation, we address disturbances
    and operation of logistics systems and logistics centres.
    In 2017, logistics risks were managed by regular inspections
    of internal logistics systems, preventive and maintenance
    works, and regular upgrades to the systems in charge of
    logistics process operation. Risks of service delivery by
    contractors involve risks of our business partners who
    provide logistics services, or transport, between our logistics
    centres or to the warehouses of our business partners.
    Effectiveness of logistics support was also materially affected
    by external factors over which Gorenje Group has no direct
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    influence. These include changes in the price of fuel, road
    tolls and other fees related to the operation of the logistics
    process. Risks related to inadequate provision of services
    by contractors were managed with regular implementation
    of alternative or substitute suppliers and assessment of the
    current logistics partners. The strategy of multiple logistics
    partners at the same destination mitigates the risk of failure
    on the part of any of them.
    Risks of logistics infrastructure operation include changes
    in road, railway, or ship infrastructure and events related
    thereto, as well as changes in customs procedures, their
    operation, and their availability.
    The field of logistics is focused on logistics activities directly
    related to logistics of products and materials required for
    the operation of production capacities and for timely and
    adequate delivery of end products to business partners.
    Risks of faulty deliveries and transport damage at the level
    of internal logistics or logistics provided by partners or
    contractors are managed with operational risk management
    controls.
    Legislative and regulatory risks
    Legislative and regulatory risks include risks related to any
    breaches of the relevant local legislation, regulations, or
    operating standards. These risks may affect the ability to
    successfully carry out the Group's business activities.
    Due to our powerful international presence (in 90 countries
    of the world) and high market shares in some countries, we
    were exposed in 2017 to the risk of compliance with the
    competition law and regulations. Therefore, the Group has
    adopted a policy and operating instructions for conduct in
    compliance with the provisions of the competition law, which
    pertain to the entire Group.The Group's global presence is also a challenge in terms
    of compliance of operations with local legislation and
    regulations. In addition to our own legal experts, we hired
    the services of third-party legal consultants for specific
    purposes or markets. A special set of legislative risks
    and risks of regulation includes locally addressed risks
    managed at the level of each process. This segment
    involves compliance with the tax legislation and regulations,
    compliance with environment requirements, compliance
    with safety requirements from the aspect of product,
    working environment, and business processes, protection of
    (personal) information, and other issues whose framework
    is defined by the regulations and legislation in effect from
    time to time. Non-compliance with the effective regulations
    and legislation is a risk which the Group has to manage and
    hedge according to the risk management methodology.
    Therefore, the only acceptable measure is prevention of
    non-compliance and introduction of activities to ensure
    compliance with all regulations and legislation.
    In 2017, we started to implement the amendments to
    personal data management, as this is the only way to
    ensure compliance with the new European Union regulation
    on personal data management (General Data Protection
    Regulation). The project of ensuring compliance with the new
    regulation is implemented at the level of the Gorenje Group,
    for all companies processing personal information within the
    territory of the European Union.
    MARKET RISKS
    Market or sales risks are related to competitiveness in sale
    of products and services in particular markets. Efficiency of
    the Group's sales strategies depends on numerous factors,
    most importantly the implementation of appropriate and
    effective marketing strategies. These include in particular the
    right choice of brands for our products and services, pricing mechanisms, and competitiveness with regard to product
    functionality and design.
    Competitiveness of sales was also affected in 2017 by the
    negotiating power of the industrial (OEM) customers and retail
    chains we work with, customer concentration, the quality
    of our products, recognition and power of the brands in
    respective markets, and the scope and quality of our after-
    sales activities.
    We are encountering powerful competition in all markets of our
    operations. In addition, we are seeing ever higher ownership
    concentration of our competition. Ownership concentration
    improves our competition's competitive edge and negotiating
    power relative to the customers. Some of our competitors
    have more recognizable brands, broader consumer bases, and
    ampler financial and other sources they can use to improve
    their recognition in the markets, for marketing activities, and
    for launches of new and more competitive products in the
    markets. The risks related to competitor's activities aimed at
    increasing their market shares directly affect our operations
    and performance.
    We support the attainment of the planned sales goals and
    market shares, expansion to the markets beyond Europe,
    and sales in the premium and innovative segment, with
    precisely targeted marketing activities and investments into
    new product development. Thus, investments into marketing
    and development were increased again in 2017, which in
    turn mitigated the market risks. In the new Strategic Plan for
    the period 2016–2020, developed in 2015, we specified as
    a key strategic goal to double our sales in markets outside
    Europe, i.e. in markets with higher growth of demand for
    home appliances. Gradual growth of the share of our sales
    in these markets, which we have also attained in last year,
    mitigates our dependence on the highly competitive European
    environment.
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    REPUTATION AND GOODWILL RISKS
    Our competitiveness and performance also depends on our
    recognition and reputation, which pertains to our brands
    and to compliance at all levels of our operations. Decrease
    in the value of our brands due to product recalls, customer
    complaints, negative publicity, legal or court proceedings,
    or other factors may have major negative effects on our
    operations. Moreover, reputation and goodwill are indirectly
    and directly affected by most of the risks specified in this
    section.
    Therefore, particular attention was paid also in 2017 to
    compliance of our operations at every level, suitable and
    proactive communication with all stakeholders of the Group,
    and transparent communication with the general public
    regarding the results of our operations, and significant events
    that affect our operations and performance. We started
    specifying additional measures, methods, and procedures for
    communication in cases of extraordinary or other situations
    that require notification to or communication with the
    interested public.
    2.4.4 Insurance of property,
    liability, and employees
    One form of risk transfer to a third party (service provider) is
    the insurance of property, liability, and production halt, which
    alleviates the negative consequences for Gorenje Group
    operations in case of occurrence of unexpected events
    that could materially affect the Gorenje Group operations.
    Insurances taken out provide a higher level of protection
    at the financial, legal, and operational level. Insurances are
    also taken out for other fields in which they are seen as an
    appropriate measure.
    The scope of insurance and insurance coverage is adjusted
    on an ongoing basis. Thus, we maintain the optimum ratio
    between financial effects of insurance and risks that we
    transfer to the insurance company. Insurance policies are
    signed centrally for the requirements of the Gorenje Group,
    while any loss events are resolved in cooperation with
    brokers and their international network.
    In addition to insurances pertaining to the security and
    safety of property and business activities, we have also
    put into place a system of insurances for our employees.
    This system allows higher quality of medical services and
    security in case of accidents and upon retirement.
    We revised our insurance programs for 2018, with
    emphasis on quality and higher insurance coverage for
    risks that could materially affect Gorenje Group's future
    operations, performance, and financial statements.
    Additional activities in insurance were directed at insurance
    in the field of cybersecurity (computer security) and
    insurance in cases of fraud to which Gorenje Group may be
    exposed. Consistently with the risk methodology, insurance
    is understood as one of the risk management scenarios /
    measures.
    2.4.5 Targets for 2018
    In 2018, we are planning further systematic integration of
    risk management into all levels of Gorenje Group leadership
    and management. We are looking to expand the risk
    management procedures and methods to fields where
    certain forms of assessment of the status or exposure are
    required. Expansion of methodology and procedures in 2018
    is focused on ensuring compliance with the General Data
    Protection Regulation (GDPR). In this respect, assessment
    of situation is required as the foundation for decision-making when implementing security controls, mechanisms, and
    appropriate protection level.
    We wish to contribute to the maturity of the risk management
    process, not only at the level of execution, but also at the
    level of awareness and employee training at the Gorenje
    Group. Familiarization with the risk management process and
    methodologies employed in it was included in internal training
    contents offered regularly for the broader circle of Gorenje
    Group employees.
    We intend to improve the process and methodologies by
    working more intensively with similar companies in Slovenia
    and beyond, exchange of sound practice etc.
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    Accounting Report
    pursuant to IFRS as
    adopted by the EU
    3.1 Independent Auditor's Report 112
    3.1.1 Independent Auditor's Report for Gorenje Group 112
    3.1.2 Independent Auditor's Report for the company Gorenje, d.d. 114
    3.2 Accounting Report of the Gorenje Group
    and the company Gorenje, d.d. 117
    3.2.1 Financial Statement of the Gorenje Group and the company Gorenje, d.d. 117
    Income Statement of the Gorenje Group and the company Gorenje, d.d. 117
    Statement of Other Comprehensive Income of the Gorenje Group and
    the company Gorenje, d.d. 118
    Balance Sheet of the Gorenje Group and the company Gorenje, d.d. 119
    Statement of the Cash Flows of the Gorenje Group and
    the company Gorenje, d.d. 120
    Consolidated Statement of Changes in Equity of the Gorenje Group 121
    Statement of Changes in Equity of Gorenje, d.d. 123



    Note 24 – Other non-current investments 156
    Note 25 – Non-current operating receivables 156
    Note 26 – Deferred tax assets and deferred tax liabilities 157
    Note 27 – Inventories 158
    Note 28 – Current financial investment 159
    Note 29 – Trade receivables 161
    Note 30 – Other current assets 162
    Note 31 – Cash and cash equivalents 163
    Note 32 – Equity 163
    Note 33 – Earnings per share 165
    Note 34 – Establishment of accumulated profit pursuant to provisions
    of the Companies Act 165
    Note 35 – Provisions 166
    Note 36 – Deferred income 167
    Note 37 – Non-current operating liabilities 167
    Note 38 – Non-current financial liabilities 167
    Note 39 – Current financial liabilities 169
    Note 40 – Trade payables 170
    Note 41 – Other current liabilities 171
    Note 42 – Contingent liabilities 172
    Note 43 – Financial risks and financial instruments 172
    Note 44 – Fair value 183
    Note 45 – Commitments relating to investments 185
    Note 46 – Related party transactions 185
    Note 47 – Events after the balance sheet date 189
    Note 48 – Transactions with the auditor 189
    Note 49 – Business segment 190
    Note 50 – Geographical segments 190
    3.2.2
    Notes to the Financial Statements 125
    1. Reporting entity 125
    2. Basis of preparation 125
    3. Significant accounting policies 125
    4. Determination of fair value 136
    5. Capital management 137
    6. Segment reporting 137
    7. Statement of cash flows 137
    8. Composition of the Gorenje Group 138
    9. Non-controlling equity interests 139
    10. Associates 140
    3.2.3 Disclosures of the Gorenje Group and the company Gorenje, d.d.
    to the individual items in the financial statements 141
    Note 11 – Revenue 141
    Note 12 – Other operating income 141
    Note 13 – Costs of goods, material and services 142
    Note 14 – Employee benefits expense 143
    Note 15 – Amortisation and depreciation expense 144
    Note 16 – Other operating expenses 144
    Note 17 – Net finance expenses 144
    Note 18 – Income tax expense 146
    Note 19 – Intangible assets 148
    Note 20 – Property, plant and equipment (PPE) 151
    Note 21 – Investment property 153
    Note 22 – Investments in subsidiaries 154
    Note 23 – Investments in associates 154



    112
    3.1 Independent Auditor's Report 3.1.1 Independent Auditor's Report for Gorenje Group
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    113
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    114
    3.1.2 Independent Auditor's Report for the company Gorenje, d.d.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    116
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    117
    3.2 Accounting Report of the Gorenje Group
    and the company Gorenje, d.d.
    3.2.1 Financial Statement of the Gorenje Group and the company Gorenje,\
    d.d.
    Income Statement of the Gorenje Group and the company Gorenje, d.d.
    EURk NoteGorenje Group
    Gorenje, d.d.
    2016 201720162017
    Revenue 111,258,124 1,309,932 710,040801,863
    Change in inventories of finished goods and work in progress 5,200-15,117 -3,175 -247
    Other operating income 1221,871 39,440 8,76621,112
    Gross profit 1,285,1951,334,255 715,631822,728
    Cost of goods, materials and services 13-942,154 -981,413-574,591-678,220
    Employee benefits expense 14-235,325 -249,012-102,769-109,151
    Amortisation and depreciation expense 15-47,055 -54,676-25,132-30,479
    Other operating expenses 16-20,470 -27,459 -4,311-7,434
    Operating profit 40,19121,695 8,828-2,556
    Finance income 176,157 4,13913,616 21,371
    Finance expenses 17-33,192 -21,499-18,782-18,165
    Net finance income/expenses 17-27,035 -17,360 -5,1663,206
    Share in profits or losses of associates 84152 00
    Profit before tax 13,2404,4873,662 650
    Income tax expense 18-4,810 -3,146 37-177
    Profit for the period 8,4301,3413,699 473
    Attributable to non-controlling interests 436372 00
    Attributable to equity holders of the parent 7,994969 00
    Basic and diluted earnings per share (in EUR) 330.33 0.040.150.02
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    118
    Statement of Other Comprehensive Income of the Gorenje Group and the com\
    pany Gorenje, d.d.
    EURkNoteGorenje Group
    Gorenje, d.d.
    2016 201720162017
    Profit for the period 8,4301,3413,699 473
    Other comprehensive income
    Items that will not be reclassified subsequently to profit or loss -28064-108 70
    Actuarial gains or losses 32-332 65-137 77
    Income tax on other comprehensive income 3252 -129 -7
    Items that may be reclassified subsequently to profit or loss 9953,803 -732472
    Net change in fair value of available-for-sale financial assets 28, 32-3386-33 11
    Change in effective portion of gains and losses from hedging instruments in cash flow
    hedges 32
    -1,531 -651-1,479 -311
    Change in effective portion of gains and losses from hedging instruments in cash flow
    hedges, reclassified to profit or loss 17, 32
    594891594883
    Income tax on other comprehensive income 32185 -111 186-111
    Translation reserve 1,7803,588 00
    Other comprehensive income for the period 7153,867 -840542
    Total comprehensive income for the period 9,1455,2082,8591,015
    Attributable to equity holders of the parent 8,7094,836 00
    Attributable to non-controlling interests 436372 00
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    119
    Balance Sheet of the Gorenje Group and the company Gorenje, d.d.
    EURkNoteGorenje Group
    Gorenje, d.d.
    1 Jan 2016 31 Dec 2016 31 Dec 2017 1 Jan 201631 Dec 2016 31 Dec 2017
    ASSETS 1,091,8611,123,9141,143,116 953,420981,8651,015,425
    Non-current assets 604,712 629,266647,977513,888590,125730,862
    Intangible assets 19196,032 208,872223,575 44,50959,39673,710
    Property, plant and
    equipment 20
    355,378 366,212371,835186,162198,006200,576
    Investment property 2117,148 14,957 9,84915,276 12,948 8,685
    Investments in
    subsidiaries 22
    000246,863 295,745294,986
    Investments in
    associates 23
    1,570 2,9454,309 5092,064 3,186
    Other non-current
    investments 24
    2,942 6,5633,4831,6902,029123,882
    Non-current operating
    receivables 25
    5,743 2,4817,375 005,625
    Deferred tax assets 2625,899 27,23627,55118,87919,93720,212
    Current assets 487,149494,648495,139439,532391,740284,563
    Non-current assets
    held for sale 309
    314305 000
    Inventories 27225,906 225,954220,619 91,98688,56485,338
    Current investments 2816,370 8,8218,059182,911 144,432 24,041
    Trade receivables 29161,020 165,786180,517145,322130,860158,631
    Other current assets 3049,017 55,25857,86611,71413,14113,069
    Income tax receivable 2,9173,2732,736 000
    Cash and cash
    equivalents 31
    31,610 35,24225,037 7,59914,743 3,484
    EQUITY AND
    LIABILITIES 1,091,861
    1,123,9141,143,116 953,420981,8651,015,425
    Equity 32358,867 366,541368,344352,764355,552354,081
    Share capital 101,922101,922101,922101,922101,922101,922
    Share premium 174,502174,502174,502156,639156,639156,639
    Revenue reserves 99,30146,01533,13199,30146,01533,131
    Treasury shares -3,170-3,170-3,170-3,170-3,170-3,170
    Profit or loss for the
    period -4,202
    7,560 922 03,265 426
    EURk NoteGorenje Group
    Gorenje, d.d.
    1 Jan 2016 31 Dec 2016 31 Dec 2017 1 Jan 201631 Dec 2016 31 Dec 2017
    Profit or loss from
    previous years 6,145
    55,592 73,597 053,649 67,359
    Translation reserve -19,091-17,311-13,723 000
    Fair value reserve 332-733 -454-1,928 -2,768-2,226
    Equity of holders of
    the parent 355,739
    364,377366,727 000
    Equity of non-
    controlling interests 3,128
    2,1641,617 000
    Non-current
    liabilities 345,080
    350,469365,278271,101276,592287,370
    Provisions 3562,269 64,14359,88621,41820,94017,508
    Deferred income 365,350 5,0377,563 000
    Non-current operating
    liabilities 37
    4,178 3,6722,807 000
    Deferred tax liabilities 262,297 2,0012,002 000
    Non-current financial
    liabilities 38
    270,986 275,616293,020249,683255,652269,862
    Current liabilities 387,914406,904409,494329,555349,721373,974
    Current financial
    liabilities 39
    91,038 101,226 90,731144,470 151,489141,036
    Trade payables 40221,027 223,725229,402167,363177,734212,614
    Other current liabilities 4173,807 79,56387,75217,72220,49820,324
    Income tax liabilities 2,0422,3901,609 000
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    120
    Statement of the Cash Flows of the Gorenje Group and the company Gorenje\
    , d.d.
    EURkNoteGorenje Group
    Gorenje, d.d.
    2016 201720162017
    A. CASH FLOWS FROM OPERATING ACTIVITIES  
    Profit or loss for the period 8,4301,3413,699 473
    Adjustments for:  
    - depreciation of property, plant
    and equipment 15
    37,724 43,27420,55623,789
    - amortisation of intangible assets 159,331 11,402 4,5766,690
    - net exchange differences 534345 67627
    - dividends received -136-215-2,704 -14,846
    - interest income -913-935-5,744 -5,079
    - interest expenses 15,03312,74114,30913,004
    - income/expenses on sale of
    property, plant and equipment -254
    -531 -94451
    - income/expenses on revaluation
    of investment property 0
    65 0-12
    - tax expenses 184,810 3,146 -37177
    Cash flows from operating
    activities before changes in net
    operating assets 74,559 70,63334,62825,274
    Change in trade and other
    receivables -10,669
    -22,693 12,638-33,599
    Change in inventories -545,317 3,4223,226
    Change in provisions 1,719-1,612 -478-3,432
    Change in trade and other
    payables 17,505
    17,304 8,09537,259
    Change in net operating assets
    and provisions 8,501
    -1,684 23,677 3,454
    Interest paid -15,033-12,741-14,309-13,004
    Income tax paid -5,223-3,689 -426-571
    Net cash from operating
    activities 62,804
    52,51943,57015,153
    EURk NoteGorenje Group
    Gorenje, d.d.
    2016 201720162017
    B. CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from sale of property,
    plant and equipment 2,510 5,582 405435
    Proceeds from sale of investment
    property 2,253 2502,253 149
    Interest received 9139355,744 5,079
    Dividends received 1362152,704 14,845
    Disposal of subsidiary 454 4349,760 0
    Acquisition of property, plant and
    equipment -59,412-49,672-32,469-26,451
    Acquisition of investment property 0-371 0-371
    Acquisition of subsidiary without
    obtained financial assets -710 0-55,258 -41
    Acquisition of associates without
    obtained financial assets -1,530-1,200-1,530-1,200
    Loans given 3,498 12839,512 279
    Other investments -1,3492,3411,227-1,741
    Acquisition of intangible assets -23,819 -25,656-19,522-21,006
    Net cash used in investing
    activities -77,056-67,014-47,174-30,023
    C.
    CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings
    120,778 115,673224,878167,009
    Repayment of borrowings -88,110-113,695 -199,530-165,899
    Bonds issued 019,531 019,531
    Bonds paid -14,600 -14,600-14,600-14,600
    Dividend payout 0-2,430 0-2,430
    Net cash used in financing
    activities 18,068 4,47910,748 3,611
    Net change in cash and cash
    equivalents 3,816-10,016 7,144-11,259
    Cash and cash equivalents at the
    beginning of period 31,426 35,053 7,59914,743
    Cash and cash equivalents at the
    end of period 35,242 25,03714,743 3,484
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    121
    Consolidated Statement of Changes in Equity of the Gorenje Group
    EURkShare
    capital Share
    premium
    Revenue reserves
    Treasury shares
    Retained earnings
    Translation reserve Fair value
    reserve Equity
    holders of the
    parent Non-
    contro- lling
    interests Total
    Legal
    reserves Statutory
    reserves Treasury
    share
    reserve Other
    revenue
    reserves Profit or
    loss from previous periods Profit or
    loss for the period
    Opening balance at 1 Jan 2016 101,922174,502 12,896 7,5563,17075,679 -3,170 6,145 -4,202-19,091 332355,739 3,128358,867
    Total comprehensive income for the period
    Profit or loss for the period 00 0 000 0 07,994 007,994 4368,430
    Total other comprehensive income 00 0 000 0 0 01,780 -1,065 715 0715
    Total comprehensive income
    for the period 0
    0 0 000 0 07,994 1,780-1,065 8,709 4369,145
    Transactions with owners (when acting as owners) recognised directly in equity
    Contributions by owners and distribution to owners
    Transfer of previous period’s profit or loss
    to retained earnings 0
    0 0 000 0-4,202 4,202 000 00
    Transfer of fair value reserves of
    retirement benefits to retained earnings 0
    0 0 000 0-71 000-71 0-71
    Coverage of loss from previous periods 00 0 000 071 -71 000 00
    Formation of statutory reserves 00 0363 00 0 0-363 000 00
    Transfer of other revenue reserves to
    retained earnings* 0
    0 0 00-53,649 053,649 0000 00
    Total contributions by owners and
    distributions to owners 0
    0 0363 0-53,649 049,447 3,768 00-71 0-71
    Change in equity interests in subsidiaries that do not result in a loss of control
    Change in equity interests 00 0 000 0 0 0000-1,400 -1,400
    Total changes in equity interests in
    subsidiaries 0
    0 0 000 0 0 0000-1,400 -1,400
    Total transactions with owners 00 0363 0-53,649 049,447 3,768 00-71-1,400 -1,471
    Closing balance at 31 Dec 2016 101,922174,502 12,896 7,9193,17022,030 -3,170 55,592 7,560-17,311 -733364,377 2,164366,541
    * In compliance with provisions of the Companies Act ZGD-1, the Company released other revenue reserves in the amount of EUR 53,649k to retained earnings (profit or loss from previous periods) for the purpose of forming the accumulated
    profit (Note 34).
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    122
    EURkShare
    capital Share
    premium
    Revenue reserves
    Treasury shares
    Retained earnings
    Translation reserve Fair value
    reserve Equity
    holders of the
    parent Non-
    contro- lling
    interests Total
    Legal
    reserves Statutory
    reserves Treasury
    share
    reserve Other
    revenue
    reserves Profit or
    loss from previous periods Profit or
    loss for the period
    Opening balance at 1 Jan 2017 101,922174,502 12,8967,9193,17022,030 -3,170 55,592 7,560-17,311 -733364,377 2,164366,541
    Total comprehensive income for the period
    Profit or loss for the period 00 000 00 0969 00969 3721,341
    Total other comprehensive income 00 000 00 0 03,588 2793,867 03,867
    Total comprehensive income for
    the period 0
    0 000 00 0969 3,588 2794,836 3725,208
    Transactions with owners (when acting as owners) recognised directly in equity
    Contributions by owners and distribution to owners
    Transfer of fair value reserves of
    retirement benefits to retained earnings 0
    0 000 00-56 000-56 0-56
    Transfer of previous period’s profit or
    loss to retained earnings 0
    0 000 007,560 -7,560 00 000
    Dividend payout 00 000 00-2,430 000-2,430 0-2,430
    Formation of statutory reserves 00 047 000 0-47 00 000
    Transfer of other revenue reserves to
    retained earnings* 0
    0 000-12,931 012,931 000 000
    Total contributions by owners and
    distributions to owners 0
    0 047 0-12,931 018,005 -7,607 00-2,486 0-2,486
    Change in equity interests in subsidiaries that do not result in a loss of control
    Change in equity interests 00 000 00 0 0 00 0-919 -919
    Total changes in equity interests in
    subsidiaries 0
    0 000 00 0 0 00 0-919 -919
    Total transactions with owners 00 047 0-12,931 018,005 -7,607 00-2,486 -919-3,405
    Closing balance at 31 Dec 2017 101,922174,502 12,8967,9663,170 9,099-3,170 73,597 922-13,723 -454366,727 1,617368,344
    * In compliance with provisions of the Companies Act ZGD-1, the Company released other revenue reserves in the amount of EUR 12,931k to retained earnings (profit or loss from previous periods) for the purpose of forming the
    accumulated profit (Note 34).
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    123
    Statement of Changes in Equity of Gorenje, d.d.
    EURkShare
    capital Share
    premium Revenue reserves
    Treasury shares Retained earnings
    Fair value reserve Total
    Legal
    reserves Statutory
    reserves Treasury
    share
    reserve Other
    revenue
    reserves Profit or loss
    from previous periods Profit or loss for
    the period
    Opening balance at 1 Jan 2016 101,922156,639 12,896 7,5563,17075,679 -3,170 00-1,928 352,764
    Total comprehensive income for the period
    Profit or loss for the period 0 0 0 0 0 0 0 03,699 03,699
    Total other comprehensive income 0 0 0 0 0 0 0 0 0 -840 -840
    Total comprehensive income for the period 000 0000 03,699 -840 2,859
    Transactions with owners (when acting as owners)
    recognised directly in equity
    Contributions by owners and distribution to owners
    Transfer of fair value reserves of retirement benefits to
    retained earnings 0
    0 0 0 0 0 0 -71 0 0 -71
    Coverage of retained loss 0 0 0 0 0 0 0 71 -71 0 0
    Formation of statutory reserves 000 363 000 0-363 00
    Transfer of other revenue reserves to retained earnings* 000 00-53,649 053,649 00 0
    Total contributions by owners and distribution
    to owners 0
    00 363 0-53,649 053,649 -4340-71
    Total transactions with owners 000 363 0-53,649 053,649 -4340-71
    Closing balance at 31 Dec 2016 101,922156,639 12,896 7,9193,17022,030 -3,170 53,649 3,265-2,768 355,552
    * In compliance with provisions of the Companies Act ZGD-1, the Company released other revenue reserves in the amount of EUR 53,649k to retained earnings (profit or loss from previous periods) for the purpose of forming the accumulated
    profit (Note 34).
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    124
    EURkShare
    capital Share
    premium Revenue reserves
    Treasury shares Retained earnings
    Fair value reserve Total
    Legal
    reserves Statutory
    reserves Treasury
    share
    reserve Other
    revenue
    reserves Profit or loss
    from previous periods Profit or loss
    for the period
    Opening balance at 1 Jan 2017 101,922156,63912,8967,9193,17022,030 -3,170 53,649 3,265-2,768355,552
    Total comprehensive income for the period
    Profit or loss for the period 0 0 0 0 0 0 0 0473 0473
    Total other comprehensive income 0 0 0 0 0 0 0 0 0542 542
    Total comprehensive income for the period 00000 00 04735421,015
    Transactions with owners (when acting as
    owners) recognised directly in equity
    Contributions by owners and distribution to
    owners
    Transfer of fair value reserves of retirement
    benefits to retained earnings 0
    0 0 0 0 0 0 -56 00-56
    Transfer of previous period’s profit or loss to
    retained earnings or losses 0
    0 0 0 0 0 0 3,265 -3,265 00
    Dividend payout 0 0 0 0 0 0 0 -2,430 00-2,430
    Formation of statutory reserves 00047 000 0-47 00
    Transfer of other revenue reserves to retained
    earnings* 0
    0000-12,931 012,931 000
    Total contributions by owners and
    distribution to owners 0
    0047 0-12,931 013,710 -3,312 0-2,486
    Total transactions with owners 00047 0-12,931 013,710 -3,312 0-2,486
    Closing balance at 31 Dec 2017 101,922156,63912,8967,9663,170 9,099-3,170 67,359 426-2,226354,081
    * In compliance with provisions of the Companies Act ZGD-1, the Company released other revenue reserves in the amount of EUR 12,931k to retained earnings (profit or loss from previous periods) for the purpose of forming the accumulated
    profit (Note 34).
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    125
    3.2.2 Notes to the Financial
    Statements
    1. Reporting entity
    Gorenje, d.d. (hereinafter referred to also as “Company”) is
    the controlling company domiciled in Velenje. Company's
    business address is Partizanska cesta 12, 3320 Velenje.
    The consolidated financial statements of the Gorenje Group
    at and for the year ended 31 December 2017 comprise the
    controlling company and its subsidiaries (together referred
    to as the “Group”), the Group’s interests in jointly controlled
    entities and the Group’s interests in associates. The Group
    is primarily engaged in the production and sale of household
    appliances.
    2. Basis of preparation
    (A) STATEMENT OF COMPLIANCE
    Financial statements of the Company and the consolidated
    financial statements of the Group have been prepared in
    accordance with International Financial Reporting Standards
    (IFRSs) as adopted by the European Union and with provisions
    of the Companies act.
    The Management Board of the Company approved the
    financial statements on 19 February 2018.
    (B) BASIS OF MEASUREMENT
    Financial statements of the Company and the consolidated
    financial statements of the Group have been prepared on the
    historical cost basis, except for the following items which are
    measured at fair value:
    • derivative financial instruments,
    • available-for-sale financial assets,
    • investment property. The methods used to measure fair values are discussed further
    in Note 4.
    (C) FUNCTIONAL AND PRESENTATION CURRENCY
    Financial statements of the Company and the consolidated
    financial statements of the Group are presented in EUR,
    which is the parent company’s functional currency. All financial
    information presented in EUR has been rounded to the nearest
    thousand, except when otherwise indicated.
    (D) USE OF ESTIMATES AND JUDGEMENTS
    The preparation of financial statements in conformity with
    IFRSs, as adopted by the EU, requires management to make
    judgements, estimates and assumptions that affect the
    application of accounting policies and the reported amounts
    of assets, liabilities, income and expenses. Actual results may
    differ from these estimates.
    Estimates and underlying assumptions are reviewed on
    an ongoing basis. Revisions to accounting estimates are
    recognised in the period in which the estimates are revised and
    in any future periods affected.
    Information about significant estimation of uncertainty and
    critical judgements in applying accounting policies that have
    the most significant effect on the amounts recognised in the
    financial statements is included in the following notes:

