Business News

Hadera Paper Ltd.Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2010

Monday 08. November 2010 - Hadera Paper Ltd. (AMEX:AIP) (the "Company") today reported financial results for the third quarter (the "Third Quarter")and first nine months ended September 30, 2010 (the "Reported Period"). The Company, its subsidiaries and associated companies - are referred to hereinafter as the "Group".

The Consolidated Data set forth below excludes the results of operation of the associated companies: Mondi Hadera Paper Ltd. (“Mondi Hadera”) and Hogla-Kimberly Ltd. (“H-K”).
Consolidated sales during the Reported Period amounted to NIS 784.6 million, as compared with approximately NIS 654.4 million in the corresponding period last year, representing an increase of 19.9% originating primarily from growth in sales in the packaging paper and recycling segment, coupled with growth in the sales of the office supplies marketing segment, as compared with the corresponding period.
Consolidated sales in the Third Quarter of the year totaled NIS 295.4 million, as compared with NIS 220.4 million in the corresponding quarter last year, representing growth of approximately 34.0%, originating primarily as a result of an increase in the sales of the packaging paper and recycling segment in relation to the corresponding quarter last year and as compared with second quarter sales of NIS 249.2 million, representing growth of approximately 18.5%.
The operating profit totaled NIS 32.7 million during the Reported Period, 4.2% of sales, as compared with NIS 15.1 million, 2.3% of sales, in the corresponding period last year. The increase in operating profit, is primarily attributed to the increase in gross profit as a result of the increase in sales. The operating profit during the Reported Period included non-recurring revenues as a result of the sale of assets and a non-recurring labor expenditure, on account of a special bonus to the retiring CEO.
Operating profit amounted to NIS 20.2 million in the Third Quarter of the year, as compared with operating profit of NIS 1.2 million in the corresponding quarter last year. The increase in quarterly operating profit is primarily attributed to non-recurring revenues from the sale of an asset in the sum of approximately NIS 17.2 million, as mentioned above. The operating profit was also influenced by a decrease in relative output (in September) as a result of the Jewish high holidays that occurred during that time.
The net profit attributed to the Company’s shareholders amounted to NIS 65.4 million in the Reported Period, as compared with net profit of NIS 70.2 million in the corresponding period last year. The net profit, net of non-recurring revenues and expenditures during the Reported Period, amounted to approximately NIS 54.1 million, as compared with net profits, net of non-recurring revenues and expenditures during the corresponding period last year that amounted to NIS 38.2 million.
The net profit attributed to the Company’s shareholders during the Reported Period was affected by the improvement in the operating margin of most Group companies in Israel as a result of the increase in operations that brought about an improvement in the operating profit.
The net profit for the Third Quarter this year amounted to NIS 23.0 million, as compared with net profit of NIS 35.4 million in the corresponding quarter last year. It should be noted that non-recurring revenues were recorded in the Third Quarter, as detailed above. Moreover, during the corresponding quarter last year, the net profit included non-recurring revenues from the decrease in tax rates in the amount of approximately NIS 15.4 million.
Basic earnings per share amounted to NIS 12.88 per share ($3.51 per share) in the Reported Period, as compared with basic earnings per share of NIS 13.86 per share ($3.69 per share) in the corresponding period last year.
Basic earnings per share amounted to NIS 4.53 per share ($1.24 per share) in the Third Quarter of the year, as compared with earnings of NIS 7.00 per share ($1.86 per share) in the corresponding quarter last year.
The exchange rate of the NIS vis-a-vis the US dollar was revaluated by approximately 2.9% during the Reported Period, as compared with a devaluation of approximately 1.2% during the corresponding period last year. The Company’s business portfolio, including its associated companies, is close to be balanced in terms of foreign currency and the level of the Company’s exposure to sharp fluctuations in currency rates is therefore low.
The inflation rate during the Reported Period amounted to 1.9%, as compared with an inflation rate of 3.4% in the corresponding period last year.
