Hadera Paper Ltd. Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2011

HADERA, Israel, November 16, 2011 /PRNewswire/ --

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, 2011 (the "Reported Period"). The Company, its subsidiaries and associated company - are referred to hereinafter as the "Group".

The Consolidated Data set forth below excludes the results of operation of the associated company Hogla-Kimberly Ltd. ("H-K").

Consolidated sales during the Reported Period amounted to NIS 1,541.7 million, as compared with NIS 784.6 million last year, representing an increase of 96.5%, originating primarily from growth in the sales of the packaging paper and recycling sector as compared with the corresponding period last year, coupled with the consolidation of the sales of Hadera Paper - Writing and Printing Ltd ("Hadera Paper Printing"), starting January 1, 2011, in the total sum of NIS 554.0 million, net of inter-company sales totaling NIS 526.3 million.

The consolidated sales in the Third Quarter of the year totaled NIS 519.5 million, as compared with NIS 295.4 million in the corresponding quarter last year, representing growth of approximately 75.9%, originating primarily as a result of the consolidation of the sales of Hadera Paper Printing, in the amount of NIS 184.7 million, coupled with growth in the sales of the packaging paper and recycling sector in relation to the corresponding quarter last year and as compared with second quarter sales this year of NIS 504.6 million, representing growth of approximately 2.96%.

The operating profit totaled NIS 45.8 million during the Reported Period, 3.0% of sales, as compared with NIS 32.7 million, 4.2% of sales, in the corresponding period last year. Net of non-recurring revenues and expenditures during the Reported Period and the corresponding period last year, the operating profit decreased from NIS 19.1 million to NIS 16.4 million. The decrease in the operating profit from current operations during the Reported Period, as compared with the corresponding period last year, originates primarily from the consolidation of the results of the Hadera Paper Printing segment since January 1, 2011, following an operating loss of NIS 13.1 million in this segment. This decrease was offset as a result of a rise in the gross profit of the various segments, in view of the increase in sales.

Operating loss amounted to NIS 9.5 million in the Third Quarter of the year, as compared with operating profit of NIS 20.2 million in the corresponding quarter last year. The transition to a loss in the Third Quarter originated primarily as a result of recording a provision for impairment on account of a cash-generating unit, coupled with the consolidation of the operating loss of Hadera Paper Printing, in the amount of NIS 3.2 million, as a result of a sharp rise in raw material prices, coupled with specific inefficiency in the manufacture of fine paper.

The net loss attributed to the Company's shareholders amounted to NIS 35.7 million in the Reported Period, as compared with net profit attributed to the Company's shareholders of NIS 65.4 million in the corresponding period last year. The net profit, net of non-recurring revenues and expenditures during the Reported Period, amounted to NIS 6.3 million, as compared with NIS 55.8 million in the corresponding period last year, representing a decrease of 88.8%.

The lower net profit attributed to the company shareholders during the Reported Period, was primarily affected by a non-recurring provision of NIS 58.8 million, recorded by the company following the decisions of the Court in Turkey concerning appeals filed by KCTR Turkey (49.9%) ("KCTR") pertaining to a demand for tax payment in Turkey, coupled with the recording of a provision for impairment on account of the Carmel cash-generating unit in the amount of NIS 7.0 million (net of taxes), that was offset from non-recurring revenues from the sale of real estate on Totzeret Ha'Aretz Street in Tel Aviv, the valuation of a Put option, as well as the improved operating profitability of the packaging paper and recycling segment. Moreover, the net profit was adversely affected by the rise in financial expenses during the Reported Period, in relation to the corresponding period last year, following the operation of Machine 8.

Basic loss per share amounted to NIS -7.02 per share ($-1.89 per share) in the Reported Period, as compared with basic earnings per share of NIS 12.88 per share ($3.51 per share) in the corresponding period last year.

