1st 9 Months: Revenues Up 9.2% to NIS 5.7B, Gross Profit Up 14.2% to NIS 1.6B ROSH HA'AYIN, Israel, November 20 /PRNewswire-FirstCall/ -- Blue Square-Israel Ltd. (NYSE and TASE: BSI) today announced unaudited results for the third quarter and nine months ended September 30, 2008. NOTE: IFRS - International Financial Reporting Standard Financial results for the three-month and nine-month periods ended September 30, 2008 reported in this release are presented in accordance with International Financial Reporting Standards ("IFRS"). To facilitate comparison, the comparison results from the three-month and nine-month periods ended September 30, 2007, as well as those for the year ended December 31, 2007, have been adjusted to bring them into accordance with IFRS, and differ from the results originally reported. Tender Offer for BSIP (Blue Square Chain Properties & Investments Ltd.) Shares Completed and BSIP Delisted from the TASE After the end of the quarter, the Company announced that it had successfully completed the tender offer for BISP shares. The company purchased all of BSIP shares held by the public (20%) for an aggregate consideration of NIS 150.7 million. BSIP was delisted from the Tel Aviv Stock Exchange (TASE) and is now held fully (100%) by the Company. The Company believes this step will improve the Company's decision-making agility and operating efficiency, and that it will increase the Company's earnings per share for the benefit of shareholder value. For additional information, please refer to the Company's Immediate Report and SEC filings. Results for the Third Quarter Revenues: Revenues for the third quarter increased by 6.2% to NIS 1,936.2 million (U.S. $566.0 million)(a) compared to NIS 1,823.5 million in the third quarter of 2007. The increase reflected the addition of approximately 17,000 square meters of selling space through the opening of 12 new supermarkets during the twelve month period; the success of the Mega In Town format, and the ongoing expansion of Bee Group Retail ("Bee Group") (formerly Kfar Ha'Shaashuim), including the consolidation of the revenues of Naaman Porcelain Ltd. (TASE:NAMN) ("Naaman") since the fourth quarter of 2007. During the third quarter, the Company's Same Store Sales increased by 0.6% as compared on a year-over-year basis with the third quarter of 2007. This relatively minor increase derived from the combination of the growth in revenues of the Mega In Town format and the decrease of revenues of the Shefa Shuk format. Gross Profit: Gross profit for the third quarter increased by 12.2% to NIS 538.8 million (U.S. $157.5 million) compared to NIS 480.2 million in the third quarter of 2007. Gross margin for the period increased to 27.8% compared to 26.3% in the parallel quarter of 2007, reflecting improved agreements with suppliers; the success of the Mega In Town format; the reduction in the proportion of hard discount sales; and the higher gross margin of Bee Group Retail. Selling, General, and Administrative Expenses: Selling, General, and Administrative expenses for the quarter increased by 16.5% to NIS 478.8 million (U.S. $140.0 million) compared to NIS 411.1 million in the third quarter of 2007. The increase reflects the expenses of opening 12 new stores during the previous 12 months and the operating expenses of Naaman, whose results were consolidated into the Company's financial reports for the first time in the fourth quarter of 2007. Other Income (Expenses): The Company recorded other income of NIS 11.8 million (U.S. $3.5 million) during the third quarter. This reflected a capital gain taken in relation to the reorganization of several of the Company's non-food holdings by Bee Group, the company through which Blue Square manages its non-food retail operations. Operating Income: Operating income for the third quarter increased by 6.5% to NIS 71.1 million (U.S. $20.8 million) from NIS 66.7 million in the third quarter of 2007. Operating margin for the period was 3.7%, unchanged as compared to the third quarter of 2007. This reflects the period's increased revenues, mitigated partially by the Company's activities to accelerate the expansion of Eden Teva Market and to build the Bee Group's new format for babies and infants (the Dr. Baby chain). EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) : EBITDA for the quarter was NIS 104.3 million (U.S. $30.5 