The Company estimates that as a result of the continuing rise in global pulp prices during the Reported Period, the demand for recycled packaging paper has increased, as an alternative to virgin packaging paper. The trend of rising prices continued in the Reported Period, across various product types, a trend that began in 2009. The packaging paper segment in Europe experienced an additional rise in prices during the Reported Period, amounting to approximately 23% (according to publications by PPI Germany). The said increase in demand, in addition to the prevailing high level of prices, may support the continued growth in the volumes of operation of the packaging paper segment, in Israel and worldwide.
The Group manages a wide and diverse portfolio of companies and businesses focused on consumer goods and basic commodities. As part of the trend of consumption in the Israeli economy, this has 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 segments of operation.
In terms of raw materials, during the Reported Period the NIS was re-evaluated vis-a-vis the average dollar and euro exchange rates by 5.5% and 8.7%, respectively, in relation to the corresponding period last year. This re-evaluation led to savings in terms of the inputs and imported products denominated in either dollars or euros in the Company’s principal sectors of operation, whose prices tend to follow import prices denominated in these currencies. As a result of the said revaluation, the price of natural gas – denominated in US dollars – decreased by approximately 6% in relation to the corresponding period last year, thereby also making a contribution to savings. Moreover, the price of electricity also decreased by approximately 9% during the Reported Period, in relation to the corresponding period last year. These savings were partially offset by the rising prices of water during the Reported Period, by an average rate of 38%, along with the sharp rise in the price of fibers by approximately 77%, in relation to the corresponding period last year.
The net financing expenses during the Reported Period amounted to NIS 28.4 million, as compared with NIS 14.8 million in the corresponding period last year. The interest on account of short-term credit decreased by approximately NIS 0.8 million, primarily on account of the decrease in the average short-term credit balance. Interest expenses on account of long-term liabilities – bonds – increased by approximately NIS 13.3 million in relation to the corresponding period last year, primarily as a result of the cost of financing Series 3 and 4, whose capitalization of financing costs for Machine 8 ended at the end of May, coupled with the issuing of bond series 5 (new series) in May.
The Company’s share in the earnings of associated companies totaled NIS 58.5 million during the Reported Period, as compared with NIS 63.9 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 NIS 0.2 million. The slight increase in the profit
originated primarily from the increase in the operating profit of Mondi
Hadera that grew from NIS 28.9 million last year, to NIS 30.4 million
this year. The operating profit for the period has improved, despite the
sharp rise in the prices of raw materials in relation to the
corresponding period last year, thanks to the raising of prices during
the reported period, coupled with the improved gross margin of some of
the product range. The increase in net profit was also affected by the
reduction of financing expenses by approximately NIS 7.3 million, that
were offset as a result of the increase in tax expenses in the amount of
approximately NIS 8.4 million during the reported period, as compared
with the corresponding period last year, as a result of the increase in
pretax earnings, as well as a result of recording tax revenues in the
amount of approximately NIS 6 million during the corresponding period
last year, as a result of the changing of tax rates.

– The Company’s share in the net earnings of H-K Israel
(49.9%) decreased by NIS 6.5 million. H-K’s operating profit decreased
from NIS 155.0 million to NIS 147.3 million this year. The decrease in
the operating income is primarily attributed to the erosion of the
selling prices in some sectors of operation, coupled with the rise in the
prices of some principal inputs at H-K Israel, that were offset by far-
reaching efficiency measures that were implemented across H-K Israel,
continuing savings in purchasing and the strengthening of its brands, led
to a reduction in the erosion of earnings during the reported period.

– The Company’s share in the losses of KCTR Turkey (49.9%) was
reduced by NIS 1.3 million. This reduction in loss, despite the slight
decrease in the volumes of operation, is primarily attributed to the sale
of the PEDO brand to a local chain, that generated non-recurring revenues
of NIS 3.1 million during the reported period, that brought about the
continuing reduction in the operating loss from NIS 12.2 million during
the corresponding period last year, to NIS 10.5 million during the
reported period.