Blue Square - Israel Ltd. Reports Financial Results for the Full Year & the Fourth Quarter of 2008

Towards the end of 2008, Blue Square Israel Completed an Additional Step of its Strategy - the Launch of the HD "Mega Bool" Format & the "Mega" Private label Brand



ROSH HA'AYIN, Israel, March 23  /PRNewswire-FirstCall/ -- Blue Square-Israel Ltd. (NYSE and TASE: BSI) today announced its financial results for the full year and fourth quarter ended December 31, 2008.

NOTE: IFRS - International Financial Reporting Standard

Financial results for the full year and last three-month period ended December 31, 2008 are presented in accordance with the International Financial Reporting Standards ("IFRS"). To facilitate comparison, results from the full year and last three-month period ended December 31, 2007 have been adjusted in accordance with IFRS, and differ from the results originally reported.

Results for the Full Year 2008

Revenues: The Company's revenues for 2008 were NIS 7,429 million (U.S. $1,954 million)(a) compared to NIS 6,982 million in 2007, an increase of 6.4%. The increase reflects: 1) the opening of 20 new supermarkets in 2007-2008, including the accelerated expansion of the Eden Teva Market format; 2) the year's 1.1% increase in Same Store Sales, reflecting the continued growth of Mega In Town countered partially by declining sales in Shefa Shuk format and Mega stores before their conversion to the Mega Bool format; and 3) the ongoing expansion of Bee Group Retail ("Bee Group"), and this year's consolidation of the full-year results from Naaman Porcelain Ltd. (TASE:NAMN) ("Naaman") and Vardinon Textile Ltd. (TASE:WRDT) ("Vardinon"), as opposed to the previous year, in which their revenues were only partially consolidated into the Company's financial results, increasing 2008 revenues by NIS 133 million.

Gross Profit: Gross profit for 2008 increased by 11.2% to NIS 2,060 million (U.S. $541.8 million) (27.7% of sales) compared to NIS 1,852 million (26.5% of sales) in 2007. The increase reflects improved supplier terms; a positive influence from raised prices, a shift in the mix of sales between the Company's formats, and the expansion of the Bee Group, as mentioned above, which is characterized by a higher sales gross margin compared to the food sector.

Selling, General, and Administrative Expenses: Selling, General, and Administrative expenses for 2008 were NIS 1,795 million (U.S. $472 million) (24.2% of sales) compared to NIS 1,563 million (22.4% of sales) in 2007, an increase of 14.8%. The increase reflects: 1) increased expenses associated with the opening of new stores and the accelerated development of the Eden Teva Market format; 2) expenses associated with the launch of the Mega Bool format; 3) a rise in the operating expenses of existing stores due to the increase in energy and electricity prices, as well as an increase in the CPI, which increased CPI-linked expenses such as rent and municipal taxes; and 4) the rise in expenses of the Bee Group due to its expansion and the fact that 2008 expenses included the full-year contributions of Naaman and Vardinon, as explained above, in contrast to 2007, when only a portion of their expenses were consolidated into the Company's results.

Operating Income Before Other Expenses (Net) and Revaluation of Investment Property: Operating income for 2008 before other expenses and revaluation of investment property was NIS 265 million (U.S. $69.8 million) (3.6% of sales) compared to NIS 289 million (4.1% of sales) in 2007. The decrease in operating income comes mainly from the decrease in the profitability of the food retail, mainly from stores which were converted to the Mega Bool format, and the increased expenses of Eden Teva Market, which is currently carrying out an establishment plan. In the Non-Food operations the operating income decreased due to the negative contribution of the Bee Group's Dr. Baby format, which opened eight self-operating stores in 2008.

Revaluation of Investment Property: In 2008, the Company's recorded income of NIS 19.1 million (U.S. $5.0 million) associated with the increase in value of its investment property compared with NIS 10.5 million in 2007. The revaluation of Investment Property is mainly from Hadar Talpiyot mall which is located in Jerusalem, in which the company holds 50%.

Other Expenses (Income), Net: In 2008, the Company recorded other expenses (net) of NIS 2.5 million (U.S. $0.7 million) compared with net income of NIS 3.1 million during 2007. This included a NIS 6.0 million (U.S. $1.6 million) expense associated with the Company's efficiency program, primarily including the reduction of headcount at the Company's headquarters, and a provision of NIS 6 million (U.S. $1.6 million) associated with the reduction of property value and depreciation. The expenses were countered partially by other income (net) totaling NIS 9 million (U.S. $2.4 million), which derived from the decrease in the Bee Group's holdings following its reorganization.

