3871 Mercator LP 2003 ANGL OK

Transcription

Annual Report
Annual report
A look back so we can look ahead. It's
looking good. Many months, weeks and
days. Countless moments of ordinary
people. A life in pleasant company.
Collective spirit is made of memories
of individuals. For some the sweetest
memories. It’s nice to be together, so we
stay. And move ahead. Toward victories.
It’s not only work. It’s also a home.
Thought of tomorrow, safe and warm.
Everyday we learn - to gain knowledge:
It’s good to know. About things that
might be of use one day. For there will
be more days and months and years.
And many special moments. Even
moments that are somewhat less special.
But ours. In a pleasant environment.
In company of pleasant people.
Zoran President of the Management Board and CEO, 7 years in Mercator
It's looking good
006
Annual Report 2003
Table of Contents*
011 Report of the President of the Management Board
013 Members of the Management Board
014 Report of the Supervisory Board
016 Members of the Supervisory Board
017 General Information
019 Short History
020 Key Events in 2003
021 Financial Highlights of 2003
022 Development Indicators for The Mercator Group
* The Annual Report 2003 in English language includes financial information according to the International Financial Reporting Standards, and is not a translation
of the Slovenian version of the Annual Report 2003, which is the legal version.
007
025 BUSINESS REPORT
026 About the Mercator Group
026 Group’s activities
026 Corporate Structure
029 Business Strategy of the Mercator Group
030 Impact of Market Conditions on Business Operations
031
031
033
035
Sales and Marketing
Sales
Store Formats
Market Share
036 Purchasing
036 Investments
036 Capital Expenditure
037 Long-term Financial Investments
039
039
045
045
Research and Development
Marketing Development
IT Development
Quality Development
046 Employees
050 Ownership Structure and the Company’s Shares
053
053
053
054
054
054
055
Communication with Stakeholders
Communication with Customers
Communication with Employees
Communication with Shareholders and Financial Community
Communication with Business Partners
Communication with the Environment
Public Relations
057 Financial Operations
059 Risk Management
063
063
064
064
065
Business Performance
Performance of the Mercator Group in 2003
Financial Ratios
Comments on Business Performance
Performance of the Companies within Mercator Group
069 Environmental Activities
071 Post Year-End Events
072 Plans for 2004 and Future Development of the Mercator Group
008
Annual Report 2003
073 FINANCIAL REPORT
075 Principal Accounting Policies
080 Audited Consolidated Financial Statements of the Mercator Group
in Accordance with International Financial Reporting Standards
080
081
082
083
084
105
106
Consolidated Income Statement of the Mercator Group for the Year Ended 31 December 2003
Consolidated Balance Sheet of the Mercator Group as at 31 December 2003
Consolidated Cash Flow Statement of the Mercator Group for the Year Ended 31 December 2003
Consolidated Statement of Changes in Shareholders’ Equity
Notes to the Consolidated Financial Statements of the Mercator Group
Management Responsibility Statement
Report of the Auditors
107 Audited Financial Statements of the Company Poslovni sistem Mercator, d.d.,
in Accordance with Slovenian Accounting Standards
107 Balance Sheet of the Company Poslovni sistem Mercator, d.d., as at 31 December 2003
108 Income Statement of the Company Poslovni sistem Mercator, d.d., for the Year Ended 31 December 2003
109 Cash Flow Statement of the Company Poslovni sistem Mercator, d.d., for the Year Ended 31 December 2003
110 Contact Persons
112 The Mercator Group
009
Stanislav Brodnjak (Member of the Management Board), Ales »erin (Member of the Management Board), Zoran JankoviÊ (President
of the Management Board), Jadranka DakiË (Member of the Management Board), Marjan Sedej (Member of the Management Board)
In pleasant
company
010
Annual Report 2003
Report of the President
of the Management Board
The year 2003 is behind us and I am proud to report that it was an excellent year. I
am happy to have been given the opportunity, together with my colleagues - Members of the Management Board, to run one of the most successful and the largest
Slovenian company for another four years, since on 1 January 2003 our new fiveyear term of office was confirmed.
2003 was characterised by intensive preparations of the whole Slovenian corporate
sector for the entry of Slovenia into the European Union. Mercator was no exception;
we paid great attention to preparations and harmonisation required for entering the
single European market. We continued thorough disinvestment and consolidation of
business as well as cost reduction. In the first half of 2003 we sold three companies,
which did not belong to our core activity: retail sale of food. On 9 May 2003 the
partners ASPIAG MANAGEMENT AG and Poslovni sistem Mercator, d.d., signed
a sales agreement with which Poslovni sistem Mercator, d.d., sold to the company
ASPIAG MANAGEMENT AG its total 20-per cent stake in the company Spar
Slovenija, d.o.o. This was the realisation of the call option related to the before mentioned interest in the company as stipulated, together with the purchase price, in the
partnership contract, made by the previous Management Board of the company in
1997. We continued to take over the activities of subsidiary trade companies, at the
end of the year we merged two subsidiaries with the parent company and acquired a
majority holding in the company Æivila Kranj, d.d, which will have a significant impact on Mercator’s business after the entry of Slovenia in the European Union. This
will increase its competitiveness in those parts of Slovenia, which will become more
exposed to the competitors from neighbouring countries due to the creation of larger
regions and removal of border crossings. We set up a project team, which studied the
impact that Mercator’s entry in the European market will have on various sectors and
assessed that we were fully prepared for the entry into the European Union.
Investment activities on the domestic market were carried out in line with the
adopted strategy for 2003 and were slightly less intensive than in previous years. We
opened several smaller trade centres, developed a new store format, i.e. a convenience store, and worked on the development of a new store format “hard discount”.
The first stores of this type will be opened in the first half of 2004. In addition
two Mercator Centres were being built, in Celje and Domæale, with which we will
achieve our goal “a Mercator Centre in Every Slovenian Region”.
Investment activities on the new markets were much more intensive in 2003,
especially in Croatia, our second most important market. We acquired land on 11
new exclusive sites for further expansion of our retail network and opened two larger
stores. In Bosnia and Herzegovina we started building a Mercator Centre in Tuzla
and purchased land in Sarajevo, where we intend to build a smaller shopping centre.
In Serbia and Montenegro, where we started with business activities only at the end
of 2002, we purchased land in Belgrade, Novi Sad and Kragujevac where we intend
to expand our retail network.
A satisfied customer remains our greatest asset. 11 million customers did their
shopping in Mercator’s stores every month. We focussed all our endeavours and activities on promptly monitoring their needs, wishes and expectations and the results
of our efforts were seen in a rapid growth in the number of our loyalty card holders
which reached 360,000. Similarly rapid was the increase in the loyalty card’s share in
total turnover which, compared with 2002, grew by 11%.
011
In September 2003 citizens of Slovenia decided on Sunday and public holiday store
opening hours at a referendum and voted for the stores to be closed on these days.
Closed stores on Sundays and public holidays will not have an immediate effect on our
performance. The question presented at the referendum was not clearly stated and will
require a lot of harmonisation and long lasting reviewing by the constitutional court,
before the Trade Act comes into force. I am pleased to see that our stores are still full
on Sundays and I myself am a regular Sunday shopper at Mercator Centres.
At Mercator we are well aware that without satisfied employees, who with their
personal touch, friendliness and a smile ensure that our customers are satisfied, we
could never be so successful. We take care of our employees in various ways, in addition to providing numerous training opportunities and contributing to their social
security, we organise social events. In 2003 the 25th annual gathering of the Group’s
employees - Mercatoriada - was organised and attended by 10,000 employees and
their family members, who thus demonstrated a high level of dedication and loyalty
to the Company, of which I am very proud. For the second consecutive time we
organised a meeting of all Mercator’s employees before the New Year’s Eve at the
Ljubljana Exhibition Grounds, the “party of all parties”, which was attended by a
record number of employees. 9,000 employees turned up, wishing to socialise and
have a good time. I regularly hold an open day for our employees to give everyone
the opportunity to visit me personally in my office for an open and honest discusion.
I feel that this form of communication can significantly contribute to strengthening
the principle that each and everyone of employees is an important part of the group
and I intend to continue with this practice.
Partnership with Slovenian producers and with producers in the markets, in which
we operate, has been strengthening from year to year. Together we penetrate new
markets, we expand, develop new products and with other forms of co-operation
ensure our customers a wide range of competitively priced, high quality products,
made by local producers. This co-operation has a positive impact on producers, as it
provides opportunities for long-term development, as well as on the whole Slovenian
economy. In 2003 we organised the 4th Annual Marketing Days, where we presented
our development plans and possibilities of further co-operation to our partners.
We know that pursuing our business strategy is closely connected to our attitude toward the general social environment in which we operate. With humanitarian and
charitable campaigns and numerous sponsorships in various fields, where we foster
values such as freedom, quality of life and progress, we wish to help and contribute
to higher quality of life for individuals and institutions. Special attention was paid
to preventive activities in health care and the principal humanitarian campaign was
dedicated to this purpose. With it we significantly contributed to continued treatment of some types of cancer.
In 2003 business performance and efficiency were influenced by rationalisation
and standardisation of business processes and consolidation of operation. By disposing of non-trade companies, merging trade companies with the parent company,
setting up a technical chain and cleaning the financial statements of subsidiaries we
contributed significantly to increasing our competitiveness which partly reflected in
this year’s results, but will have an even more important impact on our operation
over a longer period of time. In addition to the before mentioned processes, the
business excellence to which we aspire is confirmed by our attaining new quality
standards each year.
012
Annual Report 2003
After all our trade companies in Slovenia obtained the ISO 9001 quality standard in
2002, we started introducing the certificates of quality in our companies on the new
markets. In 2003 we carried out a complete renovation of our Web site and were the
first in Slovenia to have been given the Qweb certificate.
Despite extensive investment activities we further consolidated our financial
strength and total assets in 2003. With excellent performance and some desinvestments we increased our own capability to finance investments and pursued the
target capital structure where the ratio of debt to equity was 1 : 1, which ensured
appropriately low costs of capital and an acceptable level of financial risk. We also intensified the use of financial lease, which has become an increasingly attractive form
of financing, allowing for a good ratio between maturity and price, thus significantly
contributing to the improvement of the maturity of financial sources. In future we
shall continue with our policy of early settlement of trade payables to maintain a
high level of liquidity.
At Mercator we are well aware of our responsibility to all our stakeholders, especially our shareholders. We directed all our activities and operations towards proving
that their trust has been justified. In 2003 the market price of Mercator’s shares grew
by 33 % which, including dividend payout, represented a 35.2 % return. Meeting
our commitment to shareholders will remain one of our key goals in the future.
In 2003 the Company’s operation was successfully supervised by its Supervisory
Board, who, in accordance with the resolution of the 9th Annual General Meeting
of Shareholders held in the second half of the year, performed its function in a reduced, 10-member composition. The Supervisory Board carried out its supervision
of the company Poslovni sistem Mercator, d.d., and the whole Mercator Group
professionally and thoroughly in 2003 and significantly contributed to achieving
the Group’s set goals. I take this opportunity to thank them most sincerely. I am also
confident that the Supervisory Board will continue with its professional, responsible
and independent supervision and contribute to the Group’s successful performance
and deliverance of adopted strategy in the future.
At Mercator we have been preparing for entry in the European Union for a number
of years and in 2003 preparations were especially intensive. We are aware of new
opportunities and challenges as well as risks and difficulties, which will be brought
about by new terms of business and operation in the single European market. I can
proudly assure you that we are ready to boldly and capably turn challenges into opportunities, which will enable us to further consolidate our position on the “new
market”, prove our worth and continue to successfully compete with the largest
European retailers. We know that our wishes and plans have the complete support
of all our stakeholders!
We have the knowledge, the power and the will!
Ljubljana, 26 March 2004
Zoran JankoviÊ,
President of the Management Board
Members of the Management Board
Zoran JankoviÊ
President of the Management Board
and CEO Since October 1997
• Graduated in 1979 at the Faculty of Economics, Ljubljana.
• In 2001 received the award of the Chamber of Commerce and Industry
of Slovenia for outstanding corporate and entrepreneurial achievements.
• In 2002 was presented with the Manager of the Year award by the Managers’ Association of Slovenia.
• In 2003 received the award Primus 2003 for excellence in communication. Voted the most reputable Slovenian Director.
• He is also Chairman of the Supervisory Board of the Pension Company
Pokojninske druæbe A, d.d., Member of the Executive Board of the Managers’ Association of Slovenia, Member of the Executive Board of the
Chamber of Commerce and Industry of Slovenia, President of the Slovenia
Handball Federation and President of the Alumni Club of the Faculty of
Economics in Ljubljana.
Stanislav Brodnjak
Member of the Management Board for
New Markets Since January 2003
• Graduated in 1976 at the Faculty of Law, Ljubljana.
• He is also Managing Director of the company Mercator - H, d.o.o., Chairman of the Slovenian Trade Association , member of the Slovenian Association of Employers and member of the Managers’ Association of Slovenia.
Aleπ »erin
Member of the Management Board
for Corporate Activities and
Non-trade Segment Since October 1997
• Graduated in 1973 at the Faculty of Law in Ljubljana.
• He is also Deputy President of the Executive Board of the Regional
Chamber of Commerce of Ljubljana, member of the Managers’ Association of Slovenia and President of the Slovenian Cyclists’ Federation.
Jadranka DakiË
Member of the Management Board for Finance,
Controlling and Accounting Since January 1998
• Graduated in1980 at the Faculty of Economics in Ljubljana.
• She is also member of the Committee for International Competition and
Co-operation at the Chamber of Commerce and Industry of Slovenia,
member of the Executive Board of the Female Managers’ Section at the
Managers’ Association of Slovenia and Chairwoman of Women Volleyball Club of Ljubljana.
Marjan Sedej
Member of the Management Board for
Marketing, Development and Investments
in Trade Segment Since January 1998
• Graduated in 1981 at the Faculty of Organisational Sciences, Kranj, in
1996 gained the M.Sc. degree in organisational sciences, and in 2003 a
Dr.Sc. degree at the above Faculty.
• He is also member of the Managers’ Association of Slovenia, member
of the Slovenian Association of Employers and lecturer at the Faculty of
Organisational Sciences in Kranj.
013
Report of the Supervisory Board
Composition of the Supervisory Board
In 2003 the operation of the company Poslovni sistem Mercator, d.d., the parent
company of the Mercator Group, was supervised by the Supervisory Board in accordance with its powers and responsibilities, conferred by law and the Company’s
Articles of Association.
The Supervisory Board was composed of the following members: Janez BohoriË,
Chairman and members: Vera AljanËiË-Faleæ, Ksenija BraËiË, Joæe Cvetek, Morena
KocjanËiË, Dragica Derganc, Katja Galof, Matjaæ Gantar, Vladimir JanËiË, Marjan
Somrak and Branko TomaæiË. Pursuant to the resolution of the 9th Annual General
Meeting of Shareholders of the company Poslovni sistem Mercator, d.d., on the reduction in the number of Supervisory Board members from 12 to 10, the Workers’
Council of the Mercator Group resolved on 2 June 2003 to remove the employeeelected Katja Galof as member of the Supervisory Board.
Throughout the year 2003 the Company’s Management Board was composed of
Zoran JankoviÊ, President and CEO and members: Stanislav Brodnjak, Aleπ »erin,
Jadranka DakiË and Marjan Sedej.
Activities of the Supervisory Board
Members of the Company’s Supervisory Board met regularly and promptly considered and supervised the running and the operation of the Company in 2003. The
Supervisory Board met at five scheduled meetings in 2003.
Already at its last meeting in 2002, on 19 December 2002, the Supervisory Board
considered and adopted the Business Plan of the Company Poslovni sistem Mercator, d.d., and the Mercator Group for the year 2003. With this the scope of business
activities and the goals of the Company and the Group for the year 2003 were set.
At all meetings in 2003 the Supervisory Board promptly considered the following
areas of the Company’s operation: current business performance and the assets of
the Company and the Mercator Group, the work of the Management Board, current investment activities, raising of financial sources and execution of resolutions
adopted by the Supervisory Board.
In addition to these regular activities the Supervisory Board considered the following important business activities in 2003:
• At its regular meeting on 18 February 2003 the Supervisory Board appointed a
three-member committee to draw up a report of the Supervisory Board to the
General Meeting of Shareholders of Poslovni sistem Mercator, d.d. In addition
the Supervisory Board appointed a merger auditor in respect of the merger of
the company Æana, d.d., and discussed the amended Ljubljana Stock Exchange
Rules relating to responsibilities of members of supervisory boards and management boards with regard to public disclosure of any changes in the ownership of
companies’ shares.
014
Annual Report 2003
• The Supervisory Board was submitted a written information about the good results achived by Poslovni sistem Mercator, d.d., and the Mercator Groups in the
period January - March 2003.
• At its regular meeting on 15 April 2003 the Supervisory Board considered and
approved the Annual Report for 2002 with the accompanying audited financial
statements and approved the summoning of the 9th Annual General Meeting of
Shareholders. The Supervisory Board was submitted the reports on the disposal of
the companies M - SremiË, d.o.o. and Trgoavto, d.d., and the draft agreement on
the sale of the company M - KÆK Kmetijstvo Kranj, d.o.o. In addition the Supervisory Board adopted the report on the merger of the companies Emona Merkur,
d.d., and Æana, d.d., with the company Poslovni sistem Mercator, d.d. Together
with the Annual Report for 2002 the Supervisory Board considered and approved
the proposal for allocation of distributable net profit for 2002 and recommended
to the General Meeting of Shareholders to allocate part of the distributable net
profit from 2000, amounting to SIT 1,443,826,800 for payment of SIT 450 gross
dividend per ordinary share, which was approved.
• At its regular meeting on 19 August 2003 the Supervisory Board considered the
report on the purchase of real estate - land on new markets, which are not yet
operational, a report on the completion of the disposal of the companies M KÆK Kmetijstvo Kranj, d.o.o., and Mesnine deæele Kranjske, d.d., the criteria for
measuring the performance of the company Poslovni sistem Mercator, d.d., and
the Mercator Group and was submitted the results of the surveys relating to the
satisfaction of shareholders of the company Poslovni sistem Mercator, d.d.
• At its regular meeting on 4 November 2003 the Supervisory Board was submitted
the nine-month performance report of the company Poslovni sistem Mercator,
d.d., and the Mercator Group and a comparison between the Mercator Group’s
market share and its performance and its competitors in Slovenia, Croatia, Serbia,
Montenegro and Bosnia and Herzegovina, and with the largest European retailers.
At that session the Company’s Supervisory Board was informed of the procedure
and therms and conditions of the completed takeover of the trade company Æivila
Kranj, d.d. The Supervisory Board requested that in future the Management
Board notify it of planned takeovers prior to the public disclosure at the latest.
• At its regular meeting on 16 December 2003 the Supervisory Board adopted the Business Plan of the Company Poslovni sistem Mercator, d.d., and the Mercator Group
for the Year 2004 and was submitted the report of the Risk Management Committee
of the Mercator Group, which in future will be done annually, and appointed a group
of members of the Supervisory Board which, together with operational departments,
drew up a proposal for the establishment of an Audit Committee of the Supervisory
Board and its duties with regard to the various areas of operation.
Semi-annual and Annual Report for the Year 2003
The Supervisory Board was submitted the unaudited Semi-annual Report for the
period January - June 2003 of the Company and the Group at its regular meeting on
19 August 2003. The Company published a summary of the unaudited Semi-annual
Report in accordance with legal regulations and the Ljubljana Stock Exchange Rules.
The Supervisory Board considered the unaudited financial statements for 2003 of the
Company and the Group with short notes to the statements at its regular meeting on
24 February 2004 and the Company published its non-audited financial statements
in accordance with legal regulations and the Ljubljana Stock Exchange Rules.
For the 2003 results, which exceeded projections and were a successful implementation
of medium-term strategic goals the Supervisory Board commended the Management
Board and, in accordance with adopted “Criteria for Assessing the Business Performance of the Company Poslovni sistem Mercator, d.d., and the Mercator Group” and
the employment contracts, determined the performance-based portion of their salary.
At its regular meeting on 13 April 2004 the Supervisory Board considered the report of
the auditing firm PricewaterhouseCoopers, d.o.o. on the audit of unconsolidated and
consolidated Annual Report for 2003. The meeting was attended by a certified auditor
who was available for any additional commentary. In reviewing the submitted Annual
Report for 2003 the Supervisory Board took into account the following factors:
• The company Poslovni sistem Mercator, d.d., and the Mercator Group concluded
the year 2003 very successfully as they exceeded the projected business results and
improved all key elements of business performance compared with 2002.
• Setting up of other reserves from the retaining net profit for 2003 was in line with
the Company’s strategic development goals, adopted dividend policy and fiscal
factors.
• On 26 March 2004 the auditing firm PricewaterhouseCoopers, d.o.o. issued a
positive opinion on the Company’s unconsolidated and consolidated financial
statements, which are includeded in the Annual Report. The Supervisory Board
had no comments on the auditors’ report and expressed its agreement.
• The Supervisory Board regularly monitored the running and the operation of the
Company and the Group and promptly considered their business performance
and their assets. The Management Board delivered to the Supervisory Board all
information, which was needed or required for the performance of its supervisory
activities.
On the basis of the above said supervisory activities and factors and of detailed
review the Annual Report of the company Poslovni sistem Mercator, d.d., and the
Mercator Group for 2003, submitted by the Company’s Management Board, the
Supervisory Board established:
• That the Annual Report presents a fair picture of the business development and
business position of the company Poslovni sistem Mercator, d.d., and the Mercator Group.
Consequently the Supervisory Board had no comments on the Annual Report of
the company Poslovni sistem Mercator, d.d., and the Mercator Group for 2003,
submitted by the Management Board and approved it unanimously at its meeting
on 13 April 2004.
Proposal for Allocation of Distributable Net Profit
By approving the Annual Report the Supervisory Board also approved the allocation
of net profit in accordance with the competencies of the Management Board and
the Supervisory Board. In accordance with legal regulations SIT 2,639,809.68* of
net profit for 2003 of the company Poslovni sistem Mercator, d.d., is allocated to
setting up reserves for own shares and SIT 4,357,910,991.95* for setting up other
reserves from profit.
The distributable net profit of the company Poslovni sistem Mercator, d.d., for 2003
amounts to a total of SIT 5,962,162,991.95*, as confirmed by the certified auditor.
The Management and the Supervisory Boards propose to the General Meeting of
Shareholders that the distributable net profit for 2003 be allocated as follows:
• Part of the distributable net profit in the amount of SIT 704,022,701.67, deriving from undistributed net profit for 2000 and part of the distributable net profit,
which the management board and supervisory board resolved to transfer to distributable net profit and derives from other reserves from profit - from undistributed
net profit for 1998 in the amount of SIT 900,229,298.33, to dividend payout, a
gross dividend of SIT 500 per ordinary share.
• Part of distributable net profit in the amount of SIT 4,357,910,991.95, deriving
from undistributed net profit for 2003, to other reserves from profit.
The Supervisory Board approved the above said distributable net profit allocation
as it considered it to be in line with the strategic goals, investment plans, dividend
policy and fiscal policy of the Company and the Group.
This report has been prepared in accordance with Article 274.a of the Commercial
Companies Act and is addressed to the General Meeting of Shareholders.
