Business News

American Israeli Paper Mills Ltd. Reports Financial Results for Fiscal Year Ended December 31, 2007

Wednesday 12. March 2008 - American Israeli Paper Mills Ltd. (AMEX:AIP) (the "Company" or "AIPM") today reported its financial results for the year ended December 31, 2007. The Company, its subsidiaries and associated companies are 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 includes the results of all the companies in the AIPM 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:

Aggregate sales totaled NIS 3,124.3 million in 2007, as compared with NIS 2,830.5 million in 2006 — net of TMM Integrated Recycling Industries Ltd. (“TMM”). Aggregate sales in 2005 amounted to NIS 2,613.7 million.

The aggregate operating profit in 2007 totaled NIS 189.4 million, as compared with NIS 103.1 million in 2006. The operating profit in 2005 amounted to NIS 115.8 million.

The Consolidated data set forth below does not include the results of operation of the associated companies: Mondi Hadera, H-K and Carmel Container Systems Ltd. (“Carmel”), which are included in the Company’s share in results of associated companies.

Consolidated sales totaled NIS 583.6 million in 2007, as compared with NIS 530.1 million in 2006.

Consolidated operating profit amounted to NIS 75.4 million in 2007, as compared with NIS 50.5 million in 2006.

The increase in operating profit in 2007, by 49% in relation to 2006, originated from the increase in sales of packaging paper and recycling, primarily on account of the improvement in selling prices and the efficiency measures, that were partially offset by rising energy prices, coupled with the improvement in the operating profit of the marketing of office supplies activity as a result of efficiency measures and the reorganization that the company initiated in the past several years.

Financial expenses amounted to NIS 19.6 million in 2007, as compared with NIS 31.1 million in 2006.

Net profit in 2007 totaled NIS 31.4 million, as compared with NIS 13.3 million in 2006 and NIS 45.7 million in 2005. Net profit in 2007 was affected by the growth in the Company’s share in the losses of the operations in Turkey (KCTR), amounting to approximately NIS 11.8 million, as compared with the preceding year.

Basic earnings per share amounted to NIS 7.61 per share in 2007 ($1.98 per share), as compared with NIS 3.31 per share ($0.78 per share) in 2006 and as compared with NIS 11.43 per share ($2.48 per share) in 2005.

The inflation rate in 2007 amounted to 3.4%, as compared with an inflation rate of 0% in 2006.

Commenting on the year’s results, Mr. Avi Brener, Chief Executive Officer of the Company said that “The positive global trends in the paper industry, primarily in Europe, due to the decline in the gap between paper supply and demand, have affected the group companies active in Israel. Moreover, the growth trend in developing markets, primarily in Asia, as reflected by relatively high growth rates, is creating high demand for pulp and paper waste, as well as for paper products”.

The Company acted to convert its boilers systems at its main site in Hadera from the use of fuel oil to natural gas. The laying of the gas pipeline and its connection to the plant facilities has been completed and the flow of natural gas to the Company by Israel Natural Gas Lines Ltd. started in late August, and in October the Company converted to full production of steam using natural gas, while discontinuing the use of fuel oil in October. The conversion of the central boiler to full production using natural gas was completed in the fourth quarter.

In 2007, Kimberly Clark Turkey, KCTR (an affiliated company in Turkey), continued to implement its strategic plan GBP — (Global Business Plan) that was formulated together with the international partner, Kimberly Clark, designated to introduce Kimberly Clark’s global brands to Turkey, based on local manufacturing. The KCTR turnover amounted to approximately $63 million in 2007. The implementation of business and strategic plan, the strengthening of brands and the gradual growth of using the Unilever sales and distribution platform, coupled with the reduction of costs at the diaper plant, have led to improved gross profitability in the first quarter, while significantly curtailing the operating loss from a sum of NIS 27 million in the first quarter of 2007, NIS 19.3 million in the second quarter and NIS 15 million in the third quarter, to NIS 12.5 million in the fourth quarter of 2007.

The Company’s share in the earnings (losses) of associated companies amounted to losses of NIS (2.9) million in 2007, as compared with losses of NIS (26.7) million in 2006 and earnings of NIS 16.4 million in 2005.

