Hadera Paper Ltd.

Hadera, Israel, 11 May 2009 -- /PRNewswire/ -- Hadera Paper Ltd. (AMEX:AIP) today reported financial results for the first quarter ended 31 March 2009.

Because 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. and Hogla-Kimberly Ltd.[H-K]), 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 before the consolidated date, without considering the rate of holding therein and net of mutual sales.

Aggregate sales amounted to NIS 830.0 million during the reported period, as compared with NIS 847.6 million in the corresponding period last year.

Aggregate operating profit totaled NIS 63.9 million during the reported period, as compared with NIS 59.8 million in the corresponding period last year. The growth in aggregate operating profit, achieved despite the erosion of prices at some of the companies, originates from the improved growth and the profits of the Group's operations in the marketing of office supplies, the continuing growth and improved profitability at H-K in Israel, and the continuing trend of scaling down the operating loss in Turkey, coupled with nonrecurring revenues on account of a unilateral dividend from an associated company.

The consolidated data do not include the results of operation of the associated companies (Mondi Hadera and H-K). The consolidated data do include the sales turnover of Carmel Containers Systems Ltd. and Frenkel-C.D. Ltd. that were consolidated as of September 2008 through acquisition of Carmel shares.

As of 01 January 2009, the company has been implementing IFRS8 accounting guidelines, and has consequently identified the packaging products and cardboard sectors, covering the operations of both Carmel and Frenkel CD, as a separate sector.

Consolidated sales in the reported period amounted to NIS 229.9 million, as compared with NIS 142.5 million in the corresponding period last year, representing a 61.3% increase due primarily to the consolidation of the data of Carmel and Frenkel CD during the reported period, amounting to approximately NIS 132.5 million, that had not been consolidated last year.

Operating profit totaled NIS 18.5 million during the reported period, as compared with NIS 17.5 million in the corresponding period last year. The improvement in the operating profit, despite the erosion of selling prices of packaging paper and recycling, originated from an improvement in the profitability of Graffiti and nonrecurring revenues of NIS 16.4 million from a unilateral dividend that was offset by a slowdown in the operations of some of the companies resulting from the global economic crisis and its local influence.

The net profit attributed to the company's shareholders in the reported period amounted to NIS 19.1 million, as compared with net profit of NIS 21.3 million in the corresponding period last year. Net profit was affected by improved profitability at some Group companies in Israel resulting from distribution of unilateral dividend from distribution of preferred shares by an associated company, that resulted in net revenues to the company of approximately NIS 8.4 million. The reduction in the company's share of losses from operations in Turkey (KCTR), as compared with the corresponding period last year, also contributed to improved profitability, while net profit decreased through an expenditure of NIS 3.0 million from the valuation of the Mondi put option.

Basic earnings per share amounted to NIS 3.77 per share (USD 0.90 per share) in the reported period, as compared with NIS 4.20 per share (USD 1.18 per share) in the corresponding period last year.

The negative inflation rate during the reported period amounted to -0.1%, as compared with a positive inflation rate of 0.1% in the corresponding period last year.

The USD exchange rate was devalued in the first quarter of this year by 10.1%, as compared with a 7.6% revaluation in the corresponding period last year.

"The Group manages an extensive, relatively diversified portfolio of companies and businesses - and this fact helps the Group to face the global and domestic crisis," said Avi Brener, chief executive officer of the company. "The company's operating segments are focused on basic consumer goods and inputs, which are relatively less impacted by implications of the global financial and economic crisis. In the first quarter of 2009, the downward trend in input prices continued for fiber, chemicals and commodities as a result of the global crisis, which partially compensates for the slow-down in operations in both domestic and export markets. These savings were partially offset by higher electric utility prices in the first quarter of 2009 and by higher water prices," he said.

"The NIS devaluation versus the USD, and the NIS devaluation versus the euro have both negatively impacted imported inputs for the company, while improving the sale prices that have been eroded, as set forth above, in the company's major operating segments, wherein prices are denominated in USD. The overall business range and currency operations of the Hadera Paper Group, is relatively balanced and the company's exposure to sharp fluctuations in exchange rates is therefore low," Brener said.

"In view of the company's estimates regarding continued paper imports at dumping prices, in both packaging paper and fine paper, the company and Mondi Hadera, have appealed to the Supervisor of Anti-dumping Charges and Homogenization Charges at the Ministry of Industry, Trade and Employment and have filed a complaint concerning import at dumping of packaging paper from several European countries to Israel. The supervisor decided to launch an investigation of this issue. There is no certainty that the above complaints would be accepted, and the company is currently unable to estimate the impact of such acceptance on its business results."

In the reported period, the company continued to expand the new recycled packaging paper manufacturing network, and construction of the facility at the Hadera site is making progress, in preparation for installation of equipment, which has started arriving on site, toward the planned complete operation of the new machine in early 2010.

Financial expenses during the reported period amounted to NIS 4.6 million, as compared with NIS 6.8 million in the corresponding period last year.

The company's share in the earnings of associated companies totaled NIS 15.0 million during the reported period, as compared with NIS 14.6 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%) decreased by NIS 2.5 million. The decrease in income was primarily due to a decrease in Mondi's operating income, from NIS 9.6 million last year to NIS 5.4 million this year -- primarily due to price erosion due to the devaluation of the U.S. dollar. The net profit also decreased as a result of a slight increase in financial expenses in the reported period in relation to last year, primarily from the devaluation of the NIS against the dollar.
The company's share in the net profit of H-K Israel (49.9%) increased by NIS 1.7 million. Hogla's operating income increased from NIS 41.1 million to NIS 47.9 million this year. The improved operating profit originated from a quantitative increase in sales, improved selling prices in certain areas of operation, the continuing trend of raising the proportion of some of the premium products out of the products basket, while innovating products and empowering the company's brands, the lower prices of some of the inputs at the company in light of the erosion of global commodity prices, the continuing efficiency measures across the company, and the savings realized in purchasing have all contributed to the significant improvement in earnings.
The company's share in the losses of KCTR Turkey (formerly Ovisan) (49.9%) has decreased by approximately NIS 2.0 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 11.0 million last year to NIS 7.9 million this year. Moreover, due to the increase in the shareholders' equity of KCTR through a financial influx from Hogla -- last year and during the reported period -- the bank loans were repaid, while significantly reducing the financial expenses, thereby leading to an additional reduction in the net loss.


                                Hadera Paper Ltd.
                               Summary of results
                                   (unaudited)
                            except per share amounts
                          Three months ended 31 March
                              NIS in thousands (1)

                                                     2009             2008

    Net sales                                229,881        142,519

    Net earnings attributed to
    the company's shareholders        19,079         21,270

    Basic net earnings per share
    attributed to the company's
    shareholders                                  3.77           4.20

    Fully diluted earnings per
    share attributed to the
    company's shareholders                 3.77           4.20