million) compared to NIS 103.6 million in the third quarter of 2007. EBITDA margin for the period was 5.4% compared to 5.7% in the third quarter of 2007. Financial Expenses (net): Financial expenses (net) for the quarter were NIS 50.1 million (U.S. $14.7 million) compared to financial income (net) of NIS 1.9 million in the third quarter of 2007. Financial expenses were impacted by the decrease in the value of financial instruments as measured by the Fair Value method, whose changes in value were recorded as a financial expense of NIS 7.0 million (U.S. $2.0 million ) in the third quarter of 2008. This compared to financial income of NIS 26.0 million recorded in the parallel quarter of 2007. In addition, the Company's total financial debt was significantly higher at the end of the third quarter of 2008 as compared to its balance at the end of the third quarter of 2007. Taxes on Income: Taxes on income for the quarter were NIS 8.9 million (U.S. $2.6 million), an increase of 85.4% compared to NIS 4.8 million in the third quarter of 2007, resulting in an effective tax rate of 42.7% compared to 7.0% in the parallel quarter of 2007. This reflected the Company's adoption of the IFRS, under which the Company did not record tax liability or benefits from the revaluation of its financial instruments to Fair Value. During the third quarter of 2008, the Company recorded financial expenses, while in the parallel period of 2007, it recorded financial income. The effect was mitigated partially by the decrease in the Israeli corporate tax rate from 29% in 2007 to 27% in 2008. Net Income: Net income for the third quarter of 2008 was NIS 12.0 million (U.S. $3.5 million) compared to NIS 63.6 million in the third quarter of 2007. The portion of the net profit attributable to shareholders, as calculated in accordance with the IFRS, was NIS 6.5 million (U.S. $1.9 million), or NIS 0.15 per ADS (U.S. $0.04), while the portion attributable to the share of minority interests was NIS 5.5 million (U.S. $1.6 million). The reduction in net income derived primarily from the increase in the Company's financing expenses, as explained above. Dividend During the third quarter, the Company declared a cash dividend of NIS 150.0 million. Following the dividend declaration, on September 25, 2008 the conversion ratio of 5.9% convertible debentures issued in August 2003 was adjusted, making each NIS 20.095 par value of convertible debentures convertible into one ordinary share of the Company. The dividend was distributed on October 7, 2008. Recent Strategic Progress: - Mega Bool - Blue Square's New Hard Discount Format: on October 28th, the Company announced that it would launch "Mega Bool", a new hard discount supermarket format, during December 2008. Preparations for Mega Bool include the conversion of 36-38 existing Mega and Shefa Shuk stores of various sizes, representing approximately 120,000 square meters (approximately one third of the Company's supermarket floorspace). - Private Label: The Company plans to launch an extensive line of private label goods in December 2008, and intends to expand it to an even broader variety of products in the future. - Eden Teva (organic and health food markets): With the goal of establishing Blue Square as the clear leader of Israel's emerging organic/health food sector, during the quarter, the Company opened two additional Eden Teva supermarkets, doubling the chain's selling space to approximately 6,200 square meters. The Company plans to expand the chain to approximately 10 stores nationwide over the next two years. - Bee Group (non-food retailing): During the third quarter, the Company announced that it had increased its holdings in Bee Group to 85%, and that it had obtained an option to acquire full control of Bee Group. Management views Bee Group as a growth engine for the Company, and the acquisition as a major step in the continuing implementation of its plan to be a major player in Israel's non-food sector. Results for the First Nine Months Revenues: The Company's revenues for the first nine months of 2008 increased by 9.2% to NIS 5,675.8 million (U.S. $1,659.1 million) (a) compared to NIS 5,197.8 million in the first nine months of 2007. The increase reflects: 1) the addition of approximately 17,000 square meters of selling space through the opening of 12 new supermarkets during the twelve