March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka d.d., Neubergerjeva 30, 1000 Ljubljana, Slovenia

Gorenje (GRVG SV, GORE.LJ)

Difficult time ahead

Analyst: Bojan Ivanc Recommendation statistics E-mail: bojan.ivanc@kd-group.si Current Previous Contact: +386 (0)59 220 011 Hold (12.0) Acc. (14.4; Sep 27th, 2010)

Key data

Target price (12M) (EUR) 12.0

Upside/(downside) (%) 0.8

Current price on March 23th (EUR) 11.9

Market cap (EUR m) 189.1

52-week range (EUR) 11.3-14.8

Average daily turnover (EUR m) 0.06

Free float (%) 54.3

Primary stock exchange Ljubljana SE

Audit KPMG Slovenija

Next results published May 30th, 2011

Internet site www.gorenjegroup.com

Forecasts and ratios

2010A* 2011E 2012E 2013E

Net sales (m) 1,382.2 1,561.9 1,640.0 1,705.6

EBIT (m) 56.4 51.8 60.0 65.8

EBITDA (m) 108.7 104.0 111.5 117.0

EPS 1.4 1.2 1.6 1.9

P/E 9.4 10.0 7.4 6.4

EV/EBITDA 5.2 5.7 5.2 4.9

*unaudited

Share price performance (%)

3M 6M 1Y 2Y

Gorenje -11.6 -9.2 -16.3 25.2

SGD* -0.3 12.9 14.7 79.1 S&P Global 1200 Consumer Discretionary index

Source: Bloomberg, March 23th, 2011

More or less exceeding our estimates

Gorenje announced a set of figures on March 11th that were mostly above our estimates after excluding a larger X-O items which were above our estimates. Nevertheless was 2010 a transitional year as Gorenje struggled to meet the debt covenants, was injected by one equity tranche of EUR 25 m (we expected that a 2nd one will be successful as well) and finally took over Scandinavian company Asko for a bargain (EUR 4.5 m; implied EV/EBITDA 2.86).

Lifted by East, Asko & Energy

As the 8th largest manufacture of white goods in Europe and holding a 4% market share in Europe, Gorenje’s sales are more weighted towards Eastern Europe than the West (58%:42%). In the former segment, sales rose by 32.4% in Ukraine and by 23.4% in Russia. Other markets where sales development was also favorable are Serbia, US, Middle & Far East. Disappointing figures came from Croatia and France. It has to be noted that just about 76% of sales are generated in the segment Home Appliance division whereas the rest comes from Ecology, Energy & Services division (22%) and Home Interior division (2%) which is despite all the restructuring efforts not breaking even due to cooled real-estate market in Slovenia. Sales increased by 16.5%, lifted by acquisition of Asko (12.5% w/o), low base effect (sales dropped by 11% in 2009) and according to mgt., better product sales mix. Average price of product sold increased by 4%. Sales in the most important segment Home Appliances rose by 12.5% y-o-y, Energy & Services by 34.4% whereas performance in Home Interior division further declined. Sales performance of the most important division significantly outperformed growth of European home appliances market (4.8% vs. 2%) after accounting for the effect of Asko. Total quantity sold on Western markets rose by 0.5%, outpaced by East (8.8%). Gorenje managed to increase sales on the former by 2.7% and by 7.4% in the latter. The relative underperformance on the Eastern front was likely attributable to additional WC needs which Gorenje decided not to provide to the wholesalers according to our view due to perceived risk.

Full 2010 (act.) KD Banka

est. Actual figures

Actual/ est.

Sales 1,312.8 1,382.2 5.3

EBITDA 100.7 108.7 7.9

EBIT 46.8 56.4 20.5

Net income 21.3 20.0 -6.1

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka d.d., Neubergerjeva 30, 1000 Ljubljana, Slovenia

Valuation multiples

Left column: P/E, right column: EV/EBITDA. Source: own calc.

Operational data (EUR m)

Left column: EBIT, right column: net income. Source: own calc.

