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Hadera Paper Ltd. Reports Financial Results for First Quarter Ended March 31, 2010 and Intention for Public Placement of Debentures and Credit Rating

Monday 10. May 2010 - Hadera Paper Ltd. (AMEX:AIP) (the "Company" or "Hadera Paper") today reported financial results for the first quarter ended March 31, 2010. The Company, its subsidiaries and associated companies are referred to hereinafter as the "Group".

The Consolidated Data set forth below excluding the results of operation of the associated companies: Mondi Hadera Paper Ltd. (“Mondi Hadera”) and Hogla-Kimberly Ltd. (“H-K”).
Consolidated sales in the reported period amounted to NIS 240.0 million, as compared with NIS 229.9 million in the corresponding period last year, representing an 4.4% increase, which is primarily due to the growth in sales of the packaging paper and recycling sector, in view of the higher prices, coupled with the growth in the sales of the office supplies marketing sector, as compared with the corresponding period last year and as compared with the sales in the fourth quarter of the year, in the amount of NIS 237.6 million, representing an increase of approximately 1.0%.
The operating profit totaled NIS 7.4 million during the reported period, 3.1% of sales, as compared with NIS 18.5 million, 8.0% of sales last year. Excluding nonrecurring revenues in the amount of NIS 16.4 million last year, on account of unilateral dividend, the operating profits in the corresponding period last year amounted to approximately NIS 2.1 million. The increase in operating profit during the reported period is primarily attributed to the increase in gross profit as a result of the increase in sales, as mentioned above.
The net profit attributed to the Company’s shareholders in the reported period amounted to NIS 24.3 million, as compared with net profit of NIS 19.1 million in the corresponding period last year, an increase of approximately 27.2%.
The net profit attributed to the company’s shareholders during the reported period was affected by the improvement in the operating margin at most group companies in Israel and in Turkey as a result of the increase in operations brought about an improvement in the operating profit as mentioned above, coupled with the reduction in financial expenses amounting to NIS 3.6 million.
Basic earnings per share amounted to NIS 4.80 per share ($1.29 per share) in the reported period, as compared with basic earnings per share of NIS 3.77 per share ($0.90 per share) in the corresponding period last year.
The negative inflation rate during the reported period amounted to 0.9%, as compared with a negative inflation rate of 0.1% in the corresponding period last year.
The USD exchange rate was revalued in the first quarter of this year by approximately 1.6%, as compared with approximately 10.1% devaluation in the corresponding period last year.
The global paper industry saw a continuation of the trend of rising prices in the first quarter of 2010, across various product types, a trend that began in 2009. An additional rise in the prices of packaging paper in Europe was recorded since January, amounting to a rate of 15% during the first quarter.
The rising price of pulp worldwide, that led to an increase in the prices of virgin packaging paper, led to an increase in demand for recycled packaging paper that is produced by the Packaging Paper Division, as an alternative. The continuation of this trend, in addition to the sharp increase in prices that was recorded in the second half of 2009, may support the continued growth and increase in the volume of operations that are expected in 2010, in the packaging paper sector.
The Group manages a wide and diverse portfolio of companies and businesses focused on consumer goods and basic commodities. As part of the global trend of increasing private consumption in light of the emergence from the crisis, this trend led to an increase in demand at most Group companies for a wide range of products, while continuing to place an emphasis on the implementation of efficiency and cost-cutting measures across all sectors of operation.
The Group companies raised their prices in the course of the first quarter. In terms of raw materials, the NIS was reevaluated vis-a-vis the dollar by an average of approximately 8% as compared with the corresponding period last year. This led to savings in terms of the inputs and imported products in the company’s principal sectors of operation, whose prices tend to follow import prices denominated in dollars. As a result of the said revaluation, the price of natural gas decreased by approximately 12%, as compared with the corresponding period last year, thereby leading to additional savings. These savings were partially offset by the rising prices of water during the reported period, by an average rate of 34%, along with the rising price of fibers by approximately 18%, as compared with the corresponding period last year.
Financial expenses during the reported period amounted to NIS 0.9 million, as compared with NIS 4.6 million in the corresponding period.
The company’s share in the earnings of associated companies totaled NIS 19.5 million during the reported period, as compared with NIS 15.0 million in the corresponding period last year.
The following principal changes were recorded in the Company’s share in the earnings of associated companies, in relation to the corresponding period last year:

– The Company’s share in the net profit of Mondi Hadera (49.9%) rose by
approximately NIS 1.7 million. The increase in the profit
originated primarily from an increase in the operating profits of Mondi
Hadera, that grew from NIS 5.4 million last year to NIS 8.6 million
this year, despite the erosion in prices as compared with the
corresponding period last year, thanks to efficiency measures in the
manufacture of paper in the course of the first quarter, coupled with
an improvement in the gross margin of part of the products range. The
increase in net profit was moderated somewhat as a result of the
increase in tax expenses in the amount of approximately NIS 0.6 million
during the reported period, in relation to last year, primarily as a
result of the increase in pretax earnings.

– The company’s share in the net profit of H-K Israel (49.9%) increased
approximately by NIS 2.2 million. H-K operating profit increased from
NIS 47.9 million to NIS 50.4 million this year. The improvement in the
operating profit, despite the erosion in the selling prices of the
part of the sectors of operation, originated primarily as a result of
a decrease in the prices of some of the company’s inputs, in light of
the erosion of global commodity prices, coupled with significant
efficiency measures across the entire company, increased savings in
purchasing and the continuing empowerment of the company’s brands,
that generated a significant improvement in earnings during the
reported period.

– The Company’s share in the losses of KCTR Turkey (49.9%) was reduced by
NIS 1.2 million. This reduction is primarily attributed the slight
increase in the volume of operations, coupled with the sale of the
PEDO brand to a local chain, which generated nonrecurring revenues of
NIS 3.1 million, that brought about the continuing reduction in the
operating loss from NIS 7.9 million during the corresponding period
last year to approximately NIS 3.2 million during the reported period.

In the course of April 2010, 95,460 options were exercised, previously granted as part of the officers stock option plan. As a result of this exercise 21,868 shares of the company were issued.
The Company also announced that the Company’s Board of Directors resulted yesterday, to authorize the Company’s management to carry out a raise of up to a total amount of approximately NIS 75 million by way of a public placement of new series of debentures. There may be a possibility that the scope of the issuance will change, according to market conditions. The interest rates that the new series of debentures shall bear will be determined at a tender.
The issuance of debentures shall be executed according to a shelf offering report, detailing the conditions of the issuance, to be approved by the Company’s Board of Directors according to the shelf prospectus that was published by the Company on May 26, 2008 and subordinate to the Tel Aviv Stock Exchange’s approval for listing the debentures for trade.
It should be noted, that there is no certainty as to the actual execution of the raise, its extent and its timing.
The Company also announced that Maalot (Israeli Securities Rating Company Ltd., affiliation of Standard and Poor’s) decided to rate the Company’s new series of debentures as (ilA+)/Negative.