Edgar Filing: Hadera Paper Ltd

zk1008605.htm

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 August 2010

_________________

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 oForm 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 xNo

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 August 9, 2010 with respect to the Registrant’s results of operations for the quarter ended June 30, 2010.

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 June 30, 2010.

Attached hereto as Exhibit 3 and incorporated herein by reference are the Registrant’s unaudited condensed consolidated financial statements for the quarter ended June 30, 2010.

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 June 30, 2010.

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 June 30, 2010.

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

Name: Lea Katz

Title: Corporate Secretary

Dated: August 9, 2010.

EXHIBIT INDEX

Exhibit No.	Description

1.	Press release dated August 9, 2010.

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 the Second Quarter and Six Months Ended June 30, 2010

Hadera, Israel, August 9, 2010 - Hadera Paper Ltd. (AMEX:AIP) (the “Company” or “Hadera Paper”) today reported financial results for the second quarter and first six months ended June 30, 2010. The Company, its subsidiaries and associated companies – is referred to hereinafter as the "Group".

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

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

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

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

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

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

The net profit attributed to the Company's shareholders during the reported period was affected by the improvement in the operating margin of most Group companies in Israel and in Turkey as a result of the increase in operations that brought about an improvement in the operating profit.

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

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

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

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

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

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

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

The Group manages a wide and diverse portfolio of companies and businesses focused on consumer goods and basic commodities. As part of the global trend of increasing private consumption in light of the emergence from the crisis, this trend led to an increase in demand at most Group companies for a wide range of products, while continuing to place an emphasis on the implementation of efficiency and cost-cutting measures across all sectors of operation.

In terms of raw materials, the NIS reevaluation vis-à-vis the dollar and the euro by an average ranging between 7.4% and 7.9%, respectively, in relation to the corresponding period last year, led to savings in terms of the inputs and imported products denominated in either dollars or euros in the company's principal sectors of operation, whose prices tend to follow import prices denominated in these currencies. As a result of the said revaluation, the price of natural gas decreased by approximately 8% in relation to the corresponding period last year, thereby also making a contribution to savings. Moreover, the price of electricity also decreased by approximately 15% during the reported period, in relation to the corresponding period last year. These savings were partially offset by the rising prices of water during the reported period, by an average rate of approximately 34%, along with the rising price of fibers by approximately 35%, in relation to the corresponding period last year.

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

The company’s share in the earnings of associated companies totaled NIS 40.1 million during the reported period, as compared with NIS 34.9 million in the corresponding period last year.

The following principal changes were recorded in the Company’s share in the earnings of associated companies, in relation to the corresponding period last year:

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

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

The Company's share in the losses of KCTR Turkey (49.9%) was reduced by NIS 4.0 million. This reduction in loss is primarily attributed the slight increase in the volume of operations, coupled with the sale of the PEDO brand to a local chain, that generated non-recurring revenues of NIS 3.1 million during the reported period, that brought about the continuing reduction in the operating loss from NIS 14.1 million during the corresponding period last year, to NIS 6.9 million during the reported period.

During the reported period, 102,462 option warrants that were granted as part of the management option plan, were exercised. 23,733 company shares were issued following this exercise.

This report contains various forward-looking statements based upon the Board of Directors’ present expectations and estimates regarding the operations and plans of the Group and its business environment. The Company does not guarantee that the future results of operations will coincide with the forward-looking statements and these may in fact differ considerably from the present forecasts as a result of factors that may change in the future, such as changes in costs and market conditions, failure to achieve projected goals, failure to achieve anticipated efficiencies and other factors which lie outside the control of the Company as well as certain other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation for publicly updating the said forward-looking statements, regardless of whether these updates originate from new information, future events or any other reason.

Hadera PAPER LTD.

SUMMARY OF RESULTS

(UNAUDITED)

except per share amounts

	Six months ended June 30,
	NIS IN THOUSANDS(1)
	2010		2009

Net sales		489,191		434,034

Net earnings attributed to the Company's shareholders		42,328		34,716

Basic net earnings per share attributed to the Company's shareholders		8.35		6.86

Fully diluted earnings per share attributed to the Company's shareholders		8.27		6.86

	Three months ended June 30,
	NIS IN THOUSANDS (1)
	2010		2009

Net sales		249,206		204,153

Net earnings attributed to the Company's shareholders		18,038		15,637

Basic net earnings per share attributed to the Company's shareholders		3.55		3.09

Fully diluted earnings per share attributed to the Company's shareholders		3.52		3.09

(1)	The representative exchange rate at June 30, 2010 was N.I.S. 3.875=$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

Exhibit 2

Hadera Paper Ltd.

Update to Chapter I (Description of the Corporation's Business) of the

Information Presented in the Company's Periodical Report

As at June 30, 2010

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

1.	Update to Chapter A, Section 5: "Equity investments in the Company and transactions in its shares"

During the reported period, 102,462 option warrants that were granted as part of the management option plan, were exercised. 23,733 company shares were issued following this exercise.

2.	Update to Chapter C, Section 9: "The Paper and Recycling Sector"

The Company submitted in early 2009 a complaint on the dumping import of recycled brown paper, that was followed by a decisions of the Commissioner of dumping levy at the ministry of Employment Industry and Trade (hereinafter: "the Commissioner"), to initiate an investigation and afterwards to impose temporary guarantee on the import of recycled brown paper, from several countries in Europe. In early 2010, the Commissioner submitted to the Consulting Committee for dumping import, his investigation findings.

On August 4, 2010, the Company received a notice from the Commissioner, informing it that the Consulting Committee had recommended to impose a levy for a limited period and that the Minister of Employment Industry and Trade had approved its recommendation, yet due to the objection of the Minister of Finance to the levy, no dumping levy would be imposed on the import of recycled brown paper products.

3.	Update of Chapter D, Section 12 - Fixed Assets Real Estate and Facilities

A wholly owned subsidiary - Amnir Recycling Industries Ltd. ("Amnir"), signed an agreement on July 25, 2010 with an unrelated third party, for the sale of its rights to a plot of land covering 9,200 m² located in Bnei-Brak (hereinafter: "The Property"), in return for a sum of NIS 20 million, to be paid in installments until the transfer of possession over the Property. For additional details, see the company's immediate report dated July 26, 2010. The transaction was approved by the Board of Directors of the company on August 1, 2010.

4.	Update of Chapter D, Section 12 - Fixed Assets Real Estate and Facilities

On June 1, 2010, the company entered into an agreement for the sale of its rights to a plot of land covering 7600 m² in Tel Aviv, in return for a sum of NIS 64 million, the purchasing parties are Bayside Land Corporation Ltd. ("Bayside"), a company indirectly controlled By IDB Development Corporation Ltd., the controlling shareholder of the company and by Amot Investments Ltd. ("Amot"), in shares of 71% and 29%, respectively. Two nullifying conditions were determined in the agreement. The transaction was approved by the general meeting of the shareholders of July 27, 2010. For additional details, see the companies immediate reports dated June 2, 2010, dated May 16, 2010, dated June 13, 2010 and dated July 11, 2010.

5.	Update to Chapter D, Section 13: "Human Resources"

On March 23, 2010, the Audit Committee and the Board of Directors, approved granting the payment of a special bonus to the retiring CEO. Additional details appear in the immediate report published by the company on March 23, 2010.

6.	Update to Chapter D, Section 13: "Human Resources"

On July 27, 2010, the general meeting of shareholders of the company approved the engagement in an insurance policy for position holders for the period between June 1, 2010 and November 30, 2011. For additional details, see the immediate reports of the company dated June 13, 2010 and dated July 27, 2010.

7.	Update to Chapter D, Section 15: "Finance"

On May 23, 2010, the company completed an issue of debentures (Series 5) totaling NIS 181,519 thousands. For additional details, see Note 4e to the financial statements of the company dated June 30, 2010. The said debentures were rated by Maalot - The Israel Securities Rating Company Ltd. For the rating report, see the company's immediate report dated May 10, 2010.

8.	Update to Chapter D, Section 19: "Legal Proceedings"

For details regarding updated legal proceedings, see Note 4f to the financial statements of the company, dated June 30, 2010.

-Translation from Hebrew-

August 8, 2010

MANAGEMENT DISCUSSION

The Board of Directors of Hadera Paper Ltd. (“Hadera Paper” or "The Company", the Company, its consolidated subsidiaries and its associated companies – hereinafter: “The Group”) is hereby honored to present the Management Discussion as at June 30, 2010, reviewing the principal changes in the operations of the company for the months January through June 2010 ("The Reported Period"). The report was formulated in accordance with the Securities Regulations (Periodic and Immediate Reports), 1970, based on the assumption that the reader is also in possession of full Periodic Report of the company as at December 31, 2009 ("Annual Financial Statements"). The results of the company that are presented in the management discussion relates to the share of the shareholders of the company in the results, unless stated otherwise.

