6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the Month of November 2009


HADERA PAPER LTD.
(Translation of Registrant’s Name into English)

P.O. Box 142, Hadera, Israel
(Address of Principal Corporate Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

x  Form 20-F    o   Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

o  Yes    x   No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______________



        Attached hereto as Exhibit 1 and incorporated herein by reference is the Registrant’s press release dated November 09, 2009 with respect to the Registrant’s results of operations for the quarter ended September 30, 2009.

        Attached hereto as Exhibit 2 and incorporated herein by reference is the Registrant’s Management Discussion with respect to the Registrant’s results of operations for the quarter ended September 30, 2009.

        Attached hereto as Exhibit 3 and incorporated herein by reference are the Registrant’s unaudited condensed consolidated financial statements for the quarter ended September 30, 2009.

        Attached hereto as Exhibit 4 and incorporated herein by reference are the unaudited condensed interim consolidated financial statements of Mondi Hadera Paper Ltd. and subsidiaries with respect to the quarter ended September 30, 2009.

        Attached hereto as Exhibit 5 and incorporated herein by reference are the unaudited condensed interim consolidated financial statements of Hogla-Kimberly Ltd. and subsidiaries with respect to the quarter ended September 30, 2009.

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HADERA PAPER LTD.
(Registrant)

By: /s/ Lea Katz
——————————————
Lea Katz
Corporate Secretary

Dated: November 09, 2009.



EXHIBIT INDEX

Exhibit No. Description

1. Press release dated November 09, 2009.

2. Registrant’s management discussion.

3. Registrant’s unaudited condensed consolidated financial statements.

4. Unaudited condensed interim consolidated financial statements of Mondi Hadera Paper Ltd. and subsidiaries.

5. Unaudited condensed interim consolidated financial statements of Hogla- Kimberly Ltd. and subsidiaries.



Exhibit 1

NEWS
For Release: IMMEDIATE

Hadera Paper Ltd.
Reports Financial Results for Third Quarter and Nine Months

Hadera, Israel, November 9, 2009 – Hadera Paper Ltd. (AMEX:AIP) (the “Company”or “Hadera Paper”) today reported financial results for the third quarter and first nine months ended September 30, 2009. The Company, its subsidiaries and associated companies – is referred to hereinafter as the “Group”.

Since 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. (“Mondi Hadera”) and Hogla-Kimberly Ltd. (“H-K”), before the presentation of the consolidated data below, 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, without considering the rate of holding therein and net of mutual sales.

The aggregate sales during the reported period amounted to NIS 2,409.2 million, as compared with NIS 2,442.5 million in the corresponding period last year, representing a decrease of approximately 1.4%.

The aggregate sales in the third quarter this year amounted to NIS 790.4 million, as compared with NIS 823.9 million in the corresponding period last year, representing a decrease of 4.0% and as compared with NIS 788.8 million in the second quarter of the year.

The aggregate operating profit totaled NIS 186.7 million during the reported period, as compared with NIS 160.5 million in the corresponding period last year, representing growth of approximately 16.3%.

The aggregate operating profit totaled NIS 68.7 million in the third quarter of the year, as compared with NIS 49.2 million in the corresponding quarter last year, representing growth of 39.6% and as compared with NIS 54.1 million in the second quarter of the year.

The Consolidated Data set forth below excluding the results of operation of the associated companies: Mondi Hadera and H-K. Consolidated Data include also the sales turnover of Carmel Containers Systems Ltd. (“Carmel”) and Frenkel- C.D. Ltd. (“Frenkel- C.D.”) that were consolidated as of September 2008, as a result of the fact that the company’s holding rate in Carmel has increased from 36.2% to 89.3%, and at Frenkel CD, indirectly, from 37.93% to 52.72%.

Commencing January 1, 2009, the company applies IFRS 8, “Operating Segments”, and has accordingly recognized the packaging products and board segment, which includes the operations of Carmel and Frenkel C.D., as a separate segment. The associated companies H-K and Mondi Hadera were also recognized as independent segments. For further details, see page 4 below.



Consolidated sales in the reported period amounted to NIS 654.4 million, as compared with NIS 447.2 million in the corresponding period last year, representing an increase which was due mainly to the consolidation of the data of Carmel and Frenkel C.D. in the reported period.

Consolidated sales in the third quarter, amounted to NIS 220.4 million, as compared with NIS 171.4 million in the corresponding quarter last year.

The operating profit totaled NIS 15.1 million during the reported period, as compared with NIS 38.0 million in the corresponding period last year. The decrease in operating profits originated from the erosion of selling prices coupled with the quantitative erosion of packaging paper and recycling, as a result of the imports of packaging paper at dumping prices that was offset by the recording of non-recurring revenues of NIS 16.4 million on account of a unilateral dividend.

The operating profit amounted to NIS 1.2 million in the third quarter of the year, as compared with operating profit of NIS 7.9 million in the corresponding quarter last year.

The net profit attributed to the Company’s shareholders amounted to NIS 70.2 million in the reported period, as compared with net profit of NIS 59.5 million, that is attributed to the company’s shareholders in the corresponding period last year.

The net profit attributed to the Company shareholders during the reported period was affected by the improvement in operating profitability at some of the groups companies in Israel and in Turkey and by the recording of earnings as a result of the distribution of a unilateral dividend on account of the application of a preferred share by an associated Company that generated net revenues of NIS 8.4 million for the company. Moreover, a reduction in the Company’s share in the losses on account of the operations in Turkey (KCTR) compared with the corresponding period last year also contributed to the improved profitability.

The net profit for the third quarter this year amounted to NIS 35.4 million, as compared with a net profit of NIS 20.2 million in the corresponding quarter last year.

Revenues from taxes on income amounted to NIS 6.0 million in the reported period, as compared with tax expenses of NIS 4.2 million in the corresponding period last year. The tax revenues originated primarily from the decrease in pretax profits in the amount of NIS 25.7 million, coupled with the change in the tax rates the following years that generated deferred tax revenues in the amount of NIS 9.4 million, that were offset as a result of recording a provision for taxes on account of events that were included the reported period.

The long-term liabilities (including current maturities) amounted to NIS 832.6 million as at September 30, 2009, as compared with NIS 828.2 million as at September 30, 2008. The long-term liabilities increased in relation to last year, primarily as a result of long-term loans that were assumed, designated for the financing of payments on account of Machine 8. This increase was offset as a result of the repayment of the old debenture series, coupled with the repayment of a capital note to an associated company and the cash flows from operating activities.

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Basic earnings per share amounted to NIS 13.86 per share ($3.69 per share) in the reported period, as compared with basic earnings per share of NIS 11.75 per share ($3.44 per share) in the corresponding period last year.

Basic earnings per share amounted to NIS 7.00 per share in the third quarter ($1.86 per share), as compared with earnings of NIS 3.99 per share ($1.17 per share) in the corresponding quarter last year.

The inflation rate during the reported period amounted to 3.4%, as compared with an inflation rate of 4.4% in the corresponding period last year.

The financial expenses during the reported period amounted to NIS 14.8 million, as compared with NIS 11.9 million in the corresponding period last year.

The US dollar exchange rate was revaluated by 1.2% during the reporting period, in relation to a revaluation of approximately 11% during the corresponding period last year.

In the course of the reported period, a turnaround has occurred in the intensity of the global and local economic crisis. Following a stability of several months at the low point, in the past several months it was possible to observe a gradual recovery in global economic activity, that was expressed, inter alia, the slowdown in both global and local unemployment, the initial expansion of investments and credit volumes, coupled with an expansion of public and private consumption.

In the global paper and paper products market, we currently see a new trend in terms of prices in the paper industry. Prices in the global packaging paper sector have started to climb sharply last September in Europe.

The Hadera Paper Group manages a relatively wide and diverse portfolio of companies and businesses. This fact is instrumental in dealing with the local and global crisis. The company’s sectors of operation focus on consumer goods and basic inputs that were affected in a relatively limited manner by the repercussions of the global economic and financial crisis.

Hadera Paper Group was quick to formulate, at an early stage, an aggressive program for efficiency and savings in purchasing for all its companies, across all sectors of operation. During the reported period, most of the Group companies have met their defined objectives, while rendering it possible to compensate for the lower prices dictated by the global crisis, the local slowdown and the imports of fine paper and packaging paper at dumping prices, primarily from Europe. The group companies also operated in order to intensively manage, in a controlled manner, the operating working capital, while carefully monitoring trade receivables and risk management.

The companies whose earnings are reported under this item (according to Hadera Paper’s holdings therein), include primarily: Mondi Hadera and Hogla-Kimberly.

The Company’s share in the profits of associated companies totaled NIS 63.9 million during the reported period, as compared with NIS 36.6 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 income of Mondi Hadera Paper (49.9%) rose by NIS 2.4 million. The increase in profit originated primarily from an increase in the operating profit of Mondi, that grew from NIS 27.4 million last year, to NIS 28.9 million this year.

3



The Company’s share in the net earnings of Hogla-Kimberly Israel (49.9%) increased by NIS 15.6 million. Hogla-Kimberly’s operating profit grew from NIS 126.6 million to NIS 155.0 million this year.

The Company’s share in the losses of KCTR (49.9%) was reduced by NIS 7.8 million.

On November 1, 2009, the company announced that it examined the need for a provision for the impairment of the packaging paper sector as a cash generating unit and has arrived at the conclusion that no recognition is necessary of a loss on account of the impairment of fixed assets. The company has also examined the need for a provision for impairment on account of the consolidated subsidiary Carmel and has arrived at the conclusion that no recognition is necessary of a loss on account of the impairment.

As aforementioned, according to IFRS 8, the Company has identified five segments and fields of operation, as follows: (1) The paper and recycling segment – generates revenue from the sale of paper products to paper manufacturing companies as well as from the recycling of paper and cardboard. (2) The office supplies marketing segment – generates revenue from the sale of office supplies to customers. (3) The packaging and cardboard products segment – generates revenue from the sale of packaging and cardboard products to customers. (4) The Hogla Kimberly segment – an associated company that generates revenue from the manufacture and marketing of household paper products, hygiene products, disposable diapers and complementary kitchen products, in Israel and in Turkey. (5) The Mondi Hadera Paper segment – an associated company that generates revenue from the manufacture and marketing of fine paper.

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.

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Hadera PAPER LTD.
SUMMARY OF RESULTS
(UNAUDITED)

Nine months ended September 30,
NIS IN THOUSANDS (1)
except per share amounts
2009
2008
 
Net sales      654,405    447,180  
   
Net earnings attributed to the  
Company's shareholders    70,161    59,479  
   
Basic net earnings per share  
attributed to the Company's  
shareholders    13.86    11.75  
   
Fully diluted earnings per share  
attributed to the Company's  
shareholders    13.86    11.73  

Three months ended September 30,
NIS IN THOUSANDS (1)
2009
2008
 
Net sales      220,371    171,394  
   
Net earnings attributed to the  
Company's shareholders    35,445    20,177  
   
Basic net earnings per share  
attributed to the Company's  
shareholders    7.0    3.99  
   
Fully diluted earnings per share  
attributed to the Company's  
shareholders    7.0    3.98  

(1) The representative exchange rate at September 30, 2009 was N.I.S. 3.758=$1.00.

Contact:
Lea Katz, Adv.
Corporate Secretary and Chief of Legal Department
Hadera Paper Ltd. Group
Tel:+972-4-6349408
Leak@hadera-paper.co.il

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Exhibit 2

Hadera Paper Ltd.

Update to PART A (Corporate Business Description) of the Information
Presented in the Company’s Periodical Report
As at December 31, 2008

Details in accordance with Regulation 39a of the Securities Regulations (Periodic and Immediate Reports), 1970.

  1. Update to chapter A, section 2: “Corporate operations and description of development of its business”

In accordance with IFRS-8, the company has identified the following five sectors and areas of operations:

  a. Paper and recycling sector – generates its revenues from the sale paper products to producing paper companies as well as from the recycling of paper and board.

  b. Marketing of office supplies sector – generates its revenues from the sale of office supplies to customers.

  c. Packaging products and cardboard sector – generates its revenues from the sale of packaging and board products to customers.

  d. Hogla Kimberly sector – an associated company that generates its revenues from the sale of household paper products, hygiene products, disposable diapers and complementary products for the kitchen, in Israel and Turkey.

  e. Mondi Hadera Paper sector – an associated company that generates its revenues from the sale of fine paper.

  2. Update to chapter A, Section 5: “Equity investments in the Company and transactions in its shares”

  On November 1, 2009, the company announced that it examined the need for a provision for the impairment of the packaging paper sector as a cash generating unit and has arrived at the conclusion that no recognition is necessary of a loss on account of the impairment of fixed assets. The company has also examined the need for a provision for impairment on account of the consolidated subsidiary Carmel Container Systems Ltd. and has arrived at the conclusion that no recognition is necessary of a loss on account of the impairment. For additional details, see the company’s press release dated November 1, 2009 and also see note 3F, to the attached financial statements dated September 30, 2009.

  3. Update to Chapter C, section 9: “Paper, recycling and board segment operations”

  On September 1, 2009, the company announced that following a complaint filed by the company regarding the importing at dumping prices of packaging paper from several European nations into Israel, the Dumping Supervisor at the Ministry of Employment, Industry and Trade, announced that importing at dumping prices of recycled brown paper products was allegedly taking place, while causing damage to the local production sector. The supervisor therefore decided to impose a temporary levy, for a period of six months, at a level equal to 52-67 euro per ton on the import of recycled brown paper products from manufacturers in the European Union. Some of the manufacturers and importers have filed petitions against this decision.

1



  4. Update to Chapter D, Section 14: “Finance”

  On October 5, 2009 rating company Maalot (Standard and Poor’s) announced the downgrading to a rating of A+/Negative Outlook for the company’s series of debentures.

  Regarding the details of the rating report see the Company’s press release dated 5.10.09.

  5. Update to Section D “Additional Details Regarding the Company”, Regulation 26, Appendix G

  On October 1, 2009, the company announced that Discount Investment Company (“DIC”) ceased being an interested party in the company. This announcement came following the completion of a transaction between Clal Industries and Investments Ltd. (“CII”) and DIC, pursuant to which the entire holdings of DIC in the company were sold to CII. As a result of this acquisition, the rate of holdings of CII in the company has increased to approximately 59%.

  6. Update to Section D: “Additional Details Regarding the Company”, Regulation 26, Appendix H

  on October 1, 2009, the company announced that Mr. Ari Bronshtein had ceased to serve as a director at the company.

2




November 8, 2009

MANAGEMENT DISCUSSION

We are honored to present the consolidated financial statements of the Hadera Paper Ltd. Group for the first nine months of 2009.

The report was edited as defined in the Securities Law (Periodical reports and press releases), assuming that the reader has also the Company’s full periodical report for December 31, 2008 (“Annual reports”). The results presented in the management discussion are attributed to the part of the shareholders of the Company in the results, unless said otherwise.

A. Description of the Company’s Business

  1. Company Description

  Hadera Paper Group deals in the manufacture and sale of packaging paper, corrugated board packaging, consumer product packaging and unique packaging for industry, recycling of paper and plastic waste and in the marketing of office supplies – through subsidiaries. The Company also holds associated companies that deal in the manufacture and marketing of fine paper, in the manufacture and marketing of household paper products, hygiene products, disposable diapers and complementary kitchen products.

  The company’s securities are traded on the Tel Aviv Stock Exchange and on the American Stock Exchange, AMEX.

  2. General

  a. Principal Current Operations

  1. Business Environment

  In the course of the reported period, a turnaround has occurred in the intensity of the global and local economic crisis. Following a stability of several months at the low point, in the past several months it was possible to observe a gradual recovery in global economic activity, that was expressed, inter alia, the slowdown in both global and local unemployment, the initial expansion of investments and credit volumes, coupled with an expansion of public and private consumption.

  In the global paper and paper products market, we currently see a new trend in terms of prices in the paper industry. Prices in the global packaging paper sector have started to climb sharply last September in Europe, and according to reports from research companies covering the paper industry, transactions are currently being closed while recording an increase in prices of between 50 and 60 euro per ton (approximately 20%), why the prices are expected to grow by a cumulative 80-100 euro per ton by the end of the year.

3



  This trend of improvement and the renewed growth in the volumes of operations and in global paper prices will already be expressed in the last quarter of the year and is expected to continue well into 2010.

  The anticipated gradual growth in demand will be instrumental in utilizing the full potential of output capacity at the group, so as to better handle the business environment.

  The above information pertaining to trends in the paper market and input prices constitutes forward-looking information as defined in the Securities Law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as changes in global raw material prices and changes in the supply and demand of global paper products.

  2. Impact of the Business Environment on Company Operations

  The Hadera Paper Group manages a relatively wide and diverse portfolio of companies and businesses. This fact is instrumental in dealing with the local and global crisis. The company’s sectors of operation focus on consumer goods and basic inputs that were affected in a relatively limited manner by the repercussions of the global economic and financial crisis.

The company’s principal operations in the household paper and absorbent products market (through the Hogla-Kimberly sector), both in the B2B and the B2C markets are exposed to relatively small changes in the volume of demand during crisis periods such as the one currently experienced. The changes in demand for FMCG products, such as paper products and absorbent products, lie in the range between 0% and a 5% decrease, while most of the impact is evident in price competition and in a preference on the part of customers and consumers for attractively priced products.

  The company is acting according to a multi-annual business and marketing strategy in terms of Premium products, Value products and Economy products. This fact provides the company with the necessary flexibility in order to protect market share, while preserving the quantitative volume of operations and while optimizing profits.

  In light of the above, the company has successfully managed to continue improving its profits despite the challenging business environment in these areas.

  In the packaging paper and recycling sector, the anticipated significant increase in prices, ranging between 15% and 25% worldwide, will positively affect the results of the sector, that is currently on the brink of the initial operation of the new Machine 8 for the manufacture of packaging paper, that is expected to effectively double the annual output capacity of the Hadera Paper Group in this sector, from 160,000 tons to 300,000 tons in 2010. These higher prices will be recorded against the background of an improvement in the equilibrium between supply and demand, primarily in Europe, originating from the closure of manufacturing plants and a reduction in supply, as opposed to the renewed global growth in the gradual increase in global commerce. This recovery is expected to influence the reduction in import volumes, so that’s together with the gradual recovery in the local market, will bring about improved commercial and economic activity, along with the maximization of future performance.

4



  The company estimates that since 2008, these products have been imported into Israel at dumping prices, primarily from Europe. The company is working to handle this issue opposite the Dumping Supervisor at the Ministry of Employment, Industry and Trade, who has decided to impose a temporary levy on the importing of packaging paper from Europe, at a rate of 52-67 euro per ton. Some of the manufacturers and importers have filed petitions against this decision.

  In the fine paper sector, the impact of the global crisis is evident primarily in the publishing industry. The volume of demand for newsprint paper and fine paper has decreased by a rate of 5% to 10% in the global market.

  The reduced demand is creating surplus supply in Europe and worldwide, as fine paper is being imported to Israel at dumping prices since 2008. In this respect, the company is also working opposite the Dumping Supervisor in order to control imports at these prices. In order to provide an appropriate response to this business environment, Mondi Hadera paper is currently expanding its export operations to include a penetration into new and more lucrative markets in the eastern United States, a fact that will render it possible to increase the profit margin in the future export mix, so as to offer a compensation for the higher pulp prices that began to rise in the last quarter.

  In the office supplies marketing sector, the crisis has led to a reduction in purchasing volumes by most companies in the economy, as part of their efficiency measures. While purchases have decreased by 15% to 20%, Graffiti has succeeded – as part of the implementation of a growth-accelerating strategy – to increase its operations in the B2B office supplies marketing sector by exploiting economies of scale in terms of the level of quality offered to customers, it’s purchasing capability and the competitive prices in the market. In contrast to the contractionary nature of the market, the company is continuing to gradually increase its volume of operations and its market share.

  To conclude, the Group’s financial stability, coupled with the fact that it is an efficient company in international terms, in terms of its production lines, energy systems and supply chains, in conjunction with its diverse portfolio consisting primarily of basic consumer goods, are all enabling the company to contend with a difficult and challenging business environment, while growing both its aggregate operating profit, as defined below, and its net profit.

  During the reported period, a decrease was recorded in the prices of inputs, primarily in the prices of fibers and chemicals, as a result of the global crisis. These decreases in prices offered partial compensation for the erosion in prices at some of the Group companies. These savings were partially offset as a result of the rising water prices during the reported period by an average rate of 4% in relation to the corresponding period last year and as a result of the devaluation of the NIS in relation to the average dollar in the period by a rate of approximately 13.6% in relation to the corresponding period, that possessed a negative impact on the Company in terms of the imported inputs, while on the other hand, served to improve the selling prices that previously eroded, as mentioned above, in the company’s main sectors of operation, whose prices are in line with import prices, in US dollars.

5



  These market developments and fluctuations may potentially have adverse effects on the business results of the Company and its investee companies, including an effect on their liquidity, the value of their assets, the ability to divest assets, the state of their business, their financial indicators and standards, their credit rating, ability to distribute dividends, ability to raise financing for their current operations and long-term plans, as well as on their financing terms.

  True to the date of publication of the financial statements, there is no material impact as a result of the crisis, on the Company’s business results, its financial soundness or the value of its assets.

  The above information pertaining to the global trends and their impacts on the company constitutes forward-looking information as defined in the securities law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as the global crisis in credit and banking markets.

  As at the date of publication of these financial statements, no material changes have occurred to the Company’s risk management policy.

  The US dollar exchange rate was revaluated by 1.2% during the reporting period, in relation to a revaluation of approximately 11% during the corresponding period last year.

The company’s business portfolio, including its associated companies, is balanced in terms of foreign currency and the level of the company’s exposure to sharp fluctuations in currency rates is therefore low.

