Mercator's market share has been growing again in 2016; positive trends continue in 2017

Pursuant to the Rules and Regulations of the Ljubljana Stock Exchange, d.d, and the relevant legislation, the company Poslovni sistem Mercator, d.d., hereby informs the shareholders and the public of the following:

In 2016, Mercator Group revenue amounted to EUR 2,493.8 million, which is 4.5% less than in 2015, due to a number of factors. One of the main reasons was executing its strategy of focusing on the core activity. In 2016 Modiana and Intersport operations were disposed. This, in turn, affected also operations in markets outside Slovenia.  Lower revenue is also a result of larger number of temporary closures of stores for refurbishments in comparison to 2015. Relative to the previous years, Mercator had to step up its efforts to improve competitiveness. As a result of a law adopted by the Republic of Croatia, and especially due to compliance with the International Accounting Standards, Mercator had to recognize additional impairments of its receivables from the companies within the owner's system. This had a material negative effect on key performance indicators. It is of key importance for Mercator's further operations that it succeeded in restoring the growth of its market share in 2016. Major investments, especially into refurbishments and updates of the retail network and capital expenditures that increased by as much as 16.9% in 2016 relative to the year 2015, have yielded positive results: Mercator is increasing its market share and sales are rising in particular in all refurbished and updated stores.

At  session on April 25, 2017, the Supervisory Board of the company Poslovni sistem Mercator, d.d., was presented the results of Mercator Group and the company Poslovni sistem Mercator, d.d. Mercator's operations and performance in 2016 were determined especially by the strategic decision that stabilization of operations, improvement in competition of offer, and especially the establishment of foundations for long-term success and efficiency requires considerably higher investment into competitiveness of Mercator's offer. This applies in particular to the key market – Slovenia, which is one of the most competitive markets in the region and beyond. Major investments into competitiveness, however, also resulted in lower profitability.

For all these reasons, and especially due to the requirement for recognition of additional impairments for the fiscal year 2016, Mercator ended the year with a net loss of EUR 72.7 million. Generating a positive operating cash flow of EUR 98 million in 2016, Mercator is a stable and liquid company which will continue to regularly meet its trade payables and other liabilities to employees, suppliers, creditor banks, and the countries in which it conducts its operations.

Slovenia and Serbia remain the most important markets for the Mercator Group. In the Slovenian market, Mercator saw a drop in revenue of 4.0% as a result of divestments completed in 2015 (divestment of the Santana and Loka brands, divestment of Grosuplje Bakery at the end of the third quarter, divestment of tourist services M Holidays at the end of the year), divestment of Modiana at the end of the third quarter of 2016, divestment of the company Intersport ISI d.o.o. in December 2016, and divestment of other non-core operations or non-operating assets. Lower revenue is also a result of larger number of temporary closures of stores for refurbishments in comparison to 2015. Revenue was also lower in Serbia (by 6.5%), which is partly a result of divestment of Modiana and Intersport in 2016, and closing down of some stores based on a decision of the country's regulator. Mercator also saw lower revenue in the markets of Croatia (by 9.3%) and Bosnia and Herzegovina (by 3.7%) where its two companies only conduct real estate management operations after successfully completed sales processes of Modiana and Intersport in 2016. In the market of Montenegro where new neighbourhood stores were opened in 2016, revenue in 2016 was higher than in 2015 by 6.8%.

Business performance was also affected considerably by the events and developments regarding the owner. As a result of a law adopted by the Republic of Croatia, and especially due to compliance with the International Accounting Standards, Mercator Group had to recognize additional impairments for its receivables from the companies within the owner's system. This had a material negative effect on the Group's key performance indicators. It should also be pointed out that the Annual Report pursuant to the International Accounting Standards also records the effect of discontinued operations of Modiana and Intersport on the income statement.

The president of Mercator's Management Board Tomislav Čizmić stresses: "In view of Mercator's results in 2016 and the owner's problems, it is particularly important that Mercator Group is independent in all its key business decisions. Immediately upon commencing its term of office, the new Management Board made it a key priority to reach an agreement with its creditor banks, approaching the negotiations in a highly proactive manner. In a matter of days, we succeeded in restoring the confidence and striking an agreement according to which Mercator's liabilities, despite the outstanding maturing liabilities of Agrokor as the owner, shall not fall due for immediate repayment. We firmly believe this is a highly important fact confirming that Mercator's operations are stable and not directly connected to the owner's predicament. In the future, Mercator operations will remain stable and independent. Moreover, Mercator will do everything necessary to remain a solid business partner. On the other hand, we will seek to make use of the circumstances that are beyond Mercator's direct control to the benefit of the employees, suppliers, creditor banks, and respective countries in which the Group is conducting its operations."

Mercator's market share has been increasing since the first quarter of 2016, and the growth trends continue in this year with sales rising in particular in all refurbished and updated stores.

This announcement will be published on the company’s website at www.mercatorgroup.si as of April 26, 2017, and will remain posted for a period of at least ten years.