Operating Income: Operating income for 2008 was NIS 281.8 million (U.S. $74.1 million) (3.8% of sales) compared to NIS 302.7 million (4.3% of sales) in 2007, a decline of 6.9%.

Financial Expenses (net): Financial expenses (net) for 2008 were NIS 106 million (U.S. $27.8 million) compared to NIS 57 million in 2007. This increase derived from the year's increase in the consumer price index compared to 2007, an increase in net financial debt and hedging against a rise in the consumer price index, mitigated partially by financial income of NIS 24 million related to revaluations of the Company's financial instruments.

Taxes on Income: Taxes on income for 2008 were NIS 43.8 million (U.S. $11.5 million) (24.9% effective tax rate compared to a statutory tax rate of 27%) compared to NIS 69.8 million in 2007 (effective tax rate of 28.4% compared to a statutory tax rate of 29%) in 2007.

The decrease in the effective tax rate derived primarily from the year's decline in the statutory tax rate.

Net Income: Net income for 2008 was NIS 132.4 million (U.S. $34.8 million) compared to NIS 175.8 million for 2007. The portion of the net profit attributable to shareholders, as calculated in accordance with the IFRS, was NIS 104.6 million (U.S. $27.5 million), or NIS 2.41 per ADS (U.S. $0.63), while the portion attributable to the share of minority interests was NIS 27.8 million (U.S. $7.3 million). The decrease in net profit derives from the decrease in operating income and the increase in the financial expenses, as explained above.

More details

Supermarkets: As of December 31, 2008, the Company operated 194 supermarkets in the following formats: Mega In Town -113; Mega Bool - 36; Mega - 19; Shefa Shuk - 21; Eden Teva Market - 5.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization): EBITDA for 2008 was NIS 427 million (U.S. $112.4 million) (5.8% of sales) compared to NIS 423 million (6.1% of sales) in 2007.

For the fourth quarter of 2008, the EBITDA (earnings before Interest, Taxes, Depreciation, and Amortization) was NIS 83 million (U.S. $21.8 million) (4.7% of sales) compared to NIS 94 million (5.3% of sales) in the fourth quarter of 2007.

In 2003, the Board of Directors has resolved that dividends will not be distributed in a quarter when the ratio of financial obligations (as defined by S&P Maalot in its rating for BSI's debentures issued in 2003) to EBITDA for the prior four quarters exceeds 3, or if the ratio of the cost of unencumbered fixed assets to financial obligations is below 1.2. This is in accordance with definitions established by the rating company Standard & Poor's Maalot in its rating analysis of the Company's debentures issued in 2003. According to the Company's unaudited financial reports as of December 31, 2008, the ratio of its financial obligations to EBITDA as of the end of 2008 was 3.3, and the ratio of its unencumbered fixed assets to the financial obligations was 1.6.

  Events During the Reporting Period

  - Dividend: In October 2008, the Company distributed a cash dividend of
    NIS 150.0 million.

  - Successful tender offer: During the fourth quarter, the Company
    announced the successful completion of a NIS 150.7 million tender
    offer for all of the remaining publicly held shares of BSIP (Blue
    Square Chain Properties & Investments Ltd.). As such, the Company
    now holds 100% ownership and control of the shares of BSIP. The Company
    believes that this course will contribute to the improvement of its
    overall operating efficiency and increase its earnings per share for
    the benefit of shareholder value.

  - Launch of Mega Bool (Blue Square's New HD Format) and "Mega" line of
    private label products: on December 23rd, the Company launched Mega
    Bool, a new HD supermarket format formed through the conversion of
    approximately 36 existing Blue Square-Israel stores (approximately
    120,000 square meters), including approximately 20 large stores from
    the Mega and Shefa Shuk formats and 16 smaller stores located within
    residential neighborhoods and city centers. In parallel, the Company
    has also announced the launch of its new Mega line of private label
    goods with the goal of strengthening customer loyalty and recognition
    of the Company's format brand area. The Company believes these steps
    will make Blue Square-Israel a strong, focused player in Israel's HD
    formats, which are currently estimated for one third of all Israeli
    retail food sales, while enabling the Company to provide a
    comprehensive shopping solution for each type of shopper in each
    region in Israel.