• That the Annual Report has been drawn up clearly and transparently,
• That the Annual Report presents a true and fair picture of total assets, liabilities,
financial position and operating results of the company Poslovni sistem Mercator,
d.d., and the Mercator Group, and
Ljubljana, 13 April 2004
Janez BohoriË
Chairman of the Supervisory Board
*According to Slovenian Accounting Standards
015
Members of the Supervisory Board
In 2003 the Company’s Supervisory Board was composed of:
Chairman of the Supervisory Board:
Janez BohoriË
Members of the Supervisory Board:
Vera AljanËiË Faleæ
President of the Management Board • Sava, d.d., Kranj
Employed with
Director of Legal Affairs • Poslovni sistem Mercator, d.d., Ljubljana
Ksenija BraËiË
Director of Internal Services • Mercator - SVS, d.d., Ptuj
Joæe Cvetek
Director of Finance and Accounting • Eta, d.d., Kamnik
Dragica Derganc
Katja Galof
Matjaæ Gantar
Vladimir JanËiË
Morena KocjanËiË
Marjan Somrak
Branko TomaæiË
016
Employed with
Annual Report 2003
Head of Legal Affairs • Mercator - Dolenjska, d.d., Novo mesto
Employee-elected Representative • Poslovni sistem Mercator, d.d., Ljubljana (until 2. 6. 2003)
Director • KD Holding, d.d., Ljubljana, KD Group, d.d., Ljubljana
Member of the Management Board • Petrol, d.d., Ljubljana
Director of Controlling and Development • Mercator - Degro, d.d., Portoroæ
President of the Management Board • Zarja, Stanovanjsko podjetje, d.d., Novo mesto
President of the Management Board • HIT, d.d., Nova Gorica
General Information
Full name
Poslovni sistem Mercator, d.d.
Abbreviated name
Mercator, d.d.
Activities
G 52.110 / Retail sale in non-specialised stores with food
Identification number
5300231
Tax number
45884595
Court registry number
1/02785/00
Date of entry in the court register
12 October 1995
Share capital of the Company
SIT 32,085,040,000
Share nominal value
SIT 10,000
Number of issued and paid shares
3,208,504
Share listing
Ljubljanska borza, d.d., official market, trading code: MELR
President of the Management Board and CEO
Zoran JankoviÊ
Members of the Management Board
Stanislav Brodnjak, Aleπ »erin, Jadranka DakiË, Marjan Sedej
Chairman of the Supervisory Board
Janez BohoriË
017
Franc Vice President for Trade, 43 years in Mercator
Jelka Director of Retail Development, 14 years in Mercator
The sweetest memories
018
Annual Report 2003
Short History
1949
The history of the company Mercator goes back to
, when a wholesale
company “Æivila Ljubljana” was founded, the predecessor of the company Poslovni
sistem Mercator, d.d.
1953
In
a wholesale company named “Mercator”, headquartered in Ljubljana
started operating. The basic characteristic of Mercator’s development until the beginning of the nineties was integration of smaller local trade companies operating in
trade, food processing industry, agriculture, hospitality and other service activities,
all of which retained their legal independence.
1990
In
Mercator was registered as Poslovni sistem Mercator, d.d., which
was established by transfer of unpaid capital to the parent company by previously
integrated companies; that was the beginning of its organisation as a group of companies.
1993 was marked by the beginning of privatisation through public offering of
shares; in terms of volume and value of capital it was the biggest privatisation in the
Central Europe.
1995
In October
Poslovni sistem Mercator, d.d., was entered in the court register as a private joint-stock company.
1997 was a landmark year for the Company as it turned into one of the most
successful retail traders in the region of the former Yugoslavia. The company Poslovni sistem Mercator, d.d., which until 1997 had recorded losses and operated without
a vision, got a new Management Board, headed by a new President and CEO, Zoran
JankoviÊ, who adopted an ambitious development strategy, which was to stop the
negative trends from the past years and create the best retail trader in the country,
comparable with the major retail trader chains in Europe and the world.
1998 - 2002
The period
was marked by internal restructuring and processes necessary for the integration of companies from the Slovenian food industry
and other interesting sectors, which required implementation of further cost-effectiveness and business efficiency, aggressive action on the market and accelerated
growth of retail network and marketing activities. Intensive merger and acquisition
activities took place, relating to 18 retailers in Slovenia and one in Croatia. In addition Mercator penetrated new markets by establishing subsidiaries in Croatia,
Bosnia and Herzegovina and Serbia and Montenegro.
2003
Mercator managed to retain its leading retailer position in Slovenia also in
despite deteriorated market conditions and was therefore able to increase and
strengthen its public perception and market share on the new markets, where it
intends to further expand its retail network in the future.
019
Key Events in 2003
Changes in the Management Board
Renewal of Mercator’s Web Site − Qweb
On 1 January 2003 the Management Board of the company Poslovni sistem Mercator, d.d., enlarged by an additional member, Stanislav Brodnjak, began its second
five-year term of office.
On 4 November 2003 Mercator’s web site was renovated and certified in accordance
with the standard Qweb, release 1.2, One star level, with which we were the first in
Slovenia to have a certified web site.
Expansion of Retail Network
Shareholder Satisfaction
2003 was marked by:
• The opening of new trade centres and other stores in Slovenia and Croatia. At
the end of 2003 the Mercator Group had 995 retail units, together with franchise
stores the number was 1,127;
• The purchase of several new sites on the new markets;
• The beginning of a hard discount chain.
Mercator’s shares exceeded the value of SIT 30,000 in 2003 and reached SIT 32,662
at the year-end.
Change in the Organisational Structure
of the Mercator Group
During 2003 the parent company Poslovni sistem Mercator, d.d.:
• Sold its stake in the companies Trgoavto, d.d., (51 %), Mercator - KÆK Kmetijstvo
Kranj, d.o.o., (100 %), Mesnine deæele Kranjske, d.d., (82.03 %), in line with its
focussing on the core business of retail;
• Sold its 20 % stake in the company Spar Slovenija, d.o.o., as it had ended its co-operation in wholesale supply with the company at the beginning of 2003, because
Spar Slovenija, d.o.o. had set up its own distribution centre;
• Founded the company Mercator - BH, d.o.o., Bosnia and Herzegovina, in which
it holds a 100 % stake;
• Bought a majority stake (89.03 %) in the company Æivila Kranj, d.d., in which,
after the completion of the public offering of shares it acquired a 98.41 % stake,
including the company’s own treasury stock;
• Formally merged the companies Emona Merkur, d.d., and Æana, d.d.
Employee Satisfaction
In April and May 2003 we measured employee satisfaction for the fourth consecutive time; the survey showed greater trust in our top management, higher satisfaction
with the management style of directors, with the nature of work, sources of information and with communications.
Communication with Supliers
In 2003 Poslovni sistem Mercator, d.d., organised the fourth traditional meeting of
Mercator with its suppliers, producers from Slovenia, Croatia, Bosnia and Herzegovina and Serbia and Montenegro, with the purpose to present Mercator’s internationalisation strategy and novelties in the supply business.
In 2003 Poslovni sistem Mercator, d.d., organised two meetings of the clubs of
loyal Mercator Pika card holders.
Referendum on Opening Hours
Humanitarian Campaigns
Participants in the referendum on Sunday and public holiday opening hours of
stores voted for the stores to be closed on Sundays and public holidays.
In 2003 the Mercator Group carried out three major humanitarian campaigns:
• Open Your Eyes − The Oncology Institute of Ljubljana was donated a device for
treating gynaecologic and prostate carcinoma;
• We Were All Children Once - in co-operation with the company Pejo trading,
d.o.o., part of sales revenues were earmarked for holidays for underprivileged
children;
• The Paediatric Clinic in Ljubljana was donated a Lumpi van.
New Collective Wage Agreement
In December 2003 a new collective wage agreement for the parent company Poslovni sistem Mercator, d.d., was concluded.
Expansion of the Mercator’s Loyalty Card M Pika
In 2003 the use of M Pika card expanded to the markets of Croatia, Bosnia and
Herzegovina and Serbia and Montenegro.
020
Annual Report 2003
Sponsorships and Donations
In 2003 Mercator supported various health, cultural, sports, and educational and
preventive campaigns.
Financial Highlights of 2003
Mercator Group
Year
2003
2002
331,502
319,777
Net profit before majority interest (in SIT mn)
9,125
7,082
Net profit after minority interest (in SIT mn)
9,224
6,959
EBITDA (in SIT mn)
25,538
24,520
Capital expenditure (in SIT mn)
28,529
24,491
5,759
1,240
13.5 %
11.0 %
2,875
2,169
450
400
42.2 %
39.8 %
31. 12. 2003
31. 12. 2002
14,673
14,331
19
25
Net sales revenues (in SIT mn)
Long-term financial investments (in SIT mn)
Return on equity
Earnings per share (in SIT)
Paid out dividend per share (in SIT)
Market share *
As at
Number of employees
Number of legal entities in the Group
*Source: Gral Iteo: Share of purchases by Slovene households in Mercator stores in the years 1997-2003
021
Development Indicators for The Mercator Group
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022
Annual Report 2003
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*Source: Gral Iteo
024
Annual Report 2003
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Business Report
About the Mercator Group
Group’s activities
Trade Activities
The Mercator Group is composed of trade and non-trade companies operating in
food processing industry and hospitality and other services. The company Poslovni
sistem Mercator, d.d., is the parent company of a group of related companies Poslovni sistem Mercator, d.d., (“ the Mercator Group”) and performs a double role:
• Carries on sales activities in the regions of Central Slovenia and the Adriatic coast
and
The principal and most extensive activities of the Mercator Group are wholesale
and retail of consumer goods. We are one of the largest and most successful retail
chains in South-east Europe and the leading retail chain in Slovenia, and we are
improving our position on the markets of Croatia, Bosnia and Herzegovina and
Serbia and Montenegro. These are rapidly growing markets where we mostly build
larger shopping centres in order to obtain significant market shares in the shortest
time possible.
• Performs the holding company function for the companies of the Group in which
it holds majority interests, such as: setting up centralised purchasing and selling
policies, carrying out sales and marketing activities for the trade companies, carrying out development and investment activities, information support and education and training of all Group companies and setting up of uniform operational
processes and standards.
Characteristic of the Mercator Group trade activities, which at the end of 2003 were
carried out by 13 companies, of which 5 outside Slovenia, is a highly diversified retail
network with various store formats: from shopping centres, hypermarkets, supermarkets and department stores to self-service stores and specialised stores. With diversified retail network and complementary services offered in our shopping centres
we wish to satisfy the needs, wishes and expectations of all our customers.
Corporate Structure
As at 31 December 2003 the Mercator Group,
which is a group of related companies of the
Poslovni sistem Mercator, d.d., (parent company),
was composed of:
Poslovni sistem
Mercator, d.d.
Subsidiaries
Trade in Slovenia
Mercator - SVS, d.d.
100.00%
Trade abroad
Non-Trade
Mercator - H, d.o.o.99,68%
Mercator - H, d.o.o.
Eta, d.d.
84.34%
Annual Report 2003
89.3%
* Including own shares of the
company Æivila Kranj, d.d.,
the shareholding amounts
to 98.41%
99.68%
026
Æivila Kranj, d.d. *
Mercator - S, d.o.o.100,00%
Mercator - S, d.o.o.
100.00%
Pekarna Grosuplje, d.d.
75.13%
In June 2003 the Mercator Technical Chain was set up within Poslovni sistem Mercator, d.d., as a result of consolidation of activity, namely transfer of sale of technical
products from the trade companies to the parent company.
Within the trade segment of the Mercator Group operates a company specialised in
clothing, Mercator - Modna hiπa, d.o.o. Since 2001 the Company has operated as a
specialised chain of clothing stores dealing in wholesale and retail sale in Slovenia.
facturing bread and fresh pastry in Slovenia, it owns the company Belpana, d.o.o.,
Zagreb, which manufactures bread and fresh pastry in Croatia, mostly for the needs
of Mercator’s retail network. The company Mercator - Emba, d.d., deals in coffee
roasting and packing, manufacturing of instant cacao products, toppings, products
from cereals and packing of other products. The company M Hotel, d.o.o., carries
on hotel and restaurant activities. The company Mercator - Optima, d.o.o. deals in
engineering and designing and is closely involved in the investment activities of the
Mercator Group.
Non-trade Activities
In addition to trade companies the Mercator Group included companies, which in
2003 operated in food processing industry and hospitality and other service activities. The company Eta, d.d., produces sterilised and pasteurised garden products,
mustard and various toppings and deals in fruit processing, producing compotes
and frozen line. The company Pekarna Grosuplje, d.d., is the leading bakery, manu-
Mercator - Gorenjska, d.d.
98.82%
Mercator - TC Sarajevo, d.o.o.
90.16%
Belpana, d.o.o.
100.00%
Mercator - Dolenjska, d.d.
100.00%
Mercator - Goriπka, d.d.
99.26%
Mercator - Degro, d.d.
Mercator - Modna hiπa, d.o.o.
100.00%
100.00%
100.00%
100.00%
Mercator - Emba, d.d.
Mercator - Optima, d.o.o.
M Hotel, d.o.o.
100.00%
100.00%
Mercator - BH, d.o.o.
69.17%
Intermercator, G.m.b.H.
As at 31 December 2003 the Mercator Group had a 20% participating interest in the associated company Alpkomerc, d.d., Tolmin.
027
Mateja Director of Marketing , 10 years in Mercator
028
Annual Report 2003
Business Strategy of the Mercator Group
The principal driving force behind our activities is satisfaction of people who come
into contact with Mercator and who we treat as people with different expectations,
experiences and qualities. With a personal touch and comprehensive offer, adjusted
to shopping habits and market trends, we wish to improve their quality of life.
In line with our mission we pursued the following key strategic goals in 2003:
1. Offering products which ensure a better quality of life
• Satisfying customers’ needs, wishes and expectations
• Ensuring sales growth and consolidation of our position as the leading retail
chain in Slovenia
• Gaining an important market share in the new markets: in Croatia, Bosnia and
Herzegovina and Serbia and Montenegro
2. Long-term partnership with producers
3. Alliances with foreign strategic partners
4. Maintaining the level of business performance
of the best European retailers
• Improving business efficiency
• Ensuring security of investments
• Generating greater value for shareholders
5. Meeting our commitments to employees and the general social
environment
6. Ensuring competitiveness of non-trade segment of the Group and
expanding of food processing companies’ operations to new markets.
Thought of
tomorrow
029
Impact of Market Conditions on Business Operations
Economic conditions in 2003 were relatively favourable for the Mercator Group,
as the prevailing moderate economic growth, through increased purchasing power,
influenced the growth of Mercator’s business. The other favourable impact was the
lowering of domestic and foreign internest rates, which reduced the costs of financing of the Mercator Group. Costs of loans with foreign currency clause were further
reduced by slower growth in foreign exchange rates in 2003.
The Mercator Group is mainly active in retail of consumer goods; its operation depends on the following factors, which direct and adjust the operation of the whole
industry:
• Consolidation: already in 1999 Mercator started with takeovers and acquisitions
of trade companies, which brought consolidation to the industry. Now is the turn
of internal consolidation of operations of the Mercator Group, which has already
started;
• Globalisation: preparation for the entry into the European Union and extensive
expansion to the markets of SE Europe;
• Category management: further development of the category management process in co-operation with strategic partners;
• Relations with suppliers: development and strengthening of strategic partnership
with key suppliers;
• Improved cost-effectiveness;
• Improved productivity;
• Increasing customers loyalty: further development and upgrading of the loyalty
system (Mercator Pika card);
• Filling a gap in the market: development, differentiation and forming of store
formats and specialised chains within the Mercator Group, which is approaching
completion, and expansion of retail network;
• Possibility of choice: development of new store formats, development and enhancement of lines under the Mercator private label, development of innovative
sales promotion projects.
In 2003 at Mercator we paid special attention to preparations and harmonisation
relating to the entry of Slovenia into the European Union. A project team was set up
which studied the impact that Mercator’s entry in the global and single European
market will have in various sectors. We conducted numerous research surveys of
the general and the professional publics and studied on the one hand the readiness
of our strategic partners to the entry into the European Union and on the other
the expectations of the consumers, especially in terms of retailers’ offer and further
purchases.
030
Annual Report 2003
The key results of the surveys are shown in the next section:
• Expectations of strategic partners:
• The majority of Mercator’s strategic partners has already started to adjust to the
processes and requirements of operating in the European Union or have successfully prepared themselves;
• According to our strategic partners, the lowest levels of adjustment to the requirements of the European Union have been achieved in the following areas: adjustment of operating costs, prices of raw materials and protection of trademarks and
patents. In the areas such as consumer protection, safety at work, quality and safety
of food and regulations relating to competition a complete or satisfactory harmonisation has been achieved;
• Strategic partners’ expectations upon the entry in the European Union are mostly
optimistic.
• Expectations of Slovenian customers:
• The majority of Slovenian customers thinks that the offer of Slovenian products
will remain unchanged after the entry of Slovenia into the European Union;
• In their opinion prices will rise after the entry of Slovenia into the European Union;
• The majority of customers belives that after the entry of Slovenia into the European Union the purchase of foreign products or purchase of foreign brands will
increase;
• They think that shopping in Austria and Italy will decrease or remain the same
after the entry of Slovenia into the European Union;
• In their opinion shopping in Croatia will decrease or remain the same after the
entry of Slovenia into the European Union.
Sales and Marketing
Sales
The Mercator Group generated SIT 331,502 million of net sales revenues in 2003,
which was 3.7% over 2002.
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Mercator Group by business segment
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Net sales revenues of the
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031
Productivity
In 2003 productivity, measured as ratio between net sales revenues and number of
employees per work hours used, recorded an 8.8 % growth compared with 2002.
Net sales revenues per employee amounted to SIT 24,994 thousand in 2003.
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Productivity of the Mercator Group
(in SIT thousand)
032
Annual Report 2003
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Store Formats
Intersport
At Mercator we develop various store formats in order to satisfy the needs of various
segments of customers. In our stores customers can buy consumer goods from sports
wear and equipment and fashion clothes to furniture and home appliance, as well
as building materials. In our shopping centres we try to offer a very comprehensive
range of sales programmes.
Since 1999 Mercator has been the exclusive holder of licence to use Intersport brand
in Slovenia, since 2000 in Croatia and Bosnia and Herzegovina and since 2002 in
Serbia and Montenegro. Intersport is an international chain of sports stores, which
in Slovenia is already well established and is gaining on reputation on the new markets. By end of 2003 the number of our Intersport stores was 19. In future we plan
to continue with the development of various store formats, especially the so-called
SKI RESORT format (stores close to ski slopes).
In line with the demand for everyday products we have developed three principal
store formats:
• Hypermarkets, where customers can get a wide and comprehensive offer, the opportunity for “one-stop shopping” and wide choice offered by a bigger shopping
opportunity. These stores are located near city bypasses with easy access by car and
have large car parks and convenient working hours.
• Other stores with everyday products, such as supermarkets, superettes and
smaller self-service stores, their principal purpose is to satisfy everyday needs of local customers; they are located in the vicinity of larger residential areas. Their offer
is adapted to the customers’ daily shopping with the emphasis on fresh food;
Modiana
In 2003 we continued to upgrade the marketing strategy of the clothing chain
Modiana. To meet up-market demands we had launched a new type of clothes selling store and a new brand name store in 2002, which was first launched in Mercator Centre Split and Mercator Centre in Belgrade, and which in 2004 we intend
to launch also on the domestic market. The new brand name is Avenija Mode and
represents stores with first class articles.
Beautique
In 2003 a new store format was developed, called convenience stores. These were
developed to satisfy the needs of more demanding customers and are located in the
vicinity of business and city centres. In preparing the offer we followed the wishes
and expectations of the more demanding customers’ segment, changes in eating
habits and lifestyle of customers. The offer in these stores is based on fresh ready
meals (ready to cook and ready to eat meals) and a wide range of fresh fruit and
vegetables.
The brand name Beautique designates chemist’s shops, which customers can find in
some Mercator shopping and trade centres and in city centres of larger towns. They
excel in large offer of first class cosmetic articles and attentive and professionally
trained customer sales staff. In 2003 we had 11 Beautique stores in all markets in
which we operate.
By developing various store formats we wish to provide for our customers’ comfort,
especially by considering factors such as easy access to stores, varied range of products on offer and regular and attractive sales promotion campaigns which increase
the opportunities for favourable purchases.
In 2003 we set up a technical chain of Mercator, which combines the offer of stores
previously selling furniture, technical products and building material. The chain of
stores was designed on the basis of thorough market research in which we studied
the shopping habits and target customer groups interested in sales programmes included in the chain, and we studied the activities of competing retailers in this field
both, on the domestic and on the new markets. We formed a marketing strategy
of the technical chain, which served as the basis for the Mercator’s technical chain,
which in 2004 will meet a number of new challenges and opportunities. We shall
pay special attention to designing and differentiating various store formats, which
will make shopping easier for our customers. In 2004 we also intend to develop a
shopping centre offering all the sales programmes of the technical chain on one
location. The technical chain will be given a new name and an appropriate and
recognisable graphic image.
In 2003 we began to develop another store format, hard discount format. Hard
discounts are stores with a similar sales area as supermarkets while the product range
on offer comprise mostly grocery and a limited range of fresh, chilled and frozen
programmes. The main purpose of this store format is to meet the needs of the customers’ segment with lower purchasing power as well as of customers who behave
rationally, despite their higher purchasing power (the rational customers’ segment).
The product range on offer is limited, most conveniently priced and includes only
a small share of renowned brand names. Hard discounts have been named Hura
diskont, and the first openings are scheduled in the first half of 2004.
In addition to stores with everyday products at Mercator we offer to our customers
the opportunity for shopping in our specialised store chains:
Mercator’s Technical Chain
Www.mercator.si and the Web Store
2003 was a landmark year for Mercator’s Web site www.mercator.si and the Web
store, which were renovated and updated. Mercator’s Web site www.mercator.si is
intended for all Mercator’s stakeholders, who search for information about the Company on the Internet. After the renovation the content has been divided into four
sections: “About the Company”, “Environment”, “Employees” and “Info Centre”.
033
In the Web store, which is intended for those who do not have time to lose on shopping for everyday products in “ordinary” stores, customers can choose from 4,500
fast moving consumer goods (FMCG), divided by sales programme and product
line. The purpose of the renovation was to ensure a pleasant shopping to the Web
store customer, therefore we enabled an easy search, gave more information about
the offer and the products, gave a clear introduction of the Mercator Private Label
lines and of the sales promotion projects and finally enabled faster shopping.
We are aware that for Web shopping the customers’ trust should be gained, so we
decided to provide for safety by certifying our Web store. This was done by the Slovenian Standards and Metrology Institute (SIQ) who is the only Slovenian member
of the IQNet, which assigns Qweb certificates to Web sites, intended for Web stores
and other electronic business activities. Mercator was the first in Slovenia to meet all
the necessary requirements and obtain the Qweb certificate.
The number of customers, value of the average purchase and realised sales in the
Web store have been steadily growing from its beginnings in 1999. The results of
customer satisfaction surveys show that most of them are satisfied with this type of
shopping.