Profitability & debt management

Curve: ROE& debt/equity, column: debt/equity

Growth performance

Curve: sales growth, column: net income growth

Margins

Left column: EBIT margin; middle column: EBITDA margin; right column: NI margin

Profitability improved

Gross margin reached 24.7% an increase of 0.7 p.p. above 2009. EBIT leveled off at EUR 56.4 m what represents a 4.1% EBIT margin. After removing the effect of Asko, the margin stood at 3.1%. After removing the effect of acquisition of Asko and AR impairment, net profit stood at EUR 10.8 m what represents a significant improvement compared to 2009 (EUR 12.2 m loss). Net cash flow amounted to EUR 72.3 m whereas FCF in amount of EUR 13.3 represented higher WC needs and capex. Adjusted profitability was dented in last quarter due to rising COGS and this trend should persist in the following quarters as announced sales increases are likely to lag the rising COGS at least for 2 quarters. High unemployment on main markets and fiscal tightening speak in favor of rescheduled purchase of white goods. AR rose at a high pace in 2010. This was one of the necessary catalysts for growth of top-line. At end of 2010, they stood at EUR 306.3 m what is 21.7% higher. Adjusted for acquisition of Asko, AR rose by 11%. As a % of sales they represented 22.2% which was all-time-high in last 5 years of operations. Capex amounted to EUR 44.6 m. CFO Mirjana Dimc Perko left the company at end of the year and was substituted by Marko Merzel, which was the director of sales subsidiary in Serbia.

Gorenje’s guidance for 2011

Gorenje outlined its rather ambitious plan for 2011 in late December. Adjusted sales should increase by 6% and those accounting for Asko, for 14%. Asko alone should in 2011 generate about EUR 179.7 m in revenues and EUR 8.7 m of EBITDA. Division of Home Appliances should rose by 17.4%, followed by Ecology & Services (5.5%) and Home Interior (3%). Planned EBIT is set at EUR 54.6 m what should transform into 3.8% EBIT margin when considering EUR 1.5 b of sales. Target FCF is set at EUR 29.1 m. It will be mainly used for reducing the high level of debt. Net debt/EBITDA stood at 3.25 whereas EBIT/interest expense stood at 2.33. This represents a significant improvement compared to 2009 when those figures were alarming (6.34 vs. 0.57). LT goal of EBIT margin remains at 5-6%. Capex plan is set at EUR 40.4 m. Additional impairment of AR are according to CEO excluded.

Material changes to our valuation

We decided to retain our valuation model of 50:50 for EV/EBITDA and DCF. We still do not include peer analysis to our valuations directly as of incomparable ratios. Gorenje has below-peer profitability ratios and higher leverage. Current profitability ratios are not appropriate and comparison of forwards may bring input data bias due to necessary inclusion of our DCF forecast.

DCF model changes

• WACC estimates are unchanged. KD Banka uses same WACC for the 10-year and infinite period what may imply a too low WACC for the near-by period (high leverage) and a too high one for the infinite period. Simulation confirms that a change in methodology would not materially change the “value of operations”.

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 3

Cost of debt is unchanged at 7.2% as company faces high debt burden. Cost of common equity is set at 13.6% (beta of 1.6 and a risk premium of 5.1%). Add. premium for mid-cap status remains (1.7%) which also partly incorporates illiquidity status of the shares. The ratio between MV of debt and equity is set as a target in relation 60:40. WACC of 8.9 ranges well with comparable companies (8-10%).

• We facelift the sales estimates considering the impact of higher base (our sales estimates for 2010 were beaten). Our 2011 estimate is 0.9% ahead of company’s guidelines set in December.

Forward sales estimates 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Old (nom.) 1,492.7 1,567.3 1,630.0 1,678.9 1,729.3 1,772.5 1,816.8 1,853.2 1,881.0 N.A.

New (nom.) 1,561.9 1,640.0 1,705.6 1,756.7 1,809.4 1,854.7 1,901.0 1,939.1 1,968.1 1,997.7

Old (rel.) 13.7 5.0 4.0 3.0 3.0 2.5 2.5 2.0 1.5 N.A.

