Hadera Paper Ltd.Reports Financial Results for the First Quarter Ended March 31, 2011

HADERA, Israel, May 16, 2011 /PRNewswire-FirstCall/ — Hadera Paper Ltd.
(AMEX:AIP) (the “Company” or “Hadera Paper”) today reported financial results
for the first quarter ended March 31, 2010 (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 517.6
million, as compared with NIS 240.0 million last year, representing an
increase of 115.7%, 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 182.1 million, net of inter-company sales
totaling NIS 172.6 million.

The operating profit totaled NIS 53.8 million during the reported period,
10.4% of sales, as compared with NIS 7.4 million, 3.1% of sales, in the
corresponding period last year. The increase in operating profit during the
reported period, in relation to the corresponding period last year, is
primarily attributed to non-recurring revenues from the sale of real estate,
coupled with the significant growth in the gross profit as a result of the
said growth in sales, that was offset as a result of the consolidation of the
results of the Hadera Paper Printing sector, starting January 1, 2011, due to
an operating loss of NIS -3.0 million in this sector.

The net profit attributed to the Company’s shareholders amounted to NIS
41.2 million in the reported period, as compared with net profit of NIS 24.3
million in the corresponding period last year, representing an increase of
69.5%. The net profit, net of non-recurring revenues and expenditures during
the reported period, amounted to NIS 19.8 million, representing a decrease of
18.6% in relation to the corresponding period last year.

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
the volume of operations, that brought about an improvement in the operating
profit as mentioned above, coupled with non-recurring revenues from the sale
of real estate. In addition the net profit was adversely affected by the
increase on the financial expenses in the reported period as compared with
the corresponding period last year.

Basic earnings per share amounted to NIS 8.10 per share ($2.33 per share)
in the reported period, as compared with basic earnings per share of NIS 4.80
per share ($1.29 per share) in the corresponding period last year.

The exchange rate of the NIS in relation to the dollar was revaluated by
approximately 1.9% during the reported period, as compared with a revaluation
of approximately 1.6% during the reported period last year (the average
exchange rate of the NIS vis-a-vis the dollar was revaluated during the
reported period by a rate of approximately 3.6% 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 investee 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 0.7%, as
compared with a negative inflation rate of -0.9% 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. The trend of rising prices of recycled products in the global
packaging paper market continued in the first quarter as well, at an average
rate of approximately 5.7% (according to publications of PPI Germany). The
prices of recycled products are expected to rise by a further 5% starting in
May 2011. The said increase in prices and demand, in addition to the
prevailing high level of prices, may support the continued growth and
expansion in the volumes of operation of the packaging paper sector, 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 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 an emphasis on the implementation of
efficiency and cost-cutting measures across all sectors of operation.

In terms of raw materials, in the course of the first quarter, the NIS
was revaluated in relation to the average dollar and the euro, in relation to
last year, by a rate of approximately 3.6% and 4.8%, respectively. This
revaluation led to savings in terms of inputs and imported products
denominated in dollars or euro, in the principal sectors of operation of the
company, whose prices track import prices in the said currencies. As a result
of the said revaluation, the relative price of natural gas denominated in
dollars, decreased by approximately 3.7% in relation to last year and also
contributed to savings. These savings were partially offset as a result of
the rise in the prices of water during the reported period by an average rate
of approximately 24%, in relation to the corresponding period last year,
along with the increase in the prices of electricity during the reported
period, in relation to the corresponding period last year, by a rate of
approximately 6.7%. In addition, a sharp rise was recorded in the price of
fibers, by an average rate of approximately 19% in relation to last year.

The financial expenses during the reported period amounted to NIS 17.4
million, as compared with NIS 0.9 million in the corresponding period last
year. The sharp rise in financial expenses is attributed primarily to the
fact that during the corresponding period last year, the cost of financing
Machine 8 was capitalized. This capitalization ended in late May 2010. An
additional factor consists of expenditures on account of bond series 5, that
was issued in May 2010. Moreover, an increase of NIS 3.7 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, as compared
with a lower inflation rate during the corresponding period last year,
coupled with the consolidation of the financial expenses of Hadera Paper
Printing, starting January 1, 2010, in the sum of NIS 2.9 million.