UDescription of the Corporation’s Business

UCompany 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 New York Stock Exchange (NYSE).

UGeneral

Principal Current Operations

UBusiness Environment U

The global financial crisis and the slowdown in real-term economic activity, that began in 2008 and grew more severe in early 2009, and which led to a recession in numerous countries in the West, moderated somewhat throughout 2009, as the financial and real markets gradually returned to stability. A gradual global trend of recovery in real economic activity started in the second half of 2009, as different economies, including that of the United States, stabilized and even resumed growth. The global recovery is attributed to a great degree to a combination of fiscal expansion programs, and continuing expansionary monetary policy that were led by the US administration, and contributed, inter alia, to positive sentiments in capital markets and an improvement in the stability of international financial institutions.

In parallel to the signs of the financial crisis that were expressed in Europe, at the beginning of the reported period, following the improvement in the business environment and the decrease in the level of uncertainty associated with the economic and financial developments worldwide, expectations were created regarding the continued recovery in most financial and real markets, along with continuing growth. However, following the debt crisis in European nations resulting from economic, social and structural problems against the background of the deficit reduction measures in these countries, coupled with the slowdown in the rate of growth of economic activity of the developing nations in eastern Asia, and especially China, as a result of the termination of government stimulus programs and various restrictive measures, there are mounting indications, toward the end of the reported period, regarding a slowdown in the pace of recovery of the global economy. In addition to the above, weaker-than-expected macroeconomic data in the United States also lend support to the indications regarding slower growth. Nevertheless, over the next several months, global economic growth is expected to continue, albeit at a more moderate pace, while relying primarily on the low interest rate and the expected change in the growth trend in eastern Asia.

The considerable volatility in global capital markets during the reported period, following concerns regarding the weakening of the global economy and against the background of the debt crisis in Europe, has been halted for the time being as capital markets begins to calm down, following the support program for the PIGS nations that was formulated by the European nations in collaboration with the International Monetary Fund.

Similar trends to those experienced in the global markets were also recorded the Israeli economy and capital market throughout the reported period. The trend of recovery that characterized most economic sectors in Israel starting with the second quarter of 2009 continued in the reported period as well, as the Israeli capital market recorded a significant increase in the prices of marketable securities, the corporate debt market began to recover and the raising of capital by the business sector resumed as well. It is doubtful however, whether this pace of recovery will continue. In the reported period, despite the continuing increase in economic activity, the economic data indicate a certain slowdown in the pace of growth over the past several months. Toward the end of the reported period, there exist indications of a slowdown in the activity of the industrial sector and export volumes on the one hand, along with continuing positive indicators regarding stability in domestic demand, on the other hand.

In May 2010, Israel was invited to join the OECD organization (Organization for Economic Co-operation and Development), a Forum of Countries which are committed to democracy and free-market economy, and is used as a platform for consolidation of policy principles and practice in fields of economy, society and environment. Membership in the OECD organization is an indication that Israel stands in the economical and regulation standards, demanded by the organization. Furthermore, Israel's membership in the OECD may affect foreign investors in their decision to invest in Israel, and might even effect on Israel's credit rate.

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.

Impact of the Business Environment on Company Operations

General

The Hadera Paper Group manages a wide and diverse portfolio of companies and businesses focused on consumer goods and basic commodities. As part of the global trend of increasing private consumption in light of the emergence from the crisis, this trend led to an increase in demand at most Group companies for a wide range of products, while continuing to place an emphasis on the implementation of efficiency and cost-cutting measures across all sectors of operation.

Sector Operations

In the packaging paper and recycling sector, the increase in demand along with the prices level worldwide, will positively impact the operations in this sector. The running-in process of Machine 8 - the new packaging paper manufacturing array - was completed at the end of May and has entered into regular operation in June. The quantitative sales of the sector have subsequently increased by approximately 120% starting in June, as compared with the preceding months, as the Packaging Paper and Recycling Sector began recognizing the revenues from the sales in June. The operation of the Machine in full capacity is expected to generate growth of approximately 70% in manufacturing capacity. This increase in output will meet the rising demand for packaging paper in both the domestic market and in export markets. These factors are expected to lead to a continuing improvement in the profitability and results of the sector. It should be noted that in the course of the running-in period, the manufactured products were sold on both local and export markets, at prevailing market prices. Regarding the capitalization of the net costs of the running-in period, see Note 5 to the financial statements dated June 30, 2010.

The proposed government legislation for regulating the treatment of packaging (2010) has passed its first reading in the Knesset last June.

The legislation is intended to regulate the treatment of packaging waste, including paper and cardboard packaging, and assigns direct responsibility on packaging manufacturers and importers, to treat the packaging of their products and to meet predetermined recycling targets, starting in 2011. The legislation is being discussed at the Knesset Economic Committee.

At this stage, it remains unclear whether the legislation will be accepted, what its final format will be and what arrangements will be determined - if any - by virtue of this bill covering the cardboard and paper sector. The company is therefore unable to estimate its impact on the operations of the companies in the Group.

In the fine paper sector, following the trend of rising pulp prices in the second half of 2009 and as a result of the emergence from the global crisis, pulp prices rose sharply during the reported period in relation to the corresponding period last year. This originated, inter alia, from damage caused by the earthquake in Chile to three plants of three different and large pulp producers that have led to delays in the provision of pulp to the global market. Subsequent to these higher prices, the sector underwent a process of raising prices, in order to compensate for this increase. The effects of these higher prices began to be expressed in the second quarter.

The reduced demand that was felt in Europe and worldwide led to surplus supply and the Company estimates that fine paper began being imported to Israel at dumping prices in 2008. In this respect, the Company has worked opposite the Dumping Supervisor in order to halt imports at these prices. On February 26, 2009, the company announced that the subsidiary Mondi Hadera Paper 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. On May 27, 2010, the Dumping Supervisor announced that subsequent to developments in the paper market and in light of information that was submitted to him, he had decided to close the investigation that was launched in February 2009, following the complaint filed by Mondi regarding imports at dumping prices from Europe. Despite the damages incurred by Mondi in the past as a result of imports at dumping prices, the company does not object to the Supervisor's decision, given the changes in the market. Mondi obviously has the right to file a new complaint in the event that it is discovered that imports at dumping prices are continuing.

In the household paper and absorbent market (through the Hogla Kimberly sector - an associated company), the level of profitability has been maintained despite the fierce competition in certain areas of activity. The operations of this sector during the reported period were characterized by special campaigns and customer retention efforts, based on the sector's considerable experience in maintaining market share. The reduced volumes of operation of certain segments were compensated by significant efficiency measures. In addition, the revaluation of the average dollar exchange rate during the reported period as compared with the corresponding period last year, served to reduce the adverse impact as a result of the higher purchasing costs in certain segments. The sector also worked to deflect and diversify the purchasing to a wide range of suppliers, in order to reduce these costs. These measures led to the ability to preserve profitability, despite the challenging business environment in this area.

Raw Materials

The Crisis in the Financial Markets

As at the date of the report, it is impossible to estimate whether the said crisis in the financial markets has indeed run its course, what are its direct and indirect economic implications globally and in Israel, and how long such implications will last, if at all.

The signs of the said crisis and the recovery there from, coupled with the fiscal crisis in the Eurozone, have affected and may continue to affect the business results of the Company and its investee companies, including an effect on their liquidity, the value of their assets, their ability to divest assets, the state of their business, their financial indicators and covenants, their credit rating, their ability to distribute dividends, ability to raise financing for their current operations and long-term plans, as well as on their financing terms.

All of the above, in relation to trends in the global market, in the paper market and in the prices of inputs and their impact on the company, the influence of the completion of the running-in period of the new manufacturing array and the approval of the company's complaint regarding imports at dumping prices - all constitute 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 crisis in global banking and credit markets, changes in global raw material prices and changes in the supply and demand of global paper products and the decisions of the Dumping Committee and relevant ministers in this respect.

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 devaluated by approximately 2.6% during the reported period, as compared with a devaluation of approximately 3.1% during the corresponding period last year.

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

An Explanation of the Results of Operation

Analysis of Operations and Profitability

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 19 to the financial statements dated December 31, 2009). 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.

1.1.

Sales

The sales of the packaging paper and recycling sector amounted to NIS 189.5 million during the reported period, and NIS 168.2 million net of inter-company sales, as compared with NIS 162.1 million, and NIS 125.1 million net of inter-company sales in the corresponding period last year.

