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 the first quarter of this year, Mercator Group revenue amounted to EUR 676 million which is 3.6 percent more than in the corresponding period last year. In Slovenia, revenue remained virtually the same; however, development activities yielded a solid 9.5-percent growth in foreign markets. In the first quarter of the year, Mercator Group's results from operating activities amounted to EUR 19.5 million, and profit for the period reached EUR 0.7 million. The Management Board adopted additional measures to mitigate the negative impact of the economic crisis on the Group performance.

Economic crisis in all markets in the region

In early 2012, Mercator is facing further aggravation of economic conditions in all markets of the Group operations. Pronounced slowdown in economic growth, sluggish economic activity, rising unemployment, and a decrease in real household income were reflected in a drop of consumption and in a change of its structure as consumers grew more price-sensitive and rational. Also exerting a negative impact on consumption was the increase of the VAT rate in Croatia. Moreover, operations were hindered by other negative macroeconomic effects such as the development of Serbian dinar exchange rate and increasingly rampant incidence of payment defaults and delinquency which particularly affected our wholesale operations. Global increase in prices of energy, fuel, and some of the strategic resources also put some pressure on costs. In such circumstances, Mercator Group continued to invest into even better offer for customers. While such approach led to the attainment of the planned revenue, the effect on business performance was negative.

High growth in foreign markets despite negative currency translation differences

In the first quarter of the year, Mercator Group generated EUR 676,101 thousand of revenue, which is 3.6 percent more than in the equivalent period last year. The revenue generated represents 22.8 percent of the figure planned for the entire year 2012, which is consistent with the interim dynamics as the first quarter of each year is traditionally the slowest in the retail business. With an index of 99.7, revenue in Slovenia remained virtually the same as last year. On the other hand, revenue in Mercator's foreign markets rose by as much as 9.5 percent as a result of strategic alliances forged, despite the negative currency translation effects.

Further progress of strategic projects and development activities

In the first quarter of the year, Mercator Group continued to conduct its projects of refreshment (and restructuring) of its FMCG offer in Slovenia and Croatia, as well as the project of establishing a chain of technical consumer goods stores as an independent business entity, which is targeted at improvement of offer and efficiency of operations in this retail program. In the first quarter of 2012, the project of optimizing the working capital management was also in progress at all companies of the Group.

In the first three months of the year, Mercator Group invested EUR 13,015 thousand into retail network development. Nearly 13 thousand square meters of gross retail area was newly acquired in the period. The project of real property monetization is also in progress as scheduled.

Employees

As at March 31, 2012, the number of employees at Mercator Group was 24,279, which ranks Mercator among the largest employers in the entire Southeastern European region; with over 12 thousand employees in Slovenia, it is also the largest corporate employer in the country.

Mercator implements the provisions of the Code of Practice for the stakeholders in the agricultural and food industry chain with regard to supplier relations

Pursuant to the provisions of the Code of Practice for stakeholders in the agrifood chain, adopted last year, Mercator carried out a transition to the net-net pricing system in procurement of goods from most of its FMCG suppliers in Slovenia. Mercator will seek to implement the provisions of the Code of Practice as much as possible in other markets of its operations as well.

Business performance

Mercator succeeded in attaining the planned revenue growth. Nevertheless, the additional investments necessary to make the offer more favourable for the consumers had a negative impact on business performance, despite the implementation of cost rationalization measures. Moreover, increased finance expenses, mostly pertaining to negative currency translation differences for Serbian dinar and measures for managing the refinancing risk, also bore a negative impact on performance as they resulted in a higher level of overall debt in the first quarter of 2012. Gross cash flows from operating activities before rental expenses stood at EUR 47 million; Group results from operating activities in the first quarter amounted to EUR 19.5 million; and profit for the period reached EUR 0.7 million.

Measures to alleviate the negative impact of economic crisis

In December 2011, the Management Board adopted 12 sets of counter-crisis measures to adjust the offer to the changes in consumer behaviour, and to rationalize the Group's business operations. These measures also include the strategic projects of refreshment of FMCG offer in Slovenia, refreshment and restructuring of FMCG offer in Croatia, and establishment of the technical consumer goods chain. Responding to very harsh economic conditions and the effect thereof on performance in the first quarter, the Management Board adopted further counter-crisis measures in order to mitigate the risks and to stay on track towards the planned results for the year.

Attached you can find the Business Report of the Mercator Group and the company Poslovni sistem Mercator, d.d., for the period 1-3 2012.

This announcement will be published on the company’s website at www.mercator.si as of May 16, 2012, and will remain posted for a period of at least five years.