New (rel.) 13.0 5.0 4.0 3.0 3.0 2.5 2.5 2.0 1.5 1.5

Diff. (nom.) 69.2 72.7 75.6 77.8 80.1 82.2 84.2 85.9 87.1 N.A.

• We reduce the steepness of EBIT margin improvement due to rising COGS, which are industry-wide trend. Part of the increase is likely to be offset by internal cost reduction (SG&A, mostly labor costs). We also reduce the LT EBIT margin from 4.2 to 4.1% reflecting a persistent view of difficult environment for European white goods sector. Our estimates are well below outlined medium-term targets of Gorenje (5-6%) but it has to be taken into account that poor track record (2006-2008 EBIT margin was at 2.8%), risks and costs of restructuring of operations (moving production to more labor-friendly countries as Serbia) which have just seriously begun, will take approximately 3-5 years which decreases the probability of meeting the ambitious targets.

Forward EBIT estimates 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Old (nom.) 56.2 60.5 66.2 69.9 72.0 73.8 75.6 77.1 78.3 N.A.

New (nom.) 51.8 60.0 65.8 71.3 73.5 75.3 77.2 78.7 79.9 81.1

Old (rel.) 3.8 3.9 4.1 4.2 4.2 4.2 4.2 4.2 4.2 N.A.

New (rel.) 3.3 3.7 3.9 4.1 4.1 4.1 4.1 4.1 4.1 4.1

Diff. (nom.) -4.4 -0.5 -0.4 1.4 1.5 1.5 1.6 1.6 1.6 N.A.

• Together with sales adjustments, capex is adjusted as it is set as fixed % of sales. The relative proportion of capex to sales has not changed in the model

• WC estimates are refined slightly upwards.

Forward WC estimates 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

NWC (old) 319.9 328.1 341.2 351.4 362.0 371.0 380.3 387.9 393.7 N.A.

NWC (new) 347.3 356.4 362.2 364.2 375.2 384.5 394.2 402.0 408.1 414.2

NWC/sales (old, in %) 21.4 20.9 20.9 20.9 20.9 20.9 20.9 20.9 20.9 N.A.

NWC/sales (new, in %) 22.2 21.7 21.2 20.7 20.7 20.7 20.7 20.7 20.7 20.7

Diff. (nom.) 27.4 28.3 21.0 12.8 13.2 13.5 13.9 14.1 14.4 N.A.

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 4

Capex & WC development

Capex estimates 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Net capex in fixed assets (EUR m)

68.9 22.7 32.3 46.9 49.2 51.2 58.0 57.9 57.5 57.0 56.2 55.9 54.5

Net capex/sales (in %) 5.2 1.9 2.3 3.0 3.0 3.0 3.3 3.2 3.1 3.0 2.9 2.8 2.7

Depreciation & Amortisation(EUR m)

57.1 56.1 52.2 52.2 51.5 51.2 51.2 52.1 52.9 53.6 54.0 54.3 54.6

Depreciation/net fixed assets (in %)

14.3 14.1 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9 13.9

Reinvestment ratio 120.6 40.5 61.8 89.7 95.6 100.0 113.3 111.1 108.6 106.5 104.1 102.8 100.0

WC estimates 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Inventories (EUR m) 249.7 216.7 257.6 279.3 293.3 305.0 314.1 323.6 331.7 339.9 346.7 351.9 357.2

as % of sales 18.8 18.3 18.6 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9

AR (EUR m) 262.0 251.7 306.3 335.8 344.4 349.6 351.3 361.9 370.9 380.2 387.8 393.6 399.5

as % of sales 19.7 21.2 22.2 21.5 21.0 20.5 20.0 20.0 20.0 20.0 20.0 20.0 20.0

AP (EUR m) 223.7 196.3 237.0 267.8 281.2 292.5 301.2 310.3 318.0 326.0 332.5 337.5 342.6

as % of sales 16.8 16.6 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1 17.1

Total NWC 288.0 272.1 326.9 347.3 356.4 362.2 364.2 375.2 384.5 394.2 402.0 408.1 414.2