The increase in the sales turnover in the packaging paper and recycling sector originated from the quantitative growth in the sales of the packaging paper and recycling sector as a result of the operation of Machine 8, as mentioned above, the increase in exports to Europe and the growth in the demand of the domestic market, as well as the higher selling prices as compared with the corresponding period last year.

The sales of the packaging products and cardboard sector during the reported period amounted to NIS 241.8 million, or NIS 238.1 million net of inter-company sales, as compared with NIS 243.2 million, and NIS 240.1 million net of inter-company sales, during the corresponding period last year, a decrease of approximately 0.8%, originating primarily as a result of competition in the sector and the customer retention efforts made in the sector.

The sales of the office supplies marketing sector during the reported period amounted to NIS 83.5 million, and NIS 82.9 million net of inter-company sales, as compared with NIS 69.2 million last year, and NIS 68.8 million net of inter-company sales, an increase of 20.5% that originated from the quantitative growth in sales, primarily due to having secured institutional tenders that have expanded the volume of customers in this sector.

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

The sales of the packaging paper and recycling sector, net of inter-company sales, amounted to NIS 94.7 million in the second quarter of the year, as compared with NIS 62.5 million in the corresponding quarter last year, primarily as a result of the quantitative increase in sales as a result of the continuing growth in demand due to the recovery of operations in the sector, coupled with the recognition of revenues from the sales of Machine 8 starting in June, that materially affected the growth in sales in the second quarter.

The sales of the packaging products and cardboard sector, net of inter-company sales, amounted to NIS 112.8 million in the second quarter of the year, as compared with NIS 109.3 million in the corresponding quarter last year.

Sales in the marketing of office supplies sector amounted to NIS 41.8 million in the second quarter of the year, as compared with NIS 32.3 million in the corresponding quarter last year. This increase was primarily attributed to the expansion of the company’s customer portfolio in this market, having successfully secured institutional tenders.

1.2.

Cost of Sales

The cost of sales amounted to approximately NIS 406.3 million, 83.1% of sales, during the reported period, as compared with NIS 373.2 million, 86.0% of sales, last year. The improvement in the relative ratio of the cost of sales is attributed to improved manufacturing efficiency and the utilization of the cardboard and newsprint waste inventories in light of the increased demand for packaging paper.

The gross profit totaled NIS 82.8 million during the reported period, approximately 16.9% of sales, as compared with NIS 60.8 million, 14.0% of sales, in the corresponding period last year, growth of approximately 36.2% in relation to the corresponding period last year.

The increase in gross profit in relation to the corresponding period last year is primarily attributed to the quantitative growth in sales following the initial recognition of revenues from the sales of Machine 8 in June, coupled with the recovery of the markets as mentioned above, the lowering of electricity prices by approximately 15% and the revaluation of the US dollar exchange rate, that served to lower natural gas prices by approximately 8% in relation to the corresponding period last year. These influences were offset by an increase of approximately 34% in the price of water and an increase of purchasing of raw materials, primarily pulp in approximately 35%.

Labor Wages

The labor wages within the cost of sales amounted to NIS 96.1 million during the reported period, 19.6% of sales, as compared with NIS 104.1 million last year, approximately 24.0% of sales. The decrease in labor expenses in relation to the corresponding period last year originates primarily as a result of the discounting of labor costs amounting to NIS 8.5 million associated with the running-in process of Machine 8. (See Note 5 to the financial statements dated June 30, 2010).

The labor wages within the Selling, General and Administrative expenses amounted to NIS 46.7 million during the reported period, 9.4% of sales, as compared with NIS 44.3 million last year, approximately 10.2% of sales.

The growth in the cost of labor wages in relation to the corresponding period last year originated primarily from the recording of labor wages on account of a special bonus to the retiring CEO, in line with the decision of the Board of Directors dated March 23, 2010.

1.3.

Selling, General and Administrative and other Expenses

The growth in Selling, General and Administrative and other Expenses originated primarily from the bonus granted to the retiring CEO, as mentioned above, that was offset by the recording of revenues from the sale of an asset in the amount of NIS 1.4 million. The general and administrative expenses also included an amortization of excess cost in the sum of NIS 1.5 million, on account of excess cost recorded during the acquisition of Carmel and Frenkel CD in 2008. Net of the non-recurring labor expenses and net of non-recurring revenues, the Selling General and Administrative and other expenses increased by approximately NIS 3.4 million, in relation to the corresponding period last year. The growth in expenses is attributed mainly to recording an expense on the basis of Mondi's PUT option reevaluation in the sum of NIS 2.7 million in the reported period as compared to an income in the sum of NIS 1.4 million in the corresponding period last year.

The selling, general and administrative expenses (including wages) and other expenses amounted to NIS 70.3 million in the reported period, 14.4% of sales, as compared with NIS 46.9 million – or 10.8% of sales – in the corresponding period last year. When neutralizing non-recurring revenues last year, 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 63.3 million, - approximately 14.6% of sales, in the corresponding period last year.

1.4.

Operating Profit

The operating profit of the packaging paper and recycling segment amounted to approximately NIS 10.7 million in the reported period, as compared with an operating loss of NIS 7.9 million in the corresponding period last year. The transition to an operating profit during the reported period originated primarily as a result of the quantitative growth in sales, as mentioned above.

The operating profit of the entire paper and recycling sector (including headquarters) amounted to NIS 8.0 million, as compared with operating profit of NIS 8.4 million in the corresponding period last year that included non-recurring profits, as mentioned above. It should be noted that the expenses allocated during the period to the packaging sector included non-recurring labor expenses of NIS 5.0 million, as detailed in Section 1.2, above.

The operating profit of the packaging products and board sector amounted to NIS 2.9 million in the reported period, as compared with an operating profit of NIS 4.6 million in the corresponding period last year. The decrease in the operating profit for the sector originates primarily as a result of the decrease in selling prices, despite the quantitative increase in sales in relation to the corresponding period last year.

The operating profit of the office supplies sector amounted to NIS 2.1 million during the reported period, as compared with NIS 1.2 million in the corresponding period last year.

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

The operating profit of the paper and recycling sector in the second quarter of the year amounted to NIS 5.3 million, as compared with an operating loss of NIS 5.5 million in the corresponding quarter last year, as a result of the growing sales in the sector, as mentioned above.

The operating loss of the packaging products and cardboard sector amounted to NIS 0.6 million in the second quarter of the year, as compared with operating profit of NIS 0.7 million in the corresponding quarter last year.

The operating profit of the office supplies sector amounted to NIS 0.6 million, as compared with NIS 0.2 million in the corresponding quarter last year.

1.5.

Financial Expenses

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

The interest on account of short-term credit decreased by approximately NIS 0.7 million, primarily on account of the decrease in the average credit balance over time. Interest expenses on account of long-term liabilities - debentures - increased by approximately NIS 3.0 million in relation to the corresponding period last year, primarily as a result of the cost of financing Series 3 and 4, whose discounting of financing costs for Machine 8 ended at the end of May, coupled with the issuing of bond series 5 (new series) in May.

1.6.

Taxes on Income

Tax revenues of NIS 0.4 million were recorded during the reported period, as compared with tax expenses totaling approximately NIS 4.4 million in the corresponding period last year. Net of the tax expenses as a result of recording a provision for taxes on account of events that were included in the corresponding period last year that tax revenues have decreased in relation to the corresponding period last year, as a result of a decrease in the loss for tax purposes from current operations.

1.7.

Company’s Share in Earnings of Associated Companies

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

The company’s share in the earnings of associated companies totaled NIS 40.1 million during the reported period, as compared with NIS 34.9 million in the corresponding period last year.

The following principal changes were recorded in the Company’s share in the earnings of associated companies, in relation to the corresponding period last year:

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

1.8.

The Net Income and the Earnings Per Share Attributed to the Company's Shareholders

Diluted earnings per share amounted to NIS 8.27 per share ($2.13 per share) in the reported period, as compared with NIS 6.86 per share ($1.75 per share) in the corresponding period last year.

Diluted earnings per share amounted to NIS 3.52 per share ($0.91 per share) in the second quarter of the year, as compared with earnings of NIS 3.09 per share ($0.79 per share) in the corresponding quarter last year.

Analysis of the Company’s Financial Situation

The cash and cash equivalents item rose from NIS 16.5 million on June 30, 2009, to NIS 245.9 million on June 30, 2010. The increase in cash and cash equivalents originates primarily from the issuing of bond series (series 5) in the second quarter, that was invested in NIS deposits and is serving to finance the company's current operations.

Designated Deposits decreased from NIS 96.9 million as at June 30, 2009, to NIS 10.6 million as at June 30, 2010. The decrease in deposits originates as a result of the use of the deposit funds for the construction of Machine 8, between the reported periods. The remaining deposits are intended to serve for making the remaining payments for equipment and fixed assets associated with the Machine 8 project.