Structure of Retail Units of the Mercator Group as at 31 December 2003
Activity
Hypermarkets
Supermarkets
Superettes
Self-service stores
Department
Discounts and Cash & Carry
Total market
Technical
Furniture
Apparel
Intersport
Chemist’s
Hotels and restaurants
Other
Total
Franchise store
Total with franchise stores
034
Annual Report 2003
No. of
Units
Net sales
area in m2
Gros sales
area in m2
21
87
303
176
26
24
637
87
35
129
19
18
65
5
995
132
62,654
63,083
67,806
14,446
18,706
14,071
240,766
29,878
25,112
39,336
7,453
1,383
7,815
281
352,025
17,839
94,540
98,439
123,452
27,937
28,759
18,082
391,210
67,380
33,641
48,076
9,633
1,762
12,337
507
564,544
17,839
1,127
369,864
582,383
Market Share
• On the Slovenian Market
• On the Croatian Market
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Increase in market share on the Slovenian market
Increase in market share on the Croatian market
* Market share of Mercator stores exclusive of franchise stores
Source: Gral Iteo: Share of purchases by Slovenian households in Mercator stores in the period 1997-2003.
* Mercator is not yet present in Slavonia and central Croatia where other competing retailers have a
strong presence.
Source: Gral Iteo: Share of purchases of Croatian households in Mercator stores and in competing stores
in 2003.
On the Slovenian market we wish to maintain our market share at the present high
level by developing new products in the Mercator private label lines, by introducing new special offers for loyal customers, by offering various and innovative sales
promotion campaigns and developing new store formats to meet the needs, expectations, wishes and shopping habits of our customers. On the new markets we intend
to increase our market share with a similar marketing strategy and activities on the
markets as in Slovenia and become an important retail chain on the markets of
South-east Europe.
The approximate estimation of market share in Bosnia and Herzegovina is 2 %;
Mercator is thus ranked the second largest retailer in the country. In Serbia and
Montenegro the Mercator Group began its operations only in December 2002. At
the end of 2003 Mercator’s share of the market was 1 %.
035
Purchasing
Investments
In 2003 the Mercator Group co-operated with suppliers who were put on a suppliers’ list at the end of the preceding year and for whom a supply plan had been
prepared. In accordance with accepted ISO standards those suppliers who receive a
positive grade from previous co-operation can be put on the suppliers’ list. On the
basis of strategic partnership the Mercator Group builds its business co-operation
with the major suppliers with whom it co-operates in all its markets. An important
factor for taking priority in business co-operation is the supplier’s willingness for
joint activities on the new markets and its readiness to consider the project of expansion to new markets as a joint development project.
In 2003 we continued to implement the investment plan. The whole Mercator
Group invested a total of SIT 34,288 million in 2003 of which SIT 28,529 million
refer to capital expenditure and SIT 5,759 million to long-term financial investments.
Strategic Partnership
The Mercator Group as the largest Slovenian retailer who operates and further expands its retail network in four countries, encourages Slovenian production and the
production on new markets as in its stores priority is given, under the same conditions, to products of Slovenian, Croatian, Bosnian and Serb companies.
Strategic partnership is built with business partners who consider Mercator a buyer,
who is reliable, good, fair and the biggest partner on the Slovenian market, and
whose expansion to new markets means new development opportunity for them as
well. Successful performance on new markets is only possible on the basis of good
partnership relations with suppliers who offer to customers attractive products of
European quality and appearance and at competitive prices.
With business partners, with whom we co-operate in all our markets, we develop
long-term contractual relations, a joint and uniform presence on these markets,
products under the Mercator private label and new products and joint creation and
implementation of ambitious sales promotion projects. We expect to get fixed prices
agreed for long-term period.
Category Management
We have been implementing the category management project, which is focussed on
the needs and wishes of customers and on improving business effectiveness of trade
companies, with 11 product lines of selected suppliers. In 2004 we shall expand the
project to new product lines and select new suppliers. With the category management project we exert control over the sales area and selection of goods and form an
efficient and rational offer, made to meet customers’ wishes and expectations.
Volume and Structure of Purchase
By remaining focussed and with strategic partnerships we reach a high level of concentration of purchasing so that 10 largest suppliers or producers represent close to
33 % share of total purchase and with 139 largest suppliers or producers we generate
75 % of value of total purchase of merchandise.
036
Annual Report 2003
Capital Expenditure
In 2003 capital expenditure of the Mercator Group amounted SIT 28,529 million,
of which SIT 11,304 million on the new markets. Over half of total investments in
fixed assets of the Mercator Group (60.5 %) refer to the construction of Mercator
shopping centres.
Value
in SIT mn
Structure
in %
17,493
61.3%
7,248
25.4%
10,245
35.9%
3,524
12.4%
714
2.5%
21,731
76.2%
Investments in distribution centres
2,212
7.8%
Refurbishments and other
3,157
11.1%
27,100
95.0%
- of which in Slovenia
15,803
55.4%
- of which abroad
11,297
39.6%
1,429
5.0%
1,422
5.0%
7
0.0%
28,529
100.0%
Type of Capital Expenditure
Mercator Centres and hypermarkets
- in Slovenia
- abroad
Stores with FMCG
Non-food stores
New units
Total investments in trade segment
Total investments in non-trade segment
- of which in Slovenia
- of which abroad
TOTAL
Compared with 2002, when Mercator opened three large Mercator shopping centres and two smaller trade centres, we mostly opened smaller shopping centres and
similar stores in 2003:
• in Slovenia: Mercator centre in Trebnje, Trade centre at Cigaletova street in
Ljubljana, trade centres in Levec and ©entjur pri Celju and a store in Lucija;
• in Croatia: store in Æupa DubrovaËka (supermarket, clothing and sports) and a
supermarket, Modiana and Intersport in the department store Robna kuÊa Tekstil
Karlovac.
On the new markets we purchased land for building Mercator shopping centres in
2003 (Osijek, Rovinj, Zadar, Bjelovar, »akovec, –akovo, Slavonski Brod, Velika
Gorica, Labin, Koprivnica, Kutina, Alipaπino polje in Sarajevo, Novi Sad, Zemun,
two sites in Kragujevac). Major investments include purchase of land in Æelodnik
near Domæale for building a central distribution centre with about 20 ha of space
and land in Belgrade with 10 ha of space for building a distribution centre for Serbia
and Montenegro.
Long-term Financial Investments
In 2003 the Mercator Group carried out long-term financial investments in the total
amount of SIT 5,759 million of which SIT 5,128 million refer to the acquisition of
majority holding in the company Æivila Kranj, d.d.
In addition the Group earned SIT 6,533 million by divesting itself of long-term
financial investments in 2003 which refer mostly to the disposal of the companies
Trgoavto, d.d, Mesnine deæele Kranjske, d.d., Mercator - KÆK Kmetijstvo Kranj,
d.o.o., and Spar Slovenija, d.o.o. In May 2003 the partners ASPIAG MANAGEMENT AG and Poslovni sistem Mercator, d.d., signed a sales agreement with which
Poslovni sistem Mercator, d.d., sold to ASPIAG MANAGEMENT AG its 20 %
interest in the company Spar Slovenija, d.o.o.; this was the realisation of the call option related to the before mentioned interest in the company as stipulated, together
with the purchase price, in the partnership contract made in 1997.
In addition to shopping centres some new food and non-food stores were very
important in 2003. Special mention should go to a new technical store and sports
store in the Mercator store in Vrhnika. We continued to refurbish the existing retail
network.
In 2003 the Mercator Group earned SIT 6,191 million by disposal of non-profitable
enough fixed assets.
037
Melita Director of Controlling and Internal Audit, 7 years in Mercator
It's good to know
038
Annual Report 2003
Research and Development
Marketing Development
The Mercator Group continues to develop marketing activities, which draw from
our mission by which people are the principal driving force behind our activities.
We develop long-term and short-term strategic sales promotion projects, which result from continuous monitoring of needs, wishes and expectations of our customers. In preparing marketing activities we take into account the market trends, which
mainly reflect in changed lifestyle and changed eating habits of people. Customers
wish to buy products, which can make their everyday life easier and improve its
quality.
Customers
On the basis of market research surveys, which we conduct to monitor customers’
shopping habits we set up three target customer groups, to whom we intend to
adjust our marketing range − offer, services and marketing activities: families with
children, senior citizens and students.
With our offer and presence on the market we also aim at the segment of demanding
customers, for which special marketing activities had to be set up, especially a suitable store format, price strategy and marketing communication, added value has to
be offered, such as possibility of shopping in the Web store, and favourable rewards
for loyalty, adjusted to their characteristic lifestyles, eating and shopping habits.
The results of surveys of shopping habits show that Mercator covers the needs of
all target segments in all Slovenian regions. The profile of Mercator’s customer is
the same as that of the average Slovenian, who does the shopping for his household
needs. Mercator’s customers give priority to domestic products, to favourable offers, they like shopping, they think it is fun. Customers link Mercator with values
such as: honesty, friendship, ambition, relaxation, warmth, family, content and
peace.
039
At Mercator we consider a satisfied customer our greatest asset. Only by closely
monitoring and recognising his expectations and shopping habits we can upgrade
our activities and direct them so that we remain faithful to the meaning of our slogan: The Best Neighbour. In line with our marketing strategy we annually conduct
several market research surveys, especially:
• Surveys of customer satisfaction and loyalty (survey of shopping habits, measurement of customer satisfaction, measurement of quality of provided services and
products and monitoring customers’ comments, complaints and praise);
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• Market analysis and surveys of competition, which include measurement of the
reputation of the corporate brand name Mercator, forming guidelines for pricesetting policies which are to ensure price competitiveness, analysis of market and
competition with which we check Mercator’s position in relation to its competitors
on local markets and in relation to its competitors on the global market, analysis
of marketing range and marketing strategies of the best retail chains in Europe and
elsewhere in the world.
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• Product marketing surveys where we asses customers’ perception of sales promotion projects and their efficiency, which is especially important when we introduce
new sales promotion projects; shopping habits by individual product group and
suitability of the media for advertising sales promotion projects;
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Customers’ satisfaction
Note: satisfaction was rated from 1 to 5 where 1 meant that the customer was not satisfied and 5 that the
customer was very satisfied; research was made in 2003.
The results of customer satisfaction surveys show that Mercator’s customers in all
the markets in which we operate are satisfied.
From our customers’ satisfaction derives their high loyalty shown mainly in the
growing number of holders of Mercator Pika card and in the growth of the share
these customers represent in total sales of Mercator.
Mercator Pika Card
With the intention to offer, in a competitive environment, something more to our
loyal customers we developed a bonus point system project in 1999 and offered
to our customers the Mercator Pika card. The loyalty project is alive and well and
yearly readjusted annually to the needs and expectations of target customer groups.
In 2003 we began to upgrade the system especially in the field of surveys of shopping habits of Pika card holders, which will enable us to adjust our offer to the individual customer or segment of customers, in the field of developing co-marketing
activities, which is based on co-operation with the existing suppliers and in the field
of co-operation with strategic partners, which provide products and services which
Mercator does not have and are an addition to the offer for our customers.
The purpose of upgrading the loyalty system is to extend the bonus point range and
make the card even more attractive to its holders. In this way we intend to increase
the number of Pika card holders and strengthen the loyalty and increase the frequency of purchases of Pika card holders. Bonuses will be adjusted to specific needs
040
Annual Report 2003
and wishes of individual target groups. The system upgrade will also be interesting
to suppliers and strategic partners who can use the system to approach over 360,000
card holders and the response of the Mercator Club members is extremely high. This
year we have started with this type of co-operation with the companies Kompas,
d.d., and DZS.
In 2003 we gained over 95,000 new holders of the Mercator Pika card (25,390 holders of credit card and 70,000 holders of cash card of which about 33,000 new cash
Pika card holders on the new markets), which together with the previous holders
makes up over 360,000 of all Pika card holders.
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Mercator Pika card holders
That the loyalty of Mercator’s customers has increased is also shown by the growth
in the share of the turnover, generated by the Pika card, in total turnover. At the end
of 2003 this share was close to 35 %, which was 11 % over the year before.
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The key tasks in developing the customer relations management system in 2004 are
as follows:
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• Development of Gold Pika card which will ensure special treatment of big
spenders;
• Development of Business Pika card which will be intended for loyal customers
who buy larger volumes of goods for special purposes of for further sale;
• Setting up a system of customer relations management (CRM) with which we
shall meet the needs and expectations of our loyal customers more efficiently;
• Expanding the use of Pika card to new areas such as transport, railway, new
technology and telecommunications, culture, sports, insurance, working with
children, gas stations;
• Promotion of sale of certain products by discount coupons for the Pika card holders, and
• Numerous other activities with which we shall reward and delight our loyal customers.
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We hope to have 1,000,000 holders of Mercator Pika card in the next five years.
041
Development of the Mercator Private Label Lines
The speed and tempo of life are increasing and require the development of new services and new products. Similarly the trends in brand name developments are linked
to changing market conditions and to changes in shopping and eating habits.
A total of 206 new products were included in the Mercator Private Label lines,
which, in addition to the before said lines include a group of generic products, M
Line - a line of articles of clothing and Total Body Care - cosmetic and toilet articles.
The Mercator Private Label products are being developed in all the markets in which
we operate. At present the line comprises 478 products in Slovenia, 154 products in
Croatia, 157 products in Serbia and Montenegro and 240 products in Bosnia and
Herzegovina. At the end of 2003 the Mercator Private Label products generated 9 %
of total turnover.
042
Annual Report 2003
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Number of products
Wishing to increase the quality of life and on the basis of surveys conducted among
our customers this year we added two new lines in addition to the already established four lines of the Mercator Private Label:
• Ready meals line The Wishing Table!, which is Mercator’s response to trends and
habits detected among our customers and which demonstrate a changed lifestyle
and eating habits of the segment of busy people with above average living standard
and a smaller number of household members. The line includes three product
groups: ready to cook meals, which shorten the time of preparing a meal and are
suitable for customers who, despite having no time to spare, like to cook and add
to the meals a personal touch. The second product group comprises ready to eat
meals and the third group ready meals which only have to be heated and can be
used as main course. By the end of 2003 The Wishing Table comprised 42 products. In 2004 we shall continue to expand the product line by sales promotion
campaigns such as food-tasting events, and by rearranging the products on the
shelves.
• Healthy Life line, where we also followed the trends and habits shown by people
who wish to improve the quality of life. The project is intended for the target
group of customers who appreciate values such as a beautiful body, health, wellness, family, friends and leisure time. The Health Care Centre in Kranj co-operates
in the project by assisting with its professional expertise in selecting the products,
and in order to increase the customers’ trust in the products also permits the use of
its name and logotype. By the end of 2003 already 31 products were displayed on
our shelves (mostly of Slovenian origin), and in 2004 we shall continue to add new
products to the line. Great attention will be paid to education of customer sales
staff to enable them to present all the benefits and advantages of the product line.
• In 2003 we rapidly expanded the Lumpi Line, which comprises products for
children. With the intention to increase the perception and education of the target customer group (families with children) we prepared, at the beginning of the
year, a short Lumpi’s good night wish to the children, which was daily aired by
the Slovenian National Television. In July 2003 a one-month campaign was conducted with Lumpi’s giants, to which Slovenian kindergartens were invited. The
campaign received a very positive response from the kindergartens and the general
public. Children drew pictures, which in July and August of 2003 could be seen
exhibited as posters along the roads throughout Slovenia. By the end of 2003 the
line comprised 90 products.
Year 2003
Number of products
Share in total sales %
Croatia
154
1.21 %
Serbia and Montenegro
157
0.78 %
Bosnia in Herzegovina
240
1.40 %
The number of Mercator Private Label products
and the share in total sales - New markets
The results of a survey about how much customers know, like and use The Mercator Private Label products showed that the products are well known (the Mercator Private Label is known by over 90 % of customers), almost half of all customers
on the market prefer these products and over 60 % of customers also know the lines
The Wishing Table, Healthy Life, Lumpi and Total Body Care. Customers choose
to buy the Private Label products mainly due to the favourable ratio between the
price and the quality of products. Products from this programme retain their price
for one year.
In the second half of 2003 we began to develop a new project named Five a Day.
Its aim is to increase the daily consumption of fruit and vegetables per inhabitant to
at least 5 meals per deal and to increase the awareness of customers, their concern
for health and well-being. A correct colour combination of fruit and vegetables can
provide us with a wide range of various vitamins, minerals, fibre and other elements
needed by the body. All these substances help us fight off the adverse affect of the
environment, of ageing and they reduce our exposure to various illnesses. Sales promotion campaigns related to consumption of fresh fruit and vegetables are carried
out weekly from Thursday to Monday. The selection of products is adjusted to seasons and available supply. In 2004 we intend to expand the project to other product
ranges such as frozen and dried fruit and vegetables, juices etc.
043
In 2003 we also began to carry out new and upgrade the existing, among customers’
well known, sales promotion projects:
Development of Short-term Sales Promotion Projects
“77 % of customers occasionally
buy products on special offer.”
In 2003 we continued and expanded our short-term sales promotion projects and
carried out 11 regular campaigns, 12 hypermarket campaigns, 9 Intersport store
campaigns, 10 campaigns in chemist’s shops Beautique, 12 in stores selling clothing
and fancy articles within the hypermarket campaigns and 2 extraordinary campaigns
entitled “Going to the Seaside’, and “It’s School Time’, 6 campaigns in stores selling
furniture, 9 campaigns in stores selling technical products and building material and
50 co-marketing campaigns, where we co-operated with various renowned domestic
and foreign suppliers.
We prepared a new concept of short-term sales promotion campaigns entitled
Without Doubt. Without Doubt has a special cover slogan and image and combines various Mercator’s campaigns, which enables more effective advertising, greater recognition among the target customer groups and announces them the offer of
attractive products at very competitive prices. Sales campaigns, of which there were
19 in 2003, were carried out from February until November. In terms of content,
the campaigns were linked to public holidays (national and international) and to the
seasonal activities (going to the seaside, hot summer days for the sale of beverages,
time to go to school, celebration of new wine Martinovo, etc.).
buy products from the project
Every Day Low Prices.”
The campaign had extraordinary sales effects and was well accepted by the customers, and will be continued in 2004. The project Without Doubt has been carried out
in all the markets in which we operate.
Development of Long-term Sales Promotion Projects
In 2003 we continued with the already established sales promotion projects, which
have been carried out over a longer period of time.
• Every Day Low Prices: in Slovenia the project includes 320 products, in Croatia
158, in Serbia and Montenegro 138 products and in Bosnia and Herzegovina 129
products. The purpose of the project is to offer the customers products at the most
favourable prices, hence it is intended for price-sensitive customers. At the end of
2003 we generated about 9 % of total turnover with the sale of products covered
by the project.
buy products from the project
Slovenian Shopping Basket.”
044
Annual Report 2003
• Slovenian, Croatian, Serb and Bosnian Shopping Baskets is a project with
which we wish to offer to the customers the most renowned products of domestic
producers and brand names at the most favourable prices. The product range is
selected according to the season and is changed every four months. In Slovenia the
project includes 50 products of Slovenian producers (in smaller stores the range is
from 15 - 25), in Croatia 25 products of Croatian producers, in Serbia 29 products
of Serb producers and in Bosnia 39 products of Bosnian producers,
IT Development
In the Mercator Group the field of information technology is important, since high
quality and timely information about the Group’s operation is a precondition for
high quality decision-making. We therefore endeavour to pursue the Group’s strategic development by continually improving the IT systems.
In 2003 we continued with the key information support projects in the whole of
Mercator and especially in retail. The principal project remained the project of central purchasing where we linked the EPOS systems of our retail units into a central
purchase system. Important steps forward were made in information support to
e-business operations by the renovation of the Mercator’s Web site and of its Web
store as new suppliers were included in the electronic data exchange and renovation
of electronic fax operations.
To ensure the safety of our IT system we introduced the project “Complete Regulation of the Processes of Development, Security and Protection of Information and
Information System of the Company Poslovni sistem Mercator, d.d.” in which we
assessed the risk exposures and the proposals for reducing the risks.
In 2003 the Mercator Group allocated SIT 697 million to investments in information technology of which SIT 340 million in the parent company. The share of total
costs of information technology in the Mercator Group in net sales revenues for
2003 was 1.1 %.
In 2004 the key activities in the field of information support development will again
be supporting management and decision-making, supporting efficient operational
processes and their unification.
Quality Development
We dedicate all our knowledge and attention to the quality of our products and
services. By introducing quality standards we strive for an efficient system, with
which we wish to ensure long lasting customer satisfaction, successful performance,
development of the Company and a firm base for development and satisfaction of
employees, owners and the general social environment.
The following measures were taken in 2003 to ensure the quality of our
operations:
• Management of discrepancies, comments and praise relating to processes; it
means systematic monitoring of any discrepancies, comments and praise relating
to processes and prompt removal of errors; it enables us to avoid ambiguity and
indirectly to reduce the operating costs.
• Making appraisals and internal controls; in the already certified companies we
upgraded the quality system ISO 9001:1994 by implementing the requirements of
the new standard ISO 9001:2000 and successfully underwent an external appraisal
made by the SIQ. With internal controls and internal appraisals we tested if our
operations were adjusted to the requirements of the standards.
• Implementing corrective and preventive measures, on the basis of findings of
the before mentioned procedures, such as preventive actions to ensure food safety
and to appraise the performance in functioning of the quality system during management reviews which were carried out in all the Mercator Group companies
which had implemented the ISO 9001 standard.
• Training for quality standards; conditions on the market require continuous
improvement of services and of the quality of goods, therefore we train our employees for carrying out documented processes, educate them about the relevant
legislation and on the Mercator standards, the systems HACCP and DHP (good
hygiene practice).
• Information support to the quality system; which enables the linkage of all trade
companies of the Mercator Group with the collection of documents.
• ISO 9001 on the new markets; trade companies of the Mercator Group have
already obtained the certificate confirming their adjustment to the requirements of
the ISO 9001 standard so that the project was only carried out in the companies
on the new markets where we started the procedures for the beginning of certification.
• Qweb; we renovated the Mercator’s Web site and certified it according to the requirements of the standard Qweb, release 1.2, One star level with validity from 4
November 2003; we were the first in Slovenia to certificate the Web site.
• Business excellence; the Management Board of the company Poslovni sistem
Mercator, d.d., approved the introduction of the project Business Excellence in the
Parent Company aimed at preparing a self-evaluating role of the company (determine the priorities and opportunities for improvement of organisation and carry
out corrective measures) to obtain the 2005 Business Excellence Award conferred
by the Republic of Slovenia.
• Management of documents and records; it means keeping, updating and revising the collection of Mercator standards in accordance with legislation, standards
and improvements which provide to the users immediate information for co-ordinated operation; the collection is available on Mercator’s intranet pages.
045
Employees
Overview of Employees
in the Companies of the Mercator Group
No. of employees
based on hours
worked in 2003
No. of
employees as at
31 Dec. 2003
No. of
employees as at
31 Dec. 2002
5,167
5,837
4,393
Emona Merkur, d.d.
1
-
1
Æana, d.d.
2
-
116
1,426
1,424
1,618
Æivila Kranj, d.d.
354
1,492
-
923
861
1,046
Company
1,070
1,091
1,107
255
13
988
700
730
773
1,151
1,281
1,252
247
261
254
1
1
-
340
357
383
-
-
272
561
593
581
4
4
4
Total trade
12,201
13,945
12,788
MDK, d.d.
264
-
651
1
-
1
Eta, d.d.
304
311
308
229
232
217
Trgoavto, d.d.