  The inflation rate during the reported period amounted to 3.4%, as compared with an inflation rate of 4.4% in the corresponding period last year.

  The above information pertaining to trends in the paper market and input prices constitutes forward-looking information as defined in the Securities Law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as changes in global raw material prices and changes in the supply and demand of global paper products.

  3. The Group’s Operations Vis-À-Vis the Business Environment

  During the global and local economic crisis , as reflected by a reduction in investments and credit and by a reduction in demand and global commerce, the Hadera Paper Group managed to align its assets in advance in order to correctly contend, in a focused manner, with the sharp change in the business environment.

6



  Hadera Paper Group is financially sound, possessing efficient production lines on a global scale, along with efficient energy systems and supply chains. First and foremost, the group enjoys a wide and diverse portfolio of companies and businesses that are instrumental in contending with the changing business environment.

  Hadera Paper Group was quick to formulate, at an early stage, an aggressive program for efficiency and savings in purchasing for all its companies, across all sectors of operation. During the reported period, most of the Group companies have met their defined objectives, while rendering it possible to compensate for the lower prices dictated by the global crisis, the local slowdown and the imports of fine paper and packaging paper at dumping prices, primarily from Europe. The group companies also operated in order to intensively manage, in a controlled manner, the operating working capital, while carefully monitoring trade receivables and risk management.

  The group will continue to focus on the successful implementation of efficiency measures, savings in purchasing and the management of operating capital, while continuing to monitor trade receivable risks later on this year, while also devoting management attention to growth-promoting operations.

  Hadera Paper Group is conducting initiatives to gradually encourage demand by increasing institutional and private consumption and while focusing on expanding market share so as to return to growth across most of its businesses.

  The group has recently devoted efforts to accelerating business development in international markets for its various products, so as to encourage growth and improve profits. (See Section A(2)A (5.4) The Strategic Investment in Turkey – below).

  The plan for company growth and improving profitability is based on business opportunities in the core sectors in Israel and worldwide and on empowering company operations in terms of development and innovation in the various business sectors, so as to generate new products that will provide a distinct added value for both the businesses and the consumer. These efforts, which are focused on the group’s technological center and also on the various companies, have led to the launch of new and upgraded products during the reported period, in both the FMCG and the paper sectors. (See Section A(2)A(5.2) –Innovative Development of High-Quality Recycled Paper- below).

  In view of the company’s estimates regarding the continuing imports of paper at dumping prices – primarily from Europe – in both packaging paper and fine paper, the company has – applied to the Dumping Supervisor at the Ministry of Employment Commerce and Trade (hereinafter: “The Supervisor”) and has filed a complaint against the dumping imports of packaging paper from several European countries into Israel. Subsequent to an examination of the complaint, the Dumping Supervisor decided to impose a temporary levy on the import of packaging paper from Europe at a rate of between 60-80 euro per ton.

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  On February 26, 2009, the company announced that the subsidiary Mondi Hadera Paper – an associated company – had filed a complaint to the Supervisor, regarding the dumping imports of fine paper from several European nations to Israel. Upon review of the complaint, the Supervisor decided to launch an investigation of this issue. According to the Company announcement, 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.

  The company continued its environmental operations during the reporting period, while upgrading various technological and operating systems in order to expand paper recycling, increase the reuse of processed water and lower noise levels so as to benefit the company employees, the community and to improve the financial results.

  The company recorded other income in the amount of NIS 1.5 million, on account of the sale of carbon emission rights for 2008, pursuant to an agreement signed by the company in February 2009 with TEP (Trading Emissions PLC), An investment company registered in the UK, specializing in the trade of carbon emission quotas. The agreement enables TEP to trade in the rights of Hadera Paper to carbon emission quotas starting in 2008 through to 2012. Hadera Paper was rendered eligible for the sale of carbon emission rights as a result of the conversion of the Group’s power station at the Hadera site from fuel oil to environment-friendly natural gas. This move significantly reduces the pollution emitted into the air, while allowing the company to save energy costs and enabling it to enjoy the proceeds of the clean development mechanism.

  The company has continued to implement its policy for social responsibility and for contributing to the community. The company’s employees and managers at the various sites are all taking an active role in community involvement, in supporting teenagers and primarily in working toward reducing social gaps and in providing equal opportunity for education and for personal accomplishments within the framework of the company and the community.

  4. Principal Current Operations

  During the reported period, in light of changes in the business environment, the company has maintained its level of aggregate sales, was recording growth in both aggregate operating profit and net profit at most of the Group’s subsidiaries and associated companies (hereinafter: The Group Companies), while realizing a quantitative increase in sales in part of the sectors of operation and while – in parallel – continuing to successfully implement cost-cutting and efficiency measures, as compared with the corresponding period last year.

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  Implementation and Assimilation of Organization-Wide Processes

  In the course of the reported period, the Group companies continued to implement and assimilate organization-wide processes that are intended to support the continued growth and increased profitability in organizational development, purchasing, B2B marketing, technology development and innovation. The gradual and successful implementation of these brands will enable the company to better deal with the challenging business environment, while improving profitability.

  5. Promoting the Strategic Plans

  In parallel to the ongoing operations, the Company is working to successfully implement the strategic plans that are intended to lead to continued growth in operations and improved profitability over the coming years:

  5.1. Expanding the recycled packaging paper manufacturing network

  The investment in the project for the construction of the new manufacturing network, totaling NIS 690 million was approved on October 15, 2007 by the Company’s Board of Directors. The Company has selected the most highly advanced technologies in this area, from the leading suppliers in the sector, in order to amplify its competitive advantage and potential for profitability in the long term.

  The implementation of the project is progressing as planned and subsequent to the signing of the central agreements for the acquisition of the principal equipment for production systems last year, the construction of the machine’s building is nearing completion in 2009 at the Hadera site, along with the installation of the equipment.

  The new production lines are scheduled to begin operating at full capacity in early 2010, after a running-in period of several months. Based on the working assumptions that were defined regarding the learning curve of the machine’s operation, the new production lines together with the machines that are currently active, are expected to produce 290,000 tons of paper in 2010, representing growth of approximately 80% in relation to the existing output capacity.

  In parallel, the Amnir Recycling subsidiary is continuing to expand the collection of cardboard and newspaper waste and is continuing to accumulate inventories toward the planned operation of the new machine by the beginning of 2010. The company is preparing for increasing the proportion of paper recycling in Israel from the currently low 26% up to 45% within several years, as part of the demand for raw materials for the new manufacturing system.

  As part of this project, the company is investing in the reorganization of the principal site in Hadera, including an expansion of the energy system and the adaptation of the traffic routes and upgrading of environmental systems, as required. Within the central building of the machine, a visitors center is also being built, that will serve as the Israeli Educational Center for paper recycling and is intended to educate Israeli youth in the areas of recycling and the environment.

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  5.2. Innovative Development of High-Quality Recycled Paper

  Over the past year, the packaging paper and recycling division launched the rapid development of paper types based on 100% recycled fibers, whose superior quality would allow them to replace pulp-based packaging paper in the corrugated board industry – both in Israel and in overseas markets being developed by the division for all of its products.

  The technological and operational development process is currently in advanced stages and is intended to significantly expand the volume of the potential market of the packaging paper division, both locally and in international markets.

  The development of the new paper types is based on fiber characterization, the development and implementation of various chemical additives and the use of advanced manufacturing technologies, both in the existing manufacturing lines and in the new production line. The initial products that emerged from these innovative developments have already been sold during the reported period both in Israel and overseas and have gained customer satisfaction.

  According to the plan, the cost of the new paper types will be competitive as compared with the cost of pulp-based paper and will allow for a gradual improvement in the profitability of the sector. According to laboratory results, indications from the development processes at the production lines and initial responses from customers who have already tried to products that have already been launched and their commitment to future purchasing volumes in 2010,the probability of success of this venture appears to be relatively high.

  During the reported period, the company has started to market these products in the local market as well as in export markets. The new products are competitive in terms of their use, in relation to pulp-based products in the continuing expansion of the sales volumes of these products is planned to take place within the current year.

  The above information pertaining to the innovative developments in the paper market constitutes forward-looking information as defined in the Securities Law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company.

  5.3. Development of Export Markets for Packaging Paper

  The significant increase in the output capacity of recycled packaging paper by Hadera Paper Group, upon the operation of the new manufacturing system, will allow for an expansion of the Division’s operations both in Israel and overseas. The process of developing pulp-replacement packaging paper products on the basis of 100% recycled fibers, as mentioned above, will enable the division to expand the sale of such products for the first time, as a substitute for pulp-based packaging paper in international markets. The new products create an improved profit potential and are planned to be sold at a significant price supplement per ton of paper, as compared with the selling prices of basic paper types.

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  The development of new paper products, that began in 2008, is enabling the division to create international business relations for the first time with a network of distributors and marketers, while formulating long-term agreements with international clients.

  During the reported period, the company has acted to develop export markets and has reached preliminary agreements with several agents operating in various countries and in Europe for the distribution and marketing of various types of packaging paper. This operation has already started and will expand gradually in the course of the year.

  Initial reactions overseas as regards the quality of the types of paper provided are good and it appears that this significant business and technological development will render it possible to diversify the division’s portfolio of products and markets.

  The above information pertaining to the development of innovative products in the paper market and the development of export markets for packaging paper constitutes forward-looking information as defined in the Securities Law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as changes in global raw material prices and changes in the supply and demand of global paper products.

  5.4. The Strategic Investment in Turkey

  During the reported period, Kimberly Clark Turkey, KCTR, a wholly-owned Hogla Kimberly subsidiary (49.9% of which is held by the company) – continued to implement its strategic plan GBP – (Global Business Plan) that was formulated together with the international partner, Kimberly Clark. The plan is intended to introduce Kimberly Clark’s global brands to Turkey, on the basis of local manufacturing. If fully implemented, KCTR will grow to become a company with annual sales in the area of $300 million, by 2015.

  The sales turnover of KCTR totaled NIS 380.3 million during the reported period, as compared with NIS 313.6 million in the corresponding period last year, representing growth of 21.3%.

  During the reported period, the Company continued to empower its international brands on the local market. This was especially expressed in the power of the Huggies brand in the diaper sector and the Kotex brand in the feminine hygiene sector, while realizing constant growth in market share and rising awareness toward the company’s products. In parallel, the volume of exports to Kimberly-Clark in various other countries in Europe and Africa also increased. The Company’s advanced manufacturing site in Turkey serves as a regional Kimberly-Clark diaper manufacturing center, whose products are exported to 22 different countries throughout Europe and the Middle East.

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  During the reported period, the company received two Effie awards for marketing in Turkey, serving as an indication of marketing capability in the launch and build up of the brands.

  The Company’s continuing marketing and advertising operations are being felt in the gradual strengthening of the brands, as expressed by consumer studies that are being conducted regularly, alongside consistent growth in sales, while curtailing the operating loss and a considerable reduction in the Company’s net loss.

  As part of the strategic plan, the Company intends to continue its marketing and sales promotion efforts, while launching new products that will support the establishment of the brands and the creation of customer loyalty.

  In the course of the reported period, the Company continued to promote the collaboration with Unilever and expanded the number of points of sale in the Turkish market that sell KCTR brands.

  In parallel, the company is continuing to expand the marketing of its products to BIM, the largest supermarket chain in Turkey.

  The continuing high level of competition in the markets where the company is working to introduce and penetrate its brands calls for regular and significant investments in advertising and sales promotion.

  All of the expenses detailed above associated with the penetration of products, advertising, expansion of the distribution network and more – are regularly recorded as an expenditure in the KCTR statements of income. KCTR recorded an operating loss of approximately NIS 12.2 million (approximately $3.2 million) in the reported period, as compared with NIS 29.4 million (approximately $8.4 million) in the corresponding period last year.

  The continued implementation of the strategic business plan, while strengthening the brands and recording a gradual growth in the Unilever distribution and sales platforms, in combination with increased exports and continuing cost reductions at the diaper plant – have rendered it possible to maintain the trend of improving operating profit, while reducing the operating loss for the tenth consecutive quarter – as mentioned above.

  The above information pertaining to the KCTR business plans and their implementation constitutes forward-looking information as defined in the securities law, based on the company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as market conditions, legislation and various costs.

  5.5. New Power Plant

  The new power plant project, intended to supply steam and electricity to the production system in Hadera and to sell surplus electricity to Israel Electric Company (IEC) and/or to private consumers, is on hold, awaiting the business stabilization of potential gas sources in order to conclude the contract to acquire the required gas at a price range that would allow the Company to be competitive with expected IEC rates. Due to the delay in finalizing the engagement for the purchase of gas as mentioned above, is not possible to meet the milestones set in the contingent production license held by the company. During this waiting stage, the company has decided not to request an extension of the license and will instead acts to renew the license once progress is made in the purchase of gas for the power plant.

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  The company is conducting negotiations with the gas suppliers in order to reach a long-term agreement at economically feasible prices.

  The discovery of natural gas at the Tamar 1 and especially at the Dalit 1 sites off the coast of Hadera, along with the progress being made with the Egyptian gas franchise holder (EMG) and with the additional franchise holder Yam-Tethys – all serve to increase the probability of the signing of a gas supply agreement and the reawakening of the project.

  The above information pertaining to trends in the energy sector, based on natural gas, constitutes forward-looking information as defined in the Securities Law, based on the Company’s estimates at the date of this report. These estimates may not materialize – in whole or in part – or may materialize in a different manner, inter alia on account of factors that lie outside the control of the company, such as the size of the actual gas reservoir, as well as changes in gas prices worldwide.

B. Report of the Results of Operation

  1. Aggregate Data

  Regarding the consolidated data, see Section C(5), below.

  Since 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. [Mondi Hadera] and Hogla-Kimberly Ltd.), before the presentation of the consolidated data below, we also present 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”), without considering the rate of holding therein and net of mutual sales.

  The aggregate sales during the reported period amounted to NIS 2,409.2 million, as compared with NIS 2,442.5 million in the corresponding period last year, representing a decrease of approximately 1.4%.

  The aggregate sales in the third quarter this year amounted to NIS 790.4 million, as compared with NIS 823.9 million in the corresponding period last year, representing a decrease of 4.0% and as compared with NIS 788.8 million in the second quarter of the year.

  The aggregate operating profit totaled NIS 186.7 million during the reported period, as compared with NIS 160.5 million in the corresponding period last year, representing growth of approximately 16.3%.

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  The aggregate operating profit totaled NIS 68.7 million in the third quarter of the year, as compared with NIS 49.2 million in the corresponding quarter last year, representing growth of 39.6% and as compared with NIS 54.1 million in the second quarter of the year.

  The growth in the aggregate operating profit, despite the erosion of selling prices at some of the companies, originates from the improved growth and profits in the group operations in packaging products, the continued growth and improved profitability at Hogla Kimberly in Israel and the continuing reduction in the operating loss in Turkey. In the current quarter, for the first time since 2004, a transition was made to operating profitability coupled with non-recurring income on account of a unilateral dividend at an associated company.

  For the operations in Turkey – see also Section C(5)7 below – Company’s share in the earnings of associated companies.

  2. Details of the Various Operations

  1. Hogla-Kimberly (Household Products)

  The sales turnover of Hogla-Kimberley Israel amounted to approximately NIS 924.7 million in the reported period, as compared with approximately NIS 914.8 million in the corresponding period last year, representing an increase of 1.1%.

  The increase in sales over the corresponding period last year was primarily attributed to a quantitative increase, resulting from the ongoing expansion of market shares alongside the market growth, which was partly offset by the decrease in selling prices and the reduced market share in certain categories of premium products.

  The sales in the third quarter this year amounted to NIS 298.7 million, as compared with NIS 306.7 million in the corresponding quarter last year and as compared with NIS 302.1 million in the second quarter of the year.

  The operating profit of Hogla-Kimberly Israel amounted to approximately NIS 155.0 million in the reported period, as compared with approximately NIS 126.6 million in the corresponding period last year, representing an increase of 22.4%.

  The improvement in the operating profit in comparison to last year was due to the aforesaid increase in the quantities sold and the implementation of efficiency measures, alongside a significant increase in the output of some of the company’s manufacturing facilities, coupled with the global decrease in input prices. As an importer of both inputs and finished products, the Hogla Kimberly Israel results were adversely affected during the reported period, in relation to last year, on account of the devaluation in the average NIS exchange rate against the dollar between the periods.

  The operating profit in the third quarter this year amounted to NIS 52.7 million, as compared with NIS 41.5 million in the corresponding quarter last year, representing growth of 27% and as compared with NIS 54.4 million in the second quarter of the year.

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  The sales turnover of KCTR, Hogla-Kimberly’s subsidiary operating in Turkey, amounted to approximately NIS 380.3 million (approximately $95.3 million) in the reported period, as compared with approximately NIS 313.6 million (approximately $89.3 million) in the corresponding period last year, representing an increase of 21%.

  KCTR’s strategic cooperation agreement with Unilever, under which Unilever carries out the selling, distribution and collection activities nationwide, with the exception of retail chains to which KCTR continues to sell independently, continues to expand the customer base and to bring about the resulting increase in sales and enhancement of the Huggies and Kotex brands.

  See also section A(2)a(5.4) above with respect to the strategic investment in Turkey.

  2. Mondi Hadera Paper (Mondi Hadera – Fine Paper)

  The sales of fine paper amounted to 137.6 thousand tons in the reported period as compared with 140.2 thousand tons the corresponding period last year, representing a decrease of 1.9%. Sales amounted to 45.3 thousand tons in the third quarter, as compared with 46.3 thousand tons in the third quarter last year and as compared with 43.5 thousand tons in the second quarter of 2009.

  The sales turnover of fine paper amounted to NIS 511.9 million in the reported period, as compared with NIS 573.2 million in the corresponding period last year, representing a decrease of 10.7%. The sales turnover of fine paper in the third quarter of 2009 amounted to NIS 168.3 million, as compared with NIS 190.0 million in the corresponding period last year, representing a decrease of 11.4%, and as compared with NIS 161.6 million in the second quarter of 2009, representing an increase of 4.1%.

  The operating profit of Mondi Hadera amounted to NIS 28.9 million in the reported period, as compared with an operating profit of NIS 27.4 million in the corresponding period last year. In the third quarter of 2009, the company’s operating profit amounted to NIS 13.0 million, as compared with an operating profit of NIS 9.8 million in the corresponding quarter last year, representing an increase of 32.7% and as compared with operating profit of NIS 10.5 million in the second quarter of 2009.

  The increase in operating profit in the third quarter in relation to the corresponding quarter last year, despite the aforementioned decrease in sales, originated primarily from the 29% decrease in pulp prices, coupled with the improvement in the gross profitability of the sales of purchased paper by Mondi (15% in the third quarter as compared with 13% in the corresponding period last year), the focused and successful implementation of an efficiency program and savings in purchasing that serve to offset the impact of the erosion of selling prices by approximately 10%.

  3. Carmel Container Systems – Packaging and Board Products

  The aggregate sales turnover of Carmel Container Systems (including Frenkel C.D.) amounted to NIS 356.7 million in the first nine months of 2009, as compared with NIS 394.8 million in the corresponding period last year. A decrease of 9.6%.

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  During the reported period, the consolidated sales turnover of Carmel Container Systems Ltd. amounted to NIS 283.4 million, as compared with NIS 316.5 million in the corresponding period last year. A decrease of 10.5%.

  The volume of quantitative sales in the corrugated board sector amounted to 111.1 million m² (58.6 thousand tons) during the reported period, as compared with 116.3 million m² last year (60.3 thousand tons). The decrease in the quantitative volume of sales is primarily attributed to the downturn in the local market and in the high-tech market as a result of the global crisis and as a result of customer attrition in the boards and slaughterhouse sectors due to competition, that was offset by a quantitative increase in sales to the agricultural sector in relation to the corresponding period last year.

  The consolidated operating profit of Carmel Container Systems amounted to NIS 6.9 million in the reported period, as compared with an operating loss of NIS 5.8 million in the corresponding period last year. The improvement in Carmel’s operating profit is primarily due to the decrease in input prices and the implementation of an aggressive efficiency program that compensated for the erosion in the quantities sold and in the selling prices.

  The aggregate operating profit of Carmel Container Systems (including Frenkel C.D.) amounted to NIS 7.9 million in the reported period, as compared with an operating loss of NIS 4.4 million in the corresponding period last year.

  4. Packaging Paper and Recycling

  The sales turnover of the Packaging Paper and Recycling Division amounted to NIS 250.9 million in the reported period, as compared with NIS 322.1 million in the corresponding period last year. The division’s sales turnover in the third quarter totaled NIS 88.7 million, as compared with NIS 107.1 million in the corresponding quarter last year and NIS 81.7 million in the second quarter of the year.

  The decrease in the sales turnover was partly due to the quantitative decrease in sales, both as a result of the downturn in the local market and the preparations for the development of new markets overseas, that shifted sales to export, the reduction in selling prices at Amnir and in the packaging paper segment, and the effect of dumping prices of paper imported from Europe (with respect to dumping and counteractions, see Section A(2)a(3), above).

  The division concluded the reported period with an operating loss of approximately NIS 14.5 million, as compared with an operating profit of NIS 36.0 million in the corresponding period last year. The division’s operating loss in the third quarter of the year amounted to NIS 6.6 million, as compared with an operating profit of NIS 8.8 million in the corresponding quarter last year and an operating loss of NIS 8.1 million in the second quarter of the year.

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  The deterioration in the operating profit in the reported period in relation to the preceding year, is primarily attributed to the aforesaid decrease in quantities sold and the reduction in selling prices caused by dumping. Consequently, extensive efficiency measures have been implemented at Amnir, at the packaging paper plant and at the plastic recycling plant, which helped to significantly offset the substantial loss incurred by the packaging paper segment and would lend support to the expected continued improvement this year.