Trade receivables relating to the packaging paper and recycling segment increased from NIS 71.7 million as at June 30, 2009, to NIS 108.1 million as at June 30, 2010. This increase is attributed to a quantitative growth in operations in both the domestic market and in export markets. In the packaging products and cardboard sector, an increase was recorded in trade receivables, from NIS 177.7 million on June 30, 2009, to NIS 179.2 million on June 30, 2010, despite the slight decrease in sales in this sector, as a result of an increase in the days of credit in some of the segments of operation in the sector. Trade receivables for the office supplies marketing sector rose from NIS 44.6 million as at June 30, 2009, to NIS 55.5 million, as at June 30, 2010, as a result of growth in the volume of operations.

Other receivables relating to the packaging paper and recycling segment decreased from NIS 91.3 million as at June 30, 2009, to NIS 87.9 million as at June 30, 2010. This decrease originates primarily from the decrease in credit/debit balances at associated companies. Other receivables relating to the packaging products and board sector increased from NIS 2.8 million as at June 30, 2009, to approximately NIS 3.4 million as at June 30, 2010. In the office supplies marketing segment, the Other Accounts Receivable item increased from NIS 2.7 million on June 30, 2009, to NIS 4.4 million on June 30, 2010, primarily as a result of the increase in supplier advances.

Inventories of the packaging paper and recycling segment increased from NIS 78.3 million as at June 30, 2009 to NIS 84.2 million as at June 30, 2010. This increase is primarily attributed to the increase in the finished goods inventories and the continuing development of export markets in preparation for the availability of paper for international shipment, as well as a result of the increase of the spare parts and maintenance products inventories following the full operation of the new packaging paper machine, subsequent to the end of its running-in period. Inventories of the packaging products and board sector increased from NIS 67.7 million as at June 30, 2009, to NIS 81.9 million as at June 30, 2010. The increase originated primarily as a result of preparations for making orders in the second half of the year, as part of the inventory management and dating process. A slight increase was recorded in the inventories item of the office supplies marketing sector, from NIS 23.0 million on June 30, 2009, to NIS 25.1 million on June 30, 2010, primarily as a result of the wider deployment of inventory entrances imported from the Far East.

Investments in associated companies increased from NIS 318.5 million on June 30, 2009 to NIS 349.2 million on June 30, 2010. The principal components of the said increase consist primarily of the company's share in the earnings of associated companies in the amount of NIS 92.3 million between the reported periods, offset by the company's share in distributed dividend in the sum of NIS 39.4 million from an associated company and the company's share in the declared dividend of NIS 20.0 million by an associated company, which led to a change in the total investment between the reported periods.

Short-term credit decreased from NIS 114.8 million on June 30, 2009 to NIS 74.1 million on June 30, 2010. The decrease in this item originates primarily as a result of the repayment of credit following the issuing of bond series (series 5), while raising NIS 181.5 million from institutional entities and from the public during the second quarter.

In the other accounts payable item in the packaging paper and recycling sector, an increase was recorded from NIS 88.1 million on June 30, 2009, to NIS 88.9 million on June 30, 2010. This increase is primarily attributed to an increase in the interest to be paid as a result of additional long-term loans and the Series 5 bonds that were assumed by the sector between the reported periods for the purpose of financing Machine 8, offset by the decrease in wage provisions. Other accounts payable of the packaging products and board sector decreased from NIS 15.8 million as at June 30, 2009, to NIS 13.9 million as at June 30, 2010. In the office supplies marketing segment, the Other Accounts Payable item decreased from NIS 4.9 million on June 30, 2009, to NIS 4.6 million on June 30, 2010.

The company’s shareholders' equity increased from NIS 801.5 million as at June 30, 2009 to NIS 901.7 million as at June 30, 2010. This change originated primarily from the net profit attributed to the company's shareholders between the periods, in the sum of NIS 98.8 million.

Investments in Fixed Assets

Investments in fixed assets amounted to approximately NIS 115.2 million in the reported period, as compared with NIS 219.9 million in the corresponding period last year. The investments in the reported period consisted primarily of payments on account of purchasing from equipment vendors for the new packaging paper manufacturing network (Machine 8), in the sum of NIS 92.6 million (including a decrease of NIS 10.6 million in supplier credit). The outstanding investment in Machine 8, true to June 30, 2010, amounts to NIS 698.8 million. 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.

Regarding the examination of the need for impairment of fixed assets during the reported period, see Note 5b to the financial statements dated June 30, 2010, along with Note 4c(5) to the financial statements dated December 31, 2009.

Financial Liabilities

The long-term liabilities (including current maturities) amounted to NIS 1,079.3 million as at June 30, 2010, as compared with NIS 733.0 million as at June 30, 2009. The long-term liabilities have increased in relation to last year primarily as a result of the issuing of a NIS-denominated bond series (Series 5) in the amount of NIS 181.5 million in the second quarter (see Note 4e to the financial statements dated June 30, 2010), coupled with the assumption of long-term loans intended to finance the payments for Machine 8. This increase was offset as a result of the repayment of the older debenture series, coupled with the cash flows from operating activities.

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

Series 2 – NIS 132.2 million, for repayment until 2013.

Series 3 – NIS 198.6 million, for repayment until 2018.

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

Series 5 – NIS 181.5 million, for repayment until 2017.

Long-term loans – NIS 332.4 million.

The balance of short-term credit, as at June 30, 2010, amounted to NIS 74.1 million, as compared with NIS 114.8 million as at June 30, 2009.

The net debt, as at June 30, 2010, net of the deposits and cash balance, amounted to NIS 897.0 million, as compared with net debt of NIS 734.4 million as at June 30, 2009.

In February 2010 the Committee for determining the parameters for institutional entities that allocate credit by acquiring non-governmental debentures (The Hodak Committee – hereinafter "The Committee"), which was appointed by the Commissioner of capital markets, insurance and savings in the Ministry of Finance ("the commissioner"), published a final report of its conclusions and recommendation. In July 2010 the commissioner published a communication that implements the Committee's recommendations including, inter alia, instructions regarding internal processes in an institutional entity before investing in debentures, regarding information necessary for an institutional entity to examine an investment in debentures and to make a current follow-up on them, regarding mechanisms for cooperation between the institutional entities in certain subjects regarding investment in debentures, regarding instruction needed to be included in the debentures documentations as a condition for institutional entities investment in them and regarding obligating institutional entities to determine investment policy in debentures (including regarding the rights of immediate repayment included in the debentures), regarding the debentures and the different issuers characteristics.

The Commissioner's communication and the way its instructions will be implemented may have implications regarding capital raising via debentures by institutional entities, including the conditions and price for the said capital raising.

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 5.b(3) to the annual financial statements dated December 31, 2009.

The liability on account of the Put option to the shareholder at the associated company as at June 30, 2010, June 30, 2009, and as at December 31, 2009, amounts to approximately NIS 14.0 million, approximately NIS 12.6 million and approximately NIS 12.0 million, respectively.

On account of the Put option, other expenses of NIS 2.0 million were recorded during the reported period, as compared with other incomes of NIS 1.3 million in the corresponding period last year.

The principal factors responsible for the change in fair value during the reported period include the change in the value of the base asset in dollar terms and in the risk-free interest rate that serves for calculating the value of the option.

Liquidity

Cash Flows

The cash flows from operating activities totaled NIS 63.3 million during the reported period, as compared with NIS 89.3 million in the corresponding period last year. The decrease in the cash flows from operating activities during the reported period, as compared with the corresponding period last year, despite the higher profitability, is primarily attributed to the increase in working capital during the reported period in relation to last year, that amounted to approximately NIS 17.7 million, as compared with a decrease of approximately NIS 17.5 million in the corresponding period last year. The increase in working capital during the reported period is primarily attributed to the increase in inventories and the growth in accounts receivable.

The company possesses positive cash flows from operating activities, according to its interim consolidated financial statements dated June 30, 2010. However, the company's ongoing cash flows from operating activities in its separate financial statements, according to Regulation 38D of the Reporting Regulations ("Separate Financial Statements"), are negative. In light of the above, the company's Board of Directors conducted a discussion during its meeting on August 8, 2010, of Regulation 10(b)(14) to the Securities Regulations (Periodical and Immediate Reports) - 1970 ("Reporting Regulations") and determined that the ongoing negative cash flows from operating activities in the separate financial statements as at June 30, 2010, does not indicate a liquidity problem on the part of the company. This determination is based on an examination of the expected cash flows of the company and on the company's ability to raise additional credit, on the basis of an economic calculation performed by the company, and after having been presented to the Board of Directors and having the report of cash flows that is included in the company's separate financial statements discussed by the Board.