    Note 22 and 23 and the accounting policy 3(a)(iii) and 3(a)
    (v) – acquisition and sale of companies;
    • Note 18 and 32 – deferred taxes;
    • Note 20 and 21 and accounting policies 3(d) and 3(f) –
    valuation of property, plant and equipment and investment
    property;
    • Note 35 and accounting policy 3(l)(iv) – provisions for
    retirement benefits and jubilee premiums;
    • Note 35 and accounting policy 3(l)(iii) – provisions for
    onerous contracts and litigations; •
    Note 35 and accounting policy 3(l)(i) – provisions for
    warranties;
    • Note 44 and accounting policy 3(i)(i) – valuation of
    investments;
    • Note 19 and accounting policy 3(e)(i) – goodwill;
    • Accounting policy 3(i)(i) – impairment of financial assets,
    including receivables.
    (E) CHANGES IN ACCOUNTING POLICIES
    In accordance with IAS 8, the Group/Company changed in
    the fiscal year 2017 the accounting policy of valuating land
    and thus replaced the fair value model with the cost model.
    Based on the aforesaid it simplified the valuation of property,
    plant and equipment and thereby achieved a more suitable
    presentation. With respect to this amendment, the related
    effects are outlined in the balance sheets as at 1 January
    2016 and 31 December 2016 and within the Note 20.
    In addition, the Group/Company started in 2017 to disclose
    allowances for receivables among operating expenses and
    no longer among finance costs.
    3. Significant accounting policies
    The accounting policies set out below have been applied
    consistently by the Group and Group companies to all periods
    presented in the accompanying financial statements of the
    Company and the consolidated financial statements of the
    Group.
    (A) BASIS FOR CONSOLIDATION
    (i) Business combinations
    Business combinations are accounted for using the acquisition
    method as at the date, which is the date of acquisition or the
    date on which control is transferred to the Group.
    Control is the power to govern the financial and operating
    policies of an entity so as to obtain benefits from its activities.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    In assessing control, the Group takes into consideration
    potential voting rights that currently are exercisable and
    control over financial flows.
    The Group measures goodwill at the acquisition date as:
    • the fair value of the consideration transferred; plus
    • the recognised amount of any non-controlling interests in
    the acquiree; plus
    • if the business combination is achieved in stages, the fair
    value of the pre-existing equity interest in the acquiree;
    less
    • the net recognised amount (generally fair value) of the
    identifiable assets acquired and liabilities assumed.
    When the excess is negative, a bargain purchase gain is
    recognised immediately in profit or loss.
    The consideration transferred does not include amounts
    related to the settlement of pre-existing relationships. Such
    amounts generally are recognised in the income statement.
    Transactions costs, other than those associated with the
    issue of debt or equity securities, that the Group incurs in
    connection with a business combination are expensed as
    incurred.
    Any contingent consideration payable is measured at fair
    value at the acquisition date. If the contingent consideration is
    classified as equity, then it is not remeasured and settlement is
    accounted for within equity. Otherwise, subsequent changes
    in the fair value of the contingent consideration are recognised
    in the income statement.
    When share-based payment awards (replacement awards)
    are required to be exchanged for awards held by the
    acquiree’s employees (acquiree’s awards) and relate to
    past services, then all or a portion of the amount of the acquirer’s replacement awards is included in measuring
    the consideration transferred in the business combination.
    This determination is based on the market-based value of
    the replacement awards compared with the market-based
    value of the acquiree’s awards and the extent to which the
    replacement awards relate to past and/or future service.
    Recognised value of the non-controlling interest can initially
    be measured at fair value or at the proportionate share of
    assumed assets and liabilities as at the date of the transfer.
    At each transfer, the Group decides which possibility is to be
    used.
    (ii) Acquisition of non-controlling interests
    Acquisitions of non-controlling interests are accounted for
    as transactions with owners in their capacity as owners and
    therefore no goodwill is recognised as a result. Adjustments
    to non-controlling interests arising from transactions that do
    not involve the loss of control are based on a proportionate
    amount of the net assets of the subsidiary.
    (iii) Subsidiaries
    Subsidiaries are entities controlled by the Group. The
    financial statements of subsidiaries are included in the
    consolidated financial statements from the date that control
    commences until the date that control ceases.
    The accounting policies of subsidiaries have been changed
    when necessary to align them with the policies adopted by
    the Group. Losses applicable to the non-controlling interests
    in a subsidiary are allocated to the non-controlling interests
    even if doing so causes the non-controlling interests to have
    a deficit balance.
    Company's investments in subsidiaries are valued at cost
    less possible impairment losses. Costs that can be linked
    to the acquisition of a subsidiary increase the cost of the investment. Participation in profit is recognised as income
    once the General Meeting of Shareholders adopts the
    decision on the distribution.
    (iv) Loss of control
    Upon the loss of control, the Group derecognises the assets
    and liabilities of the subsidiary, any non-controlling interests
    and the other components of equity related to the subsidiary.
    Any surplus or deficit arising on the loss of control is
    recognised in profit or loss. If the Group retains any interest in
    the previous subsidiary, then such interest is measured at fair
    value at the date that control is lost. Remeasurment of the
    residual amount to fair value has an impact on the income
    statement. Subsequently it is accounted for as an equity-
    accounted investee or as an available-for-sale financial asset
    depending on the level of influence retained.
    (v) Investments in associates and joint ventures
    (equity-accounted jointly controlled entities)
    Associates are those entities in which the Group has
    significant influence, but not control, over their financial
    and operating policies. Significant influence is presumed
    to exist when the Group holds between 20 and 50 percent
    of the voting power of another entity. Joint ventures are
    those entities over whose activities the Group has joint
    control, established by contractual agreement and requiring
    unanimous consent for strategic financial and operating
    decisions.
    Investments in associates and jointly controlled entities are
    accounted for using the equity method and are recognised
    initially at cost. The cost of the investment includes
    transaction costs.
    The consolidated financial statements include the Group’s
    share of the profit or loss and other comprehensive income,
    after adjustments to align the accounting policies with those
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    of the Group, from the date that significant influence or joint
    control commences until the date that significant influence or
    joint control ceases.
    When the Group’s share of losses exceeds its interest in
    an equity-accounted investee, the carrying amount of that
    interest, including any long-term investments, is reduced to
    zero, and the recognition of further losses is discontinued
    except to the extent that the Group has an obligation or has
    made payments on behalf of the investee.
    Company's investments in the equity of associates is valued
    at cost less possible impairment losses. Costs that can be
    linked to the acquisition of a subsidiary increase the cost of
    the investment.
    (vi) Transactions eliminated on consolidation
    Intra-group balances and transactions, and any unrealised
    income and expenses arising from intra-group transactions,
    are eliminated in preparing the consolidated financial
    statements. Unrealised gains arising from transactions
    with equity-accounted investees are eliminated against
    the investment to the extent of the Group’s interest in the
    investee. Unrealised losses are eliminated in the same way
    as unrealised gains, but only to the extent that there is no
    evidence of impairment.
    (B) FOREIGN CURRENCY
    (i) Foreign currency transactions
    Transactions in foreign currencies are translated to the
    respective functional currencies of Group companies at
    exchange rates at the dates of the transactions. Monetary
    assets and liabilities denominated in foreign currencies at the
    reporting date are retranslated to the functional currency at
    the exchange rate at that date. The foreign currency gain or
    loss on monetary items is the difference between amortised
    cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year,
    and the amortised cost in foreign currency translated at the
    exchange rate at the end of the year.
    Non-monetary assets and liabilities denominated in foreign
    currencies that are measured at fair value are retranslated
    to the functional currency at the exchange rate at the date
    that the fair value was determined. Non-monetary items in
    a foreign currency that are measured in terms of historical
    cost are translated using the exchange rate at the date of the
    transaction.
    Foreign currency differences arising on retranslation are
    recognised in the income statement, except for differences
    arising on the retranslation of:

    available-for-sale equity investments,
    • a financial liability designated as a hedge of the net
    investment in a foreign operation to the extent that the
    hedge is effective, or
    • qualifying cash flow hedges to the extent that the hedge is
    effective.
    (ii) Foreign operations
    The assets and liabilities of foreign operations, including
    goodwill and fair value adjustments arising on consolidation,
    are translated to euro at exchange rates at the reporting
    date. The income and expenses of foreign operations,
    excluding foreign operations in hyperinflationary economies,
    are translated to euro at daily exchange rates.
    Foreign currency differences arising from translation are
    recognised directly in other comprehensive income. From the
    date of transfer to IFRSs, these differences are recognised
    in translation reserve in equity. When a foreign operation
    is disposed of (partly or wholly), the relevant amount in
    the translation reserve related to that foreign operation is
    reclassified to profit or loss. (C) FINANCIAL INSTRUMENTS
    (i) Non-derivative financial assets
    The Group initially recognises loans, receivables, and
    deposits on the date that they are originated. All other
    financial assets (including assets designated at fair value
    through profit or loss) are recognised initially on the trade
    date, which is the date that the Group becomes a party to
    the contractual provisions of the instrument.
    The Group derecognises a financial asset when the
    contractual rights to the cash flows from the asset expire, or
    it transfers the rights to receive the contractual cash flows on
    the financial asset in a transaction in which substantially all
    the risks and rewards of ownership of the financial asset are
    transferred. Any interest in transferred financial assets that is
    created or retained by the Group is recognised as a separate
    asset or liability.
    Financial assets and liabilities are offset and the net amount
    presented in the balance sheet when, and only when, the
    Group has a legal right to offset the amounts and intends
    either to settle on a net basis or to realise the asset and settle
    the liability simultaneously.
    Non-derivative financial assets of the Group comprise:
    liabilities and receivables, available-for-sale financial assets,
    and cash and cash equivalents.
    Liabilities and receivables
    Liabilities and receivables are financial assets with fixed or
    determinable payments that are not quoted in an active
    market. Such assets are recognised initially at fair value plus
    any directly attributable transaction costs. Subsequent to
    initial recognition, liabilities and receivables are measured at
    amortised cost using the effective interest method, less any
    impairment losses.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    Cash and cash equivalents
    Cash and cash equivalents comprise cash balances and
    an investment (deposit) with maturity of three months or
    less. Bank overdrafts that are repayable on demand form an
    integral part of the current financial liabilities.
    Available-for-sale financial assets
    Available-for-sale financial assets are non-derivative financial
    assets that are designated as available for sale or are
    not classified in any of the above categories of financial
    assets. Subsequent to initial recognition these investments
    are measured at fair value plus any directly attributable
    transaction costs.
    Change in fair value (see note 3(i)(i)) and foreign currency
    differences on available-for-sale debt instruments (see note
    3(b)(i)), are recognised in other comprehensive income
    and presented in the fair value reserve in equity. When
    an available-for-sale financial asset is derecognised or
    permanently impaired, the gain or loss accumulated in equity
    is reclassified to profit or loss. Available-for-sale financial
    assets comprise equity securities and debt securities.
    (ii) Non-derivative financial liabilities
    The Group initially recognises debt securities issued and
    subordinated liabilities on the date that they are originated.
    All other financial liabilities (including liabilities designated at
    fair value through profit or loss) are recognised initially on the
    trade date, which is the date that the Group becomes a party
    to the contractual provisions of the instrument.
    The Group derecognises a financial liability when its
    contractual obligations are discharged, cancelled or expire.
    The Group classifies non-derivative financial liabilities into
    the financial liabilities category. Such financial liabilities are
    recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these
    financial liabilities are measured at amortised cost using the
    effective interest method.
    Financial liabilities comprise loans and borrowings, bank
    overdrafts, and trade and other payables.
    (iii) Share capital
    Ordinary shares
    Ordinary shares are a constituent part of share capital.
    Incremental costs directly attributable to the issue of ordinary
    shares and share options are recognised as a deduction from
    equity, net of any tax effects.
    Repurchase of share capital (treasury shares)
    When share capital recognised as equity is repurchased, the
    amount of the consideration paid, which includes directly
    attributable costs, net of any tax effects, is recognised as a
    deduction from equity. Repurchased shares are classified as
    treasury shares and are presented in equity as a deduction
    item and simultaneously treasury share reserve is formed.
    When treasury shares are sold or reissued subsequently, the
    amount received is recognised as an increase in equity, and
    the resulting surplus or deficit on the transaction is presented
    in share premium.
    Dividends are recognised as a liability in the period in
    which a resolution on dividend payment is adopted by the
    Shareholders' Meeting.
    (iv) Derivative financial instruments, including hedge
    accounting
    The Group holds derivative financial instruments to hedge its
    foreign currency and interest rate risk exposures. Embedded
    derivatives are separated from the host contract and
    accounted for separately if the economic characteristics
    and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same
    terms as the embedded derivative would meet the definition
    of a derivative, and the combined instrument is not measured
    at fair value through profit or loss.
    On initial designation of the derivative as the hedging
    instrument, the Group formally documents the relationship
    between the hedging instrument and hedged item, including
    the risk management objectives and strategy in undertaking
    the hedge transaction and the hedged risk, together with
    the methods that will be used to assess the effectiveness of
    the hedging relationship. The Group makes an assessment,
    both at the inception of the hedge relationship as well as on
    an ongoing basis, of whether the hedging instruments are
    expected to be “highly effective” in offsetting the changes
    in the fair value or cash flows of the respective hedged
    items attributable to the hedged risk, and whether the
    actual results of each hedge are within a range of 80–125
    percent. The Group assesses recognized hedge at the end
    of each reporting period. For a cash flow hedge of a forecast
    transaction, the transaction should be highly probable to
    occur and should present an exposure to variations in cash
    flows that could ultimately affect reported profit or loss.
    Derivatives are recognised initially at fair value; attributable
    transaction costs are recognised in profit or loss as incurred.
    Subsequent to initial recognition, derivatives are measured
    at fair value, and changes therein are accounted for as
    described below.
    Cash flow hedges
    When a derivative is designated as the hedging instrument
    in a hedge of the variability in cash flows attributable to a
    particular risk associated with a recognised asset or liability
    or a highly probable forecast transaction that could affect
    profit or loss, the effective portion of changes in the fair
    value of the derivative is recognised in other comprehensive
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    income and presented in the hedging reserve in equity. Any
    ineffective portion of changes in the fair value of the derivative
    is recognised immediately in profit or loss.
    When the hedged item is a non-financial asset, the amount
    accumulated in equity is included in the carrying amount of
    the asset when the asset is recognised. In other cases the
    amount accumulated in equity is reclassified to profit or loss in
    the same period that the hedged item affects profit or loss. If
    the hedging instrument no longer meets the criteria for hedge
    accounting, expires or is sold, terminated or exercised, or the
    designation is revoked by the Group, then hedge accounting
    is discontinued prospectively. If the forecast transaction
    is no longer expected to occur, then the balance in other
    comprehensive income is reclassified in profit or loss.
    Other derivative financial instruments
    When a non-trading derivative financial instrument is not
    designated in a hedge relationship that qualifies for hedge
    accounting, all changes in its fair value are recognised
    immediately in profit or loss.
    (D) PROPERTY, PLANT AND EQUIPMENT
    (i) Recognition and measurement
    Items of property, plant and equipment are measured at cost
    less accumulated depreciation (except at land, which is not
    depreciated) and accumulated impairment losses.
    Cost includes expenditure that is directly attributable to the
    acquisition of the asset. The cost of self-constructed assets
    includes the cost of materials and direct labour, any other
    costs directly attributable to bringing the assets to a working
    condition for their intended use, the costs of dismantling and
    removing the items and restoring the site on which they are
    located, and capitalised borrowing costs. Computer software
    purchased, which significantly contribute to the functionality
    of assets are to be capitalised as part of this equipment.Borrowing costs directly attributable to the construction
    or production of a qualifying item of property, plant and
    equipment were capitalised subject to the following
    conditions: if the value of qualifying asset in total sales
    exceeded 5%, and if the duration of construction exceeded
    6 months.
    When parts of an item of property, plant and equipment have
    different useful lives, they are accounted for as separate
    items (major components) of property, plant and equipment.
    The gain or loss on disposal of an item of property, plant and
    equipment is determined as a difference among proceeds
    from disposal and the carrying amount of the property, plant
    and equipment, and is recognised net within other operating
    income/other operating expenses in profit or loss.
    (ii) Reclassification to investment property
    When the use of a property changes from owner-occupied to
    investment property, the property is remeasured to fair value
    and reclassified as investment property. Any gain arising on
    remeasurement of fair value is recognised in profit or loss
    to the extent that it reverses a previous impairment loss on
    the specific property, with any remaining gain recognised in
    other comprehensive income and presented in the fair value
    reserve in equity.
    (iii) Subsequent costs
    The cost of replacing a component of an item of property,
    plant and equipment is recognised in the carrying amount
    of the item if it is probable that the future economic benefits
    embodied within the component will flow to the Group,
    and its cost can be measured reliably. All other costs, such
    as regular servicing of property, plant and equipment are
    recognised in profit or loss as incurred.
    (iv) Depreciation
    Depreciation is recognised on a straight-line basis over the
    estimated useful lives of each component of an item of
    property, plant and equipment. Leased assets arising on
    finance lease are depreciated over the shorter of the lease
    term and their useful lives unless it is reasonably certain that
    the Group will obtain ownership by the end of the lease term.
    Land is not depreciated.
    Items of property, plant and equipment are depreciated on
    the first day of the following month, after they are installed
    and are ready for use.
    The estimated useful lives for the current and comparative
    years are as follows: buildings
    20 – 50 years
    plant and equipment 5 – 20 years
    computer equipment 2 – 5 years
    transportation vehicles (assets) 3 – 20 years
    office equipment 3 – 10 years
    tools 3 – 10 years
    Depreciation methods, useful lives and residual values are
    reviewed at each reporting date and adjusted, if appropriate.
    (E) INTANGIBLE ASSETS
    (i) Goodwill
    Goodwill that arises upon the acquisition of subsidiaries
    is included in intangible assets. For the measurement of
    goodwill at initial recognition, see Note 3(a)(i).
    Subsequent measurement
    Goodwill is measured at cost less accumulated impairment
    losses. Goodwill is tested once a year whether the need for
    impairment has occurred.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    (ii) Research and development
    Expenditure on research activities, undertaken with the
    prospect of gaining new scientific or technical knowledge
    and understanding, is recognised in profit or loss as incurred.
    Development activities involve a plan or design for the
    production of new or substantially improved products and
    processes. Development expenditure is recognised as
    intangible assets if development costs can be measured
    reliably, the product or process is technically and commercially
    feasible, future economic benefits are probable, and the
    Group intends to and has sufficient resources to complete
    development and to use or sell the asset or product. The
    expenditure recognised as intangible asset includes the cost
    of materials, direct labour, and other costs that are directly
    attributable to preparing the asset for its intended use. Other
    development expenditure, which is not recognised as an item
    of intangible asset is recognised in profit or loss as incurred.
    Capitalised development expenditure is measured at cost
    less accumulated amortisation and accumulated impairment
    losses.
    (iii) Other intangible assets
    Intangible assets with infinite useful lives (trademarks) are
    tested once a year whether the need for impairment has
    occurred. Other intangible assets that are acquired by the
    Group and have finite useful lives are measured at cost less
    accumulated amortisation and accumulated impairment
    losses.
    (iv) Subsequent expenditure
    Subsequent expenditure is capitalised only when it increases
    the future economic benefits embodied in the specific
    asset to which it relates. All other expenditure, including
    expenditure on internally generated goodwill and brands, is
    recognised in profit or loss as incurred.(v) Amortisation
    Amortisation is recognised on a straight-line basis over
    the estimated useful lives of intangible assets, other than
    goodwill, from the first day of the following month that they
    are available for use. The estimated useful lives for the
    current and comparative years are as follows:
    deferred development costs
    5 – 10 years
    long-term property rights 5 – 10 years
    Amortisation methods, useful lives and residual values are
    reviewed at each reporting date and adjusted if appropriate.
    (F) INVESTMENT PROPERTY
    Investment property is property held either to earn rental
    income or for capital appreciation or for both, but not for sale
    in the ordinary course of business, use in the production or
    supply of goods or services or for administrative purposes.
    Investment property is measured at fair value (see note 4(iii))
    with any change therein recognised in profit or loss.
    Cost includes expenditure that is directly attributable to
    the acquisition of the investment property. The cost of
    self-constructed investment property includes the cost
    of materials and direct labour, any other costs directly
    attributable to bringing the investment property to a working
    condition for their intended use and capitalised borrowing
    costs.
    Properties hired out by the Company to its subsidiaries
    and related to the performance of its activity, are disclosed
    among property, plant and equipment. Investment properties
    comprise also those properties, whose lessees occupy more
    than 50 percent of available area.
    Any gain or loss on disposal of an investment property
    (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised
    in profit or loss.
    When the use of a property changes such that it is
    reclassified as property, plant and equipment, its fair value at
    the date of reclassification becomes its cost for subsequent
    accounting.
    (G) LEASED ASSETS
    Leases in terms of which the Group assumes substantially all
    the risks and rewards of ownership are classified as finance
    leases. Upon initial recognition the leased asset is measured
    at an amount equal to the lower of its fair value and the
    present value of the minimum lease payments. Subsequent
    to initial recognition, the asset is accounted for in accordance
    with the accounting policy applicable to that asset.
    Other leases are operating leases and are not recognised in
    the Group’s balance sheet.
    (H) INVENTORIES
    Inventories of material and merchandise are measured at
    the lower of historical cost and net realisable value. The
    cost of inventories of material and merchandise is based on
    the weighted sliding average price method and the first-in-
    first-out (FIFO) method, and includes expenditure incurred
    in acquiring the inventories, dependent costs and other
    costs incurred in bringing them to their existing location and
    condition.
    Inventories of products and work in progress are valued at
    production costs (in broader sense), which in addition to
    direct costs of material, labour, services, depreciation and
    part of production costs, include also costs of production
    overheads, acquisition costs, costs of maintenance and
    quality assurance overheads, and total costs of research and
    development.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    Inventories of work in progress and products are not revalued
    due to value increase. Their write-off is mandatory if the
    carrying amount exceeds their market value. Net realisable
    value is the estimated selling price in the ordinary course of
    business, less the estimated costs of completion and selling
    expenses. Decline in value of inventories of work in progress
    and products due to write-off, is credited against change in
    inventories.
    In case of writing off the inventories of products and semi-
    finished products, the Group companies are required to
    observe the Group's policies.
    (I) IMPAIRMENT OF ASSETS
    (i) Non-derivative financial assets
    A financial asset not carried at fair value through profit or loss
    is assessed at each reporting date to determine whether
    there is objective evidence that it is impaired. A financial asset
    is impaired if objective evidence indicates that a loss event
    has occurred after the initial recognition of the asset, and that
    the loss event had a negative effect on the estimated future
    cash flows of that asset that can be estimated reliably.
    Objective evidence that financial assets (including equity
    securities) are impaired can include default or delinquency
    by a debtor, restructuring of an amount due to the Group
    on term that the Group would not consider otherwise,
    indications that a debtor or issuer will enter bankruptcy,
    adverse changes in the payment status of borrowers or
    issuers in the Group, economic conditions that correlate
    with defaults or the disappearance of an active market for a
    security. In addition, for an investment in an equity security, a
    significant prolonged decline in its fair value below its cost is
    objective evidence of impairment.
    Financial assets measured at amortised cost
    The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables
    and held-to-maturity investment securities) at both a specific
    asset and collective level. All individually significant assets
    are assessed for specific impairment. Those found not to
    be specifically impaired are then collectively assessed for
    any impairment that has been incurred but not yet identified.
    Assets that are not individually significant are collectively
    assessed for impairment by grouping together with similar
    risk characteristics.
    In assessing collective impairment the Group uses historical
    trends of the probability of default, the timing of recoveries
    and the amount of loss incurred, adjusted for management’s
    judgement as to whether current economic and credit
    conditions are such that the actual losses are likely to be
    greater or less than suggested by historical trends.
    An impairment loss in respect of a financial asset measured
    at amortised cost is calculated as the difference between
    its carrying amount and the present value of the estimated
    future cash flows discounted at the asset’s original effective
    interest rate. Losses are recognised in profit or loss and
    reflected in an allowance account against loans and
    receivables or held-to-maturity investment securities. Interest
    on the impaired asset continues to be recognised. When a
    subsequent event causes the amount of impairment loss
    to decrease, the decrease in impairment loss is reversed
    through profit or loss.
    In line with the Group’s accounting policies, the Group
    considers evidence of impairment for receivables based
    on the observance of criteria pertaining to the maturity and
    collateralisation of receivables. Thereafter, it is corrected by
    an individual estimate.
    Available-for-sale financial assets
    Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the
    fair value reserve in equity, to profit or loss. The cumulative
    loss that is reclassified from equity to profit or loss is the
    difference between the acquisition cost, net of any principal
    repayment and amortisation, and the current fair value, less
    any impairment loss recognised previously in profit or loss.
    Changes in impairment provisions attributable to application
    of the effective interest method are reflected as a component
    of interest income.
    If, in a subsequent period, the fair value of an impaired
    available-for-sale debt security increases and the increase
    can be related objectively to an event occurring after the
    impairment loss was recognised in profit or loss, then the
    impairment loss is reversed, with the amount of the reversal
    recognised in profit or loss. However, any subsequent
    recovery in the fair value of an impaired available-for-sale
    equity security is recognised in other comprehensive income.
    (ii) Non-financial assets
    The carrying amounts of the Group’s non-financial assets,
    other than investment property, inventories and deferred tax
    assets, are reviewed at each reporting date to determine
    whether there is any indication of impairment. If any such
    indication exists, then the asset’s recoverable amount is
    estimated. Goodwill and indefinite-lived intangible assets are
    tested annually for impairment prior to preparing the financial
    statements. An impairment loss is recognised if the carrying
    amount of an asset or cash-generating unit (CGU) exceeds
    its recoverable amount.
    The recoverable amount of an asset or CGU is the greater
    of its value in use and its fair value less costs to sell. In
    assessing value in use, the estimated future cash flows are
    discounted to their present value using a pre-tax discount
    rate that reflects current market assessments of the time
    value of money and the risks specific to the asset or CGU.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    For the purpose of impairment testing, assets that cannot
    be tested individually are grouped together into the smallest
    group of assets that generates cash inflows from continuing
    use that are largely independent of the cash inflows of other
    assets or CGU. Subject to an operating segment ceiling
    test, for the purposes of goodwill impairment testing, CGUs
    to which goodwill has been allocated are aggregated so
    that the level at which impairment testing is performed
    reflects the lowest level at which goodwill is monitored for
    internal reporting purposes. Goodwill acquired in a business
    combination is allocated to groups of CGUs that are
    expected to benefit from the synergies of the combination.
    Impairment losses are recognised in profit or loss.
    Impairment losses recognised in respect of CGUs are
    allocated first to reduce the carrying amount of any goodwill
    allocated to the CGU (group of CGUs), and then to reduce
    the carrying amounts of the other assets in the CGU (group
    of CGUs) on a pro rata basis.
    An impairment loss in respect of goodwill is not reversed.
    In respect of other assets, impairment losses recognised in
    prior periods are assessed at each reporting date for any
    indications that the loss has decreased or no longer exists.
    An impairment loss is reversed if there has been a change in
    the estimates used to determine the recoverable amount. An
    impairment loss is reversed only to the extent that the asset’s
    carrying amount does not exceed the carrying amount
    that would have been determined, net of depreciation or
    amortisation, if no impairment loss had been recognised.
    (J) NON-CURRENT ASSETS CLASSIFIED AS ASSETS
    HELD FOR SALE
    Non-current assets, or disposal groups comprising assets
    and liabilities, that are expected to be recovered primarily
    through sale or distribution rather than through continuing
    use, are classified as held for sale or distribution. Immediately before classification as held for sale or distribution, the
    assets, or components of a disposal group, are remeasured
    in accordance with the Group’s accounting policies.
    Thereafter generally the assets, or disposal group, are
    measured at the lower of their carrying amount and fair
    value less costs to sell. Any impairment loss on a disposal
    group first is allocated to goodwill, and then to remaining
    assets and liabilities on pro rata basis, except that no loss
    is allocated to inventories, financial assets, deferred tax
    assets, employee benefit assets, investment property, which
    continue to be measured in accordance with the Group’s
    accounting policies. Impairment losses on initial classification
    as held for sale or distribution and subsequent gains and
    losses on remeasurement are recognised in profit or loss.
    Gains are not recognised in excess of any cumulative
    impairment loss.
    Once classified as held for sale or distribution, intangible
    assets and property, plant and equipment are not amortised
    or depreciated and any equity-accounted investees is no
    longer equity accounted.
    (K) EMPLOYEE BENEFITS
    (i) Short-term employee benefits
    Short-term employee benefit obligations are measured on an
    undiscounted basis and are expensed as the related service
    is provided.
    (L) PROVISIONS
    A provision is recognised if, as a result of a past event, the
    Group has a present legal or constructive obligation that can
    be estimated reliably, and it is probable that an outflow of
    economic benefits will be required to settle the obligation.
    Provisions are determined by discounting the expected
    future cash flows at a pre-tax rate that reflects current market
    assessments of the time value of money and the risks
    specific to the liability. (i) Warranties for products and services
    A provision for warranties is recognised when the underlying
    products or services are sold. The provision is based on
    historical warranty data and a weighting of all possible
    outcomes against their associated probabilities.
    (ii) Restructuring
    A provision for restructuring is recognised when the Group
    has approved a detailed and formal restructuring plan,
    and the restructuring either has commenced or has been
    announced publicly. Future operating expense is not
    provided for.
    (iii) Onerous contracts
    A provision for onerous contracts is recognised when the
    expected benefits to be derived by the Group from a contract
    are lower than the unavoidable cost of meeting its obligations
    under the contract. The provision is measured at the present
    value of the lower of the expected cost of terminating the
    contract and the expected net cost of continuing with
    the contract. Before a provision is established, the Group
    recognises any impairment loss on the assets associated
    with that contract.
    (iv) Provisions for retirement benefits and jubilee
    premiums
    In accordance with the statutory requirements, the collective
    agreement, and the internal regulations, the Group is liable
    to pay jubilee premiums and retirement benefits to its
    employees. For these obligations, provisions are created.
    Provisions are created by discounting, at the reporting date,
    the estimated future payments of retirement benefits and
    jubilee premiums. The obligation is calculated separately
    for each employee by estimating the costs of retirement
    benefits and the costs of all expected jubilee premiums until
    retirement. The balance of provisions is verified every three
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    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    years on the basis of the calculation prepared by a certified
    appraiser.
    Actuarial gains and losses arising on provisions for retirement
    benefits and jubilee premiums are pursuant to IAS 19
    recognised in other comprehensive income.
    (v) Site restoration
    In accordance with the Group’s published environmental
    policy and applicable legal requirements, a provision for site
    restoration in respect of contaminated land, and the related
    expense, is recognised when the land is contaminated.
    (M) REVENUE
    (i) Revenue from the sale of products, goods and
    materials
    Revenue from the sale of products, goods and materials in
    the course of ordinary activities is measured at the fair value
    of the consideration received or receivable, net of returns,
    trade discounts and volume rebates. Revenue is recognised
    when persuasive evidence exists that the significant risks and
    rewards of ownership have been transferred to the customer,
    recovery of the consideration is probable, the associated
    costs and possible return of goods can be estimated reliably,
    there is no continuing management involvement with the
    goods, and the amount of revenue can be measured reliably.
    If it is probable that discounts will be granted and the amount
    can be measured reliably, then the discount is recognised as
    a reduction of revenue as the sales are recognised.
    The timing of the transfer of risks and rewards varies
    depending on the individual terms of the sales agreement.
    For sales of goods, usually transfer occurs when the goods
    are received at the customer’s warehouse; however, for
    some international shipments transfer occurs upon loading
    the goods onto the relevant carrier at the port. Generally for
    such products the customer has no right of return. (ii) Revenue from services rendered
    Revenue from services rendered is recognised in profit
    or loss in proportion to the stage of completion of the
    transaction at the reporting date. The stage of completion is
    assessed by reference to surveys of work performed.
    (iii) Commission
    When the Group acts in the capacity of an agent rather than
    as the principal in a transaction, the revenue recognised is
    the net amount of commission made by the Group.
    (iv) Rental income
    Rental income from investment property is recognised in
    profit or loss on a straight-line basis over the term of the
    lease. Lease incentives granted are recognised as an integral
    part of the total rental income, over the term of the lease.
    Rental income from subleased property is recognised as
    other income.
    (N) GOVERNMENT GRANTS
    Government grants are recognised initially as deferred
    income when there is reasonable assurance that they will
    be received and the Group will comply with the conditions
    associated with the grant and are then recognised in profit or
    loss as other income on a systematic basis over the useful
    life of the asset. Grants that compensate the Group for
    expenses incurred are recognised in profit or loss as other
    income on a systematic basis in the same periods in which
    the expenses are recognised.
    (O) FINANCE INCOME AND FINANCE EXPENSES
    Finance income comprises interest income on funds
    invested, dividend income, gains on the disposal of available-
    for-sale financial assets and subsidiaries, fair value gains on
    financial assets at fair value through profit or loss, exchange
    gains, and gains on hedging instruments that are recognised
    in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend
    income is recognised in profit or loss on the date that the
    shareholder’s right to receive payment is established, which
    in the case of quoted securities is normally the ex-dividend
    date.
    Finance expenses comprise interest expense on borrowings
    (a portion of borrowing costs may be capitalised within
    property, plant and equipment), impairment losses
    recognised on financial investments and borrowings, and
    losses on hedging instruments that are recognised in profit
    or loss, and income expenses arising on provisions for
    retirement benefits and jubilee premiums. All borrowing costs
    are recognised in the income statement using the effective
    interest method, except for borrowing costs related to
    qualifying assets which are recognised as part of the cost of
    such assets.
    Foreign currency gains and losses are reported on a net
    basis as either finance income or finance expenses.
    (P) INCOME TAX
    Income tax expense comprises current and deferred tax.
    Income tax expense is recognised in profit or loss except
    to the extent that it relates to a business combination, or
    items recognised directly in equity or in other comprehensive
    income.
    Current tax is the expected tax payable or receivable on the
    taxable income or loss for the year, using tax rates enacted
    or substantively enacted at the reporting date, and includes
    also any adjustment to tax payable in respect of previous
    years.
    Deferred tax is recognised in respect of temporary differences
    between the carrying amounts of assets and liabilities for
    financial reporting purposes and the amounts used for
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    taxation purposes. Deferred tax is not recognised for:
    • temporary differences on the initial recognition of assets
    or liabilities in a transaction that is not a business
    combination and that affects neither accounting nor
    taxable profit or loss;
    • temporary differences related to investments in
    subsidiaries and jointly controlled entities to the extent
    that it is probable that they will not reverse in the
    foreseeable future; and
    • taxable temporary differences arising on the initial
    recognition of goodwill.
    The measurement of deferred tax reflects the tax
    consequences that would follow the manner in which the
    Group expects, at the end of the reporting period, to recover
    or settle the carrying amount of its assets and liabilities.
    For investment property that is measured at fair value, the
    presumption that the carrying amount of the investment
    property will be recovered through sale has not been rebutted.
    Deferred tax is measured at the tax rates that are expected
    to be applied to temporary differences when they reverse,
    based on the laws that have been enacted or substantively
    enacted by the reporting date.
    Deferred tax assets and liabilities are offset by the Group
    if there is a legally enforceable right to offset current tax
    liabilities and assets, and they relate to income taxes levied
    by the same tax authority on the same taxable entity, or on
    different tax entities, but they intend to settle current tax
    liabilities or receive the payment of deferred tax assets on a
    net basis or their tax assets and liabilities will be realised or
    received payment for simultaneously.
    A deferred tax asset is recognised for unused tax losses, tax
    reliefs and deductible temporary differences, to the extent that it is probable that future taxable profits will be available
    against which they can be utilised. Deferred tax assets are
    reduced to the extent that it is no longer probable that the
    related tax benefit will be realised.
    (R) BASIC EARNINGS PER SHARE
    The Group presents basic earnings per share (EPS) data for
    its ordinary shares, which is equivalent to diluted earnings
    per share data, as the Group has not issued any preference
    shares or convertible bonds or stock options. Basic EPS is
    calculated by dividing the profit or loss attributable to ordinary
    shareholders by the weighted average number of ordinary
    shares outstanding during the period.
    (S) COMPARATIVE INFORMATION
    Comparative information has been harmonised with the
    presentation of information in the current year. Where
    required, adjustment of comparative information has been
    carried out in order to comply with the presentation of
    information in the current year.
    (T) DISCONTINUED OPERATIONS
    A discontinued operation is a component of the Group’s
    business, the operations and cash flows of which can be
    clearly distinguished from the rest of the Group and which:

    represents a separate major line of business or
    geographical area of operations;
    • is part of a single co-ordinated plan to dispose of a
    separate major line of business or geographical area of
    operations; or
    • is a subsidiary acquired exclusively with a view to re-sale.
    Classification as a discontinued operation occurs on disposal
    or when the operation meets the criteria to be classified
    as held-for-sale, if earlier. When an operation is classified
    among discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation
    had been discontinued from the start of the comparative
    year.
    (U) SEGMENT REPORTING
    Segment results that are reported to the Group’s executive
    officer include items directly attributable to a segment as
    well as those that can be allocated on a reasonable basis.
    Unallocated items comprise mainly corporate assets
    (primarily the Group’s headquarters), head office expenses,
    and tax assets and liabilities.
    Segment capital expenditure is the total cost incurred during
    the year to acquire property, plant and equipment, and
    intangible assets other than goodwill.
    The Company has no reportable segments as segment
    information is presented in the consolidated financial
    statements of the Gorenje Group.
    (V) ACCOUNTING STANDARDS AND
    INTERPRETATIONS APPLICABLE IN THE CURRENT
    PERIOD
    Following accounting standards, amendments to existing
    standards and interpretations issued by the International
    Accounting Standards Board (IASB) and adopted by the EU
    apply in the current reporting period:

    Amendments to IAS 7 'Statement of Cash Flows' –
    Disclosure Initiative, adopted by the EU on 6 November
    2017 (effective for annual periods beginning on or after 1
    January 2017),
    • Amendments to IAS 12 'Income Taxes' – Recognition of
    Deferred Tax Assets for Unrealised Losses, adopted by
    the EU on 6 November 2017 (effective for annual periods
    beginning on or after 1 January 2017),
    • Amendments to various standards ‘Improvements to
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    IFRSs (cycle 2014-2016)’ resulting from the annual
    improvement project of IFRS (IFRS 1, IFRS 12 and IAS
    28) primarily with a view to removing inconsistencies and
    clarifying wording – adopted by the EU on 8 February
    2018 (amendments to IFRS 12 are to be applied for
    annual periods beginning on or after 1 January 2017).
    Adoption of these amendments to the existing standards
    and interpretations did not result in significant changes to the
    financial statements of the Group/Company.
    (Z) NEW ACCOUNTING STANDARDS AND
    INTERPRETATIONS NOT YET EFFECTIVE
    Accounting standards and amendments to the existing
    accounting standards issued by the IASB and adopted
    by the EU, but not yet effective
    The following new standards issued by the IASB and adopted
    by the EU were already issued as of the date of these financial
    statements but were not yet effective:
    • IFRS 9 'Financial Instruments', adopted by the EU on 22
    November 2016 (effective for annual periods beginning on
    or after 1 January 2018),
    • IFRS 15 'Revenue from Contracts with Customers' and
    amendments to IFRS 15 'Effective Date of IFRS 15',
    adopted by the EU on 22 September 2016 (effective for
    annual periods beginning on or after 1 January 2018),
    • Amendments to IFRS 15 'Revenue from Contracts with
    Customers' – Clarifications to IFRS 15 'Effective Date
    of IFRS 15', adopted by the EU on 31 October 2017
    (effective for annual periods beginning on or after 1
    January 2018),
    • IFRS 16 'Leases', adopted by the EU on 31 October
    2017 (effective for annual periods beginning on or after 1
    January 2019),
    • Amendments to IFRS 4 'Insurance Contracts' – Use of
    IFRS 9 Financial Instruments in conjunction with IFRS 4
    'Insurance Contracts', adopted by the EU on 3 November 2017 (effective for annual periods beginning on or after
    1 January 2018, or during the first application of IFRS 9
    Financial Instruments),