  In the third quarter this year, a new trend is evident, originating primarily from the improvement in the quantities sold, that were partially offset by lower selling prices during this quarter in the packaging paper sector.

  Prices in the global market are expected to rise by 60-100 euro in the fourth quarter of the year. The sharp rise in packaging paper prices worldwide, that began in September this year, should they continue, are expected to affect the import prices to Israel and will enable the Division to raise prices accordingly and improve the profits, as early as in the coming quarter.

  The above mentioned regarding the expected sale prices contains various forecasts that constitute forward-looking statements, as defined in the Securities Law, based upon the Company’s estimates at the date of this report. Part of these forward-looking statements or all of them may in fact not be realized, or differ considerably from the present forecasts as a result of factors, which lie outside the control of the Company, such as changes in the global markets as well as changes in demand and supply of paper products in the world.

  5. Graffiti –Office Supplies Marketing

  Graffiti’s sales turnover during the reported period amounted to NIS 108.9 million as compared with NIS 96.4 million in the corresponding period last year, representing an increase of 13%.

  In the reported period, Graffiti recorded an operating profit of NIS 2.9 million, as compared with an operating profit of NIS 2.8 million in the corresponding period last year. The increase in operating profit during the reported period originated primarily from the increase in sales as a result of the acquisition of the Yavne – Pitango client portfolio, coupled with a decrease in general and administrative expenses, along with efficiency measures and savings in purchasing.

  At the beginning of August 2008, Graffiti purchased the operations of Yavne Pitango 2000 (1994) Ltd., which was also engaged in the marketing of office equipment and supplies to businesses and institutions in Northern Israel. The sales turnover of Yavne Pitango shortly before the execution of the transaction was estimated at NIS 20 million. The additional sales by Graffiti resulting from the operations of Yavne Pitango during the reported period amounted to approximately NIS 14.1 million.

  Graffiti continues to implement its plan for growth in the marketing of office supplies to businesses market and is taking several courses of action in order to establish its position as a leader in this market:

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  Graffiti is constantly working to improve the procurement network, with an emphasis on imports from the Far-East that serves to significantly reduce purchasing costs, aiming to improve the gross and operating profitability.

  In 2010, Graffiti, together with other companies in the group, is scheduled to relocate to a modern and efficient distribution center in Modiin, that would allow to significantly cut operating costs, while enabling continued growth in sales and profit.

  In the reported period, Graffiti continued the development of the IT platform that will enable the acceleration of growth and profit alongside the improvement of customer service, in complement to the transfer to the new and modern distribution site.

C. UAnalysis of the Company’s Financial Situation

  Commencing January 1, 2009, the company applies International Financial Reporting Standard (IFRS) No. 8, “Operating Segments”, and has accordingly recognized the packaging products and board segment, which includes the operations of Carmel Container Systems and Frenkel C.D., as a separate segment. The associated companies Hogla-Kimberly and Mondi Hadera were also recognized as independent segments (for further details, see Note 8 to the financial statements). Please note that the following analysis of financial results relates to the companies that are consolidated in the results of Hadera Paper and is affected by the adoption of the Standard mentioned above.

  Starting September 1, 2008, the financial statements of Carmel and Frenkel CD Ltd. (an associated company of Carmel’s and of the Company), are being consolidated within the Company’s financial statements, as a result of the fact that the holding rate in Carmel has increased from 36.2% to 89.3%, and at Frenkel CD, indirectly, from 37.93% to 52.72% (for details see Note 15 to the annual financial statements as at December 31, 2008).

  The cash and cash equivalents item rose from NIS 5.1 million on September 30, 2008, to NIS 22.3 million on September 30, 2009.

  Designated Deposits decreased from NIS 257.1 million as at September 30, 2008, to NIS 113.8 million as at September 30, 2009. The decrease in deposits stems from the company’s purchase of equipment and fixed assets for the Machine 8 Project.

  Trade receivables relating to the packaging paper and recycling segment decreased from NIS 109.0 million as at September 30, 2008 to NIS 82.9 million as at September 30, 2009. This decrease is due to the erosion of prices as a result of paper imported at dumping prices, a quantitative decrease in sales and the change in the composition of markets in which the company sells its products. In the packaging products and board sector, trade receivables decreased from NIS 191.1 million as at September 30, 2008, to NIS 174.8 million as at September 30, 2009. Accounts receivable for the office supplies marketing sector rose from NIS 45.2 million as at September 30, 2008, to NIS 51.1 million, as at September 30, 2009, as a result of growth in the volume of operations.

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  Other receivables relating to the packaging paper and recycling segment decreased from NIS 109.3 million as at September 30, 2008 to NIS 93.3 million as at September 30, 2009. Other receivables relating to the packaging products and board sector increased from NIS 5.9 million as at September 30, 2008, to NIS 6.0 million. Other receivables relating to the marketing of office supplies segment decreased from NIS 3.6 million as at September 30, 2008 to NIS 2.5 million as at September 30, 2009.

  Inventories of the packaging paper and recycling segment increased from NIS 48.4 million as at September 30, 2008 to NIS 75.5 million as at September 30, 2009. This increase is primarily attributed to the continuing increase in the inventories of wastepaper as part of Amnir’s preparation for the transition to the new packaging paper machine and the development of export markets and the securing of paper availability for overseas shipment. Inventories of the packaging products and the board sector decreased from NIS 77.9 million as at September 30, 2008, to NIS 59.8 million as at September 30, 2009. In the office supplies marketing sector, the Inventories item increased from NIS 19.8 million on September 30, 2008, to NIS 20.1 million on September 30, 2009, primarily as a result of the increase in the proportion of products imported from East Asia so as to improve profitability.

  The investment in associated companies increased from NIS 314.3 million as at September 30, 2008 to NIS 337.8 million as at September 30, 2009. The principal components of the said increase consists primarily of the company’s share in the earnings of associated companies in the amount of NIS 78.6 million between the reported periods, offset by the company’s share in distributed dividend in the sum of NIS 37.1 million from an associated company and the company’s share in the declared dividend of NIS 9.5 million by an associated company, which led to a change in the total investment between the reported periods.

  Short-term credit increased from NIS 36.7 million as at September 30, 2008 to NIS 91.8 million as at September 30, 2009 The increase stems primarily from the credit in the amount of NIS 40 million raised from institutional investors in 2009 and the assuming of short-term bank credit.

  Other payables relating to the packaging paper and recycling segment decreased from NIS 87.7 million as at September 30, 2008 to NIS 86.3 million as at September 30, 2009. Other payables in the packaging products and board sector decreased from NIS 24.2 million to NIS 17.6 million as at September 30, 2009. In the marketing of office supplies, other payables decreased from NIS 6.5 million as at September 30, 2008, to NIS 4.7 million as at September 30, 2009.

  The Company’s shareholders’ equity increased from NIS 743.0 million as at September 30, 2008 to NIS 836.1 million as at September 30, 2009. This change originated primarily from the net profit attributed to the company’s shareholders between the periods, in the sum of NIS 80.4 million.

  1. Investments in Fixed Assets

  Investments in fixed assets amounted to NIS 279.7 million in the reported period, as compared with NIS 178.6 million in the corresponding period last year. The investments this year consisted primarily of payments on account of purchasing from equipment vendors for the new packaging paper machine (Machine 8), in the sum of NIS 260 million (NIS 68 million net of supplier credit). Additional investments included were related to environmental protection (wastewater treatment) and current investments in equipment renewal, means of transportation and building maintenance at the Hadera site.

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  With respect to the examination of the need of impairment of assestsee note 3(f) to the financial reports.

  2. Financial Liabilities

  The long-term liabilities (including current maturities) amounted to NIS 832.6 million as at September 30, 2009, as compared with NIS 828.2 million as at September 30, 2008. The long-term liabilities increased in relation to last year, primarily as a result of long-term loans that were assumed, designated for the financing of payments on account of Machine 8. This increase was offset as a result of the repayment of the old debenture series, coupled with the repayment of a capital note to an associated company and the cash flows from operating activities.

  The long-term liabilities include primarily the following three series of debentures and long-term bank loans:

  Series 2 – NIS 164.3 million, for repayment until 2013.

  Series 3 – NIS 197.4 million, for repayment until 2018.

  Series 4 – NIS 235.6 million, for repayment until 2015.

  Long-term loans – NIS 234.3 million.

  The outstanding short-term credit totaled NIS 91.8 million as at September 30, 2009, as compared with NIS 36.7 million as at September 30, 2008 and as compared with NIS 77.7 million as at December 31, 2008.

  Subsequent to the balance sheet date, the company assumed a long-term loan denominated in NIS, from a bank, in the sum of NIS 56.5 million.

  3. Financial liabilities at fair value through the statement of income

  Put Option to a Shareholder at an Associated Company

  For information pertaining to the Put option see note 4b(3) to the annual financial statements dated December 31, 2008.

  The difference between the value of the liability according to the agreement – NIS 62.7 million – as compared with the value of the liabilities through fair value – NIS 13.5 million – amounts to NIS 49.2 million.

  The liability on account of the Put option to the shareholder at the associated company as at September 30, 2009, September 30, 2008, and as at December 31, 2008, amounts to NIS 13.5 million, NIS 9.5 million and NIS 13.9 million, respectively.

  On account of the Put option, other income of NIS 0.4 million were recorded during the reported period, as compared with other expenses of NIS 5.6 million in the corresponding period last year.

  The principal factors behind the change in the fair value during the reported period include the change in the risk-free interest rate and the change in the standard deviation of the Hadera paper share that serve for the calculation of the value of the option.

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  4. The net income and the earnings per share attributed to the Company’s shareholders

  The net profit attributed to the Company’s shareholders amounted to NIS 70.2 million in the reported period, as compared with net profit of NIS 59.5 million, that is attributed to the company’s shareholders in the corresponding period last year, representing an increase of 18.0%.

  The net profit attributed to the Company shareholders during the reported period was affected by the improvement in operating profitability at some of the groups companies in Israel and in Turkey and by the recording of earnings as a result of the distribution of a unilateral dividend on account of the application of a preferred share by an associated Company that generated net revenues of NIS 8.4 million for the company. Moreover, a reduction in the Company’s share in the losses on account of the operations in Turkey (KCTR) compared with the corresponding period last year (see above, Strategic Investment in Turkey, as well as chapter C7, below) also contributed to the improved profitability.

  The net profit for the third quarter this year amounted to NIS 35.4 million, as compared with a net profit of NIS 20.2 million in the corresponding quarter last year, representing an increase of approximately 75.2%.

  Basic earnings per share amounted to NIS 13.86 per share ($3.69 per share) in the reported period, as compared with basic earnings per share of NIS 11.75 per share ($3.44 per share) in the corresponding period last year.

  Diluted earnings per share amounted to NIS 13.86 per share ($3.69 per share) in the reported period, as compared with NIS 11.73 per share ($3.43 per share) in the corresponding period last year.

  The basic earnings per share amounted to NIS 7.00 per share in the third quarter ($1.86 per share), as compared with earnings of NIS 3.99 per share ($1.17 per share) in the corresponding quarter last year.

The diluted earnings per share amounted to NIS 7.00 per share in the third quarter ($1.86 per share), as compared with earnings of NIS 3.98 per share ($1.16 per share) in the corresponding quarter last year.

  5. Analysis of Operations and Profitability

  The analysis set forth below is based on the consolidated data.

  1. Sales

  Consolidated sales in the reported period amounted to NIS 654.4 million, as compared with NIS 447.2 million in the corresponding period last year, representing an increase of 46.3%, which was due mainly to the consolidation of the data of Carmel Container Systems and Frenkel C.D. in the reported period, in the amount of approximately NIS 351.9 million, as compared with their consolidation in part of the corresponding period last year, in the amount of NIS 38.4 million.

21



  Sales of the packaging paper and recycling sector amounted to NIS 193.6 million in the reported period, as compared with NIS 315.0 million in the corresponding period last year.

  The reduction in the sales turnover of the packaging paper and recycling segment was due both to the decrease in sales of packaging and recycling as a result of the erosion of selling prices, (the sales of the segment are affected by the dollar-denominated import prices) and to the quantitative decrease in sales as a result of the import of packaging paper from Europe at dumping prices, the reduced volume of activity of corrugated board manufacturers, the diminished demands in the local market, the slowdown of Israeli exports, and the non-recurring reduction of inventories in the reported period by the manufacturers of corrugated board as a means to improve cash flows from operating activities.

  The sales of the packaging products and board sector during the reported period amounted to NIS 351.9 million, as compared with their consolidation in part of the corresponding period last year in the amount of NIS 38.4 million.

  Sales in the marketing of office supplies segment amounted to NIS 108.1 million in the reported period, as compared with NIS 93.8 million in the corresponding period last year, representing an increase of 16.0%, which was due to the continued implementation of the segment’s strategic growth plan by way of expanding the scope of customer.

  In the third quarter, consolidated sales amounted to NIS 220.4 million, as compared with NIS 171.4 million in the corresponding quarter last year, representing an increase of 28.5%, which is mainly due to the consolidation of the data of Carmel Container Systems and Frenkel C.D. in the reported period, in the amount of approximately NIS 111.8 million, and as compared with sales of NIS 204.1 million in the second quarter of the year, representing an increase of 8.0%.

  Sales in the packaging paper and recycling segment amounted to NIS 69.3 million in the third quarter of the year, as compared with NIS 98.5 million in the corresponding quarter last year, mainly as a result of the quantitative decrease in sales as a result of the import of paper from Europe at dumping prices during the reported period, the reduction of inventories by the manufacturers of corrugated board as a means to improve cash flows, adjustment to demands and preparations for the development of export markets in connection with the development of the new products as a substitute to pulp.

  The sales of the packaging products and board sector amounted to NIS 111.8 million in the third quarter of the year, as compared with a partial consolidation in the amount of NIS 38.4 million in the corresponding quarter last year.

  Sales in the marketing of office supplies segment amounted to NIS 39.3 million in the third quarter of the year, as compared with NIS 34.5 million in the corresponding quarter last year. This increase was due mainly to the expansion of the company’s customer portfolio in this market.

22



  2. Cost of Sales

  The cost of sales amounted to NIS 561.6 million –85.8% of sales – during the reported period, as compared with NIS 351.3 million –78.6% of sales – in the corresponding period last year. The increase in the cost of sales originates primarily from the consolidation of the expenses of Carmel and Frenkel during the reported period, as compared with their partial consolidation last year.

  The gross profit totaled NIS 92.8 million during the reported period, approximately 14.2% of sales, as compared with NIS 95.9 million, 21.4% of sales, in the corresponding period last year, representing a decrease of 3.2% in relation to the corresponding period last year.

  The decrease in gross profit in relation to the corresponding period last year originates primarily from the erosion in the prices of packaging paper and as a result of the slowdown in the markets and the decrease in quantitative sales, coupled with a 4% increase in the price of water, that was offset by the lowering of paper collection costs and the procurement of raw materials, along with a 5% decrease in electricity prices. Additionally, the cost of sales included an amortization of NIS 3.2 million in excess cost, as a result of excess cost recorded from the acquisition of Carmel and Frenkel CD in 2008.

  Labor Wages

  The labor wages within the cost of sales amounted to NIS 153.2 million during the reported period, approximately 23.4% of sales, as compared with NIS 99.5 million last year, approximately 22.2% of sales.

  The labor wages within the general and administrative expenses amounted to NIS 65.3 million during the reported period approximately 10.0% of sales, as compared with the amount of NIS 51.8 million last year 11.6% of sales.

  The increase in the cost of labor wages in relation to the corresponding period last year originates primarily from supplemental labor wages in the amount of NIS 78.0 million, stemming from the consolidation of Carmel and Frenkel CD, as compared with NIS 9.2 million from their partial consolidation the corresponding period last year. Net of 30 labor expenses on account of Carmel and Frenkel, the labor expenses decreased by a rate of 1.1%.

  Moreover, the cost of labor includes the labor expenses derived from the issue of options to executives and the allocation of the expenditure thereupon, at a cumulative rate of NIS 2.9 million during the reported period, an expenditure not involving cash flows.

  As part of the alignment with the global economic crisis, the Company’s management adopted a policy of mutually-agreed pay cuts for executives. In this capacity, senior executives and managers have mutually agreed to cut their wages by 8% to 10% in 2009, while senior employees have agreed that their wages be cut by 5%. The company also decided to freeze any raises in labor wages for employees under a personal employment contract in 2009.

23



  3. Selling, General and Administrative Expenses

  The selling, general and administrative (including wages) and other expenses amounted to NIS 77.6 million in the reported period –11.9% of sales – as compared with NIS 57.9 million –13.0% of sales – in the corresponding period last year. When neutralizing revenues, as a result of the distribution of a unilateral dividend on account of a preferred share that was allocated by an associated company in the sum of NIS 16.4 million, the selling general, administrative and other expenses amounted to NIS 94.0 million.

  The increase in selling, general and other expenses originated primarily from the consolidation of the expenses of Carmel and Frenkel CD in the Company’s financial statements, in the amount of NIS 40.2 million, as compared with their consolidation in part of the corresponding period last year, in the amount of NIS 4.5 million. The general and administrative expenses also included an amortization of excess cost in the amount of NIS 2.2 million, on account of excess cost recorded during the acquisition of Carmel and Frenkel CD in 2008. Net of the expenses of Carmel and Frenkel and net of nonrecurring expenses, the selling, general and administrative expenses remained at a level similar to their level during the corresponding period last year.

  4. Operating Profit

  The operating profit totaled NIS 15.1 million during the reported period, 2.3% of sales, as compared with NIS 38.0 million, 8.5% of sales, in the corresponding period last year. The decrease in operating profits originated from the erosion of selling prices coupled with the quantitative erosion of packaging paper and recycling, as a result of the imports of packaging paper at dumping prices that was offset by the recording of non-recurring revenues of NIS 16.4 million on account of a unilateral dividend.

  The operating loss of the paper and recycling sector amounted to NIS 4.3 million in the reported period, as compared with operating profit of NIS 30.9 million in the corresponding period last year, primarily as a result of dumping prices of competing imports, that served to erode the prices and quantities as mentioned above.

  The operating profits of the packaging products and the board segment amounted to NIS 7.9 million, as compared with an operating loss of NIS 4.4 million in the corresponding period last year. The improvement in the operating profit in the sector is primarily due to the decrease in input prices and the implementation of an aggressive efficiency program that compensated for the erosion in the quantities sold and in the selling prices.

  The operating profit of the office supplies sector amounted to NIS 2.9 million, as compared with NIS 2.7 million in the corresponding period last year.

  The operating profit amounted to NIS 1.2 million in the third quarter of the year, as compared with operating profit of NIS 7.9 million in the corresponding quarter last year.

  The operating loss of the paper and recycling sector in the third quarter of the year amounted to NIS 3.8 million, as compared with operating profit of NIS 10.4 million in the corresponding quarter last year, as mentioned above, as a result of the continuing impact of dumping prices on sales in the sector.

24



  The operating profits in the third quarter of the packaging product and board segment amounted to NIS 3.3 million, as compared with an operating loss of NIS 3.8 million the corresponding quarter last year, as mentioned above, primarily as a result of the continuing erosion of input prices.

  The operating profit of the office supplies sector amounted to NIS 1.7 million, as compared with NIS 1.3 million in the corresponding quarter last year.

  5. Financial Expenses

  The financial expenses during the reported period amounted to NIS 14.8 million, as compared with NIS 11.9 million in the corresponding period last year, representing an increase of 24.4%.

  The total average of interest bearing liabilities, net, carried to the Company’s financial expenses, decreased by approximately NIS 1 million by average between the periods 2008-2009. This decrease originated primarily from the positive cash flows from operating activities between the periods, net of the current investments in fixed assets.

  The interest on the short-term interest-bearing credit decreased by NIS 1.6 million, both as a result of the decrease in the balance of short-term credit and as a result of the lower interest rate between the two periods. The interest expenses in respect of CPI-linked long-term liabilities (debentures) decreased by NIS 2.8 million as compared with the corresponding period last year, as a result of the decrease in the balance of debentures following redemptions made to the holders of the debentures, and with hedging transactions on the CPI-linked debentures against the increase in the CPI, whose costs amounted to 0.3% per annum in 2009, as compared with 2.6% in 2008, and as a result of the valuation of the hedging transactions to their fair value, in accordance with international standards. The actual index rose by 3.4% in the reported period.

  Moreover, financial expenses of NIS 5.2 million were included last year on account of a currency transaction on the US dollar. Such expenses did not offset the financial expenses this year.

  6. Taxes on Income

  Revenues from taxes on income amounted to NIS 6.0 million in the reported period, as compared with tax expenses of NIS 4.2 million in the corresponding period last year. The tax revenues originated primarily from the decrease in pretax profits in the amount of NIS 25.7 million, coupled with the change in the tax rates the following years that generated deferred tax revenues in the amount of NIS 9.4 million, that were offset as a result of recording a provision for taxes on account of events that were included the reported period.

  7. Company’s Share in Profits of Associated Companies

  The companies whose earnings are reported under this item (according to Hadera Paper’s holdings therein), include primarily: Mondi Hadera, Hogla-Kimberly.

25



  The Company’s share in the profits of associated companies totaled NIS 63.9 million during the reported period, as compared with NIS 36.6 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 income of Mondi Hadera Paper (49.9%) rose by NIS 2.4 million. The increase in profit originated primarily from an increase in the operating profit of Mondi that grew from NIS 27.4 million last year, to NIS 28.9 million this year, despite the erosion of prices as a result of imports at dumping prices, in light of implementing the aggressive efficiency program in operations and in purchasing, and the decrease in input prices. The net profit also grew as a result of recording tax revenues due to the change in the tax rate, in the sum of NIS 6.4 million, that was offset as a result of the increase in financial expenses during the reported period, as compared with last year, primarily as a result of the devaluation influence of the NIS against the US dollar, as an average between the reported periods.