Basic loss per share amounted to NIS -8.56 per share ($-2.31 per share) in the Third Quarter of the year, as compared with earnings of NIS 4.53 per share ($1.24 per share) in the corresponding quarter last year.

The exchange rate of the NIS in relation to the US dollar was devaluated by approximately 4.6% during the Reported Period, as compared with a revaluation of approximately 2.9% during the reported period last year (the average exchange rate of the NIS vis-à-vis the dollar was revaluated during the Reported Period by a rate of approximately 6.4% in relation to the corresponding period last year). The changes in exchange rates as mentioned above, affected the results of the various sectors, although the Group's business portfolio, including the associated companies, is practically at equilibrium in terms of foreign currency and consequently, the exposure of the Group to sharp fluctuations in currency exchange rates is low.

The inflation rate during the Reported Period amounted to 2.2%, as compared with an inflation rate of 1.9% in the corresponding period last year.

The Company estimates that the demand for recycled packaging paper, as a replacement for virgin packaging paper, is continuing in global paper markets. Following a slowdown in the global packaging paper market, in terms of virgin products in the Third Quarter, a decrease was recorded in the prices of recycled products. The trend of decreasing recycled product prices in the global packaging paper market - that began in the Third Quarter - amounted to approximately 4% in relation to the second quarter. The Company estimates that this trend will continue in the near future as well.

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 during the Reported Period, this trend led to an increase in demand at most Group companies for a wide range of products, while continuing to place a special emphasis on the implementation of efficiency and cost-cutting measures across all sectors of operation, including an employee retirement agreement, as part of a collective agreement.

On May 15, 2011, the Company signed an extension of the agreement for the purchase of natural gas with the partners in the Yam Tethys Project. The overall financial volume of the agreement is estimated at approximately $63 million (according to the calculation of the formula at the date of signing the agreement). The new gas agreement will enter into effect on July 1, 2011, for a period of two years. Following the new gas contract, an increase of 190% was recorded in the average price of gas, starting with the first day of the agreement. During the Reported Period water and electricity prices rose by an average rate of 21% and 4.4%, respectively, as compared with the corresponding period last year. In addition, a sharp rise was recorded in the price of paper waste, by an average rate of approximately 35%, in relation to last year. These price increases were offset by a revaluation of the NIS vis-à-vis the US dollar, during the Reported Period compared to last year, by a rate of approximately 6.4%. This revaluation brought about savings in the inputs and imported products denominated in this currency.

The financial expenses during the Reported Period amounted to NIS 61.7 million, as compared with NIS 28.4 million in the corresponding period last year. The growth in financial expenses originated as a result of the capitalization of some of the financing costs of Machine 8 during the corresponding period last year, along with the expansion of Bond Series 5 at the beginning of the Third Quarter that served to increase the financial expenses by approximately NIS 3.1 million. Moreover, an increase of NIS 2.6 million was recorded in financial expenses in relation to the corresponding period last year, as a result of the higher inflation rate during the Reported Period (Known Index) by approximately 2.7%, as compared with a lower increase of 1.6% in the inflation rate during the corresponding period last year, coupled with the consolidation of the financial expenses of Hadera Paper Printing, starting January 1, 2011, in the sum of NIS 9.1 million, following the entry of Hadera Paper Printing into the consolidated statements.

The Company's share in the losses of associated companies (H-K) totaled NIS 29.1 million during the Reported Period, as compared with a share in profits of NIS 58.5 million in the corresponding period last year. The transition to a loss in the Company's share in the earnings of associated companies, as compared with the corresponding period last year, originates primarily as a result of the Company's share in a provision in the amount of NIS 58.8 million, created by H-K following the rulings by the court in Turkey regarding appeals filed by KCTR, concerning a demand for tax payments in Turkey, coupled with the Company's share in the earnings of Hadera Paper Printing (consolidated in the company's financial statements since January 1, 2011), that were included during the corresponding period last year in the amount of approximately NIS 10.4 million and that were not included in this period (The Hadera Paper Printing results were consolidated within the consolidated financial statements of Hadera Paper in this period).