    Amendments to various standards ‘Improvements to IFRSs
    (cycle 2014-2016)’ resulting from the annual improvement
    project of IFRS (IFRS 1, IFRS 12 and IAS 28) primarily with
    a view to removing inconsistencies and clarifying wording
    – adopted by the EU on 8 February 2018 (amendments
    to IFRS 1 and IAS 28 are to be applied for annual periods
    beginning on or after 1 January 2018).
    Accounting standards and interpretations issued by the
    IASB but not yet adopted by the EU
    At present the IFRSs, as adopted by the EU, do not
    significantly differ from regulations adopted by IASB, except
    for the following new accounting standards, amendments to
    existing accounting standards and new interpretations, which
    as of 19 February, 2018 (below stated dates of application
    refer to the entire IASB) were not yet effective in EU:
    • IFRS 14 'Regulatory Deferral Accounts' (effective for
    annual periods beginning on or after 1 January 2016) –
    The European Commission will not propose IFRS 14 for
    endorsement and consider any future standard on rate
    regulated activities for endorsement in the EU under its
    normal process,
    • IFRS 17 'Insurance Contracts' (effective for annual periods
    beginning on or after 1 January 2021),
    • Amendments to IFRS 2 'Share based payment' –
    Classification and Measurement of Share-based Payment
    Transactions (effective for annual periods beginning on or
    after 1 January 2018),
    • Amendments to IFRS 9 'Financial Instruments' – Element
    of a forward payment with a negative compensation
    (effective for annual periods beginning on or after 1
    January 2019),
    • Amendments to IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and
    Joint Ventures' – Sale or Contribution of Assets between
    an Investor and its Associate or Joint Venture and
    subsequent amendments (the applicability of amendments
    was deferred indefinitely until the research project on the
    equity method has been concluded),
    • Amendments to IAS 28 'Investments in Associates and
    Joint Ventures – Long-term Shares in Associates and Joint
    Ventures (effective for annual periods beginning on or after
    1 January 2019),
    • Amendments to IAS 40 'Investment Property' – Transfer
    of Investment Property (effective for annual periods
    beginning on or after 1 January 2018),
    • Amendments to various standards 'Improvements
    to IFRSs (2014-2016 cycle)' relating to the annual
    improvements to IFRSs (IFRS 1, IFRS 12 and IAS 28),
    in response to eliminate inconsistency and provide
    clarification of wording (amendments to IFRS 12 are
    effective for periods beginning on or after 1 January 2017,
    while amendments to IFRS 1 and IAS 28 are effective for
    periods beginning on or after 1 January 2018),
    • Amendments to various standards 'Improvements to IFRS
    (2015-2017 cycle)', relating to the annual improvements
    to IFRSs (IFRS 3, IFRS 11, IAS 12 and IAS 23), particularly
    to eliminate inconsistency and provide clarification of
    wording (effective for annual periods beginning on or after
    1 January 2019),
    • IFRIC 22 'Foreign Currency Transactions and Advance
    Consideration' (effective for annual periods beginning on
    or after 1 January 2018),
    • IFRIC 23 'Uncertainty over Income Tax Treatments'
    (effective for annual periods beginning on or after 1
    January 2019).
    The Group/Company started using IFRS 9 and IFRS 15 on
    1 January 2018. By introducing IFRS 9 and IFRS 15, the
    Group/Company does not expect the new standards and
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    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
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    amendments to have any material impacts on the financial
    statements. IFRS 16 will be applied by the Group/Company as
    of 1 January 2019 and is expected to have a significant impact
    on its financial statements. The Group is properly preparing for
    the launch of this standard.
    Hedge accounting in connection with financial assets and
    liabilities that was not adopted by the EU yet, still remains non-
    regulated.
    4. Determination of fair value
    A number of the Group’s/Company’s accounting policies and
    disclosures require the determination of fair value, for both
    financial and non-financial assets and liabilities. Fair values
    have been determined for measurement and/or disclosure
    purposes based on the following method determined by the
    Group/Company. When applicable, further information about
    the assumptions made in determining fair values is disclosed
    in the notes specific to that asset or liability of the Group/
    Company.
    (i) Property, plant and equipment
    The fair value of property, plant and equipment recognised as
    a result of a business combination is the estimated amount
    for which a property could be exchanged on the date of
    acquisition between a willing buyer and a willing seller in an
    arm’s length transaction after proper marketing wherein the
    parties had each acted knowledgeably.
    (ii) Intangible assets
    The fair value of patents and trademarks acquired in a business
    combination is based on the discounted estimated royalty
    payments that have been avoided as a result of the patent or
    trademark being owned.
    The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use
    and eventual sale of the assets.
    (iii) Investment property
    The fair value of investment property or possible changes to
    it is subject to annual assessment. The fair values are based
    on market values, being the estimated amount for which a
    property could be exchanged on the date of the valuation
    between a willing buyer and a willing seller in an arm’s length
    transaction after proper marketing wherein the parties had
    each acted knowledgeably and willingly.
    In the absence of current prices in an active market, the
    valuations are prepared by considering the estimated
    rental value of the property. A market yield is applied to the
    estimated rental value to arrive at the gross property valuation.
    When actual rents differ materially from the estimated rental
    value, adjustments are made to reflect actual rents.
    Valuations reflect, when appropriate, the type of tenants
    actually in occupation or responsible for meeting lease
    commitments or likely to be in occupation after letting
    vacant accommodation, the allocation of maintenance and
    insurance responsibilities between the Group/Company
    and the lessee, and the remaining economic life of the
    property. When rent reviews or lease renewals are pending
    with anticipated reversionary increases, it is assumed that all
    notices, and when appropriate counter-notices, have been
    served validly and within the appropriate time.
    (iv) Investments in debt and equity securities
    The fair value of equity and debt securities is determined by
    reference to their quoted closing bid price at the reporting
    date, or if unquoted, determined using a valuation technique.
    Valuation techniques employed include market multiples and
    discounted cash flow analysis using expected future cash
    flows and a market-related discount rate.
    (v) Trade and other receivables
    The fair value of non-current trade and other receivables is
    estimated at the present value of future cash flows, discounted
    at the market rate of interest at the reporting date.
    Trade and other receivables are not discounted due to short-
    term maturity. However, impairment to fair value is considered.
    (vi) Forward exchange contracts and interest rate swaps
    The fair value of forward exchange contracts is based on their
    quoted price, if available. If a quoted price is not available, then
    fair value is estimated by discounting the difference between
    the contractual forward price and the current forward price for
    the residual maturity of the contract using a credit-adjusted
    risk-free interest rate (based on government bonds).
    The fair value of interest rate swaps is based on broker
    quotes. Those quotes are tested for reasonableness by
    discounting estimated future cash flows based on the terms
    and maturity of each contract and using market interest rates
    for a similar instrument at the measurement date.
    Fair values reflect the credit risk of the instrument and include
    adjustments to take account of the credit risk of the Group/
    Company and counterparty when appropriate.
    (vii) Other non-derivative financial liabilities
    Fair value, which is determined for disclosure purposes, is
    calculated based on the present value of future principal and
    interest cash flows, discounted at the market rate of interest
    at the reporting date. In respect of the liability component of
    convertible notes, the market rate of interest is determined
    by reference to similar liabilities that do not have a conversion
    option. For finance leases the market rate of interest is
    determined by reference to similar lease agreements.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    5. Capital management
    The basic purpose of capital management is ensuring the
    Gorenje Group's capital adequacy, long-term liquidity for
    financing the Group's business operations and development,
    and for its high financial stability. In doing so, Gorenje creates
    the highest possible value for its shareholders and other
    stakeholders of the company.
    We continued in 2017 with pursuing the strategic policy
    of ensuring a stable structure of the financial liabilities'
    maturity and reducing the relative financial debt, which is
    measured as the net financial liabilities/EBITDA ratio. We
    were unsuccessful with regard of the aforesaid ratio as it
    increased by 0.8 to 4.7 times. However, we have by 3.3
    p.p. improved the maturity structure of financial liabilities,
    whereby non-current sources account 76.4 percent of
    total financial liabilities as at 31 December 2017. The latter
    contributes to the coverage of total non-current investments
    and a portion of net working capital by means of non-current
    sources. Lower Gorenje Group's profit had an impact on
    the worsening of the ROE ratio, calculated as the parent
    company's profit or loss to the average value of its equity.
    EURk Notes 20162017
    Non-current financial liabilities 37275,616 293,020
    Current financial liabilities 38101,226 90,731
    Total financial liabilities 376,842383,751
    Total equity 32366,541 368,344
    Financial liabilities / equity 1.031.04
    Cash and cash equivalents 3135,242 25,037
    Total net financial liabilities 341,600358,714
    Net financial liabilities / equity 0.930.97
    Profit or loss 8,4301,341
    ROE (%) 2.2 %0.3%
    6. Segment reporting
    BUSINESS SEGMENTS
    The Group consists in 2017 of two key business segments
    i.e. Domestic Appliances and Other Business.
    (i) Domestic Appliances
    Domestic Appliances activity: the manufacture and sale
    of household appliances of own manufacture, the sale of
    household appliances of other producers (supplementary
    programme), the sale of products from the complementary
    programme outside of the main programmes of large
    household appliances, and the manufacture of mechanical
    components.
    (ii) Other Business
    Other Business activity: the manufacture and sale of heating
    appliances, the manufacture and sale of sanitary fixtures and
    ceramic tiles, and the sale of kitchen and bathroom furniture,
    the overall waste management, tool manufacture, trade,
    engineering, representation, catering and tourism.
    GEOGRAPHICAL SEGMENTS
    In presenting information on the basis of geographical
    segments, segment revenue is based on the geographical
    location of customers. Segment assets are based on the
    geographical location of the assets. The Group comprises the following main geographical
    segments:
    West: Austria, Germany, Italy, France, Denmark, Sweden,
    Belgium, Finland, Great Britain, Greece, Norway, the
    Netherlands, Spain, Switzerland, Ireland, Luxembourg, Malta,
    Portugal, Cyprus, and Estonia.
    East: Ukraine, Russia, Macedonia, Croatia, Serbia,
    Montenegro, Albania, Bosnia and Herzegovina, Belarus,
    Kosovo, Moldova, Slovenia, Czech Republic, Hungary,
    Poland, Bulgaria, Romania, Slovakia, Latvia and Lithuania.
    Other: other countries.
    7. Statement of cash flows
    The statement of cash flows has been compiled under the
    indirect method on the basis of the items in the balance
    sheet at 31 December 2016, the balance sheet at 31
    December 2017, the income statement for the year ended
    31 December 2017, and the additional information required
    for the adjustment of inflows and outflows.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    8. Composition of the Gorenje Group
    Pursuant to International Financial Reporting Standards (IFRSs) as adopted by EU, the
    consolidated financial statements of the Gorenje Group comprise the financial statements of
    the parent company Gorenje, d.d., and the financial statements of 69 subsidiaries:
    Companies operating in SloveniaEquity interest (%) Business segment
    1.Gorenje I.P.C., d.o.o., Slovenia 100.00DA
    2. Gorenje GTI, d.o.o., Slovenia 100.00OB
    3.          Gorenje Gostinstvo, d.o.o., Slovenia 100.00OB
    4.          Energygor, d.o.o., Slovenia 100.00OB
    5.          Kemis, d.o.o., Slovenia 100.00OB
    6.          Gorenje Orodjarna, d.o.o., Slovenia 100.00OB
    7.          ZEOS, d.o.o., Slovenia 55.42OB
    8.          Gorenje Surovina, d.o.o., Slovenia 100.00OB
    9.          Indop, d.o.o., Slovenia 100.00OB
    10. Gorenje GAIO, d.o.o., Slovenia 100.00OB
    11. Gorenje GSI, d.o.o., Slovenia 100.00DA
    12. Gorenje Keramika, d.o.o., Slovenia 100.00OB
    13. Gorenje EKOINVEST, d.o.o., Slovenia 100.00OB
    14. Gorenje HS, d.o.o., Slovenia 65.00OB
    15. Gorenje Surovina RECE, d.o.o., Slovenia 100.00OB
    16. TERMOCLEAN S, d.o.o., Slovenia 100.00OB
    Companies operating abroad Equity interest (%) Business segment
    1.       Gorenje Beteiligungs GmbH, Austria 100.00DA
    2.        Gorenje Austria Handels GmbH, Austria 100.00DA
    3.        Gorenje Vertriebs GmbH, Germany 100.00DA
    4.        Gorenje Körting Italia S.r.l., Italy 100.00DA
    5.        Gorenje France S.A.S., France 100.00DA
    6.        Gorenje Espana, S.L., Spain 100.00DA
    7.        Gorenje UK Ltd., Great Britain 100.00DA
    8.        Gorenje Group Nordic A/S, Denmark 100.00DA
    9.     Gorenje spol. s r.o., Czech Republic 100.00DA
    Companies operating abroad Equity interest (%) Business segment
    10.     Gorenje real spol. s r.o., Czech Republic 100.00DA
    11.     Gorenje Slovakia s.r.o., Slovakia 100.00DA
    12.      Gorenje Magyarország Kft., Hungary 100.00DA
    13.     Gorenje Polska Sp. z o.o., Poland 100.00DA
    14.      Gorenje Bulgaria EOOD, Bulgaria 100.00DA
    15.     Gorenje Zagreb, d.o.o., Croatia 100.00DA
    16.     Gorenje Skopje, d.o.o., Macedonia 100.00DA
    17.     Gorenje Commerce, d.o.o., Bosnia and Herzegovina 100.00DA
    18.     Gorenje, d.o.o., Serbia 100.00DA
    19.    Gorenje Podgorica, d.o.o., Montenegro 99.975DA
    20.     Gorenje Romania S.r.l., Romania 100.00DA
    21.     Gorenje aparati za domaćinstvo, d.o.o., Serbia 100.00DA
    22.     Mora Moravia, s.r.o., Czech Republic 100.00DA
    23.     Gorenje-kuchyně spol. s r.o., Czech Republic 100.00DA
    24.     KEMIS-Termoclean, d.o.o., Croatia 100.00OB
    25.     Kemis-BH, d.o.o., Bosnia and Herzegovina 100.00OB
    26. Gorenje Gulf FZE, United Arab Emirates 100.00DA
    27.      Gorenje Tiki, d.o.o., Serbia 100.00OB
    28.     Gorenje Istanbul Ltd., Turkey 100.00DA
    29.      Gorenje TOV, Ukraine 100.00DA
    30.     ST Bana Nekretnine, d.o.o., Serbia 100.00OB
    31.      Kemis Valjevo, d.o.o, Serbia 100.00OB
    32.     Atag Nederland BV, the Netherlands 100.00DA
    33.      Atag België NV, Belgium 100.00DA
    34.     Intell Properties BV, the Netherlands 100.00DA
    35.     Gorenje Nederland BV, the Netherlands 100.00DA
    36.     Gorenje Kazakhstan, TOO, Kazakhstan 100.00DA
    37.     OOO Gorenje BT, Russia 100.00DA
    38.     Gorenje GTI, d.o.o., Serbia 100.00OB
    39.     Asko Appliances AB, Sweden 100.00DA
    40.     Gorenje North America, Inc., USA 100.00DA
    41.     Asko Appliances Pty, Australia 100.00DA
    42.      Asko Appliances OOO, Russia 100.00DA
    43.     “Gorenje Albania” SHPK, Albania 100.00DA
    44.      Gorenje Home, d.o.o., Serbia 100.00DA
    45.     Gorenje Ekologija, d.o.o., Serbia 100.00OB
    46.      Gorenje Corporate GmbH, Austria 100.00DA
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Companies operating abroad Equity interest (%) Business segment
    47.ZEOS eko-sistem d.o.o., Bosnia and Herzegovina 53.64OB
    48.     Gorenje do Brasil Ltda., Brasil 100.00DA
    49.     Gorenje Asia Ltd., China 100.00DA
    50.     Gorenje MDM, d.o.o., Serbia 100.00OB
    51.     Gorenje Chile SpA, Chile 100.00DA
    52.     Gorenje AEC, LLC, Thailand 100.00DA
    53.     Indop Gorenje GmbH, Germany 100.00OB
    DA – business segment Domestic Appliances
    OB – business segment Other Business
    Associates:
    • Gorenje Projekt, d.o.o., Slovenia,
    • Gorenje Projekt RU, d.o.o., Russia,
    • Gorenje Projekt, d.o.o., Serbia,
    • K. Tivoli, d.o.o., Slovenia,
    • EKON ELEKTRON, d.o.o., Macedonia,
    • GGE, d.o.o., Slovenia,
    • GGE EOL, d.o.o., Slovenia
    (company is not operating),
    • GGE, d.o.o., Croatia,
    • GGE Montenegro, d.o.o., Montenegro, •
    GGE Bulgaria OOD, Bulgaria,
    • GGE Netherlands B.V., the Netherlands,
    • GGE ESCO, d.o.o., Serbia,
    • GOR Kolesa, d.o.o., Slovenia.
    Representative offices of the Company
    abroad:
    • in Kiev (Ukraine),
    • in Almaty (Kazakhstan), and
    • in Kishinev (Moldova).
    9. Non-controlling equity interests
    Non-controlling interests as at 31 December:
    2016 2017
    EURk Non-con-
    trolling
    interest Share in
    profit or loss Non-con-
    trolling
    interest Share in
    profit or loss
    Gorenje Podgorica, d.o.o., Montenegro 1010
    ZEOS, d.o.o., Slovenia 8071841,004 265
    “Euro Lumi & Surovina” SH.P.K., Kosovo -12-12 00
    ERICo, d.o.o., Slovenia 67522-8-8
    PUBLICUS, d.o.o., Slovenia 9898 //
    Gorenje design studio, d.o.o. –
    in liquidation, Slovenia 21
    21 //
    EKOGOR, d.o.o., Slovenia 1111 //
    ZEOS eko-sistem, d.o.o.,
    Bosnia and Herzegovina 410
    93405 30
    Gorenje Surovina Fotoreciklaža, d.o.o.,
    Slovenia 15
    15 //
    Gorenje HS, d.o.o., Slovenia 1384215 85
    Skupaj 2,1644361,617 372
    The transfer of ownership between companies of the Gorenje Group had no impact on
    the consolidated Gorenje Group's income statement as the intra-group transactions were
    eliminated in the consolidation process.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    140
    10. Associates
    Group's share in profits or losses of associates amounted to EUR 152k in 2017 (2016: EUR\
    84k).
    Assets, liabilities, revenue and expenses of associates in 2016 are outlined below (overview of equity interests is provided in Note 23):
    Company/EURk
    Non-current
    assets Current assets Non-current
    liabilities Current liabilities RevenueExpensesIncome tax
    expense Profit or loss for
    the period
    GOR Kolesa, d.o.o., Slovenia 86515 0223 5-277 0-272
    GGE, d.o.o., Slovenia 3,5824,8881,8994,5117,186-6,572 -79535
    K. Tivoli, d.o.o., Slovenia 011,615 1,5641,274 0-27 0-27
    Gorenje Projekt, d.o.o., Slovenia 4,8323,057 934,609 11,482 -11,073 -97312
    Gorenje Projekt d.o.o., Serbia 244040-4 0-4
    EKON ELEKTRON, d.o.o., Macedonia 0111 0892 -44 -147
    GGE, d.o.o., Croatia 30125 098931 -927 -13
    GGE Montenegro, d.o.o., Montenegro 7959 0180 34-77 0-43
    GGE ESCO, d.o.o., Serbia 24803 11806 431-430 01
    GGE Bulgaria OOD, Bulgaria 1,332173281210-140 0-130
    GGE Netherlands B.V., the Netherlands 3,7001003,783 1711-78 0-67
    Assets, liabilities, revenue and expenses of associates in 2017 are outlined below:
    Company/EURk Non-current
    assets Current assets Non-current
    liabilities Current liabilities RevenueExpensesIncome tax
    expense Profit or loss for
    the period
    GOR Kolesa, d.o.o., Slovenia 294810 271,569 993-1,856 0-863
    GGE, d.o.o., Slovenia 12,6047,2726,58010,980 9,336-9,029 0307
    K. Tivoli, d.o.o., Slovenia 025,392 15,501 1,12111,291 -11,298 0-7
    Gorenje Projekt, d.o.o., Slovenia 4,7433,944 1065,443 17,233 -17,143 15105
    Gorenje Projekt, d.o.o., Serbia 253060-3 0-3
    Gorenje Projekt RU, d.o.o., Russia 0133 0134 147-147 00
    EKON ELEKTRON, d.o.o., Macedonia 12150 015134 -70 -658
    GGE, d.o.o., Croatia 7128 087 39-50 0-11
    GGE Montenegro, d.o.o., Montenegro 61367 96363 313-302 011
    GGE ESCO, d.o.o., Serbia 704,804 1,1502,8181,818-1,654 0164
    GGE Bulgaria, OOD, Bulgaria 1,381404376 92689 -828 0-139
    GGE Netherlands B.V., the Netherlands 7,054387,084 821 -70 0-49
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    141
    Gorenje GroupGorenje, d.d.
    v TEUR 2016201720162017
    Income from sale of investment property 433643 0
    Income from revaluation of investment property 046 046
    Badwill 1,340000
    Income relating to the Directive on Waste
    Electrical and Electronic Equipment 634
    749 00
    Income from write-off of debts 129652 00
    Income from reversal of accrued allowances for
    receivables 0
    624 0105
    Income from disposing the sale of coal activity 03,669 03,669
    Other operating income 6,3034,944 357520
    Total 21,87139,440 8,76621,112
    Gorenje Group
    Income arising on compensation amounted in total to EUR 14,107k. Major p\
    ortions of this
    income were generated through the recognition of damages relating to the fire in the company
    Kemis, d.o.o., Slovenia (EUR 5,350k) and based on which expenses were recognised in the
    equal amount, and the compensation paid to the Company relating to the expired contracts
    (EUR 5,445k), in respect of which costs of EUR 2,171k were disclosed. The stated expenses are
    disclosed among costs of services, material, amortisation and depreciation expense and other
    operating expenses.
    Income on reversal of provisions mostly refer to sales guarantees and provisions for retirement
    benefits, which is in detailed clarified in Note 35.
    Major part of income from use of deferred income relating to government grants in the
    amount of EUR 4,106k refers to Gorenje IPC, d.o.o., Slovenia, a company employing disabled
    persons, in which government grants were used in line with the Vocational Rehabilitation and
    Employment of Disabled Persons Act.
    Income from the disposal of the sale of coal activity relates to the stated parent company's
    activity that was sold to the company Vitol SA, Switzerland.
    Income arising on subsidies relate in the amount of EUR 1,239k to European funds obtained in
    connection with co-financing of the controlling company's development-related costs.
    3.2.3 Disclosures of the Gorenje Group and the
    company Gorenje, d.d. to the individual items in the
    financial statements
    Note 11 – Revenue
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Revenue from sale of products and
    goods – domestic market 130,519
    148,408 68,59982,750
    Revenue from sale of products and
    goods – foreign market 1,066,392
    1,089,240 615,001698,610
    Revenue from sale of services –
    domestic market 42,917
    55,307 4,9807,819
    Revenue from sale of services – foreign
    market 18,296
    16,97721,46012,684
    Total 1,258,1241,309,932 710,040801,863
    Revenue from Company's sales to Group companies amounted to EUR 576,457k (2016: EUR
    502,849k). The growth in revenue generated by the Company is attributable to the changed
    business model since June 2017, when most of the sales by Group's production companies –
    within the framework of the Domestic Appliances core business segment – to subsidiaries and
    directly to third parties started to be conducted through the Company.
    Note 12 – Other operating income
    Gorenje Group Gorenje, d.d.
    v TEUR 2016201720162017
    Income from subsidies, grants and
    compensations 3,102
    1,821 3671,239
    Income from licence fees 004,391 2,528
    Rental income 1,4611,7382,4612,817
    Income from compensations 2,21414,107 8857,885
    Income from reversal of provisions 1,8445,449 2122,252
    Income from use of deferred income relating to
    government grants 4,490
    4,429 00
    Income from sale of property, plant and
    equipment 311
    1,176 5051
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    142
    In 2017, most of the income on sale of properties in the amount of EUR 947k refers to profit
    generated by companies Gorenje Group Nordic A/S, Denmark, Gorenje France S.A.S., France,
    and Gorenje Zagreb, d.o.o., Croatia.
    The majority of other operating income represents the reversal of accrued credit notes and
    expenses (EUR 1,108k), reversal of accrued value adjustments of inventories (EUR 467k),
    income on compensations recognised by supplier (EUR 1,118k), income on reinvoiced costs of
    insuring product liability (EUR 766k), and income on repayment of scholarships (EUR 295k).
    Gorenje, d.d.
    Other operating income in the amount of EUR 4,428k refer to transactions with Group
    companies (2016: EUR 6,354k). In addition to already explained income on expired contracts,
    the income arising on compensations (EUR 1,118k) relate to the supplier of component parts,
    whereas the residual amount to compensations charged under diverse contracts. Income \
    on
    licence fees refer to intellectual property. Income on reversal of provisions mostly represent
    sales guarantees, which are followed by guarantees for retirement benefits, which is outlined in
    Note 35.
    Rental income mostly refer to properties that are partly in own use and sub-leased to
    subsidiaries.
    Expected rental income
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Rentals – up to one year (Group companies) 00974 864
    Rentals – up to one year (other companies) 531912302285
    Rentals – one to five years (Group companies) 00152 120
    Rentals – one to five years (other companies) 536364242619
    Rentals – more than five years (Group companies) 0000
    Rentals – more than five years (other companies) 291273 00
    Total 1,3581,5491,6701,888
    The expected rental income include amounts of future received payments under leases, which
    cannot be terminated. The amount is directly linked to the amount under 'Rental income' in
    Note 12, which shows the actual amount of rental income received in 2017 or 2016.
    Note 13 – Costs of goods, material and services
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Cost of goods sold 250,392261,602203,577296,528
    Cost of materials 475,798489,111285,170292,181
    Cost of services 215,964230,700 85,84489,511
    Total 942,154981,413574,591678,220
    Gorenje Group
    Cost of services includes cost of provisions for warranties in the amount of EUR 29,906k
    (2016: EUR 31,220k) and cost of rentals in the amount of EUR 22,173k (2016: EUR 20,418k).
    Gorenje, d.d.
    Cost of services that arises on transactions with subsidiaries in the Gr\
    oup are recorded at
    EUR 27,573k (2016: EUR 31,185k). The item of cost of services comprise\
    s the formation of
    provisions for warranties in the amount of EUR 5,032k (2016: EUR 7,937k)\
    .
    Cost of services includes cost of rentals in the amount of EUR 3,435k (2016: EUR 3,120k).
    The table below shows the minimum rental payments under operating lease as at the year-end.
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Up to one year 8,04611,153 1,3151,414
    One to five years 15,27521,732 1,5682,226
    More than five years 4968,605 391 0
    Total 23,81741,490 3,2743,640
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    143
    Note 14 – Employee benefits expense
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Wages and salaries 168,383177,934 70,11675,785
    Social security costs 37,17839,54114,46814,178
    Provisions for retirement benefits and jubilee premiums 1,6691,594 494504
    Other employee benefits expense 28,09529,94317,69118,684
    Total 235,325249,012102,769109,151
    Gorenje Group
    Part of employee benefits expense (EUR 4,400k) was used to create provisions from
    government grants in Gorenje I.P.C., d.o.o., Slovenia, which has the status of a company
    employing disabled persons. Provisions are formed based on unpaid contributions (except
    for the employment contribution) of total earnings of employees (all Company's employees as
    the share of employed disabled persons exceeds 50 percent), and are reversed for 75% of
    disabled persons' wages, for mentors (staff engaged to observe the work of the disabled) and
    for handling the jobs for the disabled.
    Employee benefits expense is exclusive of labour costs relating to development activities,
    which were recognised within capitalised costs of development as required under the method
    of capitalising relevant costs. In 2017, the amount of capitalised employee benefits ex\
    pense
    amounted to EUR 12,302k (2016: EUR 11,709k).
    The average number of employees in the Group was 11,039 in 2017, which is 1.4% more than
    in the previous period.
    Other employee benefits expense includes mainly annual leave bonuses, \
    meal allowances,
    commuting allowances, retirement benefits and jubilee premiums, in compliance with the
    national labour legislation and the companies’ internal regulations.
    Other employee benefits expense comprise EUR 3,014k of remuneration paid to
    managements of the Company and Group's subsidiaries for successful business in the year
    2016. No remunerations were paid to the management in 2016. Gorenje, d.d.
    Employee benefits expense is exclusive of labour costs relating to development activities,
    which were recognised within capitalised costs of development as required under the method
    of capitalising relevant costs. In 2017, the amount of capitalised employee benefits ex\
    pense
    amounted to EUR 8,046k (2016: EUR 8,004k).
    The item of social security costs comprises costs of voluntary, additional, collective pension
    insurance in the amount of EUR 2,479k (2016: EUR 2,436k). In 2017, the\
    average number of
    employees calculated based on working hours was 4,429.14 (2016: 4,252.8\
    0 employees).
    The average number of employees in the Company was 4,434 in 2017, which \
    is 3.6% more
    than in the previous period.
    Other employee benefits expense include remuneration paid to the Company's broader
    management in 2017 for successful business in the year 2016 and amounted\
    to EUR 1,658k.
    No remunerations were paid to the management in 2016.
    Number of employees by business segment in the Group
    As at 31 Dec
    Average
    Business segment/Number 2016201720162017
    Domestic Appliances 9,0278,9558,8958,994
    Other Business 1,9352,0591,9942,045
    Total 10,96211,01410,88911,039
    Number of employees by education
    Gorenje Group Gorenje, d.d.
    Education level/Number 2016201720162017
    Level VIII 204229 8597
    Level VII 1,4241,480 701755
    Level VI 9901,018 323352
    Level V 2,9332,746 898959
    Level III and IV 3,2323,4711,0961,118
    Level I and II 2,1062,0951,1761,153
    Total 10,88911,039 4,2794,434
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    144
    Note 15 – Amortisation and depreciation expense
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Amortisation expense of intangible assets 9,33111,402 4,5766,690
    Depreciation expense of property, plant and equipment 37,72443,27420,55623,789
    Total 47,05554,67625,13230,479
    Gorenje Group
    Amortisation of Group's intangible items amounted in 2017 to EUR 8,259k (2016: EUR 6,241k\
    )
    and refers to amortisation of capitalised development costs.
    Gorenje, d.d.
    Amortisation of Company's intangible items amounted in 2017 to EUR 5,763\
    k (2016: EUR
    3,618k) and refers to amortisation of capitalised development costs.
    Note 16 – Other operating expenses
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Disposal and impairment of assets 7873,714 3965
    Write-off of inventories to net realisable value 2,0074,012 8392,846
    Other taxes and charges 3,6083,3111,7111,555
    Environmental levies 2,2882,100 682688
    Scholarships and bonuses paid to pupils and
    students on practical training 363
    312251236
    Formation of other provisions 715103 250
    Impairment of trade receivables 01,743 0142
    Impairment of non-current and other receivables 0947 0788
    Compensations and damages 463721529479
    Expenses related to the Directive on Waste
    Electrical and Electronic Equipment 8,568
    8,132 3735
    Other operating expenses 1,6712,364 198600
    Total 20,47027,459 4,3117,434
    Gorenje Group and Gorenje, d.d.
    Since 1 January 2017, the Group/Company discloses allowances for receivables among
    operating expenses and no longer among finance costs. In 2017, the Group disclosed EUR
    2,690k of impaired trade receivables among operating expenses (2016: EUR 7,088k among
    finance costs).
    The item of other taxes and charges comprises charges for the use of bui\
    lding plot, water
    charge, and other mandatory taxes and charges.
    Write-off of inventories to the realisable value refers to write-off of inventories of material based
    on the termination of certain deals with Panasonic Corporation and other\
    devaluation within
    regular business operations of the Company and other Group companies.
    Other operating expenses mostly refer to accrued costs of removing the consequences of the
    fire in Kemis, d.o.o., Slovenia, to administrative taxes, membership fees a\
    nd other charges to
    costs of selling Company's investment properties.
    Note 17 – Net finance expenses
    Finance income
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Dividend income and other profit shares of Group companies 002,568 14,738
    Dividend income and other profit shares of other companies 13663136 108
    Interest income on transactions with Group companies 005,586 4,885
    Interest income on transactions with other companies 913935158194
    Change in fair value of interest rate swaps 1420142 0
    Change in fair value of forward exchange contracts 961,513 0336
    Net exchange gains 2,935000
    Gain on disposal of available-for-sale financial assets 3030
    Gain on sale of subsidiaries to Group companies 004,361 0
    Gain on sale of subsidiaries to other companies 693320 00
    Income on realised forward exchange contracts 551147441 0
    Other finance income 6881,161 2211,110
    Total 6,1574,13913,616 21,371
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    145
    Gorenje Group and Gorenje, d.d.
    Gain on sale of subsidiaries to other companies refers to the sale of Erico, d.o.o., Slovenia.
    Most of other finance income relating to the Company, comprise income on dividing the
    liquidation estate of the Gorenje Tiki, d.o.o. – in liquidation, Slovenia, upon the completion of
    the liquidation procedure (EUR 500k), income on eliminating the impairment of Gorenje Projekt,
    d.o.o., Slovenia (EUR 322k), and income on dividing the liquidation es\
    tate of Gorenje design
    studio, d.o.o. – in liquidation, Slovenia, upon the completion of the\
    liquidation procedure (EUR
    156k). The residual amount includes mostly income on commissions charged in relation to
    loan-related guarantees provided to Group and other companies.
    Finance costs
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Interest expenses on transactions with Group companies 002,408 2,449
    Interest expenses on transactions with other companies 15,03312,74111,90110,555
    Expenses on realised interest rate swaps 594891594883
    Expenses on realised forward exchange contracts 2,6021,478 039
    Change in fair value of forward exchange contracts 1,513239209 0
    Interest expenses arising under provisions for retirement
    benefits and jubilee premiums 792
    796501519
    Expenses on net exchange differences 0288 67627
    Impairment of available-for-sale investments 55153 70
    Impairment of investments in Group companies 00717 800
    Impairment of investments in associates 209400 0400
    Impairment of trade receivables 3,2350256 0
    Impairment of non-current and other receivables 3,853000
    Impairment of loans 587447455447
    Other finance expenses 4,7194,0661,6671,446
    Total 33,19221,49918,78218,165
    Gorenje Group and Gorenje, d.d.
    The largest share of Group's finance costs include interest expenses arising on transactions with
    others (EUR 12,741k), which is 15.2% less than in 2016. The relevant amount comprises also
    interest expenses arising on the sale of receivables. Fair value of investments and loans granted is
    ensured based on the impairment of investments and loans granted. The impairm\
    ent of loans fully
    refers to the loan extended to the company Arosa Mobilia, d.o.o., Slovenia and was conducted
    in 2017 based on the fulfilled conditions of the sales contract on sel\
    ling the entire equity interest
    in the legal advance party of the company Arosa Mobilia, d.o.o., Slovenia. No negative impacts
    are expected in this relation in the coming years. Impairment of Company's investments, which
    are considered within the Group, fully refer to the impairment of the investment in the subsidiary
    Gorenje GAIO, d.o.o., Slovenia, while the impairment of investments in asso\
    ciates refers in total to
    the impairment of the investment in GOR Kolesa, d.o.o., Slovenia at the \
    Company.
    A major part of other finance costs relates to costs arising during the approval of loans, to a
    portion of costs in connection with the sale of receivables, and costs of granted letter of credits
    and guarantees. Costs of approving loans and other bank products are recorded by the Company
    in the amount of EUR 974k, whereby EUR 472k refers to finance costs arising on discounting
    the parent company's non-current receivables. EUR 2,278k refers to costs related to the sale of
    receivables by the company OOO Gorenje BT, Russia, based on which we manage financial risks.
    Finance income and expenses recognised directly in other comprehensive i\
    ncome (net)
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Change in effective portion of gains and losses on
    cash flow hedges -1,350
    -760-1,298 -420
    Change in effective portion of gains and losses on
    cash flow hedges, reclassified to profit or loss 594
    891594883
    Net change in fair value of available-for-sale
    financial assets -29
    84-28 9
    Finance income/expenses recognised in
    other comprehensive income -785
    215-732 472
    Finance income/expenses recognised in
    other comprehensive income attributable to
    equity holders of the parent -785
    215 00
    Net effect from the statement of comprehensive income is shown in the table above and is
    exclusive of actuarial gains or losses.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    146
    Note 18 – Income tax expense
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Current tax -5,601-3,118 00
    Deferred tax 1,597543843394
    Other taxes -806-571-806-571
    Total -4,810-3,146 37-177
    Gorenje Group and Gorenje, d.d.
    Income tax includes the actual payable arising on corporate income tax, \
    other taxes that are
    not disclosed in other items, as well as established deferred tax assets and liabilities.
    The tax accounted for the Group declined by EUR 1,190k, which is attributable to the
    favourable outcome of a possible price-related tax liability in one of the Eastern European
    countries, for which a provision (formed in 2016) was reversed this year.
    Other taxes include the withholding tax relating to the paid dividends, interest and licence fees.
    As at 31 December 2017, the Group did not recognise deferred tax assets in the amount of
    EUR 22,852k and mostly referring to tax reliefs.
    As at 31 December 2017, the Company did not recognise deferred tax assets in the amount
    of EUR 16,030k, mostly in connection with unused tax reliefs referring to research and
    development, and investments in equipment and intangible assets. Effective income tax rates:
    Gorenje Group
    Gorenje, d.d.
    EURk 2016201720162017
    Profit before tax 13,2404,4873,662 650
    Income tax using the domestic tax rate 2,251853622124
    Effect of tax rates in foreign jurisdictions 146268 00
    Non-deductible expenses 2,2451,490 5451,117
    Tax exempt income 463-189 -557-1,856
    Unused tax losses and tax reliefs arising on deferred
    taxes -1,214
    608-1,453 221
    Other taxes 919116806571
    Income tax 4,8103,146 -37177
    Effective tax rate 36.33%70.11% -1.01%27.23%
    The largest share of tax non-deductible expenses and tax-exempt income refers to the
    Company. Non-deductible expenses primarily relate to reducing expenses in the amount
    equalling half of formed provisions, expenses for ensuring bonuses and other employment-
    related payouts (biggest stake includes the voluntary additional pension\
    insurance) and
    expenses for accounted amortisation/depreciation that exceeds the one calculated using the
    straight-line method of depreciation and statutory rates. The highest share among tax exempt
    income refers to exempt dividends.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    147
    Following deferred tax amounts were recognised in Group's other comprehensive income:
    20162017
    EURk
    Pre-tax amount TaxAfter-tax amount Pre-tax amount TaxAfter-tax amount
    Actuarial gains/losses -33252-280 65-164
    Change in fair value of available-for-sale financial assets -334-29 86-284
    Change in effective portion of gains and losses on cash flow hedges -1,531181-1,350 -651-109-760
    Change in effective portion of gains and losses on cash flow hedges, reclassified to profit or loss 5940594 891 0891
    Foreign currency translation differences for foreign operations 1,78001,780 3,588 03,588
    Other comprehensive income 4782377153,979 -1123,867
    Following deferred tax amounts were recognised in Company's other comprehensive income:
    2016 2017
    EURk Pre-tax amountTax
    After-tax amount Pre-tax amountTax After-tax amount
    Actuarial gains/losses -13729-108 77-770
    Change in fair value of available-for-sale financial assets -335-28 11-2 9
    Change in effective portion of gains and losses on cash flow hedges -1,479181-1,298 -311-109-420
    Change in effective portion of gains and losses on cash flow hedges, reclassified to profit or loss 5940594 883 0883
    Total -1,055215-840 660-118 542
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    148
    Note 19 – Intangible assets
    EURk Gorenje Group
    Gorenje, d.d.
    2016 2017 20162017
    Deferred development costs 35,79652,694 25,04742,194
    Industrial property rights 11,2539,6033,253 2,975
    Trademark 61,96461,964 00
    Goodwill 67,03667,036 00
    Intangible assets under construction 32,82332,278 31,09628,541
    Total 208,872223,575 59,39673,710
    An intangible asset is a recognisable asset, the company control is and expects that future
    economic benefits will arise on the item. The company can recognise such an asset when it is
    probable that the future economic benefits embodied within the asset will flow to the compa\
    ny and
    its cost can be measured reliably. Precise criteria for recognising deferred costs of development
    are clarified in Note 3(e)(ii). Costs of development are of long-term nature and their capitalisation is
    therefore eligible. They arise within the competence centres and development departments. They
    are amortised within seven years i.e. the duration of the estimated averag\
    e life cycle of an individual
    product.
    Gorenje Group
    The item of intangible assets includes mostly trademarks Atag, Etna and \
    Pelgrim, goodwill,
    deferred development costs, and computer software.
    Goodwill in the amount of EUR 62,130k and fair value of trademarks Atag,\
    Etna and Pelgrim in the
    amount of EUR 61,964k were established in 2008 at the acquisition of the company Atag Europe
    BV, the Netherlands. Goodwill in the amount of EUR 2,030k refers to the acquisition of the majority
    interest in Gorenje Surovina, d.o.o., Slovenia, in 2007. Goodwill in the amount of EUR 2,875k
    occurred in 2005 at the acquisition of Mora Moravia, s.r.o. in the Czech Republic and Gorenje
    Studio, d.o.o., in Serbia.
    Impairment testing of goodwill and trademarks
    Impairment testing of goodwill and trademarks Atag, Etna and Pelgrim ari\
    sing from the acquisition
    of Atag Europe BV, the Netherlands, was carried out. The calculations are based on cash flow
    projections for the Atag Group, which have been prepared on the basis of the adopted business
    plan for 2018 and the strategic business plan for the period 2019-2020. \
    The main underlying assumptions used to calculate the value in use are the revenue growth rate of 2.0% (2016: 2.0%)
    and the discount rate of 9.13% (2016: 8.90%).
    The recoverable value of the cash-generating unit exceeds its carrying amount\
    , including that of
    goodwill and trademarks Atag, Etna and Pelgrim. Hence, there was no need for impairment to be
    carried out.
    Impairment testing of goodwill arising from the acquisition of Mora Moravia, s.r.o., Czech Republic,
    was carried out. The calculations are based on cash flow projections for Mora Moravia, s.r.o.,
    Czech Republic, which have been prepared on the basis of the strategic business plan for the
    period 2019-2020. The main underlying assumptions used to calculate the \
    value in use are the
    revenue growth rate of 2.0% (2016: 2.0%) and the discount rate of 8.33% (2016: \
    9.10%).
    The recoverable value of the cash-generating unit exceeds its carrying amount\
    , including that of
    goodwill. No need for impairment accordingly exists.
    Impairment testing of goodwill arising from the acquisition of Gorenje Studio, d.o.o., Serbia, was
    carried out. The calculations are based on cash flow projections for Gorenje Studio, d.o.o., Serbia,
    that have been compiled on the basis of the strategic business plan for \
    the period 2018-2020.
    The main underlying assumptions used to calculate the value in use are the revenue growth rate of
    2.0% (2016: 2.0%) and the discount rate of 10.0% (2016: 14.6%).
    The recoverable value of the cash-generating unit was determined to be higher\
    than its carrying
    amount, including that of goodwill. Therefore there was no need for impairment of goodwill.
    Impairment testing of goodwill arising from the acquisition of Gorenje Surovina, d.o.o., Slovenia,
    was carried out. The calculations are based on the cash flow projections for Gorenje Surovina,
    d.o.o., Slovenia, which have been prepared on the basis of the adopted business plan for 2018
    and the strategic business plan for the period 2019-2020. The main under\
    lying assumptions used
    to calculate the value in use are the revenue growth rate of 2.0% (2016: 2.0%) and the discount
    rate of 7.40% (2016: 8.40%).
    The recoverable value of the cash-generating unit was determined to be higher\
    than its carrying
    amount, including that of goodwill. Therefore there was no need for impairment of goodwill.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    149
    Increase in intangible assets primarily relates to the capitalisation of development costs for new
    advanced products (e.g. new built-in gas cookers, new induction cookers, new washi\
    ng and dryer
    machines of the Gorenje brand, the new generation of built-in cooler and freezer appliances, the
    new generation of freestanding cookers and related appliances) that are developed by competence
    centres of individual programmes of the Company and of the company Asko Appliances AB,
    Sweden.
    Gorenje, d.d.
    The relevant increase in long-term deferred development costs mostly refers to new advanced
    products (e.g. new generation of 540mm built-in cooler and freezer appliances, Asko washing
    and dryer machines, washing machines of the medium and premium class) that are developed
    by competence centres of individual programmes. Costs for services arising in connection with
    development are recognised in the income statement in the amount of EUR 1,624k.
    The item of intangible assets under construction primarily refers to capitalised development costs
    for new advanced products (new built-in gas cookers, new induction cookers, new washing an\
    d
    dryer machines of the Gorenje brand, the new generation of built-in cooler and freezer appliances,
    the new generation of freestanding cookers and related appliances) developed by competence
    centres in Velenje and in Asko competence centre in Sweden, and other development departments
    (EUR 25,625k). The residual amount refers to the upgrade of the IT system and the purchase of
    licences.
    Movements in Group's intangible assets
    EURkDeferred
    devel-
    opment costs Industrial
    property rights Trade-
    mark Goodwill Intangible
    assets under
    construc- tion Total
    Cost at 1 Jan 2016 54,41029,68161,96468,65325,488240,196
    Acquisition 1,514985 0021,320 23,819
    Disposals, write-offs -368-645 00-90-1,103
    Changes within Group 065 0-1,617 0-1,552
    Other transfers 11,5657,068 00-13,862 4,771
    Exchange differences -111-38 00-33 -182
    Cost at 31 Dec 2016 67,01037,11661,96467,03632,823265,949
    Accumulated
    amortisation at 1
    Jan 2016 26,714
    17,450 00044,164
    Disposals, write-offs -368-596 000-964
    Amortisation 6,4022,929 0009,331
    Changes within Group 0-187 000-187
    Other transfers -1,5186,289 0004,771
    Exchange differences -16-22 000-38
    Accumulated
    amortisation
    at 31 Dec 2016 31,214
    25,863 00057,077
    Carrying amount at
    1 Jan 2016 27,696
    12,23161,96468,65325,488196,032
    Carrying amount at
    31 Dec 2016 35,796
    11,25361,96467,03632,823208,872
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    150
    EURk
    Deferred devel-
    opment costs Industrial
    property rights Trade-
    mark Goodwill Intangible
    assets under construction Total
    Cost at 1 Jan 2017 67,01037,11661,96467,036 32,823265,949
    Acquisition 1,739737 0023,180 25,656
    Disposals, write-offs -550-195 00 0-745
    Changes within Group 0-36 00 0-36
    Other transfers 23,02963300-23,758 -96
    Exchange differences 440396 00 33869
    Cost at 31 Dec 2017 91,66838,65161,96467,036 32,278291,597
    Accumulated
    amortisation
    at 1 Jan 2017 31,214
    25,863 00 057,077
    Disposals, write-offs -507-195 00 0-702
    Amortisation 8,2823,120 00 011,402
    Changes within Group 0-36 00 0-36
    Other transfers -96-600 0-102
    Exchange differences 81302 00 0383
    Accumulated
    amortisation
    at 31 Dec 2017 38,974
    29,048 00 068,022
    Carrying amount
    at 1 Jan 2017 35,796
    11,25361,96467,036 32,823 208,872
    Carrying amount
    at 31 Dec 2017 52,694
    9,60361,964 67,036 32,278223,575 Movements in Company's intangible assets
    EURk
    Deferred
    development costs Industrial
    property rights Intangible
    assets under construction Total
    Cost at 1 Jan 2016 39,23114,692 23,01476,937
    Acquisition 0 0 19,51719,517
    Disposals, write-offs 0 -11 -53-64
    Transfer from investments under construction 10,617 765-11,382 0
    Cost at 31 Dec 2016 49,84815,446 31,09696,390
     
