Hadera, Israel - Hadera Paper Ltd. today reported financial results for the second quarter and first six months ended June 30, 2010.

The Consolidated Data set forth below excluding the results of operation of the associated companies: Mondi Hadera Paper Ltd. and Hogla-Kimberly Ltd.

Consolidated sales during the reported period amounted to NIS 489.2 million, as compared with approximately NIS 434.0 million last year, representing an increase of 12.7% originating primarily from growth in the packaging paper and recycling sector, coupled with growth in the sales of the office supplies marketing sector, as compared with the corresponding period.

Consolidated sales in the second quarter of the year totaled NIS 249.2 million, as compared with NIS 204.1 million in the corresponding quarter last year, growth of approximately 22.1%, originating primarily as a result of an increase in the sales of the packaging paper and recycling sector in relation to the corresponding quarter last year and as compared with first quarter sales of NIS 240.0 million, an increase of approximately 3.8%.

The operating profit totaled NIS 12.6 million during the reported period, 2.6% of sales, as compared with NIS 13.9 million, 3.2% of sales, last year. Net of non-recurring revenues in the amount of NIS 16.4 million last year, on account of unilateral dividend, the operating loss in the corresponding period last year amounted to approximately NIS 2.5 million. The increase in operating profit during the reported period is primarily attributed to the increase in gross profit as a result of the increase in sales.

Operating profit amounted to NIS 5.1 million in the second quarter of the year, as compared with an operating loss of NIS 4.6 million in the corresponding quarter last year.

The net profit attributed to the Company's shareholders amounted to NIS 42.3 million in the reported period, as compared with net profit of NIS 34.7 million in the corresponding period last year, an increase of 21.9%.

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 and in Turkey as a result of the increase in operations that brought about an improvement in the operating profit.

The net profit for the second quarter this year amounted to NIS 18.0 million, as compared with a net profit of NIS 15.6 million in the corresponding quarter last year, an increase of approximately 15.4%.

Basic earnings per share amounted to NIS 8.35 per share ($2.15 per share) in the reported period, as compared with basic earnings per share of NIS 6.86 per share ($1.75 per share) in the corresponding period last year.

The basic earnings per share amounted to NIS 3.55 per share in the second quarter ($0.92 per share), as compared with earnings of NIS 3.09 per share ($0.79 per share) in the corresponding quarter last year.

The US dollar exchange rate was devaluated by approximately 2.6% during the reported period, as compared with a devaluation of approximately 3.1% during the corresponding period last year.

The inflation rate during the reported period amounted to 0.7%, as compared with an inflation rate of 2.1% in the corresponding period last year.

The global paper industry saw a continuation of the trend that began in 2009, of rising prices in the reported period, across various product types. The packaging paper sector in Europe experienced an additional rising prices starting in January 2010, amounting to approximately 22% during the reported period (according to publications by PPI Germany).

The company estimates that the high global pulp prices continued to rise during the reported period, thereby leading to increase in prices of virgin packaging paper and consequently - as a replacement for these paper types - an increase in the demand for recycled packaging paper produced by the packaging paper division was recorded. The continuation of this trend, in addition to the prevailing high level of prices, may support the continued growth and increase in the volumes of operation of the packaging paper sector.

The Group manages a wide and diverse portfolio of companies and businesses focused on consumer goods and basic commodities. As part of the global trend of increasing private consumption in light of the emergence from the crisis, 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, the NIS reevaluation vis-a-vis the dollar and the euro by an average ranging between 7.4% and 7.9%, respectively, in relation to the corresponding period last year, 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 decreased by approximately 8% in relation to the corresponding period last year, thereby also making a contribution to savings. Moreover, the price of electricity also decreased by approximately 15% 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 approximately 34%, along with the rising price of fibers by approximately 35%, in relation to the corresponding period last year.

Financial expenses during the reported period amounted to NIS 10.8 million, as compared with NIS 10.0 million in the corresponding period last year.

The company's share in the earnings of associated companies totaled NIS 40.1 million during the reported period, as compared with NIS 34.9 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 Paper (49.9%) rose by approximately NIS 3.4 million. The increase in the profit originated primarily from the increase in the operating profit of Mondi, that grew from NIS 15.9 million last year, to NIS 23.2 million this year. Despite the sharp rise in the prices of raw materials in relation to the corresponding period last year, thanks to efficiency measures in paper manufacturing during the reported period, coupled with the improved gross margin of some of the product range, the operating profit for the period has increase. The increase in net profit was moderated somewhat as a result of the increase in tax expenses in the amount of approximately NIS 2.0 million during the reported period, in relation to last year, primarily as a result of the increase in pre-tax earnings.

- The Company's share in the net earnings of H-K Israel (49.9%) decreased by approximately NIS 1.3 million. H-K's operating profit decreased from NIS 102.3 million to NIS 100.2 million this year. The slight decrease in the operating profit originated primarily from the erosion in the selling prices in certain sectors of operation, that was offset as a result of the decrease in the prices of some of the company's inputs, coupled with significant efficiency measures that were implemented across the company, considerable savings in purchasing and the continuing reinforcement of the company's brands, that rendered it possible to preserve profitability levels during the reported period.

- The Company's share in the losses of KCTR Turkey (49.9%) was reduced by NIS 4.0 million. This reduction in loss is primarily attributed the slight increase in the volume of operations, coupled with 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 14.1 million during the corresponding period last year, to NIS 6.9 million during the reported period.