month period; 2) the period's 3.1% increase in Same Store Sales; and 3) the ongoing expansion of Bee Group since the fourth quarter of 2007. Gross Profit: Gross profit for the first nine months increased by 14.2% to NIS 1,569.9 million (U.S. $458.9 million) compared to NIS 1,375.0 million in the first nine months of 2007. Gross margin for the period increased to 27.7% compared to 26.5% in the parallel period of 2007, reflecting the factors detailed above. Selling, General, and Administrative Expenses: Selling, General, and Administrative expenses for the first nine months of 2008 increased by 17.1% to NIS 1,348.9 million (U.S. $394.3 million) compared to NIS 1,151.6 million in the first nine months of 2007. The increase reflects the operation expenses of opening 12 new stores during the previous 12 months; the operating expenses of Naaman, whose results were consolidated into the Company's financial reports for the first time in the fourth quarter of 2007; and an increase in the operating expenses of existing branches due to the rising costs of electricity and expenses linked to Israel's CPI, such as rent and municipal taxes. Other Income (Expenses): The Company recorded other income of NIS 12.5 million (U.S. $3.6 million) during the first nine months of 2008. This reflected a capital gain taken in relation to the merger of several of the Company's non-food holdings into the Bee Group, the company through which Blue Square manages its non-food retail operations. Revaluation of Investment Property: In compliance with the IFRS Accounting Standard, the Company now adjusts the value of its investment property on a quarterly basis in accordance with Fair Market Value. In the first nine months of 2008, the Company's revaluation of three assets resulted in non-cash income of NIS 18.0 million (U.S. $5.3 million). Operating Income: Operating income for the first nine months of 2008 increased by 12.3% to NIS 248.3 million (U.S. $72.6 million) from NIS 221.1 million in the first nine months of 2007. The increase reflects the factors described above. Operating margin for the period increased to 4.4% from 4.3% in the first nine months of 2007. Excluding the income derived from other income (primarily capital gains), the revaluation of investment property and non-cash expenses related to employee stock-based compensation, operating margin for the first nine months of 2008 was 4.0%. EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization): EBITDA for the first nine months of 2008 increased by 5.1% to NIS 344.3 million (U.S. $100.7 million) compared to NIS 328.0 million in the first nine months of 2007. EBITDA margin for the period was 6.1% compared to 6.3% in the parallel period of 2007. Financial Expenses (net): Financial expenses (net) for the first nine months of 2008 were NIS 98.6 million (U.S. $28.8 million) compared to NIS 69.5 million in the first nine months of 2007. This increase derived primarily from the period's 5.0% increase in the "Known" price index, compared to its 2.8% increase in the parallel period of 2007. In addition, it reflects the increase in net financial debt compared to the first nine months of 2007, which contributed to an increase of NIS 97 million in financial expenses for the first nine months of 2008 compared to NIS 45 million in the parallel period of 2007. This was mitigated partially by financial income of NIS 7 million related to the revaluation of the Company's financial instruments during the reporting period, as compared to NIS 25 million of financial expenses in the parallel period of 2007. Taxes on Income: Taxes on income for the first nine months of 2008 were NIS 35.4 million (U.S. $10.3 million), a decrease of 24.0% compared to NIS 46.6 million in the first nine months of 2007, resulting in an effective tax rate of 23.7% compared to 30.7% for the first nine months of 2007. This reduction reflected: 1) The Company's adoption of the IFRS, under which the Company did not record tax liability or benefits from the revaluation of its financial instruments to Fair Value. During the first nine months of 2008, the Company recorded financial income, while in the parallel period of 2007, it recorded financial expenses. 