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:

After successfully wrapping up the 2015 fiscal year and a good first quarter of 2016, Mercator Group continues with positive performance in the first half of this year. In the period 1–6, 2016, its revenue reached at EUR 1.25 billion, and its operating profit stood at EUR 21.19 million. The Group ended the first half of 2016 with a net profit of EUR 7.05 million. Revenue at the Group level is lower than in the same period last year by 3.3% which is the result of persistently harsh market conditions and activities related to accelerated store refurbishment. Also contributing to the decline in revenue is the smaller number of stores in Slovenia, Serbia, and Croatia. Results from operating activities and profit are not comparable to the year before due to non-recurring business events. In the first half of last year, the Group's performance also included the revenue from non-core operations (Pekarna Grosuplje, M Holidays, Santana, and Loka) that Mercator subsequently divested  as a part of the process of non-operating asset divestment. All measures related to the divestment of non-core operations and sales unit refurbishments already point to an improvement in the trends and return to increasing market shares. From the aspect of growth and long-term business performance, the launch of investment activity is particularly important – especially the intensive update of our stores and the investment into a plot for construction of a logistics and distribution centre.

In the period 1–6, 2016, Mercator Group investments amounted to EUR 32.3 million, which is 21.6% more than in the equivalent period last year. Mercator continued its highly active process of store renovation which involved full or partial refurbishment of as many as 102 stores in the last eighteen months. During the renovation works, our revenue was slightly lower which also affected our performance. However, the results of the updated stores clearly indicate that Mercator is on the right path. The results of the latest major refurbishment –Mercator's largest store in Šiška – prove that good results can be attained with renovations that also involve a revision of the content. Extended offer and focus on Slovenian local suppliers is evidently appreciated by the consumers.

Major events in the first half of 2016 also include the signing of the agreement to purchase land from the company Slovenske železnice, d.o.o. (Slovenian Railways), for a price of EUR 17 million. Thus, Mercator acquired a site for the new logistics and distribution centre with an investment value estimated at around EUR 100 million. This is one of the most important strategic projects that will bear a positive impact on the logistics costs, especially after the devastating fire at the Zalog warehouse in May, 2015. In terms of costs, Mercator succeeded in curbing the effects of the fire; however, costs will be cut considerably when the new logistics and distribution centre is built. The completion of the construction project is anticipated in late 2018. Mercator is planning to start the construction next year.

The drop in total Mercator Group revenue is a result of fewer retail units, especially in the programs of home products, apparel, and beauty, in the markets of Slovenia and Serbia where the number of stores decreased by 15%. The largest drop of revenue was, understandably, seen in the market of Croatia where the entire market (FMCG) program was included by the end of June 2015 into the consolidation process within the Mercator Group.

The decline in operating profit and net profit relative to the corresponding period of the year before, however, is a result of non-recurring events – divestment of the Santana and Loka brands and divestment of other non-operating assets. Moreover, the Group also generated in the first half of last year revenue from successful performance of the Grosuplje Bakery (Pekarna Grosuplje) and M Holidays.

In the first quarter of 2016, Mercator Group introduced a number of organizational, process, and tactical changes. While the first half results may not yet reflect the full positive impact of these measures, the Group certainly managed to increase its market share in July and August 2016, while improving its profitability at the same time.

In the first half of 2016, Mercator Group continued to divest its non-core operations. Thus, an agreement was signed in early July with the company Montecristo SL, d.o.o., on the transfer of Modiana operations. Negotiations on divestment of Intersport are also in the final stage. Considering the progress thus far, signing of an agreement can be expected in the third quarter of 2016.

Forecasts regarding gross domestic product and especially household consumption are positive for all markets of Mercator Group operations. In the second half of this year, Mercator Group will continue to pursue its business restructuring activities. It will also continue to step up investment activities to improve its market position and competitiveness.

Business Report of the Mercator Group and the company Poslovni sistem Mercator, d.d., for the period 1–6, 2016 is attached herewith.

As of August 30, 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 10 years.