  - Organic and health food markets: During the fourth quarter, the Company
    continued its accelerated expansion of the Eden Teva Market
    organic/health food format through the opening of a new branch in
    Ashdod next to an existing Mega store. The growth in demand for
    high-quality organic food at reasonable prices is evident from the
    continuously rising sales of this exciting new format, confirming the
    desire of consumers to buy healthier products even in current times.

  - Bee Group (non-food retailing): During the fourth quarter, the Company
    continued with a re-organization process that will help it capitalize
    on potential synergies between Bee Group subsidiaries and to begin
    functioning as the Non-Food retailing arm of Blue Square-Israel as a
    whole.




On March 22, 2009, Bee Group (of which the Company holds 85%) acquired an additional 8% (approximately) of the shares of Naaman Porcelain Ltd. (TASE: NAMN) ("Naaman"), thereby increasing its holdings in Naaman to 68.42%.

Results for the Fourth Quarter

Revenues: Revenues for the fourth quarter were NIS 1,753 million (U.S. $461.2 million), compared to NIS 1,784 million in the parallel quarter of 2007 a decrease of 1.7%. Supermarket same store sales (SSS) for the period decreased by 4.5% compared to the parallel quarter. This is due primarily to the process of establishing the Mega Bool HD format, which involved the conversion of approximately 36 stores, together with a decrease in sales of the Shefa Shuk format and a decrease in the sales of some Mega stores prior to their conversion to the Mega Bool format, which was partially offset by the increase in same store sales (SSS) of Mega In Town stores. The decrease was mitigated by the opening of ten new stores during the 12-month period, adding approximately 12,000 square meters to the chain, contributed to the increase in revenues, and the increased sales of Bee Group by approximately NIS 5.2 million (U.S. $1.4 million) during the fourth quarter of 2008 compared to the parallel quarter of 2007.

Gross Profit: Gross profit for the fourth quarter increased by 2.7% to NIS 490 million (U.S. $128.9 million) (28.0% of sales) compared to NIS 477 million (26.8% of sales) in the fourth quarter of 2007. The increase in the gross margin reflected a change in the mix of sales, including a higher contribution from formats characterized with relatively high gross margins. Gross margin was also positively affected by improved supplier agreements and discounts, together with rising prices.

Selling, General, and Administrative Expenses: Selling, General, and Administrative expenses for the fourth quarter increased by 8.3% to NIS 446 million (U.S. $117.3 million) (25.4% of revenues) compared to NIS 412 million (23.1% of revenues) in the parallel quarter of 2007. The increase reflects: 1) increased expenses associated with the opening of ten new stores and the accelerated development of the Eden Teva Market format; 2) expenses associated with the launch of the Mega Bool format; 3) a rise in the operating expenses of existing stores due to the increase in CPI, which increased CPI-linked expenses such as rent and municipal taxes; and 4) the rise in selling and administrative expenses of the Bee Group.

Operating Income Before Other Expenses (Net) and Revaluation of Investment Property: Operating income for the fourth quarter before other expenses (net) and revaluation of investment property was NIS 44.3 million (U.S. $11.6 million) (2.5% of sales) compared to NIS 65.8 million (3.2% of sales) in the fourth quarter of 2007. The decrease derived from the quarter's decrease in sales as compared to the parallel quarter of 2008 and the rise in operating expenses; from expenses associated with the accelerated opening of new Eden Teva Market branches; from expenses associated with the launch of the Mega Bool format; and from activities associated with the opening of new stores in the Bee Group's Dr. Baby format, as explained above; countered partially by the rise in gross margin.

Revaluation of Investment Property: During the fourth quarter of 2008, the Company recorded income of NIS 1.1 million (U.S. $0.3 million) compared with NIS 10.5 million in the parallel period of 2007.

Other Expenses, Net: In the fourth quarter of 2008, the Company recorded other expenses of NIS 11.8 million (U.S. $3.1 million), while in the fourth quarter of 2007 it recorded other income of NIS 5.4 million. The expenses (net) for the fourth quarter of 2008 included NIS 6.0 million (U.S. $1.6 million) associated with the Company's efficiency program primarily including the reduction of headcount at the Company's headquarters, and a NIS 6 million (U.S. $1.6 million) provision associated with the impairment in value and depreciation of fixed assets.