2) The period's 5.0% increase in the CPI and its affect on the Company's taxable income and loans in light of Amendment #20 to the Income Tax Law (Adjustments for Inflation), which was enacted on February 26, 2008. Amendment #20, which is to be applied beginning in the 2008 tax year, discontinues the adjustment of income and assets according to inflation when computing tax liability. 3) The change in Israeli corporate tax rate from 29% in 2007 to 27% in 2008. Net Income: Net income for the first nine months of 2008 was NIS 114.3 million (U.S. $33.4 million), an increase of 8.8% compared to NIS 105.0 million for the first nine months of 2007. The portion of the net profit attributable to shareholders, as calculated in accordance with the IFRS, was NIS 94.1 million (U.S. $27.5 million), or NIS 2.17 per ADS (U.S. $0.63), while the portion attributable to the share of minority interests was NIS 20.1 million (U.S. $5.9 million). Comments of Management Commenting on the results, Mr. Zeev Vurembrand, Blue Square's President and CEO said, "The third quarter was a period of major strategic progress during which we brought together our multi-year strategy, securing Blue Square's early lead of the emerging organic sector, and, through the expansion of our holdings in Bee Group Retail, establishing Blue Square as one of Israel's strongest players in the non-food arena. Our financial results reflect the investments we have been making to actualize these plans according to an accelerated schedule. During the third quarter alone, we doubled the size of our Eden Teva organic chain, and perfected our plan for the concept and fourth quarter launch of our unique new 'Mega Bool' hard-discount chain, which will include about 120,000 square meters, or approximately one third of our supermarket floorspace. Structurally, we extended our control of Bee Group Retail and concluded the process of delisting BSIP, steps that will streamline our decision-making processes and maximize our flexibility in rapidly changing markets." Mr. Vurembrand continued, "Each of these investments is an important component within a comprehensive plan aimed at securing our competitive positioning over the long-term. Although the increased expenses have impacted our short-term profitability, we believe that they will repay us in the future. We look forward to reporting our progress in the quarters ahead." NOTE A: Convenience Translation to Dollars The convenience translation of New Israeli Shekel (NIS) into U.S. dollars was made at the rate of exchange prevailing at September 30, 2008: U.S. $1.00 equals NIS 3.421. The translation was made solely for the convenience of the reader. Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 194 supermarkets under different formats, each offering varying levels of service and pricing. This press release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the Company's business, financial condition, prospects and operating results. These statements are based on current expectations and projections that involve a number of risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including risk of market acceptance, the effect of economic conditions, the impact of competitive pricing, supply constraints, the effect of the Company's accounting policies, as well as certain other risks and uncertainties which are detailed in the Company's Annual Report on Form 20-F and other filings with the Security and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made. BLUE SQUARE - ISRAEL LTD. INTERIM CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2008 Convenience translation September December 31, September 30, 30, _____________________ 2007 2007 2008 2008 ____________ _________ ___________ ____________ (Audited) (Unaudited) ____________ ____________________________________ NIS U.S. dollars _________________________________ _______________ In thousands _________________________________________________ A s s e t s CURRENT ASSETS: Cash and cash equivalents 56,410 459,248 313,738 91,709 Marketable securities 199,394 146,161 176,964 51,729 Short-term bank deposit 103,498 201,502 650 190 Trade receivables 776,251 795,535 896,191 261,968 Other accounts receivable 99,841 200,104 408,558 119,427 Income taxes receivable 23,062 27,109 67,339 19,684 Inventories 453,944 453,832 511,755 149,592 _________ _________ _________ _______ Total current assets 1,712,400 2,283,491 2,375,195 694,299 _________ _________ _________ _______ NON-CURRENT ASSETS: Associated companies 4,948 4,899 4,930 1,441 