American Israeli Paper Mills Ltd. Reports Financial Results for Second Quarter and Six Months - Declares Cash Dividend - HADERA, Israel, Aug. 12 /PRNewswire-FirstCall/ -- American Israeli Paper Mills Ltd. (ASE:AIP) (the "Company" or "AIPM") today reported financial results for the second quarter and first six months ended June 30, 2004. Pursuant to the directives of Standard No.12 of the Accounting Israeli Standards Board ("Standard 12"), the Company began to report in nominal New Israeli Shekels (NIS) as of January 1, 2004. In the past, the Company's reports were in NIS, adjusted to changes in the exchange rate of the US dollar against the NIS. The comparison figures with the corresponding periods last year and with all of 2003 are the dollar figures, as reported in the past, multiplied by the exchange rate of the US dollar as of December 31, 2003, the day of the transition to NIS-based reporting pursuant to Standard 12 ($1 = NIS 4.379). Since the Company's share in the earnings of associated companies constitutes a material component in the Company's statement of income (primarily on account of its share in the earnings of Neusiedler Hadera Paper (NHP) and Hogla-Kimberly (H-K) that were consolidated in the past, until the transfer of control over these companies to the international strategic partners), we also present the aggregate data which include the results of all the companies in the AIPM Group (including the associated companies whose results appear in the financial statements under "earnings from associated companies"), net of intercompany sales and irrespective of the percentage of holding. Aggregate group sales in the first six months of 2004(January -- June 2004) totaled NIS 1,337.9 million compared with NIS 1,144.5 million in the corresponding period last year (January -- June 2003). Aggregate sales in the second quarter of 2004 (April -- June 2004) totaled NIS 655.3 million, compared with NIS 565.3 million in the corresponding quarter last year (April -- June 2003). Aggregate operating profit in the first six months of 2004 totaled NIS 106.0 million compared with NIS 74.8 million in the corresponding period last year. Aggregate operating profit in the second quarter of 2004 totaled NIS 49.6 million, compared with NIS 37.4 million in the corresponding quarter last year. The consolidated data below does not include the results of operations of NHP, H-K, Carmel Container Systems and TMM Integrated Recycling industries, which are included in the Company's share in results of associated companies. Consolidated sales in the first six months of 2004 totaled NIS 238.2 million compared with NIS 232.7 million in the corresponding period last year. Consolidated sales in the second quarter of the year totaled NIS 119.1 million, compared with NIS 115.0 million in the corresponding quarter last year. Operating profit in the first six months of 2004 totaled NIS 27.3 million compared with NIS 23.1 million in the corresponding period last year. Operating profit in the second quarter of 2004 totaled NIS 13.8 million, compared with NIS 10.0 million in the corresponding quarter last year. Profit after taxes and before the Company's share in the profits of associated companies in the reported period amounted to NIS 15.2 million (not including an extraordinary tax benefit of NIS 5.8 million - see below), compared with NIS 9.9 million in the corresponding period last year (not including NIS 1 million non-recurring capital gain). In June this year a law was passed in Israel, effective retroactively from January 1, 2004, which gradually lowers the corporate tax rate (before the amendment -- 36%) to 35% in 2004 and gradually down to 30% in 2007. The effect of this change on the Company's deferred taxes (in the consolidated report) amounted to NIS 5.8 million (mainly due to the decrease in future tax liabilities which were deferred in respect of timing differences in depreciation, which was taken at a faster pace in the tax reports). The tax benefits including our share in the tax benefit of the associated companies amounted to NIS 10.2 million. Net profit totaled NIS 42.6 million during the six months period this year, as compared with NIS 31.4 million in the corresponding period last year. Net profit in the reported period includes the above mentioned tax benefits. Net profit in the 2003 period included approximately NIS 1.0 million in net non-recurring capital gains. Earnings per share (EPS) (before non-recurring gains) in the first six months of 2004 totaled NIS 8.01 ($1.78 per share) compared with NIS 7.58 ($1.73 per share) for the corresponding period last year. Earnings per share in the first six months of 2004, including special earnings, amounted to NIS 10.53 ($2.34 per share). The inflation rate in the first six months of 2004 was 1.4% as compared with negative inflation rate of -0.5% in the corresponding period last year. The exchange rate of the NIS was devaluated against the U.S. dollar in the first six months of 2004 by approximately 2.7% as compared with a revaluation of 9.0% in the corresponding period last year. Mr. Yaacov Yerushalmi, Chairman of the Company's Board of Directors, said that a certain recovery in the Israeli economy has been felt in recent months, reflected in higher growth percentages and an increase in private consumption, following several years of a severe recession that resulted in negative growth, lower demand, greater competition and increased unemployment. Pulp prices have been rising since the beginning of 2004 and there are signs of stabilization in the third quarter of the year. Concurrently, weak demand for paper, particularly in Europe, is causing the erosion of margins and the shutting down of paper machines over the world. The consolidated gross margin as a percentage of sales reached 23% in the first six months of 2004 as compared with 22.3% in the corresponding period last year. The improved gross margin compared to the corresponding period last year resulted from increased production of the machines, efficiency measures and a decrease in energy prices as a result of an average decrease of approximately 5% compared with the corresponding period last year (when fuel oil prices rose dramatically