The data that served the Board of Directors as a basis for its estimation included the expected cash flows of the company for the next two years, based on the balance of cash and deposits as at the date of the report, totaling NIS 226.7 million held by the company, the expected repayment of bonds issued by the company - including interest - in the sum of approximately NIS 138 million in the coming year (approximately NIS 132 million in the following year), repayment of loans plus interest totaling approximately NIS 94 million in the coming year (approximately NIS 57 million in the following year), as well as the company's estimations regarding the cash flows from revenues from operating activities, cash flows from dividends and the repayment of loans from investee companies, as well as the realization of real estate assets totaling approximately NIS 236 million in the coming year (approximately NIS 152 million in the following year). In addition to the above, the company is able to raise additional credit in the total sum of approximately NIS 285 million, also by way of recycling existing bank credit, for its continued operating activities and for making investments.

The information appearing above, including the expected cash flows, is based on the estimates, forecasts and plans of the company, according to the best of its knowledge and understanding regarding its operations and according to the data at its disposal as at the date of this report and which constitutes forward-looking information as defined in the Securities Law - 1968, whose materialization is not certain and whose realization is not exclusively under the control of the company. Consequently, there is no certainty that the data and/or estimates and/or forecasts and/or plans will materialize, in whole or in part, and they may materialize in a manner that is materially different than anticipated, inter alia, on account of the dependence upon external and macro-economic factors that are not subject to the control of the company, including changes in the business and defense environment, coupled with the materialization of any of the risk factors affecting the company.

Details of the Various Operations

Hogla-Kimberly (Household Products)

The sales turnover of Hogla-Kimberly Israel amounted to approximately NIS 612.1 million in the reported period, as compared with approximately NIS 626.0 million in the corresponding period last year, a decrease of 2.2%.

The decrease in sales in relation to the corresponding period last year is primarily attributed to the erosion of prices as a result of escalating competition in the market.

The operating profit of Hogla-Kimberly Israel amounted to approximately NIS 100.2 million in the reported period, as compared with approximately NIS 102.3 million in the corresponding period last year.

The decrease in the operating profit in relation to the preceding year is attributed to the erosion of prices as a result of the escalating competition in the market, coupled with the rise in the prices of the principal raw materials, that was partially offset by efficiency measures that were implemented by the company, as well as of the decrease in the average US dollar exchange rate vis-à-vis the NIS, by a rate of approximately 7.4%, in relation to the corresponding period last year.

The operating profit in the second quarter of the year amounted to NIS 49.8 million, as compared with NIS 54.4 million in the corresponding quarter last year and as compared with NIS 50.4 million in the first quarter of the year, as a result of the erosion of prices in the sector, as mentioned above.

The sales turnover of KCTR, Hogla-Kimberly’s subsidiary operating in Turkey, amounted to approximately NIS 248.9 million (approximately $67.2 million) in the reported period, as compared with approximately NIS 262.8 million (approximately $63.5 million) in the corresponding period last year.

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 in the reported period and to bring about the enhancement of the Huggies and Kotex brands.

KCTR recorded an operating loss of approximately NIS 6.9 million (approximately $1.8 million) in the reported period, as compared with NIS 14.1 million (approximately $3.5 million) in the corresponding period last year.

in addition, it should be noted that toward the end of 2009, the Turkish tax authorities addressed KCTR as part of the examination of its financial statements for the years 2004-2008, conducted at KCTR on account of the taxation of the influx of capital from Hogla Kimberly Ltd. to KCTR. KCTR estimates, on the basis of the opinion of its legal and tax consultants, that the probability that it will be eligible for an additional tax payment is low. Consequently, it has created a provision in its June 30, 2010 financial statements in the amount of €0.3 million, to cover the anticipated legal fees in accordance with the progress in the handling of the lawsuit. (See also Note 13.L to the financial statements dated December 31, 2009).

The required funds for financing the strategic program in Turkey and for financing the current operations and investments, originate primarily from internal resources of Hogla Kimberly. (No investment was made in KCTR in 2010). In early 2008, KCTR repaid the balance of outstanding loans that it still had with the banks, amounting to $25 million. Consequently, KCTR incurred no financial expenses this year, leading to an additional reduction of the net loss.

Mondi Hadera Paper (Mondi Hadera – Fine Paper)

The sales of fine paper amounted to 88.3 thousand tons in the reported period, as compared with 92.3 thousand tons in the corresponding period last year, representing a decrease of 4.3%. Sales amounted to 42.9 thousand tons in the second quarter, as compared with 43.7 thousand tons in the second quarter last year and as compared with 45.4 thousand tons in the first quarter of 2010.

The sales turnover of fine paper amounted to NIS 357.5 million in the reported period, as compared with NIS 343.6 million in the corresponding period last year, representing an increase of 4%. The sales turnover of fine paper in the second quarter of 2010 amounted to NIS 184.8 million, as compared with NIS 161.6 million in the corresponding period last year, representing an increase of 14.3%, and as compared with NIS 172.7 million in the first quarter of 2010, representing an increase of 7%.

The decrease in the sold quantity originates primarily from the decrease in sales to export markets, that was offset by growth in sales to the domestic market. Pulp prices soared during the reported period in relation to the corresponding period last year, inter alia as a result of the damage of the earthquake in Chile, which harmed three production plants of large pulp suppliers, thereby leading to delays in the provision of pulp to the global market. Subsequent to these higher prices, the entire sector underwent a process of raising prices, in order to compensate for this increase. The said increase in selling prices during the second quarter of the year served to reduce the impact of the decrease in the quantities sold.

The operating profit of Mondi Hadera amounted to NIS 23.2 million in the reported period, as compared with an operating profit of NIS 15.9 million in the corresponding period last year. In the second quarter of 2010, the company’s operating profit amounted to NIS 14.6 million, as compared with an operating profit of NIS 10.5 million in the corresponding quarter last year and as compared with operating profit of NIS 8.6 million in the first quarter of 2010.

The steep rise in pulp prices continued in the second quarter of 2010, as prices rose by approximately 62% (in US dollar terms - the purchasing currency), in relation to the corresponding quarter last year and by approximately 14.5% in relation to the first quarter of the year.

The increase in the operating profit in relation to the corresponding period last year, despite the aforementioned sharp rise in pulp prices, is attributed to the high manufacturing efficiency in the production of paper and the low energy consumption during the reported period, the rise in selling prices and the change in the mix of export markets during the reported period, coupled with the improved gross margin of the sale of purchased paper.

Carmel Container Systems - Packaging and Board Products

The aggregate sales turnover of Carmel, including the sales of Frenkel CD, amounted to NIS 242.8 million during the first half of 2010, as compared with NIS 243.7 million in the corresponding period last year, representing a decrease of -0.4%.

During the reported period, the consolidated sales turnover of Carmel Container Systems Ltd. amounted to NIS 189.0 million, as compared with NIS 196.1 million in the corresponding period last year, representing a decrease of 3.6%.

The decrease in the sales turnover, despite the quantitative increase in sales in relation to the corresponding period last year, originates primarily from the 7% decrease in the selling prices during the reported period, in relation to the corresponding period last year, following the fierce competition in the sector, coupled with the decrease in the prices of brown paper last year, which constitutes a principal input in production. This trend began to reverse itself in the second quarter of the year, as selling prices began to climb. This was offset by an increase in raw material prices.

The consolidated operating profit of Carmel amounted to NIS 1.6 million in the reported period, as compared with an operating profit of NIS 4.8 million in the corresponding period last year. The decrease in the operating profit is primarily attributed to the eroded margin of the sector as a result of the decrease in selling prices on the one hand, coupled with the higher prices of raw materials on the other hand, along with the eroded profitability of Triwall, a subsidiary company.

The aggregate operating profit of Carmel (including Frenkel CD) amounted to NIS 2.9 million in the reported period, as compared with an operating profit of NIS 4.6 million in the corresponding period last year.

Packaging Paper and Recycling

The sales turnover of the Packaging Paper and Recycling Division amounted to NIS 189.5 million in the reported period, as compared with NIS 162.2 million in the corresponding period last year, representing an increase of approximately 16.8%.

The quantitative sales of packaging paper amounted to 119.9 thousand tons during the reported period, as compared with 66.3 thousand tons in the corresponding period last year. Out of the sales during the reported period, approximately 50,000 tons were discounted as part of the running-in of Machine 8. The running-in process was completed on May 31, 2010.

The increase in the sales turnover originated partially from the quantitative increase in sales, of both packaging paper and at Amnir, coupled with the rise in the selling prices during the reported period. It should nevertheless be noted that the quantitative increase in sales was recorded primarily to export markets, where higher prices were recorded, that were partially offset by the revaluation of the NIS against the average exchange rate of the euro between the reported periods. The increase in prices is expected to positively affect the results of the division during 2010.