Change in NWC 38.0 -15.9 54.7 20.4 9.2 5.7 2.1 10.9 9.4 9.6 7.9 6.0 6.1

NWC/Sales 21.6 22.9 23.6 22.2 21.7 21.2 20.7 20.7 20.7 20.7 20.7 20.7 20.7

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 5

Historical & forecasted income statement

in EUR m / year 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Net sales 1,330.8 1,185.9 1,382.2 1,561.9 1,640.0 1,705.6 1,756.7 1,809.4 1,854.7 1,901.0 1,939.1 1,968.1 1,997.7

Change in sales (%) 2.9 -10.9 16.5 13.0 5.0 4.0 3.0 3.0 2.5 2.5 2.0 1.5 1.5

Changes in invent. 6.3 -12.3 -13.5 35.3 37.1 38.5 39.7 40.9 41.9 43.0 43.8 44.5 45.2

Other oper. income 26.3 33.3 47.6

As % of net sales 2.5 1.8 2.5 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3

Gross revenue 1,363.4 1,206.8 1,416.2 1,597.2 1,677.0 1,744.1 1,796.4 1,850.3 1,896.6 1,944.0 1,982.9 2,012.6 2,042.8

COGS 1,023.9 900.9 1,040.5 1,194.8 1,252.9 1,303.0 1,342.1 1,382.4 1,417.0 1,452.4 1,481.4 1,503.7 1,526.2

As % of net sales 76.9 76.0 75.3 76.5 76.4 76.4 76.4 76.4 76.4 76.4 76.4 76.4 76.4

Gross margin (%) 23.1 24.0 24.7 23.5 23.6 23.6 23.6 23.6 23.6 23.6 23.6 23.6 23.6

SG&A 302.7 293.8 319.3 350.6 364.1 375.2 383.0 394.5 404.3 414.4 422.7 429.1 435.5

As % of net sales 22.7 24.8 23.1 22.4 22.2 22.0 21.8 21.8 21.8 21.8 21.8 21.8 21.8

EBIT 36.9 12.1 56.4 51.8 60.0 65.8 71.3 73.5 75.3 77.2 78.7 79.9 81.1

EBIT margin (%) 2.8 1.0 4.1 3.3 3.7 3.9 4.1 4.1 4.1 4.1 4.1 4.1 4.1

EBITDA 88.8 62.2 108.7 104.0 111.5 117.0 122.5 125.6 128.2 130.7 132.8 134.3 135.7

EBITDA margin (%) 6.7 5.2 7.9 6.7 6.8 6.9 7.0 6.9 6.9 6.9 6.8 6.8 6.8

Interest expense 26.0 21.2 24.3 24.2 29.9 30.9 31.5 30.0 29.9 29.7 29.3 28.8 28.1

Interest received 7.2 4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net non-oper. profit/(loss) (2.6) (4.4) (12.6) (4.0) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0)

Pretax income 15.5 -9.3 22.5 23.5 28.1 33.0 37.8 41.5 43.4 45.5 47.4 49.1 51.0

As % of net sales 1.2 -0.8 1.6 1.5 1.7 1.9 2.2 2.3 2.3 2.4 2.4 2.5 2.6

Income tax expense 5.3 2.9 2.4 4.7 5.6 6.6 7.6 8.3 8.7 9.1 9.5 9.8 10.2

Effective tax rate (%) 34.2 N.A 10.9 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0

Minority interests 1.3 -0.7 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Net income 8.9 -11.5 20.0 18.7 22.4 26.2 30.1 33.0 34.5 36.2 37.7 39.1 40.6

As % of net sales 0.7 -1.0 1.4 1.2 1.4 1.5 1.7 1.8 1.9 1.9 1.9 2.0 2.0

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 6

Forecasted balance sheet

in EUR m / year 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

Assets

Cash & Cash Equivalents

24.1 27.1 82.7 31.2 32.8 34.1 35.1 36.2 37.1 38.0 38.8 39.4 40.0

ST financial assets

64.5 36.5 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0 49.0

AR 262.0 251.7 306.3 335.8 344.4 349.6 351.3 361.9 370.9 380.2 387.8 393.6 399.5

Inventories 249.7 216.7 257.6 279.3 293.3 305.0 314.1 323.6 331.7 339.9 346.7 351.9 357.2

