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Alon Holdings Blue Square - Israel Ltd. Announces Financial Results For The First Nine Months And Third Quarter Of 2011

Stocks in this article: BSI

Revenues (including government levies) for the first nine months of 2011 were NIS 11,555.6 million(U.S. $3,113.0 million), compared to NIS 5,520.3 million in the comparable period last year - an increase of 109.3 %. The main increase in revenues was due to the inclusion of the results of Dor Alon. Dor Alon's revenues in the first nine months, including government levies of NIS 2,112.4 million (U.S. $569.1 million) amounted to NIS 6,138.4 million (U.S. $1,653.7 million).  

Revenues from sales, net

Supermarkets segment revenues, net - in the first nine months of 2011 amounted to NIS 5,076.1 million (U.S. $1,367.5 million) as opposed to NIS 5,155.0 million in the comparable period last year, a decrease of 1.5%. (Decrease in sales of SSS stores of 1.2% and decrease in the contribution of non SSS branches (8 openings less 4 closures during the last 12 months)). The main decrease was due to the public protest in Israel that commenced at the end of the second quarter this year that caused a decrease in selling prices to consumers and decrease in demands and impaired the sales in the Supermarkets segment due to the timing of the Tishrey Holidays, the effect of which was reflected in the third and fourth quarter this year and were fully included in the third quarter last year.

Revenues of the Commercial and Fueling sites segment in the first nine months of 2011 amounted to NIS 4,002.1 million (U.S. $1,078.1 million) as compared to NIS 3,177.6 million in the first nine months of 2010 [4], an increase of 25.9%. The main increase stems from increase in the quantitative sales as a result of opening new fueling sites, an increase in sales in the convenience stores and an increase in the price of petrol between the periods.

Non-food segment - a decrease in revenues of approximately 1.3% from NIS 347.3 million in the first nine months of 2010 to NIS 342.9 million (U.S. $92.4 million) in the first nine months of 2011. The decrease in revenues was mainly due to a decrease in sales to franchisees stemming from increased competition in the sector and the relocation of the Naaman storage utilities to the new logistic center.

Real estate segment -increase in revenues of approximately 21.7% from NIS 18 million in the first nine months of 2010 to NIS 21.9 million (U.S. $5.9 million) in the first nine months of 2011. The increase in revenues is mainly due to the increase in leased premises and from the effect of the increase of CPI.

Gross Profit in the first nine months of 2011 amounted to approximately NIS 2,226.3 million (U.S. $ 599.8 million) (approximately 23.6% of revenues) compared to gross profit of approximately NIS 1,572.8 million (28.5% of revenues) in the first nine months of 2010. Excluding the effect of Dor Alon's results, the gross profit decreased by NIS 18.4 million (U.S. $4.9 million). The decrease in the gross profit is mainly due to a decrease in sales of the supermarkets segment (the gross operating profit amounted to 27.9% in the first nine months of 2011 compared to 27.6% in the first nine months of 2010) and a decrease in sales and the gross profit margin in the non food segment that was partly offset by an increase in revenues from the real estate segment.

Selling, general, and administrative expenses in the first nine months of 2011 amounted to approximately NIS 1,956.6 million (U.S. $ 527.1 million) compared to NIS 1,380.6 million in the comparable period last year, an increase of 41.7%.

Excluding the effect of Dor Alon's results the selling, general and administrative expenses increased by NIS 30.3 million (U.S. $8.2 million)(2.2%). The main increase was recorded in the supermarkets segment and was mainly due to an increase in rental fees affected by the change in CPI and updated lease agreements, an increase in municipal taxes and an increase in payroll expenses that was partly offset by a decrease in advertising expenses.

Operating profit (before other gains and losses and increase in the fair value of investment property) in the first nine months of 2011 amounted to approximately NIS 269.7 million (U.S $ 72.6 million) compared to operating income of NIS 192.2 million in the comparable period last year, an increase of 40.3%.

Excluding the effect of Dor Alon's results the operating profit (before other gains and losses and increase in fair value of investment property) decreased by NIS 48.7 million (U.S. $13.1 million). The decrease in the operating profit was mainly due decrease in sales in the non-food and supermarkets and non-food segments and due to an increase in selling, general and administrative expenses mainly in the supermarkets segment.

Increase in fair value of investment property in the first nine months of 2011, the Company recorded profit from the increase in the value of investment property in the amount of NIS 28.1 million (U.S $ 7.6 million) including NIS 18.1 million (U.S $ 4.9 million) from revaluation of property in Kiryat Hasharon, Netanya, half of which was sold and NIS 7.0 million (U.S $ 1.9 million) from revaluation of "Hadar mall" in Jerusalem in the first nine months of 2010 the Company recorded a gain from increase in value of investment property in the amount of NIS 18.9 million.

Other income and expenses, net in the first nine months of 2011 the Company recorded other expenses, net in the amount of NIS 7.1 million (U.S $ 1.9 million) compared to net expenses of NIS 11.2 million in the comparable period last year. These expenses included costs relating to the relocation of part of the BEE group companies to the logistic center in Beer Tuvia and disposal of property and equipment.

Operating profit in the first nine months of 2011 was NIS 290.7 million (U.S. $ 78.3 million) compared to operating profit of NIS 199.8 million in the comparable period last year, an increase of 45.5%. Excluding the effect of Dor Alon's results the operating profit decreased by NIS 35.4 million (U.S. $ 9.5 million).

