American Israeli Paper Mills Ltd. Reports Third Quarter And Nine Months Results HADERA, Israel, Nov. 13 /PRNewswire-FirstCall/ -- American Israeli Paper Mills Ltd. ["AIPM" or the "Company"] today reported financial results for the third quarter and first nine months ended September 30, 2003. Consolidated sales in the first nine months of this year totaled NIS 354.9 million (NIS - New Israeli Shekels adjusted to changes in the dollar exchange rate), compared with NIS 337.1 million in the corresponding period last year ($79.9 million, compared with $75.9 million). Consolidated sales in the third quarter of the year totaled NIS 119.0 million, compared with NIS 112.6 million in the third quarter last year ($26.8 million, compared with $25.3 million). The increase in consolidated sales in the nine months compared to the corresponding period last year is primarily attributable to the growth of 8% in volume sales of the packaging paper and recycling division and to a certain increase in selling prices. Consolidated operating profit in the first nine months of 2003 totaled NIS 35.5 million, compared with NIS 24.3 million in the corresponding period of 2002 ($8.0 million compared with $5.5 million). Operating consolidated profit in the third quarter of 2003 totaled NIS 12.1 million, compared with NIS 11.5 million in the third quarter of 2002 ($2.7 million compared with $2.6 million). Since AIPM's share in the profits of associated companies constitutes an essential part of the profit and loss statement of the Company, mainly due to its share in the profits of Neusiedler Hadera Paper (NHP) and Hogla-Kimberly (H-K), which were formerly consolidated until the transfer of control to the international strategic partners (Neusiedler AG and Kimberly-Clark) the aggregate data (including the associated companies, whose results are included in the financial statements as "earnings of associated companies", without considering the holding percentage of AIPM in such companies and net of inter-company sales) is presented as follows. Aggregate group sales in the first nine months of 2003 totaled NIS 1,791.5 million, compared with NIS 1,645.4 million in the corresponding period last year ($403.4 million compared with $370.5 million). Aggregate sales in the third quarter of 2003 totaled NIS 630.6 million, compared with NIS 538.7 million in the corresponding quarter last year ($142.0 million, compared with $121.3 million). Aggregate operating profit in the first nine months of 2003 totaled NIS 123.0 million, compared with NIS 99.0 million in the corresponding period last year ($27.7 million, compared with $22.3 million). Aggregate operating profit in the third quarter of 2003 totaled NIS 47.1 million, compared with NIS 33.8 million in the corresponding quarter last year ($10.6 million, compared with $7.6 million). Net profit in the first nine months of 2003 totaled NIS 45.6 million, compared with NIS 28.6 million in the corresponding period last year ($10.3 million, compared with $6.4 million). Net profit in the reported period includes approximately NIS 1.1 million ($0.2 million) in net capital gains, resulting from the sale of apartments owned by the Company, which had previously been used by the Company's employees. Net profit in the corresponding period last year included approximately NIS 0.4 million ($0.1 million) in non-recurring income, net, from the realization of assets and from taxes on account of preceding years. Net profit in the third quarter of the year totaled NIS 13.8 million, as compared with NIS 9.2 million in the corresponding quarter last year ($3.1 million, as compared with $2.1 million). Earnings per share (EPS) in the first nine months of 2003 totaled NIS 11.35 ($ 2.56) compared with NIS 7.25 ($1.63) for the corresponding period last year. EPS in the third quarter of 2003 totaled NIS 3.43 ($0.77) compared with NIS 2.34 ($0.53) for the corresponding quarter last year. The inflation rate during the reported period this year was negative and amounted to -1.5%, as compared with an inflation rate of 7.0% during the corresponding period last year, and as compared with 6.5% for all of 2002. The exchange rate of the NIS was revaluated by approximately 6.2% against the US dollar during the reported period as compared with a devaluation of 10.3% in the corresponding period last year and a devaluation of 7.3% for all of 2002. Mr. Avi Patir, General Manager of AIPM, said that the economic recession in Israel is continuing in 2003. The recession has been plaguing the country for three years and is expressed by low demand, a lack of growth and elevated unemployment rates. Due to the global economic crisis, low-priced imports into Israel are continuing benefiting from the low dollar exchange rate. The low-priced imports intensify competition and contribute to the decrease in selling prices. Pulp prices recently