Other current assets

51.4 72.3 59.7 67.5 70.8 73.7 75.9 78.2 80.1 82.1 83.8 85.0 86.3

Total current assets

651.7 604.4 755.3 762.8 790.3 811.4 825.5 848.8 868.8 889.3 906.1 919.0 932.0

Net fixed assets 413.0 382.8 375.4 370.0 367.7 367.7 374.5 380.3 384.9 388.4 390.6 392.1 392.0

LT financial investments

19.8 14.4 9.8 9.8 9.8 9.8 9.8 9.8 9.8 9.8 9.8 9.8 9.8

Other non-current assets

173.3 177.1 178.2 228.2 228.2 228.2 228.2 228.2 228.2 228.2 228.2 228.2 228.2

Non-current assets

606.0 574.3 563.4 608.1 605.8 605.8 612.6 618.4 622.9 626.4 628.6 630.1 630.1

Total assets 1,257.7 1,178.7 1,318.7 1,370.9 1,396.1 1,417.2 1,438.1 1,467.2 1,491.7 1,515.7 1,534.7 1,549.1 1,562.1

Liabilities & Equity

AP 223.7 196.3 237.0 267.8 281.2 292.5 301.2 310.3 318.0 326.0 332.5 337.5 342.6

Other ST liabilities

156.1 102.4 109.6 109.6 109.6 109.6 109.6 109.6 109.6 109.6 109.6 109.6 109.6

ST borrowings 188.6 199.0 224.0 206.0 202.3 197.0 191.7 189.3 185.6 181.4 175.8 168.9 161.0

Current liabilities

568.3 497.7 570.6 583.4 593.1 599.1 602.5 609.2 613.2 617.0 617.9 616.0 613.2

LT borrowings 280.7 297.1 260.9 286.0 280.9 273.6 266.2 262.8 257.7 251.9 244.1 234.6 223.6

Other LT liabilities

14.2 14.2 95.1 95.1 95.1 95.1 95.1 95.1 95.1 95.1 95.1 95.1 95.1

Minority interests 13.2 6.1 1.8 1.9 2.0 2.2 2.3 2.5 2.7 2.9 3.1 3.4 3.6

Equity 381.3 363.6 390.3 404.5 424.9 447.3 471.9 497.5 523.0 548.7 574.5 600.0 626.6

Total liabilities & equity

1,257.7 1,178.7 1,318.7 1,370.9 1,396.1 1,417.2 1,438.1 1,467.2 1,491.7 1,515.7 1,534.7 1,549.1 1,562.1

Forecasted CF statement

Year (figures in EUR m) 2008a 2009a 2010a 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

CFO 47.2 70.1 22.5 50.7 67.5 74.9 82.7 77.9 81.9 84.2 88.1 91.8 93.6

CFI -199.6 -24.0 -13.5 -46.9 -49.2 -51.2 -58.0 -57.9 -57.5 -57.0 -56.2 -55.9 -54.5

CFF 158.9 -43.1 46.6 -17.5 -13.6 -19.8 -21.7 -16.8 -21.8 -24.5 -29.7 -34.4 -37.5

Change in cash 9.1 15.1 55.6 -13.7 4.9 4.1 3.2 3.3 2.9 2.9 2.4 1.8 1.9

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 7

DCF metrics

DCF target price Most important changes to DCF include higher sales estimates due to higher base effect in 2010, downward re-rating of EBIT margin, higher capex and WC needs. Current fair price is set at EUR 12.5, whereas 12-m target price adjusted for cost of equity is EUR 14.2. The conclusion is just coincidently the same as in our latest report as of September 21st 2010.