Embedded derivative 10,500 - 850 248 Prepaid expenses in respect of operating lease 199,679 201,177 195,186 57,055 Other long-term receivables 48,289 2,373 4,158 1,215 Property, plant and equipment, net of accumulated depreciation and amortization 1,613,515 1,541,089 1,673,245 489,110 Investment property 315,778 302,487 409,297 119,643 Intangible assets and deferred charges, net of accumulated amortization 280,420 120,310 345,116 100,882 Deferred taxes 33,542 32,560 36,695 11,019 Total non-current _________ _________ _________ _______ assets 2,506,671 2,204,895 2,669,477 780,613 _________ _________ _________ _______ Total assets 4,219,071 4,488,386 5,044,672 1,474,912 ========= ========= ========= ========= BLUE SQUARE - ISRAEL LTD. INTERIM CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2008 Convenience translation September December 31, September 30, 30, _____________________ 2007 2007 2008 2008 ____________ _________ ___________ ____________ (Audited) (Unaudited) ____________ ____________________________________ NIS U.S. dollars _________________________________ _______________ In thousands _________________________________________________ Liabilities and shareholders' equity CURRENT LIABILITIES: Credit and loans from banks and others 171,010 131,458 213,739 62,479 Current maturities of debentures and convertible debentures 69,859 69,841 21,501 6,285 Trade payables 976,278 1,124,377 1,197,281 349,980 Other accounts payable and accrued expenses 444,912 536,352 650,136 190,043 Income taxes payable 2,905 1,124 5,846 1,709 Dividend payable - 260,000 150,000 43,847 Total current _________ _________ _________ _______ liabilities 1,664,964 2,123,152 2,238,503 654,343 _________ _________ __________ _______ NON CURRENT LIABILITIES: Long-term loans from banks, net of current maturities 248,488 203,044 340,614 99,566 Convertible debentures, net of current maturities 169,897 175,465 134,320 39,263 Debentures, net of current maturities 772,827 772,146 1,009,180 294,996 Other liabilities 11,646 9,475 34,218 10,002 Derivatives instruments 9,968 7,407 6,316 1,846 Liabilities for employee rights, net of amount funded 35,986 33,063 39,125 12,606 Deferred taxes 57,615 40,392 54,864 16,037 Total long-term _________ _________ _________ _______ liabilities 1,306,427 1,240,992 1,618,637 474,316 _________ _________ _________ _______ Total liabilities 2,971,391 3,364,144 3,857,140 1,129,243 _________ _________ _________ _________ SHAREHOLDERS' EQUITY: Equity attributable to equity holders of the Company: Ordinary shares 57,094 57,094 57,094 16,689 Additional paid-in capital 1,018,405 1,018,405 1,018,405 297,692 Other reserves 1,415 79 1,176 344 Accumulated deficit (107,262) (167,975) (161,407) (48,058) _________ _________ _________ ________ 969,652 907,603 915,268 266,667 Minority interest 278,028 216,639 272,264 79,586 _________ _________ _________ ________ Total equity 1,247,680 1,124,242 1,187,532 346,253 __________ __________ __________ ________ Total liabilities and shareholder's equity 4,219,071 4,488,386 5,044,672 1,474,912 ========== ========== ========== ========== BLUE SQUARE - ISRAEL LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE AND THREE MONTHS PERIODS ENDED SEPTEMBER 30, 2008 BLUE SQUARE - ISRAEL LTD. Year ended For the nine months December ended September 30 31 ____________________ 2007 2007 2008 ___________ _________ _________ (Audited) (Unaudited) ___________ ____________________ NIS __________________________________ In thousands (except share and per share data) _______________________________________________ Sales 6,981,984 5,197,837 5,675,797 Cost of sales 5,129,578 3,822,798 4,105,935 __________ _________ _________ Gross profit 1,852,406 1,375,039 1,569,862 Selling, general and administrative expenses 1,563,208 1,151,625 1,348,865 __________ _________ _________ Operating profit before net gain from adjustment of investment property to fair value and other expenses and income 289,198 223,414 220,997 Other income 15,835 618 12,458 Other expenses 12,775 2,971 3,160 Net gain from adjustment of investment property to fair value 10,456 - 17,970 ________ _______ ________ Operating profit 302,734 221,061 248,265 Finance income 50,279 43,392 41,651 Finance expenses 107,598 112,935 140,214 Share in profit (losses) of associated companies, net 186 137 (18) ________ ________ _________ Income before