began to rise. This trend may continue in the following quarters as well. Nevertheless, due to the severe recession in Europe and the existing surplus in output capacity -- especially in fine paper -- paper selling prices are not rising and are actually even decreasing. The consolidated gross margin as a percentage of consolidated sales reached 22.3% during the reported period this year, compared to 19.3% in the corresponding period last year. The improved gross margin compared to the corresponding period last year was achieved due to the Company's ongoing improvement and increased efficiency. Such improvement resulted from higher machine output, a reduced work force, and various lower manufacturing expenses. The improved net margin was recorded despite a sharp increase in energy prices, following an average increase of 29% in fuel oil prices in relation to the corresponding period last year and a 20% increase in water prices. Energy expenses grew by NIS 5.8 million ($1.3 million), including the effect of the transition to low-sulfur fuel oil, due to compliance with environmental-related demands. Since the Company's financial statements are denominated in US dollars and the Company has a surplus of shekel-denominated financial liabilities over NIS-denominated assets, the financial expenses decrease with a devaluation, whereas a revaluation serves to increase the financial expenses. Consequently, financial expenses were recorded during the reported period this year, as compared with net financial revenues during the corresponding period last year. The Company's share in the earnings of associated companies amounted to NIS 28.0 million in the first nine months of the year, compared with NIS 13.0 million in the corresponding period last year ($6.3 million, compared with $2.9 million). The companies whose earnings are reported in this item (in proportion to AIPM's share therein), include primarily: H-K, NHP, Carmel Containers Systems and TMM Integrated Recycling Industries. The principal changes in AIPM's share in the earnings of associated companies during the reported period this year, compared with the corresponding period last year, are as follows: The Company's share in the net profit of NHP grew by NIS 2.2 million ($0.5 million) as a result of the continuing improvement in NHP's profitability, which resulted primarily from efficiency measures and the reorganization of operations and marketing at NHP. The improved profitability was somewhat adversely affected due to a certain decrease in the net profit in the third quarter of the year, originating from a decrease in the operating income in relation to the previous quarters this year (resulting primarily from the decrease in the gross margin, due to higher pulp prices and lower paper prices, as a result of the economic crisis in Europe), coupled with the effects of the devaluation. The Company's share in the net profit of H-K grew by some NIS 13.4 million ($3.0 million) and resulted from the improvement in the operating profit as compared with the corresponding period last year, coupled with financial revenues that were recorded at H-K during the reported period this year, due to the impact of the revaluation (H-K possesses a surplus of NIS-denominated assets). The devaluation in the third quarter of the year (3%) nevertheless served to erode H-K's net profit, due to higher financial expenses, despite the significant improvement in the operating profit. In March 2003, the Company declared a dividend for 2002, in the aggregate amount of NIS 25.9 million (NIS 6.61 per share). The dividend was paid in April 2003. In August, the Company declared a special dividend for 2003, in the aggregate amount of approximately NIS 75 million (NIS 19.04 per share). The dividend was paid in September 2003. This report may contain various forward-looking statements, based upon the Company's board of directors' present expectations and estimates regarding the operations of the Company 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 considerably differ 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) Adjusted NIS in thousands except per share amounts Nine months ended September 30, Adjusted NIS 2003 2002 Net sales 354,942 337,097 Net earnings 45,586 28,566 Earnings per share 11.35 7.25 Three months ended September 30, Adjusted NIS 2003 2002 Net sales 118,952 112,571 Net earnings 13,788 9,226 Earnings per share 3.43 2.34 Adjusted New Israeli Shekel amounts have been adjusted to reflect changes in the rate of exchange between the U.S. dollar and the New Israeli Shekel as at the end of September 2003. The representative exchange rate at September 30, 2003 was N.I.S. 4.441 = $1.00. DATASOURCE: American Israeli Paper Mills Ltd. CONTACT: Philip Y. Sardoff, +1-908-686-7500, for American Israeli Paper Mills Ltd.

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