    Accumulated amortisation at 1 Jan 2016 21,084 11,344 032,428
    Disposals, write-offs 0 -10 0 -10
    Amortisation 3,717 859 0 4,576
    Accumulated amortisation at 31 Dec 2016 24,801 12,193 036,994
     
    Carrying amount at 1 Jan 2016 18,147 3,34823,01444,509
    Carrying amount at 31 Dec 2016 25,047 3,25331,09659,396
    EURk
    Deferred
    development costs Industrial
    property rights Intangible
    assets under construction Total
    Cost at 1 Jan 2017 49,84815,446 31,09696,390
    Acquisition 0 0 21,00621,006
    Disposals, write-offs -353 -163 0 -516
    Transfer from investments under construction 22,973 588-23,561 0
    Cost at 31 Dec 2017 72,46815,871 28,541116,880
    Accumulated amortisation at 1 Jan 2017 24,801 12,193 036,994
    Disposals, write-offs -351 -163 0 -514
    Amortisation 5,824 866 0 6,690
    Accumulated amortisation at 31 Dec 2017 30,274 12,896 043,170
     
    Carrying amount at 1 Jan 2017 25,047 3,25331,09659,396
    Carrying amount at 31 Dec 2017 42,194 2,97528,54173,710
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    151
    Note 20 – Property, plant and equipment (PPE)
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Land 29,15428,93514,39214,392
    Buildings 140,038133,681 54,91352,053
    Production and other equipment 143,959172,150 94,667102,583
    Property, plant and equipment under construction 53,06137,06934,03431,548
    Total 366,212371,835198,006200,576
    Movements in Group's property, plant and equipment
    EURk LandBuildings Production
    and other
    equipment PPE under
    construc- tion Total
    Cost at 1 Jan 2016 31,438288,189 489,40633,357842,390
    Acquisition 159577 8,71149,96559,412
    Disposals, write-offs -556-2,292 -13,097 -87-16,032
    Changes within Group -1,294-1,450 -6,665-1,456-10,865
    Transfer to investment property -509-324 00-833
    Other transfers 04,920 20,661-28,685-3,104
    Exchange differences -84-1,031 -972-33-2,120
    Cost at 31 Dec 2016 29,154288,589 498,04453,061868,848
    Accumulated depreciation
    at 1 Jan 2016 0
    143,058 343,954 0487,012
    Disposals, write-offs 0-1,040 -12,879 0-13,919
    Depreciation 07,234 30,490 037,724
    Changes within Group 0-579 -4,201 0-4,780
    Transfer to investment property 0-10 00-10
    Other transfers 0-138 -2,966 0-3,104
    Exchange differences 026 -313 0-287
    Accumulated depreciation
    at 31 Dec 2016 0148,551 354,085 0502,636
    Carrying amount at 1 Jan 2016 31,438145,131 145,45233,357355,378
    Carrying amount at 31 Dec 2016 29,154 140,038 143,95953,061366,212
    EURk Land Build-
    ings Production
    and other
    equipment PPE under
    construction Total
    Cost at 1 Jan 2017 29,154288,589 498,044 53,061868,848
    Acquisition 21,094 14,857 33,71949,672
    Disposals, write-offs -514-8,233 -16,513 -107-25,367
    Changes within Group -12 -591 -2,954 0-3,557
    Transfer to investment property 0 -35 00-35
    Transfer from investment property 82 340 00422
    Other transfers 02,239 46,921 -49,653-493
    Exchange differences 2233,320 4,524 498,116
    Cost at 31 Dec 2017 28,935 286,723 544,879 37,069897,606
    Accumulated depreciation
    at 1 Jan 2017 0148,551 354,085 0502,636
    Disposals, write-offs 0 -3,605 -15,625 0-19,230
    Depreciation 0 7,571 35,703 043,274
    Changes within Group 0 -275 -2,700 0-2,975
    Transfer from investment property 0 99 0099
    Other transfers 0 0 -481 0-481
    Exchange differences 0 701 1,747 02,448
    Accumulated depreciation
    at 31 Dec 2017 0153,042 372,729 0525,771
    Carrying amount at 1 Jan 2017 29,154 140,038 143,959 53,061366,212
    Carrying amount at 31 Dec 2017 28,935 133,681 172,150 37,069371,835
    Most of investments in property, plant and equipment in the amount of EUR 42,111k were carried
    out within the Domestic Appliances segment, where a significant portion thereof was invested in the
    technological equipment, mostly in connection with developing new products. As for the Domestic
    Appliances segment, we are completing the larger volume of investments made in the past years
    in the new platform of self-standing cookers in the facility in the Czec\
    h Republic, and the two new
    generations of washing machines and dryers. Investments made within the \
    Other Business segment
    amounted in 2017 to EUR 7,561k, whereof EUR 3,755k refers to the ecology segment.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    152
    As of 1 January 2017 the Group amended its valuation model for land and replaced the
    revaluation model with the cost model in order to ensure that all assets within the cash
    generating units (CGUs) are valued by applying the same model. Pursuant to IAS 8, we have
    adequately adjusted also the comparable data for 2016. The transition wa\
    s on the Group
    level reflected in lower values of land in the amount of EUR 9,497k, higher d\
    eferred tax assets
    in the amount of EUR 1,582k, lower deferred tax liabilities in the amount of EUR 218k, and
    consequently lower items of capital by EUR 7,697k.
    Disposal of property, plant and equipment relates to the sale of non-core assets.
    The Group has no financial liabilities secured by mortgage on real property.
    No borrowing costs were attributed to the items of property, plant and equipment in 2016.
    Transfers include transfers from property, plant and equipment to investment property and from
    investment property, and transfers between individual items.
    Movements in Company’s property, plant and equipment
    EURk LandBuildings Production
    and other
    equipment PPE under
    construction Total
    Cost at 1 Jan 2016 14,392167,647 422,545 22,717627,301
    Acquisition 0 0 032,766 32,766
    Disposals, write-offs 0 0 -10,907 0-10,907
    Transfer from investments under
    construction 0 1,260 20,189 -21,449 0
    Cost at 31 Dec 2016 14,392168,907 431,827 34,034649,160
    Accumulated depreciation
    at 1 Jan 2016 0110,508 330,631 0441,139
    Disposals, write-offs 0 0-10,541 0-10,541
    Depreciation 0 3,486 17,070 020,556
    Accumulated depreciation
    at 31 Dec 2016 0 113,994 337,160 0451,154
    Carrying amount at 1 Jan 2016 14,392 57,139 91,914 22,717186,162
    Carrying amount at 31 Dec 2016 14,392 54,913 94,667 34,034198,006
    EURk LandBuildings Production
    and other
    equipment PPE under
    construction Total
    Cost at 1 Jan 2017 14,392168,907 431,827 34,034649,160
    Acquisition 00 026,451 26,451
    Disposals, write-offs 0-5-9,227 -24-9,256
    Transfer from investments under
    construction 0
    585 28,328 -28,913 0
    Cost at 31 Dec 2017 14,392169,487 450,928 31,548666,355
    Accumulated depreciation
    at 1 Jan 2017 0
    113,994 337,160 0451,154
    Disposals, write-offs 0-4-9,160 0-9,164
    Depreciation 03,444 20,345 023,789
    Accumulated depreciation
    at 31 Dec 2017 0
    117,434 348,345 0465,779
    Carrying amount at 1 Jan 2017 14,39254,913 94,667 34,034198,006
    Carrying amount at 31 Dec 2017 14,39252,053102,583 31,548200,576
    In 2017, the Group changed the valuation model and replaced the fair value model with the
    cost model. The transition was on the Company level reflected in lower values of land in
    the amount of EUR 7,410k, higher deferred tax assets in the amount of EUR 1,408k, and
    consequently lower fair value reserve by EUR 6,002k.
    Increase in the value of buildings refers mainly to the renovation production facilities, whereby a
    decline thereof is mostly the result of the accounted depreciation.
    Buildings were appraised in 2013 by an independent certified appraiser of real property.
    The valuation effect amounted to EUR -1,230k. According to management’s estimate, no
    indications for impairment occurred since the valuation. Hence, the management assesses that
    the recoverable value of buildings does not significantly deviate from their carrying amount. The
    value of equipment increases the value of the technological equipment, which was acquired in
    2017 and capitalised.
    Investments in 2017 were made in new equipment, reconstruction and upgrade of production
    equipment (EUR 8,981k) and computer hardware (EUR 516k). We have invested in new tools
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    and the overhaul of old tools (EUR 17,679k). Investments in the overha\
    ul of transport means
    amounted to EUR 381k.
    The decline refers to the sold equipment and eliminated useless equipment, and the ac\
    counted
    depreciation.
    Plant and equipment were appraised in 2013 and no indications of impairment were
    established. According to management’s estimate, the assumptions used in the relevant
    calculation have not changed materially and the fair value of buildings \
    does not significantly
    deviate from their carrying amount.
    The item of property, plant and equipment under construction relates largely to the equipment
    that shall be activated in 2018 and includes certain development projects in progress, as
    well as tools. It refers primarily to the new generation of Gorenje and Asko washing and dryer
    appliances, to the new generation of induction cookers, the built-in gas\
    cookers, the 600 mm
    freestanding cookers, the new generation of built-in cooler-freezer appliances, and the new
    generation of dishwashers. The residual amount includes diverse investments in robot cells,
    machines, manufacturing lines, measuring equipment, test chambers, and o\
    thers.
    Note 21 – Investment property
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Land with buildings 14,9579,84912,948 8,685
    Total 14,9579,84912,948 8,685
    Gorenje Group
    The item of investment property includes land and buildings acquired for resale or increase in
    investments. Investment property is measured by using the fair value model. Group’s investment
    property was appraised by an independent certified appraiser at the year\
    -end of 2017. In order
    to assess the value of investment property, the values used the market approach (comparable
    company valuation). The carrying amount does not materially deviate from the property’s fair
    value, thus terms for possible value adjustment of investment property are not met.
    Rental income generated on investment property is recognised in the income statement for
    2017 and amounted to EUR 326k (2016: EUR 144k). Costs occurring in con\
    nection with
    investment property amounted to EUR 287k in the reporting period (2016: EUR 275k). Decline in investment property’s value refers to the sale of relevant properties at Gorenje
    Gostinstvo, d.o.o., Slovenia, and Gorenje Skopje, d.o.o., Macedonia. In this relation, other
    operating income includes EUR 36k of gain on sales.
    Gorenje, d.d.
    Group’s investment property was appraised by an independent certified appraiser at the
    year-end of 2017. Based on the assessed value of investment property, we have adjusted the
    value of certain Company’s investment property and the total net effect of the said adjustments
    amounted to EUR 12k.
    In association with investment property, rental income in the amount of EUR 276k (2016: EUR
    122k) was recognised in the income statement. Costs relating to investment property, which
    include current costs, repairs and maintenance amounted in 2017 to EUR 226k (2016: EUR
    258k).
    Decline in investment property’s value refers to the sale of relevant properties in Maribor and
    Trbovlje and apartments. The total effect of their sale is negative and recorded in the amount of
    EUR 472k.
    Movements in investment property
    Gorenje Group
    Gorenje, d.d.
    EURk 2016201720162017
    Opening balance at 1 January 17,14814,95715,27612,948
    Increase 0371 0371
    Decrease -3,014-5,126-2,328-4,646
    Revaluation 0-65 012
    Transfer from PPE 8233500
    Transfer to PPE 0-323 00
    Closing balance at 31 December 14,9579,84912,948 8,685
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Note 22 – Investments in subsidiaries
    Gorenje Group
    Investments in subsidiaries are in Group’s financial statements eliminated during the
    consolidation procedures. A detailed overview of the Group’s composition is provided in
    section 8. Composition of the Group. Investments in subsidiaries are not pledged.
    Gorenje, d.d.
    Companies directly owned by the Company are presented in the table below.
    EURkEquity
    interest Equity of
    company 2017 Profit or
    loss of
    company 2017 Investment
    at 31 Dec 2016 Investment
    at 31 Dec 2017
    Gorenje I.P.C., d.o.o., Slovenia 100.00%6,741246 377377
    Energygor, d.o.o., Slovenia 100.00%209258 58
    Gorenje Keramika, d.o.o., Slovenia 100.00%-31-367 7,841 7,841
    Gorenje GTI, d.o.o., Slovenia 100.00%6,0415563,934 3,934
    Gorenje Gostinstvo, d.o.o., Slovenia 100.00%6,5466715,958 5,958
    Gorenje Orodjarna, d.o.o., Slovenia 100.00%4,9256953,038 3,038
    Indop, d.o.o., Slovenia 100.00%-869-641 00
    Gorenje GAIO, d.o.o., Slovenia 100.00%-807-591 800 0
    Gorenje EKOINVEST, d.o.o., Slovenia 100.00%10,2291,08110,286 10,286
    Gorenje Surovina, d.o.o., Slovenia 100.00%16,0982,48613,209 13,209
    ZEOS, d.o.o., Slovenia 55.42%2,252 595 243284
    Gorenje Zagreb, d.o.o., Croatia 100.00%9,427-3,150 30,230 30,230
    ST Bana Nekretnine, d.o.o., Serbia 1.61%2,362 -154 5050
    Gorenje Tiki, d.o.o., Serbia 100.00%25,0131,14523,306 23,306
    Gorenje Home, d.o.o., Serbia 100.00%6,9993,332 3,0013,001
    Mora Moravia, s.r.o., Czech Republic 100.00%24,541 62020,050 20,050
    Gorenje Nederland BV, the Netherlands 100.00%132,404 108131,106 131,106
    Gorenje – kuchyně spol. s r.o., Czech
    Republic 100.00%
    10561 00
    Gorenje aparati za domaćinstvo, d.o.o.,
    Serbia 100.00%
    43,2241,02642,008 42,008
    Gorenje HS, d.o.o., Slovenia 65.00%615242 250250
    Total  296,024 7,963295,745 294,986
    Movement of Company’s investments in subsidiaries
    EURk 20162017
    Opening balance at 1 Jan 246,863295,745
    Increase 55,25841
    Decrease -5,6590
    Impairment -717-800
    Closing balance at 31 Dec 295,745294,986
    Increase in Company’s investments in Group’s subsidiaries fully relates to the share capital
    increase in ZEOS, d.o.o., Slovenia. The impairment fully refers to the investment in the
    subsidiary Gorenje GAIO, d.o.o., Slovenia.
    The Company assesses on an annual basis, whether there is need for impairment. Based on
    performed impairment testing of Company’s investments, no reasons for their impairment were
    established, except for the investment in Gorenje GAIO, d.o.o., Slovenija.
    Note 23 – Investments in associates
    Balance of investments in associates
    Gorenje Group Gorenje, d.d.
    EURk Equity
    interest Investment
    at 31 Dec 2016 Investment
    at 31 Dec 2017 Equity
    interest Investment
    at 31 Dec 2016 Investment
    at 31 Dec 2017
    Gorenje Projekt,
    d.o.o., Velenje 50.00%
    1,6781,97150.00% 1,0411,363
    GGE Netherlands
    B.V., the
    Netherlands 30.00%
    1,0192,30530.00% 6231,823
    GOR Kolesa,
    d.o.o., Velenje 61.54%
    232061.54% 4000
    EKON ELEKTRON,
    d.o.o., Macedonia 30.00%
    16330.00% 00
    Total 2,9454,309 2,0643,186
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Movement of investments in associates
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Opening balance at 1 Jan 1,5702,945 5092,064
    Increase 2,0891,5202,0031,200
    Decrease -714-78-448 0
    Impairment 0-400 0-400
    Reversal of impairment 0322 0322
    Closing balance at 31 Dec 2,9454,3092,0643,186
    Gorenje Group and Gorenje, d.d.
    Higher investments in associates mostly, in the amount of EUR 1,200k, represent the share
    capital increase in the company GGE Netherlands B.V., the Netherlands, whereby in the amount
    of EUR 152k to profits or losses of associates that are attributed under the equity method to
    Group’s investments in associates. Impairment of investments fully refer to the company GOR
    Kolesa, d.o.o., Slovenia, and reversal of impairment to the investment made in Gorenje Projekt,
    d.o.o., Slovenia. Gorenje Group records no pledged investments in associates.
    List of Group companies that are not directly owned by the Company. Other Group companies
    are owners up to a certain percentage as disclosed in the table below:
    EURk Equity
    interest Equity of
    company in 2017 Profit or loss of the
    company in 2017
    KEMIS, d.o.o., Slovenia 100.00%7,518 110
    Gorenje Beteiligungs GmbH, Austria 100.00%55,308 87
    Gorenje Austria Handels GmbH, Austria 100.00%3,091-368
    Gorenje Vertriebs GmbH, Germany 100.00%6,870 -4
    Gorenje Körting Italia S.r.l., Italy 100.00%964
    Gorenje France S.A.S., France 100.00%2,2763,774
    Gorenje Espana S.L., Spain 100.00%-764-329
    Gorenje UK Ltd., Great Britain 100.00%-447-851
    Gorenje Group Nordic A/S, Denmark 100.00%1,860 29
    Gorenje spol. s r.o., Czech Republic 100.00%5,561 400
    Gorenje real spol. s r.o., Czech Republic 100.00%5,802 165
    Gorenje Slovakia s.r.o., Slovakia 100.00%1,320 61
    Gorenje Magyarország Kft., Hungary 100.00%3,473 78
    Gorenje Polska Sp. z o.o., Poland 100.00%5,859 11
    Gorenje Bulgaria EOOD, Bulgaria 100.00%2,231 111
    Gorenje Commerce, d.o.o., Bosnia and Herzegovina 100.00%3,889 615
    EURk Equity
    interest Equity of
    company in 2017 Profit or loss of the
    company in 2017
    Gorenje, d.o.o., Serbia 100.00%7,452 557
    Gorenje Podgorica, d.o.o., Montenegro 99.98%2,409 55
    Gorenje Romania S.r.l., Romania 100.00%594-65
    KEMIS-Termoclean, d.o.o., Croatia 100.00%2,775 514
    Kemis – BH, d.o.o., Bosnia and Herzegovina 100.00%59533
    Gorenje Studio, d.o.o., Serbia 100.00%00
    Gorenje Gulf FZE, United Arab Emirates 100.00%-614 8
    Gorenje Istanbul Ltd., Turkey 100.00%10-129
    Gorenje TOV, Ukraine 100.00%1358
    Kemis Valjevo, d.o.o, Serbia 100.00%1,887 180
    ATAG Nederland BV, the Netherlands 100.00%43,420 6,430
    ATAG België NV, Belgium 100.00%1,399 -78
    Intell Properties BV, the Netherlands 100.00%1,521 -50
    Gorenje Kazakhstan, TOO, Kazakhstan 100.00%50311
    OOO Gorenje BT, Russia 100.00%21,759 -3,264
    Gorenje GTI, d.o.o., Serbia 100.00%26689
    Asko Appliances AB, Sweden 100.00%5,939 357
    Gorenje North America, Inc., USA 100.00%983120
    Asko Appliances Pty, Australia 100.00%6,945 399
    Asko Appliances OOO, Russia 100.00%5250
    “Gorenje Albania” SHPK, Albania 100.00%69-74
    Gorenje Corporate GmbH, Austria 100.00%390
    Cleaning System S, d.o.o., Serbia 100.00%00
    Zeos eko-sistem d.o.o., Bosnia and Herzegovina 53.64%87565
    Gorenje Studio, d.o.o., Slovenia 100.00%00
    Gorenje Asia Ltd., China 100.00%1,411 483
    Gorenje MDM, d.o.o., Serbia 100.00%1,202 138
    Gorenje do Brasil Ltda., Brasil 100.00%301-302
    Gorenje Ekologija, d.o.o., Serbia 100.00%1,306 -19
    Novi Elind, d.o.o., Serbia 100.00%00
    Gorenje AEC, LLC, Thailand 100.00%107-90
    Gorenje Chile SpA, Chile 100.00%-197-386
    Indop Gorenje GmbH, Germany 100.00%-182-157
    Gorenje GSI, d.o.o., Slovenia 100.00%5,302 368
    Gorenje Skopje, d.o.o., Macedonia 100.00%1,723 36
    TERMOCLEAN S, d.o.o., Slovenia 100.00%70
    Gorenje Surovina, RECE, d.o.o., Slovenia 100.00%70
    Total 214,416 9,130
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Note 24 – Other non-current investments
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Loans to Group companies 000121,810
    Loans to other companies 2,3702,3591,3571,400
    Deposits 33156 00
    Other financial investments 4,160968672672
    Total 6,5633,4832,029123,882
    Movements in loans
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Opening balance at 1 Jan 2,0312,3701,0181,357
    Increase 3500352121,924
    Decrease -11-11-13-71
    Closing balance at 31 Dec 2,3702,3591,357123,210
    Gorenje Group and Gorenje, d.d.
    Loans given to subjects out of the Group include euro-denominated loans bearing a fixed
    interest rate and show a decline in 2017 by EUR 11k if compared to the previous year. The
    balance of loans given by the Group amounted as at 31 December 2017 to EUR 2,359k and
    mostly relates to the loan extended to Arosa Mobilia, d.o.o., Slovenia, during the divestment of
    the furniture activity and approved by the Company; the loan is insured with fixed properties.
    The Company approved most of loans to the subsidiaries Gorenje Nederland BV, the
    Netherlands and Gorenje Beteiligungs GmbH, Austria, whose repayment is adjusted with the
    free cash flow generated by aforesaid companies. They were in 2016 disclosed among current
    loans given (Note 28).
    Other non-current investments are not pledged to third parties.
    No non-current loans were granted by the Group to Management Board members,
    Supervisory Board members, and internal owners.
    Note 25 – Non-current operating receivables
    Gorenje Group
    Non-current operating receivables in the amount of EUR 7,375k (2016: EUR 2,481k) primarily
    refer to the Company and Gorenje Aparati za domaćinstvo, d.o.o., Serbia.
    Gorenje, d.d.
    Non-current operating receivables recorded at EUR 5,625k relate to receivables arising from
    the sale of coal to Vitol SA, Switzerland (EUR 2,708k), and from the sale of the investment
    property in Maribor to the company Pololes pohištvo, d.o.o., Slovenia (\
    EUR 2,917k). In 2016,
    the Company disclosed no non-current operating receivables.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Note 26 – Deferred tax assets and deferred tax liabilities
    Gorenje Group
    Deferred taxes are calculated based on temporary differences by using the liability method and
    the tax rate, applicable in the country in which the respective Group company is domiciled.
    Tax assetsTax liabilities Tax assets – tax
    liabilities
    EURk 20162017 2016201720162017
    Property, plant and equipment 322632 2,123 2,145-1,801 -1,513
    Investments 1,5761,510 11131,565 1,497
    Receivables 920841 6-8914 849
    Inventories 6254 -27 -45 8999
    Liabilities from litigations 315 01314
    Provisions in line with local
    standards and tax laws 873
    1,115 214143659972
    Provisions for retirement
    benefits and jubilee premiums 2,568
    2,528 -1-92,569 2,537
    Provisions for warranties 2,0281,713 -53-572,081 1,770
    Unused tax losses 12,57413,151 -56-1012,630 13,161
    Unused tax reliefs 6,4596,174 1601336,299 6,041
    Cash flow hedge – forward
    exchange contracts 0
    16 00016
    Cash flow hedge – interest rate
    swap 288
    164 6158227 106
    Total 27,67327,913 2,4382,36425,235 25,549
    Tax assets – tax
    liabilities Through profit or
    loss Through other
    comprehensive income
    EURk 20162017 2016201720162017
    Property, plant and equipment -1,801-1,513 6761500
    Investments 1,5651,497 148-32 4-2
    Receivables 914849 -202 -47 00
    Inventories 8999 9200
    Liabilities from litigations 314 211 00
    Provisions in line with local standards
    and tax laws 659
    972 157393 00
    Provisions for retirement benefits and
    jubilee premiums 2,569
    2,537 146-33 52-1
    Provisions for warranties 2,0811,770 68-308 00
    Unused tax losses 12,63013,161 856736 00
    Unused tax reliefs 6,2996,041 -263-194 00
    Cash flow hedge – forward exchange
    contracts 0
    16 0052 16
    Cash flow hedge – interest rate swap 227106 00129 -125
    Total 25,23525,549 1,597 543237-112
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Gorenje, d.d.
    Tax assetsTax liabilitiesTax assets – tax
    liabilities
    EURk 201620172016201720162017
    Property, plant and equipment 321586 00321 586
    Investments 1,5621,500 11131,551 1,487
    Receivables 493479 00493 479
    Provisions for retirement benefits and jubilee
    premiums 1,626
    1,549 001,626 1,549
    Provisions for warranties 773461 00773 461
    Unused tax losses 9,28210,087 009,282 10,087
    Unused tax incentives 5,6035,383 005,603 5,383
    Cash flow hedge – forward exchange
    contracts 0
    16 00016
    Cash flow hedge – interest rate swaps 288164 00288 164
    Total 19,94820,225 111319,937 20,212
    Tax assets – tax
    liabilities Through profit
    or loss Through other
    comprehensive income
    EURk 201620172016201720162017
    Property, plant and equipment 321586162265 00
    Investments 1,5511,487 158-61 5-2
    Receivables 493479-274 -14 00
    Provisions for retirement benefits and
    jubilee premiums 1,626
    1,549 139-69 29-7
    Provisions for warranties 773461 28-312 00
    Unused tax losses 9,28210,087 977806 00
    Unused tax incentives 5,6035,383 -347-221 00
    Cash flow hedge – forward exchange
    contracts 0
    16 0052 16
    Cash flow hedge – interest rate swaps 288164 00129 -125
    Total 19,93720,212 843394215-118
    Deferred tax assets arising from unused tax losses largely refer to the Company (EUR 10,087k).
    They have no limitation on use in the future tax periods (years) and represent EUR 53,093k of
    tax loss in the amount of which the tax basis may be reduced. The Company also discloses
    the biggest share of deferred tax assets arising from unused tax reliefs (EUR 5,383k), which primarily relates to reliefs on investments in equipment and intangible assets. The Company
    forms no deferred tax assets in relation to investments in research and development.
    Note 27 – Inventories
    Gorenje Group
    2016 2017
    EURk Domestic
    Appliances Other
    Business TotalDomestic
    Appliances Other
    Business Total
    Materials 56,5844,73761,321 63,6555,85369,508
    Work in progress 7,8813,81811,699 9,6832,94812,631
    Finished products 115,8974,503120,400 98,0906,261104,351
    Merchandise 25,8474,05529,902 29,6993,09132,790
    Advances 2,2813512,632 1,0942451,339
    Total 208,49017,464225,954 202,22118,398220,619
    Write-offs and value adjustments to inventories amounted in 2017 to EUR 4,012k (\
    2016:
    EUR 2,007k). Value adjustments and write-offs of inventories to their net realisable value are
    disclosed among operating expenses.
    Advances refer to inventories of raw materials, materials and merchandise.
    As at 31 December 2017, none of Group’s inventories were pledged. The book value of
    inventories does not exceed their net realisable value. The book value of inventories of finished
    products as at the balance sheet date, where production costs were adjusted to net realisable
    value in 2017, amounted to EUR 6,100k.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Gorenje, d.d.
    EURk20162017
    Materials 40,11541,130
    Work in progress 6,4517,805
    Finished products 17,31715,715
    Merchandise 22,52319,700
    Advances 2,158988
    Total 88,56485,338
    As at 31 December 2017, the book value of inventories of finished products, for which value
    adjustments were made from production value to net realisable value in 2017, was recorded at
    EUR 2,936k (2016: 1,763k).
    In 2017, value adjustments of inventories amounted to EUR 3,109k (2016:\
    EUR 2,163k) and
    resulted from the write-off of obsolete inventories.
    Note 28 – Current financial investment
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Available-for-sale investments 2,2471,7431,6171,321
    Short-term deposits 203511 00
    Given loans 5,7285,608138,563 16,431
    Given loans transferred from non-current loans 0000
    Current interest receivables 12752548 387
    Dividend receivables due from Group companies 0005,500
    Other current financial receivables 5161453,704 402
    Total 8,8218,059144,432 24,041
    Gorenje Group and Gorenje, d.d.
    Group’s available-for-sale investments include stocks and shares in banks and savings banks,
    and in other companies. Most of these investments are held by the Company (EUR 1,321k),
    whereof the largest share refers to the investment in Prvi sklad, d.o.o., Slovenia (EUR 521k)
    and the investment in shares of Delavska hranilnica (EUR 339k). The value of available-for-sale
    investments is disclosed in fair value. Loans granted by the Group refer to short-term loans extended to non-Group companies in the
    amount of EUR 5,608k. Relative to the previous year, they declined in 2017 by EUR 120k or
    2.1%. The larger portion of current given loans is denominated in euro and most thereof bear
    the EURIBOR rate. Most of loans extended by the Group (from EUR 5,608k) and approved
    by the Company relates to the Gorenje’s Handball Club (EUR 2,243k) and the associates
    companies Gorenje Projekt, d.o.o., Slovenia (EUR 2,081k) and GOR Kolesa, d.o.o., Slovenia
    (EUR 1,277k). In 2017, the company Gorenje Beteiligungs GmbH, Austria was fully repaid the
    loan extended to Inter solar Beteiligungs AG with its headquarters in Sw\
    itzerland in the amount
    of EUR 2,821k.
    The Company heavily reduced current loans extended to related entities (mostly to the holding
    companies Gorenje Nederland BV, the Netherlands and Gorenje Beteiligungs GmbH, Austria),
    where the maturity was adjusted with the planned repayment dynamics. They are accordingly
    recorded among non-current loans.
    The Company concludes hedging instrument to hedge against currency fluctuations in its own
    name and the name of other Group companies, and transfers them to companies that are
    locally exposed to such risk.
    Company’s other current financial receivables comprise a receivable due from the fair value of