taxes on income 245,601 151,655 149,684 Taxes on income 69,779 46,615 35,415 ________ ________ _________ Net income for the period 175,822 105,040 114,269 ======== ======== ========= Attributable to: Equity holders of the parent 143,628 82,486 94,149 ________ ________ _________ Minority interests 32,194 22,554 20,120 ________ ________ _________ Net income per Ordinary share attributed to Company shareholder's or ADS: Basic 3.39 1.96 2.17 ________ ________ _________ Fully diluted 3.39 1.96 1.85 ________ ________ _________ Weighted average number of shares or ADS used for computation of income per share: Basic 42,355,339 42,012,451 43,372,819 __________ __________ ____________ Fully diluted 42,355,339 42,012,451 45,037,693 __________ __________ ____________ BLUE SQUARE - ISRAEL LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE AND THREE MONTHS PERIODS ENDED SEPTEMBER 30, 2008 BLUE SQUARE - ISRAEL LTD. cont. Convenience translation(a) for the For the three three months months ended ended September 30 September 30 ____________________ 2007 2008 2008 _________ _________ _____________ (Unaudited) ____________________ NIS U.S. dollars ____________________ _____________ In thousands (except share and per share data) Sales 1,823,522 1,936,236 565,985 Cost of sales 1,343,356 1,397,451 408,492 __________ __________ _________ Gross profit 480,166 538,785 157,493 Selling, general and administrative expenses 411,103 478,815 139,963 __________ __________ _________ Operating profit before net gain from adjustment of investment property to fair value and other expenses and income 69,063 59,970 17,530 Other income 273 11,841 3,461 Other expenses 2,601 734 214 Net gain from adjustment of investment property to fair value - - - _________ _______ _________ Operating profit 66,735 71,078 20,777 Finance income 40,360 10,738 3,139 Finance expenses 38,433 60,874 17,794 Share in profit (losses) of associated companies, net (262) (1) - __________ ________ _________ Income before taxes on income 68,400 20,940 6,122 Taxes on income 4,767 8,941 2,614 __________ ________ _________ Net income for the period 63,633 11,999 3,508 ========== ======== ========= Attributable to: Equity holders of the parent 57,351 6,536 1,911 __________ ________ _________ Minority interests 6,282 5,463 1,597 __________ ________ _________ Net income per Ordinary share attributed to Company shareholder's or ADS: Basic 1.32 0.15 0.04 _________ ________ _________ Fully diluted 0.66 0.15 0.04 _________ ________ _________ Weighted average number of shares or ADS used for computation of income per share: Basic 43,362,460 43,372,819 43,372,819 __________ __________ __________ Fully diluted 44,988,066 43,372,819 43,372,819 __________ __________ __________ BLUE SQUARE - ISRAEL LTD. SELECTED OPERATING DATA FOR THE NINE MONTH AND THREE MONTH PERIOD ENDED SEPTEMBER 30, 2008 (UNAUDITED) Convenience translation(a) For the nine For the three for the three months ended months ended months ended September 30 September 30 September 30 _______________ _______________ _______________ 2007 2008 2007 2008 2008 NIS NIS NIS NIS U.S.$ _______ _______ _______ _______ _______________ (Unaudited) (Unaudited) _______________________________________________ Sales (in millions) 5,198 5,676 1,936 1,824 566 Operating profit (in millions) 221 248 67 71 21 EBITDA (in millions) 328 344 104 104 31 EBITDA margin 6.3% 6.1% 5.7% 5.4% 5.4% Increase (decrease) in 0.0% 3.1% 0.8% 0.6% NA same store sales* Number of stores at end of period 182 194 182 194 NA Stores opened during the period 7 9 2 4 NA Stores closed during the period - - - - NA Total square meters at end of period 339,280 356,268 339,280 356,268 NA Square meters added during the period, net 15,980 12,918 5,650 5,375 NA Sales per square meter 14,929 15,234 5,112 5,015 1,466 Sales per employee (in 702 724 235 235 69 thousands) * Compared with the same period in the prior fiscal year. Contact: Blue Square-Israel Ltd. Dror Moran, CFO Toll-free telephone from U.S. and Canada: 888-572-4698 Telephone from rest of world: +972-3-928-2220 Fax: +972-3-928-2299 Email: DATASOURCE: Blue Square Israel Ltd CONTACT: Contact: Blue Square-Israel Ltd., Dror Moran, CFO, Toll-free telephone from U.S. and Canada: 888-572-4698, Telephone from rest of world: +972-3-928-2220, Fax: +972-3-928-2299, Email:

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