ROSH HA'AYIN, Israel, August 17 /PRNewswire-FirstCall/ --
- The Continued Implementation of the Strategic Plan That Includes a
Successful Launch and the Expansion of the 'Mega Bool' Chain, the Launch of a
Private Brand, Establishing Logistic Centers for the Non-Food and Vegetables
Activities and Launching Additional Enrolment Options to 'You' Club
- The Operating Profit Margin was Maintained Compared to the Prior
Quarter, Despite the Increased Competition and the Effect of the Passover
Holiday
Blue Square-Israel Ltd. (NYSE and TASE: BSI) today announced its
financial results for the first half of 2009 and the second quarter ended
June 30, 2009.
Results for the First Half of 2009
Revenues for the first half of 2009 were NIS 3,608.7 million (U.S.(1)
$920.8 million), compared to NIS 3,739.6 million in the corresponding period
of 2008 - a decrease of 3.5 %. Supermarket same store sales (SSS) for the
period decreased by 6.8% due to the recession in the market, increase
competition and erosion of the sales prices in HD chains. On the other hand,
the decrease in sales was offset by the net addition of ten new stores during
the 12-month period of approximately 12,100 square meters; in addition, the
sales of BEE Group increased during the period compared to the corresponding
period last year by 8.2%.
Gross Profit of the first half of 2009 amounted to NIS 1,004.8 million
(U.S. $ 256.4 million) (27. 8 % of revenues) compared to gross profit of NIS
1,031.1 million (27.6% of revenues) in the first half of 2008. The increase
in the gross profit margin derives from an increase in sales of BEE Group
characterized with higher gross profit margins relative to those acceptable
in the food retail sector. In addition, gross margin increased from supplier
agreements, part of which relate to the establishment of the 'Mega Bool'
chain that offset the effect of the planned erosion in the gross
profitability rate due to the establishment of the 'Mega Bool' chain.
Selling, General, and Administrative Expenses for the first half of 2009
amounted to NIS 884.0 million (U.S. $ 225.6 million) (24.5% of revenues)
compared to NIS 870.1 million (23.3% of revenues) in the corresponding
period, an increase of 1.6%. The increase reflects increased expenses
associated with the opening of ten new stores, including the expenses
associated with the accelerated opening of six branches of the Eden Teva
Market format during the last twelve months and expenses associated with the
launch of the Mega Bool format. Concurrently, several measures to increase
efficiency were taken, which resulted in a relative decrease of the tendency
for increased expenses as a result of opening new branches.
Operating Income (before income and other expenses and increase in fair
value of real estate) in the first half of 2009 amounted to NIS 120.9 million
(U.S $ 30.8 million) (3.3% of revenues) compared to the operating income of
NIS 161.0 million (4.3% of revenues) in the corresponding period. The
decrease in the operating income was affected by a decrease in sales and
increase in the selling and administrative expenses, mainly from accelerated
opening of branches (pre-operating costs and their negative contribution in
the initial operating period) and costs associated with the establishment of
the 'Mega Bool' chain.
Appreciation of Investment Property: In the first half of 2009, the
Company recorded gain from appreciation of investment property in the amount
of NIS 1.7 million (U.S $ 0.4 million) compared to NIS 18.0 million in the
corresponding period of the previous year.
Other Income Expenses, Net: In the first half of 2009, the Company
recorded other expenses, net of NIS 0.6 million (U.S. $ 0.2 million),
compared to other expenses, net of NIS 1.8 million in the corresponding
period of the previous year. The other expenses included, in this period, a
provision for impairment of property and equipment in Dr. Baby Stores in the
amount of NIS 2.8 million (U.S $ 0.7 million) and were offset from the
capital gain of NIS 0.3 million (U.S $ 0.1 million) from the sale of 1.5% of
the shares of Blue Square Real Estate for NIS 10.1 million (U.S $2.6 million)
and from a capital gain of NIS 2.8 million (U.S $ 0.7 million) from
purchasing 8% of Naaman shares that were held by minority.
Operating Income before financing in the first half of 2009 was NIS 122.0
million (U.S. $ 31.1 million) (3.4% of revenues) compared to operating income
of NIS 177.2 million (4.7% of revenues) in the first half of 2008.
Financial Expenses (net) for the first half of 2009 were NIS 47.2 million
(U.S. $12 million) compared to financial expenses (net) of NIS 48.4 million
in the corresponding period of the previous year. The decrease in financial
expenses in the first half of this year compared to the corresponding period
last year mainly derives from the effect of the change in the value of
hedging transactions on the index that were effected in the fourth quarter of
2008 and the change in the value derivative financial instruments that
contributed in the first half of 2009 to an income of NIS 24.0 million (U.S
$6.1 million) compared to an expense of NIS 11.1 million in the corresponding
period last year and from a decrease in financial expenses on debentures and
CPI linked loans, of NIS 9.1 million (U.S $ 2.3 million) in the first half of
2009 compared to corresponding period last year (increase in the known index
in the first half of 2009 amounted to 1.1% compared to 2.8% in the
corresponding period last year). On the other hand, the decrease in the
financial expenses was offset as a result of the increase in the value of the
conversion option of the convertible debenture (following the increase in the
company's share price) which contributed in the current half to an expense of
NIS 13.1 million (U.S $ 3.3 million) compared to an income of NIS 24.7
million in the corresponding half last year.