MDK - H, d.o.o.
Belpana, d.o.o.
-
-
-
104
106
95
Mercator - KÆK Kmetijstvo Kranj, d.o.o.
87
-
192
M Hotel, d.o.o.
45
49
48
29
30
31
Total non-trade
Total Mercator Group
046
Annual Report 2003
1,062
728
1,543
13,263
14,673
14,331
With regard to members of the staff of the Mercator Group the year 2003 was
marked by redeployment of staff from the companies Æana, d.d., and Mercator
- Degro, d.d., to the company Poslovni sistem Mercator, d.d.; by the setting up of a
technical chain within the parent company and disposal of stakes in the companies
Trgoavto, d.d., Mesnine deæele Kranjske, d.d., and Mercator - KÆK Kmetijstvo
Kranj, d.o.o., and integration of the company Æivila Kranj, d.d., into the Mercator
Group.
At the end of 2003 the Mercator Group had 14,673 employees of whom 5,837
in the company Poslovni sistem Mercator, d.d. Compared with the 2002 figure,
the number of employees in the Group increased by 2.4 %. The highest increase
was recorded in the trade segment (9 %) due to the integration of the company
Æivila Kranj, d.d., into the Group. In non-trade segment the number of employees
decreased (by 52.8 %) on account of disposal of the companies Mesnine deæele
Kranjske, d.d., and Mercator - KÆK, Kmetijstvo Kranj, d.o.o.
In 2003 the Mercator Group had 2,584 newly employed, 2,242 employees left and
1,425 employees fluctuated within the Mercator Group. In 2004 we expect further
growth in the number of employees in the Mercator Group, mainly due to expansion of retail network on the new markets.
Demographic and Educational Structure of Employees
The average age of employees in the Mercator Group is 38.9 years. At the end of
2003 the educational structure of the Mercator Group was as follows: the first group
(“I. - III.” primary school level) comprised 1,945 employees or 13.3 % of total employees, the second group (“ IV. and V.” secondary school level) comprised 11,921
employees or 81.2 % of total and the third group (“VI. or over” higher education and
university degrees) comprised 807 employees or 5.5 % of total employees. The average education level (measured with: 1 - I. primary education level, 8 - VIII. University degrees) of employees in the Mercator Group was 4.09 on 31 December 2003.
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Structure of employees by education group
in the Mercator Group on 31 December 2003
Absenteeism
Motivation of Employees
In the Mercator Group the total hours of sick leave in 2003 were 1,706,521 of which
858,651 were charged to the companies and 847,870 hours to the Health Insurance
Institute of Slovenia. The absenteeism rate in the Mercator Group was 5.75 %.
In addition to meeting ordinary commitments to the employees we pursue our
strategic goals by providing for their personal and professional development; our
employees have the opportunity to attend various forms of training and education, which is reflected in the fact that in 2003 a total of 21,360 employees attended
the courses. In addition to functional training and education, we monitored the
progress of 194 trainees, 305 employees attended external study programmes, we
awarded scholarships to 51 high school and university students, monitored 85 trainees in our retail and production units and enabled 966 high school and university
students and holders of our scholarship work practice.
In line with our human resource management strategy we continued to hold annual interviews for Mercator employees in 2003, which contribute to improving
mutual relations and communications between managers and their subordinates, to
identifying personal goals and understanding the work of individuals and help in
discovering hidden, unutilised capabilities of employees.
For the third consecutive year in 2003 the Mercator Group paid for its employees in
Slovenia the premiums of supplemental additional collective pension insurance,
which is carried out by the insurance company Pokojninska druæba A, d.d., thus
improving the employees’ long-term social security.
047
Survey of Employee Satisfaction
For the fourth consecutive time we ordered a survey of employee satisfaction,
which was carried out in April and May of 2003 by the Centre for Public Opinion
Pooling at the Faculty of Social Sciences in Ljubljana. Compared with the year
before the results were better, employees demonstrated an increased trust in top
management; they were more satisfied with directors’ management style, nature and
conditions of work, with information disclosure and communications.
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Average scores by section in measuring employee satisfaction
Minimal score: 1.00; Maximal score: 5.00
048
Annual Report 2003
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Survey of Industrial Relations Climate
In November 2003 the largest trade companies of the Mercator Group participated
for the third time in the industrial relations climate research (SiOK) carried out by
the Chamber of Commerce and Industry of Slovenia. The survey results showed a
very favourable climate in Mercator. Compared with the other Slovenian companies
we exceeded the average scores or were high above the average score reached by the
participating retailers.
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Average scores by section in measuring industrial relations climate in 2002 and 2003
Minimal score: 1.00; Maximal score: 5.00
049
Ownership Structure and the Company’s Shares
Ownership Structure of Poslovni sistem Mercator, d.d.,
as at 31 December 2003
In 2003 the number of shareholders of the company Poslovni sistem Mercator, d.d.,
decreased by 12 so that on 31 December 2003 the Company’s register had 20,919
shareholders recorded.
Slovenian
Compensation Fund
13.57 %
Individuals
29.27 %
Capital Fund
16.50 %
Investment
Funds
18.21 %
Other
legal entities
22.45 %
Shareholders of the company Poslovni sistem Mercator, d.d.
Members of the
Management Board
Number
of shares
Participation in
total capital
Zoran JankoviÊ
Aleπ »erin
Jadranka DakiË
Marjan Sedej
Stanislav Brodnjak
Total
47,013
6,000
5,700
5,950
3,070
67,733
1.465 %
0.187 %
0.178 %
0.185 %
0.096 %
2.111 %
Members of the
Supervisory Board
Number
of shares
Participation in
total capital
30
75
2,000
142
500
20
2,767
0.000 %
0.001 %
0.002 %
0.062 %
0.004 %
0.000 %
0.000 %
0.016 %
0.001 %
0.000 %
0.086 %
Janez BohoriË
Ksenija BraËiË
Joæe Cvetek
Dragica Derganc
Matjaæ Gantar
Vladimir JanËiË
Morena KocjanËiË
Marjan Somrak
Branko TomaæiË
Total
At the end of 2003 the participation of foreign investors in the capital of the company Poslovni sistem Mercator, d.d., was 3.71 %, which was 1.26 percentage points
over the end of 2002 figure.
Major Shareholders
Shareholder Information
As at 31 December 2003, 10 major shareholders held a total of over 55 % of the
Company’s shares:
• Kapitalska druæba pokojninskega in invalidskega zavarovanja, d.d. (Capital Fund)
(16.50 %);
• Slovenska odπkodninska druæba, d.d. (Slovenian Compensation Fund) (13.57 %)
• KD Group, FinanËna druæba, d.d. (11.60 %);
• Zavarovalnica Triglav, d.d. (2.64 %);
• Sava, d.d. (2.00 %);
• Triglav, steber I, posebna investicijska druæba, d.d. (2.53 %);
• NFD 1 Investicijski sklad, d.d. (2.44 %);
• Zoran JankoviÊ (1.47 %);
• Krona Senior, posebna investicijska druæba, d.d. (1.21 %);
• Bank Austria Aktiengesellschaft, Vienna (1.12 %).
The Company’s share capital is divided into 3,208,504 ordinary registered shares,
trading on the official market of the Ljubljana Stock Exchange Inc., Ljubljana, with
the nominal value of SIT 10,000 per share. From 22 December 1997, when the
shares were first listed on the Ljubljana Stock Exchange, to 31 December 2003, their
value grew by 660.1 %.
050
Annual Report 2003
Shares of the parent company are listed on the official market of the Ljubljana Stock
Exchange under the trading code MELR.
In accordance with the Securities Market Act provisions and the Ljubljana Stock
Exchange Rules, the Company regularly informed the public of its business results
and other important events.
31 Dec 2003
31 Dec 2002
Index 2003 / 2002
3,208,504
3,208,504
100.0
104,794,858
78,770,762
133.0
Market value per share (in SIT thousand)
32,662
24,551
133.0
Book value per share (in SIT thousand)*
27,122
24,872
109.0
Annual low (in SIT)
22,812
16,183
141.0
Annual high (in SIT)
33,147
27,166
122.0
Weighted average market price, excluding block and cross trades (in SIT)
32,648
22,254
146.7
Earnings per share (in SIT)
2,875
2,169
132.5
Price/earnings ratio (P/E)
11.36
11.32
100.4
Capital yield (in %)
33.34
51.55
64.7
1.84
2.47
74.5
35.18
54.02
65.1
Number of ordinary shares
Market capitalisation (in SIT thousand)
Dividend yield (in %)
Total yield (in %)
*Calculated by using capital of the parent company according to Slovenian accounting standards.
Movements in the Market Price of Shares
Shareholder Satisfaction
A comparison of movements in the average daily price of MELR in 2003 and the
SBI 20 index is shown in the following graph:
In 2003 we carried out, in co-operation with the Faculty of Social Sciences - Institute
of Social Sciences: Centre for Public Opinion Pooling and Mass Communications,
our third survey of shareholder satisfaction. The survey is conducted in accordance
with the ISO 9001 standard and its primary goal is to monitor shareholders satisfaction over a longer time period. The results showed that Mercator’s shareholders were
still satisfied with their Company.
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To enable comparison the trend of the SBI 20 index has been adjusted so that the ratio of the price of
MELR and SBI 20 is 7.38 during the whole period under review as it was on 1 January 2003.
Dividend Policy
In 2003 the Company pursued the adopted dividend policy, which had been determined on the basis of shareholders’ expectations, capital structure of the Company,
investment opportunities and aspects of taxation. At the 9th Annual General Meeting, held on 20 May 2003, shareholders resolved to allocate part of the distributable
net profit for 2000, amounting to SIT 1,443,826,800 to payment of dividends in
the gross amount of SIT 450 per ordinary share. In 2003 gross dividend value was
higher than in 2002 by SIT 50 in nominal terms.
The Company will pursue the set dividend policy also in the future. The Management and the Supervisory Board propose to the General Meeting of Shareholders
that a gross dividend of SIT 500 per share be paid in 2004.
051
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Ranking of shareholder satisfaction criteria by degree of satisfaction
052
Annual Report 2003
Communication with Stakeholders
At Mercator we are aware of the importance of communication and of establishing
relations with various publics, especially with
Customers
Employees
Shareholders and financial community
Business partners
Environment
The media
To achieve the best possible result in conveying Mercator’s mission and vision and to
increase the satisfaction of each and every group of stakeholders we adjust the forms
of communication to each public separately.
That the top management is well aware of the importance of communication is
evidenced by the Primus Award, which the Slovenian Public Relations Association
together with the Chamber of Commerce and Industry of Slovenia, The Managers’
Association of Slovenia and The Management Consulting Association presented to
the President of the Management Board of Poslovni sistem Mercator, d.d., Zoran
JankoviÊ in 2003.
Because customers are very important for Mercator and our driving force is making
people, who come in contact with Mercator satisfied, we wish to keep in contact
with them in various ways.
The Month Magazine is one of our ways of communication with customers and has
been published for the fifth consecutive year. Its intention is to inform and advise
customers about healthy food, the new products launched on the market and to raise
people’s awareness of the importance of quality in life. The Month Magazine follows
the lifestyles of people and gives useful advice and information about our product
range and about the events and interesting facts in our stores. Topics are adjusted
to target customer groups and to the seasons. In 2003 the magazine was updated
and enriched with current information about the products on offer; with columns
relating to product launches and interesting advice, events and other products on
offer in Mercator stores; the magazine also contains articles about projects which are
being prepared, brief news on what is happening in Mercator and information about
novelties relating to Pika card.
response of the customers therefore we shall continue with them also in 2004.
By the end of 2003, 480,000 Slovenian households received the Month Magazine
four times, while the December issue was also received by Croatian customers who
received it for the first time. In 2004 four issues of the magazine will be published
in Slovenia and Croatia.
We regularly communicate with our customers also through praise, complains
and comments, which we receive via various media − letters, electronic and telephone messages, and reading complaints and praise books, which are available in
all Mercator stores − and to which we promptly and regularly respond.
Communication with Employees
At Mercator we are aware that internal communication contributes to establishing
the Company’s reputation among the employees, to their loyalty, to conveying corporate strategy to the employees and satisfying their needs and wishes.
In the field of communication with employees the beginning of 2003 was marked
by the CEO’s open day for all the employees of the Mercator Group. Every first
Tuesday of a month all Mercator’s employees get the opportunity to talk to the
President of the Management Board and CEO of Poslovni sistem Mercator, d.d.,
Zoran JankoviÊ; they can tell him about their problems, wishes as well as proposals
and suggestions for improving work conditions. In this way the principle that each
employee is important for the Company is being adhered to.
In 2003 we continued to communicate with our employees through the popular
internal newsletter Mercator, which has a circulation of eighteen thousand copies
and is being sent to Mercator’s employees, retired employees and students. Last year
the newsletter Mercator celebrated its 40th anniversary. Its content is dictated by
current internal and external economic, political and other circumstances in which
the Company operates and its mission is to inform the employees about important
events and decisions, which regard them as well. In addition to nine issues of the
Mercator newsletter in 2003 we published a special issue entitled “Quality in Mercator” which was prepared in Slovenian and Croatian editions.
With a similar purpose, to foster an interest in Mercator’s common values and corporate culture among the employees we organised the 25th annual gathering of all
Mercator’s employees - Mercatoriada; it is a special day for the employees when
they and their family members are invited to the gathering. In 2003 the gathering
was attended by ten thousand people from four countries. In December 2003 we
organised another meeting of all Mercator’s employees in Slovenia − Party of All
Parties, which was held before the New Year’s Eve and was attended by a record nine
thousand employees. Similar Season’s meetings were organised in all the markets in
which we operate.
The Month Magazine encourages shopping in Mercator by publishing discount
coupons, with which some products can be bought at more favourable prices. Each
issue of the magazine included 9 - 10 coupons. Coupons were met by a favourable
053
Communication with Shareholders
and Financial Community
Complete, timely, transparent and correct public information disclosure was our
principal guideline in disclosing information about our operation, business plans
and other price- sensitive information. We actively communicate with investors and
other financial community members, which means that we regularly inform them
about our business operations and other important events in accordance with legal
regulations and the Ljubljana Stock Exchange Rules.
We provided information to investors and other financial community members
mainly through the Ljubljana Stock Exchange electronic information dissemination system SEOnet where we regularly published current data on our financial
operations and other price-sensitive information, which provided the existing and
potential investors with important guidelines in their investment decisions. The
results for 2002 and semi-annual results for 2003 were published in the form of
marketing announcement in the newspapers Delo and Finance; in this way both
the general public and professional public were informed of our performance. This
was in line with our awareness that all the publics with which we maintain contact
matter to Mercator.
We organise regular meetings with financial analysts and funds’ representatives; for
them we prepare presentations and during the meetings we provide comprehensive
answers to the questions, which may arise from the provided material. In doing this
we strictly observe the key principle of correct information disclosure to all investors.
Important members of our financial community are banks with which we meet
several times a year to inform them about our business operations. We co-operate
closely with them since we use their sources to achieve our development goals. At
the year-end we organise a Meeting of Financial Partners of the Mercator Group,
which in 2003 was held for the fourth consecutive time. The purpose of the meetings, which are attended by banks, insurance companies and by representatives of
other financial institutions (Stock Exchange, Tax Administration), is to make a
presentation of our objectives for the future year and of the possibilities for future
mutual co-operation.
In 2003 we completely renovated our Web site, which includes information intended for our shareholders and the remaining financial community, so that they can
find all important information on the operations of the Mercator Group in one go.
However, the Annual Report remains one of the significant sources of communication with shareholders and the remaining financial community. The Annual
Report comprises a company profile and a collection of other information in one
place. Since 1999 we have been preparing an English edition, which is different
from the Slovenian report as it includes financial information prepared according to
the International Accounting Standards, which is of special importance for foreign
investors.
054
Annual Report 2003
Communication with Business Partners
One of Mercator’s key strategic goals is to strengthen the relations with business
partners, producers and suppliers. This is proved by the traditional Mercator’s
Marketing Days, which are dedicated to the presentation of strategic objectives of
the Mercator Group, of its development plans and marketing strategy to business
partners.
In 2003 Mercator’s Marketing Days were held for the fourth consecutive year. During the event we presented our internationalisation strategy and new developments
in our business co-operation with suppliers. Representatives of chambers of commerce from Slovenia, Croatia, Bosnia and Herzegovina and Serbia and Montenegro
attended the meetings as participating guests. We emphasised the importance of
mutual trust and partnership between Mercator and producers from the markets in
which we operate. In future Mercator will continue to give them priority on its sales
counters, while maintaining equal quality and competitive prices, and enhance its
offer only with the world most renowned brand names.
In presenting trade business co-operation we emphasised the organisational and
market changes in relation with suppliers which should be based on good partnership relations between Mercator and suppliers to enable successful joint activity on
the new markets. We underlined our expectations that suppliers would maintain
their relationship with Mercator as buyer on the premise that Mercator is a reliable,
good and correct partner and their largest trade partner on the Slovenian market,
whose growth on the new markets presents a common development opportunity for
both parties. We are convinced that close relationship with suppliers and producers can enable us to offer to our customers products and services of high quality at
favourable price.
Communication with the Environment
Mercator’s marketing communication fully reflects the Company’s business policy: to be the market leader by providing the best shopping experience - shopping
which is not just an indispensable household chore but a pleasant activity which falls
in the category of quality spending of leisure time. To this is also adjusted Mercator’s
communication strategy. All our communication related activities in Slovenia and
in other markets in which Mercator operates are co-ordinated. All our brand names
have their own communication support but with a clear reference to the corporate
brand name.
In applying our business strategy in 2003 we gave priority to people’s wellbeing
and expanded the existing dimensions of the corporate brand name Mercator also
in terms of sponsorships. We wish to help whenever quality of life is concerned. To
give back to the environment is a significant part of Mercator’s strategy; we pursue
values such as freedom, quality of life and progress. We continued with the principal humanitarian campaign, which has become a tradition. This year we named it
“Open Your Eyes” and dedicated it to the Oncology Institute of Ljubljana, which is
the principal institute for treating cancer in Slovenia. By purchasing an important
device, Varian GammaMed Plus, valued at SIT 84 million we wished to enable the
successful continuation of treatment of some types of cancer for all inhabitants of
Slovenia who require this type of treatment.
Mercator exercises its social responsibility in all the markets in which it operates.
Therefore the principal humanitarian campaign Open Your Eyes was extended to
Croatia where we donated to the Lung Disease Clinic in Jordanovac a video bronchoscope in the value of HRK 500,000. Upon the opening of the Mercator Centre
in Tuzla the campaign will be extended to the market of Bosnia and Herzegovina.
Shopping in Mercator stores is an experience and a pleasant event, and with this the
store becomes a place where customers give their contributions to charity. In the
autumn of 2003 we invited our customers, in co-operation with the supplier Pejo
trading, d.o.o. to participate in the charitable campaign We Were All Children
Once. The purpose of the campaign was to collect funds for giving a one week of
care-free and happy holidays to two hundred children from Slovenia, organised by
the Friends of Youth Association of Slovenia, whose principal activity is to ensure
that children and youngsters spend quality leisure time. All three organisers wish to
join forces in more effectively achieving the set goal. The campaign will be continued in the year 2004.
Public Relations
Public relations are an important part of the whole communication mix as through
them Mercator communicates with various publics. During the year we convened
several press conferences, prepared press releases and materials for journalists and
we published announcements of important business events in the daily media. We
promptly reacted to questions from the media and to invitations for interviews.
At Mercator we are aware of the problems the Slovenian health institutions are facing, therefore for a number of years we have endeavoured to help, with a donations
strategy, in the fields where help is most needed and we donate medical devices and
accessories from which the greatest possible number of patients can benefit. In 2003
we helped the Paediatric Clinic in Ljubljana and donated a Lumpi van, since the
Clinic had difficulties in providing a safe and timely transport of young patients for
medical check-ups.
As sponsor Mercator is actively involved in meeting the needs of the general social
environment. In 2003 sponsorships and donations were earmarked for the development of sports, culture, education and projects related to protection of environment. Culture, sports and entertainment - be it events or shows - become pleasant
experiences, widen horizons and improve the quality of life. Success and recognition
achieved in culture, sports and entertainment lead to the strengthening of personality, recognition and reputation of sponsors and donators and of Slovenia.
Foundation Use Your Head at the Party, which carries out educational and preventive campaigns during events attended by the young and families with children;
these events are associated with drinking alcohol and driving; the Mercator Centres
throughout Slovenia participated in the Foundation’s campaigns in 2003 by drawing attention to the importance and the content of the slogan. In 2003 we again
supported the project Golden Graduates, where we presented gifts to the best
graduates in Slovenia. With this we supported and encouraged education among
the young. As sponsors we participated in the project Green Backpack, in which
over 1500 children from kindergartens in Ljubljana and its suburbs took part. The
principal topic of the event was separate collection of waste material. Mercator supported the project in line with its environment protection policy.
Mercator is known as a long-standing sponsor of the gold season-ticket performances in Cankarjev Dom, in 2003 it was the golden sponsor of the 6th European Men’s Handball Championship. As general sponsor Mercator supported the
Ljubljana Maraton, since the event could be fully incorporated in its corporate
mission − foster the idea of healthy lifestyle and healthy eating. As sponsor Mercator
co-operated with the popular sportsman Iztok »op, who advertised a new Mercator
Private Label line Healthy Life.
055
Samo President of the Management Board Mercator SVS, 11 years in Mercator
Mensud Director of the Company Mercator - BH, 4 years in Mercator
Special moments
056
Annual Report 2003
Financial Operations
At the end of 2003 the Mercator Group achieved a 1 : 1.34 ratio between owners’
equity, stated as owners’ equity plus long-term provisions according to International
Financial Reporting Standards, and debt capital, stated as non-current and current
borrowings. In 2003 the Mercator Group continued to successfully pursue the target capital structure of 1 : 1.5 ratio between the owners’ equity and debt capital. This
target ratio would ensure the Mercator Group appropriately low average weighted
cost of capital at moderate financial risks.
At the year end we were briefly at variance with the at least 90 % coverage of noncurrent liabilities with non-current assets since a 81.5 % coverage was reached. The
reason for the lower coverage was a temporary increase in current bridge loans on
account of various activities undertaken at the end of 2003 − due to the need for
financing the takeover of the company Æivila Kranj, d.d., and to the fact that with
the company we took over their borrowings, which were mainly current loans. An
additional reason for temporarily higher current borrowings was our intention to
issue bonds on the Slovenian capital market at the end of 2003, which we did not
carry out due to unfavourable price conditions, and we did not succeed in replacing
the current bridge borrowings by the end of the year. This was not particularly important as current borrowings were at that time better priced than non-current.
Due to the increased volume of business and further implementation of our investment plan relating to the expansion and updating of our retail network in Slovenia
and on the new markets in 2003, borrowings grew in 2003 by 14.7 % (SIT 13,522
million) and reached SIT 105,384 million at the year end.
In 2003 we continued to use long-term financial lease, which offered acceptable
interest rates and long maturity periods and gave us the opportunity to diversify
our financial sources. In addition to the existing Mercator Centres in Jesenice and
Kranj, we used financial lease in building the shopping centre in Celje. In future we
intend to increase the use of financial lease especially in Croatia due to our extensive
investments there. Increased use of these sources will not only improve the ratio
between the price and maturity but also the maturity structure of financial liabilities
and coverage of non-current liabilities with non-current assets.