The company’s share in the profits of associated companies totaled NIS
11.1 million during the reported period, as compared with NIS 19.5 million in
the corresponding period last year. The decrease is partially attributed to
the Company’s share in the profits of Hadera Paper Printing (which starting
1, January 2011, is consolidated in the Company’s reports).

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 Israel (49.9%) during the
reported period, amounted to NIS 11.9 million, as compared with NIS 18.8
million in the corresponding period last year. The decrease in the sum of NIS
6.9 million, originated primarily from the decrease in operating profit that
fell from NIS 50.4 million to NIS 29.2 million this year. The 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, coupled with non-recurring expenditures associated with compensation
of consumers on account of complaints related to leaks in a new brand of
diapers. These were offset by efficiency measures that were implemented
across the company, the lowering of purchasing expenditures in view of the
decrease in the average dollar exchange rate by approximately 3.6%, coupled
with empowering the company brands. 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 0.8 million, as compared with NIS 1.2
million in the corresponding period last year, representing a decrease of
approximately NIS 0.4 million. The reduced loss, despite the slight decrease
in the volume of operations, is primarily attributed to the continuing
efficiency measures during the reported period, that led to the reduction in
the operating loss from NIS 3.2 million in the corresponding period last
year, to NIS 0.2 million during the reported period. The improvement in the
operating profit was partially offset by the recording of financial
expenditures of NIS 1.4 million, as compared with financial revenues of NIS
0.8 million in the corresponding period last year.

In other matter, the Company announced today that Pursuant to the
information provided by the Company in the periodical report for 2010,
regarding negotiations being conducted by the Company regarding an agreement
for the purchase of natural gas, the Company announced that an agreement was
signed on May 15, 2011 between the company and the partners in the Yam Tethys
projects (“The Agreement”). Pursuant to the Agreement, the term of the
agreement signed between the companies on July 29, 2005, for the purchase of
natural gas (“The Original Agreement”) (regarding which the Company issued a
press release on July 31, 2005), will be extended by an additional 2 years,
until June 30, 2013.

The formula for the price of gas set in the Agreement is based on the
price of petroleum (Brent barrel) and includes a minimum price for the price
of gas. It should be noted, that following the sharp rise in fuel prices that
took place since the signing of the Original Agreement, the price of gas in
the Agreement is significantly higher than the maximum price that was set in
the Original Agreement. This fact could potentially have an impact on the
price of gas for the Company, as compared with the cost according to the
Original Agreement, by an additional sum of approximately $19.4 million per
annum (according to the calculation of the formula at the date of signing the
Agreement, in terms of gross cost, prior to tax shield), the Company is
making preparations for a cost-cutting and efficiency plan accordingly. The
actual cost of the gas is dependent upon numerous factors, primarily changes
in global petroleum prices. The remaining terms of the Original Agreement
would remain in force, with the necessary changes.

The overall financial volume of the Agreement is currently estimated at
approximately $63 million (according to the calculation of the formula at the
date of signing the Agreement). It should be clarified that the actual volume
may change over time as a result of changes in global petroleum prices. In
parallel, as stated in previous reports of the Company, the Company is
continuing to evaluate a project for building a new power station at the
Hadera site.

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
                          Three months ended March 31,
                              NIS IN THOUSANDS (1)

                                           2011           2010

    Net sales                           517,609        239,985

    Net earnings attributed to
    the Company's shareholders           41,192         24,290

    Basic net earnings per share
    attributed to the Company's
    shareholders                           8.10           4.80

    Fully diluted earnings per
    share attributed to the
    Company's shareholders                 8.06           4.75

    (1) The representative exchange rate at March 31, 2011 was NIS
        3.481=$1.00.

    Contact:

    Yael Nevo, Adv.
    Corporate Secretary and Chief of Legal Department
    Hadera Paper Ltd. Group
    Yaeln@hadera-paper.co.il
    Tel:+972-4-6349408

SOURCE Hadera Paper Ltd