    derivatives for currency risks relating to banks (EUR 79k) and to Group companies (EUR 106k),
    and a receivables due from Group companies relating to already realised derivatives that the
    Company enters into on their behalf (EUR 217k).
    The Group concluded forward exchange contracts for 2017 in order to hedge against
    exchange rate fluctuations. Fair value of forward exchange contracts is recognised partly in the
    income statement and partly in the statement of other comprehensive income. The recognition
    through comprehensive income aims at hedging effects to be recognised in the income
    statement in the same period in which the hedged item impacted the profit or loss.
    In 2017, the Group recorded settlements arising on derivatives used as hedging instruments in
    the amount of EUR -1,331k and in the same amount increased its finance income or finance
    expenses. In addition, finance income increased by EUR 1,513k and finance expenses by EUR
    239k as a result of Group’s adjustment of forward exchange contracts to fair value.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    160
    Movement of shares and interests available for sale
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Opening balance at 1 Jan 3,7002,2472,9271,617
    Exchange differences -4800
    Increase 28242118
    Decrease -1,396-451-1,301 -325
    Change in fair value -81-67-30 11
    Transfers 0-18 00
    Closing balance at 31 Dec 2,2471,7431,6171,321
    Gorenje Group
    The change in fair value amounting to EUR -67k is disclosed among fina\
    nce expenses in the
    amount of EUR 153k and EUR 86k among the increase in the fair value of available-for-sale
    financial assets.
    Shares in current investments are not pledged.
    Gorenje, d.d.
    The decline in shares and interest available for sale refer nearly in its full amount to the
    repayment of subsequent payments made in shares of the company Prvi Sklad, d.o.o.,
    Slovenia.
    Change in the fair value at EUR 11k is disclosed in the fair value reserve for available-for-sale
    financial assets.
    Current loans granted by the Company
    EURk 20162017
    Current loans to Group companies 135,67110,829
    Current loans to others 2,8925,602
    Total 138,56316,431
    Increase in given current loans mostly refers to loans approved to associates Gorenje Projekt,
    d.o.o., Slovenia and GOR Kolesa, d.o.o., Slovenia. Current loans given to Group companies operating in Slovenia
    EURk
    20162017
    Gorenje Orodjarna, d.o.o., Slovenia 1,183873
    Gorenje Keramika, d.o.o., Slovenia 3,6614,368
    Gorenje GAIO, d.o.o., Slovenia 1,7601,708
    Indop, d.o.o., Slovenia 1,3721,568
    Gorenje HS, d.o.o., Slovenia 350
    Total 8,0118,517
    Current loans given to Group companies operating abroad
    EURk 20162017
    Gorenje Beteiligungs GmbH, Austria 42,0401,634
    Gorenje Nederland BV, the Netherlands 83,068678
    Gorenje – kuchyně spol. s r.o., Czech Republic 1,8810
    Gorenje France S.A.S., France 6710
    Total 127,6602,312
    Current loans extended by the Company were denominated in euro and show in 2017
    a significant decline over the previous year, mostly due to the ownership restructuring
    of investments within the Group and adjusting the maturity of loans with the anticipated
    repayment dynamics that is harmonised with the projected cash flows generated by the
    borrowers. In view of current loans, the Company is not exposed to higher financial risks as
    most of these loans were extended to its subsidiaries.
    No current loans were granted by the Company to members of the Management Board, the
    Supervisory Board, and internal owners.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    161
    Note 29 – Trade receivables
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Trade receivables – Group companies 0082,996 107,637
    Trade receivables – other companies 165,786180,517 47,86450,994
    Total 165,786180,517130,860158,631
    Gorenje Group and Gorenje, d.d.
    The higher balance of Group’s receivables over the previous year is the result of larger volume
    of sales and lower volume of sold receivables (factoring) in the last quarter, mostly in Russia.
    Company’s receivables due from other Group companies significantly increased in 2017 due to
    the changed model of Group’s operations according to which most of supplies from production
    companies of the Domestic Appliances segment are now conducted via the Company.
    In 2017, the Group recorded EUR 2,076k of write-offs and impairments of trade receivables
    (2016: EUR 3,235k).
    As at 31 December 2017, allowances for trade receivables amounted to EUR 24,951k (2016:
    EUR 27,639k). The movement of relevant allowances is outlined in Note 43 (Financial risks and
    financial instruments).
    The Group records ‘trade receivables – other companies’, which are insured with quality
    hedging instruments in a share of 73.3% (31 December 2016: 65.6%), whereby the Company
    in a share of 60.2% (31 December 2016: 54.4%). As for insuring receivables with credit
    insurance companies, the own share of the insured is agreed and set mostly at 10 percent in
    a loss event, whereas in certain exceptions a higher own share is agreed with the insurance
    company (up to 30%). The Group has incorporated a credit risk management policy, which
    clearly defines terms and acceptable instruments for insuring receivables. The Accounts
    Receivable Management Policy is in detail presented in Note 43. Company’s current trade receivables due from Group companies
    EURk
    20162017
    Trade receivables due from customers in Slovenia 6,9359,606
    Trade receivables due from customers abroad 76,06198,031
    Total 82,996107,637
    Company’s current trade receivables due from customers (Group compan\
    ies)
    operating in Slovenia
    EURk 20162017
    Energygor, d.o.o., Slovenia 21
    ZEOS, d.o.o., Slovenia 56
    Kemis, d.o.o., Slovenia 22
    Gorenje Surovina, d.o.o., Slovenia 7151,113
    Gorenje I.P.C., d.o.o., Slovenia 1,3861,817
    Gorenje GTI, d.o.o., Slovenia 824744
    Gorenje Gostinstvo, d.o.o., Slovenia 8196
    Gorenje Orodjarna, d.o.o., Slovenia 13572
    ERICo, d.o.o., Slovenia 10
    Gorenje design studio, d.o.o. – in liquidation, Slovenia 00
    Indop, d.o.o., Slovenia 106118
    Gorenje GAIO, d.o.o., Slovenia 6156
    Gorenje GSI, d.o.o., Slovenia 2,9635,484
    Gorenje Keramika, d.o.o., Slovenia 5352
    Gorenje Studio, d.o.o., Slovenia 4610
    EKOGOR d.o.o., Slovenia 00
    Gorenje HS, d.o.o., Slovenia 14038
    Gorenje EKOINVEST, d.o.o., Slovenia 07
    Total 6,9359,606
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    162
    Current trade receivables due from customers (Group companies) operati\
    ng abroad
    EURk20162017
    Gorenje Zagreb, d.o.o., Croatia 4,6547,889
    Gorenje, d.o.o., Serbia 8,66514,031
    Gorenje aparati za domaćinstvo, d.o.o., Serbia 13,7298,397
    Gorenje Tiki, d.o.o., Serbia 1,0221,832
    Gorenje Home, d.o.o., Serbia 4,3076,234
    Gorenje Commerce, d.o.o., Bosnia and Herzegovina 2351,150
    Gorenje Skopje, d.o.o., Macedonia 1,0401,050
    Gorenje Podgorica, d.o.o., Montenegro 511765
    Gorenje Vertriebs GmbH, Germany 4,6696,199
    Gorenje Austria Handels GmbH, Austria -223-675
    Gorenje Beteiligungs GmbH, Austria 1,57332
    Asko Appliances AB, Sweden 1,596443
    Gorenje Group Nordic A/S, Denmark 4,8716,301
    ATAG Nederland BV, the Netherlands 77597
    Gorenje Nederland BV, the Netherlands 119
    Gorenje UK Ltd., Great Britain 8731,416
    Gorenje France S.A.S., France 1,148-222
    Gorenje Körting Italia S.r.l., Italy 2,7162,567
    OOO Gorenje BT, Russia -1302,120
    Gorenje TOV, Ukraine 7486
    Gorenje Kazakhstan, TOO, Kazakhstan 91
    Gorenje Slovakia s.r.o., Slovakia 10266
    Gorenje spol. s r.o., Czech Republic 5754,993
    Gorenje real spol s r.o., Czech Republic 790
    Mora Moravia, s.r.o., Czech Republic 1,4251,857
    Gorenje Magyarország Kft., Hungary -1121,756
    Gorenje Polska Sp. z o.o., Poland 1,3866,830
    Gorenje Bulgaria EOOD, Bulgaria 4321,214
    Gorenje Romania S.r.l., Romania 4,2605,595
    Gorenje Istanbul Ltd., Turkey -160
    “Gorenje Albania” SHPK, Albania 357434
    Gorenje Gulf FZE, United Arab Emirates 3,7963,764
    Gorenje North America, Inc., USA 300
    Asko Appliances Pty, Australia 8,9048,790
    EURk 20162017
    Gorenje do Brasil Ltda., Brasil 1,59292
    Asko Appliances OOO, Russia 1,5821,295
    Gorenje MDM, d.o.o., Serbia 20
    Gorenje Studio, d.o.o., Serbia 480
    Gorenje GTI, d.o.o., Serbia 11
    Gorenje ATAG Belgie NV, Belgium -161-283
    Gorenje Asia Ltd., China 51
    KEMIS Termoclean d.o.o., Croatia 21
    Gorenje Corporate GmbH, Austria 11
    Gorenje Chile SpA, Chile 4121,080
    ST Bana Nekretnine, d.o.o., Serbia 11
    Gorenje AEC, LLC, Thailand 0129
    Revaluation 23-8
    Total 76,06198,031
    Note 30 – Other current assets
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Other current receivables 43,60645,98710,552 9,511
    Short-term deferred costs 7,9257,7562,4153,265
    Other current assets 2,0562,285 00
    Advances for services 1,6711,838 174293
    Total 55,25857,86613,14113,069
    Gorenje Group and Gorenje, d.d.
    Other current assets include to a large extent current input VAT receivables, which in the Group
    amounted at the year-end of 2017 to EUR 10,394k (2016: EUR 11,754k) and in the Company
    to EUR 4,918k (2016: EUR 5,090k).
    Further, a large portion of Group’s other current assets include receivables due from partners,
    with whom agreements on non-recourse sale of receivables are signed in the amount of EUR
    21,609k (31 December 2016: EUR 24,556k); they refer to the own share in the receivables’
    share and/or to the volume of sold receivables, where the relevant partner has not yet
    conducted the payment for the sale of receivables. In addition, this item comprises receivables
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    163
    due from the insurance company for the fire compensation (EUR 3,350k) relating to the
    company Kemis, d.o.o., Slovenia and receivables for the excess payment of tax in the amount
    of EUR 4,161k (31 December 2016: EUR 677k) at the company Gorenje Nederland B.V., the
    Netherlands. As for the Company, it records a major portion of unpaid VAT receivables due
    from abroad in the amount of EUR 1,686k (31 December 2016: EUR 470k), current receivables
    for withholding tax in the amount of EUR 487k (31 December 2016: EUR 31\
    0k), receivables
    not yet charged in the amount of EUR 1,468k (31 December 2016: EUR 3,64\
    5k), receivables
    from the sale of receivables in the amount of EUR 185k (31 December 2016: EUR 273k), and\
    receivables arising from subsidies in the amount of EUR 208k.
    The item of short-term deferred costs and expenses comprises deferred costs that refer to
    subsequent periods.
    Note 31 – Cash and cash equivalents
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Cash in hand and cash in transit 5756151,960 338
    Bank balances and cash held in other financial institutions 34,66724,42212,783 3,146
    Total 35,24225,03714,743 3,484
    Note 32 – Equity
    Gorenje Group and Gorenje, d.d.
    As at 31 December 2017, Company’s share capital amounted to EUR 101,922,103.97
    (31 December 2016: EUR 101,922,103.97) and is divided into 24,424,613 \
    ordinary, freely
    transferable, registered, no par value shares.
    Reserves consist of share premium, revenue reserves, fair value reserve and translation reserve.
    Group’s capital surplus (share premium) in the amount of EUR 174,502k (31 December
    2016: EUR 174,502k) presents surplus in excess of par value of shares in the amount of EUR
    64,475k (31 December 2016: EUR 64,475k), surplus in excess of book val\
    ue of disposed own
    shares (treasury shares) in the amount of EUR 15,313k (31 December 2016: EUR 15,313k),
    and general equity revaluation adjustment in the amount of EUR 76,851k (31 December 2016:
    EUR 76,851k), and other effects of transition to IFRSs. Revenue reserves recorded as at the balance sheet date in the amount of EUR 33,131k (31
    December 2016: EUR 46,015k) consist of legal reserves, statutory reserves, treasury share
    reserve and other revenue reserves.
    As at 31 December 2017, legal reserves amounted to EUR 12,896k (31 December 2016: EUR
    12,896k). In accordance with provisions of the Companies Act, share premium (capital surplus)
    and legal reserves can in their excess amount, be used for share capital increase, for coverage
    of loss for the period and retained loss if revenue reserves are not simultaneously used for
    dividend payout.
    As at the balance sheet date, statutory reserves amounted to EUR 7,966k (31 December
    2016: EUR 7,919k). Statutory reserves can according to Company’s Articles of Association be
    used for a share capital increase; for coverage of loss for the period and retained loss should
    no other sources be available; for share withdrawal in case of a compulsory transfer of shares,
    and for share withdrawal by Company’s acquisition; for share withdrawal under the simplified
    procedure of share capital decrease; for creation of treasury shares if no other sources are
    available, and for balancing the dividend policy.
    Treasury shares (own shares) in the amount of EUR 3,170k (31 December 2016: EUR 3,170k)
    are disclosed as a deductible item of equity and at cost. The number of sh\
    ares remained
    unchanged in 2017.
    As at 31 December 2017, other revenue reserves amounted to EUR 9,099k (31 December
    2016: EUR 22,030k) and were created on the basis of resolutions on the allocation of profit
    for the period adopted by the Company’s Management Board and the Supervisory Board,
    and resolutions of the General Meeting of Shareholders on the allocation of the accumulated
    profit. For the purpose of forming accumulated profit, the Company transferred other revenue
    reserves in the amount of EUR 12,931k to retained earnings (profit or loss from previous
    periods) in line with the Companies Act.
    Group’s retained earnings in the amount of EUR 74,519k (31 December 2016: EUR 63,152k)
    comprise profit or loss from previous periods and profit or loss for 2017. Upon the proposal of
    the Management Board, the parent company used the profit of 2017 to form statutory reserves
    in the amount of EUR 47k.
    Translation reserve (Group) amounted as at 31 December 2017 to EUR -13,723k (31
    December 2016: EUR -17,311k). The increase is attributable to exchange differences that arise
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    164
    on the restatement of subsidiaries’ assets and liabilities from abroad from national currencies to
    the Group’s reporting currency.
    Group’s fair value reserve amounting to EUR -454k as at 31 December 2017 (31 December
    2016: EUR -733k) includes changes in fair value of available-for-sale investments and changes
    in value of the cash flow hedge, and the change in the value of retirement benefits pursuant
    to the actuarial calculation. With respect to the changed valuation model for land (cost model
    replaced the revaluation model) as of 1 January 2017, we have eliminated valuations l\
    inked to
    land from the fair value reserve. We have accordingly adjusted also the comparable data for
    2016 in accordance with IAS 8.
    Changes in Group’s fair value reserve are shown in the table below:
    EURkFair value reserve
    for available-for- sale financial assets Fair value reserve
    for derivatives Actuarial
    gains/
    losses Total
    Balance at 1 Jan 2016 3,036-275-2,429 332
    Actuarial gains or losses 00-332-332
    Change in fair value of cash flow
    hedge 0
    -1,531 0-1,531
    Change in fair value of cash flow
    hedge, transferred to profit or loss 0
    5940594
    Change in fair value of available-for-
    sale financial assets -30
    00-30
    Disposal of available-for-sale financial
    assets -3
    00-3
    Deferred taxes 418152237
    Balance at 31 Dec 2016 3,007-1,031-2,709-733
    EURk Fair value reserve
    for available-for- sale financial assets Fair value reserve
    for derivatives Actuarial
    gains/
    losses Total
    Balance at 1 Jan 2017 3,007-1,031-2,709-733
    Actuarial gains or losses 006565
    Change in fair value of cash flow hedge 0-6510-651
    Change in fair value of cash flow hedge,
    transferred to profit or loss 0
    8910891
    Change in fair value of available-for-sale
    financial assets 86
    0086
    Deferred taxes -2-109-1-112
    Balance at 31 Dec 2017 3,091-900-2,645 -454
    Changes in Company’s fair value reserve are shown in the table below:
    EURk Fair value reserve
    for available-for- sale financial assets Fair value reserve
    for derivatives Actuarial
    gains/
    losses Total
    Balance at 1 Jan 2016 73-521-1,480 -1,928
    Actuarial gains or losses 00-137 -137
    Change in fair value of cash flow hedge 0-1,479 0-1,479
    Change in fair value of cash flow hedge,
    transferred to profit or loss 0
    5940594
    Change in fair value of available-for-sale
    financial assets -30
    00-30
    Disposal of available-for-sale financial
    assets -3
    00-3
    Deferred taxes 518129215
    Balance at 31 Dec 2016 45-1,225-1,588-2,768
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    165
    EURkFair value reserve
    for available-for- sale financial assets Fair value reserve
    for derivatives Actuarial
    gains/
    losses Total
    Balance at 1 Jan 2017 45-1,225-1,588-2,768
    Actuarial gains or losses 007777
    Change in fair value of cash flow
    hedge 0
    -3110-311
    Change in fair value of cash flow
    hedge, transferred to profit or loss 0
    8830883
    Change in fair value of available-for-
    sale financial assets 11 0011
    Deferred taxes -2-109-7-118
    Balance at 31 Dec 2017 54-762-1,518-2,226
    Note 33 – Earnings per share
    Gorenje Group and Gorenje, d.d.
    The Company issued no financial instruments that would have an impact \
    on diluted earnings
    per share, thus the basic and diluted earnings per share are equal.
    Gorenje Group Gorenje, d.d.
    2016 201720162017
    Profit for the period (in EURk) 7,9949693,699 473
    Weighted average number of ordinary shares 24,303,30224,303,30224,303,30224,303,302
    Basic / Diluted earnings per share (in EUR) 0.330.040.150.02
    In the year 2017 the Company paid its stockholders dividends for the fi\
    scal year 2016 in the
    amount of EUR 0.10 gross per share, thus totalling to EUR 2,430k. No dividends were paid out
    in 2016.
    Own shares (treasury shares)
    Number of own shares 1 Jan 2017Purchases Sale 31 Dec 2017
    Repurchased own shares 121,31100121,311
    Note 34 – Establishment of accumulated profit pursuant to
    provisions of the Companies Act
    In accordance with the Companies Act and the Articles of Association of the Comp\
    any, the
    Company’s Management Board decided that a portion of Company’s profit for 2017, which
    totalled to EUR 473,260.16 is earmarked for forming statutory reserves in the amount of
    EUR 47,326.02. In addition, the residual amount of the profit for 2017 in the amount of EUR
    425,934.14, retained earnings in the amount of EUR 54,484,284.73, which are reduced by
    EUR 56,786.43 based on utilising the actuarial deficit for retirement benefits, and the release
    of other revenue reserves in the amount of EUR 12,931,561.56 are used for the formation of
    accumulated profit in line with the Companies Act, which stipulates that long-term d\
    eferred
    development costs must be on the balance sheet date treated as a deductible item. With
    respect to the aforesaid, the Company’s accumulated profit is as at 31 December 2017
    recorded at EUR 0.
    in EUR
    Profit for the period 473,260.16
    - formation of statutory reserves -47,326.02
    + retained earnings from previous periods 54,484,284.73
    - decrease in previous year's profits based on utilising the actuarial deficit
    for retirement benefits -56,786.43
    + decrease in other revenue reserves 12,931,561.56
    - long-term deferred development costs as at the balance sheet date -67,784,994.00
    = accumulated profit as at 31 December 2017 0.00
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    166
    Note 35 – Provisions
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Provisions for warranties 37,43733,322 7,5864,489
    Provisions for retirement benefits and jubilee premiums 22,49722,64112,76612,640
    Other provisions 4,2093,923 588379
    Total 64,14359,88620,94017,508
    Movements in Group’s provisions
    EURk 2016
    2017
    Provisions for warranties Provisions for
    retirement benefits
    and jubilee premiums Other provisions TotalProvisions for
    warranties Provisions for
    retirement benefits
    and jubilee premiums Other provisions Total
    Balance at 1 Jan 35,59821,684 4,98762,26937,437 22,497 4,20964,143
    Use -28,843-1,818 -321-30,982-30,008 -1,658 -232-31,898
    Exchange differences 102-4-17 81376 263405
    Reversal -697-204-940-1,841-4,389 -599-461-5,449
    Formation 31,2202,863 76734,85029,906 2,494 40432,804
    Transfer 57167 -267 -430 000
    Disposal of companies 0-191 0-191 0-119 0-119
    Balance at 31 Dec 37,43722,497 4,20964,14333,322 22,641 3,92359,886
    Movements in Company’s provisions
    EURk 2016
    2017
    Provisions for warranties Provisions for
    retirement benefits
    and jubilee premiums Other provisions TotalProvisions for
    warranties Provisions for
    retirement benefits
    and jubilee premiums Other provisions Total
    Balance at 1 Jan 8,75712,405 25621,418 7,58612,766 58820,940
    Use -8,525-767-204-9,496 -6,329 -723-312 -7,364
    Reversal 00-211 -211-1,800 -427-25-2,252
    Formation 7,3541,128 7479,229 5,032 1,0241286,184
    Balance at 31 Dec 7,58612,766 58820,940 4,48912,640 37917,508
    Gorenje Group and Gorenje, d.d.
    Provisions for warranties are created on the basis of estimated costs of warranties calculated by
    taking into account the past known data on the quality level of products and the costs of repairs
    under warranties.
    Reversal of provisions for warranties in the amount of EUR 4,389k primarily relates to the
    Company (EUR 2,252k) and the company Gorenje Vertriebs GmbH, Germany (EUR 1,840k).
    The improved quality level of products led to the reversal of provisions for warranties.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    167
    Note 37 – Non-current operating liabilities
    Gorenje Group
    Non-current operating liabilities in the amount of EUR 2,807k (31 December 2016\
    : EUR
    3,672k) largely refer to the long-term maintenance contracts concluded in connection with\
    costs of repairs and product swap in the company Atag Nederland BV, the Netherlands.
    Note 38 – Non-current financial liabilities
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Borrowings from banks 323,169314,301293,571284,691
    Transfer to current borrowings from banks -78,700-56,869-66,924-48,753
    Borrowings from other companies 2,0211,773 00
    Transfer to current borrowings from other companies -330-420 00
    Liabilities from bonds issued 43,59348,52443,59348,524
    Transfer to current liabilities from bonds issued -14,600-14,600-14,600-14,600
    Other financial liabilities 463311 120
    Total 275,616293,020255,652269,862
    Gorenje Group and Gorenje, d.d.
    Non-current financial sources are used by the Group to finance itself in more than a 92 percent
    stake through the Company. Non-current financial liabilities are mostly denominated in EUR
    and recorded at amortised cost i.e. restated under the effective interest rate method and
    inclusive of costs of granting the borrowing.
    Other financial liabilities comprise liabilities under the finance l\
    ease.
    Maturity of borrowings and liabilities from issued bonds
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Maturity from 1 to 2 years 77,688108,112 72,305101,482
    Maturity from 2 to 4 years 130,484131,591123,770124,163
    Maturity from 4 to 6 years 60,76151,40756,40544,217
    Maturity exceeding 6 years 6,2201,5993,172 0
    Total 275,153292,709255,652269,862
    The change in provisions for retirement benefits and jubilee premiums is mostly attributable
    to the additional formation of such provisions based on an actuarial calculation that was
    conducted by Group companies also in 2017. Employee benefits expense and interest expense
    are recognised by the Group in its profit or loss in the amount of EUR 2,390k, whereby the
    actuarial surplus within the comprehensive income in the amount of EUR 65k.
    The actuarial calculation is based on the required actuarial assumptions (discount rate, amount
    of retirement benefits and jubilee premiums, staff fluctuation, mortality tables and wage growth).
    The discount interest rate of 4.0% p.a. and the long-term wage growth of 1.5% p.a. are the two
    actuarial assumptions with the biggest impact on the valuation result of payables to employees.
    Employee benefits expense and interest expense are recognised by the Company in its profit
    or loss in the amount of EUR 1,024k, whereby the actuarial surplus within the comprehensive
    income in the amount of EUR 77k.
    Other provisions of the Group comprise mostly provisions for costs in connection with the
    Directive on Waste Electrical and Electronic Equipment recorded by the company ZEOS, d.o.o.,
    Slovenia, whereas Company’s other provisions include provisions for the product liability and
    compensation claims.
    Note 36 – Deferred income
    Gorenje Group
    EURk 2016
    2017
    Deferred income –
    government grants TotalDeferred income –
    government grants Total
    Balance at 1 Jan 5,3505,350 5,0375,037
    Use -4,490-4,490 -4,429-4,429
    Exchange differences -73-73 203203
    Formation 4,2504,250 6,7526,752
    Balance at 31 Dec 5,0375,037 7,5637,563
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Gorenje Group and Gorenje, d.d.
    The Group maintains its long-term financial stability based
    on the fact that more than three quarters of total financial
    liabilities are of long-term nature. This is reflected also in the
    balance of non-current financial liabilities, which mature at the
    end of 2018 solely in the amount of EUR 71,840k.
    Non-current borrowings and issued bonds by
    currencies
    Currency/EURkGorenje GroupGorenje, d.d.
    EUR 282,155261,862
    Other currencies 10,5548,000
    Total 292,709269,862
    Gorenje Group and Gorenje, d.d.
    Most of non-current financial liabilities are denominated in
    euro. With respect to the policy of the European Central
    Bank and other central banks, low inflation rate of the
    euro zone, as well as the low level of the euro-zone’s base
    interest rate, the Group and the Company actively managed
    the interest rate risk arising in connection with borrowed
    funds bearing the Euribor variable interest rate and in a
    lesser extent also with other local variable reference interest
    rates.
    Collateralisation of non-current financial liabilities
    Collateralisation/EURk Gorenje GroupGorenje, d.d.
    Bills 118,927116,398
    Financial covenants 256,002237,118
    Guarantees 21,0880
    Gorenje Group and Gorenje, d.d.
    None of the Group’s current or non-current financial liability
    is collateralised by mortgage or any other form of physical
    asset. A significant portion of Group companies’ borrowings
    is collateralised by bills and the Pari-Passu and Negative
    Pledge clauses in compliance with individual contracts. Non- current borrowings, in particular, are frequently supported by
    financial covenants as defined in individual loan contracts.
    The item of guarantees refers to guarantees or collaterals
    issued to banks for liabilities of individual Group companies
    by the Company, Gorenje Home, d.o.o., Serbia, Gorenje,
    d.o.o., Serbia, Gorenje Tiki, d.o.o., Serbia, and Gorenje
    aparati za domaćinstvo, d.o.o., Serbia.
    Financial covenants are mostly checked once a year based
    on the audited consolidated financial statements for the
    individual financial year. None of borrowings raised by the
    Group are insured, most of loan contracts are subject to
    agreed-upon standard financial ratios that in addition to the
    debt ratio, where net financial liabilities to EBITDA must be
    lower than 4, includes also following financial covenants:
    interest ratio (EBITDA to net interest expenses must exceed
    4), difference between total and minority owned equity must
    exceed EUR 220m, ratio between net financial debt and
    the difference between total and majority holding must be
    below 1.2).
    In 2017, we have met all agreed financial covenants, except
    for the net financial debt/EBITDA ratio. Commercial banks
    have approved a waiver for the fiscal year 2017. Due to the
    breach of the stated covenant in 2017, the Group and the
    Company have issued to financial partners – for the purpose
    of enhancing its additional commitment to the set goal
    of lowering the Group’s relative indebtedness – following
    additional covenants for 2018:

    divestment of non-core assets and assets in Other
    business segment in the minimum amount of EUR 50m
    aimed at generating EUR 80m that shall be used for
    deleveraging,
    • adjusting the annual volume of investments with the
    amount of amortisation so that they shall not exceed
    EUR 65m, •
    no dividend payout shall be proposed by the Company’s
    Management Board,
    • meetings with financial partners shall be organised on a
    quarterly basis.
    In addition to the above-mentioned clauses and financial
    covenants, the loan contracts include also additional
    commitments that refer to financial indebtedness, disposal
    of assets, terms of early repayment, MAC clauses and
    similar, which the Group met in 2017 or in this respect
    received appropriate waivers from the bank partners. Certain
    loan contracts comprise also provisions tied to changing
    the Company’s ownership and changing the Company’s
    managing as the result of Company’s management change.
    As at the balance sheet date, the relevant provisions are
    considered in EUR 165,879k of drawn borrowings, in the
    amount of up to EUR 24,838k at contracts for financing
    suppliers (working factoring), and up to EUR 5,967k in case
    of received guarantees and letters of credit; in a total amount
    of EUR 196,683k.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Note 39 – Current financial liabilities
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Borrowings from banks 1,03215,859 010,000
    Current part of non-current financial liabilities to banks 78,70056,86966,92448,753
    Borrowings from Group companies 0063,322 64,290
    Borrowings from other companies 1,1591461,011 33
    Current part of non-current liabilities to other companies 330420 00
    Interest payable 2,3081,6602,4251,898
    Liabilities from bonds issued 14,60014,60014,60014,600
    Dividends payable 72717271
    Other current financial liabilities 3,0251,1063,1351,391
    Total 101,22690,731151,489 141,036
    Gorenje Group and Gorenje, d.d.
    The largest share of Group’s (EUR 71,889k) and Company’s current liabilities (EUR 63,353k) to
    third parties refers to the current part of non-current financial liabilities (borrowings raised and
    issued bonds), which mature in 2018.
    Current borrowings by currency
    Currency/EURk Gorenje GroupGorenje, d.d.
    EUR 84,261122,189
    Other currencies 3,633887
    Total 87,894123,076
    Gorenje Group and Gorenje, d.d.
    Most of current or short-term borrowings are denominated in euro. Company’s borrowings received from Group companies operating in Slove\
    nia
    Company/EURk
    20162017
    Gorenje Gostinstvo, d.o.o., Slovenia 2,9072,758
    Gorenje I.P.C., d.o.o., Slovenia 6,2743,737
    Gorenje GAIO, d.o.o., Slovenia 00
    Gorenje GSI, d.o.o., Slovenia 5,9555,821
    Gorenje design studio, d.o.o. – in liquidation, Slovenia 01,300
    Energygor, d.o.o., Slovenia 18383
    ERICo, d.o.o., Slovenia 4000
    Gorenje Surovina, d.o.o., Slovenia 1600
    ZEOS, d.o.o., Slovenia 4,5754,089
    Gorenje Studio, d.o.o., Slovenia 840
    Gorenje GTI, d.o.o., Slovenia 1,2715,581
    Kemis, d.o.o., Slovenia 1,080900
    Gorenje EKOINVEST, d.o.o., Slovenia 6642,858
    Total 23,55327,127
    Company’s borrowings received from Group companies operating abroad
    Company/EURk 20162017
    ATAG Nederland BV, the Netherlands 16,39718,273
    Mora Moravia, s.r.o., Czech Republic 3,4170
    Asko Appliances AB, Sweden 1,8971,234
    Gorenje North America, Inc., USA 766887
    Gorenje spol. s r.o., Czech Republic 01,100
    Gorenje Commerce, d.o.o., Bosnia and Herzegovina 1,8001,800
    Gorenje Magyarország Kft., Hungary 1,9620
    Gorenje Austria Handels GmbH, Austria 2891,500
    OOO Gorenje BT, Russia 10,00010,000
    Gorenje Slovakia s.r.o., Slovakia 3,2411,892
    Mora Moravia, s.r.o., Czech Republic 0477
    Total 39,76937,163
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    170
    Gorenje Group and Gorenje, d.d.
    The liquidity is in the Group and the Company managed in a centralised manner, which
    enables that the Group is able to meet all its due liabilities at any time. Accordingly, the Group
    is engaged in internal financing, which is mostly conducted through the Company. Current
    surpluses of subsidiaries’ financial assets are borrowed under market conditions to the
    Company, which discloses most of its total financial liabilities to external financial institutions.
    Collateralisation of current financial liabilities
    Collateralisation/EURkGorenje GroupGorenje, d.d.
    Bills 49,56947,041
    Financial covenants 53,96348,753
    Guarantees 12,4710
    Gorenje Group and Gorenje, d.d.
    None of the Group’s and Company’s current financial liability is collateralised by mortgage
    or any other form of physical asset. A significant portion of Group companies’ borrowings
    is collateralised by bills and the Pari-Passu and Negative Pledge clause\
    s in compliance with
    individual contracts. A detailed description is provided in the section ‘Collateralisation of non-
    current financial liabilities’.
    Note 40 – Trade payables
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Trade payables – Group companies 0038,261 72,933
    Trade payables – other companies 223,725229,402139,473139,681
    Total 223,725229,402177,734212,614
    Supplier factoring was launched for the purpose of extending the turnover days for trade
    payables. The number of included key suppliers, whose payment deadlines \
    were extended and
    thus the related supply volume, has grown materially in the last quarter of 2017, which will have
    a positive impact in 2018 on the amount of net working capital and thereby on the amount of
    net financial liabilities. Gorenje Group
    Within the total balance of trade payables in the amount of EUR 229,402k,\
    the Group as at 31
    December 2017 (31 December 2016: EUR 223,725k) does not record operating liabilities to
    members of the Management Board, members of the Supervisory Board and internal owners.
    Company’s trade payables to Group companies
    EURk
    20162017
    Trade payables to suppliers in Slovenia 6,3469,048
    Trade payables to suppliers abroad 31,91563,885
    Total 38,26172,933
    Company’s trade payables to Group companies (operating in Slovenia)\
    Company/EURk 20162017
    Kemis, d.o.o., Slovenia 2739
    Gorenje Surovina, d.o.o., Slovenia 8780
    Gorenje I.P.C., d.o.o., Slovenia 4,7606,869
    Gorenje GTI, d.o.o., Slovenia 203420
    Gorenje Gostinstvo, d.o.o., Slovenia 165308
    Gorenje Orodjarna, d.o.o., Slovenia 916951
    ERICo, d.o.o., Slovenia 100
    Gorenje design studio, d.o.o. – in liquidation,
    Slovenia 0
    0
    Gorenje GAIO, d.o.o., Slovenia 152358
    Gorenje GSI, d.o.o., Slovenia 15
    ZEOS, d.o.o., Slovenia 046
    Gorenje Keramika, d.o.o., Slovenia 04
    Gorenje Studio, d.o.o., Slovenia 110
    Indop, d.o.o., Slovenia 1430
    Gorenje HS, d.o.o., Slovenia 0-62
    Total 6,3469,048
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Company’s trade payables to Group companies (operating abroad)
    Company/EURk20162017
    Gorenje Zagreb, d.o.o., Croatia 160
    Gorenje, d.o.o., Serbia 5549
    Gorenje aparati za domaćinstvo, d.o.o., Serbia 14,73328,378
    Gorenje Tiki, d.o.o., Serbia 2,9012,197
    Gorenje Vertriebs GmbH, Germany 349247
    Gorenje Austria Handels GmbH, Austria 00
    Gorenje Beteiligungs GmbH, Austria 1,6042,002
    Asko Appliances AB, Sweden 2,3162,459
    Gorenje Group Nordic A/S, Denmark 666396
    ATAG Nederland BV, the Netherlands 1,4261,352
    Gorenje Nederland BV, The Netherlands 2550
    Gorenje UK Ltd., Great Britain 51
    Gorenje France S.A.S., France 30
    Gorenje Körting Italia S.r.l., Italy 91252
    Gorenje Slovakia s.r.o., Slovakia 70
    Gorenje spol. s r.o., Czech Republic 713216
    Mora Moravia, s.r.o., Czech Republic 4,97124,919
    Gorenje Magyarország Kft., Hungary 2313
    Gorenje Polska Sp. z o.o., Poland 202
    Gorenje Romania S.r.l., Romania 121
    Gorenje Gulf FZE, United Arab Emirates 1433
    Gorenje Istanbul Ltd., Turkey 380
    Gorenje Commerce, d.o.o., Bosnia and Herzegovina 17
    Gorenje Home, d.o.o., Serbia 840489
    Gorenje real spol s r.o., Czech Republic 00
    Gorenje TOV, Ukraine 5224
    Gorenje Asia Ltd., China 92599
    Asko Appliances Pty, Australia 23471
    Gorenje North America, Inc., USA 2017
    OOO Gorenje BT, Russia 8823
    Gorenje Kazakhstan, TOO, Kazakhstan 3564
    Gorenje Bulgaria EOOD, Bulgaria 721
    Gorenje MDM, d.o.o., Serbia 310
    Gorenje Studio, d.o.o., Serbia 1030
    Company/EURk 20162017
    Asko Appliances OOO, Russia 7115
    Gorenje Skopje, d.o.o., Macedonia 37
    Gorenje Podgorica, d.o.o., Montenegro 013
    Revaluation 228
    Total 31,91563,885
    Company’s trade payables to other suppliers
    EURk 20162017
    Trade payables to other suppliers in Slovenia 44,62139,591
    Trade payables to other suppliers abroad 94,852100,090
    Total 139,473139,681
    Supplier factoring was launched for the purpose of extending the turnover days for trade
    payables. The number of included key suppliers, whose payment deadlines \
    were extended and
    thus the related supply volume, has grown materially in the last quarter of 2017, which will have
    a positive impact in 2018 on the amount of net working capital and thereby on the amount of
    net financial liabilities.
    Note 41 – Other current liabilities
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Payables to employees 14,92215,226 7,7618,348
    Payables to state and other institutions 13,86616,403 1,1401,795
    Accrued costs and expenses 35,14341,935 7,3566,671
    Other financial liabilities 15,63214,188 4,2413,510
    Total 79,56387,75220,49820,324
    Gorenje Group and Gorenje, d.d.
    Payables to employees and to the state arising from contributions and taxes refer to wages
    and salaries, which are accounted for December and paid out in January the following year.
    Accrued costs and expenses were formed for accrued discounts to buyers, accrued interest
    expenses, accrued employee benefits expense and other accrued costs of\
    services.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    172
    Group’s other current liabilities comprise payables for
    advances received, short-term deferred income, payables
    for credit notes granted to buyers, payables for employee
    deductions, payables arising from assignment of receivables,
    payables arising from payment of foreign tax, and other
    short-term liabilities.
    Company’s other current liabilities include payables for
    advances received, liabilities arising from unpaid portion of
    non-cash investment contribution in the company Gorenje
    Home, d.o.o., Serbia, and short-term deferred income.
    Note 42 – Contingent liabilities
    Gorenje Group and Gorenje, d.d.
    Group’s contingent liabilities in the amount of EUR 82,846k
    (2016: EUR 66,111k) relate in the amount of EUR 72,351k to
    guarantees obtained at banks and other financial institutions,
    issued in order to insure Group companies’ contract
    obligations to business partners outside the Group. EUR
    67,073k thereof represent guarantees issued by companies
    Kemis, d.o.o., Slovenia, Gorenje Surovina, d.o.o., Slovenia
    and Zeos, d.o.o., Slovenia for the purpose of insuring the
    transport of hazardous waste, waste disposal and similar.
    Other guarantees issued in the amount of EUR 5,278k
    include service-related guarantees, while EUR 2,995k
    of thereof were issued for the fulfilment of conditions for
    utilisation of government grants for employment in Serbia.
    The difference between contingent liabilities and the total
    amount of EUR 10,495k mainly refers to the shipping
    transport of coal, which will no longer be required in 2018 as
    the coal activity is to be disposed.
    In accordance with the ordinary business practice, the
    Atag company is not liable to publish its annual results of
    operation in the country, where its corporate seat is, if the
    shareholder, in a special statement, assumes liability to pay any outstanding obligations of the company. The respective
    statement shall remain in effect until rescinded by the
    shareholder.
    In a separate account the Company discloses contingent
    liabilities arising under guarantees provided to financial
    institutions in order to obtain borrowings, guarantees and
    letters of credit of subsidiaries in the amount of EUR 51,777k
    (2016: EUR 43,042k), associates in the amount of EUR 281k
    (2016: EUR 169k) and other companies in the amount of
    EUR 10,214k (2016: EUR 11,384k). As for other companies,
    the guarantees in the amount of EUR 10,006k relates to the
    shipping transport of coal. The respective guarantees within
    the Group represent the usual practice in obtaining loans. In
    addition, contingent liabilities from performance bonds and
    payment guarantees in the amount of EUR 3,210k (2016:
    EUR 2,758k) are recorded in a separate account.
    Note 43 – Financial risks and financial
    instruments
    The Group and the Company are exposed to numerous
    financial risks, including particularly the credit risk, the liquidity
    risk, the currency risk, the interest rate risk and other risks
    arising on changed market conditions.
    With respect to financial risk management, several internal
    policies and rules are defined by means of which the financial
    risks are managed in a centralised manner. The Company
    pursues a centralised financial policy within the framework of
    corporate rules and conducts the financial risk management
    on the Company and Group level. While managing financial
    risks, following objectives are observed:

    to achieve stability of operations and to reduce exposure
    to individual risks to an acceptable level,
    • to increase the value of Company and Group,
    • to improve the credit rating of Company and Group, •
    to reduce net finance costs of Company and Group, and
    • to minimise the impacts of the materialised critical risks.
    The exposure to each individual type of financial risk and
    the effective hedge measures are judged and applied
    respectively on the basis of their effects on Company’s and
    Group’s cash flows and net finance costs and the adopted
    annual business plan. The risk management principles and
    methodologies applied are in detail outlined in the annual
    report’s business report under ‘Risk management’. Essential
    financial risks that are regularly assessed and the adequacy
    of implemented measures tested are outlined in detail below.
    The Group and the Company apply derivatives for hedging
    against currency and interest rate risks. Upon the launch of
    hedging, the Group and the Company formally document
    the relationship of the hedging and the purpose of the
    risk management in the company, as well as the hedging
    project’s strategy and the methods used in assessing the
    effectiveness of the hedging relationship. The Group and
    the Company assess the hedging on an ongoing basis and
    during its launch, thus when the hedging is expected to be
    “highly effective” in offsetting the changes in the fair value
    or cash flows that are attributable to the hedged risk, and
    when the actual results of each hedging achieve 80 to 125
    percent. For a cash flow hedge of a forecast transaction,
    the transaction should be highly probable to occur and
    should present an exposure to variations in cash flows that
    could ultimately affect reported profit or loss. Derivatives are
    recognised initially at fair value; attributable transaction costs
    are recognised in profit or loss as incurred.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    173
    Credit risk
    The carrying amount of financial assets represents the maximum credit risk exposure. The
    maximum credit risk exposure at the reporting date:
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Available-for-sale financial assets 2,2471,7431,6171,321
    Loans 8,0987,967139,920 139,641
    Trade and other receivables 213,119230,626141,586168,435
    Deposits 236667 00
    Other financial receivables 4,8031,1656,98810,147
    Cash and cash equivalents 35,24225,03714,743 3,484
    Total 263,745267,205304,854323,028
    Gorenje Group and Gorenje, d.d.
    Special attention is paid to managing credit risks. They are balanced through regular control of
    required and approved credit limits, approved by credit insurance companies, the appropriate
    collection of receivables, and regular communication with credit insurance companies and
    business partners. We have also launched the system of permanent recourse-free factoring,
    which is carried out when costs of such activities do not exceed the Group’s average costs of
    financing or when these activities are used to reduce credit and currency risks. The balance
    of bad debts is reviewed and analysed on an on-going basis, and proper measures are
    implemented (e.g. collection, collection of insurances, adjustment of s\
    upplies to the approved
    credit limits and credit ratings of customers). We have a strict set of rules about credit risk
    management, including the defined acceptable instruments of insurance,\
    levels of acceptable
    exposure to individual customers and markets. The rules of credit risk management are
    upgraded in a manner to ensure the highest possible stability of Group’s business operations.
    Trade receivables form the Group’s most significant portion of credit risks or risk of default
    by the counterparty. As at the year-end of 2017, these trade receivables amounted to EUR
    180,517k and indicate an increase over the previous period by EUR 14,731k. The higher
    volume of trade receivables is in line with the higher volume of sales activities and low\
    er sale of
    receivables in Russia in the last quarter of 2017.
    Trade receivables, as well, form the Company’s most significant portion of credit risks or risk of
    default by the counterparty. As at the year-end of 2017, these trade receivables amounted to
    EUR 50,995k and indicate an increase over the previous period by EUR 3,130k. The respective increase is the result of the changed business model since the beginning of June 2017. Si\
    nce
    then most of sales from Group production companies of the Domestic Appliances segment to
    subsidiaries and directly to other companies are now conducted via the Company.
    The credit risk exposure of trade receivables at the reporting date by geographic region:
    Gorenje Group
    Gorenje, d.d.
    EURk 2016201720162017
    West 39,51744,64228,13826,272
    East 105,908115,418 65,38896,199
    Other 20,36120,45737,33436,160
    Total 165,786180,517130,860158,631
    The credit risk exposure of trade receivables at the reporting date by type of customer:
    Gorenje Group Gorenje, d.d.
    EURk 201620172016 2017
    Wholesale 130,545141,799129,774156,271
    Retail sale 27,57931,146 5291,881
    Other 7,6627,572 557479
    Total 165,786180,517130,860158,631
    Gorenje Group and Gorenje, d.d.
    In the wake of geographic diversity, a large number of Group’s customers are primarily
    legal entities from worldwide, and to lesser extent, in the retail segment, also individuals. In
    general, business is carried out solely with buyers that boast of a proper credit rating, which
    is monitored on a regular basis. The Accounts Receivable Management Policy, which defines
    the relevant management processes, persons in charge, and instruments allowed for hedging
    against credit risks, provides the compulsory framework for rules and policies on accounts
    receivable management that were adopted and integrated by Group companies.
    The substantial part of revenue is generated on transactions with subsidiaries (71.9%). The
    default risk on the side of the counterparty under these receivables is thereby minimal. With
    respect to the transactions with other, non-Group companies, we act in compliance with the
    accounts receivable management policies adopted on the Group level.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    174
    Maturity of Group’s trade receivables as at the balance sheet date
    Gross valueAllowance Gross valueAllowance
    EURk 20162016 20172017
    Not past due 138,9860147,391 0
    Past due 1 to 50 days 19,513024,553 0
    Past due 51 to 100 days 2,93303,258 0
    Past due 101 to 180 days 1,82302,642 0
    Past due 181 to 270 days 1,19701,262 0
    Past due 271 to 360 days 83301,064 0
    Past due 361 to 720 days 1,99501,346 0
    Past due 721 to 1081 days 2,826 08440
    Past due over 1081 days 23,319023,108 0
    Accumulated allowances for receivables 0-27,639 0-24,951
    Total 193,425-27,639 205,468-24,951
    Maturity of Company's trade receivables as at the balance sheet date
    2016
    EURk
    Gross value
    (Group
    companies) Gross value
    (other
    companies) Total gross
    value Total
    allowance
    Not past due 76,46140,943 117,404 0
    Past due 1 to 50 days 8925,279 6,1710
    Past due 51 to 100 days 1,194551 1,745 0
    Past due 101 to 180 days 1,680214 1,894 0
    Past due 181 to 270 days 1,300327 1,627 0
    Past due 271 to 360 days 289299 5880
    Past due 361 to 720 days 231200 4310
    Past due 721 to 1081 days 888413 1,301 0
    Past due over 1081 days 1,6115,615 7,2260
    Accumulated allowances for receivables 00 0-7,527
    Total 84,54653,841 138,387-7,527
    2017
    EURk
    Gross value
    (Group
    companies) Gross value (other
    companies) Total gross
    value Total
    allowance
    Not past due 99,24739,621 138,868 0
    Past due 1 to 50 days 2688,892 9,1600
    Past due 51 to 100 days 2,398827 3,2250
    Past due 101 to 180 days 1,439883 2,3220
    Past due 181 to 270 days 682156 8380
    Past due 271 to 360 days 3,228973,325 0
    Past due 361 to 720 days 353660 1,013 0
    Past due 721 to 1081 days 0149 1490
    Past due over 1081 days 1,5725,576 7,148 0
    Accumulated allowances for receivables 00 0-7,417
    Total 109,18756,861 166,048-7,417
    Movements in allowances for trade receivables
    Gorenje Group Gorenje, d.d.
    EURk 2016201720162017
    Opening balance at 1 Jan 28,40127,639 7,4347,527
    Exchange differences -185-690 00
    Impairment 3,2352,076 255142
    Decrease in allowances -314-623-122-152
    Changes within the Group -691-92 00
    Final write-off of receivables -2,807-3,359 -40-100
    Closing balance at 31 Dec 27,63924,951 7,5277,417
    Gorenje Group and Gorenje, d.d.
    Group’s partners are impacted by the ever-changing macroeconomic environment that can also
    result in a swift turn-around of the credit rating and liquidity of the individual Group’s business
    partner. Regardless of implementing the receivables management process within the Group, default
    on the side of customers or even their inability to settle their payment\
    s exists. With respect to the
    Group’s dispersed sales model that is not subject to high concentration of receivables per individual
    customer or customers related through mutual ownership, we assess that the Group’s exposure
    to credit risk is moderate. None of the customer or group of customers related through mutual
    ownership exceed 10% or more in the Group’s total sales generated, whereby also the exposure to
    an individual customer or groups of customers does not exceed 10% of Group’s receivables.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    175
    All customers are included into the credit control process,
    which covers also collateralization of receivables with
    acceptable hedging instruments. Following hedging
    instruments are considered as qualitative according to the
    accounts receivable management policy:
    • collateralization of receivables through credit insurance
    companies (with included own share),
    • collateralization of receivables through bank guarantees
    and letters of credit,
    • sale of receivables without recourse,
    • in exceptional circumstances and upon receiving special
    approval, also pledges or first class mortgages,
    • counterpart, equivalent liability to the same business
    partner.
    Group’s share of receivables secured with quality derivatives
    is increasing in the past years and as at the end of 2017
    accounted for 73.3% or 7.5 p.p. more than at the year-end
    of 2016. By the end of 2017, Company’s total receivables
    to independent buyers secured with acceptable hedging
    instruments accounted for 60.2%. The share of secured
    receivables was increased relative to the year-end of
    2016 by 5.8 p.p. Most of receivables are secured by the
    SID – Prva kreditna zavarovalnica, a smaller part with
    credit insurance companies on individual local markets,
    and other acceptable hedging instruments. It should be
    noted that a minor portion of customers, approved under a
    special procedure, is unsecured as these customers have
    an excellent credit rating that is monitored on an ongoing
    basis. We apply counter-trade with most of the unsecured
    receivables, whereby there are also numerous smaller
    customers that are dispersed and therefore the credit risk
    with an individual customer is low.
    In compliance with the financing policy, the Company
    primarily finances its subsidiaries. Loans recorded as at
    31 December 2017 (EUR 139,431k) largely include loans extended to subsidiaries (EUR 132,639k) and as such do
    not cause essential risks. Loans given to entities outside the
    Group are reduced from year to year and in part secured
    with acceptable hedging instruments. The value of loans,
    approved to companies outside the Group, amounted as
    at the end of 2017 to EUR 6,792k and shows a decline by
    11.7% relative to 2016.
    The Group and the Company carefully monitor the credit
    risk also in other business segments. Current surplus
    of assets and bank balances at commercial banks are
    placed in compliance with credit risk management policies,
    which includes the methodology for selecting acceptable
    counterparties on the financial area. These policies
    determine also the methodology for selecting acceptable
    clients when entering into derivative financial instruments.
    As a result of the launched receivables management
    procedures, the credit risk is assessed as moderate.
    The highest credit risk exposure arises in connection
    with the value of trade receivables and other
    receivables.
    Liquidity risk (Solvency risk)
    Liquidity risk includes risks denoting the lack of available
    funds and consequently risk that the Group and Company
    will fail to meet commitments in stipulated period of
    time. Liquidity depends on effective net working capital
    management, cash management, investment dynamics and
    the sale of assets. Providing for Group’s and Company’s
    liquidity is inseparable due to the organisation and manner
    of Group’s business operations and management. Thus,
    special attention is earmarked to the centralised balancing
    and managing of cash flows and liquidity in a manner
    providing that all Group companies are able to meet all due
    liabilities at any given time.
    Liquidity risk is actively monitored within the Group and the
    Company by means of a centralised balancing of assets’
    liquidity (primarily cash, trade receivables and inventories),
    of liabilities (mostly trade payables and financial liabilities)
    and cash flows from operating and investment activities.
    We are qualitatively managing the risk of short-term liquidity
    by means of approved revolving credit lines per Group
    companies, approved bank account overdrafts, and bank
    balances at commercial banks.
    The cash management is centralised, supported by a
    software solution for planning and daily monitoring of cash
    flows on the Group level. Considerable attention is accorded
    to the compilation of the cash flow plan and its monitoring.
    A successful liquidity planning is also provided through an
    optimum management of possible current surpluses or
    deficits in available funds.
    The net working capital management is primarily focusing on
    reducing the tied-up financial assets and thereby lowering
    Group’s financial liabilities, consequently reducing the
    liquidity risk. Policies are adopted on the Group level but are
    implemented on the level of the Group, the Company, as well
    as all other Group companies:

    the policy of inventories’ constant lowering is
    implemented in order to optimise them (via reducing the
    number of appliances codes, improved sales forecasting
    and production planning, optimising all elements of the
    supply chain, etc.),
    • the risk management policy is strictly observed with
    trade receivables, in addition to permanent non-recourse
    factoring,
    • suppliers to the Group are in case of operating liabilities
    and in exchange for extended payment deadlines offered
    the participation in a favourable price reverse factoring
    model for receivables recorded due from the Group.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    176
    The Company applies a uniform and centralised approach to bank partners in Slovenia and
    abroad, and on its basis provides for the optimum indebtedness of the entire Group not only in
    view of scope, costs and maturity, but also in the light of the Group’s currency balance.
    In order to finance the interim business cycle and disperse the sources of financing, Gorenje
    already for the fifth time successfully issued short-term commercial papers in 2017 in the total
    par value of EUR 39,526k. The short-term issues of commercial papers that is to be continued
    also in 2018 (the sixth issue of short-term commercial papers in the par value of EUR 11,534k
    was carried out in early February 2018), are earmarked for balancing the seasonal dynamics of
    generating cash flows from operating and investing activities, which as a rule is negative in th\
    e
    first quarter while gradually improving by the end of the last quarter via the release of the tied-
    up net working capital, is quite positive.
    The short-term imbalance of cash flows is additionally balanced by revolving loans and
    overdrafts on bank accounts in Slovenia and abroad. We have obtained EUR 40m of long-
    term revolving lines in 2017 and thereby improved the flexibility of balancing cash flows and
    simultaneously enhanced the Group’s financial stability.
    The Group’s liquidity reserve amounted as at the year-end to EUR 100,846k (Company’s was
    recorded at EUR 43,402k). The liquidity reserve consists of the undrawn portion of approved
    short-term and long-term credit lines (EUR 75,809k referring to the Group and EUR 39,917k
    to the Company) and available bank balances (EUR 25,037k relating to the Group and EUR
    3,485k to the Company). The liquidity reserve is earmarked for short-term balancing of cash
    flows and significantly reduces the Group’s and Company’s liquidity risk.
    Liquidity reserve as at 31 December
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Undrawn and approved current and non-current
    borrowings 85,154
    75,80939,97439,917
    Cash and cash equivalents 35,24225,03714,743 3,485
    Total 120,396100,846 54,71743,402
    Financial stability of the Gorenje Group and Gorenje, d.d.
    The process of ensuring a stable maturity structure of the Group’s financial debt was continued
    in 2017, in addition to reducing the costs of financing, by means of which all Group’s borrowings, which gradually matured in 2017, were replaced by non-current sources. We have
    within this process:

    maintained a stable structure of the maturity of Group’s financial liabilities – at the year-
    end of 2017, Group’s non-current financial liabilities accounted for 76.4% of total financial
    liabilities (78.6% of Company’s total financial liabilities);
    • reduced the average costs of financing the Group, measured in terms of interest expenses
    to others, by 15.2% (11.3% in the Company);
    • obtained EUR 40m of non-current revolving lines by the Company and thus enhanced the
    Group’s and Company’s stability;
    • ensured a sustainable scope of refinancing required on the Company and Group level.
    EUR 71,840k of non-current financial liabilities will accordingly mature in 2018, which is
    essentially less than in the previous year. The repayment dynamics is harmonised with
    seasonal movements of generating free cash flows from operating activities. Thus, solely
    EUR 8,448k of non-current financial liabilities become past due in the first five months\
    of
    2018;
    • ensure preconditions that sources for repaying the maturing borrowings in 2018 will be
    mostly obtain from inflows arising on divestment through 2018. In accordance with the
    strategic policy of focusing on the core activity, we study the possibility of divesting the
    activities and companies of the Other Business segment, and continue wit\
    h the sale
    of non-core assets. We have in the last quarter of 2017 accordingly started with the
    procedure of divesting the company Gorenje Surovina, d.o.o., Slovenia and its subsidiaries,
    which is led in cooperation with a distinguished international financial advisor. The formal
    procedure of divesting the production and sales of heating appliances (Gorenje Tiki, d.o.o.,
    Serbia) shall be launched in the first quarter of 2018.
    The Company and the Group have a long-term servicing plan for financial liabilities which is\
    being regularly updated.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    177
    The maturity of Group’s financial liabilities is prepared on the basis of contractual cash flows
    and presented below:
    31 December 2016
    EURkCarrying
    amount Contrac-
    tual cash flows 1 year or
    less 1 – 2
    years 2 – 5
    years More
    than 5 years
    Non-derivative financial liabilities
    Bank borrowings 324,201350,417 89,50570,679162,018 28,215
    Borrowings from others 3,1803,2621,673 382774433
    Liabilities arising from
    bonds issued 43,593
    46,32916,00515,44314,881 0
    Other financial liabilities 2,8432,8432,843 000
    Trade and other payables 271,817271,817271,817 000
    Total 645,634674,668381,843 86,504177,673 28,648
    Derivative financial liabilities
    Interest rate swaps -1,494-2,291 -765-633-837 -56
    Forward exchange
    contracts used for
    hedging -1,015
    -1,015-1,015 000
    Total -2,509-3,306-1,780 -633-837 -56
    31 December 2017
    EURk Carrying
    amount Contrac-
    tual cash flows 1 year or
    less 1 – 2
    years 2 – 5
    years More
    than 5 years
    Non-derivative financial liabilities
    Bank borrowings 330,160347,022 79,57998,443160,777 8,223
    Borrowings from others 1,9191,955 748324595288
    Liabilities arising from
    bonds issued 48,524
    51,92615,92015,35820,648 0
    Other financial liabilities 2,0422,0422,042 000
    Trade and other payables 278,025278,025278,025 000
    Total 660,670680,970376,314114,125182,020 8,511
    Derivative financial liabilities
    Interest rate swaps -801-9,583 -844-1,861 -6,863 -15
    Forward exchange
    contracts used for
    hedging -160
    -160-160 000
    Total -961-9,743 -1,004-1,861-6,863 -15
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    178
    The maturity of Company’s financial liabilities is prepared on the basis of contractual cash flows
    and presented below:
    31 December 2016
    EURkCarrying
    amount Contrac-
    tual cash flows 1 year or
    less 1 – 2
    years 2 – 5
    years More
    than 5 years
    Non-derivative financial liabilities
    Bank borrowings 293,571315,035 74,51664,345152,462 23,712
    Liabilities arising from
    bonds issued 43,593
    46,32916,00515,44314,881 0
    Borrowings from related
    entities and third parties 64,333
    66,26366,263 0 00
    Other financial liabilities 2,6362,6362,636 0 00
    Trade payables 177,734177,734177,734 0 0 0
    Other current liabilities 13,14213,14213,142 0 0 0
    Total 595,009621,139350,296 79,788167,343 23,712
            
    Derivative financial receivables and liabilities
    Interest rate swaps -1,517-2,159 -756-598-768 -37
    Forward exchange
    contracts used for
    hedging -336
    -336-336 00 0
    Outflows -1,770-1,770-1,770 000
    Inflows 1,4341,4341,434 0 0 0
    Total -1,853-2,495-1,092 -598-768 -37
    31 December 2017
    EURk Carrying
    amount Contrac-
    tual cash flows 1 year or
    less 1 – 2
    years 2 – 5
    years More than
    5 years
    Non-derivative financial liabilities
    Bank borrowings 294,691309,632 64,93091,857149,642 3,203
    Liabilities arising from
    bonds issued 48,524
    51,92515,92015,35820,647 0
    Borrowings from related
    entities and third parties 64,323
    66,25666,256 000
    Other financial liabilities 2,2312,2312,231 000
    Trade payables 212,614212,614212,614 000
    Other current liabilities 13,65313,65313,653 00 0
    Total 636,036656,311375,604107,215170,289 3,203
            