In current borrowing we implemented the Euro commercial papers programme
again in 2003 as it represents an important element of diversification of financial
sources of the Mercator Group − by issuing short-term securities with maturity from
7 to 364 days on the international capital market. In February and March we issued
four new tranches of Euro commercial papers at favourable terms, which at the end
of 2003 amounted to EUR 6 million.
In the first quarter of 2004 the Mercator Group intends to speed up the replacement
of current bridge sources with bilateral current borrowing and increase the use of
financial lease in order to improve the maturity structure of financial liabilities and
coverage of non-current liabilities with non-current assets.
057
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and current financial liabilities
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The ratio between financial liabilities
in Tolars and foreign currency
058
Annual Report 2003
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Risk Management
The Mercator Group has been monitoring various types of risks for a number of
years with the aim of ensuring that its operations run smoothly and avoid any potential interruption or stoppage. We established that in general the implemented
process has favourably reduced the exposure of Mercator to various unforeseen
events and shocks, improved its competitive position, enabled a better control over
the costs, more precise projection of cash flows and profit, enabled a better credit
rating and improved the trust of shareholders, suppliers, customers and other parties
as well as being useful as a support in management decision making, all of which
combined reflects in Mercator’s market value.
Financial Risks
The Mercator Group pursued the adopted financial risk management policy, took
appropriate measures and carried out activities and maintained a low exposure to
individual financial risks. In 2003 the Group was exposed to the following financial
risks:
In 2003 we made an important step forward in risk management by setting up a
Risk Management Committee. Risk management has thus become formalised and
co-ordinated at the Group’s level with the aim to unify and improve its efficiency.
The Risk Management Committee has formed three subcommittees for managing
risks associated with individual fields of exposure:
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The subcommittees’ activities in 2003 further improved the risk management level
and in the long run will ensure low exposure to various types of risk and make
achievement of set strategic goals more reliable.
Significant progress was made in interest rate risk management. Despite the fact
that there were no significant changes with regard to the exposure (which, according
to internal assessment, remained moderate) we decided, due to record low interest
rates, uncertainty on the international financial markets, which prevailed during
most of 2003 and possibility of improving projections and reducing variability of
costs of financing, to hedge part of borrowing in foreign currency, linked to floating
reference interest rate Euribor. To make the hedging we concluded an interest rate
swap with which we effectively fixed the financing costs of part of the borrowing
linked to the floating interest rate. As at 31 December 2003 the hedged borrowings
amounted to SIT 17.5 billion, which made up 25.9 % of total borrowings linked to
the floating interest rate or 18 % of total financial liabilities.
059
The picture below shows the ratio between borrowings with floating and fixed interest rates in the Mercator Group as at 31 December 2003. It is clear that by hedging
part of borrowings the exposure to interest rate risk was reduced since the share of
borrowing with floating interest rates was lower than it would have been if we had
not made the hedging.:
By hedging the before said borrowings, exposure to interest rate in terms of internal
assessment reached a low level, one that is comparable to all the remaining types of
financial risk.
Exposure to credit risk, which arises mostly in the Mercator Group’s wholesale
activities and from non-trade activities (in retail sale this risk is negligible due to
prevailing prompt payments in cash or with payment cards), was also estimated to
be low in 2003 for the following reasons:
• We established that Mercator’s wholesale buyers were well dispersed, so that
exposure to individual buyers was eliminated, at the same time revenues from
wholesale and non-trade activities represented only a small share in total revenues
of the Group;
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• Exposure to individual wholesale buyers or business partners was limited and
regular monitoring of slow payers was being carried out;
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• We checked the credit rating of all potential new wholesale buyers;
• We had binding sales and payment terms (selling prices, quantity and financial
discounts) for individual categories of external buyers;
• With new and doubtful buyers we used various instruments to secure trade
receivables;
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• We introduced a collection procedure for trade receivables, which ensures that
the majority of trade receivables are settled;
• We limited open account payments on the new markets;
• We carried out prompt settlement of receivables and payables on bilateral and
multilateral basis, we reduced the share of unmatured and matured receivables due
from buyers and other business partners and with it the extent of credit risk.
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060
Annual Report 2003
Our assessment of risk exposure and of the effectiveness of implemented measures
was confirmed by a statistical research, which was carried out within the risk management process. On the basis of research, with which we monitored the volume
of doubtful receivables by individual month and analysed the dynamics of settled
receivables from 1999 onward, we established that with its existing measures and
activities the Mercator Group had appropriately and efficiently managed credit risk
and we considered that no additional measures or activities were necessary to reduce
and better manage credit risk.
In 2003 we improved the appraisal of exposure to currency risk by upgraded methodology and precisely selected management policy. Risk was appraised on the basis
of the Group and of individual companies and individual markets. Exposure to currency risk was assessed on the basis of planned cash flows of the Company in various
currencies and expected unfavourable changes of actual currency exchange rates.
We established that exposure to currency risk associated with operations of Slovenian
companies of the Mercator Group was low, especially on account of very predictable
and stable EUR / SIT exchange rate. A further reason was the forthcoming entry of
Slovenia into the European Union and the expected integration into the mechanism
of currency exchange rates ERM 2 at the end of 2004 and change over to Euro in
2007. Slightly higher exposure was detected in Croatian and Serb subsidiary companies, especially due to higher volatility of the exchange rate of Euro against the local
currencies. Despite this the exposure in terms of the Group is still very low so that
protection against the risk by use of hedging instruments was not carried out.
In 2003 we again assessed Mercator’s exposure to liquidity risk. Thie liquidity risk
could occur if at a given moment the Company did not have enough liquidity to
meet its current financial obligations to enable the ordinary course of business. The
Group’s exposure to liquidity risk was again considered as low for the following
reasons:
• A significant portion of retail sales revenues, accounting for over 70 % of total
operating revenues, was in the form of prompt cash payments, representing assured daily inflow. Similarly assured were bank inflows referring to settlement of
payables from credit card payments which represented a considerable share in total
payments as well;
• We can raise large cash amounts during a given day from granted revolving facilities or accounts opened with commercial banks;
• Liquidity reserves can be set up by suspension of early payments, which the Group
uses in relation with financial discounts prior to due date in the event of sudden
liquidity requirements. Additional reserves can be provided by the Euro commercial papers programme, which was prepared in 2001 and enables prompt reaction
to liquidity requirements. The market has been very interested in the securities so
far and we estimate that we shall be able to use this form of liquidity reserve also
in the future;
• Within the Treasury Department a cash management system is in place which
enables accurate decision making in managing liquidity;
• An additional step forward in managing liquidity are Mercator’s daily contacts
with major buyers. In this way we are promptly advised of the volume of inflows
originated by them and updates are made daily;
On the basis of the above reasons we consider that the existing scope and measures
used in liquidity risk management are adjusted to the low level of exposure and are
in line with the selected risk management policy.
Inflation risk is considered low in Slovenia where a steady downward trend has
been present for a longer period of time. In addition low inflation is one of key economic goals of Slovenia in the future years and a low inflation is a principal factor
of successful integration of Slovenia in the European Union and a precondition for
joining the European Monetary Union. A continuous tendency to lower inflation
will therefore be a certainty. The Mercator Group, in which inflation is felt through
changed prices set by suppliers, is capable, on account of its strong market position
and established practice in Slovenia, to transfer increased purchase prices to the selling prices.
Maintaining low inflation is one of Croatia’s key economic goals, which the national
bank has up to now been successfully pursuing, since it is also in line with the
country’s aim to join the European Union. In 2003 a very low inflation was reached
(-1.5 %), which was lower than the year before, when it was 2.3 %; based on various
macroeconomic estimations we assess this risk as low.
A similar result was obtained in Bosnia and Herzegovina, where inflation also was
lower than the year before. For the before mentioned reasons and considering the
fact that the Bosnian currency is fixed to EUR we consider that the inflation risk in
Bosnia and Herzegovina is low.
In Serbia and Montenegro the favourable trend of reforms and economic progress
continued in 2003, which reflected in slower price growth; therefore we predict a
slow-down of inflation; and considering the size of our Serb subsidiary company
compared with the whole Mercator Group, we consider that this risk is low as well.
We consider that our exposure to price risk is low since we do not have materially
significant investments in traded securities, and we use derivative financial instruments for hedging and not for trading purposes.
Business Risks
Business risks, which are associated with generation of revenues, cost control and
with maintaining the value of operating assets, were in 2003 assessed in terms of
potential negative effects on the movements in the market share and of sales, on
investments, purchase and on the achievement of relative price difference.
• In debt financing we co-operate with the majority of Slovenian banks and numerous foreign banks which reduces the liquidity risk associated with potential fall-out
of individual sources of finance;
• We regularly monitor changes in external environment which influence the liquidity requirements and take appropriate measures to ensure adequate liquidity.
061
Business risks were assessed in retail and wholesale:
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In respect of exposure to business risks in wholesale we shall pay special attention to:
• Risks associated with ensuring competitive prices, and
• Risks associated with ensuring competitive services.
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All risks were considered separately for the Slovenian market and for the new markets.
In respect of risks in retail sale we considered:
• Business risks associated with growth in market share and sales;
• Business risks associated with purchasing
• Business risks associated with generating price difference.
In wholesale we can be exposed to the risk of unsold goods and services (e.g.
franchise and distribution), which may be a result of (un)competitive prices,
(un)competitive services (sales and distribution) and (un)competitive offer (product
range) and their combination and arising risks associated with growth in sales or in
market share. In addition in wholesale we may be exposed to credit risks.
062
Annual Report 2003
In respect of exposure to business risks in retail sale we shall in future pay special
attention to:
• Risks associated with competitive marketing mix, especially risk arising from uncompetitive prices, sales promotion projects and risk associated with the arrival of
new competitors;
• Risk associated with the growth in the number of customers, especially risk associated with the quality of service and risk of unpredictable events;
• Investment risk, where we shall focus on risks associated with completed investments, and
• Risks associated with purchasing, where we shall regularly monitor and consider
the risks of selecting the local suppliers and risks associated with the influence of
multinational companies.
Operating Risks
In 2003 the Mercator Group considered its exposure to operating risks, which refer
to planning, implementing and monitoring operational processes and activities, in
the following areas of activity:
• Adherence to legal regulations and standards;
• Ensuring competent staff;
• Development and functioning of information infrastructure (HW in SW);
• Purchasing;
• Storage, distribution and retail sale;
• Production within trade companies;
• Providing insurance - accidents;
• Accounting and controlling;
• Measurements, analyses and improvements.
On the basis of analyses and assessment of exposure to individual types of risk we
shall in future focus on risks in the following areas:
• In respect of adherence to legal regulations we shall focus on risks associated with
the Mercator brand name, especially on the new markets, and on the risk associated with business confidentiality;
• In respect of ensuring competent staff we shall focus on unsuitable manpower
planning;
• In respect of development and functioning of information infrastructure we shall
regularly monitor irregularities in the functioning of software in the event of
changes;
• In respect of purchasing we shall focus on work overload in administration;
• In respect of production within trade companies we shall focus on managing the
risk associated with ensuring safe food.
Business Performance
Performance of the Mercator Group in 2003
In 2003 the Mercator Group continued with the rationalisation of business processes, which had been started several years ago, and is reflected in the performance
ratios presented in the next section. In 2003 we focussed on the following areas:
• Cost reduction: we merged the companies Emona Merkur, d.d., and Æana, d.d.,
with the parent company after having acquired their retail outlets and transferred
their activities to the parent company a year earlier and took over the retail and
wholesale activities of the company Mercator - Degro, d.d., and on 1 January 2004
of Mercator - Gorenjska, d.d., with which we succeeded in reducing the overhead
costs.
• Reorganisation of business operations: we set up a technical chain within the
parent company in June 2003, by transferring outlets selling technical products
from domestic trade companies to the parent company, thus ensuring greater
competitiveness on the market and reduce the number of office staff and reduce
the operating costs. We reorganised the business processes in the company Eta,
d.d., where we made a revaluation of inventories, introduced new packaging and
reduced the product range and prepared a new business strategy and vision for the
company.
• Consolidation of activity: we disposed of our holdings in the companies Trgoavto, d.d., Mesnine deæele Kranjske, d.d., Mercator - KZK Kmetijstvo Kranj, d.o.o.
on which we had decided in line with our strategic focussing on the retail sale of
food and on the basis of results of company valuation.
• Mergers and acquisitions: we acquired a majority interest in the company Æivila
Kranj, d.d., with the principal purpose to consolidate the market position, expand
the product range, increase competitiveness and extend Mercator’s offer in the
regions of Gorenjsko, Podravje and Prekmurje, where the number of stores of the
company Æivila Kranj, d.d., was the largest. Restructuring of the company Æivila
Kranj, d.d., began immediately after the successful takeover and had a strong
impact on its operation in 2003 due to adjustment to Mercator standards and
principles and accounting policies; this strongly affected the financial statements
for 2003 of Æivila Kranj, d.d., and those of the parent company and of the Mercator Group (impairment of the book value of assets of Æivila Kranj, d.d., additional
adjustments owing to revaluation of receivables and new investment evaluation
with a resulting impairment). Business functions of the company Æivila Kranj,
d.d., shall be integrated in Mercator’s existing organisation with the transfer of
retail activities scheduled for 1 July 2004.
• Application of uniform standards: in all Mercator companies we endeavour to
adhere to the same business standards. To this end some non-trade companies had
to adjust their business operation with the prescribed standards and clean up the
unprofitable programmes or abandon them and prepare new ones, which resulted
in write-offs and affected Mercator’s financial statements.
• Decrease in office staff: the share of office staff in total staff decreased in the past
from 9.5 % to 6.5 % in 2003 and will be further reduced in the future due to
transfer of activities to the parent company. As a result of integration of subsidiary
trade companies in Slovenia into the parent company the number of executive
personnel will also decrease, especially in the companies’ management boards.
• Management policy relating to working capital: in accordance with the accounting policy and internal control system we provide for regular valuation,
cleaning and managing of current assets.
The Mercator Group
In 2003 the Mercator Group generated SIT 331,502 million of net sales revenues,
these were 3.7 % over the 2002 revenues and reached 98.2 % of projections for
2003. Net sales revenues were lower than projections for 2003 on account of fallout of net sales revenues of the subsidiary companies Trgoavto, d.d., Mesnine deæele
Kranjske, d.d., and Mercator - KÆK Kmetijstvo Kranj, d.o.o., which were disposed
of in 2003. The fall-out of revenues was partly replaced by the integration of revenues of the company Æivila Kranj, d.d., in the last three months of operation.
The Mercator Group earned a net profit of SIT 9,125 million in 2003, which was
28.8 % over the year before. Of this the majority owner’s net profit amounted to
SIT 9,224 million, while the minority owners recorded a loss of SIT 99 million.
The majority owner’s net profit was lower than the profit recorded by the company
Poslovni sistem Mercator, d.d., mainly on account of elimination of intra-group
transactions.
• Concentration of distribution warehouses: in 2003 we had the opportunity to
sell a site on Poljanska street in Ljubljana (warehouse) as a result of concentration
of distribution warehouses with the final aim: to ensure supply from one central
warehouse (purchased land of about 20 ha); preparations for building are in place.
In 2003 storage facilities of the company Mercator-Degro, d.d., were disposed of
and the related activities transferred to the parent company.
063
Financial Ratios
Mercator Group
2003
2002
Profitability ratios
Return on equity
13.5 %
11.0 %
Return on sales
2.8 %
2.2 %
Dividend yield of share capital
7.7 %
7.7 %
Capital and long-term provisions to total liabilities
33.9 %
34.5 %
Financial liabilities to total liabilities
45.8 %
43.9 %
134.9 %
127.3 %
81.5 %
92.7 %
24,994
22,981
5,339
4,875
Financial structure ratios
Financial liabilities and financial lease / capital and long-term provisions
Long-term coverage of fixed assets
Operating efficiency and productivity ratios
Revenues per employee per work hour (in SIT thousand)
Added value per employee per work hour (in SIT thousand)
The profitability and productivity ratios have been calculated at average values of
balance sheet elements. Financial structure ratios, investment ratios and horizontal
financial structure ratios are calculated as at 31 December. Added value is calculated
as the sum of EBITDA plus staff costs.
Comments on Business Performance
Profitability ratios show that in 2003 the Mercator Group engaged its capital to
generate considerably higher net profit when compared with 2002, and its improved
it’s ROE by 22.7 % compared to 2002.
In 2003 the Mercator Group, in line with adopted strategic financial objectives and
in accordance with financial requirements wanted to reach the target structure of
90 % coverage. The reason for the lower coverage was a temporary increase in current bridge loans mainly due to the need for financing the takeover of the company
Æivila Kranj, d.d., which had mainly current loans. As a result the share of non-current financial debts in total financial debts decreased from 67.1 % at the end of 2002
to 52.6 %, at the end of 2003. Consequently the ratio of long-term coverage of fixed
assets decreased from 92.7 % at the end of 2002 to 81.5 % at the end of 2003.
Productivity, measured with net revenues per employee per work hour increased despite growing retail revenues in total revenues. Productivity growth was mostly a result of increased retail revenues generated in retail units with larger space - Mercator
Centres and supermarkets. Along with improved business performance, efficiency
and productivity, the added value per employee has grown also. Compared to 2002
it increased by over 9.5 %.
064
Annual Report 2003
Performance of the Companies
within Mercator Group
The next section highlights the performance of the Mercator Group companies in
2003.
Trade Companies
Druæba Mercator - SVS, d.d., performed successfully in 2003 in spite of strong
competition. During the year two new supermarkets were opened in Rogatec and
©entjur, a supermarket in Ruπe was renovated as were other seven retail units. The
Company’s investments were earmarked for purchase of real estate of the company
Æivila Kranj, d.d., in Pomurje. In 2004 the Company will invest in obtaining the
site development permit and enlargement of the trade centre Breg in Ptuj, purchase
of land in Maribor - Jug and Pesnica, seeking agreed planning consents and preparing planning documents for Mercator Centre Pobreæje in Maribor and additional
acquisition of real estate from the company Æivila Kranj, d.d. In January 2004 the
Company sold a chemist’s shop in Mercator Centre in Maribor to the company
Poslovni sistem Mercator, d.d., and in 2004 two further stores will be disposed of
within the technical chain of stores. In 2004 the Company plans to disinvest from a
retail unit in Hajdina near Ptuj and carry out part of its investment in a new business
centre on the same site, which is to be completed in 2005. The Company plans to
introduce central purchasing and centrally managed calculations.
Æivila Kranj, d.d.
Since 22 September 2003 the company Poslovni sistem Mercator, d.d., has been a
majority, 55.75 % owner of the company Æivila Kranj, d.d. After the completion of
public share offering the company Poslovni sistem Mercator, d.d., acquired a 89.03
% shareholding in Æivila Kranj, d.d., which rose to 98.41 % shareholding including
the company’s own treasury stock. The changed ownership structure and gradual
integration in the Mercator Group reflected strongly in the Company’s performance
in 2003, especially as a result of adjustments to operating in accordance with Mercator’s standards. In 2003 the Company transferred the activities of the Agrooprema
Division, stores with agro-programme, building material and technical products, to
the company Poslovni sistem Mercator, d.d. In March 2003 the Company opened
a new Mercator Centre in Kranj. In 2004 the Company will operate as part of the
Mercator Group. The Company’s development will be directed towards further adjustment to business standards and corporate culture of the Mercator Group and to
streamlining its operation.
In 2003 the company Mercator - Gorenjska, d.d., exceeded the projected business
results. The Company’s investment activities included the opening of a new store
in Gorenja vas and in 12 larger renewals of retail units. After the end of the year
the complete operation and staff of the Company were taken over by the company
Poslovni sistem Mercator, d.d. The Company retained the activity of letting and
operating real estate. By the end of 2004 the Company is scheduled to be integrated
into the parent company Poslovni sistem Mercator, d.d.
The company Mercator - Dolenjska, d.d., performed successfully in 2003 despite
fierce competition in the region of Dolenjska. The Company endeavoured to retain
its competitiveness by opening new and refurbishing existing retail units. In August
2003 a new Mercator Centre in Trebnje was opened. The Company intends to start
building two new trade centres in 2004 - in ©entjernej and Sevnica, while their
opening is scheduled for 2005. The Company will continue to reduce costs and
increase the sales volume.
In 2003 the company Mercator - Goriπka, d.d., achieved the projected business
results. In the second half of the year the retail units selling furniture and technical
products were transferred to the company Poslovni sistem Mercator, d.d., and the
Company focussed on the fast moving consumer goods programme. In 2003 the
Company acquired five units in Ilirska Bistrica and the rest of its investment activities included building of parking and replacement spaces in the shopping centre
©empeter and in the warehouse, purchase of storage space of commodity reserve
in ©empeter and AjdovπËina, purchase of the retail unit Ideja in Nova Gorica and
improvement of information support in the retail network. In addition the Company adjusted its product range to customers and organised its offer in the Mercator
Centre in Nova Gorica. In 2003 disinvestments were carried out in retail units of
Vipolæe, Srednje Lokave, Bilje and Æeleznina Kanal. In 2004 the Company’s development activities will be directed to adjusting the product range, on offer in the
units acquired in 2003, to Mercator’s standards, to organising the retail network in
the region of Vipavska, investing in the Mercator Centre in Nova Gorica, transferring the chemist’s shop Beautique to the chemist’s shop chain and finally abandoning of the apparel and technical programmes.
In March 2003 the company Mercator - Degro, d.d., transferred the complete
wholesale and retail sale activities to the parent company Poslovni sistem Mercator,
d.d., with the purpose to increase business efficiency and performance in the Coastal
region. Accordingly during 2003 all employees were redeployed in the parent company. The rest of the year the Company focussed on efficient management of the
remaining assets. The Company is to be fully integrated into the parent company
in 2004.
In 2003 the company Mercator - H, d.o.o. improved its performance especially by
reducing costs, efficiently organising retail activities and further strengthening its position on the Croatian market. It also endeavoured to create the required conditions
for improving its business performance. To achieve an adequate capital structure the
Company’s capital was increased by the company Poslovni sistem Mercator, d.d. In
December 2003 the Company opened two new trade centres, in Æupa DubrovaËka
and in Karlovac. In addition its investment activities were earmarked for sites appropriate for building new retail units and for carrying out a market research about
potential towns in Croatia, which will be continued in 2004. In February 2004 the
Company will open a new trade centre in MetkoviÊi and another four Mercator
Centres are to be opened in »akovec, –akovo, Zadar and Osijek.
065
The company Mercator - S, d.o.o., performed successfully in 2003 although it
was its first year of operation, and consolidated its position on the Serb market.
The Company’s research and development activities in 2003 were directed towards
searching for attractive sites in all major towns in Serbia and Montenegro; it purchased land in Novi Sad, Kragujevac and Zumun and land for a distribution centre
in Dobanovci near Belgrade. In 2003 the Company’s capital was increased by the
company Poslovni sistem Mercator, d.d., to achieve an adequate capital structure. In
2004 the Company will upgrade the existing activities to further strengthen its position on the market, especially by starting to expand its retail network to other towns
in Serbia and Montenegro. In the second half of 2004 the Company plans to open a
trade centre in Zemun and to start building two new Mercator Centres, in Novi Sad
and Kragujevac, with the openings scheduled for 2005. In 2004 the Company will
continue to acquire land on attractive sites as it intends to reach a 3 % market share
in Serbia and Montenegro by the end of 2005. By 29 February 2004 the company
Mercator - S, d.o.o., has to introduce, in all its sales outlets, fiscal cash registers to
enable inspection of tax payers’ liabilities by the state. Equipping sales outlets with
fiscal cash registers was carried out by the Information Technology Division of the
company Poslovni sistem Mercator, d.d., in co-operation with the local Company.