The operating profit totaled NIS 10.7 million during the reported period, as compared with an operating loss of NIS 7.9 million in the corresponding period last year. The cost of operating Machine 8, up to May 31, 2010, were discounted as part of the running-in expenses during the reported period.

The improvement in the operating profit during the reported period, as compared with the corresponding period last year, originated primarily from the quantitative increase in sales as a result of the completion of the running-in of the machine and the recognition of sales made during June, in addition to the increase in sales to export markets and the raising of selling prices. As Machine 8 enters into regular operation, starting in June of this year, the increase in the sold quantities is expected to be fully expressed in the second half of 2010.

Graffiti - Office Supplies Marketing

Graffiti's sales turnover during the reported period amounted to NIS 83.6 million as compared with NIS 69.2 million in the corresponding period last year, representing an increase of 20.8%.

During the reported period, Graffiti recorded an operating profit of NIS 2.4 million, as compared with an operating profit of NIS 1.7 million in the corresponding period last year, representing an increase of 41.1%. The increase in the operating profit during the reported period originated primarily from the increase in sales attributed to having secured tenders from institutional bodies, coupled with an expansion of the range of company products along with the decrease in General and Administrative Expenses, and efficiency measures and savings in purchasing.

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:

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 cut operating costs, while enabling continued growth in sales and profit.

Graffiti has successfully assimilated and implemented the Hadera Paper information systems during the reported period. This will allow the company to record accelerated growth and earnings while improving customer service, as modern systems and infrastructure are implemented at the new distribution center.

Exposure and Management of Market Risks

General

The Company conducts periodical discussions regarding market risks and exposure to exchange rate and interest rate fluctuations, with the participation of the relevant elements, 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.

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 June 30, 2010, the Company entered into hedging transactions in the sum of €6.5 million, 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 net long-term loans, in the total sum of NIS 315.6 million.

In early 2010, 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 30 million, pursuant to previous transactions that were made in early 2009 and terminated at the end of 2009.

The company continues to regularly monitor quoted prices for hedging its exposure and in the event that these will be reasonable, the company will enter into the relevant hedging transactions.

The company also enjoys partial 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 credit 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.

Sensitivity Analysis Tables for Sensitive Instruments, According to Changes in Market Elements as at June 30, 2010:

Sensitivity to Interest Rates
Sensitive Instruments	Profit (loss) from changes						Fair value as at Jun-30-10			Profit (loss) from changes
	Interest rise 10%			Interest rise 5%			Fair value as at Jun-30-10			Interest decrease 5%			Interest decrease 10%
In NIS thousands
Debentures - Series 2		1,010			507			(139,952	)		(510	)		(1,024	)
Debentures - Series 3		2,836			1,427			(212,140	)		(1,444	)		(2,907	)
Debentures - Series 4		2,286			1,148			(262,948	)		(1,158	)		(2,326	)
Debentures - Series 5		3,569			1,796			(199,050	)		(1,818	)		(3,659	)
Loan A - fixed interest		108			54			(19,687	)		(55	)		(109	)
Loan B - fixed interest		1,329			668			(105,747	)		(675	)		(1,358	)
Loan C - fixed interest		156			78			(22,003	)		(79	)		(158	)
Long-term loans and capital notes – granted		(199	)		(100	)		52,001			100			201

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 2010).

Regarding the terms of the debentures and other liabilities – See Note 9 to the annual financial statements dated December 31, 2009.

Regarding long-term loans and capital notes granted - See Note 5 to the annual financial statements dated December 31, 2009.

Sensitivity of euro-linked instruments to changes in the euro exchange rate
Sensitive Instruments	Profit (loss) from changes						Fair value as at Jun-30-10			Profit (loss) from changes
	Rise in € 10%			Rise in € 5%			Fair value as at Jun-30-10			Decrease in € 5%			Decrease in € 10%
In NIS thousands
Cash and cash equivalents		1,559			779			15,589			(779	)		(1,559	)
Designated deposits		1,058			529			10,576			(529	)		(1,058	)
Other Accounts Receivable		824			412			7,992			(412	)		(824	)
Other Accounts Payable		(5,127	)		(2,563	)		(51,266	)		2,563			5,127
Forward		3,330			1,784			251			(1,308	)		(2,855	)

Sensitivity to the US Dollar Exchange Rate
Sensitive Instruments	Profit (loss) from changes						Fair value as at Jun-30-10			Profit (loss) from changes
	Revaluation of $ 10%			Revaluation of $ 5%			Fair value as at Jun-30-10			Devaluation of $ 5%			Devaluation of $ 10%
In NIS thousands
Cash and cash equivalents		2,079			1,040			20,791			(1,040	)		(2,079	)
Other Accounts Receivable		2,158			1,079			21,576			(1,079	)		(2,158	)
Other Accounts Payable		(3,637	)		(1,819	)		(36,372	)		1,819			3,637
Liabilities at fair value through the statement of income		(1,403	)		(701	)		(14,028	)		701			1,403

Other accounts receivable reflect primarily short-term customer debts

Sensitivity Analysis Tables for Sensitive Instruments, According to Changes in Market Elements as at June 30, 2010:

Sensitivity to the Consumer Price Index
Sensitive Instruments	Profit (loss) from changes						Fair value as at Jun-30-10			Profit (loss) from changes
	Rise in CPI 2%			Rise in CPI 1%			Fair value as at Jun-30-10			Decrease in CPI 1%			Decrease in CPI 2%
In NIS thousands
NIS-CPI forward transactions		600			300			(492	)		(300	)		(600	)
Bonds 2		(4,243	)		(2,121	)		(212,140	)		2,121			4,243
Bonds 3		(2,799	)		(1,400	)		(139,952	)		1,400			2,799
Other receivables		42			21			2,119			(21	)		(42	)

See Note 17c to the financial statements dated December 31, 2009.

Sensitivity to the exchange rate of the yen
Sensitive Instruments	Profit (loss) from changes						Fair value as at Jun-30-10			Profit (loss) from changes
	Rise in the yen 10%			Rise in the yen 5%			Fair value as at Jun-30-10			Decrease in the yen 5%		Decrease in the yen 10%
In NIS thousands
Accounts Payable		(409	)		(205	)		(4,094	)		205		409

Linkage Base Report

Below are the balance sheet items, according to linkage bases, as at Jun-30-10:

In NIS millions	Unlinked			CPI-linked			In foreign currency, or linked thereto (primarily US$)			€-linked			Non-Monetary Items		Total
Assets
Cash and cash equivalents		209.5						20.8			15.6					245.9
Short-term deposits and investments											10.6					10.6
Other Accounts Receivable		403.0			2.1			22.2			8.2			3.0		438.5
Inventories														191.2		191.2
Investments in Associated Companies		18.8			36.7									293.7		349.2
Deferred taxes on income														31.6		31.6
Fixed assets, net														1,205.0		1,205.0
Investment property (real estate)														24.3		24.3
Intangible Assets														25.2		25.2
Land under lease														25.1		25.1
Other assets														2.1		2.1
Assets on account of employee benefits		0.7														0.7
Total Assets		632.0			38.8			43.0			34.4			1,801.2		2,549.4
Liabilities
Short-term credit from banks		74.1														74.1
Other Accounts Payable		287.6						40.5			51.3					379.4
Current tax liabilities		5.8														5.8
Deferred taxes on income														58.3		58.3
Long-Term Loans		309.4			22.9											332.3
Notes (debentures) – including current maturities		415.5			331.5											747.0
Liabilities on account of employee benefits		36.8														36.8
Liabilities at fair value through the statement of income								14.0								14.0
Shareholders’ equity, reserves and retained earnings														901.7		901.7
Total liabilities and equity		1,129.2			354.4			54.5			51.3			960.0		2,549.4
Surplus financial assets (liabilities) as at Jun-30-2010		(497.2	)		(315.6	)		(11.5	)		(16.9	)		841.2		0.0
Surplus financial assets (liabilities) as at Dec-31-2009		(375.5	)		(318.4	)		(37.1	)		(41.6	)		772.6		0.0

* As to hedging transactions associated with surplus CPI-linked liabilities, see Section E(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.

Hadera Paper is also exposed to tax related issues at KCTR, as detailed in Note 13L to the financial statements dated December 31, 2009.

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.