Operating Income: Operating income for the fourth quarter was NIS 33.6 million (U.S. $8.8 million) (1.9% of sales) compared to NIS 81.7 million (4.6% of sales) in the fourth quarter of 2007.

Financial Expenses (net): Financial expenses (net) for the quarter were NIS 7.0 million (U.S. $1.8 million) compared to financial income (net) of NIS 12.2 million in the parallel quarter of 2007. The transition from financial income to financial expenses reflects primarily the decrease in value of financial instruments and hedging against a rise in the consumer price index, as measured by the Fair Value method, whose changes in value generated financial expenses of NIS 7.0 million (U.S. $1.8 million) during the fourth quarter of 2008, compared to financial income of NIS 26.0 million in the fourth quarter of 2007.

Taxes on Income: Taxes on income for the fourth quarter were NIS 8.4 million (U.S. $2.2 million) (31.6% effective tax rate compared to a statutory tax rate of 27%) compared to NIS 23.2 million in the fourth quarter of 2007 (effective tax rate of 24.7% compared to a statutory tax rate of 29%) in the parallel quarter of 2007. The increase in the effective tax rate reflects primarily the losses of Eden Teva Market and Dr. Baby formats, for which taxes were not recorded during the period.

Net Income: Net income for the fourth quarter of 2008 was NIS 18.1 million (U.S. $4.8 million) compared to NIS 70.8 million in the fourth quarter of 2007. The portion of the net profit attributable to shareholders, as calculated in accordance with the IFRS, was NIS 10.4 million (U.S. $2.7 million), or NIS 0.24 per ADS (U.S. $0.063), while the portion attributable to the share of minority interests was NIS 7.7 million (U.S. $2.0 million). The decrease in net income derived primarily from the rise in operating expenses, decrease in operating profit and increase in financial expenses, as explained above.

Comments of Management

Commenting on the results, Mr. Zeev Vurembrand, Blue Square's President and CEO said, "With the closing of 2008, we conclude today a complex and challenging year, due both to the difficult macroeconomic environment which have impacted our markets, and to the extensive internal reorganization process that we have undertaken.

During the year, we completed the forming of a comprehensive new strategy designed to giving us the right structure for today's competitive and marketplace conditions. As part of this strategy, during the fourth quarter of 2008 we announced and launched our new Mega Bool format and Mega private label brand, both in continuation with the successful new direction of the Mega In Town format."

Mr. Vurembrand continued, "In 2009, our focus will be to execute successfully additional central elements of the strategic plan, including: the achievement of a deeper nationwide penetration of the Mega Bool format and a broader consumer awareness of its unique marketing concept; an expansion of our private label line to encompass additional product categories; the launch of a customer loyalty program through the offering of a unique membership card; and the continued accelerated development of the Eden Teva Market format to reach 10 stores by the end of 2009. In addition, we will continue the process of consolidating the headquarters of Bee Group's subsidiaries with the goal of giving it a higher level of operating efficiency and capitalizing on potential operating synergies between the Bee Group and Blue Square-Israel as a whole."

Mr. Vurembrand concluded, "2009 promises to be a challenging year given today's macro-environment. However, the completion of the organizational structure positions us in the most efficient structure for today's spirit of times and to future yet to come. "

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 December 31, 2008: U.S. $1.00 equals NIS 3.802. 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 199 supermarkets under different formats, each offering varying levels of service and pricing.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, plans or projections about our business and our future revenues, expenses and profitability. Forward-looking statements may be, but are not necessarily, identified by the use of forward-looking terminology such as "may," "anticipates," "estimates," "expects," "intends," "plans," "believes," and words and terms of similar substance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual events, results, performance, circumstance and achievements to be materially different from any future events, results, performance, circumstance and achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the following: the effect of the recession in Israel on the sales in our stores and on our profitability; our ability to compete effectively against low-priced supermarkets and other competitors; quarterly fluctuations in our operating results that may cause volatility of our ADS and share price; risks associated with our dependence on a limited number of key suppliers for products that we sell in our stores; the effect of an increase in minimum wage in Israel on our operating results; the effect of any actions taken by the Israeli Antitrust Authority on our ability to execute our business strategy and on our profitability; the effect of increases in oil, raw material and product prices in recent years; the effects of damage to our reputation or to the reputation to our store brands due to reports in the media or otherwise; and other risks, uncertainties and factors disclosed in our filings with the U.S. Securities and Exchange Commission, including, but not limited to, risks, uncertainties and factors identified under the heading "Risk Factors" in our Annual Report on Form 20-F for the year ended December 31, 2007. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Except for our ongoing obligations to disclose material information under the applicable securities laws, we undertake no obligation to update the forward-looking information contained in this press release.