Taxes on Income for the first half of 2009 were NIS 24.8 million (U.S.
$6.3 million) (33.2% effective tax rate compared to a statutory tax rate of
26%) compared to NIS 26.5 million (effective tax rate of 20.6% compared to a
statutory tax rate of 27%) in the corresponding half last year. The increase
in the effective tax rate in the first half compared to the corresponding
half last year derives mainly from recording financial expenses from
revaluation of the conversion component in convertible debentures of the
company and from losses of Dr. Baby formats for which no deferred taxes were
recorded.
On July 14, 2009, the Law for Economic Efficiency passed in the Knesset
(Legislation Amendments for the Implementation of Economic Plan for 2009-
2010) 5769 - 2009, which prescribed, among others, the gradual decrease of
corporate tax rate down to 18% in the 2016 tax year and onwards.
The implication of the change in the tax rate will be reflected in the
results of the third quarter of 2009 by decrease in deferred tax liability
and recognition in income from taxes in the amount of NIS 14 million (U.S $
3.5 million) out of which the portion attributed to the company's owners is
NIS 12 million (U.S $ 3.0 million).
Net Income for the first half of 2009 was NIS 49.9 million (U.S. $ 12.7
million) compared to net income of NIS 102.3 million in the first half of
2008. The decrease in the net income in the first half this year compared to
the corresponding period last year derives from decrease in operating income,
decrease in a gain from appreciation of investment property and increase in
income tax expenses, as mentioned above. The net income for the first half of
2009, in accordance with the IFRS attributable to shareholders, was NIS 39.6
million (U.S. $10.1 million), or NIS 0.91 per ADS (U.S. $ 0.23), while the
portion attributable to the share of minority interests was NIS 10.3 million
(U.S. $2.6 million).
Cash Flows in the First Half of 2009
Cash Flows from Operating Activities: Net cash flows deriving from
operating activities in the first half of 2009 amounted to NIS 156.6 million
(U.S. $ 39.9 million) compared to NIS 278.2 million in the corresponding
period last year. The decrease in cash flows from operating activities
derives from decrease in operating income and decrease in the negative
working capital balances.
Cash Flows from Investing Activities: Net Cash flows used in investing
activities in the first half of 2009 amounted to NIS 85.1 million (U.S. $21.7
million) compared to net cash flows of NIS 38.5 million used in investing
activities in the corresponding period last year. Cash flows used in
investing activities in the first half of 2009 included mainly purchase of
property and equipment, other assets and investment property in a total
amount of NIS 104.9 million (U.S. $26.8 million) net of proceeds from sale of
property and equipment and investment property in the amount of NIS 7.2
million (U.S. $1.8 million) and proceeds from realization of investment in a
subsidiary in the amount of NIS 10.1 million (U.S. $2.6 million). Cash flows
used in investing activities in the first quarter of 2008 included mainly
purchase of property and equipment, other assets and investment property
amounting to NIS 155.7 million net of proceeds from realization of short term
deposits in the amount of NIS 100.3 million.
Cash Flows from Financing Activities: Net Cash flows used in financing
activities in the first half of 2009 amounted to NIS 24.0 million (U.S $ 6.1
million) compared to net cash used in financing activities of NIS 67.3
million in the corresponding period last year. Cash flows used in financing
activities in the first half of 2009 included mainly repayment of long term
loans of NIS 66.4 million (U.S $ 16.9 million) and paid interest of NIS 45.9
million (U.S $ 11.7 million), net of increase in short term credit of NIS
86.6 million (U.S $ 22 million). Net Cash flows used in financing activities
in the first half of 2008 included mainly repayment of long term loans of NIS
46.0 million and paid interest of NIS 39.6 million and dividend paid to
minority in subsidiaries in the amount of NIS 11.1 million net of receipt of
long term loans amounting to NIS 13.7 million and short term credit from
banks amounting to NIS 16.6 million.