Corporate Governance Issues

Internal Auditing - SOX

By virtue of being a company whose shares are publicly traded in the United States, the company is subject to "Sarbanes Oxley" (SOX) in its entirety, including Section 302 (proper disclosure and evaluation of controls in the organization), Section 404 (Management Assessment of Internal Controls) and Section 906 (Criminal responsibility for breach of this section). The main points of the law have to do with increasing reporting and disclosure, the authorities and duties of the Audit Committee, manager responsibilities, enforcement, sanctions and penalties and increasing the independence from external accountants. The controls instigated by the company for the implementation of the law are regularly inspected by the company's auditing team and by the external accountant. Since 2007, with the introduction of the directives of the said law in the United States, the company is complying with the demands of the law.

We note that on February 16, 2010, the Securities and Exchange Commission (SEC) authorized the company's requests that its reports regarding the effectiveness of internal control be made in the format prescribed by law, by virtue of its being listed for trade on AMEX, i.e.- the SOX regulations in the United States that apply to the company as mentioned above, subject to the company having undertaken to examine, once every quarter, its compliance with the terms described in its application to the SEC, including any change in the directives of the law in Israel and in the United States, in the status of the company as it relates to these laws, changes in the implementation of the SOX regulations and any other change that may affect the disclosure provided by the company.

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 - Ofer Bloch, 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.

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.

Procedure for Classifying Transactions as Negligible

On March 8, 2009, the Company's Board of Directors resolved to adopt rules and guidelines for categorizing a transaction of the Company or of one of its consolidated subsidiaries, with a controlling shareholder as a negligible transaction as set forth in Regulation 41(a)(6) of the Securities Regulations (Preparation of Annual Financial Statements), 2010 ("Financial Statements Regulations"). These rules and guidelines shall also serve to examine the extent of disclosure in the periodical report and the prospectus ( including shelf prospectus reports) regarding a transaction of the company, Corporation under its control and any related company, with a controlling shareholder, or in whose approval a controlling shareholder possesses a personal interest, as set forth in Regulation 22 of the Securities Regulations (Periodic and Immediate Reports) -1970 ("Periodic Report Regulations") and in Regulation 54 of the Securities Regulations (Prospectus Details and Prospectus Draft - Form and Shape) - 1969, as well as for the purpose of submitting an immediate report regarding a said transaction of the company, as stipulated in Regulation 37(a)(6) of the Periodic Report Regulations (the types of transactions determined in the Financial Statements Regulations, Periodical Statements Regulations and in the Prospectus Details Regulations mentioned above, hereinafter: "Related Party Transactions"). On August 8, 2010, the Company's Board of Directors decided to update the rules and guidelines for the classification of an interested party transaction as a negligible transaction for the purposes described above, as follows:

The Company and its associated and related companies, are conducting or may conduct interested-party transactions in the course of their normal state of affairs, and they possess or may possess undertakings to conduct such transactions, including transactions of the type and possessing the characteristics outlined below: Obtaining banking, financial and/or economic services (such as: portfolio management, investment consulting, managing funds provided for the employees, deposits) from a banking corporation and financial institutions; purchasing insurance policies (such as: Managers liability insurance, property insurance and managers insurance); sale and purchase of products and services (such as: Communication products and services, Call Center services, food products, office supplies, paper and cardboard products, clothing, textile, hygiene products, complementary products for cleaning and kitchen use and pesticides); sale and purchase of gifts and gift certificates; purchase and/or rental and/or operational leasing of vehicles; purchase of commercial vehicles, trucks and generators; purchase of travel, flights and tourism services in Israel and overseas and conference and event planning services; legal services; purchasing; rental of real estate property; property management services; vehicle repair services; transportation and courier services, packaging and export services; archive services, warehouse management services and logistic services; administrative services; underwriting engagements; irrigation and pest control services, shredding and waste treatment; rental of advertising space; supply of newspapers, magazines and periodicals.

In the absence of any special qualitative considerations arising from the circumstances, a transaction with an interested party shall be deemed negligible if it is not an exceptional transaction (as defined in the Companies Law) for the purposes outlined above, if the applicable benchmark calculated for the transaction is less than 0.5% and the volume of the transaction does not exceed NIS 8 million (with this sum being adjusted according to the rise, from time to time, in the consumer price index, in relation to the Known Index starting at the beginning of 2010).

In any interested party transaction classified as a negligible transaction, one or more of the criterions relevant to the specific transaction will be calculated based on the consolidated audited or reviewed financial statements of the Company: (a) The sales ratio – total sales in the interested party's transaction divided by total annual sales; (b) Sales cost ratio – the cost of the interested party's transaction divided by the total cost of annual sales; (c) Profit ratio – the actual or forecasted profit or loss attributed to the interested party's transaction divided by the average annual profit or loss in the last three years, based on the last 12 quarters for which reviewed or audited financial statements were published; (d) Assets ratio – the total volume of assets in the interested party's transaction divided by total assets; (e) Liabilities ratio – the liabilities in the interested party's transaction divided by total liabilities; (f) Operating costs ratio - the volume of the expenditure that is the subject of the interested party transaction divided by the total annual operating expenditures. For example, in an insurance transaction of several years, the annual paid insurance fees shall be considered as the volume of the transaction. In cases where, at the Company's discretion, all the aforementioned quantitative benchmarks are not applicable for evaluation of the negligibility of the transaction with an interested party, the transaction shall be deemed negligible, in accordance with another applicable benchmark to be determined by the Company, provided that the applicable benchmark calculated for said transaction is less than 0.5% and that the volume of the transaction shall not exceed NIS 8 million (with this sum being adjusted according to the rise, from time to time, of the consumer price index in relation to the Known Index since the beginning of 2010).

The consideration of the quantitative benchmarks of an interested-party transaction may lead to the classification of the transaction as a transaction that is not negligible despite the aforesaid. Thus - and only as an example - a transaction with an interested party shall not usually be deemed negligible if it is conceived as a significant event by the Company's management, and if it serves as a basis for making managerial decisions, or if in the course of the transaction with an interested party, the latter is expected to receive benefits which are important to disclose publicly.

Separate interested-party transactions that are in fact interconnected and that are in fact part of the same engagement (for example: conducting negotiations regarding the entirety of the transactions), shall be examined as a single transaction.

An interested-party transaction that was classified as negligible by an investee company of the Company, shall also be considered negligible at the parent company level. A transaction that was classified by the investee company as a transaction that is not negligible, shall be examined against the relevant benchmarks at the parent company level.

The Audit Committee of the Company shall annually review the manner of implementation of the instructions in this procedure by the Company, and will conduct sample examinations of interested-party transactions to which the company is a party directly, that were classified is negligible transactions according to the procedural instructions. As part of the sample examinations of the said transactions, the Audit Committee shall examine, inter alia, the manner by which the prices and other terms of the transaction were determined, as the circumstances may be, and will analyze the impact of the transaction on the business situation of the company and the results of its operations. The operations of the Audit Committee as stated in this section, including the sample examination mentioned above, the manner of its implementation and the summarized results and conclusions, shall be disclosed in the periodical report of the company.

The Company's Board of Directors shall examine the need to update the instructions of this procedure from time to time, while taking into consideration the interest-party transactions undertaken by the company and the relevant changes in the legislation.

Disclosure Directives Related to the Financial Reporting of the Corporation

Events Subsequent to the Balance Sheet Date

For details regarding events that occurred subsequent to the balance sheet date, see Note 8 to the financial statements dated June 30, 2010.

Dedicated Disclosure to Debenture Holders

For details regarding the rating of debentures, see Note 15 to the periodical report for the year 2009. On May 10, 2010, Standard & Poor's Maalot ratified the Company's ilA+ rating. The rating is negative outlook. The said rating report is attached as an appendix to the management discussion.

Sources of Finance

See Section B4 - Financial Liabilities and further details in the table below.

Debentures for institutional investors and the public

Series	Issue Date	Name of Rating Company	Rating at time of issue and at report date	Total stated value at issue date	Interest type	Stated Interest	Registered for trade on stock exchange (Yes/No)	Interest payment dates	Nominal par value as at Jun-30-10	Book value of debenture balances as at Jun-30-10	Book value of interest to be paid as at Jun-30-10	Fair value as at Jun-30-10
In NIS millions
Series 2	12.2003	Maalot	A+	200,000,000	Fixed	5.65%	No	Annual interest On December 21 In the years 2004-2013	114.3	132.2	3.9	139.9
Series 3	7.2008	Maalot	A+	187,500,000	Fixed	4.65%	Yes	Annual interest On July 10 In the years 2009-2018	187.5	198.6	9.0	212.1
Series 4	7-8.2008	Maalot	A+	235,557,000	Fixed	7.45%	Yes	Semi-annual interest On January 10 and July 10 In the years 2009-2015	235.6	235.6	8.2	262.9
Series 5	5.2010	Maalot	A+	181,519,000	Fixed	5.85%	Yes	Semi-annual interest On November 30 and May 31 of the years 2010-2017	181.5	181.5	1.1	199.1

Comments:

Series 2 - Linked to the Consumer Price Index (CPI). Principal repaid in 7 annual installments, between Dec-21-2007 and Dec-21-2013.