                          BLUE SQUARE - ISRAEL LTD.
                         CONSOLIDATED BALANCE SHEET
                           AS OF DECEMBER 31, 2008
                                 (UNAUDITED)

                                                           Convenience
                                                           translation
                                         December 31,      December 31,
                                        ______________     _____________
                                        2007      2008        2008
                                        ____      ____     _____________
                                                 (Unaudited)
                                        ________________________________
                                              NIS         U.S. dollars
                                        ______________    ______________
                                                In thousands
                                        ________________________________

                  A s s e t s


  CURRENT ASSETS:
  Cash and cash equivalents              56,410    95,325        25,072
  Marketable securities                 199,394   171,849        45,200
  Short-term bank deposit               103,498       206            54
  Trade receivables                     776,251   729,970       191,996
  Other accounts receivable              99,841    87,624        23,047
  Income taxes receivable                23,062    74,446        19,581
  Inventories                           453,944   497,080       130,742
                                      _________ _________     _________
                                      1,712,400 1,656,500       435,692
                                      _________ _________     _________
  NON-CURRENT ASSETS:
  Associated companies                    4,948     4,915         1,293
  Embedded derivative                    10,500     5,248         1,380
  Prepaid expenses in respect of
  operating lease                       199,679   192,426        50,612
  Other long-term receivables            48,289     1,554           409
  Property, plant and equipment, net
  of accumulated depreciation and
  amortization                        1,613,515 1,701,222       447,454
  Investment property                   315,778   434,232       114,211
  Intangible assets and deferred
  charges, net of accumulated
  amortization                          280,420   404,422       106,371
  Deferred taxes                         33,542    44,508        11,706
                                      _________ _________     _________
                                      2,506,671 2,788,527       733,436
                                      _________ _________     _________
  Total assets                        4,219,071 4,445,027     1,169,128
                                      _________ _________     _________




                          BLUE SQUARE - ISRAEL LTD.
                         CONSOLIDATED BALANCE SHEET
                           AS OF DECEMBER 31, 2008
                                 (UNAUDITED)

                                                         Convenience
                                                         translation
                                       December 31,      December 31,
                                     ______________     _____________
                                      2007      2008         2008
                                      ____      ____    _____________
                                               (Unaudited)
                                     ________________________________
                                           NIS           U.S. dollars
                                     ______________    ______________
                                              In thousands
                                     ________________________________
   Liabilities and shareholders'
               equity

  CURRENT LIABILITIES:
  Credit and loans from banks and
  others                              171,010     210,901      55,471
  Current maturities of debentures
  and convertible debentures           69,859      25,999       6,838
  Trade payables                      981,188   1,006,386     264,699
  Other accounts payable and
  accrued expenses                 *) 427,665     463,292     121,854
  Income taxes payable                  2,905       6,933       1,824
  Provisions for other liabilities  *) 12,337      17,915       4,712
                                    _________   _________   _________
                                    1,664,964   1,731,426     455,398
                                    _________   _________   _________
  NON CURRENT LIABILITIES:
  Long-term loans from banks, net
  of current maturities               248,488     341,586      89,844
  Convertible debentures, net of
  current maturities               *) 193,706     130,525      34,331
  Debentures, net of current
  maturities                       *) 749,018     985,844     259,296
  Other liabilities                    11,646      39,925      10,501
  Derivatives instruments               9,968       9,481       2,494
  Liabilities for employee rights,
  net of amount funded                 35,986      49,911      13,128
  Deferred taxes                       57,615      60,327      15,867
                                    _________   _________   _________
                                    1,306,427   1,617,599     425,461
                                    _________   _________   _________
  Total liabilities                 2,971,391   3,349,025     880,859
                                    _________   _________   _________
  SHAREHOLDERS' EQUITY:
  Equity attributable to equity
  holders of the Company:
  Ordinary shares                      57,094      57,094      15,017
  Additional paid-in capital        1,018,405   1,018,405     267,860
  Other reserves                        1,415        (261)        (69)
  Accumulated deficit                (107,262)   (154,719)    (40,694)
                                    _________   _________   _________
                                      969,652     920,519     242,114