    Derivative financial receivables and liabilities
    Interest rate swaps -862-9,457 -808-1,832 -6,810 -7
    Forward exchange
    contracts used for
    hedging -82
    -82-82 000
    Outflows -267-267-267 000
    Inflows 185185185 000
    Total -944-9,539 -890-1,832 -6,810 -7
    Gorenje Group and Gorenje, d.d.
    Contractual cash flows arising on Group’s non-derivative financial and operating liabilities, which
    fall due in one year or less, amounted as at the year-end of 2017 to EUR 376,314k and indicate
    a decrease by EUR 5,529k over the equivalent ones as at the end of 2016. Contr\
    actual cash
    flows arising on Company’s non-derivative financial and operating liabilities, which fall due i\
    n one
    year or less, amounted as at the year-end of 2017 to EUR 375,604k and indicate an increase by
    EUR 25.308k over the equivalent ones as at the end of 2016. The Company’\
    s largest portion of
    increased contractual cash flows results from higher volume of bank borrowings due centralising
    financing and balancing of Group’s liquidity and a higher level of trade payables.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    179
    Higher cash flows from trade and other payables (EUR
    +6,208k referring to the Group and EUR +35,391k to the
    Company), whose maturity is shorter or equals one year,
    are the result of Group’s increased operating activities in the
    last quarter and thus the related higher volume of purchased
    material and raw materials for production. Non-derivative
    financial liabilities (borrowings, bonds), whose maturity is
    shorter or equals one year, declined by EUR 10,936k on the
    Group level and by EUR 9,671k in the Company. Contractual
    cash flows, whose maturity is longer than a year and which
    remained on the same level as at the year-end of 2016, were
    recorded at EUR 304,656k by the Group and in the amount
    of EUR 280,707k by the Company.
    As at 31 December 2017, the Group disclosed liabilities
    arising from the fair value of derivatives for currency risks
    relating to banks in the amount of EUR 961k and the
    Company in the amount of EUR 944k. Company’s other
    current financial liabilities comprise the liability to Group
    companies arising from the already realised derivatives that
    the Company enters into on their behalf.
    In order to hedge cash flows against interest rate
    fluctuations, the Group and the Company concluded interest
    rate swap contracts that mature in 2022; each individual
    contract documents the relation between the derivative and
    the hedged category. Fair value of these concluded interest
    rate swap contracts is recognised directly in the fair value
    reserve of the derivative in the comprehensive income and
    amounts to EUR -801k. The total value of all instruments for
    hedging against interest rate fluctuations (EURIBOR) for the
    period until 2022 amounted as at 31 December 2017 to EUR
    444,454k.
    Other current financial liabilities comprise the liability to Group
    companies arising from the already realised derivatives that
    the Company enters into on their behalf. Group’s and Company’s liquidity risk is assessed as
    moderate in view of Group’s normal business operations
    and achieved projected business results by means of
    implementing proper measures in the field of credit risk
    management, implemented measures within restructuring
    the debt maturity structure and the achieved amount
    of matured non-current liabilities in 2018, as well as the
    centralised planning and management of short-term and
    long-term cash flows, and access to a wide range of
    financial and bank partners.
    Currency risk
    Gorenje Group and Gorenje, d.d.
    With regard to diversification of its international business
    operations, the Gorenje Group is exposed to currency risk,
    which is the risk that the economic benefits of the Group
    may be decreased due to changes in foreign exchange rates
    against its functional currency (EUR). The largest currency
    risk arises from Gorenje’s business operations in the markets
    of Russia, all US dollar markets, Serbia, Croatia, Australia,
    Poland, Hungary, Romania, Ukraine, Great Britain and the
    Czech Republic. Group’s balance sheet discloses a surplus
    of assets over liabilities in the stated currencies, which
    is treated as a long-term currency position. Receivables
    due from end buyers and payables to suppliers are key
    accounting categories that form the currency position.
    The Currency Risk Management Policy was defined in the
    Group and the Company, which among others stipulates
    following:
    • the methodology for measuring currency risk exposure,
    • competencies and responsibilities within currency risk
    management,
    • manners and required scope of hedging against currency
    risk,
    • instruments acceptable for hedging against currency risk,
    • acceptable partners for implementing currency-risk hedges,
    • the method of measuring the effectiveness of currency
    risk management.
    We apply a centralised policy of exchange rate hedging
    within the policy of managing Group’s currency risks. We
    are exposed to changes in local currencies against the
    euro, which is the Group’s main functional currency. This
    exposure is measured and managed in connection with
    cash flows planned in the annual period, and the revaluation
    of balance sheet items expressed in local currencies. The
    fundamental goal of currency risk management lies in
    hedging against the business plan’s exposure by minimising
    the adverse impact of exchange rate fluctuations on the
    Group’s net profit or loss and cash flows and thereby also
    the Company’s.
    Currency risks are to the greatest extent possible minimised
    through natural cash flow balancing for each currency
    that, mostly in case of companies is impossible to be fully
    implemented. In order to hedge against currency risks we
    use the balancing of cash flows and balance sheet items as
    much as possible and are seeking additional possibilities for
    increasing the scope of natural hedging. We systematically
    apply short-term forward exchange contracts for most of
    the currencies that are not part of the euro zone in order to
    hedge transactions against currency risk. In the medium
    term, we hedge against currency risk by adjusting sales
    prices on an on-going basis, by applying cost optimisation
    and by means of increasing natural hedging on the purchase/
    sale side.
    The Company enters into hedging instruments on its
    own behalf and on behalf of other Group companies, and
    transfers these instruments on a contract basis to companies
    that are locally exposed to such risk. Subsidiaries also enter
    into hedging instruments on local markets but in limited
    scope, whereby the parent company provides adequate
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    180
    support and credit limits with acceptable partners. The centralised approach to credit risk
    management has shown more optimum hedging results.
    Due to the Group’s sales model, where the currency risk is mostly born by individual companies,
    the Company is in a limited scope exposed to currency risks, where Company’s economic
    benefits may decline as a result of the changed exchange rate for an individual currency. In
    2017, the Company’s currency risks accordingly originated mostly from the performance of
    business activities in the US dollar markets, whereas the volume of supplies is higher than the
    volume of sales exposure to other currencies is insignificant. When managing the currency risk,
    particularly in the US dollar markets, greater attention was paid to natural hedging of currency
    risk and the harmonisation of business operations to ensure the Company long-term decline in
    currency fluctuation exposure, thus by means of balancing sales and purchases.
    Group’s exposure to currency risk is as follows:
    31 December 2016
    EURkEURRUB USDHRK RSDCZK Other
    currencies
    Trade receivables 99,87912,139 6,41612,407 14,626 3,464 16,855
    Financial liabilities -363,374000-7,495 0-105
    Trade payables -195,289-598-2,849 -1,209-12,933 -5,411 -5,436
    Financial position
    exposure -458,784
    11,541 3,56711,198 -5,802-1,947 11,314
    31 December 2017
    EURk EURRUB USDHRK RSDCZK Other
    currencies
    Trade receivables 111,89614,294 2,85512,473 18,1153,096 17,788
    Financial liabilities -374,358000-6,090 0-155
    Trade payables -200,370-1,543-5,551-1,260-11,720 -4,658 -4,300
    Financial position
    exposure -462,832
    12,751-2,69611,213 305-1,562 13,333
    *EUR is the Group’s functional currency and represents no currency risk
    Company’s exposure to currency risk is as follows:
    31 December 2016
    EURk EURSEK PLNRUB USDGBP Other
    currencies
    Trade receivables 122,53101,377 0 5,848 890 214
    Financial liabilities -400,731000 -766 0 0
    Trade payables -174,585-476-1-161 -2,416 -5-90
    Financial position
    exposure -452,785
    -4761,376 -1612,666 885 124
    31 December 2017
    EURk EURSEK CZKRSD USDGBP Other
    currencies
    Trade receivables 148,414151,674 5,497 3,034 0-3
    Financial liabilities -410,011 0 0 0-887 0 0
    Trade payables -199,498-396-4,135 -3,623 -4,874 -42 -46
    Financial position
    exposure -461,095
    -381-2,461 1,874-2,727 -42 -49
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    181
    Significant exchange rates applied in 2016 and 2017 comprise:
    By EUR 1 31 Dec 201631 Dec 2017
    HRK 7,55977,4400
    CZK 27,021025,5350
    SEK 9,55259,8438
    DKK 7,43447,4449
    RSD 123,6000118,6600
    PLN 4,41034,1770
    RUB 64,300069,3920
    USD 1,05411,1993
    CHF 1,07391,1702
    GBP 0,85620,8872
    Sensitivity analysis
    A 5 percent change in the euro’s value against the above stated currencies as at 31 December
    would have resulted in an increase (decrease) in profit or loss of the period by the amounts
    shown through exchange differences from revaluation of balance sheet items in the below
    currencies. This analysis assumes that all other variables, in particular in\
    terest rates remain
    unchanged. Cash flows’ exposure in individual currencies on the annual level is limited with
    the use of interim currency risk management methods (adjustment of input and output prices)
    and the use of derivatives (forward exchange contracts). The interim cash flows’ exposure to
    currency risks is uniform with most currencies, except in case of the Russian rouble, where
    the exposure materially grows in the last quarter; the aforesaid risk is managed by means of
    systematically entering into forward exchange contracts and with sales price adjustments in
    case of significant market changes. Profit or loss for the period
    Gorenje Group
    Gorenje, d.d.
    EURk 31 Dec 201631 Dec 201731 Dec 201631 Dec 2017
    RUB -577-638 80
    USD -178135-133 92
    HRK -560-561 00
    RSD 290-15 0-94
    CZK 9778 0123
    GBP 00-44 0
    SEK 0024 19
    PLN 00-69 0
    Other currencies -566-667 -63
    Gorenje Group and Gorenje, d.d.
    A 5 percent decrease in the euro’s value against the above stated currencies as at 31
    December would have had equal yet opposite effect, provided that all other variables remain
    unchanged.
    Regardless the implemented hedging measures and in the light of signifi\
    cant currency
    fluctuations on world markets, we assess that the Group’s exposure \
    to currency risks
    is high. Company’s exposure to currency risks is, however, assessed a\
    s low.
    Interest rate risk
    Gorenje Group and Gorenje, d.d.
    Financing of Company’s and Group’s current operations and their investment activities is
    subject to interest rate risk as most of borrowings raised bear the Euribor variable interest
    rate, in lesser extent also the local reference interest rate. Thus, exposure to interest rate risk
    represents primarily the unfavourable movement (increase) of the Euribor variable interest rate
    that applies to Group’s financial liabilities. Major portion of financial liabilities is s\
    ubject to a
    variable interest rate that is bound by the 3-month or 6-month Euribor.
    Given the policy of the European Central Bank and other central banks, and the low inflation
    rate in the euro zone and the related euro-zone’s low level of the base interest rate, the Group
    actively managed the interest rate risks referring to the leased funds bearing the variable
    Euribor interest rate, and in a lesser extent also to other local variable reference interest rates.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Exposure to interest rate risk:
    Gorenje GroupGorenje, d.d.
    EURk 2016201720162017
    Fixed-rate financial instruments
    Financial assets 4,3117,967139,913 139,591
    Financial liabilities 119,143116,639179,402180,910
    Variable-rate financial instruments
    Financial assets 3,78700 0
    Financial liabilities 251,831263,964226,880226,880
    Gorenje Group and Gorenje, d.d.
    The table is exclusive of non-interest bearing financial assets and non-interest bearing financial
    liabilities.
    Interest structure of financial assets and financial liabilities is not customized as\
    Group’s and
    Company’s financial liabilities considerably exceed the interest-bearing assets. The share of
    financial liabilities bearing a fixed interest rate declined in 2017 by EUR 2,504k (increased in the
    Company by EUR 1,508k).
    With the purpose to hedge against interest rate risk, the Group applies derivatives by means of
    which it ensures long-term stability of the reference interest rate. When deciding on hedging,
    the Group takes into account the forecasts for interest rate fluctuations and the efficiency of the
    hedging instruments. Due to the estimate on the suitable macroeconomic situation and in light
    of the interest rate risk management, the Group and the Company provided for a long-term
    stability of the interest rates’ variable part based on concluding EUR 290m worth of interest
    rate swaps (IRS) during the third quarter of 2017 for the period from 2019 to 2022.
    As at 31 December 2017, non-derivative financial liabilities bearing a\
    fixed interest rate account
    in the Group 30.6% (in the Company 34.4%) of the total interest-bearing financial liabilities,
    which is 1.5 p.p. less (in Company 0.3 p.p. more) that at the year-end of 2016. The value of
    Group’s concluded interest rate swaps as at 31 December 2017, whose effects were disclosed
    already in 2017, was recorded in the amount of EUR 154,454k (and by the Company in the
    amount of EUR 142,899k). Together with concluded interest rate swaps, whose impact is
    contractually agreed for the period from 2019 until the end of 2022, the value of Group’s
    interest rate swaps entered into amounted as at the balance sheet date to EUR 444,454k. As for interest rate swaps, we enter into derivatives in the same manner as in the c\
    ase of
    currency financial derivatives i.e. with acceptable partners only. We therefore asses that the risk
    of default on the side of the contracting party is minimal. The purpose \
    of hedging by means
    of entering into embedded derivatives, is fixing of the interest rate that results in a stable cash
    flow. While entering into interest rate swaps, we observe the requirement that characteristics of
    relevant swaps equal (i.e. maturity, amount, type of interest rate and its alignment) as a financial
    liability that is hedged by the interest rate swap. Consequently, the valuation of a hedging
    instrument defined as successful hedge, is recognised directly in equity.
    Cash flow sensitivity analysis for financial instruments with a vari\
    able rate
    A change in the interest rate by 50 basis points (bp) at the reporting date would have increased
    (decreased) profit or loss by the amounts shown below. This analysis assumes that all other
    variables, in particular foreign exchange rates remain unchanged.
    The analysis for 2017 has been performed on the same basis as for 2016.
    Group
    EURk
    Profit or loss for the period
    Other comprehensive income
    Increase Decrease IncreaseDecrease
    by 50 bp by 50 bpby 50 bpby 50 bp
    31 December 2016
    Variable rate instruments -749189 00
    Interest rate swap contracts 358-3581,623 -1,623
    Cash flow variability (net) -391-1691,623 -1,623
    31 December 2017
    Variable rate instruments -639176 00
    Interest rate swap contracts 343-3436,259 -6,259
    Cash flow variability (net) -296-1676,259 -6,259
    We have increased the volume of financial liabilities with a fixed interest rate in 2017, as
    we – in addition to entering into new long-term financial contracts\
    with a fixed interest rate –
    additionally entered into instruments for hedging against interest rate fluctuations (interest rate
    swaps). In 2017, we have entered into EUR 332,889k worth of interest rate swaps, whereof
    EUR 290,000k becomes effective as of 2019 and matures by the end of 2022; their value is
    adjusted on the level equalling 90 percent of expected average annual financial liabilities in
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    183
    these years. As at 31 December 2017, the share of financial liabilities bearing a fixed interest
    rate accounted for 30.6 percent of total interest-bearing financial liabilities. Given the interest
    rate swaps, whose effect is due to the business’s nature agreed from 2017 onwards, the share
    of financial liabilities with a fixed interest rate amounted already 71.2 percent.
    Company
    EURkProfit or loss for the period
    Other comprehensive income
    Increase Decrease IncreaseDecrease
    by 50 bp by 50 bpby 50 bpby 50 bp
    31 December 2016
    Variable rate instruments -652112 0 0
    Interest rate swap contracts 358-3581,410 -1,410
    Cash flow variability (net) -294-2461,410 -1,410
    31 December 2017
    Variable rate instruments -5238900
    Interest rate swap contracts 302-3026,076 -6,076
    Cash flow variability (net) -221-2136,076 -6,076
    Group’s and Company’s exposure to interest rate risk is assessed a\
    s low.
    Note 44 – Fair value
    The fair values and book values of Group’s financial assets and financial liabilities
    2016 2017
    EURk Book valueFair valueBook value Fair value
    Available-for-sale investments 2,2472,2471,7431,743
    Investment property 14,95714,957 9,8499,849
    Non-current loans and deposits 2,4032,4032,5152,515
    Non-current operating receivables 2,4812,4817,3757,375
    Current loans and deposits 5,9315,9316,1196,119
    Derivatives -2,509-2,509 -961-961
    Trade receivables 165,786165,786180,517180,517
    Other current assets 47,33347,33350,00950,009
    Cash and cash equivalents 35,24235,24225,03725,037
    Non-current financial liabilities -183,758-183,758-204,913-204,913
    Non-current financial liabilities (fixed
    interest rate) -91,858
    -81,917-88,107-81,979
    Non-current operating liabilities -3,672-3,672-2,807-2,807
    Current financial liabilities -98,201-98,201-89,625-89,625
    Trade payables -223,725-223,725-229,402-229,402
    Other current payables -44,420-44,420-45,816-45,816
    Total -371,763-361,822-378,467-372,339
    The assessed fair value of current assets and liabilities nearly equals their book value. The fair
    value of non-current financial liabilities is calculated on the basis of market interest rates and
    classified among Level 2 on the scale of fair values.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    The fair values and book values of Company’s financial assets and financial liabilities.
    20162017
    EURk Book valueFair value Book value Fair value
    Available-for-sale investments 1,6171,617 1,321 1,321
    Investment property 12,94812,948 8,685 8,685
    Non-current loans and deposits 1,3571,357 123,210 123,210
    Current loans and deposits 138,563138,563 16,431 16,431
    Derivatives -1,853-1,853 -944 -944
    Trade receivables 130,860130,860 158,631 158,631
    Other current assets 10,72610,726 9,804 9,804
    Cash and cash equivalents 14,74314,743 3,484 3,484
    Non-current financial liabilities -140,578-140,578 -181,839 -181,839
    Non-current financial liabilities
    (fixed interest rate) -115,074
    -81,849 -88,023 -81,908
    Current financial liabilities -148,399-148,399 -139,906 -139,906
    Trade payables -177,734-177,734 -212,614 -212,614
    Other current payables -13,142-13,142 -13,653 -13,653
    Total -285,966-252,741 -315,413 -309,298
    The fair value of non-current financial liabilities is calculated on the basis of market interest rates
    and classified among Level 2 on the scale of fair values.
    Fair value scale
    Gorenje Group and Gorenje, d.d.
    The table shows method of valuing financial assets recorded at fair value. The levels are as
    follows:
    • Level 1: stock price (unadjusted) in the active market of identical as\
    sets and liabilities,
    • Level 2: data differing from stock price data (these are included in Level 1) monitored with
    the intention of direct or indirect valuation of assets and liabilities,
    • Level 3: data on the value of assets and liabilities not based on the ac\
    tive market. Group
    2016
    2017
    EURk Level 1Level 2Level 3 TotalLevel 1 Level 2Level 3 Total
    Available-for-sale
    financial assets 510
    791,658 2,247 371831,289 1,743
    Derivatives – assets 0516 0516 0145 0145
    Derivatives – liabilities 0-3,025 0-3,025 0-1,106 0-1,106
    Investment property 0014,957 14,957 009,849 9,849
    Fair value of investment property was assessed by applying the direct capitalisation method.
    Investment properties were appraised at the year-end of 2017 by an independent certified
    appraiser of real property. The book value does not materially deviate from their fair value.
    Forward exchange contracts
    The total fair value of forward exchange contracts amounted to EUR -160k as at 31 December
    2017 and was in terms of accounting recorded within the item of other current financial
    receivables and other financial liabilities.
    Interest rate swaps
    The total fair value of interest rate swaps as at 31 December 2017 amounted to EUR -801k
    and is recorded under other financial liabilities.
    The hedging of interest rate swaps, which relate to hedged balance sheet items, are disclosed
    within equity as fair value reserve.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    185
    Company
    20162017
    EURk Level 1Level 2Level 3 TotalLevel 1 Level 2Level 3 Total
    Available-for-sale
    financial assets 132
    01,485 1,617 144 01,177 1,321
    Derivatives – assets 01,237 01,237 0185 0185
    Derivatives – liabilities 0-3,090 0-3,090 0-1,129 0-1,129
    Investment property 0012,948 12,948 008,685 8,685
    Investment properties were appraised at the year-end of 2017 by an independent certified
    appraiser of real property. The total revaluation effect was disclosed in Company’s income
    statement in the amount of EUR 12k.
    Forward exchange contracts
    The total fair value of forward exchange contracts amounted as at 31 December 2017 to EUR
    -82k (2016: EUR -336k) and was in terms of accounting recorded within the item of other
    current financial liabilities for derivatives.
    Interest rate swaps
    The total fair value of interest rate swaps amounted as at 31 December 2017 to EUR -862k
    (2016: EUR -1,517k) and was in terms of accounting recorded within the item of other current
    financial liabilities for derivatives.
    Note 45 – Commitments relating to investments
    Gorenje Group
    Contractually agreed investments in intangible assets and property, plant and equipment,
    which are not yet recognised in financial statements as at the balance sheet date amounte\
    d to
    EUR 8,735k (2016: EUR 16,888k).
    Gorenje, d.d.
    Contractually agreed investments in intangible assets and property, plant and equipment,
    which are not yet recognised in financial statements as at the balance sheet date amounte\
    d to
    EUR 7,725k (2016: EUR 9,906k).
    Note 46 – Related party transactions
    Gorenje Group
    The transactions with related parties were conducted by Group companies based on sale/
    purchase contracts. The prices used in these transactions were the market prices of products
    and services equivalent to those prevailing in the arm’s length transactions.
    Data on groups of persons
    Group companies paid in 2016 following gross earnings to the stated groups of persons:
    EURkManagement BoardSupervisory Board Employees under individual
    employment agreements
    Salaries 7,0190 9,059
    Incentive bonuses and
    other earnings 2,216
    474 1,318
    Total 9,235474 10,377
    No non-current and current loans were extended to members of the Management Board, the
    Supervisory Board, and to internal owners in 2016 and 2017.
    Group companies paid in 2017 following gross earnings to the stated groups of persons:
    EURkManagement BoardSupervisory Board Employees under individual
    employment agreements
    Salaries 7,6440 9,327
    Incentive bonuses and
    other earnings 2,965
    377 2,216
    Total 10,609377 11,543
    Following transactions with associated companies were recorded by Group companies:
    Transaction value Balance
    EURk 2016201720162017
    Income 462422556316
    Expenses 1,6672,181 801250
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    186
    Gorenje, d.d.
    The transactions with related parties were conducted by the Company based on sale/purchase
    contracts. The prices used in these transactions were the market prices of products and
    services equivalent to those prevailing in the arm’s length transactions. Individual transactions
    with related parties are disclosed in individual balance sheet items.
    Transactions with persons related to the Supervisory Board included in 2017 following:
    • entry of 6,559 commercial papers (EUR 6,559k),
    • HR advisory services in the amount of (EUR 167k), and
    • payment of compulsory contribution for voluntary health insurance on emp\
    loyees’ account
    and participation in contributions of voluntary health insurance premiums (EUR 127k).
    Data on groups of persons
    Following personal earnings were paid to the groups of persons stated below:
    Gross earnings in 2016
    EURk Management
    Board Supervisory
    Board Employees under individual
    employment agreements
    Fixed remuneration 1,4430 6,853
    Variable remuneration 1090 671
    Bonuses 860 340
    Attendance fees 049 0
    Function-related attendance 0240 0
    Refund of work-related expenses 0185 0
    Total 1,638474 7,864
    Gross earnings in 2017
    EURkManagement
    Board Supervisory
    Board Employees under individual
    employment agreements
    Fixed remuneration 1,3950 7,212
    Variable remuneration 8110 1,473
    Bonuses 860 367
    Attendance fees 042 0
    Function-related attendance 0231 0
    Refund of work-related expenses 0103 0
    Total 2,292376 9,052
    The allowance for membership in the Supervisory Board of the company Gorenje Beteiligungs
    is included among the fixed and variable remuneration of the Management. Bonuses include
    bonuses relating to the private use of the company car and to insurance premiums.
    In accordance with the Companies Act and the Management Code for Publicly Traded
    Companies, the total payments, reimbursements, and other benefits paid to members of the
    Management Board, the Supervisory Board, and the members of the Audit Committee are
    outlined below:
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    187
    Composition and amount of earnings received by Management Board members
    Composition and amount of earnings received by Management Board members \
    in 2016
    EURFunction Fixed remu-
    neration gros (1) Variable remuneration – gross
    Deferred
    income (3) Severance
    pays (4) Bonuses (5) Claw-back (6)
    Total gross
    (1+2+3+4+5-6) Total net
    Based on
    quantitative criteria Based on
    quality s criteria Total (2)
    Franc Bobinac President 324,9372,900 02,900 0028,230 0356,067 153,409
    Marko Mrzel member until
    29 February 2016 58,622
    2,610 02,610 095,201 4,469 0160,902 69,326
    Branko Apat member 271,6942,610 02,610 0019,727 0294,031 134,946
    Peter Groznik member 300,0112,610 02,610 006,867 0309,488 153,051
    Peter Kukovica member 270,0162,610 02,610 005,029 0277,655 144,599
    Drago Bahun member 218,210000 0 021,549 0239,759 88,268
    Total 1,443,49013,340 013,340 095,201 85,871 01,637,902 743,599
    Composition and amount of earnings received by Management Board members \
    in 2017
    EUR FunctionFixed remu-
    neration
    gross (1) Variable remuneration – gross
    Deferred
    income (3) Severance
    pays (4) Bonuses (5) Claw-back (6) Total gross
    (1+2+3+4+5-6) Total net
    Based on
    quantitative criteria Based on
    quality criteria Total (2)
    Franc Bobinac President
    339,88242,36292,543134,905 0031,146 0505,933 205,310
    Žiga Debeljak member since
    1 May 2017 196,718
    000 0 05,912 0202,630 82,671
    Branko Apat member
    279,46734,66578,097112,762 0022,977 0415,206 176,509
    Peter Kukovica member
    278,19234,33377,600111,933 005,295 0395,420 188,334
    Drago Bahun member
    252,13334,37958,09492,473 0019,808 0364,414 151,204
    Peter Groznik member until
    28 February 2017 48,671
    39,25984,989124,248 0234,911 1,080 0408,910 188,850
    Total  
    1,395,063184,998391,323576,321 0234,911 86,218 02,292,513 992,878
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    188
    Composition and amount of earnings received by members of the Supervisor\
    y Board and the Committees
    Composition and amount of earnings received by members of the Supervisor\
    y Board and the Committees in 2016
    EURFunction
    Function-related payments –
    gross per year (1) Attendance fees of SB and
    Committees – gross per year (2) Total gross (1+2)Total netCommuting
    allowances (gross) Commuting
    allowance (net)
    Uroš Slavinec Deputy Chairman of the Supervisory Board 20,2503,74023,99017,448 1,7431,268
    Miha Košak Supervisory Board member since 9 July 2016 7,6987708,4686,159 6,0364,390
    Bachtiar Djalil Supervisory Board member 22,5004,96127,46119,972 311226
    Keith Miles Supervisory Board member until 8 July 2016 11,7344,07015,80412,248 6,5055,042
    Bernard C. Pasquier Deputy Chairman of the Supervisory Board 24,0004,78528,78520,935 23,74717,271
    Corinna Claudia Graf Supervisory Board member 20,5443,85024,39417,742 11,578 8,420
    Toshibumi Tanimoto Supervisory Board member 18,7504,62023,37016,997 74,89154,468
    Marko Voljč Chairman of the Supervisory Board 26,2504,18030,43022,132 59,76543,467
    Jure Slemenik Supervisory Board member 18,7503,41022,16016,117 00
    Drago Krenker Supervisory Board member 18,7505,89624,64617,925 00
    Krešimir Martinjak Deputy Chairman of the Supervisory Board 20,2503,24523,49517,087 00
    Peter Kobal Supervisory Board member 18,7504,07022,82016,597 00
    Aleksander Igličar Audit Committee member 12,0001,71513,7159,976 535389
    Total   240,22649,312289,538211,335 185,111134,941
    Composition and amount of earnings received by members of the Supervisor\
    y Board and the Committees in 2017
    EUR Function Function-related payments
    – gross per year (1) Attendance fees of SB and
    Committees – gross per year (2) Total gross (1+2)Total netCommuting
    allowances (gross) Commuting
    allowance (net)
    Uroš Slavinec Deputy Chairman of the Supervisory Board 20,2503,02523,27516,928 2,0141,465
    Miha Košak Supervisory Board member 18,7505,88524,63517,917 17,15112,474
    Bachtiar Djalil Supervisory Board member 20,6253,90524,53017,841 148108
    Bernard C. Pasquier Deputy Chairman of the Supervisory Board 22,1254,56526,69019,412 15,98311,625
    Corinna Claudia Graf Supervisory Board member 20,6253,63024,25517,641 13,039 9,483
    Toshibumi Tanimoto Supervisory Board member since 21 April 2017 5,7811,7057,4865,445 8,3366,063
    Marko Voljč Chairman of the Supervisory Baord 26,2503,24529,49521,452 42,00830,553
    Jure Slemenik Supervisory Board member 18,7503,24521,99515,997 287209
    Drago Krenker Supervisory Board member 18,7504,56523,31516,957 287209
    Krešimir Martinjak Deputy Chairman of the Supervisory Board 20,2502,58522,83516,608 00
    Peter Kobal Supervisory Board member 18,7502,97021,72015,797 00
    Aleksander Igličar Audit Committee member 12,0001,32013,3209,688 449327
    Karlo Kardov Supervisory Board member since 14 July 2017 8,3061,4309,7367,081 3,5702,596
    Total 231,21242,075273,287198,764 103,272 75,112
    No non-current and current loans were extended by the Company to members of the Management Board, the Supervisory Board, and to internal owners.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    189
    Note 47 – Events after the balance
    sheet date
    As at 9 January 2018, the 25th General Meeting of
    Shareholders of the Company was held in Velenje. The
    dismissal an
    d replacement of Supervisory Board members
    Marko Voljč and Uroš Slavinec was proposed during the
    Shareholders Meeting but the proposal was not adopted.
    As at 12 January 2018, the Company publicly announced
    Group’s 2018 Business Plan and its Performance Valuation
    for 2017. By increasing its focus on production and sales of
    domestic appliances, the Company plans in 2018 the disposal
    of subsidiaries Gorenje Surovina, d.o.o., Slovenia and Gorenje
    Tiki, d.o.o., Serbia, which shall result in a material deleveraging
    of the Group. The Group projects growth in revenue for 2018
    and improvement of profitability relative to 2017.
    As at 1 February 2018, the Company completed the issue of
    commercial papers. The respective GRV06 commercial papers
    bear interest at 1.90% p.a. and the total par value of the issue
    is recorded at EUR 11,534k. The issue of the commercial
    papers aims at seasonal financing of business operations in
    accord with the interim dynamics of the cash flow movement
    and the dispersal of current sources of financing.
    As at 2 February 2018, the Company published the
    information on the progress of exploring the strategic
    partnership opportunities. Upon signing a confidentiality
    agreement, the possible partners, who showed interest in
    further assessing their partnership potential, have received
    relevant information material and a procedural letter in late
    January 2018.
    The procedural letter defines rules and a timetable based on
    which the possible partners are invited to submit their offers
    for Group partnership by 7 March 2018.
    Upon studying the received offers from the strategic aspect, certain possible investors shall be invited to perform a due
    diligence review.
    During the second stage, the possible partners will be
    provided additional information including access to a Virtual
    Data Room containing information about the Group, as well
    as visits of selected Group facilities and meetings with Group’s
    executives.
    Aimed at a comprehensive renewal of the corporate collective
    agreement, valid for the Company and its subsidiaries in
    Slovenia, the Company’s Management Board terminated the
    latter as of 1 February 2018. The six-month notice period
    began on that date, hence the current agreement will formally
    expire on 1 August 2018. Upon that date, the existing
    corporate collective agreement can be used for a maximum
    period of one year i.e. by August 2019 should no new
    agreement be adopted earlier.
    The Company shall endeavour to adopt the new corporate
    collective agreement as soon as possible based on a social
    dialogue between the management and the trade union.
    Until then or not longer than by August 2019, all rights and
    obligations remain unchanged both for employees and the
    employer.
    No other significant events occurred upon compiling the
    balance sheet as of 31
    December 2017.
    Note 48 – Transactions with the
    auditor
    In 2017, the contract value for auditing the financial
    statements of the Company and the consolidated financial
    statement of the Group was EUR 658k (2016: EUR 645k).
    In addition to the statutory audit of the Company and its
    subsidiaries, the official auditor Deloitte revizija, d.o.o.
    rendered also non-audit services in the amount of EUR
    17k relating to the year 2017. All services performed are according to the Regulation no. 537/2014 deemed
    admissible services and include services provided for
    Group companies in connection with reviewing the report
    on relations with affiliated companies pursuant to the
    Companies Act and services of agreed-upon procedures.
    The audit of the Company conducted by the audit company
    Deloitte revizija, d.o.o., Slovenia and the independent
    auditor’s report was issued on 26 February 2018. In 2017,
    the contract value for auditing the financial statements of
    the Company and consolidated financial statements of the
    Group was recorded at EUR 91k (2016: EUR 92k).
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    190
    Note 49 – Business segment
    Domestic AppliancesOther Business Group
    EURk 201620172016201720162017
    Revenue from sale to third parties 1,076,8781,081,708 181,246228,2241,258,124 1,309,932
    Inter-segment sale 8,4389,82823,441 27,97231,87937,800
    Interest income 768792146143914935
    Interest expenses -14,564-12,456 -469-285-15,033 -12,741
    Amortisation and depreciation expense -39,303-46,663 -7,752-8,013-47,055 -54,676
    Operating profit or loss before tax 7,525-5,357 5,7159,84413,240 4,487
    Income tax expense -4,430-2,146 -380-1,000 -4,810-3,146
    Profit or loss for the period 3,095-7,503 5,3358,8448,4301,341
    Total assets 986,653999,362137,261143,7541,123,914 1,143,116
    Total liabilities 699,949712,022 57,42462,750757,373 774,772
    Investments 75,70467,410 7,5278,28983,231 75,699
    Impairment of financial assets -654-1,001 -197-46-851-1,047
    Impairment of property, plant and equipment -168-49-519-2,984 -687-3,033
    Note: presented data on profitability of the Other Business segment is exclusive of attributable\
    costs for general supporting functions, which the Company renders for the entire Group; these are fully born by the Domestic Appliances segment.
    Further, the structure of both business segments has changed during 2017 pursuant to the Group’s restructuring process, hence the data presented for 2016 are comparable with the data for 2017; they are not, however, equal to data
    disclosed in the annual report for 2016.
    Note 50 – Geographical segments
    West EastOther Group
    EURk 20162017201620172016201720162017
    Revenue from sale to third parties 468,676439,606677,641744,725111,807125,6011,258,124 1,309,932
    Total assets 379,782324,479568,992640,245175,140178,3921,123,914 1,143,116
    Investments 21,36016,09044,45542,39817,41617,21183,23175,699
    Note: overview of countries by geographical segments is outlined in Note\
    6 ‘Segment reporting’.
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Appendix 1: Information on the Gorenje Group companies
    CompanyShare capital (EURk)No. of employees
    Gorenje, d.d., Slovenia 101,9224,470
    Gorenje I.P.C., d.o.o., Slovenia 93924
    Gorenje GTI, d.o.o., Slovenia 3,76953
    Gorenje Gostinstvo, d.o.o., Slovenia 3,790278
    Energygor, d.o.o., Slovenia 90
    Kemis, d.o.o., Slovenia 2,65040
    Gorenje Orodjarna, d.o.o., Slovenia 927230
    Indop, d.o.o., Slovenia 40023
    ZEOS, d.o.o., Slovenia 4826
    Gorenje Surovina, d.o.o., Slovenia 8,067323
    Gorenje GAIO, d.o.o., Slovenia 46486
    Gorenje GSI, d.o.o., Slovenia 4,657150
    Gorenje Keramika, d.o.o., Slovenia 1,708122
    Gorenje EKOINVEST, d.o.o., Slovenia 1,0000
    Gorenje HS, d.o.o., Slovenia 38512
    Gorenje Surovina RECE, d.o.o., Slovenia 80
    Termoclean S, d.o.o., Slovenia 80
    Gorenje Beteiligungs GmbH, Austria 47,1007
    Gorenje Austria Handels GmbH, Austria 3,27544
    Gorenje Vertriebs GmbH, Germany 5,70072
    Gorenje Körting Italia S.r.l., Italy 908
    Gorenje France S.A.S., France 10015
    Gorenje UK Ltd., Great Britain 3,63813
    Gorenje Group Nordic A/S, Denmark 26971
    Gorenje spol. S r.o., Czech Republic 4,80454
    Gorenje real spol. S r.o., Czech Republic 6,26712
    Gorenje Slovakia s.r.o., Slovakia 89210
    Gorenje Magyarország Kft., Hungary 2,30418
    Gorenje Polska Sp. Z o.o., Poland 8,31936
    Gorenje Bulgaria EOOD, Bulgaria 1,97622
    Gorenje Zagreb, d.o.o., Croatia 28,50971
    Gorenje Skopje, d.o.o., Macedonia 25023
    Gorenje Commerce, d.o.o., Bosnia and Herzegovina 184
    Gorenje, d.o.o., Serbia 3,097195
    Gorenje Podgorica, d.o.o., Montenegro 2,8007
    Gorenje Romania S.r.l., Romania 3519 Company Share capital (EURk)No. of employees
    Gorenje aparati za domaćinstvo, d.o.o., Serbia 25,7021,223
    Mora Moravia, s.r.o., Czech Republic 10,719558
    Gorenje – kuchyně spol. S r.o., Czech Republic 1,6450
    ST Bana Nekretnine, d.o.o., Serbia 2,0080
    KEMIS – Termoclean, d.o.o., Croatia 83160
    Kemis – BH, d.o.o., Bosnia and Herzegovina 2108
    Gorenje Gulf FZE, United Arab Emirates 68913
    Gorenje Espana S.L., Spain 30
    Gorenje Tiki, d.o.o., Serbia 19,224516
    Gorenje Istanbul Ltd., Turkey 4,1550
    Gorenje TOV, Ukraine 8614
    ATAG Nederland BV, the Netherlands 16428
    ATAG België NV, Belgium 37245
    Intell Properties BV, the Netherlands 450
    Gorenje Nederland BV, the Netherlands 20,7960
    Gorenje Kazakhstan, TOO, Kazakhstan 60211
    OOO Gorenje BT, Russia 32,984100
    Kemis Valjevo, d.o.o., Serbia 1,19166
    Gorenje GTI, d.o.o., Serbia 116
    Asko Appliances AB, Sweden 5,07958
    Gorenje North America, Inc., USA 10
    Asko Appliances Pty, Australia 6,51691
    Asko Appliances OOO, Russia 1,54315
    “Gorenje Albania” SHPK, Albania 16
    Gorenje Home, d.o.o., Serbia 2,710159
    Gorenje Ekologija, d.o.o., Serbia 1,2650
    Gorenje Corporate GmbH, Austria 350
    ZEOS eko-sistem d.o.o., Bosnia and Herzegovina 4204
    Gorenje Asia Ltd., China 39329
    Gorenje do Brasil Ltda., Brasil 1,6644
    Gorenje MDM, d.o.o., Serbia 1,05188
    Gorenje Chile, SpA, Chile 3534
    Gorenje AEC, LLC, Thailand 25610
    Indop Gorenje GmbH, Germany 250
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    Appendix 2: Managing Directors
    In 2017, the Group companies were managed by following managing directors:
    CompanyManaging Director
    Gorenje, d.d., Slovenia Franc Bobinac, President of the Management Board
    Peter Kukovica, Management Board member
    Peter Groznik, Management Board member
    (until 28 February 2017)
    Žiga Debeljak, Management Board member
    (since 1 May 2017)
    Branko Apat, Management Board member
    Drago Bahun, Management Board member
    Gorenje, I.P.C., d.o.o., Slovenia Mirko Rožanc
    Gorenje GTI, d.o.o., Slovenia Cita Špital-Meh
    Gorenje Gostinstvo, d.o.o., Slovenia Stanko Brunšek
    Energygor, d.o.o., Slovenia Marijan Penšek
    Kemis, d.o.o., Slovenia Emil Nanut
    Gorenje Orodjarna, d.o.o., Slovenia Blaž Nardin (until 31 January 2017),
    Boštjan Dokl Menih (since 1 February 2017)
    Indop, d.o.o., Slovenia Matej Sevčnikar
    ZEOS, d.o.o., Slovenia Emil Šehič
    Gorenje Surovina, d.o.o., Slovenia Jure Fišer
    Gorenje GAIO, d.o.o., Slovenia Andrej Koželj (until 31 December 2017),
    Janez Krevzel (since 1 January 2018)
    Gorenje GSI, d.o.o., Slovenia Iztok Šepec (until 31 January 2018),
    Boštjan Doltar (since 1 February 2018)
    Gorenje Keramika, d.o.o., Slovenia Boris Laubič
    Gorenje EKOINVEST, d.o.o., Slovenia Marijan Penšek
    Gorenje HS, d.o.o., Slovenia Božena Herzog
    Gorenje Surovina RECE, d.o.o., Slovenia Boštjan Šimenc
    Termoclean S, d.o.o., Slovenia Jure Fišer
    Gorenje Beteiligungs GmbH, Austria Tomaž Kuntarič, Žiga Debeljak
    Gorenje Austria Handels GmbH, Austria Uroš Marolt
    Gorenje Vertriebs GmbH, Germany Uroš Marolt, Andy Miklav
    Gorenje Körting Italia S.r.l., Italy Matjaž Geratič
    Gorenje France S.A.S., France Matej Kurent
    Gorenje UK Ltd., Great Britain Iztok Krulc
    CompanyManaging Director
    Gorenje Group Nordic A/S, Denmark Jaka Slavinec, Sandra Lubej
    Gorenje spol. s r.o., Czech Republic Suad Hadžić, Stanko Romih
    Gorenje real spol. s r.o., Czech Republic Suad Hadžić, Stanko Romih
    Gorenje Slovakia s.r.o., Slovakia Stanko Romih
    Gorenje Magyarország Kft., Hungary Norbert Fülle
    Gorenje Polska Sp. z o.o., Poland Jan Štern
    Gorenje Bulgaria EOOD, Bulgaria Bojan Bratkovič
    Gorenje Zagreb, d.o.o., Croatia Damir Dražetić
    Gorenje Skopje, d.o.o., Macedonia Nenad Jovanović
    Gorenje Commerce, d.o.o., Bosnia and
    Herzegovina Robert Polšak
    Gorenje, d.o.o., Serbia Stanka Pejanović
    Gorenje Podgorica, d.o.o., Montenegro Darko Vukčević
    Gorenje Romania S.r.l., Romania Slobodan Vukša
    Gorenje aparati za domaćinstvo, d.o.o., Serbia Boris Pavčnik (until 20 June 2017),
    Simon Kumer (since 21 June 2017)
    Mora Moravia, s.r.o., Czech Republic Vitezslav Ružička, Matija Zupanc (until 31 January 2018),
    Tatjana Ivanovič (since 1 February 2018)
    Gorenje – kuchyně spol. s r.o., Czech Republic Bogdan Urh
    ST Bana Nekretnine, d.o.o., Serbia Bogdan Urh
    KEMIS – Termoclean, d.o.o., Croatia Zoran Matić
    Kemis – BH, d.o.o., Bosnia and Herzegovina Maid Hadžimujić
    Gorenje Gulf FZE, United Arab Emirates Boštjan Vodeb
    Gorenje Espana, S.L., Spain Jernej Hren
    Gorenje Tiki, d.o.o., Serbia Branko Apat
    Gorenje Istanbul Ltd., Turkey Nedim Hadžibegić
    Gorenje TOV, Ukraine Gregor Gržina
    ATAG Nederland BV, the Netherlands Marko Šefer, Jeroen van Benthem, Robert Kapteijn
    ATAG België NV, Belgium Marc Jozef Wynant (until 18 April 2017),
    Marko Šefer, Tomaž Kuntarič (since 19 April 2017)
    Intell Properties BV, the Netherlands Marko Šefer
    Gorenje Nederland BV, the Netherlands Žiga Debeljak (until 21 May 2017), Marko Šefer,
    Tomaž Kuntarič (since 22 May 2017)
    Gorenje Kazakhstan, TOO, Kazakhstan Dejan Ačimovič
    OOO Gorenje BT, Russia Marko Špan
    Kemis Valjevo d.o.o., Serbia Zoran Milovanović
    Gorenje GTI d.o.o., Serbia Miloš Leković
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
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    CompanyManaging Director
    Asko Appliances AB, Sweden Matej Čufer (until 30 June 2017),
    Jonas Lidberg (since 1 July 2017)
    Gorenje North America, Inc, USA Marko Šefer
    Asko Appliances Pty, Australia Črt Prašnikar
    Asko Appliances OOO, Russia Dime Rangelov
    “Gorenje Albania” SHPK, Albania Gregor Verbič
    Gorenje Home, d.o.o., Serbia Vlado Krebs
    Gorenje Ekologija, d.o.o., Serbia Zoran Milovanović
    Gorenje Corporate GmbH, Austria
    Žiga Debeljak (until 1 August 2017),
    Tomaž Kuntarič (since 2 August 2017)
    ZEOS eko-sistem d.o.o., Bosnia and
    Herzegovina Emil Šehič
    Gorenje Asia Ltd., China Leon Terglav
    Gorenje do Brasil Ltda., Brasil Matjaž Cokan
    Gorenje MDM, d.o.o., Serbia
    Marko Klinc (until 31 December 2017),
    Borivoj Grden (since 1 January 2018)
    Gorenje Chile, SpA, Chile Felipe Hormaechea Calderón
    Gorenje AEC, LLC, Thailand Arnaud Brandt
    Indop Gorenje GmbH, Germany Matej Sevčnikar
    INDEPENDENT AUDITOR'S REPORTFINANCIAL STATEMENTS OF THE GORENJE GROUP AND
    THE COMPANY GORENJE, D.D. NOTES TO THE FINANCIAL STATEMENTS
    Disclosures of the Gorenje Group and the company Gorenje, d.d.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    4
    Compliance with the
    GRI sustainability
    guidelines and
    integrated reporting
    principles
    We deliver reliable,
    comprehensive, integrated,
    balanced and consistent
    reporting on the way in which
    we create sustainable value and
    on the results of our efforts.
    Therefore, our annual reporting
    pursues the internationally
    adopted sustainability reporting
    and integrated reporting
    guidelines.