  The Company’s share in the net earnings of Hogla-Kimberly Israel (49.9%) increased by NIS 15.6 million. Hogla’s operating profit grew from NIS 126.6 million to NIS 155.0 million this year. The improved operating profit originated from a quantitative increase in sales, improved selling prices in some of the sectors of operation, innovating products and empowering the Company’s brands, a decrease in the prices of part of company inputs in view of the erosion of global commodity prices. Continuing efficiency measures across the company and growing savings in procurement also contributed significantly to the improved profit.

  The Company’s share in the losses of KCTR (49.9%) was reduced by NIS 7.8 million. The significant decrease in the loss is attributed primarily to the growth in the volumes of operation (see above – “Strategic Investment in Turkey”) that led to the continued reduction in the operating loss, from NIS 29.4 million last year to approximately NIS 12.2 million this year. In addition, due to the increase in the shareholders’ equity of KCTR through a financial influx from Hogla-Kimberly last year and during the reported period, the bank loans were repaid, and the financial expenses were reduced , thereby leading to an additional reduction in the net loss.

D. Liquidity

  Cash Flows

  The cash flows from operating activities totaled NIS 133.0 million in the reported period, as compared with NIS 50.9 million in the corresponding period last year. The increase in the cash flows from operating activities during the reported period as compared with the corresponding period last year originated primarily from dividends received from an associated company in the sum of NIS 35.9 million, coupled with a decrease in working capital during the reported period, that amounted to approximately NIS 22.9 million, as compared with an increase of NIS 10.5 million last year. The decrease in working capital during the reported period originated primarily from a decrease in inventory levels, coupled with a, as a result of the lowering of purchasing costs that caused decrease in other payables.

26



E. Sources of Finance

  See Section B2 – Financial Liabilities and further details in the table below.

F. Exposure and Management of Market Risks

  1. General

  The Company conducts periodical discussions regarding market risks and exposure to exchange rate and interest rate fluctuations, with the participation of the relevant factors, so as to reach decisions in this matter. The individual responsible for the implementation of market risk management policy at the Company is Shaul Glicksberg, the Group’s VP of Finance and Business Development.

  2. Market Risks to which the Company is Exposed

  Description of Market Risks

  The market risks reflect the risk of changes in the value of financial instruments affected by changes in the interest rate, in the Consumer Price Index and in foreign currency exchange rates.

  Exchange Rate Risks

  Approximately half of the Company’s sales are denominated in US dollars, whereas a significant share of its expenses and liabilities are in NIS. The Company is therefore exposed to fluctuations in the exchange rate of the NIS vis-à-vis the US dollar. This exposure includes economic exposure (on account of surplus proceeds on payments in foreign currency or linked thereto) and accounting exposure (on account of a surplus of dollar-linked assets over foreign-currency-denominated liabilities).

  The Company periodically reexamines the need for hedging on account of these exposures. True to September 30, 2009, the Company entered into hedging transactions in the sum of 15.5 million euro, in order to hedge the cash flows for the acquisition of fixed assets from equipment vendors for Machine 8.

It should be noted that on the aggregate level that includes associated companies, the currency exposure is limited.

  Consumer Price Index Risks

  The Company is exposed to changes in the Consumer Price Index, pertaining to the debentures issued by the Company and to long-term loans, in the total sum of NIS 389.0 million.

  In early 2009, the Company entered into hedging transactions for a period of one year, to protect itself against a rise in the CPI, in the amount of NIS 250 million, pursuant to previous transactions that were made in early 2008 and in August 2008 and terminated at the end of 2008.

27



  The company also enjoys natural hedging due to the current debt of an associated company that is linked to the consumer price index.

  Credit Risks

  Most of the Group’s sales are made in Israel to a large number of customers and the exposure to customer-related credit risks is consequently generally limited. The Group regularly analyzes – through credit committees that operate within the various companies – the quality of the customers, their credit limits and the relevant collateral required, as the case may be. The Group also makes use of credits insurance services at some of the Group companies, as needed.

  The financial statements include provisions for doubtful debts, based on the existing risks on the date of the statements.

28



Sensitivity Analysis Tables for Sensitive Instruments, According to Changes in Market Elements as at September 30, 2009:

Sensitivity to Interest Rates
Sensitive Instruments
Profit (loss) from changes
Fair value as
at
Sept-30-09

Profit (loss) from changes
Interest
rise
10%

Interest
rise
5%

Interest
decrease
5%

Interest
decrease
10%

In NIS thousands
 
Series 2 Debentures      (1,401 )  (703 )  (176,855 )  709    1,423  
Series 3 Debentures    (3,318 )  (1,670 )  (204,837 )  1,692    3,406  
Series 4 Debentures    (2,955 )  (1,484 )  (264,097 )  1,499    3,011  
Loan A - fixed interest    (171 )  (86 )  (25,180 )  86    173  
Loan B - fixed interest    (1,582 )  (796 )  (102,674 )  805    1,620  
Long-term loans and capital  
notes - granted    195    98    50,874    (98 )  (196 )

The fair value of the loans is based on a calculation of the present value of the cash flows, according to the generally-accepted interest rate on loans with similar characteristics (4% in 2009).

Regarding the terms of the debentures and other liabilities – See Note 8 to the annual financial statements dated Dec-31-08.

Regarding long-term loans and capital notes granted – See Note 4 to the annual financial statements dated Dec-31-08.

Sensitivity of €-linked instruments to changes in the € exchange rate
Sensitive Instruments
Profit (loss) from changes
Fair value as
at
Sept-30-09

Profit (loss) from changes
Rise in €
10%

Rise in €
5%

Decrease in €
5%

Decrease in €
10%

In NIS thousands
 
Cash and cash equivalents      199    100    1,993    (100 )  (199 )
Designated deposits    3,006    1,503    30,056    (1,503 )  (3,006 )
Other Accounts Receivable    443    221    4,425    (221 )  (443 )
Other Accounts Payable    (7,879 )  (3,939 )  (78,787 )  3,939    7,879  
NIS-€ forward transaction    9,055    4,785    541    (3,755 )  (8,026 )

29



Sensitivity to the US Dollar Exchange Rate
Sensitive Instruments
Profit (loss) from changes
Fair value
as at
Sept-30-09

Profit (loss) from changes
Revaluation
of $
10%

Revaluation
of $
5%

Devaluation
of $
5%

Devaluation
of $
10%

In NIS thousands
 
Cash and cash equivalents      379    189    3,786    (189 )  (379 )
Other Accounts Receivable    1,396    698    13,956    (698 )  (1,396 )
 Accounts Payable    (2,560 )  (1,280 )  (25,598 )  1,280    2,560  
Liabilities at fair value  
through the statement of income    (1,354 )  (677 )  (13,540 )  677    1,354  

Other accounts receivable reflect primarily short-term customer debts.

Capital note – See Note 4d to the annual financial statements dated Dec-31-08.

Accounts payable reflect primarily short-term liabilities to suppliers.

30



  Linkage Base Report

  Below are the balance sheet items, according to linkage bases, as at Sept-30-09:

In NIS millions
Unlinked
CPI-linked
In foreign
currency, or
linked
thereto
(primarily
US$)

€-linked
Non-Monetary
Items

Total
 
Assets                            
   
Cash and cash equivalents     16.5    -    3.8    2.0    -    22.3  
Short-term deposits and investments     83.7    -    -    30.1    -    113.8  
Other Accounts Receivable     382.1    1.0    14.8    4.4    8.3    410.6  
Inventories     -    -    -    -    155.4    155.4  
Investments in Associated Companies     17.6    36.7    -    -    283.5    337.8  
Deferred taxes on income     -    -    -    -    30.8    30.8  
Fixed assets, net     -    -    -    -    1,070.8    1,070.8  
Intangible Assets     -    -    -    -    28.1    28.1  
Land under lease     -    -    -    -    38.5    38.5  
Other assets     -    -    -    -    2.3    2.3  
Assets on account of employee benefits     0.8    -    -    -    -    0.8  
Total Assets     500.7    37.7    18.6    36.5    1,617.7    2,211.2  






   
Liabilities   
Short-term credit from banks     91.8    -    -    -    -    91.8  
Other Accounts Payable     230.6    -    27.9    78.8    -    337.3  
Current tax liabilities     1.3    -    -    -    -    1.3  
Deferred taxes on income     -    -    -    -    61.3    61.3  
Long-Term Loans     203.8    30.5    -    -    -    234.3  
Notes (debentures) - including current maturities     238.1    360.2    -    -    -    598.3  
Liabilities on account of employee benefits     37.3    -    -    -    -    37.3  
Liabilities at fair value through the statement of   
income     -    -    13.5    -    -    13.5  
Shareholders' equity, reserves and retained earnings     -    -    -    -    836.1    836.1  
Total liabilities and equity     802.9    390.7    41.4    78.8    897.4    2,211.2  






   
Surplus financial assets (liabilities)   
as at Sept-30-09       (302.2 )   (353.0 )   (22.8 )   (60.1 )   738.1        
   
Surplus financial assets (liabilities)   
as at Dec-31-08       (157.4 )   (389.0 )   (12.6 )   107.6     471.4        

  * As to hedging transactions associated with surplus CPI-linked liabilities, see Section F(2), above.

  Associated Companies

  Hadera Paper is exposed to various risks associated with operations in Turkey, where Hogla-Kimberly is active through its subsidiary, KCTR. These risks originate from concerns regarding economic and political instability, high devaluation and elevated inflation rates that have characterized the Turkish economy in the past and that may recur and harm the KCTR operations.

31



G. Forward-Looking Statements

  This report contains various forecasts that constitute forward-looking statements, as defined in the Securities Law, based upon the Board of Directors’ present expectations and estimates regarding the operations 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. The Company undertakes no obligation to publicly update such forward-looking statements, regardless of whether these updates originate from new information, future events or any other reason.

H. Detailed processes undertaken by the Company’s supreme supervisors, prior to the approval of the financial statements

  The Company’s Board of Directors has appointed the Company’s Audit Committee to serve as a Balance Sheet Committee and to supervise the completeness of the financial statements and the work of the CPAs and to offer recommendations regarding the approval of the financial statements and the discussion thereof prior to said approval. The Committee consists of three directors, of which two possess accounting and financial expertise. The meetings of the Balance Sheet Committee, as well as the board meetings during which the financial statements are discussed and approved, are attended by the company’s auditing CPAs, who are instructed to present the principal findings – if there are any – that surfaced during the audit or review process, as well as by the Internal Auditor.

  The Committee conducts its examination via detailed presentations from company executives and others, including: General Manager – Avi Brener, and CFO – Shaul Glicksberg. The material issues in the financial reports, including any extraordinary transactions –if any, the material assessments and critical estimates implemented in the financial statements, the reasonability of the data, the financial policy implemented and the changes therein, as well as the implementation of proper disclosure in the financial statements and the accompanying information. The Committee examines various aspects of risk assessment and control, as reflected in the financial statements (such as reporting of financial risks), as well as those affecting the reliability of the financial statements. In case necessary, the Committee demands to receive comprehensive reviews of matters with especially relevant impact, such as the implementation of international standards.

32



  The approval of the financial statements involves several meetings, as necessary: The first is held by the Audit Committee to discuss the material reporting issues in depth and at great length, whereas the second is held by the Board of Directors to discuss the actual results. Both meetings are held in proximity to the approval date of the financial statements.
 



Zvika Livnat, Avi Brener
Chairman of the Board of Directors General Manager

33



Exhibit 3

HADERA PAPER LTD
UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2009



HADERA PAPER LTD

TABLE OF CONTENTS

Page
 
Condensed Consolidated Financial Statements (unaudited)  
 
Condensed Consolidated statements of financial position F-2 - F-3
 
Condensed Consolidated Income Statements F-4
 
Condensed Consolidated Statements of comprehensive income F-5
 
Condensed Consolidated Statements of changes in shareholders' equity F-6 - F-8
 
Condensed Consolidated Statements of Cash Flows F-9 - F-10
 
Notes to the Condensed Consolidated Financial Statements F-11 - F-23

F - 1



HADERA PAPER LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(NIS in thousands)

September 30
December 31
2 0 0 9
2 0 0 8
2 0 0 8
(Unaudited)
 
Assets                
Current Assets   
    Cash and cash equivalents    22,312    5,075    13,128  
    Designated deposits    113,819    257,118    249,599  
    Accounts receivable:  
      Trade receivables    308,797    345,279    318,926  
      Other receivables    101,750    118,760    100,888  
    Current tax assets    -    16,262    6,271  
    Inventory    155,392    146,104    168,755  



Total Current Assets       702,070     888,598     857,567  



   
Non-Current Assets   
    Fixed assets, net    1,070,800    714,605    767,542  
    Investments in associated companies    337,840    314,309    318,101  
    Deferred tax assets    30,776    19,623    29,848  
    Prepaid expenses with respect to an operating lease    38,480    35,538    36,344  
    Other intangible assets    28,085    32,569    31,519  
    Other assets    2,336    1,755    2,549  
    Employee benefit assets    824    * 559    624  



Total Non-Current Assets       1,509,141     1,118,958     1,186,527  



Total Assets       2,211,211     2,007,556     2,044,094  




  * Reclassified, see note 9.

  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 2



HADERA PAPER LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(NIS in thousands)

September 30
December 31
Note
2 0 0 9
2 0 0 8
2 0 0 8
(Unaudited)
 
Liabilities and Equity                    
Current Liabilities   
    Credit from banks and others         91,803    36,735    77,655  
    Current maturities of long-term bonds and long term loans         141,093    79,554    76,469  
    Trade payables         228,595    168,008    195,020  
    Other payables and accrued expenses         108,645    * 118,405    * 104,943  
    Short term employee benefit liabilities         19,729     * 18,208    * 17,478  
    Other financial liabilities         -    32,380    32,770  
    Financial liabilities at fair value through profit and loss         13,540    9,474    13,904  
    Current tax liabilities         1,316    -    -  



Total Current Liabilities             604,721     462,764     518,239  



   
Non-Current Liabilities   
    Loans from banks and others         187,245    128,725    121,910  
    Bonds         504,244    587,592    554,124  
    Deferred tax liabilities         61,307    71,452    76,641  
    Employee benefit liabilities         17,595    * 14,051    * 15,551  



Total Non-Current Liabilities             770,391     801,820     768,226  



   
Capital and reserves   
   Issued capital         125,267    125,267    125,267  
   Reserves         306,795    294,417    299,949  
   Retained earnings         378,071    296,308    306,097  



   capital and reserves attributed to shareholders             810,133     715,992     731,313  
   
   Minority Interests         25,966    26,980    26,316  



   Total capital and reserves             836,099     742,972     757,629  



Total Liabilities and Equity             2,211,211     2,007,556     2,044,094  




  * Reclassified, see note 9.




Z. Livnat A. Brener S. Gliksberg
Chairman of the Board of Directors Chief Executive Officer Chief Financial and Business
    Development Officer

  Approval date of the interim financial statements: November 8, 2009.

  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 3



HADERA PAPER LTD

CONDENSED CONSOLIDATED INCOME STATEMENTS
(NIS in thousands)

Note
Nine months ended
September 30

Three months ended
September 30

Year ended
December 31

2 0 0 9
2 0 0 8
2 0 0 9
2 0 0 8
2 0 0 8
(Unaudited)
(Unaudited)
 
Revenue           654,405    447,180    220,371    171,394    673,484  
Cost of sales         561,608    351,287    188,413    142,350    542,387  





   
Gross profit             92,797     95,893     31,958     29,044     131,097  





   
Selling and marketing expenses         52,822    28,147    17,840    12,494    45,674  
General and administrative expenses         43,172    38,542    13,255    18,872    54,970  
Other income, net    6    (18,346 )  (8,768 )  (381 )  (10,213 )  (4,898 )





   
Total expenses             77,648     57,921     30,714     21,153     95,746  





   
Profit from ordinary operations             15,149     37,972     1,244     7,891     35,351  





   
Finance income         4,407    9,017    593    5,487    12,069  
Finance expenses         19,215    20,928    5,406    6,268    27,112  





   
Finance expenses, net             14,808     11,911     4,813     781     15,043  





Profit (loss) after financial expenses             341     26,061     (3,569 )   7,110     20,308  
   
Share in profit of associated companies, net         63,893    36,644    28,988    10,873    51,315  





Profit before taxes on income             64,234     62,705     25,419     17,983     71,623  
   
Taxes on income    7    (6,025 )  4,189    (10,434 )  (1,231 )  3,663  





Profit for the period             70,259     58,516     35,853     19,214     67,960  
   
Attributed to:    
Company shareholders         70,161    59,479    35,445    20,177    69,710  
Minority interests         98    (963 )  408    (963 )  (1,750 )





   
              70,259     58,516     35,853     19,214     67,960  





   
Earning for share:   
   
Primary attributed to Company shareholders             13.86     11.75     7.00     3.99     13.77  





   
Fully diluted attributed to company shareholders             13.86     11.73     7.00     3.98     13.77  





   
Number of share used to compute the primary  
earnings per share         5,060,774    5,060,774    5,060,774    5,060,774    5,060,774  





   
Number of share used to compute the fully diluted  
earnings per share         5,060,774    5,068,780    5,060,774    5,070,134    5,060,774  






  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 4



HADERA PAPER LTD

CONDENSED CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

(NIS in thousands)

Nine months ended
Three months ended
Year ended
September 30
September 30
December 31
2 0 0 9
2 0 0 8
2 0 0 9
2 0 0 8
2 0 0 8
(Unaudited)
(Unaudited)
 
Comprehensive Income       70,259     58,516     35,853     19,214     67,960  





   
Other Comprehensive Income    
Profit (loss) on cash flow hedges, net    3,717    (14,996 )  (1,158 )  (14,996 )  (2,306 )
Actuarial profit (loss) and defined benefit plans, net    565    -    245      (1,501 )
Revaluation from step acquisition    -    17,288    -    17,288    17,288  
Share in Other Comprehensive Income of associated   
companies, net    1,142    (20,274 )  (826 )  917    (28,094 )





Total Other Comprehensive Income for the period, net       5,424     (17,982 )   (1,739 )   3,209     (14,613 )





Total Comprehensive Income for the period       75,683     40,534     34,114     22,423     53,347  





   
Attributed to:   
Company shareholders    75,585    41,638    33,680    23,527    55,115  
Minority interests    98    (1,104 )  434    (1,104 )  (1,768 )





        75,683     40,534     34,114     22,423     53,347  






  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 5



HADERA PAPER LTD

CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(NIS in thousands)

Share
capital

Capital
reserves

Share based
payments
reserves

Capital reserves
resulting
from tax
benefit on
exercise of
employee options

Capital
reserve from
revaluation
from step
acquisition

Hedging
reserves

Foreign
currency
translation
reserves

Retained
earnings

Total for
Company
shareholders

Minority
Interests

Total
(Unaudited)
NIS in thousands
 
Balance - January 1, 2009       125,267     301,695     6,227     3,397     15,908     (5,092 )   (22,186 )   306,097     731,313     26,316     757,629  
   
For the Nine months ended   
September 30, 2009:   
Total Comprehensive Income for the period    -    -    -    -    -    4,234    685    70,666    75,585    98    75,683  
Purchasing shares of subsidiary company    -    -    -    -    -    -    -    -    -    (448 )  (448 )
Depreciation of capital from  
revaluation from step acquisition  
to retained earnings    -    -    -    -    (1,308 )  -    -    1,308    -    -    -  
Share based payment    -    -    3,235    -    -    -    -    -    3,235    -    3,235  











Balance - September 30, 2009       125,267     301,695     9,462     3,397     14,600     (858 )   (21,501 )   378,071     810,133     25,966     836,099  











   
Balance - January 1, 2008       125,267     301,695     -     3,397     -     (635 )   3,810     236,437     669,971     -     669,971  
   
For the Nine months ended   
September 30, 2008:   
Total Comprehensive Income for the period    -    -    -    -    17,288    (15,392 )  (19,185 )  58,927    41,638    (1,104 )  40,534  
First transfer to consolidation -
create minority interests
    -    -    -    -    -    -    -    -    -    28,084    28,084  
Depreciation of capital from  
revaluation from step acquisition to  
retained earnings    -    -    -    -    (944 )  -    -    944    -    -    -  
Share based payment    -    -    4,383    -    `-    -    -    -    4,383    -    4,383  











Balance - September 30, 2008       125,267     301,695     4,383     3,397     16,344     (16,027 )   (15,375 )   296,308     715,992     26,980     742,972  












  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 6



HADERA PAPER LTD

CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(NIS in thousands)

Share
capital

Capital
reserves

Share based
payments
reserves

Capital reserves
resulting
from tax
benefit on
exercise of
employee options

Capital
reserve from
revaluation
from step
acquisition

Hedging
reserves

Foreign
currency
translation
reserves

Retained
earnings

Total for
Company
shareholders

Minority
Interests

Total
(Unaudited)
NIS in thousands
 
Balance - July 1, 2009       125,267     301,695     8,967     3,397     15,036     (280 )   (20,095 )   341,971     775,958     25,532     801,490  
   
For the three months ended    
September 30, 2009:    
Total Comprehensive Income for the period    -    -    -    -    -    (578 )  (1,406 )  35,664    33,680    434    34,114  
Depreciation of capital from  
revaluation from step acquisition  
to retained earnings    -    -    -    -    (436 )  -    -    436    -    -    -  
Share based payment    -    -    495    -    -    -    -    -    495    -    495  











Balance - September 30, 2009       125,267     301,695     9,462     3,397     14,600     (858 )   (21,501 )   378,071     810,133     25,966     836,099  











   
Balance - July 1, 2008       125,267     301,695     2,461     3,397     -     (3,731 )   (14,135 )   275,589     690,543     -     690,543  
   
For the three months ended    
September 30, 2008:    
Total Comprehensive Income for the  
period    -    -    -    -    17,288    (12,296 )  (1,240 )  19,775    23,527    (1,104 )  22,423  
First transfer to consolidation -  
create minority interests    -    -    -    -    -    -    -    -    -    28,084    28,084  
Depreciation of capital from  
revaluation from step acquisition to  
retained earnings    -    -    -    -    (944 )  -    -    944    -    -    -  
Share based payment    -         1,922        -    -    -    -    1,922    -    1,922  











Balance - September 30, 2008       125,267     301,695     4,383     3,397     16,344     (16,027 )   (15,375 )   296,308     715,992     26,980     742,972  












  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 7



HADERA PAPER LTD

CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(NIS in thousands)

Share
capital

Capital
reserves

Share based
payments
reserves

Capital reserves
resulting
from tax
benefit on
exercise of
employee options

Capital
reserve from
revaluation
from step
acquisition

Hedging
reserves

Foreign
currency
translation
reserves

Retained
earnings

Total for
Company
shareholders

Minority
Interests

Total
NIS in thousands
 
Balance - January 1, 2008       125,267     301,695     -     3,397     -     (635 )   3,810     236,437     669,971     -     669,971  
   
For the year ended    
December 31, 2008:    
Total Comprehensive Income for the  
period    -    -    -    -    17,288    (4,457 )  (25,996 )  68,280    55,115    (1,768 )  53,347  
First transfer to consolidation -  
create minority interests    -    -    -    -    -    -    -    -    -    28,084    28,084  
Depreciation of capital from  
revaluation from step acquisition to  
retained earnings    -    -    -    -    (1,380 )  -    -    1,380    -    -    -  
Share based payment    -    -    6,227    -    -    -    -    -    6,227    -    6,227  











Balance - December 31, 2008       125,267     301,695     6,227     3,397     15,908     (5,092 )   (22,186 )   306,097     731,313     26,316     757,629  












  The accompanying notes are an integral part of the condensed interim consolidated financial statements.

