Bethel Finance:Shufersal operating profit down 44%

www.bethelfinance.com
Last year's social protest hit Shufersal Ltd. (TASE:SAE). Israel's largest supermarket chain's operating profit fell 44% to NIS 77 million for the fourth quarter of 2011 from NIS 137 million for the corresponding quarter of 2010. Retail sales were unchanged at NIS 2.77 billion, and the gross profit margin narrowed to 26.6% of sales for the fourth quarter from NIS 27.6% for the corresponding quarter, but net profit rose 20% to NIS 107 million from NIS 89 million.

Same store sales were 4.1% less in the fourth quarter than in the corresponding quarter. Shufersal posted a NIS 35 million positive revaluation on property for the fourth quarter, compared with a NIS 12 million positive revaluation for the corresponding quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) fell 22% to NIS 154 million for the fourth quarter.

"The social protest adversely affected the company's results," said Shufersal in its board of directors statement. The company warned that further protests were liable to cause it great damage. "Continuation of the social protest is liable to continue to adversely affect the company's business results… The company is taking action to deal with the consequences of the social protest by various means, including strengthening the company's standing in the discount stores format (which, as of the date of the financial report, account for most of the company's sales), and operational streamlining," it said.

Shufersal's full-year revenue rose 4.1% to NIS 11.6 billion in 2011 from NIS 11.13 billion in 2010. Net profit fell 17.6% to NIS 276 million (NIS 1.32 per share) in 2011 from NIS 335 million in 2010, mostly in the first half of the year, before the social protest. <

Shufersal unequivocally said that the Kedmi committee recommendations to lower the cost of living were liable to strongly affect the company. "There is no certainty which of the committee's recommendations will be adopted, how, and what the timetable will be. Therefore, we cannot estimate the degree of this effect on the company's business, but if and when the recommendations are adopted and implemented, they are liable to have a material effect on the company."

Even as Shufersal's business results stagnated, the salary of cost of its five highest paid executives totaled NIS 19 million in 2011. Former CEO Effi Rosenhause's salary cost was NIS 6.9 million, former COO Richard Hunter's salary cost was NIS 5.4 million, and current CEO Izchak Abercohen's salary cost was NIS 2.3 million.

Shufersal said that Abercohen's salary will NIS 108,000 per month in 2012, after a 10% pay cut. In August 2009, he received 400,000 options exercisable for shares at NIS 13.78 per share.

Shufersal is controlled by Nochi Dankner's IDB Holding Corp. Ltd. (TASE:IDBH) through Discount Investment Corporation (TASE: DISI). Shufersal's share price rose 0.8% in morning trading today to NIS 13.24, giving a market cap of NIS 2.9 billion.