Comments of Management
Commenting on the financial results, Mr. Zeev Vurembrand, Blue Square's
President and CEO, said: 'During this quarter, we continued to implement the
strategic measures and establish the awareness to 'Mega Bool' chain as the
leading chain of the HD format and we acted to expand the categories in the
private brand 'Mega', constituting over 3.5% of total sales. During August, 8
additional stores will be added to the 'Mega Bool' chain, 2 of which are new,
as part of providing solutions to the market needs and the competitive
environment. Several days ago, we announced the expansion of enrollment
options to customers club 'You' where the objective is to reach 500,000
members until the end of 2009. During the last year, the organic division of
'Teva Eden Market' expanded significantly; comprising 9 branches and the
opening of the tenth branch will take place during the fourth quarter of
2009, whereby we shall complete the first stage of the chain deployment. In
addition, we commenced to exercise the synergy process under BEE group by way
of process for centralizing the financial activity, import, information
systems and more under the headquarters of BEE group and providing these
services to subsidiaries. Finally, I wish to stress that the strategy
implementation and achieving the target milestones are moving forward
according to management expectations.'
Additional Information
As of June 30, 2009, the Company operated 200 supermarkets in the
following formats: Mega In Town -115; Mega Bool - 40; Mega - 19; Shefa Shuk -
18; Eden Teva Market - 8.
EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization):
In the first half of 2009, the EBITDA (Earnings before Interest, Taxes,
Depreciation, and Amortization) was NIS 205.4 million (U.S. $ 52.4 million)
(5.7 % of revenues) compared to NIS 237.5 million (6.4% of revenues) in the
corresponding period of last year.
In the second quarter of 2009, amounted to NIS 103.6 million (U.S. $ 26.4
million) (5.6 % of revenues) compared to NIS 123.5 million (6.4% of revenues)
in the corresponding period of last year.
As of June 30, 2009, the ratio of its financial obligations to EBITDA was
3.6 and the ratio of its unencumbered property and equipment to the financial
obligations was 1.7.
Data in NIS (millions)
Data Q2 2009 Q2 2008 1-6 2009 1-6 2008
Sales 1,844.0 1,918.4 3,608.7 3,739.6
Gross profit 501.7 527.5 1,004.8 1,031.1
% Gross profit 27.2% 27.5% 27.8% 27.6%
Operating profit
(before increase in
fair value of real
estate) 60.7 83.5 120.9 161.0
% Operating profit
(before
increase in fair
value of real estate) 3.3% 4.4% 3.3% 4.3%
Financial expenses 35.2 40.2 47.2 48.4
Net income 17.5 37.2 49.9 102.3
Events During the Second Quarter of 2009
Reorganization of real estate activity - transfer of real estate
properties to the subsidiary Blue Square Real Estate Ltd.
On December 30, 2008, and January 12, 2009, the company reported a
reorganization plan of its real estate activity to be centralized under the
subsidiary Blue Square Real Estate (BSRE) by the transfer of the real estate
properties of the subsidiary Blue Square Chain Investment & Properties Ltd.
(BSIP) to BSRE. The transaction of the property transfer was subject to the
approval of the shareholders' meeting of BSRE which was obtained on February
18, 2009 by the majority.
As previously reported, under the approval of the property transfer
transaction the following were approved as well:
1. Lease agreement to lease the transferred properties that are not
leased to third parties to BSIP for ten years from the closing date of the
purchase agreement and an option to the lessee to extend the lease agreement
for five additional years, and,
2. An agreement to extend the term of the existing lease agreements
between BSIP and BSRE to an identical period (ten years from the closing date
of the purchase agreement and an option to the lessee to extend the lease
agreement for five additional years).
Following discussions held between the company and its subsidiaries and
the tax authorities regarding the outline of the property transfer
transaction, the tax authority granted an approval according to which the
transaction will be performed by a split pursuant to Section 105 to the
Israel Income Tax Ordinance. Under such approval, BSIP will transfer to BSRE
the transferred properties and in return BSRE will assume the financial
obligations of BSIP attributed to these properties. The difference between
the value of the transferred properties, as determined in the transaction
(NIS 464 million) and the amount of the related financial obligations (NIS
390 million) will be paid in cash to the company by BSRE, on the closing date.
Accordingly, the transaction is expected to be executed by the end of
2009. The transaction costs including purchase tax will be recorded upon
their incurrence as expenses in the statements of operations.
The effecting of the transaction in the outline of split pursuant to
Section 105 to the Income Tax Ordinance confers upon BSIP an exemption from
the payment of land appreciation tax at this stage and its deferment under
the sale agreement with BSRE until the realization of the properties (as far
as realized) or by the depreciation rate of the depreciable properties by
BSRE. In addition, the payment of purchase tax for the transaction will be at
a reduced tax rate of 0.5%.
The company and the subsidiaries, BSIP and BSRE will be subject to the
restrictions prescribed by the provisions of the second and fourth chapters
to part E-2 to the Income Tax Ordinance regarding the split pursuant to
Section 105 to the Ordinance and the conditions or limitations determined in
the approval of the tax authority, will apply, including the requirement that
in two years from the split date, most of the properties remaining with BSIP
and most properties transferred to BSRE under the split will not be sold by
any of them and in the relevant period, such assets will be used in an
acceptable manner in the ordinary course of business.
