Blue Square - Israel Ltd. Announces First Quarter 1999 Results Revenues Up 16%; Operating Income Up 29% ---------------------------------------------------------------------- ROSH HA'AYIN, Israel--(BUSINESS WIRE)--May 24, 1999--Blue Square-Israel Ltd. (NYSE: BSI) today announced unaudited results for the first quarter ended March 31, 1999. As previously reported, during the fourth quarter of 1998 the Company sold (indirectly through its subsidiary BSIP) its 79.65% share in Hamashbir L azarchan Israel Ltd.("Hamashbir") to its principal owner, the Co-Op Blue Square Cooperative Society Ltd. The following financial results therefore include only the operating results of the Company's supermarket business and its minor non-supermarket operations, and all previous period information has been reclassified to report Hamashbir results separately. For all periods presented, Hamashbir's results are presented as "profits or losses from discontinued operation." Revenues for the first quarter increased by 16.2% to adjusted New Israeli Shekels (NIS) 1,206.9 million (a) (U.S. $299.2 million(b)) compared to NIS 1,038.6 million for the corresponding period last year. Operating income increased by 29.0% to NIS 73.5 million (U.S. $18.2 million) compared to NIS 57.0 million for the first quarter of 1998. Net income for the quarter before discontinued operations were NIS 28.8 million (U.S. $7.1 million), or NIS 0.75 (U.S. $0.19) per ADS, compared to NIS 30.2 million, or NIS 0.82 per ADS, recorded during the same period last year. After deducting losses from the discontinued Hamashbir operation, reported net income for the first quarter of 1998 was NIS 25.8 million, or NIS 0.70 per ADS. First quarter operating margins increased to 6.1% from 5.5% for the first quarter of 1998. This improvement reflect the strong positive effect of the spring holidays, which fell at the end of the first quarter of 1999 but during the second quarter of 1998. Same store sales for the first quarter increased by 9.7% versus a decline of 0.5% for the first quarter of 1998, reflecting the influence of the Passover holidays and marketing initiatives. Sales per square meter increased to NIS 5,410 (U.S. $1,341) from NIS 5,186 for the first quarter of 1998, and sales per employee increased slightly. EBITDA increased by 27.8% to NIS 101 million (U.S. $25 million) from NIS 79 million for the first quarter of 1998. Financial expense for the quarter was exceptionally high, amounting to NIS 18 million (U.S. $4.5 million) compared to NIS 3 million in the first quarter of 1998. The financial expense reflected an unusual 1.4% decline of Israel's Consumer Price Index ("CPI") during the quarter, compared to an increase of 0.06% during the first quarter of 1998. The decline in CPI increased the Company's financial expense in two ways. First of all, the Company takes short term loans to finance its operations. These loans carry a high interest rate, a result of the policy of the Bank of Israel. Israeli GAAP requires that companies adjust their accounts for inflation. As a result, interest rates, as reflected in the financial statements, in real terms, are eroded by inflation. In the first quarter, the 1.4% decline in the CPI resulted in an unusually high real interest rate of 20% per annum. Secondly, in times of inflation, the Company derives financial income from favorable credit terms received from suppliers, versus credit given to customers. During the current quarter, this normal situation was reversed, resulting in unusual financial expense. Israel's CPI has risen constantly over the majority of quarters in the past, and the current decline is expected to reverse itself in the future. Commenting on the results, Yacov Gelbard, President and Chief Executive Officer, said, "We are very pleased with our results of the first quarter, which exhibit excellent margins by global standards. Our results were positively influenced by continual improvement in category management, as well as by continued success of the Buy & Bonus customer loyalty program. "Our expansion program continues on track. We opened three new stores during the quarter, and closed two. We plan to open about ten to twelve new supermarkets, occupying about 24,000 square meters, by the end of the year. "The strong results of the first quarter confirm last year's decision to divest Hamashbir. Going forward, we believe that our strategy of expansion, segmentation, and innovation will result in our continued leadership of Israel's retail revolution." Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 162 supermarkets and specialty stores under different formats, each offering varying levels of service and pricing. The statements contained in this release which are not historical facts contain forward-looking information with respect to plans, projections, or future performance of the Company, the occurrence of which involve certain risks and uncertainties, 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 filings with the Security and Exchange Commission, particularly the prospectus with respect to its public offering in July, 1996. (a) In accordance with applicable Israeli accounting rules, the Company maintains its accounts and presents its financial statements in New Israeli Shekels ("NIS") adjusted for changes in the Israeli consumer price index ("CPI") through the latest balance sheet date ("Adjusted CPI"). The decrease in the Israeli CPI for the three months ended March 31, 1999 was 1.4%. (b) The convenience translation of the Adjusted New Israeli Shekel (NIS) into US dollars was made at the rate of exchange prevailing at March 31, 1999: US $1.00 equals 4.034 NIS. The translations were made solely for the convenience of the reader. Blue Square - Israel Ltd. Condensed Consolidated Statement of Operations (in thousands, except for per share data) Convenience Translation into US$ Three Months Ended Three March 31, Months 1999 1998 March 31, (unaudited) (unaudited) 1999 Adjusted NIS (unaudited) Sales 1,206,853 1,038,566 299,170 Cost of sales 871,071 744,607 215,932 Gross profit 335,782 293,959 83,238 Operation and administrative expenses 262,245 236,933 65,008 Operating income 73,537 57,026 18,230 Financial expense, net 17,963 2,811 4,453 ---------- ---------- ---------- 55,574 54,215 13,777 Other income (expense), net ( 261) 16 (64) Income before taxes on income 55,313 54,231 13,713 Taxes on income 20,864 19,476 5,173 ---------- ---------- ---------- 34,449 34,755 8,540 Equity in results of affiliated, net 135 545 33 34,584 35,300 8,573 Minority interest in subsidiaries, net ( 5,747) ( 5,084) (1,425) Net income for the period before discontinued operation 28,837 30,216 7,148 Discontinued operations, net of taxes - ( 4,378) - Net income for the period 28,837 25,838 7,148 Basic and diluted earnings per ordinary share or per ADS from continued operation 0.75 0.82 0.19 Basic and diluted earnings per ordinary share or per ADS from discontinued operation - (0.12) - Basic and diluted earnings per ordinary share or per ADS (Adjusted NIS) 0.75 0.70 0.19 Weighted average no. of shares or ADSs outstanding during the period 38,400,000 38,400,000 38,400,000 Blue Square - Israel Ltd. Condensed Consolidated Balance Sheet (in thousands, adjusted to the NIS of March 31,1999) Convenience Translation into US$ March 31, December 31, March 31, 1999 1998 1999 (Unaudited) (Audited) (Unaudited) ASSETS Current assets Cash and cash equivalents 7,067 3,239 1,752 Marketable securities and short-term deposits 219,152 296,243 54,326 Trade receivable 563,008 499,268 139,566 Other accounts receivable 57,992 52,546 14,376 Inventories 321,216 297,364 79,627 -------- ------- ---------- 1,168,435 1,148,660 289,647 Long-term Investments Investments in affiliates 65,599 65,464 16,261 Long-term loan to related party 2,012 1,974 499 -------- ------- ---------- 67,611 67,438 16,760 Fixed assets 2,259,632 2,196,461 560,146 Cost 626,679 616,349 155,349 Less -accumulated depreciation 1,632,953 1,580,112 404,797 Intangible assets and deferred charges, net 120,842 119,075 29,956 Total Assets 2,989,841 2,915,285 741,160 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term credit from banks and others 378,058 356,463 93,718 Trade payables 720,483 654,983 178,603 Other accounts payable 224,997 207,492 55,775 Dividend declared - 151,335 - Parent corporation 111,708 - 27,691 -------- -------- -------- 1,435,246 1,370,273 355,787 Long-term liabilities, net of current maturities Long-term loans from banks and others 223,776 240,299 55,473 Debentures 71,513 78,076 17,728 Accrued severance pay, net 8,382 7,747 2,078 Deferred taxes 17,023 17,092 4,220 -------- -------- ------- 320,694 343,214 79,499 Minority interest 161,923 161,617 40,139 Shareholders` equity Share capital 46,362 46,362 11,493 Capital surplus 607,726 604,766 150,651 Retained earnings 417,890 389,053 103,591 -------- -------- ------- 1,071,978 1,040,181 265,735 2,989,841 2,915,285 741,160 Blue Square - Israel Ltd. Selected Operating Data (Adjusted to the NIS of March 1999) Three months ended Three months ended March 31, March 31. 1999 1999 1998 Convenience trans Adjusted NIS into US$ Sales (millions) 1,207 1,039 299 Operating Income (millions) 73.5 57.0 18.2 No. of stores (at end of period) 162 151 162 Total square meters (at end of period) 223,800 202,600 223,800 Same store sales 9.70% -0.49% 9.70% Sales per sq. mtr. 5,410 5,186 1,341 Sales per employee (thousands) 183 172 45 EBITDA (millions) 101 79 25 EBITDA Margin 8.37% 7.60% 8.37% *T `  