Hadera Paper Ltd. Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2011
HADERA, Israel, August 18, 2011 /PRNewswire/ --
Hadera Paper Ltd. (AMEX:AIP) (the "Company" or "Hadera Paper") today reported financial results for the second quarter and first six months ended June 30, 2011(the "Reported Period"). The Company, its subsidiaries and associated company - is 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 1,022.2 million, as compared with NIS 489.2 million last year, representing an increase of 109.0%, 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 369.2 million, net of inter-company sales totaling NIS 351.1 million.
Consolidated sales in the second quarter of the year totaled NIS 504.6 million, as compared with NIS 249.2 million in the corresponding quarter last year, representing growth of approximately 102.5%, originating primarily as a result of the consolidation of the sales of Hadera Paper Printing in the sum of NIS 187.1 million, coupled with 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 517.6 million this year, representing decrease of approximately 2.5%.
The operating profit totaled NIS 55.3 million during the Reported Period, 5.4% of sales, as compared with NIS 12.6 million, 2.6% of sales, in the corresponding period last year. The increase in gross 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 segment, starting January 1, 2011, due to an operating loss of NIS 9.9 million in this segment.
Operating profit amounted to NIS 1.5 million in the second quarter of the year, as compared with operating profit of NIS 5.1 million in the corresponding quarter last year. The lower profit in the second quarter originated primarily as a result of the consolidation of the operating loss of Hadera Paper Printing in the amount of NIS 6.9 million as a result of the sharp rise in raw material prices, coupled with specific inefficiency in the manufacture of fine paper.
The net profit attributed to the Company's shareholders amounted to NIS 7.9 million in the Reported period, as compared with net profit of NIS 42.3 million in the corresponding period last year, representing an decrease of 81.3%. The net profit, net of non-recurring revenues and expenditures during the Reported Period, amounted to NIS 23.6 million, representing a decrease of 44.2% in relation to the corresponding period last year.
The decrease in the net profit attributed to the Company's shareholders during the Reported Period was primarily affected by the non-recurring provision in the amount of NIS 37.2 million that was recorded by the Company as a result of the decisions of the court in Turkey relating to the appeals filed by KCTR pertaining to the demand for tax payment handed down to KCTR in Turkey, that was offset by non-recurring revenues from the sale of real estate on Totzeret HaAretz Street in Tel Aviv , coupled with the improvement in the operating profit at the packaging paper and recycling sector. 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 earnings per share amounted to NIS 1.54 per share ($0.45 per share) in the Reported Period, as compared with basic earnings per share of NIS 8.35 per share ($2.15 per share) in the corresponding period last year.
Basic loss per share amounted to NIS 6.55 per share ($1.92 per share) in the second quarter of the year, as compared with earnings of NIS 3.55 per share ($0.92 per share) in the corresponding quarter last year.
The exchange rate of the NIS in relation to the dollar was revaluated by approximately 3.8% during the Reported Period, as compared with a devaluation of approximately 2.6% during the corresponding 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 6.3% 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 2.2%, as compared with an inflation rate of 0.7% 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 for recycled products in the global packaging paper market continued in the second quarter as well, and amounts to a cumulative rise in prices of approximately 15% as compared with the end of 2010. Starting in July 2011, the prices of recycled products are expected to decrease by approximately 3% as a result of a slowdown in the global paper market (source: PPI Germany).
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.
In terms of raw materials, in the Reported Period, the NIS was revaluated in relation to the average dollar and the euro, in relation to last year, by a rate of approximately 6.3% and 1.1%, respectively, leading 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 7.6% 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 3.7%. In addition, a sharp rise was recorded in the price of fibers, by an average rate of approximately 12% (in dollar terms) in relation to last year.
It should be noted that on May 15, 2011, the Company extended 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 entered into effect on July 1, 2011, for a period of two years.
The financial expenses during the Reported Period amounted to NIS 36.1 million, as compared with NIS 10.8 million in the corresponding period last year. The sharp rise in financing expenses is primarily attributed to the fact that during the corresponding period last year, the financing costs of Machine 8 were capitalized. This capitalization ended at the end of May 2010. Moreover, an increase of NIS 7.8 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 2.2%, as compared with a lower increase of 0.4% 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 3.6 million.
The Company's share in the losses of associated companies (H-K) totaled NIS 12.7 million during the Reported Period, as compared with a share in profits in the amount of NIS 40.1 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 a provision in the amount of NIS 37.2 million, created by the Company following the decisions of the court in Turkey relating to the appeals filed by KCTR regarding a demand for tax payment handed down to KCTR in Turkey, coupled with the company's share in the earnings of Printing and Writing Paper (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 7.4 million.
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 25.1 million, as compared with NIS 37.3 million in the corresponding period last year. The decrease in the sum of NIS 12.2 million, originated primarily from the decrease in operating profit that fell from approximately NIS 100.2 million to NIS 63.3 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. 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 6.3%. 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 39.4 million, as compared with NIS 2.9 million in the corresponding period last year, representing an increase of approximately NIS 36.5 million. The greater loss is primarily attributed to the provision in the amount of NIS 37.2 million recorded by the Company as a result of the decisions of the court in Turkey relating to the appeals filed by KCTR regarding a demand for tax payment handed down to KCTR in Turkey, an increase that was offset as a result of the continuing efficiency measures during the Reported Period, that led to the reduction in the operating loss from NIS 6.9 million in the corresponding period last year, to NIS 3.5 million during the Reported Period, as well as a result of recording financing income in the amount of approximately NIS 1.2 million, as compared with financing expenses of NIS 1.0 million during the corresponding period last year.
KCTR announced to the Company that it intends to appeal the decisions of the court, based on the expert opinion of its legal consultants, according to which KCTR possesses valid claims against the requirement and that the chances of success in the said appeal, are greater than 50%. However, According to the accounting policy of the company, the fact that the decision of the court had been handed down, even if appealable with great chances of success , creates a situation where it is "more likely than not" that payments will be made on account of these tax demands. Consequently, during the Reported Period, the Company included a provision on account of its share pertaining to the awarded 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
Six months ended June 30,
NISIN THOUSANDS(1)
2011 2010
Net sales 1,022,242 489,191
Net earnings attributed
to the Company's
shareholders 7,856 42,328
Basic net earnings per
share attributed to the
Company's shareholders 1.54 8.35
Fully diluted earnings
per share attributed to
the Company's
shareholders 1.54 8.27
Three months ended June 30,
NISIN THOUSANDS(1)
2011 2010
Net sales 504,633 249,206
Net earnings attributed
to the Company's
shareholders (33,336) 18,038
Basic net earnings per
share attributed to the
Company's shareholders (6.55) 3.55
Fully diluted earnings
per share attributed to
the Company's
shareholders (6.55) 3.52
(1) The representative exchange rate at June 30, 2011 was N.I.S. 3.415=$1.00.
Contact:
Yael Nevo, Adv.
Corporate Secretary and Chief of Legal Department
Hadera Paper Ltd. Group
Tel: +972-4-6349408
[email protected]
SOURCE Hadera Paper Ltd
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