F - 8



HADERA PAPER LTD

CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS
(NIS in thousands)

Nine months ended
Three months ended
Year ended
December 31

September 30
September 30
2 0 0 9
2 0 0 8
2 0 0 9
2 0 0 8
2 0 0 8
(unaudited)
(unaudited)
 
Cash flows - operating activities                        
   Profit for the period    70,259    58,516    35,583    19,214    67,960  
   Taxes on income recognized in profit and loss    (6,025 )  4,189    (10,434 )  (1,231 )  3,663  
   Finance expenses recognized in profit and loss    14,808    11,911    4,813    781    15,043  
   Capital gain on disposal of fixed assets    (321 )  (269 )  (125 )  (419 )  (284 )
   Share in profit of associated companies    (63,893 )  (36,644 )  (28,988 )  (10,873 )  (51,315 )
   Dividend received from associated company    52,326    -    19,556    -    -  
   Income from repayment of capital note to associated company    (16,418 )  -    -    -    -  
   Depreciation and amortization    58,308    39,409    19,292    17,136    59,784  
   Share based payments expenses    2,907    3,455    846    1,458    4,913  
   Gain from negative goodwill    -    (14,664 )  -    (14,664 )  (14,664 )





        111,951     65,903     40,813     11,402     85,100  





   
Changes in assets and liabilities:   
   Decrease (Increase) in trade and other receivables    23,350    21,944    (34,527 )  4,747    66,805  
   Decrease (Increase) in inventory    13,363    2,783    13,622    2,377    (19,868 )
   Increase (Decrease) in trade payables and other payables    (13,841 )  * (35,173 )  26,170    * (24,514 )  * (16,923 )
   Increase (Decrease) in financial liabilities at fair  
     value through profit and loss    (364 )  * 5,573    987    * 4,278    10,003  
   Increase (Decrease) in employee benefit liabilities    4,323    * (223 )  (964 )  * (3,647 )  * (3,063 )





        26,831     (5,096 )   5,288     (16,759 )   36,954  





   
   Tax Payments    (5,754 )  (9,927 )  (2,439 )  (427 )  (8,182 )





   
     Net cash generated by (used in) operating activities       133,028     50,880     43,662     (5,784 )   113,872  






  * Reclassified, see note 9.

  The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 9



HADERA PAPER LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(NIS in thousands)

Nine months ended
September 30

Three months ended
September 30

Year ended
December 31

Note
2 0 0 9
2 0 0 8
2 0 0 9
2 0 0 8
2 0 0 8
(Unaudited)
(Unaudited)
 
Cash flows - investing activities                            
   Acquisition of property plant and equipment    4    (279,689 )  (178,633 )  (62,136 )  (50,445 )  (230,053 )
   Acquisition of subsidiaries         -    (70,167 )  -    (70,167 )  (70,567 )
   Proceeds from disposal of fixed assets         1,752    719    722    535    825  
   Decrease (Increase) in designated deposits, net         138,780    (261,529 )  (17,116 )  (188,503 )  (255,244 )
   Interest received         1,321    4,935    -    2,511    7,764  
   Prepaid expenses with respect to an operating lease         (2,318 )  (1,421 )  -    (24 )  (2,622 )
   Acquisition of other assets         (142 )  (1,750 )  (142 )  (1,750 )  (2,770 )
   Associated companies:  
   Granting of loans to an associated company         (1,068 )  (422 )  (558 )  (422 )  (422 )
   Repayments of loans to an associated company         -    -    -    -    2,851  





   Net cash by used in investing activities             (141,364 )   (508,268 )   (79,230 )   (308,265 )   (550,238 )





   
Cash flows - financing activities   
   Proceeds from issuing bonds         -    424,728    -    424,728    424,617  
   Short-term bank credit - net         14,148    (152,364 )  (22,966 )  (115,625 )  (111,444 )
   Borrowings received from banks and from others         103,154    55,000    100,000    20,000    39,448  
   Repayment of borrowings from banks         (27,860 )  (17,761 )  (8,507 )  (12,845 )  (11,801 )
   Repayment of capital note         (32,770 )  -    -    -    -  
   Deferred issuance expenses         -    -    -    247    -  
   Interest Paid         (30,617 )  (7,381 )  (26,936 )  (2,622 )  (20,360 )
   Repayment of bonds         (7,505 )  (7,192 )  -    -    (38,904 )





   Net cash generated by financing activities             18,550     295,030     41,591     313,883     281,556  





   
   Increase (Decrease) in cash and cash equivalents             10,214     (162,358 )   6,023     (166 )   (154,810 )
   Cash and cash equivalents - beginning of period         13,128    167,745    9,435    5,553    167,745  
   Net foreign exchange difference         (1,030 )  (312 )  6,854    (312 )  193  





   Cash and cash equivalents - end of period             22,312     5,075     22,312     5,075     13,128  






  The accompanying notes are an integral part of the condensed consolidated financial statements.

F - 10



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 1 DESCRIPTION OF BUSINESS AND GENERAL

  A. Description Of Business

  Hadera Paper Limited (former – American Israeli Paper Mills Limited) and its subsidiaries (hereinafter – the Company) are engaged in the production and sale of paper packaging, in paper recycling activities and in the marketing of office supplies. The Company also has holdings in associated companies that are engaged in the productions and sale of paper and paper products including the handling of solid waste (the Company and its investee companies – hereinafter – the Group). Most of the Group’s sales are made on the local (Israeli) market. For segment information, see note 9.

  B. For further information read these concise reports in connection with the Company’s annual financial statements as of December 31, 2008 and the year then ended, and the accompanying notes.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  A. Basis of preparation

  The consolidated concise financial statements (hereinafter – “interim financial statements”) of the Group were prepared in accordance with IAS 34 “Financial Reporting for Interim Periods” (hereinafter – IAS 34).

  In the preparation of these interim financial statements the Group applied identical accounting policy, presentation rules and calculation methods to those that were applied in the preparation of its financial statements as of December 31, 2008 and the year then ended, except for changes in the accounting policy that arose from the implementation of standards, amendment to standards and new interpretations that became effective on the date of the financial statements as specified in section c below.

  B. The consolidated concise financial statements were prepared in accordance with the provisions of Section D of the Securities Regulations (Periodic and Immediate Reports), 1970.

  C. Standards, amendments to standards and new interpretations that are in effect, which were applied in these financial statements

  n IFRS 8, Operating Segments

  The standard, which replaces IAS 14 “Segment Reporting”, details how an entity must report on data according to operating segments. The standard, among other things, stipulates that segmental reporting of the Group will be based on the information that management of the Group uses for purposes of evaluating performance of the segments, and for purposes of allocating resources to the various operating segments. The standard applies to annual reporting periods commencing on January 1, 2009, with retroactively restatement of comparative figures for prior reporting periods.

  As for the reporting of the Group’s operating segments in accordance with the provisions of IFRS 8, including the retroactive restatement of data, see note 9.

F - 11



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  C. Standards, amendments to standards and new interpretations that are in effect, which were applied in these financial statements (cont.)

  n IAS 1 (Amended) “Presentation of Financial Statements”

  The standard stipulates the presentation required in the financial statements, and itemizes a general framework for the structure of the financial statements and the minimal contents which must be included in the context of the report. In the context of the amendment to this standard, changes have been made to the existing presentation format of the financial statements, and the presentation and disclosure requirements for the financial statements have been broadened, including the presentation of an additional report in the framework of the financial statements known as the “report of comprehensive income”, and the addition of a balance sheet as of the beginning of the earliest period that was presented in the financial statements, in cases of changes in accounting policy by means of retroactive implementation, restatement and reclassifications.

  The standard applies, by way of retroactive implementation, to reporting periods commencing on January 1, 2009. Pursuant to the provisions of the standard the Group published a report of comprehensive income on the totals of segment profit, which specifies the components of the total profit separately from the components presented in the statement of income, as well as a statement of changes in shareholders’ equity, which presents balances in respect of transactions with shareholders, as part of their duty as shareholders. The first-time implementation of the standard does not have any impact on the reported results of operation and the financial situation of the Group.

  n IAS 23 (Amended) “Borrowing Costs”

  The standard stipulates the accounting treatment of borrowing costs. In the context of the amendment to this standard, the possibility of immediately recognizing borrowing costs related to assets with a significant period of eligibility or construction in the statement of operations, was cancelled. Those borrowing costs will capitalize to the assets cost. The standard apply to borrowing costs that relate to eligible assets as to which the capitalization period began from January 1, 2009 or earlier, as defined by the Group.

  The implementation of the Standard does not expect to have effect on the Group’s financial statements.

  n IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”

  This interpretation establishes the nature of the hedged risk and the amount of the hedged item under the hedges of a net investment in a foreign operation. In addition, the interpretation stipulates that the hedging instrument may be held by any entity within the group, and the amount to be reclassified from equity to profit or loss when the entity disposes of the foreign operation, for which the accounting method of hedges of a net investment in a foreign operation has been implemented.

  The provisions of the interpretation apply, by way of prospective implementation, to annual reporting periods that commence on January 1, 2009.

  The implementation of the interpretation does not expect to have effect on the Group’s financial statements.

F - 12



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  C. Standards, amendments to standards and new interpretations that are in effect, which were applied in these financial statements (cont.)

  n Amendment to IFRS 2, Share Based Payment– Vesting and Revocation Conditions

  The amendment to the standard stipulates the conditions under which the measurement of fair value must be considered on the date of the grant of a share based payment and explains the accounting treatment of instruments without terms of vesting and revocation.

  The provisions of the amendment apply by way of retroactive implementation, to annual reporting periods that commence on January 1, 2009.

  The implementation of the Amendment Standard does not expect to have effect on the Group’s financial statements.

  n Amendment to IAS 32, “Financial Instruments: Presentation”, and IAS 1, “Presentation of Financial Statements”

  The amendment to IAS 32 changes the definition of a financial liability, financial asset and capital instrument and determines that certain financial instruments, which are exercisable by their holder, will be classified as capital instruments.

  The provisions of the standard apply to annual financial reporting periods which start on January 1, 2009 and thereafter.

  The implementation of the Amendment Standard does not expect to have effect on the Group’s financial statements.

  n Amendment to IFRS 7 “Financial Instruments: Disclosure”

  The amendment expands the required disclosures regarding liquidity risk and measurement of fair value, while setting a three-level scale for the presentation of fair-value measurements.

  The provisions of the standard apply to annual financial reporting periods which start on January 1, 2009 and thereafter. The provisions of the amendment apply by way of retroactive implementation. .

  The implementation of the standard does not have any impact on the Group’s financial statements

  n Improvement to International Financial Reporting Standards (IFRS) 2008

  In May 2008 the IASB published a series of improvements for IFRS.

  Improvements include amendments to some of the standards, which change the manner of presentation, recognition and measurement of different items in the financial statements.

  In addition, amendments have been made to terms that have a negligible impact, if any, on the financial statements.

  Most of the amendments become effective as of the annual reporting period commencing January 1, 2009. The first time implementation of most amendments carried out by retrospective adjustment of comparative figures.

  In context to the amendments that were made, some of the amendments are expected, under relevant circumstances, to have a material impact on the financial statements. The prominent amendments are the new or amended requirements with respect to the following:

F - 13



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  C. Standards, amendments to standards and new interpretations that are in effect, which were applied in these financial statements (cont.)

  n Improvement to International Financial Reporting Standards (IFRS) 2008 (cont.)

  (1) Amendment to IAS 28 “Investments in Associated Companies”, which stipulates that the impairment of investment in an associated company shall be treated as an impairment of a single asset and that the amount of impairment can be cancelled in subsequent periods.

  The amendment applies to annual periods commencing on January 1, 2009. Implementation is to be applied prospectively.

  The implementation of the Amendment Standard does not expect to have effect on the Group’s financial statements.

  (2) Amendment IAS 38 “Intangible Assets”, which stipulates that payments in respect of advertising and sales promotion activities will be recognized as an asset until the date in which the entity has the right to access the acquired goods or in the event of a receipt of services, until the date of receipt of the services.

  The amendment applies to annual periods commencing on January 1, 2009. Implementation is to be applied retroactively.

  The implementation of the Amendment Standard does not expect to have effect on the Group’s financial statements.

  (3) Amendment IAS 19 “Employee benefits”, which stipulates that an accrued eligibility for compensation on account of absences will be classified as short-term employee benefits, or as other long-term employee benefits, based on the date at which the employee’s right to the benefit was created. Consequently, the Company is presenting benefits on account of vacation leave as short-term employee benefits, measured at the height of the non-capitalized amount that the Company is anticipating to pay on account of the implementation of this right.

  D. Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption

  n For information regarding commencement dates, transitional provisions and the expected impact on the Company from the standards, amendments to standards and interpretations detailed below see note 2 to the annual financial statements of the Company as of December 31, 2008 and the year then ended:

  (1) IAS 27 (Revised) “Consolidated and Separate Financial Statements”

  (2) IFRS 3 (Revised) “Business Combinations”.

  (3) IAS 39 “Financial instruments: “Recognition and Measurement”

  n Amendment to IFRIC 9, “Reassessment of Embedded Derivatives” and IAS 39, “Financial Instruments: Recognition and Measurement”

  The Amendment clarifies that, whenever a financial asset is declassified from the “fair value through profit or loss” group, the need to separate out its embedded derivatives must be reviewed. The provisions of the Amendments are applicable to annual periods ending on June 30, 2009 or thereafter and are to be applied retroactively.

  Company management believes that the implementation of the Amendment will not have any effect on the Group’s financial statements.

F - 14



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  D. Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption (cont.)

  n Improvements to International Financial Reporting Standards, 2008

  The Improvements included the amendment of IFRS 5, “Non-Current Assets Held for Sale and Discontinued Operations”. Pursuant to the Amendment, the assets and liabilities of a subsidiary are to be classified as held for sale to the extent that the parent company has undertaken to carry out a program for the sale of its controlling interest therein, even if it intends to maintain non-controlling interest.

  The Amendment is applicable to reporting periods commencing January 1, 2010. Early adoption is permitted. Entities that opt for early adoption of the amendments are required to follow the provisions of IAS 27 (Revised). The Amendment is to be applied prospectively.

  Company management believes that the implementation of the Amendment will not have any effect on the Group’s financial statements.

  n Improvements to International Financial Reporting Standards, 2009

  In April 2009, the International Accounting Standards Board (IASB) published a standard regarding Improvements to International Financial Reporting Standards 2009.

  The Improvements include the amendment of certain Standards and Interpretations, which affects the presentation, recognition and measurement of various items in the financial statements.

  The Amendments are largely applicable to annual periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  The improvements include some Amendments that are likely, under certain circumstances, to have a significant effect on the financial statements. These are principally the following new or revised requirements:

  (1) Amendment to IFRS 8, “Operating Segments”, determines that disclosure is to be provided with respect to the measurement of the assets of a reportable segment only to the extent that such information is regularly reported to the chief operating decision-maker.

  The Amendment is to be retroactively applied in annual reporting periods commencing on January 1, 2010 or thereafter. Early adoption is permitted. Company management believes that the implementation of the Amendment will not have any effect on the Group’s financial statements.

  (2) Amendment to IAS 7, “Cash Flow Statements”, clarifies that only a cash expenditure for an asset recognized in the statement of financial position qualifies for classification as cash flows used in investing activities.

  The Amendment is to be retroactively applied in annual reporting periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  Company management believes that the implementation of the Amendment will not have any effect on the Group’s financial statements.

F - 15



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  D. Standards, Amended Standards and Clarifications that have been Published but not yet Become Effective, and have not been Adopted by the Company in Early Adoption (cont.)

  n Improvements to International Financial Reporting Standards, 2009 (cont.)

  (3) Amendment to IAS 17, “Leases”, provides for the classification of land leases as a financing lease or an operating lease in accordance with the general principles of the Standard.

  The Amendment is to be retroactively applied in annual reporting periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  The Amendment is to be retroactively applied to existing leases for which the required information is available at the initial date of the lease. Land leases for which the required information is unavailable are to be reviewed as for the date of the adoption of the Amendment.

  The Group leases land (other than investment property that is measured at fair value) from the Israel Land Administration under a capitalized lease. Amounts paid under said leases, aggregating NIS 38,480,000, NIS 35,538,000 and NIS 36,344,000 as of September 30, 2009, September 30, 2008 and December 31, 2008, respectively, which are presented under “prepaid expenses with respect to an operating lease”, are to be carried to fixed assets.

  (4) Amendment to IAS 36, “Impairment of Assets”, stipulates that the cash-generating units or groups of cash-generating units to which goodwill is allocated within the framework of impairment testing shall not be larger than an operating segment, excluding the grouping of segments with similar financial characteristics.

  The Amendment is to be applied prospectively in annual reporting periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  At this stage, Group management is unable to estimate the effect of the Amendment’s implementation on its financial statements.

  (5) Amendment to IAS 39, “Financial Instruments: Recognition and Measurement”, limits the exemption from the implementation of the Standard solely to forward contracts between a seller and a buyer for the purchase or sale of an acquire under a business combination on a future purchase date, provided that the obtaining of the required approvals and the closing of the transaction do not exceed a reasonable period. The Amendment is to be applied prospectively to all contracts in effect in annual periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  Additionally, the Amendment clarifies that gains or losses attributed to a cash flow hedge in a forecast transaction are to be reclassified from shareholders’ equity to profit or loss during the period in which the hedged anticipated cash flows affect the profit or loss. The Amendment is to be applied prospectively to all contracts in effect in annual periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  The Amendment further determines that the early repayment option that is embedded in a host debt or insurance contract is invariably linked to the host contract, with the exercise increment of the early repayment option serving as an indemnification to the lender for the loss of interest. The Amendment is to be applied prospectively to all contracts in effect in annual periods commencing on January 1, 2010 or thereafter. Early adoption is permitted.

  At this stage, Group management is unable to estimate the effect of the Amendment’s implementation on its financial statements.

F - 16



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

  E. Exchange Rates and Linkage Basis

  (1) Foreign currency balance, or balances linked to foreign currency are included in the financial statements according to the exchange rate announced by the Bank of Israel on the balance sheet date.

  (2) Balances linked to the CPI are presented according to index of the last month of the report period.

  (3) Following are the changes in the representative exchange rates of the Euro and the U.S. dollar vis-a-vis the NIS and in the Israeli Consumer Price Index (“CPI”):

As of:
Representative
exchange rate of
the dollar
(NIS per $1)

Representative
exchange rate of
the Euro
(NIS per €1)

CPI
"in respect of"
(in points) (*)

 
September 30, 2009      3.758    5.51    205.21  
September 30, 2008    3.421    5.00    199.54  
December 31, 2008    3.802    5.297    198.42  

Increase (decrease) during the:
%
%
%
 
Three months ended September 30, 2009      (4.11 )  (0.44 )  1.26  
Three months ended September 30, 2008    2.06    (5.39 )  2.01  
Nine months ended September 30, 2009    (1.16 )  4.02    3.42  
Nine months ended September 30, 2008    (11.05 )  (11.65 )  4.39  
Year ended December 31, 2008    (1.1 )  (6.39 )  3.8  

  (*) Based on the index for the month ending on each balance sheet date, on the basis of 1993 average = 100.

NOTE 3 SEGNIFICANT TRANSACTIONS AND EVENTS

  a. On March 19, 2009 a dividend in the amount of NIS 32.77 million was received from an associated company in respect of a preferred share that was allotted during the first quarter of 2009, which allows the Company to receive dividend in accordance with the resolution of the Board of Directors of the associated company.

  b. On March 19, 2009 capital note in the amount of NIS 32.77 million was repaid by the Company for an associated company (See also note 6 below).

  c. On May 25, 2009, the Company obtained credit in the amount of NIS 50 million from public institutions, bearing interest at the rate of Bank of Israel + 2%. The loans are for a period of two years, with an exit option being available to either of the parties every three months. On August 25, 2009 NIS 20 million was repaid, and on September 7, 2009 the company raised NIS 10 million at the same terms.