Year 2011e 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e

EBIT*(1-t) 41.4 48.0 52.7 57.1 58.8 60.2 61.7 63.0 63.9 64.9

Depreciation& Amortisation

52.2 51.5 51.2 51.2 52.1 52.9 53.6 54.0 54.3 54.6

Capex 46.9 49.2 51.2 58.0 57.9 57.5 57.0 56.2 55.9 54.5

WC Inv 20.4 9.2 5.7 2.1 10.9 9.4 9.6 7.9 6.0 6.1

FCFF 26.4 41.1 46.9 48.2 42.1 46.3 48.7 52.9 56.4 58.8

Discounted FCFF 26.4 37.8 39.6 37.3 29.9 30.2 29.1 29.1 28.5 27.2

Year 2010

Discounted value of operations 315.1

Discounted terminal value 372.7

Total value of operations 687.8

Cash & ST financial assets 131.7

LT financial investments 9.8

Other current assets 59.7

Value of company 889.0

Financial debt 485.0

Minority interests 1.8

Other LT liabilities 95.1

Other ST liabilities 109.6

Value of equity 197.6

Current fair value of share 12.5

12-m target price 14.2

Sensit. Matrix 1 Long-term WACC

LT growth in FCFF

9.92% 9.42% 8.92% 8.42% 7.92%

0.50% 5.9 7.6 9.5 11.7 14.3

1.00% 6.9 8.8 10.9 13.4 16.3

1.50% 8.1 10.1 12.5 15.3 18.6

2.00% 9.4 11.7 14.3 17.5 21.2

2.50% 10.9 13.4 16.5 20.1 24.4

Sensit. Matrix 2 Long-term WACC & 1.5% terminal growth rate

LT EBITDA margin

9.92% 9.42% 8.92% 8.42% 7.92%

6.60% 6.9 8.9 11.1 13.8 16.9

6.70% 7.5 9.5 11.8 14.5 17.7

6.80% 10.0 11.2 12.5 13.9 15.6

6.90% 8.6 10.8 13.2 16.1 19.4

7.00% 9.2 11.4 13.9 16.8 20.3

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 8

Implied EV/EBITDA

Implied EV/EBITDA valuation model lessens the effect of long-term nature of projections compared to 10-year DCF and is less sensitive to WACC. Fair valuation multiple EV/EBITDA of 4.8 reflects 80 % of current close peer median (Electrolux, Indesit, De’Longhi; 4.6) and 20 % of historical 10-year median for Gorenje (6). Compared to previous report, ratios have decreased materially. These 3 companies are most comparable to Gorenje in terms of sales exposure & target EBIT margin but are less levered. This represents a material difference in the calculation methodology compared to our previous report, where also Whirlpool and Arcelik were included. These are now excluded as they do not represent a fair peer comparables. Gorenje stands out compared to close peers in terms of net debt/equity as it is close to 90% compared to peers 0% and earns a symbolic ROE of 5%. Implicated LT growth rate (after year 2015) is 1.0% (after 5-year period). Current fair price is EUR 8.7 and 12-month

target price, adjusted for cost of equity is set at EUR 9.8. This represents a significant decrease in target price for a third.