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 H-K in Israel (49.9%) during the Reported Period amounted to NIS 35.2 million, as compared with NIS 56.0 million in the corresponding period last year. The decrease in the sum of NIS 20.8 million, originated primarily from the decrease in operating profit that fell from NIS 147.3 million to NIS 93.1 million this year. The sharp decrease in the operating profit is primarily attributed to the erosion of selling prices in certain segments of operation as a result of escalating competition in the market, that grew even worse towards the end of the second quarter as a result of the parallel import of Huggies diapers, coupled with non-recurring expenditures associated with compensation of consumers on account of complaints related to leaks in a new brand of diapers in the first quarter of the year, coupled with a rise in the prices of principal raw materials. These were offset by efficiency measures that were implemented across the company and the lowering of purchasing expenditures in view of the decrease in the average dollar exchange rate by approximately 6.4%. These factors served to reduce the erosion in profit during the Reported Period.
• The Company's share in the losses of KCTR Turkey (49.9%) during the Reported Period amounted to NIS 65.9 million, as compared with NIS 5.5 million in the corresponding period last year, representing an increase of approximately NIS 60.4 million. The greater loss, originated primarily as a result of a NIS 58.8 million provision recorded by the company following the decisions of the Court in Turkey concerning appeals filed by KCTR pertaining to a demand for tax payment in Turkey, coupled with an increase in the operating loss, from NIS 10.5 million in the corresponding period last year, to NIS 12.5 million during the Reported Period.

KCTR has informed the Company that it has appealed some of the court decisions in Turkey, while it intends to appeal other court decisions, based on the expert opinion of its legal consultants. However, according to the accounting policy of the company, the actual handing down of the court ruling, even if this can be appealed with high chances of success, creates a presumption whereby it is "more likely than not" that certain sums will be paid on account of these tax requirements. The company has consequently created a provision during the Reported Period on account of its share in these sums.

This report contains various forward-looking statements based upon the Board of Directors' present expectations and estimates regarding the operations and plans of the Group and its business environment. The Company does not guarantee that the future results of operations will coincide with the forward-looking statements and these may in fact differ considerably from the present forecasts as a result of factors that may change in the future, such as changes in costs and market conditions, failure to achieve projected goals, failure to achieve anticipated efficiencies and other factors which lie outside the control of the Company as well as certain other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation for publicly updating the said forward-looking statements, regardless of whether these updates originate from new information, future events or any other reason.

Hadera PAPER LTD.

SUMMARY OF RESULTS

(UNAUDITED)

except per share amounts

Nine months ended September 30,

NIS IN THOUSANDS⁽¹⁾

                                    2011              2010
 
    Net sales                  1,541,733           784,626
 
    Net earnings (loss)
    attributed to the
    Company's shareholders       (35,704)           65,354
 
    Basic net earnings(loss)
    per share attributed to
    the Company's shareholders     (7.02)            12.88
 
    Fully diluted
    earnings(loss)per share
    attributed to the
    Company's shareholders         (7.02)            12.77
 

Three months ended September 30,

NIS IN THOUSANDS⁽¹⁾

                                   2011              2010
 
    Net sales                   519,491           295,435
 
    Net earnings(loss)
    attributed to the
    Company's shareholders      (43,560)           23,026
 
    Basic net earnings
    (loss)per share
    attributed to the
    Company's shareholders        (8.56)             4.53
 
    Fully diluted
    earnings(loss)per share
    attributed to the
    Company's shareholders        (8.56)              4.5

(1) The representative exchange rate at September 30, 2011 was N.I.S. 3.712=$1.00.

Contact:

Yael Nevo, Adv.

Corporate Secretary and Chief of Legal Department

Hadera Paper Ltd. Group

[e-mail]

SOURCE Hadera Paper Ltd

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