  On July 2, 2009, the Company obtained long-term NIS credit from public institutions in the amount of NIS 100 million. The loan is for a period of 8 years, bears a nominal fixed interest of 6.3% and is repayable (principal and interest) in semi-annual installments.

F - 17



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 3 SEGNIFICANT TRANSACTIONS AND EVENTS (cont.)

  d. On July1, 2009 a dividend in cash, in the amount of NIS 19.6, million, that was declared on February 26, 2009, was received from an associated company.

  e. On July 30, 2009, an associated company declared the distribution of a dividend in the amount of approximately NIS 19 million out of the unapproved retained earnings accumulated as of June 30, 2009. The Company’s share in the dividend is approximately NIS 9.5 million. (see note 10a s follow)

  f. Pursuant to the valuation that was conducted for the purpose of determining the proceeds of the sale of 21% of the company shares by the shareholder Discount Investments Ltd. to the other shareholder Clal Industries Ltd., it arises that the value of Hadera Paper as at June 30, 2009 is 47% higher than its shareholders’ equity. However, it follows from this valuation that the economic value of the operations in the packaging paper sector is apparently lower than its book value by approximately NIS 423 million. The surplus book value of this sector above its derived value as mentioned above, originates from the fixed assets.

  In accordance with IAS-36, for the purpose of examining the need for a provision for impairment pertaining to the value of the packaging paper sector as a cash-generating unit, the company examined the use value on the basis of discounted cash flows, using a discount rate of 10.0%. The company subsequently estimated the fair value of the fixed asset items that are included under the packaging paper sector, based on assessment reports. In this capacity, the company found that the fair value of the fixed assets, net of the selling costs, is higher than the book value and in accordance with IAS-36, no recognition is necessary of a loss on account of the impairment of the fixed assets.

  Moreover, it has come to the attention of the Company that in the said assessment, a value was attributed to the consolidated subsidiary Carmel Container Systems Ltd. (hereinafter: “Carmel”) on the basis of a transaction for the purchase of Carmel shares by the Company in September 2008, net of a controlling premium. This value is lower by NIS 48 million than the net asset value of Carmel in the company books as at September 30, 2009. Consequently, the company commissioned an external and independent appraiser to examine the need for a provision for impairment regarding the cash-generating unit – Carmel – on the basis of its use value, based on the discounted cash flows that are expected to be generated by the company, using a discount rate of 10.0%. It was found that the value of Carmel is actually higher than its book value and no recognition is necessary of a loss on account of impairment.

  The Company has attached the aforementioned reports of the assessors and the reports of the external appraiser to its financial statements.

NOTE 4 FIXED ASSETS

  Acquisition of items of fixed assets

  During the periods of Nine and three months ended September 30 2009, the Company became committed in agreements to purchase fixed assets at a cost of approximately NIS 279,689 thousands and NIS 62,136 thousands, respectively. During the periods of Nine and three months ended September 30 2008, the Company became committed in agreements to purchase fixed assets at a cost of approximately NIS 178,633 thousands and NIS 50,445 thousands, respectively. Most of the acquisitions of the fixed assets during the reported period, in sum of NIS 259,744 thousand (without suppliers’ credit in the amount of NIS 68,036 thousands), were made for Machine 8- a new machine for the packaging paper system. Total suppliers’ credit from acquired fixed assets amounted to NIS 83,426 thousands as of September 30, 2009 (and NIS 17,261 thousands as of December 31, 2008).

F - 18



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 5 SHARE BASED PAYMENT

  In January 2009, the Company’s Board of Directors approved the granting of 34,000 non negotiable option warrants to directors in subsidiaries under the 2008 Option Plan for senior officers in the Group, which had been approved by the Company’s Board of Directors in January 2008. The grant was executed on January 8, 2009 under the terms of Section 102 of the Income Tax Ordinance (capital gains track).

  Each option is exercisable into one ordinary share of the Company with NIS 0.01 par value against the payment of an exercise increment in the amount of NIS 223.965. The options will vest in installments as follows: 25% of the total options will be exercisable from January 14, 2009; 25% of the total options will be exercisable from January 14, 2010; 25% of the total options will be exercisable from January 14, 2011; and 25% of the total options will be exercisable from January 14, 2012. The vested options are exercisable through January 14, 2012, 2013, 2014 for the first and second, third and fourth portions, respectively.

  The cost of the benefit embedded in the allotted options as above, on the basis of the fair value as of the date they are granted, was approximated to be the amount of approximately NIS 0.3 million. This amount will be charged to the statement of operations over the vesting period. The debt for the grant to officers of the affiliates will be paid in cash.

  The fair value of the options granted as aforementioned was estimated by applying the Black and Scholes model. In this context, the effect of the terms of vesting will not taken into account by the Company.

  The parameters which were used for implementation of the model are as follows:

Share price (NIS)      123.9  
Exercise price (NIS)    223.965  
Anticipated volatility (*)    31.01 %
Length of life of the options (years)    3-5  
Non risk interest rate    6.30 %

  (*) The anticipated volatility is determined on the basis of historical fluctuations of the share price of the Company. The average length of life of the option was determined in accordance with management’s forecast as to the holding period by the employees of options granted to them, in consideration of their functions in the Company and past experience of the Company with employees leaving.

NOTE 6 OTHER INCOME, NET

  On March 19, 2009 the Company recorded income of NIS 16.4 million in respect of a dividend paid to the Company only, which was distributed to the Company by an associated company against the allocation of preferred shares, as stated in note 3 above.

F - 19



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 7 INCOME TAX CHARGE

  On July 25, 2005, the Knesset (the Israeli parliament) passed the Law for the Amendment of the Income Tax Ordinance (No. 147), 2005, which provides, inter alia, for a gradual reduction in the corporate tax rate down to 25% in the 2010 tax year and thereafter. On July 14, 2009, the Knesset passed the Economic Efficiency (Legislation Amendments to the Implementation of the Economic Program for the Years 2009 and 2010) Law, 2009, which provides, inter alia, for an additional gradual reduction in the corporate tax rate down to 18% in the 2016 tax year and thereafter. According to said Amendments, the corporate tax rates applicable in the 2009 tax year and thereafter are as follows: 2009 – 26%; 2010 – 25%; 2011 – 24%; 2012 – 23%; 2013 – 22%; 2014 – 21%; 2015 – 20%; and from 2016 onward – 18%.

  The effect of the aforesaid change in the tax rate are reflected in the financial statements for the third quarter of 2009 in the reduction of the balance of deferred tax liabilities and the recording of tax income in the amount of approximately NIS 9.4 million, and increase in the share in profit of associated companies, net, in approximately NIS 6.2 million.

  The tax income for the nine months period ended September 30, 2009 are NIS 6 million, approximately mainly due to the reduction of the balance of deferred tax liabilities and the recording of tax income, as a result of the effect of the Economic Efficiency Law as explained above.

NOTE 8 SEGMENT INFORMATION

  a. General

  The Group has been implementing IFRS 8 “operating segments” (hereinafter –“IFRS 8”) as of January 1, 2009. In accordance with the provisions of IFRS 8, operating segments are identified on the basis of internal reports on the Group’s components, which are regularly reviewed by the chief operational decision maker of the Group for the purpose of allocating resources and evaluating the performance of the operating segments.

  In contrast, the previous standard (IAS 14 “segment reporting”) required an entity to identify two segment systems (business and geographic), based on the risk-reward approach, while the internal financial reporting system for the key managerial staff of the entity served only as the starting point for the identification of said segments.

  Following the adoption of the new standard the Group identified reportable segments that were different than those presented in previous reporting periods.

  The paper and recycling segment –generates revenue from the sale of paper products to paper manufacturing companies as well as from the recycling of paper and cardboard.

  The office supplies marketing segment – generates revenue from the sale of office supplies to customers.

  The packaging and cardboard products segment – generates revenue from the sale of packaging and cardboard products to customers.

  The Hogla Kimberly segment – an associated company that generates revenue from the manufacture and marketing of household paper products, hygiene products, disposable diapers and complementary kitchen products, in Israel and in Turkey.

  The Mondi Hadera Paper segment – an associated company that generates revenue from the manufacture and marketing of fine paper.

  Information relating to these assets is reported below. Amounts that were reported with respect to previous reporting periods are reported on the basis of the new segment reporting.

F - 20



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 8 SEGMENT INFORMATION (cont.)

  b. Analysis of incomes and results according to operating segments:

  The results of the segment include the profit (loss) generated from the activity of every reportable segment. These reports were edited based on the same accounting policy implemented by the Company.

Nine months
(Unaudited)
NIS in thousands
Paper and recycling
Marketing of
office supplies

Packaging and
carton products

Hogla Kimberly
Mondi Hadera Paper
Adjustments to
consolidation

Total
Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

Jan-
September
2009

Jan-
September
2008

 
Sales to external                                                            
customers    163,090    223,568    107,402    92,536    344,859    385,205    1,298,017    1,215,856    495,854    562,354    (1,754,817 )  (2,032,339 )  654,405    447,180  














Sales between  
Segments    87,810    97,324    1,457    1,262    11,799    9,845    2,322    2,013    16,007    10,864    (119,395 )  (121,308 )  -    -  














Total sales    250,900    320,892    108,859    93,798    356,658    395,050    1,300,339    1,217,869    511,861    573,218    (1,874,212 )  (2,187,008 )  654,405    447,180  














Segment results    4,633    38,002    2,880    2,708    7,912    (4,355 )  141,021    97,168    28,947    27,428    (170,244 )  (122,979 )  15,149    37,972  















Three months
(Unaudited)
NIS in thousands
Paper and recycling
Marketing of
office supplies

Packaging and
carton products

Hogla Kimberly
Mondi Hadera Paper
Adjustments to
consolidation

Total
July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

July-
September
2009

July-
September
2008

 
Sales to external                                                            
customers    57,642    72,854    39,123    34,297    108,758    121,285    415,115    418,024    162,940    185,580    (563,207 )  (660,646 )  220,371    171,394  














Sales between  
Segments    31,155    31,568    511    185    4,681    3,396    999    714    5,361    3,832    (42,707 )  (39,695 )  -    -  














Total sales    88,797    104,422    39,634    34,482    113,439    124,681    416,114    418,738    168,301    189,412    (605,914 )  (733,702 )  220,371    171,394  














Segment results    (3,777 )  9,285    1,715    1,344    3,360    (3,749 )  52,782    33,531    13,046    9,777    (65,882 )  (42,297 )  1,244    7,891  















F - 21



HADERA PAPER LTD

NOTES TO CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 8 SEGMENT INFORMATION (cont.)

  b. Analysis of incomes and results according to operating segments: (cont.)

Year ended December 31, 2008
NIS in thousands
Paper and
recycling

Marketing of office
supplies

Marketing of
office supplies

Hogla Kimberly
Mondi Hadera Paper
Adjustments to
consolidation

Total
 
Sales to external customers      273,436    129,068    500,069    1,605,376    717,424    (2,551,889 )  673,484  
Sales between Segments    133,331    2,046    12,508    3,200    14,923    (166,008 )  -  







Total sales    406,767    131,114    512,577    1,608,576    732,347    (2,717,897 )  673,484  







Segment results    37,773    3,233    (6,226 )  135,753    34,090    (169,272 )  35,351  








F - 22



HADERA PAPER LTD

NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009

NOTE 9 RECLASSIFICATION

  Comparative figures related to employee benefits days as of September 30, 2008 and December 31, 2008 were reclassified in these financial statements as follows:

  a. On December 31, 2008 NIS 17,478 thousand were reclassified from employee benefit obligations in non-current liabilities to employee benefit obligations in current liabilities.

  b. On December 31, 2008 NIS 1,119 thousand were reclassified from other payables to employee benefit obligations in current liabilities.

  c. On September 30, 2008 NIS 3,361 thousand were reclassified from other payables to employee benefit obligations in non-current liabilities.

  d. On September 30, 2008 NIS 15,282 thousand were reclassified from employee benefit assets to employee obligations in non-current liabilities.

  e. On September 30, 2008 NIS 16,633 thousand were reclassified from employee benefit obligations and NIS 1,575 thousand were reclassified from other payables to in non-current liabilities to employee benefit obligations in current liabilities.

NOTE 10 SUBSEQUENT EVENTS

  a. On October 1, 2009 a dividend in cash, in the amount of NIS 9.5 million was received from an associated company (see also note 3e above).

  b. On October 5, 2009, the company assumed a long-term loan in the sum of NIS 56.5 million, to be repaid within five years and carrying a variable interest rate of Prime + 1.5%. The principal and the interest are to be repaid in quarterly installments, except for the repayment of the first installment of the principal, which will be made six months after the receipt of the loan.

  c. On October 22, 2009 an associated company declared the distribution of a dividend in the amount of NIS 40 million out of the unapproved retained earnings accumulated as of September 30, 2009. The dividend will be paid during January 2010. The Company’s share in the dividend is approximately NIS 20 million.

F - 23



(BERENFELD LETTERHEAD)

October 28th 2009
910730

To:
Mr. Shaul Gliksberg
Hadera Paper Ltd.
Hadera

Dear Sirs,

 

 

 

 

Re:

Hadera Paper Ltd.

 

 

Valuation of paper machines (NO. 1,2,8)

 

 

fair market value at 30.9.09

 

 

(F.M.V.)

 

 

=====================================



















(BERENFELD LETTERHEAD)



(BERENFELD LETTERHEAD)

Contents

 

 

 

 

 

Item

 

Description

 

Page


 


 


 

 

 

 

 

1.

Preface: the purpose of the appraisal report and assessor details

3 – 4

2.

Overview

5 – 10

3.

Production processes

11

4.

Description of main production lines

12

5.

Principals and method of valuation

13 – 17

6.

Valuation

18

7.

Appendix

19

8.

Summary of the values of paper machines' equipment

20

(BERENFELD LETTERHEAD)

2



(BERENFELD LETTERHEAD)

1. Preface: Purpose of the appraisal report and assessor details

  1.1. Purpose of appraisal report and date of appraisal

  I, the undersigned, Nachman Berenfeld Eng., have been requested by the management of Hadera paper Ltd. (hereinafter: the Company), to express my expert opinion as to the valuation of the so called fair value, that is, the pecuniary amount exchangeable by transaction, in good faith, between a willing buyer and seller, acting with due consideration, as at September 30th 2009 hereinafter the Date of Appraisal. This report was made for the purpose of being included in the Company’s financial statements put forth as under the Securities Regulations (compilation of annual financial statements), 1993 and in compliance with international Accounting standard IAS-36.

  1.2. Requestor of the appraisal report and assessor details:

  This appraisal report was ordered by Hadera paper Ltd. on October 11th 2009 (hereinafter: the Date of Engagement). No material changes were made in the fair value estimate of the properties appraised herein between the Date of Engagement and the Date of Appraisal, as stated above. I deliver this report for the purpose of applying IAS-36. I consent that this appraisal report be incorporated in the Company’s financial statements. I declare and state that I have not been convicted of the offense mentioned in clause 222(a) of the Companies Law 1999, nor of any transgression of the Securities Law 1968.

  1.3. Assessor Details

  Name of Assessor: Nachman Bernfeld

  Business Address: 3 Hachilazon St. Ramat Gan

  Education

  B.Sc. in mechanical engineering, 1974, license no. 18929, Tel Aviv University. Additional Courses:

  Non-destructive testing, Technion

  Prediction of industrial risks, Tel Aviv University

  Advanced course in profit loss, London Insurance School

  Specialization in damages to computer systems and repositories, TELA insurance company, Germany

  Senior corporation directors' course, Lahav School of Management at Tel Aviv University

  Membership in the Israeli Academic Appraisers Association

  Fellowship in the Israel Association of Fire Investigators

(BERENFELD LETTERHEAD)

3



  Professional Experience

  Since 1980, owner of a private engineering and assessors firm

  Specializes in industrial appraisal for insurance companies, banks, receiverships, private companies, accounting firms, law firms, courts of law and others

  Authorized assessor for government corporations and ministries such as the Investment Center and the National Insurance Institute of Israel

  Performed valuations for the following corporations:

  International – Makhteshim Agan, Metaltech, Tefron, Soda Club, Intel, Ormat, Elco and others

  Various companies in the metal, chemical, semiconductors and energy industries as well as wastewater treatment plants, paper/cardboard mills, hi-tech, communication and biotechnology companies, power plants and more

  Court-appointed arbitrator

  Senior professor at the Insurance College, teaching courses in assessment, profit loss, risk management

  1979-1980 – Israeli Military Industries, mechanical engineer, designing weapon systems for aircraft and vehicles.

  1976-1979 – Ministry of Defense, machinery engineer and planed weapon system for Aircraft and ground equipment.

  1.4. Independence and fee

  I hereby declare that I hold no interests in the valuated assets, that I am Independent of the company in question and of the requestor of the appraisal report, and that the outcome of this appraisal is extraneous to the terms of engagement between me and the requestor of my opinion, wherein my fee is not contingent upon the content of the report.

  1.5. Reference to experts and consultants

  In this appraisal, no references were made to other experts or consultants.

  1.6. Visiting Company premises and physical verification of assets

  I, the undersigned, visited Company premises and physically verified the assets during October 2009. In those visits I identified equipment items and registered their technical specifications.

  My expert opinion is set forth hereunder.

(BERENFELD LETTERHEAD)

4



(BERENFELD LETTERHEAD)

 

 

 

 

2.

Overview

 

 

 

2.1

The mass and volume of waste are one of the severest environmental issues the industrialized world faces, and Israel is no exception.

 

 

 

 

2.2

Israel produces about 4.5 tons of refuse per annum, and amount growing at a rate of 4% yearly. A considerable part of this refuse consists of recyclable paper, plastic and metal wastes.

 

 

 

 

2.3

Presently, most of the waste is buried in landfills. This form of treatment occupies land reserves and causes environmental hazards; mainly sea pollution, smell and smoke nuisances, proliferation of pests – insects and rodents. With a view to prevent ecological detriment, at present as well as for the benefit of future generations, a trend has evolved in Israel and around the world of reducing the amount of sequestered waste. One of the best and most effective ways to do so is recycling.

 

 

 

 

  2.4 Amnir is a subsidiary of Hadera Paper Group Ltd.

  2.5 Hadera Paper Ltd. comprises several divisions:

  Paper and cardboard – Hadera Paper

  Recycling – Amnir Recycling Industries

  Mondi – white paper.

  Home products –Hogla Kimberly

  Packaging division – Carmel Container Systems and Frenkel C D

  Muchof the raw material used by the paper mills and Hogla-Kimberly is provided by Amnir Recycling Industries.

  2.6 Hadera Paper Ltd. is Israel's leading paper and paper products manufacturer

 

 

 

 

 

 

 

2.6.1

 

The company was founded in 1951 by a group of visionary American investors, who sought to establish an import-replacing industry in Israel.

 

 

 

 

 

 

 

2.6.2

 

At first the company operated with just one paper machine. Over the years it grew and expanded to become a prominent business group involved in various areas of commerce.

 

 

 

 

 

 

 

2.6.3

 

The company was restructured as a holding group of companies, which enables each division thereof to focus on its particular niche in today’s highly competitive market.

(BERENFELD LETTERHEAD)

5



(BERENFELD LETTERHEAD)

 

 

 

 

 

 

 

2.6.4

 

Comprehending the effects of globalization and the Israeli market’s exposure, the group formed strategic partnerships with several leading international companies.

 

 

 

 

 

 

 

2.6.5

 

Through its subsidiaries, the group manufactures and markets a wide range of products: various kinds of stationery and printing paper, packaging papers, cardboard and corrugated cardboard containers, a line of home products including disposable paper products, absorbent tissues for babies and children, feminine hygiene products and other disposable commodities. Additionally, the group engages in providing office supplies for organizations.

 

 

 

 

 

 

 

2.6.6

 

Hadera Paper Products

 

 

 

 

 

 

 

 

 

The paper mill produces various kinds of paper which differ in composition, quality and use:


 

 

 

 

 

 

 

 

 

 

1.

White paper – made of pure “virgin” cellulose – cellulose extracted directly from wood. This is the highest quality paper.

 

 

 

 

 

 

 

 

 

 

2.

Brown wrapping paper – this is a recycled type of paper made from various paper wastes which are collected by Amnir from factories, supermarkets and residential bins. It is of an inferior quality.

 

 

 

 

 

 

 

 

 

 

3.

Home products – manufactured by Hogla (in cooperation with Hadera Paper and the American company Kimberly) – toilet paper, tissues, and similar products – that one of is raw material is waste.

 

 

 

 

 

 

 

 

2.6.7

 

A major part of the group’s activity revolves around paper, cardboard and plastic recycling; employing advanced recycling-based technologies.

 

 

 

 

 

 

 

 

2.6.8

 

The group is a public company traded in AMEX and in the Tel Aviv stock exchange. The primary share holders is Clal Industries and Investments Ltd. of the IDB Group.

(BERENFELD LETTERHEAD)

6



(BERENFELD LETTERHEAD)

 

 

 

 

 

2.7

Hadera Paper Milestones

 

 

 

 

 

2.7.1

1950 – Israeli politicians, led by Pinchas Sapir, persuade four Jewish paper manufacturers – Josef Meizer, co-owner of Pulp and Paper, New York; Meir Astora of Italy; Leon Pepper of Brazil; and Max Freilich of Australia – to set up a paper mill to provide occupation for the hundreds of newcomers living in the Hadera area.

 

 

 

 

 

 

2.7.2

1951 – American Israel Paper Mills Ltd. is established with an equity of about 2 million US dollars.

 

 

 

 

 

 

2.7.3

1953 – The first Israeli paper mill opens with one machine, producing stationery and printing paper. The inauguration slogan was “For out of Zion there shall go forth the law, and the paper out of Hadera.”