The company Mercator - TC Sarajevo, d.o.o.improved its performance in 2003 and
generated a net profit. The Company’s activities focused on analysing the market of
Bosnia and Herzegovina, especially on the potential sites for building retail units in
Alipaπino Polje and Dobrinia; it also analysed its competition and market potential
on the foreseen sites. In 2003 the Company’s capital was increased by the company
Poslovni sistem Mercator, d.d., to achieve an adequate capital structure. In 2004 the
Company will continue to reduce costs and increase the sales volume.
The company Mercator - BH, d.o.o. was established on 23 May 2003 to exploit the
customs and tax allowances related to investments in expansion of retail network in
Bosnia and Herzegovina. The Company was founded by Poslovni sistem Mercator,
d.d., which is its 100 % owner. In the second half of 2003 the company Poslovni
sistem Mercator, d.d., increased the Company’s capital. In 2004 the Company will
open two new retail units, Mercator Centre in Tuzla and a hypermarket in Alipaπino
Polje.
In 2003 the company Mercator - Modna hiπa, d.o.o. performed successfully and
continued with the project of restructuring the clothing chain within the Mercator
Group. The Company’s investments were directed to the opening and refurbishment of retail units in newly built Mercator Centres. During 2003 the Company
opened four new retail units of Modiana: in Trebnje, within BTC in Ljubljana, in
Levec and ©entjur near Celje; in addition two larger renewals were completed, in
Slovenska Bistrica and Sevnica. Modernisation and refitting of stores ensure the customers a quality offer of clothing articles of Slovenian and foreign manufacturers. In
2004 the Company plans to renovate and develop the corporate graphic image of its
own brand name and of other brands. In 2004 the setting up of EPOS systems in
the Company’s units will be completed and integrated in the information system of
the Company. Further development and the opening of new retail units are planed
066
Annual Report 2003
in line with the Mercator retail network strategy. In 2004 investments will also be
directed to the renewal of stores, which had been taken over within the clothing
chain project.
The company Intermercator, G.m.b.H. is in the process of liquidation, as after
Slovenia has joined the European Union it will lose all the advantages for which it
was founded.
Non-trade Companies
Eta, d.d.
The company Eta, d.d., performed successfully in 2003 and rapidly adjusted its
production and sales programmes to the competition which it will face upon the
entry of Slovenia into the European Union. It successfully introduced new packaging, size and form of products and revived the brand name Natureta and launched
new products to retain its share of the domestic market and increase its possibilities
for sales on new markets. In addition the Company provided for adequate supply
of required key raw materials for seasonal processing despite extremely unfavourable
weather conditions. It prepared the base for co-operation with a strategic partner,
obtained the “healthy heart” label for a group of 13 products, co-ordinated production between plants in Kamnik and Bohova, increased storage capacities and
renovated the factory’s shop. In 2004 the Company acquired a new buyer in Austria,
launched a new baked vegetables programme and promoted the sale of old-design
products. In 2004 the Company will complete the consolidation of its operation,
mainly with additional measures for achieving optimum differentiation of production and sales programmes and revival of the brand name; in this it will focus on
the most profit- making products, which have a stable, or improving position on
the market. By capitalising on funds invested over the last years and improving cost
effectiveness, with unavoidable staff reduction, increased sales on foreign markets,
especially in line with the Mercator retail network strategy, the Company will by
end of 2005 reach the European average values of sales revenues, added value per
employee and return on equity.
In 2003 the company Pekarna Grosuplje, d.d., perfomed successfully and approached its aim of becoming the best known bakery in Slovenia. During 2003 it
developed six new kinds of bread and pastry goods and two new products of the
fresh pastry programme, and contributed to the expansion of the range and selection of Mercator’s Lumpi Line and Healthy Life Line. The Company continues to
upgrade production processes to improve the quality and safety of products, reduce
costs and simplify production. In February 2004 the Company purchased land and
a commercial building in Grosuplje where it will build a modern plant for bulk
production of private label products, and complete the implementation of quality
standard ISO 9001: 2000 which was certified on 13 February 2004. The Company
will continue to pursue its strategic goals in 2004, build production facilities in
Croatia, adjust its operating processes to the changed business environment after
Slovenia’s entry into the European Union in order to ensure that its operating processes are of high quality and its business efficiency is further improved.
The activities of its subsidiary company Belpana, d.o.o. in Croatia include manufacturing of bread, fresh pastry and cakes, however in 2003 the Company did not carry
out production activities. Management and marketing activities were carried out in
Pekarna Grosuplje, d.d., because Belpana, d.o.o., did not yet employ appropriate
staff. In 2003 land was purchased in Croatia for building a bakery and the capital of
the subsidiary company was increased.
The company Mercator - Emba, d.d., performed successfully in 2003. The Company continued to penetrate the West-European market and developed a number of
promotional products for the company Mc Donald’s within established programmes,
and new instant cacao products for the requirements of the French market, new flavours of fruit fillings for the bakery industry and hot white chocolate powder for
the hotel and restaurant industry. In addition the Company introduced new, more
functional and attractive packaging for dry products of nature. In December 2003
the Company bought from the company M - Gorenjska, d.d., its brand name Kava,
in January 2004 it started to produce and market the brand name throughout Slovenia. In 2004 the Company’s main activities will be directed to strategic production
programmes with emphasis on increasing the share of their coffee on the Slovenian
market, on production of coffee in Sarajevo for the needs of the Mercator’s retail
network and other buyers on the new markets and on further consolidation of business co-operation with the multinational company Mc Donald’s and on penetration
on the new markets of Romania, Bulgaria and Italy.
M Hotel, d.o.o.
In 2003 the company M Hotel, d.o.o. performed successfully and increased its productivity. It disposed of the last building outside the hotel compound - the Gustelj
Inn. The Company endeavoured to achieve the best financial results applicable to
its hotel category, the highest work effectiveness and the highest number of hotel
bookings; this will be continued in the future years. In 2004 the Company plans
to further improve its operating effectiveness, financial strength and competitive
power, which are to contribute to the achievement of strategic objectives.
In 2003 the company Mercator - Optima, d.o.o. performed successfully and followed the world trends in engineering and organisation to ensure comprehensive
finalisation of projects, and searched for new solutions to problems related to
existing retail equipment, efficient use of energy and new technologies in designing buildings and furniture and fittings. In 2003 the Company finalised four big
projects: MC Trebnje, ©entjur near Celje, Karlovac and Æupa DubrovaËka. In the
same year its activity of selling and fitting air conditioners was transferred to the
company Poslovni sistem Mercator, d.d., where it is organised within the technical
chain of stores. A significant post year-end event was the completion and opening
of Mercator Centres in Celje, MetkoviÊi, Tuzla and Domæale, while the designing of
two new trade centres in Osijek and Zadar was approved. The Company’s main goal
remains to fully fulfil the obligations to its principal client, the Mercator Group of
companies in terms of quality, price and due dates.
067
©tefan Director of the Company Pekarna Grosuplje, 30 years in Mercator
Vera Director of Legal Affairs, 10 years in Mercator
In a pleasant environment
068
Annual Report 2003
Environmental Activities
In the trade segment of the Mercator Group we endeavoured to practice environmental protection in 2003 by being active in the field of waste management to
minimise the environmental impact of our activities and products; we acted in compliance with legislation governing environmental protection and with our business
policy. In line with our socially responsible attitude we met some demanding legal
requirements relating to environmental protection.
The basis of setting up an efficient system of waste and disposable packaging management was the entering into an agreement with the Company for the Management of Disposable Packaging; this meant that disposable packaging was managed
in full compliance with legislation. We began to prepare the Plan of Waste Management for a Four Year Period, which will be completed in the first half of 2004 and
will serve as basis for suitable waste management. We introduced free recovery of
disposable bulk and transport packaging materials for customers in nine towns in
Slovenia and a centralised disposable packaging management system, for which a
prior application for entry in the register of waste collectors had to be made with the
Environmental Agency of the Republic of Slovenia. By our own sorting disposable
packaging on the place of origin and hauling it to collection points we intend to
reduce the environmental impact on air, increase the portion of disposable packaging intended for recycling and reduce the quantities of municipal waste and its
environmental impact.
In 2003 all trade companies tried to ensure that their operations were environmentfriendly, ensuring efficient use of energy, raw materials and natural resources.
Mercator’s investment activities in the field of site planning and other interventions
in natural environment was in accordance with valid legislation in 2003, all requirements in the fields of environmental protection, health care, cultural heritage and
space planning were fully complied with.
Rubble and dug-out materials were deposited on registered disposal dumps and
recycling spaces. Because of development plan requirements the architectural style
of the new Trade Centre on Cigaletova street in Ljubljana is a copy of the former old
building, which had been demolished, the neighbourhood of the Mercator Centre
in Trebnje has been protected from noise pollution by a fence, and we supplied
banks at the new stores to enable strict adherence to the Rules on the Management
of Packaging and Disposable Packaging. In carrying out larger renewals we took care
that the facades of store buildings were painted in colours, which embellished the
environment in which we operate.
In selecting trade technology we gave priority to solutions ensuring efficient use of
energy and equipment made of materials, which are ecologically friendly and pose
no danger to health. In stores with more refrigerators and freezers waste water was
used for heating
Sanitary water and as supplemental energy source for in-store heating.
In preparing the range of programmes for our shopping centres we wish to provide
for the needs of local inhabitants, therefore in letting spaces we give priority to pharmacies or, if the location is not suitable to pharmacy activities, to partners offering
programmes of green pharmacy and medical accessories.
069
We made newly built shopping centres accessible to disabled people (parking spaces
for the disabled, larger checkout areas, shopping trolleys for the disabled) and ensured a pleasant atmosphere for all customers.
In 2003 non-trade companies of the Mercator Group carried out other forms of
environmental activity.
The company Mercator - Emba, d.d., whose mission − to produce products of the
highest quality, apply the principles of healthy and natural food and respect the environment − paid great attention to protection of natural and social environment in
order to minimise the impact of their activities to the working and general environment. As they are liable to legislation governing management of disposable packaging as communal waste, the company Mercator - Emba, d.d., concluded a co-operation agreement with the Company for the Management of Disposable Packaging
- SLOPAK d.o.o. They manage disposable packaging by sorting and transporting
various kinds of waste materials. To minimise the quantities of disposable packaging
they agreed with individual suppliers of various raw materials on using re-usable
packaging. In 2003 they prepared planning documents for the construction of water
purification plant; prepared planning documents and obtained a building permit for
parking spaces in accordance with legislation (rain water is removed by collectors of
oil). In updating and renovating technological procedures they selected equipment
with minimal impact on working and general environment (user-friendly equipment, low noise levels, efficient use of energy and raw materials); in selecting new
packaging materials they chose re-usable, environment-friendly materials, which
are easy to handle and therefore customer-friendly. The Company regularly follows
scientific research relating to healthy food. In respect of numerous doubts about
genetically altered food they decided that their products would not contain genetically altered substances.
The company Eta, d.d., made its contribution to environmental activities indirectly
by improving and modernising technological procedures. Investments in this equipment contributed to improve productivity and quality and indirectly to environmental protection since all new or improved technological procedures ensured more
efficient use of energy, water and waste material and minimised their environmental
impact.
At the company Pekarna Grosuplje, d.d., they are well aware that employees and
their wellbeing are important to the Company’s successful performance, therefore
they continually improve work conditions and endeavour to provide safe, healthy
and friendly work environment. Nature gives them the components for their activity
and in return they respect nature and are aware of their responsibility. The Company’s activities have a much smaller environmental impact, however, the Company
monitors and reduces it even further by using excess heat produced in cooling
systems for heating industrial waste water and cover 30 % of energy requirements,
they also use the heat of burnt gases from furnaces for heating industrial waste
water thus covering 80 % of required energy, they fit production plants with airconditioning systems and prevent emission of flour dust in the air. In modernising
technological procedures the Company selects the best available and energy efficient
equipment; by introducing state-of-the-art technology to cool products after baking
with vacuum technique they will reduce the costs of electricity used for cooling by
070
Annual Report 2003
25 %. They reduce energy consumption by using devices for controlling total consumption of electricity and of non-productive energy and a device for compensating
non-productive energy. With devices on furnaces they also improved the efficiency
of combustion and reduced emission of CO in the air. Pekarna Grosuplje, d.d., also
carries out sorting and disposal of waste: organic waste, paper, metal, waste oil and
other. With this they considerably reduced the costs of waste management.
The company M Hotel, d.o.o., which operates a hotel, carefully sorted waste in
2003, carried out separate collection of glass, organic waste and waste oils, while
for communal refuse they used an environment-friendly bank. The Company was
among the first in Slovenia to implement the HACCP rules in everyday practice.
In designing, planning and construction engineering the company Mercator - Optima, d.o.o., strictly adheres to international and national regulations on protection
and management of environment. In its activity the Company does not produce
special waste, however they collect waste paper for recycling. The Company’s development concept is based on efficient use of space and energy, modern technological,
environmental and design solutions and on the use of ecologically safe materials in
construction. The investor strictly follows these guidelines in building, while the
commendable role of the company Mercator - Optima, d.o.o., is transferred also to
other corporations. In accordance with the Construction Act and internal rules and
regulations of Mercator - Optima, d.o.o. in preparing the technical documents for all
planned buildings, the document Influence Area Determination has to be prepared.
In designing, all potential impacts on the ground, water, air, neighbouring buildings
and people’s health have to be assessed. They take into account foreseen permitted
levels of emission of substances or energy from the building into the environment
and their impact on the environment. The Company’s modern architecture enables
Mercator’s customers to park underneath the building with which the asphalted
parking areas around the building are reduced as is the emission of substances from
parking areas into the environment since they are situated under the building.
Post Year-End Events
In 2004 the Mercator Group continues to operate in line with the economic plan for
2004 which was adopted by the Supervisory Board of the company Poslovni sistem
Mercator, d.d., at its session held on 15 December 2003.
The beginning of 2004 was marked by the following significant events:
• In January
tria began;
2004 liquidation of the company Intermercator, G.m.b.h., Aus-
• On 22 January 2004 Mercator Centre in Celje was opened including a
cinema complex Kolosej;
• On 27
• On 4
February 2004 Trade Centre in MetkoviÊi in Croatia was opened;
March 2004 Mercator Centre in Kranj was opened;
• On 10 March
opened;
• On
2004 Mercator Centre in Tuzla, Bosnia and Herzegovina was
8 April Mercator Centre in Domæale was opened;
• A decision of the Competition Protection Office of the Republic of Slovenia was
received, relating to industry concentration represented by the merger of the companies Poslovni sistem Mercator, d.d., and Æivila Kranj, d.d., stating that it did not
oppose the merger but requesting that Poslovni sistem Mercator, d.d., complies
with certain additional terms to ensure adherence to competition regulations;
• Preparation to change over from the existing Slovenian accounting and reporting
standards to International Accounting Standards and in accordance with the expected amendments to the Commercial Companies Act.
071
Plans for 2004 and Future Development of the Mercator Group
In 2004 and in the years ahead the Mercator Group intends to continue with activities related to mergers and acquisitions within the Group in Slovenia, which in the
long run will reflect in improved performance and business efficiency ratios of the
whole Group. We expect a stable growth in productivity (sales per employee and
added value per employee) and improved cost-effectiveness.
• Increasing the satisfaction of employees, who are the key factor in ensuring successful performance;
In 2004 the Mercator Group will continue to pursue the following strategic goals:
• Increasing Mercator’s involvement in the local and general social environment.
• Ensuring customer satisfaction, mainly by recognising their needs, wishes and
expectations; adjust and develop new store formats and prepare an innovative
range of products and services to generate added value for customers and increase
their loyalty to the Company;
• Ensuring growth in sales and retaining the position of the leading and innovative retailer in Slovenia;
• Further development of retail network and increase in market shares on the new
markets (Croatia, Bosnia and Herzegovina, Serbia and Montenegro);
• Merger of companies Mercator - Degro, d.d., and Mercator - Gorenjska, d.d.,
with the parent company and preparations for a similar merger of the company
Æivila Kranj, d.d.;
• Successful adjustment of operational processes to the changed environment
created by the entry of Slovenia into the European Union;
• Setting up a hard discounts chain, additional restructuring of the Mercator
Clothing Chain and further development of Mercator Technical Chain;
• Ensuring the quality of Mercator’s operational processes on all the markets in
which we operate (compliance with ISO standards and their introduction in the
company Mercator - S, d.o.o.);
• Ensuring that trade companies of the Mercator Group offer safe food in accordance with requirements of the systems HACCP and DHP;
• Improving business efficiency by further reducing costs and taking advantage of
economies of scale;
• Carrying out activities related to efficient management of risks to which the
Mercator Group is exposed;
• Selecting a strategic partner for the non-food line;
072
Annual Report 2003
• Ensuring security of creditors’ investments and generate greater value for
shareholders;
Since the beginning of preparations for Slovenia’s entry into the European Union
we have recognised the need to be prepared in order to be able to compete with all
major European retailers, therefore we have co-ordinated operational processes in
our companies to this end for several years.
The Management Board of the company Poslovni sistem Mercator, d.d., is aware of
the significance and impact of responsible and efficient management for the Company’s performance and the resulting greater added value for the Company and the
whole Group. Recently the Ljubljana Stock Exchange Inc., Association of Members
of Supervisory Boards and the Managers’ Association of Slovenia have drawn up a
Corporate Governance Csode, which will disclose the Slovenian corporate governance systems to the general public and enable the previously neglected stakeholders
to better exercise their rights. The Code is a collection of guidelines, which can be
applied in commenting on the reasons for being at variance with stipulations. The
company Poslovni sistem Mercator, d.d., already complies with the majority of the
Code’s stipulations, some exceptions will be presented to the public by 30 September 2004 through the Ljubljana Stock Exchange electronic information dissemination system (SEOnet) and on the Company’s Web site.
Financial Report
Marko Director of Investments and Development, 6 years in Mercator
Peter Director of Retail FMCG, 6 years in Mercator
Toward victories
074
Annual Report 2003
Principal Accounting Policies
Basis of preparation
The consolidated financial statements are prepared in accordance with and comply
with International Financial Reporting Standards. The consolidated financial statements are prepared under the historical cost convention except as disclosed in the
accounting policies below. Unless otherwise stated the amounts in these financial
statements are expressed in millions of Slovenian tolars.
Group companies prepare their statutory financial statements in accordance with the
relevant local Regulations on Accounting and Reporting in their countries. These
financial statements are based on the statutory records, with adjustments and reclassifications recorded for the purpose of fair presentation in accordance with IFRS.
Consolidation
Subsidiary undertakings, which are those companies in which the Group, directly
or indirectly, has an interest of more than one half of the voting rights or otherwise
has power to exercise control over their operations, are consolidated. Subsidiaries are
consolidated from the date on which effective control is transferred to the Group
and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealised gains and losses on transactions between
Group companies have been eliminated. Where necessary, accounting policies of
subsidiaries have been changed to ensure consistency with the policies adopted by
the Group. Minority interest is separately disclosed.
Revenue recognition
Sales are recognised upon delivery of products and customer acceptance, if any, or
performance of services (mainly rental income and marketing support revenues), net
of sales taxes and discounts, and after eliminating sales within the Group. Revenue
from the sale of the goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer.
Other revenues earned by the Group are recognised on the following bases:
• Interest income − as it accrues unless collectability is in doubt in which case the
amount is written down to recoverable amounts and interest income is thereafter
recognised based on the rate of interest that was used to discount the future cash
flow.
• Dividend income − when the Group’s right to receive payment is established.
075
Investments in associated undertakings
Financial instruments
Investments in associated undertakings are accounted for by the equity method of
accounting. These are undertakings over which the Group has between 20 % and
50 % of voting rights, and over which the Group exercises significant influence, but
which it does not control.
The Group’s financial instruments include cash and cash equivalents, investments,
receivables, accounts payable and borrowings. Other than interest rate swaps Group
did not hold any other derivative financial instruments, hedges or available-for-sale
assets as at 31 December 2003.
Equity accounting involves recognising in the income statement the Group’s share
of the associates’ profit or loss for the year. The Group’s interest in the associate is
carried in the balance sheet at an amount that reflects its share of the net assets of the
associate and includes goodwill on acquisition.
Other than interest rate swaps, the Group does not hold any other derivative financial instruments, nor did it enter into any other hedging activities.
Foreign currencies
Goodwill represents the excess of the cost of an acquisition over the fair value of the
Group’s share of the net assets of the acquired enterprise at the date of acquisition,
and is amortised using the straight-line method over its estimated useful life, not
exceeding 5 years.
a) Measurement currency
Items included in the financial statements of each entity in the Group are
measured using the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity (“the measurement
currency”). The measurement currency of the Company is the Slovenian Tolar
(SIT). The consolidated financial statements are presented in millions of SIT,
unless otherwise stated.
b) Transactions and balances
Foreign currency transactions are translated into the measurement currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies
are recognised in the income statement.
Translation differences on debt securities and other monetary financial assets
measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are
reported as part of the fair value gain or loss. Translation differences on availablefor-sale equities are included in the revaluation reserve in equity.
c) Group companies
Income statements and cash flows of foreign entities are translated into the
Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange
differences arising from the translation of the net investment in foreign entities
and of borrowings are taken to shareholders’ equity. When a foreign entity is sold,
such exchange differences are recognised in the income statement as part of the
gain or loss on sale.
076
Annual Report 2003
Goodwill and negative goodwill
Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable amount.
Negative goodwill arises on acquisition when the fair values of the Group’s share of
the net assets of the acquired enterprise exceeds the consideration paid. Negative
goodwill arose from expectations of future losses and expenses that are identified in
the Group’s plan for each acquisition and can be measured reliably, but which do not
represent identifiable liabilities. It is recognised in the income statement when such
losses and expenses are incurred or using the straight-line method over its estimated
useful life, not exceeding 5 years. Negative goodwill is presented in the same balance
sheet classifications as goodwill.
Intangible assets
Expenditure on acquired patents, trademarks and licences is capitalised and amortised using the straight-line method over their useful lives, generally over 5 years.
The carrying amount of each intangible asset is reviewed annually.
Where an indication of impairment exists, the carrying amount of intangible assets
is assessed and written down immediately to its recoverable amount.
Investments
Where the carrying amount of an asset is greater than its estimated recoverable
amount it is written down to its recoverable amount.
The Group classifies its investments into the following categories: trading, originated, held-to-maturity and available-for-sale.
Investments that are acquired principally for the purpose of generating a profit from
short-term (less than one year) fluctuations in price are classified as trading, and
are included in current assets. These assets are carried at fair value, and realised and
unrealised gains and losses arising from changes in the fair value of trading assets are
included in the income statement in the period in which they arise.
Loans and receivables, originated by the enterprise by providing money, goods or
services to consumer credit organisations, and classified as originated investments.
These assets are measured at amortised cost.
