Business News

Hadera Paper Ltd. Reports Financial Results for the Second Quarter and Six Months

Monday 11. August 2008 - Announces Intention for Public Placement of Debentures Announces Israeli Antitrust Authority Approval for Carmel Transaction

Hadera Paper Ltd. (AMEX: AIP) (the “Company” or “Hadera Paper”) today reported financial results for the second quarter and first six months ended June 30, 2008. The Company, its subsidiaries and associated companies – is referred to hereinafter as the “Group”.

Since the Company’s share in the earnings of associated companies constitutes a material component in the Company’s statement of income (primarily on account of its share in the earnings of Mondi Hadera Paper Ltd. (“Mondi Hadera”) and Hogla-Kimberly Ltd. (“H-K”)), before the presentation of the consolidated data below, the aggregate data which include the results of all the companies in the Hadera Paper Group (including the associated companies whose results appear in the financial statements under “earnings from associated companies”) is being presented, without considering the rate of holding therein and net of mutual sales.

As a result of the transition to reporting according to IFRS standards, the Company presented its financial statements for the reported period, as well as the comparison figures for the corresponding period last year and for the year ended December 31, 2007 according to IFRS.

Aggregate sales amounted to NIS 1,618.6 million during the reported period (six month period- January-June 2008), as compared with NIS 1,492.8 million in the corresponding period last year.

Aggregate sales in the second quarter this year amounted to NIS 771.0 million, as compared with NIS 740.0 million in the corresponding period last year, and as compared with NIS 847.6 million in the first quarter of the year.

Aggregate operating profit totaled NIS 111.3 million during the reported period, as compared with NIS 70.7 million in the corresponding period last year. The significant improvement in the aggregate operating profit is attributed to the performance improvement in Israel on the one hand, coupled with the continuing trend of lowering the operating loss in Turkey on the other hand.

Aggregate operating profit totaled NIS 51.5 million in the second quarter of the year, as compared with NIS 41.7 million in the corresponding quarter last year, and as compared with NIS 59.8 million in the first quarter of the year.

The Consolidated Data set forth below excluding the results of operation of the associated companies: Mondi Hadera, H-K and Carmel Containers Systems Ltd. (“Carmel”)

Consolidated sales during the reported period amounted to NIS 275.8 million and were similar to the sales in the reported period last year that amounted to approximately NIS 277.8 million

Operating profit totaled NIS 30.1 million during the reported period, as compared with NIS 30.4 million in the corresponding period last year.

Net profit totaled NIS 39.3 million during the reported period, as compared with net profit of NIS 6.3 million in the corresponding period last year. Net profit was affected by the improvement in the Group’s profitability in Israel, coupled with the significant reduction of the Company’s share in the losses of the operations in Turkey (KCTR).

Net profit for the second quarter this year amounted to NIS 18.0 million, as compared with a net profit of NIS 10.2 million in the corresponding quarter last year. The net profit in the second quarter last year appears net of our share (49.9%) in the amortization of the tax asset in Turkey (KCTR) in the sum of NIS 6.0 million.

Basic earnings per share amounted to NIS 7.77 per share ($2.32 per share) in the reported period, as compared with NIS 1.57 per share ($0.38 per share) in the corresponding period last year.

Basic earnings per share amounted to NIS 3.56 per share ($1.06 per share) in the second quarter of the year, as compared with earnings of NIS 2.53 per share ($0.59 per share) in the corresponding quarter last year.

The inflation rate during the reported period amounted to 2.3%, as compared with an inflation rate of 1% in the corresponding period last year.

Mr. Avi Brener, Chief Executive Officer of the Company said that “The import volumes of fine paper and packaging paper from Europe have recently grown and the company is working to preserve its market share and quantitative sales, while dealing with a certain erosion of selling prices. The sharp change in the currency exchange rates that took place in the reported period – as the shekel grew stronger vis-a-vis the US dollar and the euro – is working in the benefit of the Company in terms of the imported inputs, while eroding the selling prices in those areas in the Company whose prices are denominated in US dollars. The portfolio of the Hadera Paper Group – including the associated companies – is relatively balanced and the company’s exposure to sharp fluctuations in currency exchange rates is consequently low”.

In the reported period, KCTR continued to implement its strategic plan formulated together with its international partner, Kimberly Clark. The plan is intended to introduce Kimberly Clark’s global brands to Turkey, on the basis of local manufacturing. If fully implemented, KCTR will grow to become a dominant and profitable company by 2015, with annual sales in the area of $300 million.

Financial expenses during the reported period amounted to NIS 11.1 million, as compared with NIS 11.7 million in the corresponding period last year.

The company’s share in the earnings (losses) of associated companies totaled NIS 25.8 million during the reported period, as compared with a loss of NIS (5.1) 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%) increased by approximately NIS 4 million. Most of the change in profit originated primarily from Mondi’s highly improved operating profitability, which recorded an increase from operating profit of NIS 13.8 million last year to an operating profit of NIS 17.7 million this year – primarily as a result of the raising of selling prices in relation to last year that led to an improved gross margin. The net profit also increased as a result of the sharp decrease in financial expenses this year in relation to last year, primarily on account of the impact of the revaluation of the NIS against the dollar.