 

 

 

 

 

 

2.7.4

1959 – The company issues its first IPO at the Tel Aviv stock exchange and at AMEX, New York.

 

 

 

 

 

 

2.7.5

1960Machine no. 2 – A second papermaking machine (machine no.2) is installed in the plant. The new machine produces stationery and newsprint. It increases the plant’s capacity. More employees are hired, and local workers gradually displace the foreigners employed hitherto.

 

 

 

 

 

 

2.7.6

1966 – All the company workers are from Israel.

 

 

 

 

 

 

2.7.7

1967Machine no.3 – A third papermaking machine is added, mostly producing paper for home use, such as tissues, paper towels and crêpe paper.

 

 

 

 

 

 

2.7.8

1969 – Looking to diminish the use of imported cellulose, American Israeli Paper Mills Ltd. establishes a subsidiary paper recycling company, Amnir, while developing techniques for removing ink from used paper.

 

 

 

 

 

 

2.7.9

1969 – The subsidiary Hogla is established. It is the first Israeli company that produces toilet paper.

 

 

 

 

 

 

2.7.10

1976 – 77,000 tons of paper were produced that year. The plant incorporates a fourth machine (machine no. 4), producing stationery, printing paper and wrapping paper at a pace of 60,000 tons per year. It doubles the plant’s output and significantly reduces the need for import.

(BERENFELD LETTERHEAD)

7



(BERENFELD LETTERHEAD)

 

 

 

 

 

 

2.7.11

1980 – The company continues to evolve, and enhances the integration of recycled paper waste in production as part of its policy. Simultaneously, the company strives to develop more water-efficient production processes.

 

 

 

 

 

 

2.7.12

1981 – The subsidiary Hogla pioneers the manufacturing of disposable diapers in Israel. The product is branded Titulim.

 

 

 

 

 

 

2.7.13

1990 – This year marks a turning point in the company business and strategic activity. It begins cooperation with foreign companies and becomes international.

 

 

 

 

 

 

2.7.14

1992 – American Israeli Paper Mills (AIPM) purchased CUR’s part in Carmel Containers Systems in joint venture with RAND & WITNEY from the USA. Carmel Containers Systems produces corrugated cardboard for the board packaging industry and purchases the paper reels for the corrugated cardboard from AIPM in Hadera.

 

 

 

 

 

 

2.7.15

1996 – Through the subsidiary Hogla, Israel’s biggest non edible commodities producer, AIPM enters a strategic partnership agreement with global Kimberly Clark. The partnership still exists as Hogla Kimberly Ltd.

 

 

 

 

 

 

2.7.16

1999 – Through Hogla Kimberly, AIPM acquires the Turkish company Ovisan, as part of its expansion to the international market.

 

 

 

 

 

 

2.7.17

1999 – American Israeli Paper Mills commits to strategic collaboration with the Austrian paper manufacturer Neusiedler (now called Mondi) which specializes in photo paper, and paper for copying and office printing. Later, the company was renamed Mondi-Hadera Paper.

 

 

 

 

 

 

2.7.18

2000 – the Hogla Kimberly factory in Naharia is equipped with a new toilet paper machine, complementing the one in Hadera. The whole plant is converted to accommodate cutting edge technology at a cost of nearly 20 million USD.

 

 

 

 

 

 

2.7.19

2007Switching to natural gas – The Hadera Paper group is the first industrial company in Israel to embrace the use of natural gas. After ten years of planning and developing, the company taps into the natural gas pipe at the Hadera Power Plant. Thereafter, all installations at the Hadera plant run on natural gas.

 

 

 

 

 

 

2.7.20

2007New Horizons Project – The group directorate decides to use another machine (machine no. 8). The new machine is planned to begin operation in 2010.

 

 

 

 

 

 

2.7.21

2008 – The company officially renamed Hadera Paper Ltd.

(BERENFELD LETTERHEAD)

8



(BERENFELD LETTERHEAD)

Group Structure

(GROUP STRUCTURE)

 

 

 

 

 

 

 

           Hadera Paper Ltd.

100%

100%          

          100%

     89.3%

     49.9%

 

   49.9%

Graffiti Office
Supplies and
Paper Marketing
Ltd.

  Hadera
  Paper
  Industries
  Ltd.

Amnir
Recycling
Industries Ltd.

Carmel
Container
Systems Ltd.

       Hogla
       Kimberly
       Ltd.

 

Mondi
Hadera
Paper Ltd.

100%

              30.18%

            100%

  28.92%             28.92%

100%

 

 

Attar
Marketing
Office
Supplies Ltd.

Cycletec
Ltd.

  Tri Wall
  (Israel)
  Ltd.

Frenkel CD
Ltd.

       KCTR
       (Turkey)

 

 

(BERENFELD LETTERHEAD)

9



(BERENFELD LETTERHEAD)

 

 

 

 

 

 

2.8

Hadera Paper Ltd.

 

 

 

 

 

2.8.1

 

This division manufactures and markets quality recycled packaging paper. The company plant at the group’s premises in Hadera produces some 150,000 tons of packaging paper a year and will produces 320,000 tons of packaging papers a year after machine no. 8 will be operate.

 

 

 

 

 

 

 

2.8.2

 

The factory employs advanced technologies and its paper meets the strictest quality and environmental protection standards.

 

 

 

 

 

 

 

2.8.3

 

The paper produced in this factory is used as raw material in the corrugated cardboard industry.

 

 

 

 

 

 

 

2.8.4

 

Most of the products are floating, test liner and liner paper, of which the internal partitions of corrugated cardboard are made. About 80% of this output is sold in Israel, and the rest is exported.

 

 

 

 

 

 

 

2.8.5

 

This paper is produced from recycled paper waste (cardboard and newsprint), most of which is collected around the country by Amnir Recycling Industries Ltd.

(BERENFELD LETTERHEAD)

10



(BERENFELD LETTERHEAD)

 

 

 

 

 

3.

Production Processes at the Hadera Plant

 

 

 

3.1

The production process is consecutive and made up of the following stages:

 

 

 

 

 

3.1.1

 

Manual sorting of the paper waste so as to remove non-paper refuse which might impede production.

 

 

 

 

 

 

 

3.1.2

 

Rinsing the material with water, using sieves and filters.

 

 

 

 

 

 

 

3.1.3

 

Grinding the paper waste in a big grinder similar to a meat grinder (or a blade rotating against a mesh). The material is pushed through a series of perforated disks, with the apertures getting smaller and smaller in diameter.

 

 

 

 

 

 

 

3.1.4

 

After the grinding, the material is thoroughly soaked in water so as to form a mash. The mash is heated to dissolve any glue and other materials present in paper waste.

 

 

 

 

 

 

 

3.1.5

 

The mash is thickened to a concentration of 30% (by pressing it against a rotating mesh)’ and then it is brayed until a homogenous mixture is attained. The thickening of the mash is done in order to enable braying.

 

 

 

 

 

 

 

3.1.6

 

Large quantities of water are added, resulting in a very thin mash with a concentration of 0.7% – 0.8%, at that point various substances are put in as needed: sodium hypochlorite and ammonium bromide are used to bleach the paper.

 

 

 

 

 

 

 

3.1.7

 

Starch and/or lime and/or aluminum ammonium sulfate are added to give the paper body and durability. The more lime put in, the whiter the resulting paper. But too much lime makes it crumbly. Variations in fiber length, kind and amount of additives yield different kinds of paper, as required. Usually different fiber lengths are mixed together; long fibers make for strong paper and short ones fill in the gaps and make it impermeable.

 

 

 

 

 

 

 

3.1.8

 

The drying is done over meshes, with vacuum pumps, blowing steam and finally pressing the paper with rolls, which determines the thickness and shape of the sheet. When paper gets completely dry it crumbles, so the mash is left with a small amount of moisture.

 

 

 

 

 

 

 

3.1.9

 

Paper production and recycling uses up large amounts of water. Most of the water is purified and reused due to water-economy considerations. This process entails testing for durability, impermeability etc.

(BERENFELD LETTERHEAD)

11



(BERENFELD LETTERHEAD)

 

 

 

 

 

4.

Main production lines in the Hadera site

 

 

 

4.1

Paper Machine no. 1

 

 

 

 

 

4.1.1

 

This machine produces corrugated cardboard. Paper width: 3.2 meters. Paper weight 120-200 grams per square meter. Top speed: 330 meters per minute. Make: BELOID (USA). Made in 1951.

 

 

 

 

 

 

 

4.1.2

 

The machine was refurbished in 1995. The refurbishment included the installment of steam driers, felt system for the press, control and computer systems.

 

 

 

 

 

 

4.2

Paper Machine no. 2

 

 

 

 

 

 

 

4.2.1

 

This machine produces floating cardboard (corrugated). Width: 3.2 meters. Paper weight: 120 gram/m(2). Top speed: 700 meters per minute. Make: BELOID (USA). Made in 1960.

 

 

 

 

 

 

 

4.2.2

 

Refurbishments

 

 

 

 

 

 

 

 

 

a. 1985 – head box, by ASHERWISE.

 

 

 

 

b. 1990 – additional upper mesh installed and head box ameliorated by METSO

 

 

 

 

c. 1996 – presses; including rolls set, by VOITH

 

 

 

 

d. 1996 – starch setup installation

 

 

 

 

e. 1996 – drying rolls installation

 

 

 

 

 

 

4.3

Paper Machine no. 8

 

 

 

 

 

4.3.1

 

This machine produces floating (corrugated) cardboard. Paper width: 5.45 meters. Paper weight: 80-140 gram/m2. Top speed: 1,000 meters per minute. 46 drying rolls. Make: VOITH. Made in 2007-2009.

 

 

 

 

 

 

 

4.3.2

 

Technical specification

 

 

 

 

-    Steam consumption: 1.5 tons of steam per hour per ton of paper

 

 

 

 

-    Electricity: 320KW per hour per ton of paper

 

 

 

 

-    Compressive strength: 120 gram/cm2

 

 

 

 

-    Efficiency (production speed times the quality of output): about 94%.

 

 

 

 

 

 

 

4.3.3

 

As at the Date of Appraisal, the machine is in final assembly stages. The head box has not been installed yet.

 

 

 

 

 

 

 

4.3.4

 

The machine is undergoing mechanical break-in. Production is expected commence in the beginning of 2010.

(BERENFELD LETTERHEAD)

12



(BERENFELD LETTERHEAD)

 

 

 

 

 

5.

Principles and Method of Valuation

 

 

 

5.1

During October 2009, I have visited Hadera Paper facilities and inspected the equipment and installations in the presence of company representatives.

 

 

 

 

5.2

The fair value estimate of the equipment and installations at the Hadera Paper plants was procured in abidance with the following principles:

 

 

 

 

 

Fair Market Value – Equipment items machine no.8 and machine no.2 were appraised on the basis of selling price by a willing seller to a willing buyer less realization expenses. The valuation method and data by which this appraisal was made are specified in the appraisal clauses “machine no.8” and “machine no.2” hereunder.

 

 

 

 

5.3

The value of the equipment and machinery was relied on purchase invoices, technical specifications, refurbishments and maintenance works done on the installations and machines, technical drawings, depreciation forms and price quotes for equipment similar and/or equivalent to the appraised equipment.

 

 

 

 

5.4

Paper machine no.8 – To estimate the fair market value of this machine, we examined several projects of constructing similar machines in Africa and Poland. We were also furnished with a price quote by VOITH for a machine similar to the one in question and a price quote by SHARMA which deals in erection of similar machines around the world.

 

 

 

 

 

 

 

A.

The first offer of VOITH was € 53,420,000 (without extra systems), after a while the price that was decided was € 45,377,000.

 

 

 

 

 

 

 

B.

Similar project in Africa is around € 150,000,000 (years 2006-2007).


 

 

 

 

 

In NIS

 

 

825,000,000 NIS

 

 

Deduct – assembly (around)

 

 

100,000,000 NIS

 

 

 

 

 

 

 

 



 

Total

 

 

725,000,000 NIS

 

 

Total equipment is approximately estimated

 

 

700,000,000 NIS

 

 

 



 


 

 

 

 

 

 

C.

We valuated another project in Poland. It turn out that the machine in this project is bigger than Hadera papers has. Value of project € 280,000,000. In our valuation we consider the width differences between the two machines. The cost of machine no.8 is 50% of the machine in Poland – around € 140,000,000, or NIS 770,000,000.

(BERENFELD LETTERHEAD)

13



(BERENFELD LETTERHEAD)

 

 

 

 

 

 

D.

We were informed about a deal of a similar machine to machine no. 8 between a Chinese company and BELOIT company. Because of luck of budget the Chinese company declined the deal. After a while the machine was sold to another Chinese company for 10% higher than the original price.

 

 

 

 

 

 

E.

From internet sites such as RISI, the cost of constructing a similar printing machine in width 5.45 m, weight: 80-140 gram/m2, Top speed: 1,000 meters per minute is around € 150-€ 180 millions €. In shekels NIS 825,000,000 – NIS 990,000,000.

 

 

 

 

 

 

F.

We got a price quote from SHARMA who is installing the machine (SHARMA is an installing/dismantling paper Machines Company). According to its estimation, the cost of a similar machine is around € 110,000,000, or NIS 605,000,000.

 

 

 

 

 

 

G.

In addition, we received a purchase offer from VOITH for a paper machine 5m. Width, without extra equipment/components and housing structure excluded at the sum of € 100,000,000. Machine no. 8 is 5.45m. Width. We consider in our valuating to 5.45m. width machine so the price for 5.45m. Width machine is € 110,000,000. This amount was calculated to Shekels to the date of valuating 30.9.09. To this amount we add the extra components that were not included in VOITH offer.

(BERENFELD LETTERHEAD)

14



(BERENFELD LETTERHEAD)

Attached machine no. 8 valuation including the added systems/components:

Table A

Description
30.9.09
NIS
NIS
 
Machine             605,000,000  
   
2 cranes    5,000,000       
   
compressors    2,000,000       
   
Cooling towers    700,000       
   
Water handling system    1,050,000       
   
total    8,750,000       
   
5% deduct - for selling expenses    (437,500 )     
   
total    8,312,500       
   
total             613,312,500  
   
Dismantling expenses         (30,000,000 )
   
total             583,312,500  
   
     86% execution    501,400,000  
   
Total around             501,400,000  
   
5% deduct         476,330,000  
Total around             477,000,000  

(BERENFELD LETTERHEAD)

15



(BERENFELD LETTERHEAD)

 

 

Explanations:

 

1

We deducted 5% for selling expenses of the missing components in VOITH quote.

 

 

2

We deducted from the machine’s amount 30 millions NIS for dismantling expenses.

 

 

3

Machine’s value for the date of valuation was decided by the percentage of execution at this date 30.9.09 – 86%,

 

 

4

In valuating the fair market value of machine no.8 we took a cautious estimate, and we deducted 5% of the item.

 

 

5

Since the appraisal of machine no.8 is based on a price quote, we deem the additional expenditure is negligible with respect to the estimate.


(BERENFELD LETTERHEAD)

16



(BERENFELD LETTERHEAD)

 

 

5.5

Machine no.2 – The appraisal of machine no.2 was done by comparing certain parameters thereof with corresponding parameters in machine no.8.

 

 

 

Comparison Table


 

 

 

 

 

 

 

 

 

 

 

 

 

No.

 

Parameter

 

Machine no.2

 

Machine no.8

 

Percentage of difference

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Paper weight

 

 

120 g/m2

 

 

80-140 g/m2

 

 

 

2

 

Paper width

 

 

3.2 meters

 

 

5.45 meters

 

40

%

 

3

 

Production speed

 

 

700 meters per minute

 

 

1,000 meters per minute

 

30

%

 

4

 

 

 

 

 

 

 

Technological superiority

 

30

%

 

5

 

Refurbishments

 

 

1960, 1996

 

 

2008

 

 

 

 


 

 

 

 

 

Estimated value of machine no.8 – 100%

 

 

583,000,000 NIS

 

 

Less the difference in width

 

 

40

%

 

Less the difference in speed

 

 

30

%

Less the technological differences

 

 

30

%

Less operating wear and tear

 

 

45

%

 

 

 

 

 

 

 



 

Total

 

 

94,271,000 NIS

 

 

 



 

Total (rounded) fair value appraisal including disassembly expenses, excluding construction-30.9.09

 

 

90,000,000 NIS

 

 

 



 


 

 

5.6

Machine no.1 – The machine has been in use for over 50 years. Its assessed value is its scrap and spare parts value.

(BERENFELD LETTERHEAD)

17



(BERENFELD LETTERHEAD)

 

 

6.

Valuation

 

 

 

In our opinion, the values of equipment in the listings enclosed herewith express willing purchaser-willing seller based transactions, where they are free of any lien or encumbrance.


 

 

 

 

 

6.1

Total fair market value of equipment – 30.9.09

 

569,500,000 NIS

 

 

 

 

 

 

 

(Five hundred and sixty nine million and five hundred thousand NIS)

 

 

 


 

 

 

 

 

The Fair Market Value of machines no. 1 : 2 : 8 for the date 30.9.9 sum to amount of NIS 569,500,000 and was found higher than the books value.

 

 

 

 

 

The valuation was done on machines no. 1 : 2 : 8 at the same methodology to 31.12.08 and was found higher than the books value.

Note:

The valuation does not include:
VAT
Real estate of any kind, including land reclamation and rights
Vehicles
Forklifts
Inventory and goodwill

Sincerely Yours,

Nachman Berenfeld – Engineer
Berenfeld International Loss Adjusters and Risk Management Ltd.

Enclosed: Summary of the values of paper machines’ equipment.

(BERENFELD LETTERHEAD)

18



(BERENFELD LETTERHEAD)

Appendix – Details regarding regulation 8b (d) and the third amendment to the Securities Regulations (periodic and immediate reports) (1970) – relating to value estimates

Identification of valuation subject

  Subject of valuation is specified in the above document

Details of business relations

  The work was ordered by Hadera Paper ltd.
  The date of engagement is 11.10.2009.
  The purposes of the work ordered are detailed above.
  The appraiser name, his signature on the contact agreement and date are detailed above.
  Details of the appraiser’s education are mentioned above.
  The agreement of the appraiser to the inclusion of this report is detailed above.
  Commission fees are free of dependency or conditions.

The determined value

  The valuation is based on financial reports as of 30.9.09.
  In light of the conclusions of the report sensitivity analyses are not required.
  The valuated company’s capital is irrelevant.
  The price of the company’s stock is irrelevant.
  Details of the average price of the company’s stock in the past six months are irrelevant.

Method of Valuation

  The description of the subjected equipment and systems is detailed above.
  The facts, assumptions and calculations on which this report is based are included in this valuation.
  As specified in this valuation the company has provided the appraiser with details investments as of 30.9.09.
  The method and grounds for selection are detailed in the valuation.
  The sources of information used for this valuation are detailed, I was not denied of any other valuable sources.

External Experts

  This valuation was not based on substantially significant valuations of external experts.

(BERENFELD LETTERHEAD)

19



(BERENFELD LETTERHEAD)

Hadera Paper LTD
Summary of the values of paper machines’ equipment

No.
Description
30.9.09
Depreciation (%)
 
1 Hadera Paper LTD.
Packaging Paper Machines

excluding infrastructures
   
 
1.1 Machine number 1, 3.2m.
Width year 1951, 330
m./minute speed
2,500,000  15%
 
1.2 Machine number 2, 3.2m.
Width year 1960,
refurbished 1985-1996,
700 m./minute speed
90,000,000  9%
 
1.3 Machine number 8, 5.45m.
Width year 2007/9, 1,000
m./minute speed (in final
assembly stages)
444,000,000  Depreciated for 25 years 
 
1.4 Preparation of materials
for machine number 8
33,000,000  Depreciated for 25 years 

 
  Total NIS 569,500,000  


(BERENFELD LETTERHEAD)

20



November 3, 2009

Reference: 2342.3.09

Real Estate for Machine Number 8

Block 10014

Parts of Parcels 97, 99, 100, 187, 188

Central Industrial Zone, Hadera

Assessment of Fair value

Expert Report



Table of Contents

 

 

 

Page

 


 

 

PART ONE – Purpose of Assessment Report

3

 

 

PART TWO – The Appraiser: Personal Information, Qualifications, and Work Experience

3

 

 

PART THREE – Agreement

5

 

 

PART FOUR – Statement

6

 

 

PART FIVE – Date of Property Inspection

6

 

 

PART SIX – Effective Date of Value

6

 

 

PART SEVEN – Description of Property and Surroundings

6

 

 

PART EIGHT – Legal Status

10

 

 

PART NINE – Building Permits

13

 

 

PART TEN – Zoning Status

15

 

 

PART ELEVEN – Model of Fair value for Commercial Real Estate

17

 

 

PART TWELVE – Principles and Considerations

18

 

 

PART THIRTEEN – Current Prices and Prices for Comparison in the Area

22

 

 

PART FOURTEEN – Rate of Return

30

 

 

PART FIFTEEN – Development Premium

32

 

 

PART SIXTEEN – Primary Calculations

33

 

 

PART SEVENTEEN – Assessment

38

2



PART ONE – Purpose of Assessment Report

I was requested by Mr. Shaul Gliksberg, CFO at the Hadera Paper Mills corporation (formerly American Israeli Paper Mills Limited) (AIPM) to state my opinion as to the fair value of rights in the property under consideration, for the effective date of value.

The fair value, according to this appraisal, should reflect the price of transfer of the property in a transaction between knowledgeable, willing parties, unrelated, and acting independently.

The fair value should reflect market conditions at the time of the appraisal in conformance to International Financial Reporting Standards (IFRS), by appraisal of fair value of commercial real estate that reflects market conditions at a given date, as market conditions may change. The fair value is different from the value in use, as various factors may affect it.

The fair value of the real estate reflects, among other things, rental incomes from current leasing, basic and reasonable assumptions, and current and updated prices from transactions in similar markets, with adjustments to reflect changes in the economic climate since the time of those transactions.

