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VIT 6459

Mercator wraps up the first nine months with profit

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:

Since April this year Mercator's market share is steadily increasing, also the set strategy shows positive results on operating results after September 2016.

In the period 1–9, 2016, Mercator Group generated net revenue of EUR 1.89 billion and net operating profit of EUR 30.4 million to record a net profit of EUR 8.2 million in the bottom line. Following the acquisition of land in April 2016, Mercator Group launched the construction project for a new logistics and distribution centre. In July, a sale and purchase agreement for divestment of Modiana operations was successfully signed, and in September, an agreement was signed on the divestment of the company Intersport ISI, d.o.o., consistently with Mercator Group's pursuit of its strategy of focusing on the core activity.

The EUR 1.89 billion of sales revenue is 3.3% below the figure for the corresponding period of last year. The operating and net profit are not entirely comparable to the year before, especially due to one-off business events and divestment of non-core operations. In the markets of Slovenia (3.0%) and Serbia (5.0%), lower revenue is the result of closing down of stores for refurbishments, and fewer units in non-core operations. Moreover, the decrease in revenue in Slovenia is a result of divestment of Santana and Loka, Grosuplje Bakery (Pekarna Grosuplje), and M Holidays operations. In the market of Croatia, which saw the highest decrease of revenue (8.3%), revenue is lower especially due to abandonment of the entire FMCG program as of June 2015 following consolidation across markets within the Agrokor Group; on the other hand, revenue in Montenegro is up 9.8%. Nevertheless, Mercator Group ended period 1–9, 2016, with a net profit of EUR 8.2 million.

A boost to investment activities

In the period 1–9, 2016, Mercator Group investments amounted to EUR 53.2 million, which is 12.2% more than in the equivalent period of 2015. Focus remains on retail unit refurbishments which accounted for 57.0% of total investment funding.

Start of construction of Mercator's new logistics and distribution centre

In April 2016, an 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 was 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 to modernize operations.

Divestment agreements signed for Modiana operations and company Intersport ISI, d.o.o.
Mercator has successfully pursued the strategy of focusing on its core activity. On July 14, 2016, the company Poslovni sistem Mercator, d.d., signed an agreement with the company Montecristo SL, d.o.o., on the transfer of the Modiana operations. The sale and purchase process involved textile stores and the Beautique drugstores in all markets of Mercator operations, and the agreement includes the purchase of property, plant, and equipment, transfer of employees, and taking over the operations at all locations. The transaction was completed on September 30, 2016.

On September 14, 2016, the companies Poslovni sistem Mercator, d.d., and Enterprise Fund VII, Poland, signed a sale and purchase agreement for the company Intersport ISI, d.o.o., the parent company of the Intersport Group. The transaction will be completed after obtaining all necessary permissions, expected by the end of this year.

Revision of short-term strategy

Challenging market conditions in the retail industry and the losses resulting from the fire that destroyed our distribution centre in Zalog compelled us to revise our short-term strategy in order to further improve our performance. Therefore, Mercator introduced a number of organizational, process, and tactical changes, and revised its short-term strategy. It is defined in six steps: clear format positioning strategy; network development with further refurbishments and new formats; diligent and more effective margin management; regional platform of competitive suppliers on the purchasing side; attaining the business performance and efficiency on a par with the best competitors in the region; reorganization at the Mercator Group, with a higher degree of transparency and responsibility; and establishing wholesale as independent activity.

Focus on the modern consumer

Mercator is looking to offer its customers a modern shopping environment with extended and richer offer of fast-moving consumer goods. Refurbished Mercator stores afford the customers an even more pleasant shopping experience, while the structure of offer and services is adapted to the new trends in shopping. Mercator has renovated, refurbished, and refreshed many of its stores. Fourteen stores spanning a total gross area of 29,092 m2 were comprehensively refurbished (4 hypermarkets, 1 supermarket, and 9 markets); 12 stores spanning a total of 3,940 m2 were partly refurbished (12 markets), and layout was updated for 21 stores spanning a total of 19,284 m2 (1 hypermarket, 2 supermarkets, and 18 markets).

Coming closer together with the warmth of the holiday season

Thus, Mercator has entered the last quarter – which is of key importance in the retail industry – with many refurbished stores and offer that brings something new and special for the customers every week, with attractive discounts every day of the week, with rewards for loyalty and benefits for the Pika card holders, and with services that will make shopping even easier. In addition, Mercator is planning many other activities that will contribute to the festive atmosphere, please and cheer up the customers, and bring extra benefits to many of them. We believe Mercator will bring this year to a close with success, and continue to strengthen its market position.

Read Business Report of the Mercator Group and the company Poslovni sistem Mercator, d.d., for the period 1–9, 2016.

As of November 22, 2016, this announcement will also be posted on the company website at where it shall remain available for a period of no less than 10 years.

Poslovni sistem Mercator, d.d.
Management Board