– The Company’s share in the net profit of Hogla-Kimberly Israel (49.9%) increased by approximately NIS 8.1 million. Hogla’s operating profit grew from NIS 67.6 million to NIS 85.1 million this year. The improved operating profit originated from a quantitative increase in sales, improved selling prices net of the impact of higher raw material prices, the continuing implementation of efficiency measures and the continuing trend of raising the proportion of some of the premium products out of the products basket.

The Company’s share in the losses of KCTR (formerly: “Ovisan”) (49.9%) decreased by NIS 25.6 million. The significant decrease in the loss is attributed to the growth in the volumes of operation that led to a significant reduction in the operating loss, from NIS 46.2 million last year to approximately NIS 20.9 million this year. In the corresponding period last year, a non-recurring loss of approximately NIS 6 million ($1.5 million) was included on account of the termination of trade agreements with distributors due to the transition to distribution by Unilever, of which our share was approximately NIS 3 million. Moreover, the tax asset that was recorded in previous years in Turkey, in the sum of approximately NIS 12 million (approximately $3 million) was reduced, of which our share is NIS 6.0 million. Moreover, due to the increase in the shareholders’ equity of KCTR through a financial influx from Hogla, the bank loans were repaid, while significantly reducing the financial expenses thereby leading to an additional reduction in the net loss.

– The Company’s share in the loss of Carmel (36.21%) increased by NIS 2 million. Net off one time losses from hedging transactions, operating profit increased in the reported period by NIS 1.9 million, of which the Company’s share amounted to NIS 0.7 million. The aforesaid growth occurred despite of the damages caused by the eroded profitability at Carmel originated from the impact of the cold spell in agriculture that decreased demands in the agriculture market as aforesaid. Carmel also recorded a loss of NIS 7.5 million in the reported period on account of hedging transactions for affixing exchange rate, of which the Company’s share amounted to approximately NIS 1.9 million.

The Company’s share in the earnings of associated companies from current operations in Israel (excluding Turkey) grew by NIS 5.3 million this year and amounted to NIS 36.3 million.

Pursuant to the shelf prospectus published by the Company on May 26, 2008, the Company completed the offering – on July 16, 2008 – of two debenture series in the total sum of NIS 308,060 thousands. Net of offering expenses, the Company received net proceeds of approximately NIS 306,609 thousands.

On July 1, 2008, pursuant to approval by the Registrar of
Companies, the Company changed its name from American Israeli Paper Mills
Ltd. to Hadera Paper Ltd.

On July 6, 2008, the Maalot Rating Company (Standard and Poor’s) announced a rating of AA-/Negative Outlook for the Company’s debenture series.

On July 10, 2008, the General Meeting approved the appointment of Ms. Atalia Arad as an external director of the Company.

On July 10, 2008, an agreement was signed whereby the Company acquired the shares of Carmel held by Robert Kraft, the principal shareholder in Carmel, as well as by several other shareholders, in consideration of a total of $20.77 million, to be paid in a single installment upon closing of the transaction. The shares will be acquired “As Is”. The completion of the transaction is contingent upon the approval of the Anti-Trust Supervisor and any other approval required by law. In the event that the transaction is completed, the Company will hold approximately 89.3% of the Carmel shares and consequently, upon completion of the transaction, the financial statements of Carmel and those of Frenkel-CD Ltd. will be consolidated with the Company’s financial statements. The expected impact of this transaction – if an when completed – on the Company’s financial statements, will consist primarily of the anticipated growth in the Company’s turnover as a result of the said consolidation. The transaction will be financed using the Company’s internal resources.

In other Company news, the Company announced that the Company’s Board of Directors resulted, following the shelf prospectus that was published by the Company on May 26, 2008, and following the public placement of debentures (series 4) dated July 16, 2008 according to the shelf offering report dated July 14, 2008, to authorize the Company’s management to carry out an additional raise of up to a total amount of approximately NIS 50 million by way of a public placement, by expanding a series of debentures(series 4)(“additional debentures”).The additional debentures, as long as offered to the public, shall bear identical terms to the current debentures in Company’s income turnover (series 4).

The issuance of the additional debentures shall be executed by a uniformed offer (at a tender regarding units price) according to a shelf offering report, detailing the conditions of the issuance, to be approved by the Company’s Board of Directors and subordinate to the Tel Aviv Stock Exchange’s approval for listing the additional 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.

In other matter, following the Company’s announcements dated July 2, 2008, July 8, 2008 and July 13, 2008 regarding the signing of an agreement for the acquisition of Carmel Container Systems Ltd. (“Carmel”, an affiliated company) shares, held currently by Mr. Robert Kraft, the principal shareholder of Carmel, and by a number of additional shareholders in Carmel, the Company also announced today that the approval of the Israeli Antitrust Authority to the transaction, which the completion of the transaction was conditioned upon, was received.

As aforesaid in the previous reports, as to the date of this report the Company holds approximately 36% of Carmel shares. Shall the transaction be completed the Company will hold approximately 89.3% of Carmel’s shares.