The evaluation of fair value is for vacant property, free and clear of all debt, claims, liens and encumbrances, and of private ownership.

The date of communication with the ordering party of the appraisal was October 19, 2009.

The property includes a building in the final stages of construction. The appraisal of fair value, in accordance with the instructions of the ordering party of the appraisal, is with the premise that the work is complete.

PART TWO – The Appraiser:
Personal Information, Qualifications, and Work Experience

Name of Expert: Toby Gersh.

 

 

Workplace:

48 Menachem Begin Way, Tel Aviv. Telephone: 03-5373266.

3



 

 

Occupation:

Lawyer, Real Estate Appraiser, Economist.

 

 

Education:

BA in Economics and Business Management, Haifa University.

 

 

 

LLB, Ono Academic College.

Licensed Real Estate Appraiser: In accordance with the Real Estate Appraiser Law – 1962, Ministry of Justice License # 407.

Member of the Israeli Bar: In accordance with the Bar Association Law – 1961, License # 50489.

Associate Degrees:

 

 

 

1. Real Estate Appraisal and Property Management, Technion – Israel Institute of Technology

 

2. Continuing Education in Planning and Building Law and Local Authority Law, Institute for Continuing Legal Education, Tel Aviv University

 

3. Continuing Education in Real Estate Economics, Union of Local Authorities in Israel

Additional Professional Experience:

1997 – 2001 Taught at the College of Management at branches in Ashdod, Raanana, and Bene Brak in the subjects of:

 

 

 

1. Real Estate Appraisal

 

2. Planning and Building

 

3. Israel Land Administration (ILA)

2003-2005 Committee Member, Real Estate Appraisers Association in Israel
2003-2005 Chairman of Committee for Professional Appraisal Guidelines, Real Estate Appraisers Association in Israel
2004 Assisted in preparing preliminary guidelines for the preparation of appraisal reports for real estate investment trusts (RIET) for the Real Estate Appraisers Association in Israel
2006- Committee Member, Academy for the Research and Application of Property Appraisal in Israel
2008- Member, Planning and Building Forum, Israeli Bar Association

Professional Affiliation

 

 

 

1. Member, Real Estate Appraisers Association in Israel

 

2. Member, Academy for the Research and Application of Property Appraisal in Israel

4



Work Experience:

 

 

 

 

1.

Approved by Government Property Appraiser/Ministry of Justice to prepare appraisal reports for all government offices and bodies associated with the State of Israel.

 

 

 

 

2.

Gathered information for professional guidelines for the real estate appraisal department of the Ministry of Justice, including guidelines for the preparation of reports for the valuation of parking lots.

 

 

 

 

3.

On the list of appraisers approved to prepare reports for clients of Union Bank, and also on the list of building inspectors.

 

 

 

 

4.

Preparation of appraisal of fair value report, in conformance with International Financial Reporting Standards (IFRS) for IDB Group.

 

 

 

 

5.

Preparation of appraisal report for Mekorot Israel National Water Co.

 

 

 

 

6.

Preparation of appraisal report for Jewish National Fund.

 

 

 

 

7.

Preparation of appraisal report for the municipalities of Rishon Lezion, Rehovot, Ramle, and Lod.

 

 

 

 

8.

Preparation of economic appraisal report for the Economic Corporation for Rishon Lezion Ltd., including the inspection of plans of economic projects related to property.

 

 

 

 

9.

Preparation of appraisal report for Egged Transportation Cooperative in Israel Ltd.

 

 

 

 

10.

Consulting to law firms, including Shoob & Co., Abraham Bar, Herzog, Fox and Neeman, Caspy & Co., Hartavi, Borenstein, Basson & Co., and Ofer Shapir & Co.

PART THREE – Agreement

I hereby grant permission for this report to be included in the financial reports of the company, whose purpose is the valuation of fixed assets of Hadera Paper, for the purpose of inclusion in financial reports of the company prepared in accordance with Securities Law Regulations 1993 (Preparation of Annual Financial Statements) in conformance with IAS-36 and to be published.

I declare and note that I have not been found guilty of any offense listed in paragraph 222(A) of Corporate Law 1999, nor any offense delineated in Securities Law 1968.

5



PART FOUR – Statement

I hereby declare that there is no dependency and/or obligations between the ordering party and the undersigned, except for an indemnity to the undersigned on the part of Clal Industries and Investments Ltd. for indemnity in the event of a claim related to fair value valuations of fixed assets for purchase price allocation (PPA) as long as it is not determined that the undersigned opinion was not done negligently or willfully or intentionally. In addition, the fee of the undersigned was not conditioned by any result. It should be noted that the undersigned did not conduct a valuation of the company in the past. Moreover, as at the date of the professional opinion, I was not forwarded any opinions prepared by other appraisers regarding the compound, despite my having approached the company, other than the opinion for the ILA, as described below.

PART FIVE – Date of Property Inspection

  1. The inspection of the property and its surroundings, and the visit to the offices of the local Board of Planning and Building, Hadera, took place on October 25, 2009 and was conducted by Mr. Shlomo Chaim. Moreover, the undersigned also conducted visits on October 19, 2009 and November 4, 2009.

PART SIX – Effective Date of Value

The effective dates of value for the report are the following dates:

1. December 31, 2008

2. September 30, 2009

PART SEVEN – Description of Property and Surroundings

1. General

 

 

 

 

 

 


Block

10014

 

 

 

 

 

 

Parcel

97

99

100

187

188

 

 

 

 

 

 

Area1

Approximately 21,000 sq. meters

 

 

 

 

 

 

Description of Property

Building housing Machine Number 8

 

 

 

 

 

 

Intended Function

Report requested by the corporation

 

 

 

 

 

 

Location

Central Industrial Zone, Hadera

(IMAGE)


1 The properties constitute a section of the complex that houses Hadera Paper. The complex constitutes a large industrial compound, and the property under consideration is located in the northeast of the compound, with no physical, zoning, or legal boundary between them and the other areas of the complex, which include, but are not limited to, manufacturing, storage, office space and unique infrastructure, including a wastewater purification plant and an electricity generating plant using natural gas. In accordance with the instructions of the corporation’s accountant, this report covers a portion of the corporation’s compound. The actual property area reflects the building lines of the structure. Where there was no building line preserved due to the proximity to another structure, half of the space between the buildings was considered part of the property.

6



2. Description of Surroundings

The property under consideration in this report is located in the Central Industrial Zone in Hadera. The industrial zone is located in the north of the city Hadera.

The industrial zone is bounded on the east by Hadera River, on the west by the North/South Highway 4, on the north by the northern industrial zone, and on the south by the southern industrial zone. In the area there are industrial buildings, between one and three stories high.

It should be noted that the industrial zone serves traditional manufacturing purposes, primarily for Hadera Paper and Alliance Tires. In addition the area is characterized by several trades, alongside garages and industrial buildings.

The area is completely developed, including but not limited to roads, sidewalks, street lamps, sewage etc.

7



It should be emphasized that the business environment enjoys demand primarily from corporations in need of large areas. Nevertheless, the supply of available real estate is low. It should be noted that to the north of the industrial zones an alternate industrial zone was established – Caesarea Industrial Zone. This area also enjoys considerable demand. Nevertheless, the Caesarea industrial zone is new in relation to the Hadera industrial zone and therefore enjoys a slightly higher level of prices in relation to Hadera.

3. Description of Property

The property under consideration forms part of the complex which houses the Hadera Paper Mills factory, whose total area is over 300,000 m2. The complex constitutes a large industrial compound and enjoys unique infrastructure, including a wastewater purification plant and an electricity generating plant using natural gas. The property under consideration is located in the northeast of the compound, with no physical, zoning, or legal boundary between them and the other areas of the complex, which include, but are not limited to, manufacturing, storage, and office space.

The property consists of a number of parcels in Block 10014, totaling about 21,000 sq. meters, with direct access from the street through a wide entrance gate and guard booth. The property is in the shape of a backward “L”, and is located south and east of the road adjacent to the Hadera Paper Mills factory complex.

The building rises to a height of about 24 meters, and is made of poured concrete. The building is in the final stages of construction and is built at a high standard, specialized for a specific use and heavy capacity. The building consists of five levels, on a built area of 16,248 sq. meters, of which 14,090 sq. meters are primary, and 2,158 sq. meters are service areas, as well as adjacent buildings and storage areas totaling approximately 6,809.49 sq. meters. The total area of the central constructed building and service areas totals 23,059 m2.

It should be noted that the contour area of the buildings is approximately 7,184.44 sq. meters gross area, in addition to storage facilities in a built area of 6,809.49 sq. meters, with the total contour area of the buildings totaling 13,993.93 sq. meters. These measurements are according to the measurement tables attached to the requests for building permits.
The main building includes 3 wings, as follows:

The central wing has a length of approximately 200 meters, a width of approximately 24 meters, and a height of approximately 24 meters. It is built above a mezzanine. It should be emphasized that the central wing does not have any pillars, and is an open space where machinery that serves the corporation is installed. According to information received from the project’s building inspector, the floor of this wing is meant to withstand a weight of up to approximately 12 tons per sq. meter. The wing contains two bridge cranes with a track across the length of the ceiling.

8



The east wing will house office space and a visitor center. It should be emphasized that the offices are built to high quality, as is standard for office space. Additionally, this wing is air conditioned, and compressors have been installed on the roof.

The west wing will serve the control of the machinery installed in the central wing. In part of this wing a floating floor is installed.

The property includes a building in the final stages of construction. The estimate of fair value is with the premise that the work is complete.

Property Map:



9



(PROPERTY MAP)

PART EIGHT – Legal Status

As mentioned above, the assessed property constitutes a part of a large compound, covering a total area of over 300,000 m2. The total compound includes a large number of parcels. The assessed property however includes five parcels, with most of the assessed property lying within parcels 97 and 188. Consequently, the assessed property does not only constitute part of a larger compound but actually ranges over a part of five different parcels, for which a leasing contract exists in its entirety.

Following below is a detail of the legal standing relating to these five parcels.

1. Real estate registration

According to land registry documents retrieved from the Internet on November 3, 2009, it emerges, inter alia, as follows:

 

 

 

 

 

 

 

 

 

Parcel

 

Registered Area

 

Owner

 

Lease

 

Notes


 


 


 


 


 

 

 

 

 

 

 

 

 

97

 

25,017 sq. meters

 

Jewish National Fund

 

American Israeli Paper Mills Limited (in full)

 

49 years according to a contract dated 1959

 

 

 

 

 

 

 

 

 

99

 

4,483 sq. meters

 

State of Israel

 

 

 

 

 

 

 

 

 

 

 

100

 

10,500 sq. meters

 

State of Israel

 

 

Expropriation of Part of the Parcel – Approximately 1,050 sq. meters

 

 

 

 

 

 

 

 

 

187

 

3,882 sq. meters

 

Jewish National Fund

 

 

 

 

 

 

 

 

 

 

 

188

 

20,466 sq. meters

 

Jewish National Fund

 

American Israeli Paper Mills Limited (in full)

 

49 years according to a contract dated 1964

10



2. Leasing Contracts

Lease contracts pertaining to the property under consideration were presented to me. From the documents it emerges, inter alia, as follows:

 

 

A.

According to a lease contract presented to me, dated September 1, 1976, between the Israel Land Administration (“Lessor”) and American Israeli Paper Mills Limited (“Lessee”), the following details, inter alia, emerge:

 

From May 2, 1976 the property was turned over to the Lessee for the purpose of erecting storage facilities for the existing factory.


 

 

 

 

Place

: Hadera

 

Area

: 4,900 sq. meters

 

Block

: 10014

 

Parcel

: 100 (Part)

 

Purpose of Lease

: Storage facilities for existing factory

 

Lease Period

: 49 years, beginning May 2, 1976, ending May 1, 2025

 

Renewal of Lease

: The Lessee may request a renewal for an additional 49 years

 

Initial Lease Payment

: 80% of the basic value of the property

 

Basic Lease Payment

: 2,450 Israeli Liras


 

 

B.

According to a lease contract that was shown to me, dated February 25, 1977, between the Israel Land Administration (“Lessor”) and American Israeli Paper Mills Limited (“Lessee”), the following details, inter alia, emerge:

 

In accordance with a preliminary agreement dated May 27, 1976 between the parties of this agreement, the property was turned over to the Lessee for the purpose of erecting an expansion of the existing factory.

 

 

 

 

Place

: Hadera

 

Area

: 1,290 sq. meters

 

Block

: 10014

 

Parcel

: 187

 

Purpose of Lease

: Expansion of existing factory

 

Lease Period

: 49 years, beginning November 11, 1975, ending November 10, 2024

 

Renewal of Lease

: The Lessee may request a renewal for an additional 49 years

 

Initial Lease Payment

: 80% of the basic value of the property

 

Basic Lease Payment

: 465 Israeli Liras

11



 

 

C.

According to a lease contract that was shown to me, dated February 6, 2007, between the Israel Land Administration (“Lessor”) and American Israeli Paper Mills Limited (“Lessee”), the following details, inter alia, emerge:

 

On the property there exists a building or buildings that were erected prior to the effective date of the lease agreement.

 

 

 

 

Place

: Hadera

 

Area

: 5,503 sq. meters

 

Block

: 10014

 

Parcel

: 70 (Part), 96 (Full), 99 (Part) as per Plan HAD/812

 

Purpose of Lease

: Expansion of existing factory

 

Building Capacity

: 6,603.0 sq. meters

 

Lease Period

: 49 years, beginning December 14, 2006, ending December 13, 2055

 

Renewal of Lease

: 49 years, beginning at the date of lease termination

 

Purpose

: Industry and Manufacturing


 

 

 

The Lessee is aware that parcels 70 and 99 are designated in the Land Registry as roads. The Lessee is aware that he is obligated to prepare, at his own expense, a plan for the purpose of registry, to submit it for the approval of the appropriate authorities, and to receive their approval, so that the registry will be fixed by the Lessor.

 

 

 

It should be clarified that until the Lessee registers the above mentioned division, the Lessee will not be able to register his rights at the Land Registry.

 

 

D.

According to a lease contract that was shown to me, dated April 28, 2008, between the Israel Land Administration (“Lessor”) and American Israeli Paper Mills Limited (“Lessee”), the following details, inter alia, emerge:

 

According to the original lease contract, the property was leased to the Lessee, including everything that was built on it properly and attached to it properly and permanently, for the purpose and for the building capacity stated in the original lease agreement.

 

The lease period stated in the original lease contract has ended, and the Lessee has requested from the Lessor to extend the lease for an additional lease period, for the stated purpose and building capacity.

 

 

 

 

Place

: Hadera

 

Area

: 20,466 sq. meters

 

Block

: 10014

 

Parcel

: 188 (Full) as per Plan HAD/812

 

Purpose of Lease

: Industry and Manufacturing

 

Building Capacity

: 24,559 sq. meters

 

Original Lease Period

: beginning June 1, 1959, ending March 31, 2008

 

Lease Period

: 49 years, beginning April 1, 2008, ending March 31, 2057

 

Purpose

: Industry and Manufacturing

12



 

 

E.

According to a lease contract that was shown to me, dated June 23, 2008, between the Israel Land Administration (“Lessor”) and American Israeli Paper Mills Limited (“Lessee”), the following details, inter alia, emerge:

 

According to the original lease contract, the property was leased to the Lessee, including everything that was built on it properly and attached to it properly and permanently, for the purpose and for the building capacity stated in the original lease agreement.

 

The lease period stated in the original lease contract has ended, and the Lessee has requested from the Lessor to extend the lease for an additional lease period, for the stated purpose and building capacity.

 

 

 

 

Place

: Hadera

 

Area

: 25,000 sq. meters

 

Block

: 10014

 

Parcel

: 97 (Full) as per Plan HAD/812

 

Purpose of Lease

: Industry and Manufacturing

 

Building Capacity

: 30,000 sq. meters

 

Original Lease Period

: beginning April 1, 1958, ending March 31, 2008

 

Lease Period

: 49 years, beginning April 1, 2007, ending March 31, 2056

 

Purpose

: Industry and Manufacturing

PART NINE – Building Permits

In a visit to the local Board of Planning and Building, Hadera, building permits and requests for building permits were located for various buildings in the compound.

The following are the details relevant to the property under consideration:

Building Permit 198/08 dated September 11, 2008 permits the construction of a five story facility for Paper Machine 8, a paper storage facility and shipping dock.

According to the area tables attached to the request, it emerges, inter alia that the built-up area is as follows:

 

 

 

 

 

Building

 

 

Total Area

 


 

 


 

 

 

 

 

 

Machine Building B Primary Area

 

 

14,090.33 sq. meters

 

Service Area

 

 

2,158.49 sq. meters

 

Automatic Storage Facility + Ramp

 

 

2,799.34 sq. meters

 

Open Shipping Dock

 

 

3,419.10 sq. meters

 

Guard Hut

 

 

26 sq. meters

 

Resource Hut

 

 

273 sq. meters

 

Containers (tanks)

 

 

292.05 sq. meters

 

 

 



 

Total

 

 

23,058.31 sq. meters

 

13



The building consists of five levels, on a built area of 16,248 sq. meters, of which 14,090 sq. meters are primary, and 2,158 sq. meters are service areas, as well as adjacent buildings and storage areas totaling approximately 6,809.49 sq. meters.

It should be noted that the contour area of the buildings is approximately 7,184.44 sq. meters gross area, in addition to storage facilities in a built area of 6,809.49 sq. meters, with the total contour area of the buildings totaling 13,993.93 sq. meters. These measurements are according to the measurement tables attached to the requests for building permits.

Note: At the time of the inspection of the property, it appeared that the construction conformed to the building permit. Additionally, at a meeting with the ordering party of the assessment, it was reported to me that the actual construction conformed to the permit. The report is on the assumption that the complete construction is actually such.

14



PART TEN – Zoning Status

According to information received from the local Board of Planning and Building, Hadera, the following zoning applies to the property under consideration:

(IMAGE)

1. Mandate Plan HAD/35 (published for validation from February 4, 1941)

Descriptive plan of Hadera. In accordance with the plan, parcels in the area for public space are presented.

2. Plan HAD/248 (published for validation in Publication 645 from January 22, 1959)

The purpose of the plan is to classify land included in the plan for manufacturing and industry.

(IMAGE)

In accordance with the blueprint of the plan, most of the property under consideration is classified for manufacturing and industry, to which the following, inter alia, applies:

 

 

Minimum Lot Size

: In accordance with decision of the local board.

 

 

Maximum Building Area

: 40%.

 

 

Maximum Number of Floors

: In accordance with decision of the local board.

 

 

Building Lines

: Side – 3 meters or 8 meters, Back – 3 meters.

3. Plan HAD/812 (published for validation in Publication 3922 from September 15, 1991)

Among the purposes of the plan, allocation of industrial zone, allocation of storage and commercial service area, allocation of public building area, and more. The plan defines the purposes and uses of the property under consideration, factories and factory areas, garages, workshops, office and commercial service buildings, a gas station, and more – in conformance with the national descriptive zoning plan.

In accordance with the blueprint of the plan, most of the property under consideration is classified for manufacturing and industry, to which the following, inter alia, applies:

 

 

Minimum Façade Width

: 18 meters.

Minimum Lot Size

: 1000 sq. meters, or according to the blueprint.

Land Contour

: 55%.

Maximum Number of Floors

: 3.

Maximum Building Area

: 120%.

Building Lines

: Front – 5 meters, Side – 4 meters, Back – 6 meters.

Underground Levels

: In the industrial zone, it will be permitted to erect underground levels that will contain a working shelter in accordance with Home Front Command regulations, and parking for the building. These areas will not be included in the construction percentage. Underground storage facilities will also be permitted, provided that they are included in the construction percentage.

15



Instructions for large factories in the Industrial Zone:

 

 

1.

Building instructions will be as in industrial zone, as delineated above.

 

 

2.

Building permits will not be issued for the manufacturing sector unless a detailed site plan is prepared by a surveyor, including all buildings in the area.

 

 

3.

A blueprint will be prepared for registry purposes which will unite all parcels in the factory borders and will transfer the difference to the local municipality for public purposes2.

 

 

4.

A building plan will be prepared for the entire area of the factory, which will include reference to parking, unloading, and environmental guidelines.

This plan comes in place of, and voids, Plan HAD/248.

4. Plan HAD/450E (published for validation in Publication 4783 from July 11, 1999)

The purpose of the plan is to change construction guidelines and define service areas for buildings in all areas of the city in accordance with their uses. The plan defines service areas in the industrial zone as follows:

Above the effective entry level

 

 

Stairs and Entryways

: 5% of primary area

 

Technical services

: 15% of primary area

Below the effective entry level

 

 

General Services

: 20% of ground floor area

 

Parking

: up to 200% of lot area



2 It should be noted that a building permit was received for the building that houses Machine 8, without this precondition having been met. It would appear that this precondition was ignored by the regional Council and this precondition was therefore not given any weight in this opinion.

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5. Plan HAD/MAK/812G (published for validation in Publication 4855 from February 13, 2000)

This plan affects parcels 97,100,187,188 in Block 10014. Among the purposes of the plan, joining and separation according to Paragraph 62 A (A)(1) of the law3. Additionally, the plan changes the building lines of the existing buildings. The plan does not change building rights. All new construction or expansion will be according to Plan HAD/812.

PART ELEVEN – Model of Fair Value for Commercial Real Estate

The report is for fair value, in conformance with International Financial Reporting Standards (IFRS).

The fair value of commercial real estate as a fixed asset is the price of transfer of the property in a transaction between knowledgeable, willing parties, unrelated, and acting independently.

An assessment of fair value reflects market conditions at a given date, assuming that the transfer of the property and the completion of the deed are simultaneous.

The fair value of commercial real estate should refle