Investments with fixed maturity that the management has the intent and ability to
hold to maturity are classified as held-to-maturity and are included in non-current
assets; during the period the Group did not hold any investments in this category.
Investments intended to be held for an indefinite period of time, which may be
sold in response to needs for liquidity or changes in interest rates, are classified as
available-for-sale; during the period the Group did not hold any investments in this
category.
Gains and losses on disposal of property, plant and equipment are determined by
reference to their carrying amounts and are taken into account in determining operating profit.
All borrowing costs are expensed as incurred.
Impairment of long lived assets
Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the amount
by which the carrying amount of the asset exceeds its recoverable amount, which is
the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately
identifiable cash flows.
Investment property
All property, plant and equipment are recorded at historical cost, less depreciation.
Investment property, principally comprising office buildings, is held for long-term
rental yields and is not occupied by the Group. Investment property is stated at
historical cost less depreciation and impairment losses. Depreciation is calculated
on the straight-line method to write off the cost of investment properties to their
residual values over estimated useful lives. Estimated useful lives of investment properties are the same as those of similar property, plant and equipment. Gains or losses
on disposal of investment property are determined by reference to their carrying
amounts and are taken into account in determining operating profit.
Depreciation is calculated on the straight line method so as to write off the cost of
each asset to their residual values over their estimated useful life as follows:
Inventories
Buildings
Office equipment
Plant and machinery
Plantations and livestock
Leasehold improvements
Inventories are stated at the lower of cost or net realisable value, using the first-in,
first-out (FIFO) method. The cost of finished goods and work in progress comprises
raw materials, direct labour, other direct costs and related production overheads, but
excludes interest expense. Net realisable value is the estimate of the selling price in
the ordinary course of business, less the costs of completion and selling expenses.
Management determines the appropriate classification of its investments at the time
of the purchase and re-evaluates such designation on a regular basis.
Property, plant and equipment
20 - 40 years
3 - 10 years
10 - 15 years
2 - 15 years
3 - 8 years
Land is not depreciated as it is deemed to have an indefinite life and construction in
progress is not depreciated until put into use.
077
Trade receivables
Trade receivables are carried at original invoice amount less provision made for
impairment of these receivables. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables.
The impairment policy is made on the following basis: Trade receivables are impaired in amount of:
• 50 %, if from due date expired 61 to 74 days,
• 75 %, if from due date expired 75 to 89 days,
• 100 %, if from due date expired over 90 days.
Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash
in hand, deposits held on call with banks, and investments in money market instruments, excluding bank overdrafts. In the balance sheet, bank overdrafts are included
in borrowings under current liabilities.
Cash and cash equivalents are carried in the balance sheet at cost.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and a reliable estimate of
the amount of the obligation can be made.
Deferred income taxes
Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying
amounts in the financial statements. Currently enacted tax rates are used to determine deferred income tax.
The principal temporary differences arose from: revaluations of certain non-current assets, provisions for retirement benefits and jubilee bonuses, tax losses carried
forward and certain other provisions recognised only for tax purposes, reflected
in the statutory financial statements of the Group and not in the IFRS financial
statements. Deferred tax assets relating to the carryforward of unused tax losses are
recognised to the extent that it is probable that future taxable profit will be available
against which the unused tax losses can be utilised.
078
Annual Report 2003
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries, associates and joint ventures, except where the timing of the reversal
of the temporary difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
Borrowings
Borrowings are recognised initially at the proceeds received, net of transaction costs
incurred. In subsequent periods, borrowings are stated at amortised cost using the
effective yield method; any difference between proceeds (net of transaction costs)
and the redemption value is recognised in the income statement over the period of
the borrowing.
Leases
Leases of property, plant and equipment where the Group has substantially all the
risks and rewards of ownership are classified as finance leases. Finance leases are
capitalised at the inception of the lease at the lower of the fair value of the leased
property or the present value of the minimum lease payments. Each lease payment
is allocated between the liability and finance charges so as to achieve a constant rate
on the finance balance outstanding. The corresponding rental obligations, net of
finance charges, are included in other long-term payables. The interest element of
finance cost is charged to the income statement over the lease period.
Property, plant and equipment acquired under finance leases is depreciated over the
shorter of the useful life of the asset or the lease term.
Share capital
Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares, other than in connection with a business combination, are shown as a deduction in equity from the proceeds. Any excess of the fair
value of consideration received over the par value of shares issued is recognised as a
share premium.
Treasury shares
Where the company or its subsidiaries purchases the company’s equity share capital,
the consideration paid including any attributable incremental external costs net of
income taxes is deducted from total shareholders’ equity as treasury shares until they
are cancelled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.
Dividends
Until formal approval is obtained in the annual general meeting, proposed dividends
are treated as retained earnings.
Segment reporting
Business segments provide products or services that are subject to risks and returns
that are different from those of other business segments. Geographical segments
provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in
other economic environments.
Comparatives
Where necessary, comparative figures have been adjusted to conform with changes
in presentation in the current year.
079
Audited Consolidated Financial Statements of the
Mercator Group in Accordance with
International Financial Reporting Standards
Consolidated Income Statement of the Mercator Group
for the Year Ended 31 December 2003
Year ended 31 December
(All amounts in millions of Slovenian tolars)
2003
2002
331,502
319,777
(239,660)
(234,255)
91,841
85,522
7,896
4,844
Selling and distribution costs
(64,458)
(60,967)
Administrative expenses
(17,776)
(14,576)
Operating profit
17,503
14,823
Net finance costs
(7,453)
(7,194)
44
121
10,094
7,750
Tax
(970)
(668)
Group profit before minority interest
9,125
7,082
99
(123)
Net profit
9,224
6,959
Earnings per share in tolars
2,875
2,169
Sales
Cost of sales
Gross profit
Other operating revenues
Share of result before tax of associated undertakings
Profit before tax
Minority interest
080
Annual Report 2003
Consolidated Balance Sheet of the Mercator Group as at 31 December 2003
31 December
2003
31 December
2003
2002
2002
Assets
Non-current assets
Investment property
Intangible assets
151,539
131,296
7,083
4,113
546
431
(4,004)
(774)
416
1,356
Other investments
1,461
999
Non-current receivables
1,894
731
Deferred tax assets
4,975
5,655
163,909
143,807
Current assets
Inventories
Financial investments
Trade and other receivables
Prepaid expenses
35,436
34,695
1,896
1,030
26,008
26,155
778
689
2,271
Total assets
3,053
66,389
65,622
230,299
209,429
Equity And Liabilities
Capital and reserves
Ordinary shares
32,085
32,085
Share premium
619
619
Treasury shares
Retained earnings
Fair value and other reserves
3
-
40,737
32,957
36
Minority interest
234
73,480
65,895
2,328
4,552
Non-current liabilities
Borrowings
Provisions for employee benefits
55,397
61,097
559
464
55,955
61,561
Current liabilities
Trade and other payables
Accruals
Borrowings
Obligations for liabilities and charges
44,896
43,763
1,892
1,644
49,987
30,765
1,761
1,249
98,536
77,421
Total liabilities
154,491
138,982
Total equity and liabilities
230,299
209,429
081
Consolidated Cash Flow Statement of the Mercator Group for the Year Ended 31 December 2003
2003
2002
19,488
19,823
794
786
(6,466)
(7,623)
(532)
(240)
13,284
12,746
(5,423)
(1,040)
(25,215)
(22,400)
Purchase of intangible assets
(386)
(212)
Movement on non-current investments
(172)
(197)
(1,487)
-
Loans made
(422)
(1,439)
Disposal of subsidiary, net of cash disposed
6,438
255
Proceeds from sale of property, plant and equipment
7,285
4,561
47
3,187
Proceeds from sale of intangible assets
247
1
Dividends received
137
85
Loan repayments received
575
589
(18,376)
(16,610)
(50)
(14)
56,711
50,748
(50,907)
(45,276)
(1,444)
(1,283)
Net cash used in financing activities
4,311
4,175
(Decrease) / increase in cash and cash equivalents
(781)
311
At beginning of year
3,053
2,724
Decrease / increase
(781)
311
(1)
18
2,271
3,053
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Purchase of current investments
Proceeds from sale of current investments
Net cash used in investing activities
Cash flows from financing activities
Purchase of treasury shares
Proceeds from borrowings
Repayments on borrowings
Dividends paid
Movement in cash and cash equivalents
Effects of exchange rate changes
At end of year
082
Annual Report 2003
Consolidated Statement of Changes in Shareholders’ Equity
Ordinary
shares
Share
premium
Treasury
shares
Retained
earnings
Fair value and
Other reserves
Total
32,085
618
-
27,281
-
59,984
Net profit
-
-
-
6,959
-
6,959
-
-
(14)
-
-
(14)
Sale of treasury shares
-
1
14
-
-
15
Dividend payments
-
-
-
(1,283)
-
(1,283)
Currency translation differences
-
-
-
-
234
234
Balance at 31 December 2002
32,085
619
-
32,957
234
65,895
Balance at 1 January 2003
32,085
619
-
32,957
234
65,895
Net profit
-
-
-
9,224
-
9,224
-
-
50
-
-
50
Sale of treasury shares
-
-
(47)
-
-
(47)
Dividend payments
-
-
-
(1,444)
-
(1,444)
Fair value gains on derivative financial instruments
-
-
-
-
142
142
-
-
-
-
(340)
(340)
32,085
619
3
40,737
36
73,480
Balance at 1 January 2002
Balance at 31 December 2003
According to Slovenian legislation only a portion of the retained earnings of the parent company are available for distribution at 31 December 2003. These amounted
to 5,062 million tolars, of which 1,604 million tolars (SIT 500 per share) will be
proposed to the General Meeting for distribution to its shareholders in 2004.
083
Notes to the Consolidated Financial Statements of the Mercator Group
The consolidated financial statements of the Mercator Group include the financial
statements of Poslovni sistem Mercator, d.d., the parent company, and the financial
statements of all subsidiary companies, in which the parent company directly or
indirectly, holds a majority shareholding.
Due to activities related to mergers and acquisitions and on account of consolidation within the Group, the following changes in the structure of the Mercator group
occurred in 2003:
• The subsidiary company Æivila Kranj, d.d., was acquired in 2003.
• In November Emona Merkur, d.d., was merged with Poslovni sistem Mercator,
d.d., and in December 2003 Æana, d.d., was merged with Poslovni sistem Mercator, d.d.
• In June 2003 the parent company Poslovni sistem Mercator, d.d., sold its majority
stake in the company Mercator KÆK Kmetijstvo, d.o.o.
• In July 2003 the parent company Poslovni sistem Mercator, d.d., sold its majority
stake in the companies Mesnine deæele Kranjske, d.d., and MDK-H, d.o.o.
• In January 2003 Trgoavto, d.d., was reclassified from subsidiary to associate for the
purpose of disposal.
• During the year 2003 the parent company Poslovni sistem Mercator, d.d., sold its
stake in associated companies Trgoavto, d.d., and Spar, d.o.o.
The financial statements of the Mercator group are prepared and fully comply with
International Financial Reporting Standards, but it has to be emphasised that the
only financial statements that are legally required in Slovenia are the financial statements of the parent company Poslovni sistem Mercator, d.d., prepared in accordance with Slovenian Accounting Standards.
In the notes all amounts are shown in millions of Slovenian tolars unless otherwise
stated.
Segment information
The Group is organised into two main business segments:
• Trade, which consist of retail and wholesale of fast moving consumer goods, apparel goods and technical goods. Fast moving consumer goods trade represent the
core business of the Mercator Group.
• Non-trade, which consists of food processing, agriculture and hospitality & other
services.
084
Annual Report 2003
Primary reporting format − business segments
• Domestic trade refers to sales in Slovenia.
• Trade in foreign markets refers to sales in all the other countries in which the Mercator Group has subsidiaries.
Year ended 31 December 2003
Revenues-external
Revenue from other segments
Segment revenues
Segment result
Trade
Domestic
Trade
Trade in
foreign Markets
Non-trade
320,903
277,745
43,158
1,149
1,114
35
322,052
278,859
15,591
14,833
Eliminations
Group
10,598
-
331,502
9,284
(10,433)
-
43,194
19,882
(10,433)
331,502
758
108
1,805
Finance cost (net)
17,503
(7,453)
Share of associates
44
Profit before tax
10,094
Tax
(970)
Group profit
9,125
Minority interest
99
Net profit
Segment assets
9,224
310,337
252,763
57,574
14,425
(99,854)
Associates
224,908
416
Unallocated assets
4,975
Total assets
230,299
Segment liabilities
168,988
140,194
28,794
5,519
(15,220)
159,287
Capital expenditure
27,100
15,803
11,297
1,429
-
28,529
Depreciation and amortisation
Negative goodwill amortisation
Year ended 31 December 2002
Revenues-external
Revenue from other segments
Segment revenues
Segment result
8,090
5,735
2,355
888
-
8,978
(3,013)
(3,013)
-
(133)
-
(3,146)
Trade
Domestic
Trade
Trade in
foreign Markets
Non-trade
Eliminations
Group
305,084
273,932
31,152
14,693
-
319,777
2,859
1,636
1,223
11,787
(14,646)
-
307,943
275,568
32,375
26,480
(14,646)
319,777
11,298
11,913
(615)
816
2,709
Finance cost (net)
14,823
(7,194)
Share of associates
121
Profit before tax
7,750
Tax
(668)
Group profit
7,082
Minority interest
(123)
Net profit
Segment assets
6,959
273,147
223,563
49,584
25,828
(96,557)
Associates
202,418
1,356
Unallocated assets
5,655
Total assets
209,429
Segment liabilities
162,467
122,481
39,986
11,440
(34,925)
138,982
Capital expenditure
22,801
8,846
13,955
1,690
-
24,491
8,053
6,366
1,687
1,093
-
9,146
(1,020)
(1,020)
-
(92)
-
(1,112)
(371)
-
(371)
-
-
(371)
Depreciation and amortisation
Negative goodwill amortisation
Impairment charge
085
Secondary reporting format - geographical segments
Although the Group’s business segments are managed centrally, they operate in two
main geographical areas:
• Slovenia is the home country of the parent company, which is also the main operating company. The areas of operation in Slovenia are: trade (retail and wholesale),
food processing, agriculture and hospitality & services.
• Former Yugoslav countries, which include Croatia, Bosnia-Herzegovina and Serbia. The area of operations in these countries is trade (retail).
Country
Sales
Total assets
Capital expenditure
2003
2002
2003
2002
2003
2002
290,359
291,220
261,238
249,187
17,231
10,337
Former Yugoslav countries
44,476
33,423
57,849
49,787
11,297
14,154
Inter-segment
(3,333)
(4,866)
(88,788)
(89,545)
-
-
331,502
319,777
230,299
209,429
28,529
24,491
Slovenia
Total
Operating profit
The following items have been charged or credited in arriving at operating profit:
2003
2002
8,632
8,657
(3,271)
(2,327)
3,739
3,327
- Goodwill (included in ‘Administrative expenses’)
100
274
- Other intangibles assets (included in ‘Administrative expenses’)
246
216
(3,146)
(1,112)
1,665
996
45,267
43,316
878
570
Depreciation on property, plant and equipment
Net gain on disposal of property, plant and equipment
(included in ‘Other operating revenues’)
Repair and maintenance expenditure
Amortisation of intangible assets
Amortisation of negative goodwill
(included in ‘Other operating revenues’)
Rent expense
Staff costs
Impairment loss on receivables
086
Annual Report 2003
Other operating revenues of 7,896 million tolars (2002: 4,844 million tolars) mostly
refer to amortisation of negative goodwill in amount of 3,146 million tolars and to
net gain on disposal of property, plant and equipment in amount of 3,271 million
tolars. This net gain appears mainly from the sale of location Poljanska, which was
an unique occurrence.
Staff costs
2003
2002
Wages and salaries
30,333
30,108
Social security costs
6,380
5,368
Other payroll costs - including accrued vacation pay
8,554
7,840
45,267
43,316
2003
2002
Interest income
794
786
Revenue from investments
176
209
Other financial revenues including gains
147
205
Finance income
1,117
1,199
Net foreign exchange transaction gains / (losses)
(463)
(513)
Interest expense
(6,466)
(7,623)
Realised and unrealised losses on financial investments
(1,641)
(256)
Finance costs
(8,108)
(7,880)
Net finance costs
(7,453)
(7,194)
The average number of persons employed by the Group during the year was 13,263
(2002: 13,915).
Finance costs (net)
Realised and unrealised losses on financial investments of 1,641 million tolars
(2002: 256 million tolars) refer to loss on disposal of subsidiaries and other realised
losses on financial investments in subsidiary companies.
087
Tax
2003
2002
Current tax
532
240
Deferred tax
438
427
970
668
2003
2002
Profit before tax
9,635
7,750
Expected tax calculated at the rate of 25 %
2,409
1,937
Expenses not deductible for tax purposes
1,180
1,041
(2,619)
(2,310)
970
668
2003
2002
9,224
6,959
3,208,504
3,208,504
2,875
2,169
The tax on the Group’s profit before tax differs from the theoretical amount that
would arise using the basic tax rate of the home country of the Group as follows:
Utilisation of tax relief
Tax charge
Earnings per share
Basic earnings per share are calculated by dividing the net profit attributable to
shareholders by the weighted average number of ordinary shares in issue during the
year, excluding the average number of ordinary shares purchased by the Company
and held as treasury shares. There are no dilutive ordinary shares.
Net profit attributable to shareholders (millions of tolars)
Number of ordinary shares in issue
Basic earnings per share (tolars)
088
Annual Report 2003
Land and
buildings
Plant and
machinery
Office
and other
equipment
Leasehold
improvements
Livestock and
plantation
Construction
in progress
Total
138,947
10,764
28,691
566
157
8,447
187,572
(307)
-
(32)
-
-
(37)
(377)
Acquisition of subsidiaries
19,735
-
7,374
-
-
225
27,335
Additions
19,277
2,816
1,077
-
-
1,688
24,857
(11,472)
(1,071)
(2,952)
-
(3)
(34)
(15,532)
(6,429)
(3,205)
(3,106)
-
(154)
(3,627)
(16,520)
159,750
9,305
31,052
566
-
6,662
207,335
33,861
4,330
17,652
419
14
-
56,276
16
-
11
-
-
-
27
Charge for the year
3,863
2,367
1,911
56
4
-
8,201
7,638
-
5,772
-
-
-
13,410
Disposal of subsidiaries
(6,281)
(627)
(2,239)
-
-
-
(9,146)
Disposals / transfers
(7,251)
(2,922)
(2,779)
-
(18)
-
(12,971)
As at 31 December 2003
31,846
3,148
20,327
475
-
-
55,796
2003 Net book value
127,905
6,157
10,724
91
-
6,662
151,539
2002 Net book value
105,086
6,435
11,039
147
143
8,447
131,296
Cost
At 31 December 2002
Exchange differences
Disposals / transfers
As at 31 December 2003
Accumulated depreciation
At 31 December 2002
Bank borrowings are secured by land and buildings with carrying value of 2,586
million tolars at 31 December 2003 (4,410 million tolars at 31 December 2002).
089
Investment property
2003
2002
5,741
5,643
Additions
3,672
2,140
Disposal / transfer
(544)
(2,042)
At 31 December
8,869
5,741
1,628
2,202
Amortisation charge
431
329
Disposal / transfer
(273)
(903)
At 31 December
1,786
1,628
Net book value at 31 December
7,083
4,113
Costs
Accumulated amortisation
Rental revenues from investment and other properties of 1,747 million tolars (2002:
1,093 million tolars) were recognised by the Mercator Group in 2003.
Fair values of investment property at 31 December 2003 are substantially equal to
their book values.
090
Annual Report 2003
Intangible assets
2003
2002
919
709
-
4
279
-
Additions
386
212
(213)
-
Disposal / transfer
(202)
(6)
At 31 December
1,168
919
488
272
-
1
128
-
Amortisation charge for the period
246
216
(101)
-
Disposal / transfer
(139)
(1)
At 31 December
622
488
Net book value at 31 December
546
431
2003
2002
1,356
1,319
44
121
Distribution of dividend
(137)
(85)
Reclassification from subsidiary to associate
1,500
-
(2,347)
-
416
1,356
Costs
Intangible assets represent expenditure on rights, patents and trademarks.
Opening net book amount
Share of results before tax
Disposal of associates
Closing net book amount
In January 2003 Trgoavto, d.d., was reclassified from a subsidiary to an associate as
the Group intended to sell this investment.
091
During the year 2003 the parent company Poslovni sistem Mercator, d.d., sold its
stake in associated companies Trgoavto, d.d., and Spar, d.o.o..
The principal associated undertakings are:
Alpkomerc, d.d.
% interest held
2003
% interest held
2002
20 %
20 %
-
20 %
Spar Slovenija, d.o.o.
Associated company Alpkomerc, d.d., is incorporated in Slovenia.
Other investments
Other investments of 1,461 million tolars (2002: 999 million tolars) refer to diversified investments in other companies.
Non-current receivables
2003
2002
142
-
1,752
731
1,894
731
2003 (%)
2002 (%)
10.5
10.3
2003
2002
Between 1 and 2 years
248
57
144
137
201
184
108
307
1,193
46
1,894
731
Interest rate swaps
Other loans
Non-current receivables of 1,752 million tolars (2002: 731 million tolars) comprise
mainly loans given to employees for housing, the majority of which are secured by
bills of exchange.
Loans are denominated in Slovenian tolars with the following weighted average
interest rates:
Other loans
The non-current receivables are expected to mature as follows:
Over 5 years
092
Annual Report 2003
Inventories
2003
2002
Raw materials
1,425
1,368
Work in progress
2,350
3,008
541
935
32,967
30,717
102
167
(1,949)
(1,500)
35,436
34,695
2003
2002
29,620
26,824
Receivables from associated undertakings
192
2,281
Other receivables
141
116
(3,944)
(3,066)
26,008
26,155
2003
2002
1,393
2
503
1,028
1,896
1,030
Finished goods
Merchandise
Advances paid for inventories
Less: Provision for obsolete inventories
Trade receivables
Less: Provision for the impairment of receivables
Financial investments (tradable and non-tradable)
Financial investments held for trading
Loans, originated by the enterprise
Tradable financial assets are carried at fair value, which represents the market value
of each financial asset at the year-end.
Prepaid expenses
Prepaid expenses of 778 million tolars (2002: 689 million tolars) comprise mainly
accrued supplier rebates and prepaid items.
093
2003
2002
2,271
3,053
2003
2002
40,419
38,856
447
32
Social security and other taxes
1,613
2,429
Other payables
2,417
2,446
44,896
43,763
2003
2002
49,047
29,858
940
907
49,987
30,765
46,427
55,465
8,970
5,632
55,397
61,097
105,384
91,862
Cash at bank and in hand
Trade and other payables
Trade payables
Amounts due to associated undertakings
Accruals
Accruals of 1,892 million tolars (2002: 1,644 million tolars) comprises mainly accrued discounts payable on bonus points to the holders of Mercator-Pika loyalty
cards. The Group makes full provision for all points outstanding at 31 December.