  Minority interest                   278,028     175,483      46,155
                                    _________   _________   _________
  Total equity                      1,247,680   1,096,002     288,269
                                    _________   _________   _________
  Total liabilities and
  shareholder's equity              4,219,071   4,445,027   1,169,128
                                    _________   _________   _________


  *) Reclassified


                          BLUE SQUARE - ISRAEL LTD.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE TWELVE AND THREE MONTHS PERIODS
                         ENDED DECEMBER 31, 2008
                               (UNAUDITED)

                                                                Convenience
                                                                translation
                                                              for the three
                          Year             Three months        months ended
                     ended December 31,   ended December 31,   December 31,
                     __________________   __________________  _____________
                      2007      2008       2007        2008           2008
                     ______    ______     ______      ______         ______
                                            Unaudited
                     ______________________________________________________
                                         NIS                   U.S. Dollars
                     ______________________________________________________
                         In thousands (except share and per share data)
                     ______________________________________________________

  Sales           6,981,984   7,429,121  1,784,147  1,753,324     461,158
  Cost of sales   5,129,578   5,369,149  1,306,780  1,263,214     332,250
                  _________   _________  _________  _________   _________
  Gross profit    1,852,406   2,059,972    477,367    490,110     128,908

  Selling, general
  and
  administrative
  expenses        1,563,208   1,794,720    411,583    445,855     117,269
                  _________   _________  _________  _________   _________
  Operating profit
  before net gain
  from adjustment
  of investment
  property to fair
  value and other
  expenses and
  income            289,198     265,252     65,784     44,255      11,639

  Other income       15,835      12,233     15,217        329          87
  Other expenses     12,755      14,716      9,784     12,110       3,185
  Net gain from
  adjustment of
  investment
  property to fair
  value              10,456       19,067     10,456      1,097        289
                  _________   _________  _________  _________   _________
  Operating profit  302,734      281,836     81,673     33,571      8,830

  Finance income     60,978       60,700     24,465     19,049      5,010
  Finance expenses  118,297      166,295     12,241     26,081      6,860
  Share in profit
  (losses) of
  associated
  companies, net        186          (33)        49        (15)        (4)
                  _________    _________  _________  _________  _________
  Income before
  taxes on income   245,601      176,208     93,946     26,524      6,976
  Taxes on income    69,779       43,806     23,164      8,391      2,207
                  _________    _________  _________  _________  _________
  Net income for
  the period        175,822      132,402     70,782     18,133      4,769
                  =========    =========  =========  =========  =========
  Attributable to:
  Equity holders of
  the parent        143,628      104,586     61,142     10,437      2,745
                  _________    _________  _________  _________  _________
  Minority
  interests          32,194       27,815      9,640      7,696      2,024
                  _________    _________  _________  _________  _________
  Net income per
  Ordinary share
  attributed to
  Company
  shareholder's or
  ADS:
  Basic                3.39         2.41       1.41       0.24      0.06
                  _________    _________  _________  _________  _________
  Fully diluted
  Earning (loss)       3.39         1.62       1.16      (0.19)    (0.05)
                  _________    _________  _________  _________  _________
  Weighted average
  number of shares
  or ADS used for
  computation of
  income per share:
  Basic             42,355,339  43,372,819 43,372,819 43,372,819 43,372,819
                   ___________  __________ __________ __________ __________
  Fully diluted     42,355,339  45,037,692 44,793,242 45,037,692 45,037,692





                          BLUE SQUARE - ISRAEL LTD.
                   CONSOLIDATED STATEMENTS OF CASH FLOW FOR
                      THE YEAR ENDED DECEMBER 31, 2008
                                 (UNAUDITED)

                                                              Convenience
                                                              translation
                                                             for the year
                                           Year             ended December
                                    ended December 31,            31,
                                  ____________________     ________________
                                    2007         2008            2008
                                   ______       ______          ______
                                                  Unaudited
                                  _________________________________________
                                            NIS               U.S dollars
                                  _____________________ ___________________
                                  In thousands (except share and per share
                                                    data)
                                  _________________________________________
  CASH FLOWS FROM OPERATING
  ACTIVITIES:
  Income before taxes on income       245,601      176,208        46,346
  Income tax paid                     (60,903)     (94,212)      (24,779)
  Adjustments required to
  reflect the cash flows from
  operating activities (a)            159,080      318,087        83,663
                                     ________     ________      ________
  Net cash provided by operating
  activities                          343,778      400,083       105,230
                                     ________     ________      ________