Series 3 - Linked to the Consumer Price Index (CPI). Principal repaid in 9 annual installments, between July 2010 and July 2018.

Series 4 - Principal repaid in 6 annual installments, between July 2010 and July 2015.

Series 5 - Principal repaid in 5 annual installments, between November 2013 and November 2017.

The trustee of the debentures (Series 2) is Bank Leumi Le-Israel Trust Corporation Ltd. The responsible contact person on behalf of Bank Leumi Le-Israel Trust Corporation Ltd. is Ms. Idit Teuzer (telephone: 03-5170777).

The trustee of the public debentures (Series 3, 4) is Hermetic Trust Corporation (1975) Ltd. The responsible contact people on behalf of Hermetic Trust Corporation (1975) Ltd. are Mr. Dan Avnon and/or Ms. Merav Ofer-Oren (telephone: 03-5272272).

The trustee of the public debentures (Series 5) is Strauss Lazar Trust Corporation (1992) Ltd. The responsible contact person at Strauss Lazar Trust Corporation (1992) Ltd. in the matter of the public debentures is Mr. Uri Lazar (telephone: 03-6237777).

As at the date of the report, the Company has met all of the terms and undertakings of the trust notes and there exist no terms that constitute just cause for demanding the immediate repayment of the debentures.


Zvika Livnat Chairman of the Board of Directors		Ofer Bloch CEO

Exhibit 3

HADERA PAPER LTD

UNAUDITED CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

AS OF JUNE 30, 2010

HADERA PAPER LTD

UNAUDITED CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

AS OF JUNE 30, 2010

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-20

HADERA PAPER LTD

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(NIS in thousands)

		June 30				December 31
	Note	2010		2009		2009
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents			245,875		16,530		26,261
Designated deposits			10,576		96,862		127,600
Accounts receivable:
Trade receivables			342,780		293,993		323,882
Other receivables			95,730		96,831		98,897
Current tax assets			-		65		-
Inventory			191,178		169,014		175,944
Total Current Assets			886,139		673,295		752,584

Non-Current Assets
Fixed assets, net	5		1,204,982		* 1,021,679		* 1,134,234
Investments in associated companies			349,249		318,509		340,975
Deferred tax assets			31,585		31,481		29,745
Prepaid expenses in respect of an operating lease			25,091		* 30,225		* 29,756
Other intangible assets			25,188		29,011		27,084
Investment property	C2		24,349		-		-
Other assets			2,076		2,549		1,298
Employee benefit assets			705		705		649
Total Non-Current Assets			1,663,225		1,434,159		1,563,741

Total Assets			2,549,364		2,107,454		2,316,325

* Retroactively adjusted in respect of implementation of amendment to IAS 17, see note 3a.

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)

	June 30				December 31
	2010		2009		2009
	(Unaudited)
Liabilities and Equity
Current Liabilities
Credit from banks and others		74,101		114,769		131,572
Current maturities of long-term bonds and long term loans		160,224		69,636		149,940
Trade payables		271,941		222,940		255,895
Account payables and accrued expenses		107,436		108,824		112,745
Short term employee benefit liabilities		21,354		20,382		22,421
Financial liability at fair value through profit and loss		14,028		12,553		11,982
Current tax liabilities		5,777		-		2,760
Total Current Liabilities		654,861		549,104		687,315

Non-Current Liabilities
Loans from banks and others		266,501		105,694		225,802
Bonds		652,580		557,699		471,815
Deferred tax liabilities		58,279		75,771		58,053
Employee benefit liabilities		15,448		17,696		14,911
Total Non-Current Liabilities		992,808		756,860		770,581

Capital and reserves
Issued capital		125,267		125,267		125,267
Reserves		304,123		308,720		307,432
Retained earnings		446,065		341,971		399,346
Capital and reserves attributed to shareholders		875,455		775,958		832,045

Non-controlling interests		26,240		25,532		26,384
Total capital and reserves		901,695		801,490		858,429
Total Liabilities and Equity		2,549,364		2,107,454		2,316,325


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

Approval date of the interim financial statements: August 8, 2010.

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)

		Six months ended					Three months ended					Year ended
	Note	June 30					June 30					December 31
		2010			2009		2010			2009		2009
		(Unaudited)					(Unaudited)

Revenue			489,191		434,034			249,206		204,153			891,995
Cost of sales			406,348		373,195			209,723		180,685			765,677

Gross profit			82,843		60,839			39,483		23,468			126,318

Selling and marketing expenses			40,654		34,982			19,935		16,966			71,998
General and administrative expenses			28,975		29,917			11,543		15,686			58,967
Other (income) expenses			642		(17,965	)		2,856		(4,577	)		(20,234	)

Total expenses			70,271		46,934			34,334		28,075			110,731

Profit (loss) from ordinary operations			12,572		13,905			5,149		(4,607	)		15,587

Finance income			2,620		3,814			579		783			4,727
Finance expenses			13,399		13,809			10,432		6,228			22,992

Finance expenses, net			10,779		9,995			9,853		5,445			18,265
Profit (loss) after financial expenses			1,793		3,910			(4,704	)	(10,052	)		(2,678	)

Share in profit of associated companies, net			40,056		34,905			20,595		19,857			87,359
Profit before taxes on income			41,849		38,815			15,891		9,805			84,681

Taxes on income	6		(376	)	4,409			(1,607	)	(5,545	)		(7,067	)

Profit for the period			42,225		34,406			17,498		15,350			91,748

Attributed to:
Company shareholders			42,328		34,716			18,038		15,637			91,230
Non-controlling interests			(103	)	(310	)		(540	)	(287	)		518

			42,225		34,406			17,498		15,350			91,748

		NIS
Earning for share:

Primary attributed to Company shareholders			8.35		6.86			3.55		3.09			18.03

Fully diluted attributed to company shareholders			8.27		6.86			3.52		3.09			18.03

Number of share used to compute the primary earnings per share			5,071,508		5,060,774			5,082,028		5,060,774			5,060,788

Number of share used to compute the fully diluted earnings per share			5,118,008		5,060,774			5,117,276		5,060,774			5,060,788

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)

	Six months ended						Three months ended						Year ended
	June 30						June 30						December 31
	2010			2009			2009			2009			2009
	(Unaudited)						(Unaudited)

Comprehensive Income		42,225			34,406			17,498			15,350			91,748

Other Comprehensive Income
Profit (loss) on cash flow hedges, net		(971	)		4,875			(529	)		(551	)		5,191
Allocation to the income statement on account of cash flow hedging transactions, net		-			320			-			95			(1,128	)
Actuarial (loss) profit and defined benefit plans, net		(79	)		-			(97	)		-			477
Share in Other Comprehensive Income of associated companies, net		(3,239	)		1,968			901			2,156			(507	)
Share in Other Comprehensive Income of associated companies, which allocated to the income statements, net		307			-			377			-			1,163
Total Other Comprehensive Income for the period, net		(3,982	)		7,163			652			1,700			5,196
Total Comprehensive Income for the period		38,243			41,569			18,150			17,050			96,944

Attributed to:
Company shareholders		38,387			41,905			18,731			17,416			96,428
Non-controlling interests		(144	)		(336	)		(581	)		(366	)		516
		38,243			41,569			18,150			17,050			96,944

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			Cash Flows Hedging reserves			Foreign currency translation reserves			Retained earnings		Total for Company shareholders		Non-controlling interests			Total
	(Unaudited)
Balance - December 31, 2009 (Audited)		125,267		301,695		10,531			3,397		14,164			517			(22,872	)		399,346		832,045		26,384			858,429
Adjustment of retained earnings in respect of implementation of amendment to IAS 17 (see note 3a)		-		-		-			-		-			-			-			3,590		3,590		-			3,590
Balance - January 1, 2010		125,267		301,695		10,531			3,397		14,164			517			(22,872	)		402,936		835,635		26,384			862,019
For the Six months ended June 30, 2010:
Total Comprehensive Income for the period		-		-		-			-		-			(932	)		(2,938	)		42,257		38,387		(144	)		38,243
Depreciation of capital from revaluation from step acquisition to retained earnings		-		-		-			-		(872	)		-			-			872		-		-			-
Share based payment		-		-		1,433			-		-			-			-			-		1,433		-			1,433
Exercise of employee options into shares		*		5,106		(5,106	)		-		-			-			-			-		-		-			-
Balance –June 30, 2010		125,267		306,801		6,858			3,397		13,292			(415	)		(25,810	)		446,065		875,455		26,240			901,695