following the tension leading up to the war in Iraq). This improvement was partially offset by an increase of raw materials prices mainly in the field of collection of paper waste for recycling. The Company's share in the earnings of associated companies in the reported period amounted to NIS 21.6 million (including NIS 4.4 million representing our share in a non-recurring benefit recorded in respect of the change in the corporate tax rate), compared with NIS 20.4 million in the corresponding periods last year. The following principal changes were recorded in the Company's share in the earnings of the main associated companies (this year -- not including the aforementioned tax benefit), in relation to the corresponding period last year: * The Company's share in the net earnings of NHP fell by NIS 2.2 million. Most of the change in the net earnings of NHP is associated with higher financial expenses this year at NHP as a result of repayment of shareholders' loans, which led to an increase in NHP's debt balance, and the 2.7% devaluation (as a result of the transition to reporting in NIS in accordance with Standard 12, due to a surplus of dollar liabilities). * The Company's share in the earnings of H-K Israel increased by about NIS 1.4 million, primarily due to the ongoing improvement in operating profit at H-K Israel compared with the corresponding period last year. The increase was partially offset by lower financial revenues this year compared with last year, due to transition to reporting in NIS pursuant to Standard 12 and the effects of depreciation-revaluation on its linkage balance sheet. Due to the effects of the change in the exchange rate on the financial expenses, as aforesaid, the net earnings of H-K Israel in the second quarter of the year amounted to NIS 15.2 million, compared with NIS 22.1 million in the second quarter of 2003. The Company's share in the net earnings of Ovisan (Turkey) fell by NIS 5.7 million despite the increase in output and the expansion of operations, and was mainly due to the effects of the sharp devaluation (of the Turkish lira against the dollar), particularly in the second quarter of the year, both on the costs of raw materials, which are purchased mainly in dollars, and on financial expenses. The results were also influenced by the intense competition, reflected in an increase in advertising expenses along with erosion of prices. * The Company's share in the net earnings of the Carmel Group increased by NIS 1.6 million, due to the continued improvement in the operating profit. The improvement resulted from the comprehensive efficiency measures being implemented by Carmel, coupled with the growth in the volume of operations. * The Company's share in the earnings of TMM increased by NIS 0.2 million, as a result of improved operating profit and a certain decrease in the high financial expenses of the company during the reported period, as compared with the corresponding period last year, due mainly to the decrease in the interest rate between the periods. A total of 5,403 shares were issued during the reported period (0.1% dilution), as a result of the exercise of 17,985 option warrants as part of the Company's employee stock option plans. The Board of Directors of the Company declared yesterday a cash dividend in a total amount of NIS 100 million (approximately $22.11 million), or NIS 25.12425 ($5.55478) per share. The dividend will be paid on September 9, 2004 to shareholders of record on August 25, 2004. The foregoing dollar value of the cash dividend is calculated based on the exchange rate in effect on August 10, 2004 of NIS 4.523 to $1.00. The exact dollar payment per each share will be determined on the record date, based on the exchange rate on such date. In case of change in the issued share capital of the Company until the record date the dividend per share shall be adjusted accordingly. The ex-dividend date on the American Stock Exchange is August 23, 2004. The ex-dividend date on the Tel Aviv Stock Exchange is August 26, 2004. No Ordinary Share transfers between the Company's US and Israeli registers will be permitted from August 23, 2004 through and including August 26, 2004, in order to avoid any confusion that may result from the different ex-dividend dates on the American Stock Exchange and the Tel Aviv Stock Exchange. The temporary suspension of transfers between registers will not affect the trading of the Company's Ordinary Shares on either the American Stock Exchange or the Tel Aviv Stock Exchange. The dividend is subject to a 25% tax imposed by the State of Israel. This report contains various forward-looking statements 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 for publicly updating the said forward-looking statements, regardless of whether these updates originate from new information, future events or any other reason. AMERICAN ISRAELI PAPER MILLS LTD. SUMMARY OF RESULTS (UNAUDITED) NIS IN THOUSANDS (1) except per share amounts Six months ended June 30, 2004 2003 Net sales 238,244 232,697 Net earnings 42,630* 31,354* Earnings per share 10.53* 7.84* Three months ended June 30, 2004 2003 Net sales 119,062 114,998 Net earnings 25,195* 18,233 Earnings per share 6.22* 4.56 * The net earnings of the 6 months and 3 months ended June 30, 2004 include a non- recurring tax benefit of about NIS 10.2 million (see above). The net earnings in the 6 months ended June 30, 2003 included a non-recurring net capital gain of about NIS 1.0 million. (1) New Israeli Shekel amounts are reported according to Accounting Standard No. 12 of the Israeli Accounting Standard Board (hereafter -- Standard No. 12) -- "Discontinuance of Adjusting Financial Statements for Inflation." The reported NIS under Standard No. 12 are nominal NIS, for transactions made after January 1, 2004. The amounts of the corresponding period last year have been adjusted to reflect changes in the rate of exchange between the U.S. dollar and the New Israeli Shekel until the end of December 2003 (date of transition to Standard No. 12). DATASOURCE: American Israeli Paper Mills Ltd. CONTACT: Philip Y. Sardoff for American Israeli Paper Mills Ltd., +1-908-686-7500

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