  CASH FLOWS FROM INVESTING
  ACTIVITIES:
  Purchase of property, plant
  and equipment, investment
  property and software              (205,934)    (300,694)      (79,088)
  Additional investment in
  subsidiary                           (5,000)    (186,403)      (49,028)
  Investment in intangible
  assets and deferred charges               -       (1,383)         (363)
  Proceeds from realization of
  investment in subsidiary                394            -             -
  Collection of short-term bank
  deposit, net                        398,513      101,281        26,639
  Payments on account of real
  estate                              (45,825)           -             -
  Repayment of long-term
  receivables                             409        1,250           329
  Proceeds from sale of
  property, plant and

  Equipment, investments
  property and software                16,456        8,126         2,137
  Proceeds from of marketable
  securities                           13,340      185,104        48,686
  Purchase of marketable
  securities                         (175,258)    (169,747)      (44,647)
  Acquisition of subsidiaries
  consolidated for the first
  time (b)                           (161,876)           -             -
  Interest received                    55,170       17,778         4,676
                                     ________     ________      ________

  Net cash provided (used) in
  investing activities               (109,611)   ( 344,688)      (90,659)
                                     ________     ________      ________

  CASH FLOWS FROM FINANCING
  ACTIVITIES:
  Convertible debentures repaid       (16,728)           -
  Dividend paid to shareholders      (280,000)    (150,000)      (39,453)
  Issuance of debentures                    -      121,259        31,894
  Dividend paid to minority
  shareholders of subsidiaries        (50,706)     (22,077)       (5,807)
  Receipt of long-term loans          269,364      231,398        60,862
  Repayments of long-term loans      (215,143)    (130,571)      (34,343)
  Repayments of credit from
  trade payables                       (1,740)      (1,740)         (458)
  Short-term credit from banks,
  net                                   3,396       15,689         4,127
  Interest paid                       (72,527)     (89,244)      (23,473)
                                     ________     ________      ________

                                     (364,084)      25,286        (6,651)
  ______________________________     ________     ________      ________
  Net cash provided (used) in
  financing activities



                          BLUE SQUARE - ISRAEL LTD.
                 CONSOLIDATED STATEMENTS OF CASH FLOW FOR
                THE YEAR ENDED DECEMBER 31, 2008 (CONTINUED)
                                 (UNAUDITED)

                                                               Convenience
                                                               translation
                                                             for the twelve
                                               Year           months ended
                                        ended December 31,    December 31,
                                        ___________________  ______________
                                          2007        2008         2008
                                         ______      ______       ______
                                                    Unaudited
                                        ___________________________________
                                                NIS            U.S dollars
                                        ___________________________________
                                        In thousands (except share and per
                                                   share data)
                                        ___________________________________
      INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS                   (129,917)   30,109        7,920
      BALANCE OF CASH AND CASH
      EQUIVALENTS AT BEGINNING OF
      PERIOD                              182,946    53,029       13,948
                                         ________   _______      _______
      BALANCE OF CASH AND CASH
      EQUIVALENTS AT END OF PERIOD         53,029    81,138       21,868
                                         ========   =======      =======
  (a) Adjustments required to reflect
      the cash flows from operating
      activities:
      Income and expenses not
      involving cash flows:
      Depreciation and amortization       132,726   153,882       40,474
      Net gain from adjustment of
      investment property to fair
      value                               (10,456)  (19,067)      (5,015)
      Share in profits losses (gain)
      of associated companies                (186)       33            9
      Amounts charged in respect of
      employee share-based payment              -     7,969        2,096
      Loss (gain) from sale, disposal
      of impairment of property,
      plant and equipment and
      investment property                  (4,927)    5,989        1,575
      Loss (gain) from changes in
      fair value of derivative
      financial instruments                 1,400   (30,840)     ( 8,111)
      Linkage differences on
      long-term loans and other
      liabilities, net                     18,428    71,262       18,743
      Capital loss from realization
      of investments in subsidiaries        1,520  ( 11,176)      (2,940)
      Increase (decrease) in
      liability for employee rights,
      net                                     (31)      263           69
      Decrease in value of marketable
      securities deposit and
      long-term receivables, net           54,252    11,169        2,938
      Interest received and interest
      paid, net                            17,357    71,466       18,797

