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 announces the following:

In the period 1–3, 2016, Mercator Group generated revenue of EUR 604.9 million, which is 3.8% less than in the corresponding period last year. Mercator Group's bottom line for the first quarter of 2016 is a net profit of EUR 2.3 million, with nearly doubled investment. Mercator Group has also purchased land to build a new logistics and distribution centre. With a total investment value estimated at EUR 100 million, this will be one of the largest investments in Slovenia.

In the period 1–3, 2016, Mercator Group generated revenue of EUR 604.9 million, which is 3.8% less than in the same period of last year. Lower revenue in the markets of Slovenia and Serbia are mostly a result of fewer sales units in non-core activities, i.e. home product, apparel, and beauty product retail, as the number of stores in these segments was cut by nearly a fifth in both markets. The drop in revenue is partly also a result of divestment of non-core operations (M Holidays, Santana etc.), as well as the changes in consumer behaviour. In the market of Croatia, which suffered the highest decrease of revenue (18.5%), revenue is lower especially due to abandonment of the entire FMCG program as of July 2015 following consolidation across markets within the Agrokor Group.

Positive performance continues in 2016

After successful completion of the 2015 fiscal year, which was a year of positive trends, positive performance continues early in 2016. Mercator Group ended the period 1–3, 2016, with an operating profit of EUR 7 million. While this is less than in the same period of the year before, we continued to cut costs and optimize our sales processes. Decrease in operating profit is a result of a drop in revenue which in turn is an effect of closing down the underperforming retail units and scaling down in non-core activities, as well as a result of the divestment of Pekarna Grosuplje (Grosuplje Bakery). Mercator Group ended the first three months of 2016 with a net profit of EUR 2.3 million. The main reason for the decline in profit is major investment into promotion and price competitiveness.

Stepping up the investment activities

In the period 1–3, 2016, Mercator Group investments amounted to EUR 12.9 million, which is nearly twice as much as in the equivalent period of 2015. Investment was increased especially in Serbia. At the same time, the Group continued its policy of investing into refurbishment of the existing units as 56.6% of total investment funds were allocated to such investments. Investment into new retail facilities accounted for 22.8% of total investment, and IT investments accounted for 12.5%. Remaining 8.1% was invested in logistics and non-trade activities.

New strategy as a response to the changes in consumer behaviour

Forecasts of increased household consumption, based on the positive developments in the labour market, raise hopes that consumer confidence will continue to improve. Positive economic growth is also forecast for other markets of Mercator Group operations. High unemployment rate, however, remains the biggest problem. Taking into account the current shopping behaviour of its consumers, Mercator Group has drawn up a new strategy based on fulfilment of the following promises to its customers: to be the best local retailer and to provide the best offer, particularly of fresh produce, while offering the best service for the customers and providing the best value for money.

New strategic development project: construction of Mercator logistics and distribution centre

In April 2016, the agreement was signed between the company Poslovni sistem Mercator, d.d., and the company Slovenske železnice, d.o.o., on the purchase of land for the construction of a new Mercator logistics and distribution centre. The value of the transaction is EUR 17 million, and the value of the entire investment is estimated at approximately EUR 100 million. Start of construction works on the facility is anticipated for the second half of 2017, and construction is expected to be completed by the end of 2018. The purpose of construction of the logistics centre is to centralize the warehousing activity, optimize the operating costs, successfully compete with other retailers, and modernize operations.

Business Report of the Mercator Group and the company Poslovni sistem Mercator, d.d., for the period 1–3, 2016 is attached herewith.

As of May 20, 2016, this announcement will also be posted on the company website at www.mercatorgroup.si where it shall remain available for a period of no less than 5 years.