    195
    4.1 Disclosure of non-financial information
    With our Annual Report, we also meet our obligations
    regarding disclosure of non-financial and diversity
    information, which was implemented in the Slovenian
    legislation with the amending act ZGD–1J Companies
    Act) from the Directive 2014/95/EU. The Business Report,
    which is a constituent part of the Gorenje Group Annual
    Report, includes information on business, environmental,
    human resource, and social issues, which is required for
    understanding of the development, performance, and
    position of the company and the Gorenje Group.
    Due to Gorenje Group's integrated approach to corporate
    reporting, the non-financial information is closely related to
    the Gorenje Group business model that is based on creation
    of value for the key stakeholders based on six capitals:
    financial capital, human capital, intellectual (organizational) capital, social (relational), natural capital, and manufactured
    (infrastructural) capital.
    In the statement (Business Report), non-financial information
    is presented consistently with our understanding of the
    pursuit of sustainable development which we are striving for
    by balancing our:

    economic sustainability and business excellence,
    • environmental sustainability, and
    • social sustainability (which includes human resource and
    broader social aspects of our business).
    Where necessary for understanding of the status or development
    and results of a particular field or segment, we describe the key
    policies on respective aspects of our non-financial operations. In
    order to present the monitoring of accomplishment of the goals laid down by non-financial operations policies for respective areas
    or segments, the statement (Business Report) includes the key
    non-financial performance indicators that are relevant for the
    attainment of results for respective fields of pursuit of sustainable
    development (see chart of relations between capitals and KPI in
    the introduction to Chapter 2)
    In reporting of non-financial information and results of non-
    financial operations, we use:

    the international GRI G4 sustainability reporting framework
    (see detailed chart on compliance of the Annual Report
    contents with the GRI G4 sustainability reporting guidelines
    at the end of this chapter), and we also comply with
    • the principles of the International Integrated Reporting
    Framework (The International Framework; IIRC,
    2013).
    4.2 Development of Gorenje Group corporate reporting
    Sustainability reporting – we are pursuing the GRI G4 guidelines:
    • For the third consecutive year, Gorenje Group Annual
    Report is developed in compliance with the sustainability
    reporting guidelines of the Global Reporting Initiative GRI
    G4*, which we shall also comply with in the future.
    • in the future, information included in our annual reporting
    will be upgraded:
    - by defining the essential aspects and
    boundaries of relevance for Gorenje Group
    operations and, consequently, for our reporting
    on our operations and performance, consistently
    with Gorenje Group's Strategic Plan for the period
    2016–2020;
    *Following is the content index of the Annual Report according to the GRI G4 sustainability reporting guidelines, complete with a detailed (numbered) index for easier reader orientation.
    - with key information on economic, environmental,
    and social aspects of our operations, in order to
    attain an even higher level of compliance with the
    GRI guidelines.
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    196
    Implementing integrated reporting –
    pursuing IIRC principles:
    • we have adopted the principles of the International
    Integrated Reporting Framework (The International
    Framework; IIRC, 2013), therefore:
    • we have included in the Annual Report the concept of
    six capitals as stocks of value employed by the Group
    to create new value,
    • we report the integration of the Gorenje Group
    business model into the creation of sustainable
    value in business, environmental, and social field;
    • we report on links and relations between capitals
    and key performance indicators, and risk
    management measures.
    STEPS TAKEN
    1999 –2017
    1999
    Gorenje Group Annual Report
    2013
    Gorenje Group Sustainability Report
    2015
    Merging the Annual Report and the Sustainability Report into
    a single publication called Gorenje Group Annual Report for
    the Year 2015; compliance with the GRI G4 sustainability
    reporting guidelines.
    2016
    Start of introduction of integrated reporting, consistently with
    the IIRC principles:
    • capitals and creation of value,
    • relations with stakeholders and relation to the results of
    sustainable value creation (economic, environment, and
    social outcomes),
    • information connectivity (capitals, KPI, risks),
    • conciseness or reporting (preparing an online Annual
    Report summary).
    For all and any questions regarding the Annual Report and its
    compliances with the sustainable reporting and integrating
    reporting principles, please write to: [email protected]
    STEPS PLANNED
    2018 –2020
    2018/2019
    Further advancement of integrated reporting consistently
    with the principles of the Gorenje Group Strategic Plan for
    the period from 2016 to 2020, and taking into account
    the Group's all-around transformation from functional to
    business-product (divisional) organization, in particular in the
    following areas:
    • identification and definition of key issues or
    reporting on material aspects and Gorenje Group
    operation impacts,
    • connectivity of information from the business and
    financial part of the Annual Report,
    • monitored and disclosed key performance
    indicators (KPI), taking into account if necessary the
    pursuit of goals from the Strategic Plan,
    • encouraging response from key stakeholders
    regarding creation of sustainable value,
    • statement of commitment to the execution of
    the initiative for corporate social responsibility and
    sustainable development of business entities UNGC
    (United Nations Global Compact) and reporting on
    the compliance with its universal principles.
    2019/2020
    Goal: meeting key sustainability reporting guidelines that
    are of key importance for the Gorenje Group, and the
    fundamental concepts, guiding principles, and content
    elements of integrated reporting > Gorenje Group
    Integrated Report.
    2017
    Continuation of sustainable and integrated reporting
    pursuant to the GRI G4 guidelines and the principles of the
    International Integrated Reporting Council (IIRC).
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    4.3 GRI G4 sustainability reporting content index
    (‘In accordance’ – Core Option)
    GENERAL STANDARD DISCLOSURES
    Indicator Disclosure SectionPage
    Strategy and analysis
    G4-1 Statement from the most senior decision-maker of the organization about the relevance of sustainability to
    the organization and the organization’s strategy for addressing sustainability 1.3
    10
    Organization profile
    G4-3 Name of organization 1.5.1
    1.5.8
    Impressum16
    25
    G4-4 Primary brands, products, and services 1.5.1
    1.5.2
    2.1.116
    17
    48
    G4-5 Location of organization's headquarters 3.2.2
    Impressum125
    G4-6 Number of countries where the organization operates, and names of countries where either the organization
    has significant operations or that are specifically relevant to the sustainability topics covered in the report 1.5.8
    3.2.2 25
    125
    G4-7 Nature of ownership and legal form 3.2.2 125
    G4-8 Markets served (including geographic breakdown, sectors served, and types of customers and beneficiaries) 1.5.8
    2.1.1 (Brands and Programs) 25
    48
    G4-9 Scale of the organization (number of employees, number of operations, n\
    et revenues, debt and equity,
    quantity of products or services provided) 2.1
    2.3.1
    3.2.244
    89
    125
    G4-10 Employees by type of employment, employment contract, and gender 2.3.189
    G4-12 Description of the organization's supply chain 2.1.1
    2.2.148
    80
    G4-13 Significant changes during the reporting period regarding the organization’s size, structure, ownership, or its
    supply chain 1.3
    1.5.6
    1.5.9
    2.1.1
    3.2.210
    19
    27
    48
    125
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    198
    Indicator Disclosure SectionPage
    G4-14 Explanation whether and how the precautionary approach or principle is addressed by the organization 2.2.1 (indirectly: Gorenje eco cycle and EMAS register)80
    G4-16 Membership in associations/organizations 1.5.722
    Identified material aspects and boundaries
    G4-17 List of entities included in the organization’s consolidated financial statements 3.2.2 (Chapter 8, Gorenje Group composition)125
    G4-18 Process for defining the report content and the aspect boundaries 1.5.6 (note: Definition of the report content and material
    aspects is related to the contents of the Strategic Plan
    for the period 2016–2020 which involved around one
    hundred Gorenje Group employees from across the
    world. Indirectly, plan development also included an
    analysis of materiality, including establishment of a
    system for measuring the accomplishment of the goals
    laid down.)
    We are developing a definition of materiality that will
    take into account the comprehensive transformation of
    the Gorenje Group organization in 2018.
    2.1.1 (Brands and Programs)19
    48
    G4-19
    List of all material aspects identified in the process for defining report content
    G4-20 Material aspect boundaries within the organization
    G4-21 Material aspect boundaries outside the organization
    G4-22 Effect of any restatements of information provided in previous reports, and the reasons for such restatements
    G4-23 Significant changes from previous reporting periods in the scope and aspect boundaries
    Stakeholder engagement
    G4-24 List of stakeholder groups engaged by the organization 1.5.722
    G4-25 Basis for identification and selection of stakeholders with whom to en\
    gage 1.5.6
    1.5.7
    2.1.219
    22
    64
    G4-26 Organization's approach to stakeholder engagement, including frequency of engagement by stakeholder
    group 1.5.7
    2.1.222
    64
    G4-27 Key topics and concerns that have been raised through stakeholder engagement, and how the organization
    has responded to those key topics and concerns through its reporting 1.5.6
    1.5.7
    2.1.219
    22
    64
    Report Profile
    G4-28 Reporting period 4194
    G4-29 Date of most recent previous report Audited Annual Report of the Gorenje Group for 2016
    was released on April 24
    th 2017: Audited consolidated
    and non-consolidated annual report for 2016.
    G4-30 Reporting cycle 4 (Annual reporting) 194
    G4-31 Contact point for questions regarding the report 4 ([email protected]) 194
    G4-32 GRI content index 4.3197
    G4-33 External assurance for the report according to GRI guidelines Not carried out
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    IndicatorDisclosure SectionPage
    Management
    G4-34 Governance structure of the organization, including committees of the highest governance body 1.5.927
    G4-38 Composition of the highest governance body and its committees 1.5.927
    G4-39 Role of the chair of the highest governance body 1.5.927
    G4-51 Remuneration policies for the highest governance body and senior executives 1.5.927
    Ethics and Integrity
    G4-56 Description of organization's values, principles, standards and norms of behaviour such as codes of conduct
    and codes of ethics 1.5.4
    1.5.5
    1.5.6
    1.5.9
    2.1.2
    418
    18
    19
    27
    64
    194
    SPECIFIC STANDARD DISCLOCURES
    Material aspects Disclosures on management approach (DMA)
    and indicatorsSection
    PageComment on content omission
    ECONOMIC IMPACT DMA2.1
    1.5.6
    2.4.2 44
    19
    99
    Economic performance G4-EC1
    Direct economic value generated and distributed
    on an accruals basis (revenue, operating costs,
    employee wages and benefits, payments to
    providers of capital, payments to government
    (taxes), donations and other community
    investments)1.1
    2.1.1
    2.1.2 (Gorenje share in 2017)
    2.1.3
    2.3.3
    5
    48
    64
    67
    94
    G4-EC2
    Financial implications and other risks and
    opportunities for the organization's activities due
    to climate change 2.2.5
    2.4.2 (Key changes affecting the
    accomplishment of goals in 2017)
    84
    99
    G4-EC3
    Retirement plan liabilities and obligations 3.2.2
    125
    Procurement practice G4-EC9
    Proportion of spending on local suppliers at
    significant locations of operation2.1.1
    48Information on the share of spending is not prepared at this
    point. This is planned in the future.
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    Material aspectsDisclosures on management approach (DMA)
    and indicatorsSection
    PageComment on content omission
    ENVIRONMENTAL IMPACT DMA2.2
    1.5.6
    2.4.2 78
    19
    99
    Energy G4-EN3
    Energy consumption within the organization2.2.1
    2.2.4 ( Electricity consumption) 80
    83
    G4-EN6
    Reduction of energy consumption 2.2.4 (Electricity consumption)
    83
    Water G4-EN8
    Total water withdrawal2.2.4 (Water consumption)
    83
    Emissions G4-EN15, G4-EN17 Direct and indirect
    greenhouse gas emissions2.2.1
    2.2.5 80
    84
    G4-EN16 Energy indirect greenhouse gas (GHG)
    emissions 2.2.5
    84In estimating our impact on the environment, we also take
    into account the indirect impact related to generation of
    electricity. We do not yet have detailed data on indirect GHG;
    this is a plan for the future.
    Effluents and Waste G4-EN23 Total weight of waste by type and
    disposal method2.2.1
    2.2.4 (Reducing the amount of waste) 80
    83
    Products and Services G4-EN27 Extent of impact mitigation of
    environmental impacts of products and services2.2.1
    2.2.3
    2.2.4
    2.2.6 80
    81
    83
    85
    Compliance G4-EN29 Monetary value of significant fines
    and total number of non-monetary sanctions for
    non-compliance with environmental laws and
    regulations2.2.2
    2.2.3
    80
    81As there was no non-compliance, there were no sanctions or
    fines against us.
    Transport G4-EN30 Significant environmental impacts
    of transporting products and other goods and
    materials for the organization’s operations, and
    transporting members of the workforce2.2.3
    81In estimating our impact on the environment, we also take
    into account the indirect impact related to logistics. Detailed
    information on environmental impact of transport will be
    compiled in the future.
    Supplier Environmental Assessment G4-EN32
    Percentage of new suppliers that were screened
    using environmental criteria2.1.1 (Strategic procurement/sourcing
    and activities for the pursuit of strategic
    goals)
    2.2.1 48
    80 We report on the development of a network of stable and
    competitive suppliers who also meet the requirements
    regarding quality. We do not yet report the share of new
    suppliers.
    SOCIAL IMPACT
    Labour practices and decent work DMA2.3
    1.5.6
    2.4.2 86
    19
    99
    Hiring G4-LA1
    Total number and rates of new employee hires
    and employee turnover2.3.1 (Number of employees; education-
    based hiring and recruitment)
    89
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    201
    Material aspectsDisclosures on management approach (DMA)
    and indicatorsSection
    PageComment on content omission
    G4-LA2 Benefits provided to full-time employees
    that are not provided to temporary or part-time
    employees, by significant locations of operation 2.3.1 (Protection of employee rights,
    Occupational safety and health)
    89
    G4-LA3 Return to work and retention rates after
    parental leave, by gender 2.3.1 (Protection of employee rights)
    89
    Occupational health and safety G4-LA6 Rates of work-related injury2.3.1 (Occupational safety and health) 89
    Training and education G4-LA9 Average hours of training per year per
    employee by gender, and by employee category2.3.1 (Human resource development and
    Corporate University of Gorenje) 89
    We do not report separately by gender and employee
    category; emphasis is on the scope and contents of training
    and education.
    G4-LA10 Programs for skills management and
    lifelong learning 2.3.1 (Human resource development and
    Corporate University of Gorenje) 89
    G4-LA11 Percentage of employees receiving
    regular performance and career development
    reviews, by gender and by employee category 2.3.1 (Protection of employee rights,
    human resource development and
    Corporate University of Gorenje) 89
    We do not report separately by gender and employee
    category; emphasis is on the reporting on annual interviews
    and competence assessment.
    Diversity and Equal Opportunity G4-LA12 Composition of governance bodies
    and breakdown of employees per employee
    category (according to gender, age group – below
    30 years, 30–50 years, over 50 years – minority
    group membership, and other relevant indicators
    of diversity)1.5.9 (Management Board,
    Supervisory Board)
    2.3.1 (education-based hiring and
    recruitment; employees by age;
    employees by gender)
    27
    89
    Diversity policy
    The company has not adopted diversity policy with regard
    to representation in the managerial or supervisory bodies.
    When recruiting candidates for members of managerial
    and supervisory bodies, the company focuses on expert
    knowledge, work experience, and competences, and does
    not discriminate based on gender, age, or education.
    Equal Remuneration for Women and Men G4-LA13 Ratio of basic salary and remuneration
    of women to men by employee category, by
    significant locations of operation2.3.1 (Employees by gender)
    89We report that regardless of gender, all employees are
    granted equal remuneration for work in jobs with equal
    complexity or difficulty. We do not report ratio in terms of
    figures.
    Supplier Assessment for Labour Practices G4-LA14 Percentage of new suppliers that were
    screened using labour practices criteria2.1.1 (Strategic procurement/sourcing,
    activities for the pursuit of strategic goals)
    2.3.1 (Protection of employee rights,
    Occupational safety and health) 48
    89
    We do not report the share. We report indirectly on supplier
    review or testing in the section on supply chain management.
    Labour Practices Grievance Mechanisms G4-LA16 Number of grievances about labour
    practices filed, addressed, and resolved through
    formal grievance mechanisms2.3.1 (Protection of employee rights)
    89We report on the importance of communication with the
    employees and the 2017 results: there were no reports of
    mobbing in the workplace.
    Human rights DMA2.3.1
    1.5.6
    2.4.2 89
    19
    99
    Investment G4-HR2 Total hours of employee training on
    human rights policies or procedures concerning
    aspects of human rights that are relevant to
    operations, including the percentage of employees
    trained2.3.1 (Occupational safety and health,
    human resource development and
    Corporate University of Gorenje)
    89
    Human right-related content is included in training and
    education in work procedures, occupational health and
    safety, and health promotion. We do not report the number
    and share of hours separately for this aspect of training.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


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    Material aspectsDisclosures on management approach (DMA)
    and indicatorsSection
    PageComment on content omission
    Non-discrimination G4-HR3 Total number of incidents of
    discrimination and corrective actions taken2.3.1 (Protection of employee rights)
    89We report on the importance of communication with the
    employees and the 2017 results: there were no reports of
    mobbing in the workplace.
    Supplier Human Rights Assessment G4-HR10 Percentage of new suppliers that were
    screened using human rights criteria2.1.1 (Strategic procurement/sourcing,
    activities for the pursuit of strategic goals)
    2.3.1 (Protection of employee rights,
    Occupational safety and health) 48
    89
    We do not report the share. We report indirectly on supplier
    review or testing in the section on supply chain management.
    Human Rights Grievance Mechanisms G4-HR12 Number of grievances about human
    rights impacts filed, addressed, and resolved
    through formal grievance mechanisms2.3.1 (Protection of employee rights)
    89We report on the importance of communication with the
    employees and the 2017 results: there were no reports of
    mobbing in the workplace.
    Society DMA2.3
    1.5.6
    2.4.2 86
    19
    99
    Local communities G4-SO1 Percentage of operations with
    implemented local community engagement,
    impact assessments, and development programs2.3.3 (Creative industries, culture,
    tradition; Partnership in sports;
    Humanitarian activities) 94
    We do not report the share. The emphasis is on the content
    of cooperation/involvement in the activities.
    Anti-corruption G4-SO3 Total number and percentage of
    operations assessed for risks related to corruption
    and the significant risks identified1.5.9 (Audit)
    27We report on the internal control system operation for
    improvement of transparency, traceability, and responsibility.
    We do not report the number and share of activities.
    Anti-Competitive Behaviour / Protection of
    competition G4-SO7 Total number of legal actions for anti-
    competitive behaviour, anti-trust, and monopoly
    practices and their outcomes in the reporting year2.4.3 (Legislative and regulatory risks)
    101We report on our exposure to the risk of compliance with the
    competition law, due to our strong international presence (in
    90 countries of the world). We do not report the number of
    legal actions.
    Product responsibility DMA2.3.2
    1.5.6
    2.4.2 93
    19
    99
    Product and service labelling G4-PR3 Type of product and service information
    required2.3.2 (Assuring the quality of our
    products) 93
    We report on the activities and goals regarding the
    improvement of reliability of our products, and on the
    importance of certificates that grant our products
    internationally approved (or certified) technical and production
    credibility. We prepare the relevant inputs for mandatory
    product information.
    G4-PR4 Total number of incidents of non-
    compliance with regulations and voluntary codes
    concerning product and service information and
    labelling 2.3.2 (Assuring the quality of our
    products, Responsible marketing and
    market communication)
    93
    We report that we did not have in 2017 any of our products
    recalled from the market, and no case of non-compliance of
    our marketing and market communication approaches with
    the legislation or local codes.
    Marketing Communications G4-PR7 Total number of incidents of non-
    compliance with regulations and voluntary codes
    concerning marketing communications2.3.2 (Responsible marketing and market
    communication)
    93
    We report that we did not have in 2017 any case of non-
    compliance of our marketing and market communication
    approaches with the legislation or local codes.
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    203
    4.4 Numbered table of contents
    1 Gorenje Group 4
    1.1 2017 performance highlights 5
    1.2 Key events in 2017 6
    1.3 Report by the President and CEO 10
    1.4 Supervisory Board chairman's report 12
    1.5 Gorenje Group Profile 16
    1.5.1 Corporate Profile 16
    1.5.2 Brands 17
    1.5.3 Gorenje Group History 17
    1.5.4 Vision, mission, values 18
    1.5.5 Business model 18
    1.5.6 Responsibility and sustainability mindset 19
    1.5.7 Key stakeholders 22
    Participation and membership in organizations 24
    Awards received in 2017 24
    1.5.8 Organizational structure and geographical presence 25
    Core activity organization 25
    Manufacturing operations map 25
    Key market map 25
    Gorenje Group Other Businesses 26
    1.5.9 Corporate Governance Statement 27
    Management Board 27
    Supervisory Board 30
    Audit 35
    Statement of Compliance with the Corporate Governance Code 36
    Corporate governance rules for companies listed on the
    Warsaw Stock Exchange 37
    Shareholders Assembly 382
    Business Report 40
    2.1 Economic sustainability and business excellence 44
    2.1.1 Development of key segments 48
    Brands 48
    Programmes 55
    Strategic procurement/sourcing 60
    Activities for pursuit of strategic goals
    (operational support functions) 61
    Digital transformation 63
    2.1.2 Creating value for the shareholders 64
    Strategic goal 64
    Transparency of operations and equal treatment 64
    Investor relations 64
    Gorenje share in 2017 65
    Ownership Structure 66
    2.1.3 Business performance 67
    Gorenje Group performance highlights 67
    Sales and markets 68
    Development and investment 70
    Gorenje Group operating performance analysis 71
    Financial performance 73
    Business plan for the year 2018 76
    2.2 Environmental sustainability 78
    2.2.1 Gorenje's eco cycle 80
    Choice of input materials 80
    Production 80
    Use of products 80
    Recycling 80
    2.2.2 Environmental management quality assurance policy 80
    2.2.3 Environmental aspects of our operations 81
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    204
    2.2.4 Efficient resource management 83
    Reducing the amount of waste 83
    Water consumption 83
    Electricity consumption 84
    2.2.5 Carbon footprint 84
    2.2.6 Pursuit of environment responsibility – our goals 85
    2.3 Social Sustainability 86
    2.3.1 Relations with employees 89
    Number of employees 89
    Education-based hiring and recruitment 89
    Employees by age 90
    Employees by gender 90
    Protection of employee rights 90
    Occupational safety and health 91
    Human resource development and Corporate University of Gorenje 91
    2.3.2 Quality for our users 93
    Assuring the quality of our products 93
    Responsible marketing and market communication 93
    After-sales services (servicing) 94
    2.3.3 Cooperation with local communities 94
    Creative industries, culture, and tradition 94
    Partnership in sports 94
    Humanitarian activities 95
    2.4 Risk management 96
    2.4.1 Risk management process and organization 98
    2.4.2 Risk management in 2017 99
    Key changes affecting the accomplishment of goals in 2017 100
    External and internal events 100
    2.4.3 Risk catalogue 101
    Strategic risks 103
    Project risks 103
    Process /operational risks 103
    2.4.4 Insurance of property, responsibility, and employees 109
    2.4.5 Targets for 2018 1093
    Accounting Report pursuant to IFRS as adopted by the EU 110
    3.1 Independent Auditor's Report 112
    3.2 Accounting Report of the Gorenje Group and the company
    Gorenje d.d. 117
    3.2.1 Financial statement of the Gorenje Group and the company
    Gorenje, d.d. 117
    3.2.2 Notes to financial statements 125
    3.2.3 Disclosures of the Gorenje Group and the company Gorenje, d.d.
    to the individual items in the financial statements 141
    4 Compliance with the GRI sustainability guidelines and integrated
    reporting principles 194
    4.1 Disclosure of non-financial information 195
    4.2 Development of Gorenje Group corporate reporting 195
    4.3 Content index pursuant to GRI G4 sustainability
    reporting guidelines 197
    4.4 Detailed table of contents 203
    Note: The numbered content index is intended for easier reader orientation with regard to
    compliance of Annual Report contents with the GRI G4 sustainability \
    reporting guidelines
    Annual Report 2017Gorenje GroupBusiness Report Financial ReportCompliance with the reporting guidelines


    ISSUER Gorenje gospodinjski aparati, d. d., Partizanska cesta 12, 3320 Velenje, Slovenia
    CONTENT CONCEPT Consensus
    TEXT Gorenje, d. d., and Consensus
    GRAPHIC EDITORIAL ma—ma studio
    PHOTOS Peter Marinšek
    March 2018


    GORENJE G R O U P 2 017
    ANNUAL
    REPORT


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Informacje o spółce
Nazwa:Gorenje gospodinjski aparati d.d.
ISIN:SI0031104076
NIP:SI72615320
EKD:
Adres: Partizanska 12 3503 Velenje, Słowenia
Telefon:+386038991000
www:www.gorenjegroup.com
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