Borrowings
Current
Revolving bank borrowings
Loans from other companies
Non-current
Bank borrowings
Total borrowings
094
Annual Report 2003
Borrowings (continued)
The interest rate exposure of the borrowings of the Group was as follows:
2003
2002
- At fixed rates
47,005
21,900
- At floating rates
58,379
69,962
105,384
91,862
Total borrowings:
The weighted average effective interest rates of borrowings at the balance sheet date,
nominated in Slovenian tolars were as follows:
2003 (%)
Bank borrowings: short-term
long-term
2002 (%)
8.0
10.9
10.1 (T+4.1)
11.9 (T+4.6)
6.5
9.6
“T” represents the index used by Slovenian banks, which serves as an approximation for domestic inflation based on the consumer price movements in the last 12
months. In January 2003 “T” was 7.3 %, in December 2003 4.8 % and the yearly
average was 5.9 %. In January 2002 it was 7.3 %, in December 2002 7.3 %. The
average yearly “T” was 7.7 % in 2002.
Floating rates mainly refer to interest rates linked to EURIBOR. Fixed rates mainly
refer to loans from domestic banks with fixed real interest rate, but linked to the
inflation index “T”.
The carrying amount of all borrowings approximate to fair values.
The weighted average effective interest rates of borrowings at balance sheet date,
denominated in foreign currencies were as follows:
2003 (%)
Bank borrowings: short-term
long-term
Loans from associated undertakings
2002 (%)
3.6
5.1
3.4
4.4
-
5.1
3.5
6.0
095
Currency structure
2003
2002
- In Tolars
27,820
20,375
- In EUR
76,761
70,207
- In Croatian Kuna (HRK)
111
596
- In Swiss Francs (CHF)
491
684
- Other
201
-
105,384
91,862
2003
2002
16,517
16,757
12,848
15,551
11,218
9,018
6,040
11,515
Over 5 years
8,774
8,256
55,397
61,097
2003
2002
580
409
Later than 1 year and not later than 5 years
2,319
1,640
Later than 5 years
8,351
5,815
11,250
7,864
Future finance charges on finance leases
2,859
2,334
Present value of finance lease liabilities
8,391
5,530
Maturity of non current borrowings:
Finance lease liabilities - minimum lease payments:
Not later than 1 year
096
Annual Report 2003
The present value of finance lease liabilities is as follows:
2003
2002
287
177
Later than 1 year and not later than 5 years
1,254
788
Later than 5 years
6,850
4,565
8,391
5,530
2003
2002
At beginning of year - net deferred tax asset
5,655
6,122
Income statement charge
(438)
(427)
(242)
(40)
At end of year - net deferred tax asset
4,975
5,655
Not later than 1 year
The carrying values of all borrowings approximate fair values. The percentage of
non-current borrowings within total borrowings was 53 % at 31 December 2003
(67 % at 31 December 2002).
Deferred income taxes
Deferred income taxes are calculated on all temporary differences under the liability
method using a principal tax rate of 25 % (2002: 25 %).
The movement in the deferred income tax account is as follows:
097
Deferred income taxes (continued)
The deferred tax assets and liabilities and deferred tax (charge)/credit in the income
statement are attributable to the following items:
31 December 2002
Change
31 December 2003
(901)
(179)
(1,080)
(901)
(179)
(1,080)
Provisions not recognised for tax purposes
76
24
100
Intangible assets revaluation not recognised for accounting purposes
78
-
78
6,442
(283)
6,159
(40)
(242)
(282)
6,556
(501)
6,055
5,655
(680)
4,975
Deferred income tax liabilities
Provisions not recognised for accounting purposes
Deferred income tax assets
Tangible assets revaluation not recognised for accounting purposes
Net deferred income tax asset
As the deferred tax assets and liabilities are with the same fiscal authority they are
netted in the balance sheet.
Potential tax benefits from tax loss carry forwards existing on 31 December 2003
are as follows:
Expiring in:
2005
103
2006
270
2007
335
2008
411
Total
1,119
Less valuation allowance:
(1,119)
0
The above tax losses have not been recognised as deferred tax assets as it is not
probable that sufficient taxable profit will be available to allow the benefit of these
deferred tax assets to be utilised.
098
Annual Report 2003
Provision for employee benefits
Provision for jubilee and retirement payments
2003
2002
559
464
Provisions are made for the estimated liability of statutory retirement payments and
jubilee (long service) bonuses as a result of service rendered by employees up to the
balance sheet date, discounted to present value. The above provision has been made
for expected payments. In 2003 an additional provision of 95 million tolars was
made.
Contributions are made to the Government’s health, retirement benefit and unemployment schemes at the statutory rates in force during the year, based on gross salary payments. The cost of social security payments is expensed in the same period as
the related salary cost. The Group is paying contributions for its employees to a voluntary additional collective pension insurance plan according to the Law on pension
insurance from 1 January 2001, from which the Group has no future obligations.
The Group does not operate any other pension scheme or post retirement benefit
plan and, consequently, has no obligation in respect of pensions. In addition, the
Group is not obliged to provide further benefits to current and former employees.
The assets in a voluntary additional collective pension insurance plan are independent and the Group has no control over these assets.
Other provisions
Denationalisation claims
Environmental liabilities
Legal claims
Total
575
80
594
1,249
-
3
-
3
Acquisition of subsidiary
58
-
-
58
Additional provisions
14
-
497
511
-
(16)
-
(16)
Disposal of subsidiary
(44)
-
-
(44)
At 31 December 2003
603
67
1,091
1,761
At 31 December 2002
Utilised during year
Denationalisation claims refer to potential liabilities of the Group arising from the
Law on Denationalisation. Management is at present unable to estimate the timing
of cash outflows relating to denationalisation claims. Environmental liabilities refer
to potential liabilities of the Group arising from the Law on Privatisation.
Group companies are the defendants in various legal actions including an action
against the subsidiary company relating to a violation of contract liabilities with its
acquired company Klas, d.d., Maribor, in the amount of 497 million tolars provided
for under obligations for legal claims. In the opinion of management, after taking
appropriate legal advice, the outcome of other legal actions will not give rise to any
significant unprovided loss.
099
Goodwill
Negative goodwill
Total
1,370
(5,558)
(4,188)
Acquisitions
-
(5,840)
(5,840)
Additions
-
(251)
(251)
Disposals
(369)
-
(369)
At 31 December 2003
1,001
(11,649)
(10,648)
752
(4,166)
(3,414)
(185)
-
(185)
Amortisation charge (credit) for the period
100
(3,146)
(3,046)
At 31 December 2003
668
(7,311)
(6,644)
Net book value at 31 December 2003
333
(4,338)
(4,004)
Net book value at 31 December 2002
618
(1,392)
(774)
Goodwill
At 31 December 2002
At 31 December 2002
Disposals
100
Annual Report 2003
Financial instruments
Derivative financial instruments
At 31 December 2003
Interest rate swaps
Assets
Liabilities
142
142
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments at the balance sheet date and
designated for cash flow hedges were:
2003
2002
142
-
2003
2002
8,155
5,920
Contracts with positive fair values:
Interest rate swaps
The notional principal amounts of the outstanding interest rate swap contracts
at 31 December 2003 were in total of 17,504 million tolars (73.9 million EUR)
whereas on the same date the fixed interest rates varied from 2.2775 % to 2.39 %
and the applicable floating rates, respectively 3m and 6m Euribor, were at 2.124 %
and 2.168 %.
Other than interest rate swaps the Group did not hold any other derivative financial
instruments or hedges as at 31 December 2003.
Contingent liabilities
At 31 December 2003 the Group had no contingent liabilities in respect of bank
and other guarantees or other matters arising in the ordinary course of business from
which it is anticipated that material unprovided liabilities will arise.
Commitments
The amount of capital expenditure contracted for at the balance sheet date but not
recognised in the financial statements was as follows:
Certain of these commitments are denominated in EUR. Management consider,
that due to the close correlation of the movement in the domestic currencies/EUR
exchange rates with domestic inflation rates, there are no significant financial impacts of these commitments that needs to be accounted for at 31 December 2003.
The Group does not have any significant non-cancellable leases at 31 December
2003.
101
Minority interest
2003
2002
At start of year
4,552
5,037
Increase in capital share of existing subsidiaries
(488)
(608)
196
-
Share of net profit / (loss) of subsidiaries
(99)
123
(1,833)
-
2,328
4,552
2003
2002
10,094
7,750
Depreciation
8,632
8,656
Amortisation
346
490
-
371
(3,271)
(2,327)
687
174
(794)
(786)
(3,146)
(1,112)
Interest expense
6,466
7,623
(340)
234
(44)
(121)
18,630
20,952
559
191
(173)
(3,485)
- Payables
376
2,071
- Provisions
95
94
19,488
19,823
Disposal of subsidiary
At end of year
Profit before tax
Adjustments for:
Impairment charge
Net gain on sale of property, plant and equipment
Loss on disposal of subsidiary
Interest income
Amortisation of negative goodwill
Share in results of associated undertakings
Changes in working capital
(excluding the effects of acquisition and disposal of subsidiaries):
- Trade and other receivables
- Inventories
102
Annual Report 2003
At the end of the year 2003 the Group disposed of its interest in the company MKÆK, d.o.o, MDK, d.d., and MDK-H, d.o.o. The sales, results and net cash flows
for these companies in 2003 were as follows:
2003
Sales
Operating costs
5,677
(6,011)
Operating profit / (loss)
(334)
Finance costs (net)
(111)
Profit before tax
(445)
Tax
(9)
Net profit
(454)
Non-current assets
5,428
Current assets
2,669
Total assets
8,097
Total liabilities
3,026
Net assets
5,071
Less minority interest
(393)
Groups share of net assets
4,678
Net of cash disposed
4,057
Loss on disposal of subsidiaries
621
103
Acquisition of subsidiary
On 22 September 2003 the Group acquired 98,2 % of the share capital of Æivila
Kranj, d.d., a trade company. The acquired business contributed revenues of 7,954
million tolars to the Group for the period from 1 October 2003 to 31 December
2003, and its assets at 31 December 2003 were respectively 22,510 million tolars
and liabilities 13,330 million tolars.
2003
Non-current assets
Current assets
15,958
7,414
Total assets
23,372
Total liabilities
(13,507)
Net assets
9,866
Less minority interest
(196)
Groups share of net assets
9,670
Net cash acquired
(5,128)
Negative goodwill
4,542
Related party transactions
Related party transactions refer to transactions with associated undertakings and are
as follows:
2003
2002
4,578
19,243
Receivables from associated undertakings
206
2,417
Payables due to associated undertakings
447
43
Sales to associated undertakings
Sales to associated undertaking were carried out on commercial terms and at market
prices.
There were no loans given to directors. Total emoluments to members of the Management Board equalled 352 million tolars in the year 2003 (2002: 278 million
tolars).
104
Annual Report 2003
Management Responsibility Statement
The consolidated financial statements are the responsibility of the Company’s management. The consolidated financial statements present a true and fair view of the
financial position of the Group at 31 December 2003, and of the results of its operations and changes in financial position for the year then ended.
Management confirms that appropriate accounting policies are applied on a consistent basis and that the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures are based on principle of prudence.
Management is responsible for ensuring an appropriate accounting and internal
control structure to protect the assets of the Group and comply with relevant laws
and regulations.
Management also confirms that the consolidated financial statements with disclosures are prepared under the going concern assumption and in accordance with
International Financial Reporting Standards, which include the standards and interpretations issued by the IASB and SIC.
On behalf of the Board of Directors:
Jadranka DakiË,
Member of the Board of Directors
for Finance, Controlling and Accounting
Zoran JankoviÊ
President of the Board of Directors
105
Report of the Auditors
To the Management of Poslovni sistem Mercator, d.d.
We have audited the accompanying consolidated balance sheet of Poslovni Sistem
Mercator, d.d., (the Company) and its subsidiaries (the Group) as at 31 December
2003 and the related consolidated statements of income, cash flows and changes
in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 75 to 104 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion the consolidated financial statements present fairly, in all material
respects, the financial position of the Group at 31 December 2003, and the results
of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Ljubljana, 26 March 2004
106
Annual Report 2003
Audited Financial Statements of the
Company Poslovni sistem Mercator, d.d.,
in Accordance with Slovenian Accounting Standards
Balance Sheet of the Company Poslovni sistem Mercator, d.d.,
as at 31 December 2003
All amounts in millions of Slovenian tolars
2003
2002
148,631
118,095
295
371
65,434
50,594
Non-current financial investments
82,902
67,130
Current assets
36,538
43,472
Inventories
14,337
10,771
18,594
19,117
2,973
12,901
634
683
Prepaid expenses
545
605
185,714
162,172
Capital
87,020
79,802
Share capital
32,085
32,085
652
652
19,721
13,036
704
2,148
4,358
2,325
29,500
29,556
3,402
3,601
32,046
36,258
6,847
4,062
Current borrowings
27,192
13,365
Current trade and other payables
28,567
24,576
640
508
187,714
162,172
Assets
Non-current assets
Intangible assets
Current financial investments
Total assets
Equity and liabilities
Share premium
Reserves
Retained earnings
Net profit for the year (undistributed)
Valuation adjustments of capital
Provisions
Non-current borrowings
Non-current trade and other payables
Accruals
Total equity and liabilities
107
Income Statement of the Company Poslovni sistem Mercator, d.d.,
2003
2002
161,348
137,499
(115,118)
(100,366)
46,230
37,133
(28,464)
(21,813)
(9,988)
(7,668)
2,507
964
10,285
8,616
4,399
2,702
Interest revenues from non-current receivables
251
512
Interest revenues from current receivables
689
1,433
Current and non-current investments write-offs
(2,851)
(3,416)
Interest expenses and other financial expenses
(3,943)
(5,106)
8,830
4,741
Extraordinary revenues
28
17
Extraordinary expenses
(68)
(35)
Profit from extraordinary activities
(40)
(18)
Tax
(72)
(74)
8,718
4,649
Sales
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating profit
Revenues from investments
Profit from ordinary activities
Net profit
108
Annual Report 2003
Cash Flow Statement of the Company Poslovni sistem Mercator, d.d.,
Cash flows from operating activities
Inflows from operating activities
Revenues relating to operating activities
Extraordinary revenues relating to operating activities
Increase in trade and other receivables
Increase in prepaid expenses
Outflows from operating activities
Expenses exclusive of depreciation and provisions
Extraordinary expenses relating to operating activities
Tax on profit and other taxes
Increase in inventories
Increase in trade and other payables
Increase in accruals
Net inflows / (outflows) from operating activities
Cash flows from investment activities
Inflows from investment activities
Revenues relating to investment activities
Decrease in non-current investments
Decrease in current investments
Outflows from investment activities
Expenses relating to investment activities
Increase in intangible assets
Increase in property, plant and equipment
Increase in non-current investments
Net inflows / (outflows) from investment activities
Cash flows from financing activities
Inflows from financing activities
Revenues relating to financing activities
Increse in capital (without net profit)
Increase in non-current borrowings
Increase in provisions
Increase in current borrowings
Outflows from financing activities
Expenses relating to financing activities
Decrease in capital (without net profit)
Decrease in provisions
Decrese in non-current borrowings
Decrease in capital (dividend paid)
Decrease in current borrowings
Net inflows / (outflows) from financing activities
Closing balance of cash and cash equivalents as at 31 Dec
Increase / (decrease) in year
Opening balance of cash and cash equivalents as at 1 Jan
2003
2002
164,466
163,855
28
523
60
(146,758)
(149,961)
(68)
(72)
(3.566)
6,777
132
17,709
136,896
138,463
17
(1,430)
(156)
(120,548)
(126,625)
(35)
(74)
(1,277)
7,557
(95)
16,346
14,327
4,399
9,928
(36,996)
(2,851)
(39)
(18,334)
(15,772)
(22,669)
4,732
2,703
558
1,471
(13,308)
(3,416)
(67)
(9,825)
(8,576)
14,767
940
13,826
(9,854)
(3,943)
(67)
(200)
(4,212)
1,432
4,913
634
(48)
683
9,313
1,945
124
7,076
168
(17,262)
(5,106)
(1,283)
(10,873)
(7,949)
683
(179)
682
The financial statements of the company Poslovni sistem Mercator, d.d., for the year ended 31 December 2003, prepared in
accordance with Slovenian Accounting Standards have been audited by PricewaterhouseCoopers and unqualified opinion was
issued on 26 March 2004.
109
Contact Persons
Dunajska 107, 1001 Ljubljana
T 00 386 1 560 10 00
E [email protected]
www.mercator.si
Function
Name and surname
Telephone
E- mail
President of the Management Board and CEO
Zoran JankoviÊ
00 386 1 560-11-96
[email protected]
Member of the Board for New Markets
Stanislav Brodnjak
00 386 1 560-17-66
[email protected]
Member of the Board for Corporate Activities and Non-trade Segment
Aleπ »erin
00 386 1 560-17-42
[email protected]
Member of the Board for Finance, Controlling and Accounting
Jadranka DakiË
00 386 1 560-16-80
[email protected]
Member of the Board for Marketing,
Development and Investments in Trade Segment
Marjan Sedej
00 386 1 560-16-77
[email protected]
Vice President for Trade
Franc Prvinπek
00 386 1 560-11-77
[email protected]
Vice President for International Relations
Mitja Marinπek
00 386 1 560-14-46
[email protected]
Director of Marketing
Mateja Jesenek
00 386 1 560-12-54
[email protected]
Director of Retail Development
Jelka Æekar
00 386 1 560-17-22
[email protected]
Director of Fruit and Vegetables Retail
Peter Sajovic
00 386 1 234-36-22
[email protected]
Director of Fresh Food Retail
Joæe Sadar
00 386 1 560-13-13
[email protected]
Director of Grocery Retail
Marjan Nagode
00 386 1 560-12-10
[email protected]
Director of Non-food Retail I.
Irena Novinec
00 386 1 560-13-71
[email protected]
Director of Non-food Retail II.
Tadej JurkoviË
00 386 1 560-17-45
[email protected]
Director of Internal Consumption
SreËo Bukovec
00 386 1 560-11-65
[email protected]
Director of Product Marketing
Aleksandra Kocmut
00 386 1 560-17-37
[email protected]
Director of Imports and Exports
Metka Nedelko
00 386 1 560-12-98
[email protected]
Director of Investments and Development
Marko Umberger
00 386 1 560-17-39
[email protected]
Director of IT and Organisation
Franc Kodela
00 386 1 560-11-90
00 386 2 749-31-00
[email protected]
Director of Quality Control
Boæo Virant
00 386 1 560-16-35
[email protected]
Director of Wholesale
Janez BlaæiË
00 386 1 560-32-21
[email protected]
Director of Logistics
Marko Cedilnik
00 386 1 560-32-20
[email protected]
Director of Retail FMCG
Peter Zavrl
00 386 1 560-32-74
[email protected]
Management Board
Marketing Activities
110
Annual Report 2003
Function
Name and surname
Telephone
E- mail
Director of Intersport Chain
Pavle Pirc
00 386 1 560-16-70
[email protected]
Director of Hard Discounts Chain
Marko GvardjanËiË
00 386 1 560-12-57
[email protected]
Director of Technical Chain
Stane Kavkler
00 386 1 560-32-88
[email protected]
Director of Furniture Retail
Vinko Savnik
00 386 1 560-34-00
[email protected]
Director of Building Materials and Technical Products Retail
Robert Kotnik
00 386 1 560-32-78
[email protected]
Director of Household Appliances and DIY
Robert Surina
00 386 1 560-39-92
[email protected]
Director of Finance
Dean »erin
00 386 1 560-16-76
[email protected]
Director of Accounting
Darja Crnjak
00 386 1 560-13-34
[email protected]
Director of Controlling and Internal Audit
Melita Kolbezen
00 386 1 560-15-95
[email protected]
Director of HRM
Aljoπa Prajs
00 386 1 560-15-02
[email protected]
Director of Legal Affairs
00 386 1 560-12-40
[email protected]
Public Relations
Jana Lutovac Lah
00 386 1 560-12-51
[email protected]
Investor Relations
Kristina Pukl
00 386 1 560-16-25
[email protected]
Finance, Controlling and Accounting Activities
Human Resources, Legal, Internal and Corporate Activities
Public and Investor Relations
111
The Mercator Group
• Head Office:
Dunajska cesta 107
1113 Ljubljana
• President of the Management Board:
Zoran JankoviÊ
T. 01 560-11-96
M: [email protected]
• Head Office:
KidriËeva cesta 54
4220 ©kofja Loka
The Company is in the process of merging with Poslovni sistem Mercator, d.d.
Mercator - Træni centar, d.o.o.
• Head Office:
LoæioniËka 16, 71000 Sarajevo
• Director:
Husein MorankiÊ
T 00 387 33 286-132
E [email protected]
Mercator - EMBA, d.d.
• Head Office:
SlovenËeva 21
1000 Ljubljana
• Director:
Mladen MladeniË
T 01 560-90-02, int.2002
E [email protected]
• Head Office:
Rogozniπka 8
2250 Ptuj
Samo Gorjup
T 02 780-72-50
E [email protected]
• Head Office:
GregorËiËeva 19
5000 Nova Gorica
Silvan Makuc
T 05 334-30-02
E [email protected]
• Head Office:
Bulevar umetnosti 4
11070 Novi Beograd, ZRJ
• Director:
Vladimir KravËuk
T 00 381 11, 311-05-81
E [email protected]
M Hotel, d.o.o.
• Head Office:
DerËeva ulica 4
1000 Ljubljana
• Director:
Sonja »ernËiË Lagerwall
T 01 513-70-04
E [email protected]
Æivila Kranj, d.d.
• Head Office:
Cesta na Okroglo 3
4202 Naklo
Branko Remic
T 04 256-82-20
E [email protected]
Mercator Modna hiπa Maribor, d.o.o.
• Head Office:
Partizanska 3-5
2000 Maribor
• Director:
Joæef ©ilec
T 02 235-60-22
E [email protected]
Intermercator,
Handelsgesellschaft, G.m.b.H.
• Head Office:
Bahnhofstr. 38. c/V. Postfach 131.
A-9021 Klagenfurt/Celovec
The Company is in the process of
liquidation.
• Head Office:
Dunajska cesta 105
1113 Ljubljana
• Director:
Primoæ Goslar
T 01 560-19-00
E [email protected]
• Head Office:
Livada 8
8000 Novo mesto
Stanislav Hribar
T 07 373-07-17
E //
Mercator - H , d.o.o.
• Head Office:
Hrvatske bratske zajednice 1
10410 Velika Gorica
• Managing Director:
Stanislav Brodnjak
T 00 385 1 622-25-44
E [email protected]
ETA, d.d.
• Head Office:
Kajuhova pot 4
1240 Kamnik
• Director:
Franc Alojz
T 01 830-84-04
E [email protected]
• Head Office:
Lucija, Obala 144
6320 Portoroæ
The Company is in the process of merging with Poslovni sistem Mercator, d.d.
• Head Office:
LoæioniËka 16, 71000 Sarajevo
• Director:
Mensud Lagumdæija
T 00 387 33 286-130
E [email protected]
• Head Office:
Gasilska 2
1290 Grosuplje
• Director:
©tefan Plankar
T 01 786-69-05
E [email protected]
112
Annual Report 2003
Notes:
113
Published by Poslovni sistem Mercator d.d., Dunajska 107, 1000 Ljubljana • Production Pristop, d.o.o., Ljubljana • Text Poslovni sistem Mercator d.d. • Photos Aljoπa Rebolj • Printing Tiskarna »ukgraf • Printed issues 800 • May 2004

3871 Mercator LP 2003 ANGL OK

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