      Changes in operating assets and
      liabilities:
      Decrease (increase) in trade
      receivables and other accounts
      receivable                          (62,176)   50,277       13,223
      Decrease (increase) in
      inventories                         (16,145)  (43,136)     (11,346)
      Increase (decrease) in trade
      payables and other accounts
      payable                              27,318    49,996       13,151
                                          _______   _______      _______
                                          159,080   318,087       83,663
                                          =======   =======      =======





                          BLUE SQUARE - ISRAEL LTD.
                   CONSOLIDATED STATEMENTS OF CASH FLOW FOR
                THE YEAR ENDED DECEMBER 31, 2008 (CONTINUED)
                                 (UNAUDITED)


                                                           Convenience
                                                           translation
                                                         for the twelve
                                            Year           months ended
                                     ended December 31,    December 31,
                                     __________________  ______________
                                       2007       2008         2008
                                      ______     ______       ______
                                                  Unaudited
                                     __________________________________
                                            NIS            U.S dollars
                                     __________________________________
                                       In thousands (except share and
                                               per share data)
                                     __________________________________

  (b) Acquisition of subsidiaries
      consolidated for the first
      time:
      Assets and liabilities
      assumes at date of
      acquisition:
      Working capital (excluding
      cash and cash equivalents)       (68,933)      -
      Property, plant and equipment
      and investment property          (32,009)      -
      Deferred taxes, net               14,703       -
      Liability for employee rights
      upon retirement, net               2,663       -
      Long-term loans and
      convertible debentures            34,288       -
      Intangible assets arising on
      acquisitions                    (169,743)      -
      Minority interest in
      subsidiary at date of
      acquisition                       55,645       -
      Embedded derivative                1,510       -
                                      _________ _______
                                      (161,876)      -
                                      ========= =======
  (c) Supplementary information on
      investing and financing
      activities not involving cash
      flows:
      Issuance of shares upon
      conversion of convertible
      debentures                       255,676       -            -
                                      ========= =======      =======
      Exercise of convertible
      debentures of subsidiary           2,598       -            -
                                      ========= =======      =======
      Purchasing property, plant
      and equipment on credit            5,690  14,797        3,892
                                      ========= =======      =======




                          BLUE SQUARE - ISRAEL LTD.
                           SELECTED OPERATING DATA
                    FOR THE YEAR AND THREE MONTHS PERIODS
                         ENDED DECEMBER 31, 2008
                                 (UNAUDITED)


                                                                Convenience
                                                                translation
                                                                  for the
                                                               three months
                                 For the year    For the three     ended
                                ended December   months ended    December
                                      31          December 31        31,
                                ___________________________________________
                                 2007    2008    2007    2008      2008
                                ______  ______  ______  ______    ______
                                             NIS                   U.S.$
                                ___________________________________________
                                               In millions
                                ___________________________________________
                                                Unaudited
                                ___________________________________________
  Sales                         6,982   7,429   1,785   1,753       461

  Operating income before net
  gain from adjustment of
  investment property to fair
  value and other expenses and
  income                          289     265      66      44      11.6



  EBITDA                          423     427      94      83      21.8

  EBITDA margin                   6.1%    5.8%    5.3%    4.7%      4.7%

  Increase in same store
  sales*                          1.2%    1.1%    4.8%   (4.5%)      NA

  Number of stores at end of
  period                          185     194     185     194        NA
  Stores opened during the
  period                           10      10       3       1        NA
  Stores closed during the
  period                            0       1       0       1        NA

  Total square meters at end
  of period                   342,705 354,531 342,705 354,531        NA
  Square meters added (less)
  during the period, net       19,401  11,826   3,421  (1,737)       NA

  Sales per square meter       19,905  19,898   4,977   4,691     1,232

  Sales per employee (in
  thousands)                     937      954     234     230      60.5



  Contact:

  Blue Square-Israel Ltd.
  Dror Moran, CFO
  Toll-free telephone from U.S. and Canada: 888-572-4698
  Telephone from rest of world: [phone]
  Fax: [phone]
  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:

[phone], Fax: [phone], Email: 

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