Peers-Gorenje trading rather expensive

Mcap (b

EUR) P/B P/S P/E

Next year P/E

EV/sales EV/

EBITDA Divid. yield

ROE EBITDA margin

Net debt/ equity

Arcelik 2.18 1.5 0.7 9.4 8.2 0.9 8.0 5.1 17.1 10.9 21.7

Schulthess 0.43 3.4 1.9 30.4 15.8 1.3 10.1 2.9 10.6 13.3 -14.9

Whirlpool 4.32 1.4 0.3 8.2 8.8 0.4 11.5 2.1 15.7 8.9 26.4

Indesit 0.94 1.6 0.3 9.5 8.0 0.4 3.5 3.6 17.3 7.5 34.6

De’Longhi 0.98 1.3 0.6 13.2 8.9 0.6 4.6 2.2 10.4 12.1 2.3

Electrolux 5.56 2.2 0.4 11.3 9.1 0.5 5.5 4.1 20.3 9.2 -2.7

Median close peers

0.98 1.6 0.4 10.1 8.7 0.5 4.6 3.6 17.3 9.2 2.3

Gorenje 0.19 1.5 0.7 9.4 10.0 0.4 5.2 N.A. 5.3 7.9 90.1

EV/EBITDA matrix

2011e 2012e 2013e 2014e 2015e

EBIAT 47.1 53.7 58.4 62.9 64.2

Depreciation& Amortisation

52.2 51.5 51.2 51.2 52.1

Capex 46.9 49.2 51.2 58.0 57.9

WC Inv 20.4 9.2 5.7 2.1 10.9

FCFF 32.1 46.8 52.7 54.0 47.5

Discounted FCFF 32.1 43.0 44.4 41.8 33.8

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 9

Final valuation & risks

Applying a 50:50 weight to EV/EBITDA and DCF seems reasonable as both methods likely capture the true value of the company. Peer comparison is not used due to far different profile of Gorenje in terms of profitability and indebtedness. Valuation ratios such as trailing P/E or forward P/E would signal a far lower price whereas those including sales would show a far too bullish unjustified signal. Final 12-month target price is therefore set at EUR 12.0, marking a downward adjustment stemming mainly from the fact of rather unambitious short term plan, mounting COGS concerns and higher WC needs. Our analysis already incorporates some further adjustments to bottom-line reflecting one-off charges which reflect a past pattern of operations. Our recommendation is changed from Accumulate to Hold with a lack of upside. Possible catalyst would be several quarters of exceeding the estimates, lower than expected COGS (Gorenje does not hedge the COGS) and faster transitioning of production facilities into more labor friendly countries. Higher consumer confidence in Europe and low unemployment are welcomed industry-wide trends that could reduce the oversupply and lessen the competition from Asia and Turkey.

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 10

Appendix 1

Analyst Certification The views expressed in this report accurately reflect the personal views of undersigned analyst about the issuer of the security. The undersigned analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. The recommendation has not been disclosed to anyone prior to public release. Bojan Ivanc

Important Disclosures

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However KD Banka is not engaged in periodical updating of the recommendation of the issuer under consideration as well as is not obliged to notify readers about any kind of valuation, opinion or forecast changes, which have arisen from occurrences after the recommendation release. When dealing with costumers, KD Banka is not obliged to act in accordance with opinions and assessments expressed in investment recommendations. KD Banka or an associated company may have provided or may be providing corporate finance or other services for the company referred to in this document. KD Banka and its related entities do not own shares of the issuer under consideration. A financial analyst responsible for monitoring of the issuer under consideration does not have a financial interest concerning the financial instrument of the relevant issuer. 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Rating definitions

Buy >+15% from current price of recommendation Accumulate +5%< from current price of recommendation<+15% Hold -5%< from current price of recommendation<+5% Reduce -15%< from current price of recommendation<-5% Sell <-15% from current price of recommendation

Our target prices are established by determining fair value of stocks, taking into account additional fundamental factors and news of relevance of the stock price (such as M&A activities, major forthcoming deals, positive/negative share/sector sentiment, news) and refer to 12 months from now. All fundamentals are to be understood relative to our current fundamental valuation of the stock. The recommendation does not indicate any relative performance of the stock vs. a regional or sector benchmark.

March 25th, 2011 Gorenje Slovenia, Cyclical consumer goods, Home appliances Annual update

KD Banka Equity Research Page 11

Historical recommendation and target price

Date of recomm. Recommendation Target price

1. March 25th, 2011 Hold EUR 12.0 1. September 27th, 2010 Accumulate EUR 14.4 2. June 23rd, 2010* Buy EUR 15.2 3. May 14th, 2010 Buy EUR 16.5 4. March 16th, 2010 Buy EUR 17.2 5. January 6th, 2010 Accumulate EUR 14.9 6. November 11th, 2009 Accumulate EUR 14.7 7. August 28th, 2009 Reduce EUR 9.7 * On June 11th, 2010, transfer of coverage was performed from Matjaž Maletič to Bojan Ivanc

Investment banking relationship

There was no investment banking relationship with the issuer.

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