Financial Expenses, Net for the first nine months of 2011 were NIS 134.9 million (U.S. $36.3 million) compared to financial expenses, net of NIS 107.5 million in the comparable period last year. Excluding the effect of the results of Dor Alon the finance expenses decreased by NIS 24.5 million (U.S. $6.6 million). The decrease was mainly a result of finance income from the revaluation of the option to purchase shares of Diners and capitalization of borrowing costs of projects under construction in the real estate segment that was partly offset by an increase in the Company's indebtedness following the purchase of Dor Alon and the increase of the Israeli CPI (the CPI increased in first nine months of 2011 by 2.75% compared to increase of 1.62% in the comparable period last year).

Taxes on Income for the first nine months of 2011 were approximately NIS 12.1 million (U.S. $3.3 million) (7.5% effective tax rate compared to a statutory tax rate of 24%) compared to NIS 30.4 million (effective tax rate of 33% compared to a statutory tax rate of 25%) in the comparable period last year. The decrease in tax expenses in this period derives from recording liability for deferred income taxes in the statements of operations in the amount of NIS 37 million in the third quarter of this year with the consummation of the Diners transaction.

Net Income in first nine months of 2011 was NIS 149.8 million (U.S. $ 40.3 million) compared to net income of NIS 61.3 million in the comparable period last year. The increase in net income in this period compared to the corresponding period last year mainly derives from including Dor Alon's results, the impact of the option revaluation of Diners and tax benefit on exercising the option. The net income for the first nine months of 2011 attributable to the equity holders of the company was NIS 128.8 million (U.S. $34.7 million), or NIS 1.96 per share (U.S. $ 0.53), while the portion attributable to the non-controlling interests was NIS 20.9 million (U.S. $5.6 million).

Cash Flows in the First Nine Months of 2011

Cash Flows from Operating Activities: Net cash flows deriving from operating activities in the first nine months of 2011 amounted to NIS 486.2 million (U.S. $131.0 million) compared to cash flows from operating activities of NIS 204.7 million in the first nine months of 2010. The inclusion of Dor Alon's results contributed to the cash flow from operating activities in the first nine months of 2011 the amount of NIS 88.4 million.

The increase in cash flows from operating activities is mainly due to a decrease in working capital  in the Supermarket segment, from advancing receipts from credit card companies and from the increase in advances from purchasers of apartments of NIS 98.3 million (U.S $26.5 million).

Cash Flows from Investing Activities: Net Cash flows used in investing activities in the first nine months of 2011 amounted to approximately NIS 477.4 million (U.S. $128.6 million) compared to net cash flows of NIS 463.2 million used in investing activities in the first nine months of 2010. Cash flows used in investing activities in the first nine months of 2011 included mainly purchases of property and equipment, investment property and intangible assets, in a total amount of NIS 272.9 million (U.S $ 73.5 million), the grant of long term loans of NIS 155.1 million, ( $ 41.8 million), mainly to controlling shareholders and investment in restricted deposits in the amount of NIS 98.3 million (U.S $ 26.5 million), and an investment in an associate (Diners) of NIS 36.4 million (U.S $ 9.8 million).  Cash flows used in investing activities in the first nine months of 2010 included mainly purchases of property and equipment, intangible assets, investment property and payments on account of real estate in a total amount of NIS 229.5 million, a net investment in marketable securities of NIS 220.7 million and the grant of a loan of NIS 27.4 million to a proportionally consolidated company.

Cash Flows from Financing Activities: Net Cash flows used in financing activities in the first nine months of 2011 amounted to NIS 16.8 million (U.S $4.5 million) compared to net cash flow used in financing activities of NIS 82.4 million in the first nine months of 2010. Cash flows used in financing activities in the first nine months of 2011 included mainly repayment of bonds in the amount of NIS 140.7 million (U.S $37.9 million), repayment of loans in the amount of NIS 181.7  million (U.S $48.9 million),  and payments of interest in the amount of NIS 170.0 million (U.S $45.8 million), this was offset by an increase in short term bank credit in the amount of NIS 373.1 million (U.S $100.5 million) and receiving loans in the amount of NIS 132.5 million (U.S $35.7 million),  . Net Cash flows used in financing activities in the first nine months of 2010 included mainly repayment of long term loans of NIS 99.6 million, the payment of interest of NIS 99.6 million, payment of dividends of NIS 75 million to the Company's shareholders and NIS 17.6 million to the non-controlling interests and acquisition of treasury shares of NIS 4.3 million. This was offset by issue of debentures in the amount of NIS 108.6 million and an increase in short term credit net in the amount of NIS 100.3 million.

Comments of Management

Mr. David Weisman Active Chairman and Chief Business manager  - "the results of the first nine months of the year are characterized by a positive contribution of the organizational change in which the food chain "Mega", "Eden Teva" and the fuel company "Dor Alon" operate under one "umbrella". Another contribution is to the profitability is the exercise of the option into a full holding of 49% in Diners, which among others, strengthens the customers' club YOU which already has over one million customers and is doing it successfully.

In September of this year, the fuel administration, in a disproportionate action, reduced the marketing margin on supervised fuels in self service and full service by 18.4 and 11.5 Agorot per liter, respectively; this reduction may adversely and significantly affect the business results of Dor Alon.

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