The following principal changes were recorded in the Company’s share in the earnings of associated companies, compared with 2006:

– The Company’s share in the net profit of Mondi Hadera (49.9%) increased
by NIS 12.9 million this year. Most of the change in profit originated
from the company’s highly improved profitability, the transition from
an operating loss of NIS 2.1 million last year to an operating profit
of NIS 33.6 million this year, primarily as a result of the improved
trading conditions that allowed for higher selling prices that led to
an improved gross margin, coupled with a decrease in certain raw
material costs as a result of the lower dollar exchange rate, primarily
in the course of the second half of the year, coupled with a
significant improvement in the efficiency of the company’s operational
array. The sharp improvement in profit was somewhat offset as a result
of the rise in the net financial expenses, which originated primarily
from working capital requirements due to the rise in the volumes of
operation and the impact of changes in the exchange rate.

– The Company’s share in the net profit of Hogla-Kimberly Israel (49.9%)
increased by NIS 5.4 million in 2007, as compared with 2006. The
operating profit of Hogla grew from NIS 127.0 million to NIS 135.4
million this year. The improved operating profit originated from a
quantitative increase in sales, improved selling prices and the
continuing trend of raising the proportion of some of the premium
products out of the products basket. This improvement was partially
offset by the continuing rise in raw material prices. The net profit
was also affected by the increase in financial expenses of NIS -1.7
million, as compared with financial revenues of NIS 1 million last
year, as a result of the financing needs of the operations in Turkey.
The net profit of Hogla-Kimberly Israel last year was influenced by
non-recurring tax expenses of NIS 4.5 million (our share was
approximately NIS 2.2 million).

The Company’s share in the losses of KCTR (formerly: “Ovisan”) (49.9%)
grew by approximately NIS 11.8 million in 2007, as compared with 2006.
The operating loss decreased by approximately NIS 9.4 million in 2007
in relation to last year, due to the continuing growth in the
penetration rate of brands and their strengthened position in the
market. A non-recurring loss of approximately NIS 6 million ($1.5
million) was included on account of the termination of trade agreements
with distributors due to the transition to distribution by Unilever, of
which our share was approximately NIS 3 million. Moreover, the tax
asset that was recorded in previous years in Turkey, in the sum of
approximately NIS 26 million ($6.4 million) was reduced, of which our
share is NIS approximately 13.3 million. Last year, the loss included a
non-recurring expenditure of approximately NIS 16 million, of which our
share was approximately NIS 8 million, primarily as a result of the
devaluation of the Turkish lira and the amortization of a tax asset in
the sum of approximately NIS 6.7 million, of which our share was
approximately NIS 3.3 million.

– The Company’s share in the net profit of Carmel (36.21%) increased by
NIS 2.1 million in 2007 as compared with 2006. The factors that
affected the growth in the company’s share in the net profit of Carmel,
originated inter alia from the improvement in the operating
profitability at Carmel — primarily in the second half of the year.
This improvement originated primarily from higher prices and was
partially offset by the sharp rise in raw material prices. In the
course of the second quarter, the company’s holding rate in Carmel rose
from 26.25% to 36.21% due to Carmel’s self purchase of some of the
minority shareholders’ holdings. As a result of the acquisition, a
negative surplus cost of NIS 4.9 million was created at the company, of
which a sum of NIS 2.4 million was allocated to the statement of income
this year and served to increase the company’s share in the Carmel
profits in 2007. In 2006, Carmel’s net profit included capital gains
from the sale of a real-estate asset, of which the Company’s share was
approximately NIS 1 million.

– In 2006, the Company’s share in the earnings of associated companies
included the Company’s share in the losses of TMM, in the amount of NIS
14.8 million. As mentioned above, the Company sold its holdings in TMM
in early 2007 and this item is therefore not included in the Company’s
share in the earnings of associated companies this year. The Company’s
share in the earnings of associated companies from current operations
in Israel (excluding Turkey and TMM) grew by NIS 20.7 million this year
and amounted to NIS 60.9 million.




In July 2006, the Israel Accounting Standards Board issued Israel Accounting Standard No. 29 — “Adoption of International Reporting Financial Standards (IFRS)” (“Standard 29”). Pursuant to the Standard, companies that are subject to the provisions of the Securities Law, and that are required to report according to the regulations published thereunder, are to prepare their financial statements in accordance with IFRS starting from the period commencing on January 1, 2008. The company will implement the IFRS standards starting with the financial statements for the period commencing January 1, 2008.